Accounting in its social context: Towards a history of value added in the United Kingdom

Although the relationship between accounting and society has been posited frequently, it has been subjected to little systematic analysis. This paper reviews some existing theories of the social nature of accounting practice and, by so doing, identifies a number of significant conceptual problems. Using the case of the rise of interest in value added accounting in the United Kingdom in the 1970s, the paper conducts a social analysis of this particular event and then seeks to draw out the theoretical issues and problems which emerge from this exercise. Finally, the implications of these for the social analysis of accounting are discussed.     

IFRS fair value measurement and accounting policy choice in the United Kingdom and Australia

This study investigates the use of fair value measurement by 228 listed companies in the UK and Australia around the time of adoption of IFRS from 1 January 2005. We test whether within and between country comparability in policy choices (as measured by T indices) has changed in relation to (a) mandatory and (b) optional use of fair value measurement. Mandatory requirements related to financial instruments (IAS 39) and share-based payments (IFRS 2) have increased comparability, with a weaker effect for biological assets (IAS 41). In relation to the optional use of fair value, comparability increased in relation to property (IAS 16) because some companies discontinued fair value measurement. Under IAS 39, the fair value option for other financial assets and other financial liabilities decreased comparability. Options to use fair value in other areas (intangible assets, plant and equipment and investment properties) are not generally taken up, either for on-going measurement or on IFRS adoption (under the ‘deemed cost’ option). The results suggest a conservative approach and/or lack of incentives to use fair value measurement for most companies. Exceptions include some banks and insurance companies (for other financial assets and liabilities) and companies holding investment properties.     

Measuring public value: a conceptual and applied contribution to the debate

Countries facing austerity measures need to create public value. Academics and practitioners have been discussing the ways in which public value can be created, managed and measured. This paper contributes to this conversation by proposing a public value measurement model. An Italian case study is presented to demonstrate the feasibility of the model and the organizational implications when public value measures are available to public sector managers, politicians and the public.     

Herding in analyst earnings forecasts: evidence from the United Kingdom

We present an empirical analysis of herding behavior in analyst forecasts of earnings-per-share. Herding is defined as 'excessive agreement' among analyst predictions, i.e., a surprising degree of consensus relative to the predictability of corporate earnings. The data are for U.K. companies between 1986 and 1997. We examine the effects of forecast horizon and analyst coverage on forecast accuracy and dispersion. The evidence supports overoptimism, overreaction, and herding in analyst forecasts.
G1, G14     

The Theory-Practice Gap in Capital Budgeting: Evidence from the United Kingdom

We report the results of a survey of capital budgeting techniques used by United Kingdom firms. Where possible, the evidence is combined with data collected over a 22 year period to provide a basis for the discussion of causes of trends. We observe that there has been a substantial narrowing of the theory-practice gap in the use of project appraisal methods. The gap has also narrowed in other areas: the analysis of risk, inflation adjustment, capital budget preparation, WACC calculation and post-auditing. However, there are other elements of capital budgeting theory, e.g. probability and beta analysis which have been adopted by very few practising managers. We also discuss non-economic projects, capital rationing and hurdle rates.     

The incentive to locate a multinational firm: The effect of tax reforms in the United Kingdom

The advent of the single European market has focused attention on the structure of international tax incentives for the location of multinational business. Multinationals that channel foreign income through the United Kingdom have been likely to suffer double taxation in the form of surplus advance corporation tax when they subsequently distribute the income to a foreign parent. This paper shows that the 1993 U.K. tax reforms create a significant reduction in the tax cost of locating in the United Kingdom, relative to traditionally favorable tax regimes such as the Netherlands.     

The value relevance of earnings in a transition economy: The case of Romania

We investigate the value relevance of earnings on the Bucharest Stock Exchange. We find that the association between accounting earnings and stock returns is comparable to the levels reported by studies conducted on more mature markets, and that it is higher for securities issued by small companies. Excluding losses from the analysis increases the value relevance of earnings, which confirms the transitory nature of negative earnings, already documented by prior studies. We also find that the regression coefficient of earnings changes is negative and we provide evidence consistent with the hypothesis that it is a consequence of the relative inefficiency of the market. Finally, the “prices lead earnings” hypothesis formulated for more mature markets is not supported by our results.     

Corporate debt and financial balance sheet adjustment: a comparison of the United States, the United Kingdom, France and Germany

The level of UK corporate debt directly affects financial stability in the United Kingdom because a significant amount of the exposure of the UK financial system is to UK corporates. Our paper provides a comparison of the determinants of corporate debt in the United States, the United Kingdom, France and Germany. The comparison serves to benchmark our findings about the determinants of UK corporate debt. In addition, the UK financial sector is significantly exposed to the corporate sectors in the United States, Germany and France. The model assesses the contribution of investment, acquisitions, cash flows and market-to-book values to the determination of debt, and also the tendency of debt to revert to its optimum level. Debt was found to be positively related to the financing needs of the firm, and the optimum level of debt to be negatively related to the market-to-book ratio. This casts some light on the procyclicality of debt.     

Political and Regulatory Risk in Water Utilities: Beta Sensitivity in the United Kingdom

UK utilities are generally regulated by the periodic setting of a price cap (the RPI-X mechanism). To establish these caps, regulators must determine what returns are appropriate on the capital employed by utilities. This paper addresses the issue of the level of risk inherent in investment in the equity of regulated water utilities in the UK. It uses the techniques of the Kalman Filter to estimate daily betas for the major utilities in the period from privatisation to mid-1999. The paper demonstrates that water utilities' risk is time-variant. It demonstrates, also, that there have been significant political and regulatory influences in the systematic risk faced by water utility shareholders. It finds beta to display little evidence of cyclical variation across the regulatory review cycle. The paper also confirms that significant excess returns have been generated over the history of the privatised water sector and suggests that over-estimation of systematic risk faced by investors in the sector may imply further excess returns in the next regulatory review period.     

The Determinants of Credit Ratings in the United Kingdom Insurance Industry

This paper examines the determinants of external credit ratings attained by insurance firms in the United Kingdom (UK) and of the likelihood that insurers will have such an assessment. Using panel data relating to A.M. Best‐rated and Standard and Poor's (S&P)‐rated insurers over the period 1993–1997, a trichotomous logit model and an ordered probit model with sample selection are employed to show that the factors which influence the likelihood of having external credit assessments not only vary between the two agencies but also differ from those which determine the ratings themselves. Our results are shown to be of potential interest to participants in the insurance industry and policy‐makers alike.     

International trade and finance: Complementaries in the United Kingdom 1870-1913 and the United States 1920-1930

Do international trade and finance flow together? In a variety of theoretical models, trade and finance can be shown to have the potential to be substitutes or complements, so the matter must be resolved empirically. We study trade and financial flows from the United Kingdom from 1870 to 1913 and the United States in the interwar years. These were the two major capital exporters and key financial centers in each era. We find that trade and finance were robustly correlated for each case. We consider simultaneity issues. We also discuss evidence from the British Empire which casts doubt on the idea that trade is a punishment device in the event of a default.     

Development of accounting in Poland: Market efficiency and the value relevance of reported earnings

This paper outlines the evolution of the information environment surrounding the Warsaw Stock Exchange in Poland. Like other transition economies, Poland needed to develop accounting regulations to support privatization. We trace changes in financial reporting regulation from 1994, through the adoption of IFRS and corporate governance codes, to the crisis of 2007-2008. The effect of these developments is then evaluated empirically by testing the relevance of earnings of listed corporations from 1997 to 2008 to corporate value. We show that the stock exchange was weak-form efficient during this period and estimate regressions for value relevance of earnings to corporate value. We find positive evidence of such relevance but no improvement in the strength of the relationship over time.     

Public priorities and expectations of climate change impacts in the United Kingdom

Irrespective of the success of climate mitigation efforts, societies worldwide face the challenge of adapting to a changing climate. In this paper, we examine UK residents’ expectations of future threats and opportunities associated with climate change impacts, along with willingness to prioritise different climate change impacts for investment. Using a national survey (n = 2007), we report on three main findings. First, UK residents tend to expect threats related to flooding and wet weather to be more likely and concerning than heat extremes or opportunities. Second, UK residents’ expectations of climate change impacts do not align with expert assessments, especially showing lower estimates of heat-related threats as compared to experts. Third, willingness to allocate resources to potential climate change impacts tends to be more strongly associated with anticipated concern should they occur than climate change belief or the expected likelihood of them occurring. We discuss the implications of our findings for policies and communications about climate change adaptation in the UK and elsewhere.     

Mean Reversion in the United Kingdom Stock Market and its Implications for a Profitable Trading Strategy

Following Fama and French (1988), we examine the mean reverting behavior of the United Kingdom stock market total returns over the period 1919 through 1990. Evidence of statistically significant mean reversion is only found during the pre-war subperiod. A contrarian investment strategy, however, does not enhance performance over a naive buy and hold investment strategy. Further, an application of Richardson and Stock's (1989) alternative asymptotic distribution theory suggests that the mean reversion detected during the pre-war period may reflect the poor finite sample approximation of traditional fixed overlap asymptotic distribution theory.     

The value relevance of top executive departures: Evidence from the Netherlands

On theoretical grounds, monitoring of top executives by the (supervisory) board is expected to be value relevant. The empirical evidence is ambiguous and we analyze three non-competing explanations for this ambiguity: (i) The positive effect on firm value of board monitoring is hidden in stock price effects due to the simultaneous occurrence of the positive real effect of monitoring and the opposing information effect. (ii) The combination of board monitoring and monitoring by other parties prevents assessing the value relevance of board monitoring in isolation. (iii) The confounding effect of a simultaneous successor appointment typically generates an upward biased estimate. Based on an analysis of price effects and trading volumes at announcement, we conclude that monitoring by the supervisory board is valued by investors: Forced departures of executive directors, also without a successor appointment, are value relevant in the Netherlands where external control mechanisms and shareholder control were virtually absent in the period studied (1991–2000).     

The Withdrawal of Current Cost Accounting in the United Kingdom: A Study of the Accounting Standards Committee

Evidence from the archives of the U.K. Accounting Standards Committee (ASC) is used to trace the events leading to the withdrawal of the current cost accounting standard, SSAP 16, from 1980 to 1988. Three central issues are addressed. First, the ASC's role as a regulatory body is considered in the light of the failure to obtain compliance with SSAP 16 and to find an acceptable replacement. Second, the decline in support for SSAP 16 is explained in terms of changes in the economic environment. Third, the roles of different interest groups in the process are analysed.     

The Determinants of Financial Derivatives Use in the United Kingdom Life Insurance Industry

This paper examines the determinants of financial derivatives use in the United Kingdom life insurance industry. We estimate a probit regression model and a Heckman two-stage sample selection regression model using a sample of eighty-eight U.K. life insurers in 1995. Our results indicate that the propensity to use derivative instruments is positively related to a firm's size, leverage and international links, and negatively related to the extent of reinsurance. We also find that mutual life insurance firms have a greater propensity than stock firms to use derivatives. The positive relation with leverage and the negative relation with reinsurance support the hypothesis that U.K. life insurers use derivatives to offset risk, rather than as a speculative means of income generation. Firm size and organizational form are the main influences on the extent of financial derivatives use.     

美、英、日财产税税制特征和对我国的启示

本文首先介绍了美国、英国、日本三国财产税的基本情况,并总结了各国财产税税制设计的特征,在此基础上,剖析了我国房地产税制现存的问题,对我国开征物业税提出了相关政策建议。     

Accrual and cash flow accounting models: A comparison of the value relevance and timeliness of their components

This research uses the empirical framework developed by Easton, Harris and Ohlson (1992) to examine the relative ability of the accrual and cash flow accounting models to capture value relevant events. In particular, components of clean surplus accrual earnings are compared with components of total cash flows to determine their relative abilities to recognise value relevant events in a timely manner. The results indicate that the association between stock returns and earnings is higher than that with total cash flows for return intervals of between one and ten years. Cash flows from operations and current accruals are able to recognise value relevant events in a timely manner, while non-current and non-operating accruals only become consistently value relevant when longer return intervals are considered. Cash flows from investing and financing activities are less value relevant than the other components considered, especially over longer return intervals.