Public interest accounting: A look at the issues

Within the last ten years, a very unique and controversial accounting organization, Accountants for the Public Interest, has been developed to assist previously unrepresented citizens and organizations in financial matters involving issues of broad public concern. This paper examines the fundamental issues that must be resolved in the minds of practicing accountants as regards implementation of the services, if the public interest accounting concept is to survive.     

A preliminary look at gains from asset securitization

This paper conducts tests of stockholder and bondholder wealth changes upon the securitization of non-government guaranteed assets for 236 transactions during the years 1991–1996. It finds that securitization is significantly wealth creating for stockholders, adding ∼5% per transaction to the excess returns of the stock. It finds, on a subsample of 137 transactions, that securitization is not wealth destroying for bondholders, adding an insignificant 0.21% to bondholders wealth. The effects on stockholders are larger for manufacturers than for banks and finance companies. Securitizations from corporations with poorer credit standing are subject to larger gains for asset sellers. We interpret these findings to mean that, for the frequent securitizers that form most of the observations in our sample, a comparative advantage in asset origination and servicing rather than wealth appropriation from bond holders explains the gains from securitization.     

Profit pools: a fresh look at strategy

In charting strategy, many managers focus on revenue growth, assuming that profits will follow. But that approach is dangerous: today's deep revenue pool may become tomorrow's dry hole. To create strategies that result in profitable growth, managers need to look beyond revenues to see the shape of their industry's profit pool. The authors define an industry's profit pool as the total profits earned at all points along the industry's value chain. Although the concept is simple, the structure of a profit pool is usually quite complex. The pool will be deeper in some segments of the value chain than in others, and depths will vary within an individual segment as well. Segment profitability may, for example, vary widely by customer group, product category, geographic market, and distribution channel. Moreover, the pattern of profit concentration in an industry will often be very different from the pattern of revenue concentration. The authors describe how successful companies have gained competitive advantage by developing sophisticated profit-pool strategies. They explain how U-Haul identified new sources of profit in the consumer-truck-rental industry; how Merck reached beyond its traditional value-chain role to protect its profits in the pharmaceuticals industry; how Dell rebounded from a misguided channel decision by refocusing on its traditional source of profit; and how Anheuser-Busch made a series of astute product, pricing, and operating decisions to dominate the beer industry's profit pool. The companies with the best understanding of their industry's profit pool, the authors argue, will be in the best position to thrive over the long term.     

A closer look at financial development and income distribution

This paper analyzes the under-investigated relationship uniting financial development and income distribution. We use a novel approach taking into account for the first time the specific channels linking banks, capital markets and income inequality, the time-varying nature of the relationship, and reciprocal causality. We construct a set of annual indicators of banking and capital market size, robustness, efficiency and international integration. We then estimate the determinants of income distribution using a panel Bayesian structural vector autoregressive (SVAR) model, for a set of 49 countries over the 1994-2002 period. We uncover a significant causality running from financial sector development to income distribution. In addition, the banking sector seems to exert a stronger impact on inequality. Finally, the relationship appears to depend on the characteristics of the financial sector, rather than on its size.     

Dollar-weighted returns to stock investors: A new look at the evidence

Dichev [2007. American Economic Review 97, 386–401], in an influential paper, examines the gap between the performance of major stock markets and the dollar-weighted performance of investors in these markets. He finds a significant gap of 1.3 percent per year for NYSE/AMEX and 1.5 percent internationally. We question these results. The NYSE/AMEX performance gap is actually negative in the last two thirds of Dichev's 1926–2002 period, while his international results are influenced by a dramatic increase in Datastream's coverage. When, instead of Datastream, we use a comprehensive share price database, the UK performance gap changes from 1.1 to −1.3 percent. In short, Dichev's findings are not robust.     

A further look at household portfolio choice and health status

This paper investigates the effect of changes in health status on household financial wealth and financial portfolio choice. It is shown that the impact of health events on household financial and non-financial wealth is asymmetric. A diagnosis of a new disease leads to a larger decrease in financial wealth than in non-financial wealth. Moreover, we find that the puzzle pertaining to the relationship between health status and portfolio choice discussed in the extant literature generally disappears after controlling for differences in the amount of financial assets held by healthy and sick people. The results suggest that the effect of changes in health status on household financial portfolios is indirect. A health shock significantly reduces household total financial wealth, in turn leading households to restructure the composition of their financial assets.     

Asymmetric persistence in GDP? A deeper look at depth

If an economic time series behaves asymmetrically, then an interpretation of economic fluctuations based on linear time-series models could be misleading. Beaudry and Koop (1993) recently argued that for post-war US GDP data there exists a statistically significant difference in persistence between negative and positive shocks. We demonstrate that their test has two pitfalls: First, the t-statistic for testing asymmetry in persistence does not have a conventional interpretation. Second, a highly significant t-value may come from sources different from asymmetry. Using international data, we investigate for the presence of asymmetric persistence across the G-7 countries.     

Who trades IPOs? A close look at the first days of trading

I examine the enormous trading volume in the first two days of trading following an initial public offering (IPO) with a sample of Nasdaq IPOs. The composition of trading varies widely with the initial return and not all trading is investor-related. Cold IPOs have a high proportion of interdealer sell trades, whereas hot IPOs have balanced investor buying and selling. Market makers hold zero inventory throughout trading, offsetting any investor inventory imbalance with a trade with the lead underwriter. The paper also helps resolve the disconnect reported in the literature between high initial trading volume and low “flipping” activity.     

Deconstructing the Nasdaq bubble: A look at contagion across international stock markets

Share prices for the technology, media, and telecommunication (TMT) sector experienced phenomenal growth and decline at the turn of this century in the U.S. and many other OECD economies. We investigate whether contagion occurred from the U.S. to other international stock markets after the Nasdaq bubble collapsed. Results document a significant structural break in comovements between the international TMT sectors, and suggest that the collapse of the stock market in more than a dozen countries is tied to close sectoral links (particularly in TMT), and cannot be attributed to widespread contagion. We also show the importance of modeling the intrinsic heteroskedasticity in the data using a GARCH framework for inferences on contagion.     

Local sites of globalisation: A look at the development of a legislative framework for auditing in Russia

The central focus of the study is on the evolution of a legislative framework for auditing in Russia. Particularly, the study looks at three episodes of audit policy making pertinent to the development of the Russian audit law and auditing standards. Largely drawing on the concept of transnational communication, the study analyses the manner in which international policy templates penetrate the local audit environment focusing on relevant actors and motivations behind it. The study concludes that the representation of globalisation as an impersonalised power ruling the world fails to convey the increasingly transnational nature of the present-day world order where, apart from the nation states, cross-border activities of various private and public actors and organisations with transnational jurisdiction increasingly shape national practice localities.     

Entry, exit and trading profits: A look at the trading strategies of a proprietary trading team

We examine the behavior of a 15 strong proprietary stock trading team and show how consistent intraday trading profits were generated. The team, who worked for a large US direct access trading firm, executed over 96 thousand trades in 3 months in 2000. Profitable intraday trading occurred in an anonymous dealer capacity, on both long and short positions, especially when volume and price volatility were higher. The traders rapidly entered long (short) positions when the number of dealers and size become greater on the bid (offer) side of the spread. Profits were taken early against the trend.     

A look at the public policy conflict regarding the discovery of accountants' tax accrual workpapers

This article focuses on the conflict in public policy between the need to provide the investing public with accurate information with regard to corporate financial statements and the need to provide the IRS with the necessary tools in order to assure corporate compliance with the tax laws of the country. The conflict arises because of the contention of the IRS that it is entitled to have access to an independent auditor's tax accrual workpapers on the one hand, and the contention by CPAs that such access will prevent adequate disclosure to the independent auditor. The article examines the policy questions on both sides of the issue and concludes that regardless of any decision by the Supreme Court in a pendingcase, Congress should pass legislation to resolve the conflict and clearly identify the scope of any previlage accorded with regard to tax accrual workpapers.     

Another look at the forecast performance of ARFIMA models

This paper investigates the out-of-sample forecast performance of the autoregressive fractionally integrated moving average [ARFIMA (0,d,0)] specification, both when the underlying value of the fractional differencing parameter (d) is known a priori and when it is unknown. Forecast performance is measured relative to simple deterministic models and a random walk model, for forecast horizons up to 100 periods ahead. Overall, the linear models tend to outperform the ARFIMA specification for both the positive and negative values of d for the simulated series, and for positive d values from the real time-series data. The results of the study question the use of the ARFIMA specification as a forecast tool.     

Meta programme patterns in accounting educators at a UK business school

The purposes of this study are to compare the results of two alternative methods of eliciting meta programmes, the Motivation Profile Questionnaire (MPQ) and the Language and Behaviour (LAB) Profile semistructured interview, and to identify whether accounting educators exhibit any dominant meta programmes. An individual trained to use the LAB Profile interviewed a sample of 14 accounting educators who then completed the MPQ. The results of the MPQ and the LAB Profile identified three common patterns, indicating a good degree of correlation between the two methods. Identification of the key meta programmes of the accounting educators may have benefits in their teaching and is the precursor to a larger study of the meta programmes of accounting undergraduates, which can now be undertaken in a cost effective way using the MPQ.