Book Reviews

Books reviewed: Held, David, Anthony McGrew, David Goldblatt and Jonathan Perraton Global transformations: politics, economics and culture Lin, George C.S. Red capitalism in South China Keyder, Ç. (ed.) Istanbul: between the global and the local JGlasser, Irene and Rae Bridgman Braving the street: the anthropology of homelessness Vanhove, Norbert Regional policy: a European approach Downey, John and Jim McGuigan (eds.) Technocities Malbon, Ben Clubbing: dancing, ecstasy and vitality Hedlund, Stefan Russia’s `market’ economy. A bad case of predatory capitalism Chavez, John R. Eastside landmark: a history of the East Los Angeles Community Union 1968–1993 Butler, Ruth and Hester Parr (eds) Mind and body spaces: geographies of illness, impairment and disability Germaine, Annick and Damaris Rose Montréal: the quest for a metropolis Narotzky, Susana New directions in economic anthropology     

Book Reviews

Books reviewed: Bernard Jouve and Christian Lefèvre, (eds.) Villes, métropoles. Les nouveaux territoires du politique Sheridan Bartlett, Roger Hart, David Satterthwaite, Ximena de la Barra and Alfredo Missair, Cities for children: children's rights, poverty and urban management Daniel J. Monti Jr., The American city: a social & cultural history Andrew E.G. Jonas and David Wilson, (eds.) The urban growth machine: critical perspectives two decades later Dieter Dettke, (ed.) The challenges of globalization for Germany's social democracy: a political agenda for the 21st century Gösta Esping‐Andersen, Social foundations of postindustrial economies Michael Mortimore and William M. Adams Working the Sahel: environment and society in northern Nigeria> Stefan Hedlund, Russia's ‘market’ economy. A bad case of predatory capitalism Alexander Reichl, Reconstructing Times Square: politics and culture in urban development David Byrne, Social exclusion OECD, The response of higher education institutions to regional needs Felix Driver and David Gilbert, (eds.) Imperial cities: landscape, display and identity     

Employee Poaching: Why It Can Be Predatory

There is a growing concern over predatory hiring practices that are aimed at eliminating competitors. Using a duopoly model in which firm's profits depend on the quality of the worker–employer match, this paper studies the conditions under which predatory equilibrium exists. I find that predatory hiring can occur when the match between the worker and the new employer is relatively poor, and the old employer has a shallow pool of replacement candidates. Post‐employment lawsuits do not affect the range of predatory equilibrium if the parties take into account expected damages payment. Copyright © 2013 John Wiley & Sons, Ltd.     

Self-serving Bias in Annual Report Narratives: An Empirical Analysis of the Impact of Economic Crises

Consistently, management's explanations of corporate performance in accounting narratives have been found to suffer from self-serving bias. Yet there is no unequivocal evidence as to whether this bias is the product of conscious efforts to manage the impressions of the audience or the result of unintentional cognitive biases. The present study contributes to this discussion by comparing the narratives of the letters addressed to shareholders of Europe's most highly-capitalized companies in crisis and non-crisis settings. We find that a crisis situation leads to more extensive use of self-serving bias as adverse external economic conditions are used by managers to present themselves in the best possible light. Given that the letters to shareholders are widely used for capital allocation decisions and considering the evidence that intentional self-serving behavior can be successful, our results imply that investors need to be alert to misleading explanations of performance, particularly during external crises. The International Accounting Standards Board (IASB) has formulated a practice statement proposing non-mandatory guidance on the management commentary that accompanies financial statements. Our results suggest that the quality of narrative information in annual reports is unlikely to be augmented by guidelines that encourage the discussion of corporate performance through the eyes of management.     

Business cycle and aggregate industry mergers

This paper tests the relationship between industry-level mergers and business cycle using panel tests that allow us to control for macro-economic and industry-level determinants of merger activity. We find robust evidence that both related and unrelated industry-level mergers are pro-cyclical. However, the evidence is asymmetric between related and unrelated mergers. We also find strong evidence in support of two major theories of merger activity that have been proposed and tested in the existing literature, namely, neoclassical theory and behavioral theory. The proxies of both neoclassical and behavioral theories explain merger activity in general; however, the pro-cyclicality of mergers is not fully captured by any of these proxies, individually or collectively.     

Community college supervisors and their subordinates: A quantitative investigation of personality temperament and leader‐member exchange

Community college leadership is facing a crisis fueled by leaders retiring and student enrollment that outpaces budget growth. The purpose of this study was to better understand the leadership dynamics of community college supervisors and direct subordinates by examining the relationship bgetween leader‐member exchange (LMX) and personality temperament. Data from the Supervisor Leader‐Member Exchange Multidimensional Model (SLMX‐MDM) survey was used to determine LMX total within four subscales: affect, loyalty, contribution, and professional respect. Participants' temperaments were determined by the Keirsey Temperament Sorter II (KTS‐II). Research questions focused on whether differences in LMX existed among groups of supervisor–subordinate dyads that were categorized according to temperament similarity: 1) identical temperament (e.g., both supervisor and subordinate are SJ), 2) one letter (e.g., SP and SJ), or 3) no letters in common (e.g., NF and SP). The 50 participating dyads were selected through proportionate stratified sampling. Results from one‐way ANOVAs showed significant differences among groups with respect to total LMX, contribution, and professional respect.     

The ARCO decision: Inroads into the per se rule under Section 1 of the Sherman Act

In this study, the author analyzes the 1990 U.S. Supreme Court decision inAtlantic Richfield Company vs. USA Petroleum Company approving Atlantic Richfield’s maximum pricing plan improsed on its distributors (despite the Court’s recognition that theper se rule forbade such schemes). Theper se rule had been one of the last substantial measures of effective antitrust policy administered by enforcement authorities and the courts, perhaps even more fundamental than scrutiny of proposed mergers and predatory practices. That principle has been weakened by the ARCO decision. The author addresses some of the likely consequences of the ascendancy of the Chicago School and the NeoClassical theory generally in antitrust interpretation.     

A re-examination of the q theory of investment using u.s. firm data

Investment models based on Tobin's q are theoretically appealing, but they have been an empirical disappointment when applied to aggregate time-series data. This paper explores two potential explanations for the poor empirical performance of q investment models, problems arising from aggregation and imperfect competition. The results suggest that aggregation is responsible for spurious evidence of dynamic misspecification and at least partially responsible for an upward bias in estimated adjustment costs. The evidence also suggests that imperfect competition in output markets may have an effect on the investment behaviour of some firms.     

Constitutions as self-enforcing redistributive schemes

We present a model of a fiscal constitution (i.e., a transfer scheme between income classes) that is self-enforcing against a background in which predatory activities (‘revolutions’) are feasible. In this environment, a constitution self-enforces by structuring society’s interests in such a way that non- compliance necessarily results in a revolution which society would rather avoid.      

Entrepreneurial optimism and creative destruction

Using textual analysis of annual reports of US-listed firms, we provide empirical evidence that uncertainty (rather than risk) and optimism are distinctive characteristics of high-impact entrepreneurial firms (recently listed firms) relative to old incumbent firms. We construct an entrepreneurial entry predation model with uncertainty based on this evidence. We show that optimistic entrepreneurs may enter markets that otherwise would be blocked from entry by incumbents’ predatory threats. Thus entrepreneurial optimism may be to the benefit of consumers. Entrepreneurial optimism can also create a strategic advantage for entrepreneurs since incumbents may react by being less aggressive in product market interactions, which will benefit the profitability of the entrepreneur’s venture and consumers via lower prices.     

Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market

To examine the relation between corporate governance and firm value, we develop an instrument to assess the corporate governance practices of listed companies in Hong Kong. Based on the Revised OECD Principles of Corporate Governance (OECD) and the Code of Best Practices (HKEx), we construct a corporate governance index (CGI) for Hong Kong listed companies. Unlike measures used in other studies, the CGI score reflects the presence of good corporate governance practices as well as variation in the quality of corporate governance practices. Empirical evidence shows that a company's market valuation is positively related to its overall CGI score, a composite measure of a firm's corporate governance practices. We also find that the transparency component of the CGI score drives the relation with market valuation. In summary, this study provides supporting evidence for the notion that, in Hong Kong, good corporate governance practices are consistent with value maximization.     

Absentee Ownership of Farmland and State and Local Tax Policy: Income Tax Promotes Absenteeism, But the Property Tax Can Be Used to Strengthen Family Farms

Abstract . The incentive effects of state and local tax policies in promoting or inhibiting the ownership of farmland by non-operators are evaluated. Previous research on the economic, social and environmental effects of absentee ownership is reviewed as well as evidence regarding the impact of tax laws on absentee owners versus owner-operators. The Federal tax laws, it is found, work to increase land prices, reduce entry into farming by young farmers, and increase absentee ownership. State income tax policies may reinforce these effects. Property tax policies, on the other hand, may counteract income tax laws by giving tax relief preferentially to owner-operators. Several modifications of property tax relief programs are suggested.     

Financial Distress Prediction in an International Context: A Review and Empirical Analysis of Altman's Z‐Score Model

This paper assesses the classification performance of the Z‐Score model in predicting bankruptcy and other types of firm distress, with the goal of examining the model's usefulness for all parties, especially banks that operate internationally and need to assess the failure risk of firms. We analyze the performance of the Z‐Score model for firms from 31 European and three non‐European countries using different modifications of the original model. This study is the first to offer such a comprehensive international analysis. Except for the United States and China, the firms in the sample are primarily private, and include non‐financial companies across all industrial sectors. We use the original Z′′‐Score model developed by Altman, Corporate Financial Distress: A Complete Guide to Predicting, Avoiding, and Dealing with Bankruptcy (1983) for private and public manufacturing and non‐manufacturing firms. While there is some evidence that Z‐Score models of bankruptcy prediction have been outperformed by competing market‐based or hazard models, in other studies, Z‐Score models perform very well. Without a comprehensive international comparison, however, the results of competing models are difficult to generalize. This study offers evidence that the general Z‐Score model works reasonably well for most countries (the prediction accuracy is approximately 0.75) and classification accuracy can be improved further (above 0.90) by using country‐specific estimation that incorporates additional variables.     

Asymptotics for out of sample tests of Granger causality

This paper presents analytical, Monte Carlo and empirical evidence concerning out-of-sample tests of Granger causality. The environment is one in which the relative predictive ability of two nested parametric regression models is of interest. Results are provided for three statistics: a regression-based statistic suggested by Granger and Newbold [1977. Forecasting Economic Time Series. Academic Press Inc., London], a t-type statistic comparable to those suggested by Diebold and Mariano [1995, Comparing Predictive Accuracy. Journal of Business and Economic Statistics, 13, 253–263] and West [1996. Asymptotic Inference About Predictive Ability, Econometrica, 64, 1067–1084], and an F-type statistic akin to Theil's U. Since the asymptotic distributions under the null are nonstandard, tables of asymptotically valid critical values are provided. Monte Carlo evidence supports the theoretical results. An empirical example evaluates the predictive content of the Chicago Fed National Activity Index for growth in Industrial Production and core PCE-based inflation.     

Formal Participation in the IASB's Due Process of Standard Setting: A Multi-issue/Multi-period Analysis

This paper sets out to enquire about the nature of constituents' participation in the IASB's due process in terms of representation (constituents' diversity and characteristics) and drivers to participate. We choose to adopt a multi-issue/multi-period approach to investigate constituents' formal participation. An analysis of comment letters sent directly to the IASB over the period 2002–2006, reveals that preparers sent most letters followed by the accounting profession and standard setters. With regard to timing, we find that preparers concentrate their participation efforts at a later stage in the process compared to the other constituents, who react earlier. Formal indirect participation in the IASB's due process by submitting comment letters to EFRAG is infrequently used by European constituents. In those cases where constituents exert influence to both IASB and EFRAG, they often use exactly the same comment letter. Concentrating on the drivers to participate, the data reveal that preparers, accountants and standard setters react significantly more when proposals have a major impact on the accounting numbers of a company. Users, stock exchanges and their supervisory authorities write significantly more comment letters when disclosure issues are at stake. Finally, participating preparers in the IASB's due process are larger and more profitable than non-participating preparers.     

The Socioeconomic Position of Gay Men: A Review of the Evidence

Using data from national surveys, studies of gay men, and obituaries, the socio-economic position of gay men is examined. The evidence shows that gay men have higher incomes than heterosexual men, and that they are highly concentrated in certain occupations. The difference between the occupational distribution of gay and straight men is as great as that between men and women. The economic position of gay men appears to result from several factors in addition to discrimination. Gay economic power and gay preferences for economic dealings with other gays serve to shield them from antigay bias.     

Some European Perceptions of Japan's Work-ethos in the Tokugawa Era: A Limited Survey of Observations from the West's First Encounters Offers Parallels to Today's

Abstract . During the Tokugawa Era (1603-1867), early European travelers from several nations encountered the work-ethos of previously secluded Japan and recorded their observations in correspondence, articles and books. These perceptions are categorized under three headings, effort propensity, social efficiency capital and social rationality. Analysis of the construct thus achieved indicates that from this aspect the Japanese—in the 17th, 18th and 19th centuries—appear to have been an industrious, efficient and disciplined people. These findings offer striking parallels to the observations in our contemporary literature. We shall not know how accurate these observations are until the economic and social historians supply more exhaustive evidence based on Japanese as well as European sources. But discrete use can be made of the information we now have.     

Truncated Product Methods for Panel Unit Root Tests*

This paper proposes two new panel unit root tests based on Zaykin et al. (2002) ’s truncated product method. The first one assumes constant correlation between P‐values and the second one uses sieve bootstrap to allow for general forms of cross‐section dependence in the panel units. Monte Carlo simulation shows that both tests have reasonably good size and are powerful in cases of some very large P‐values. The proposed tests are applied to a panel of real GDP and inflation density forecasts, resulting in evidence that professional forecasters may not update their forecast precision in an optimal Bayesian way.     

Management ownership and corporate value

Existing literature on the relation between management ownership and firm value has provided competing hypotheses and conflicting evidence. Using samples of Fortune 500-sized firms in 1976, 1980 and 1984, we find that corporate value measured by Tobin's q is a function of management ownership. Specifically, the q rises when management ownership is between 0% and 5-7%, and falls as the ownership increases to 10-12%. Beyond this range, we find that the q continues to fall in the 1976 sample, and starts to rise in the 1980 and 1984 samples. The evidence supports the hypothesis that there is a nonmonotonic relation between management ownership and corporate value.     

How Discrimination Against Female Workers Is Hidden in U.S. Industry Statistics: Sex Differences in Wages in the Cotton Textile and Boot and Shoe Industries Between the World Wars

Abstract . The conclusion that the male-female earnings gap largely reflects sex differences in occupational structure is widely accepted, This conventional wisdom is challenged by examining intraoccupational male-female wage differences in two leading manufacturing industries, cotton textiles and boots and shoes, for the 1920s and 1930s. The results show little evidence of sex differences in wage rates in particular occupations in the cotton textile industry. The piece wage system protected the wages of female workers and kept intraoccupational wage differences between the sexes within narrow limits. In contrast, the evidence points to sharp sex differentials in occupational wage rates in the boot and shoe industry. In this industry, piece wages in the different occupations varied directly with the price of the shoes. By assigning work on low quality shoes to females employers were able to practice wage discrimination against them.