A look inside AMLF: What traded and who benefited

The Federal Reserve’s AMLF program was designed to provide liquidity to money market funds (MMFs). Between September 2008 and May 2009, the program made $217 billion in non-recourse loans to depository institutions and bank holding companies to purchase asset-backed commercial paper from MMFs. JP Morgan and State Street dominated the program, accounting for over 90% of all loans made. Our analysis suggests that JP Morgan exhibited more self-dealing behavior than State Street. We find that JP Morgan and State Street earned economically and statistically significant cumulative returns of 2.28% and 2.49% (respectively) over the first seven days of the program after controlling for market returns and heteroscedasticity.     

Price discovery in auction markets: a look inside the black box

Opening mechanisms play a crucial role in information aggregationfollowing the overnight nontrading period. This article examinesthe process of price discovery at the New York Stock Exchangesingle-price opening auction. We develop a theoretical modelto explain the determinants of the opening price and test themodel using order-level data. We show that the presence of designateddealers facilitates price discovery relative to a fully automatedcall auction market. This is consistent with specialists extractinginformation from observing the evolution of the limit orderbook. In addition, the specialist's opening trade reflects noninformationalfactors such as price stabilization requirements.     

Leaving an unethical managed care plan: an exploratory look at doctors' intentions

To address the problems of unnecessary care and limited resources, managed care health insurance programs have become commonplace. With managed care programs, however, physicians are facing increasing pressures. This article briefly considers four ethical situations that doctors face under managed care systems. The article surveys a national random sample of general practitioners and surgeons to determine how doctors would respond to these dilemmas and the extent to which exposure to such situations influences them to leave a managed care plan.     

Portfolio performance and accounting measures of earnings: an alternative look at usefulness

Measures of economic performance, such as accounting earnings, working capital and cash flows, have been evaluated in tests of relative explanatory power of regressions of market returns on earnings, working capital and cash flows. We employ a different test. Using Basu’s (J Finance 663–682, 1977) investment trading strategy, we measure portfolio returns based on these three accounting measures of earnings. The objective is to ascertain whether investment performance also supports the findings of the explanatory power studies that accounting earnings is the premier measure of performance. The evidence does not support this conclusion. Our findings are at variance with prior conclusions that accounting earnings is more useful than cash flow. The Basu trading strategy is effective for all three measures. Excess market returns are observed for all three measures, even when controlled for risk and for low priced stocks. But accounting earnings portfolios do not dominate working capital or cash flow portfolios. In fact, the raw returns to cash flow portfolios are marginally (statistically) larger than accounting earnings portfolios. Economically, a dollar invested in a portfolio using accounting earnings to select the stock would have an accumulated value of 22.73 while the same dollar investment using cash flow instead of accounting earnings would accumulate a value of22.73 while the same dollar investment using cash flow instead of accounting earnings would accumulate a value of 33.94 over the same 16 years starting with the second quarter of 1988 and concluding at the end of the first quarter of 2004. Thus, our results have implications for the studies of explanatory power of different measures of earnings and their comparison in the US and other markets.     

Another look at GAAP versus the Street: an empirical assessment of measurement error bias

Bradshaw and Sloan (2002, Journal of Accounting Research, 40, 41–66.) document a significant increase in the difference between the earnings response coefficients (ERCs) for GAAP and Street (I/B/E/S) earnings over the 1990s, suggesting that the market has become increasingly reliant or fixated on Street earnings. In this study we investigate whether, alternatively, an “errors in variables” problem caused by a mismatch between the definitions of realized and expected earnings drives the ERC divergence. Our findings suggest that results from conventional analyses of GAAP and Street ERCs, including the ERC divergence pattern, are significantly contaminated by measurement errors in earnings surprises.     

The pedagogy of planning: Defining sufficient futures

This essay questions expertise about the future and offers an assessment of the methods used and questions addressed by planners as they determine the inputs for setting their goals. It outlines, challenges and redefines several planning methods and suggests a more generous framework through which to focus thought about the future.     

Characteristics of demand for pharmaceutical products: an examination of four cephalosporins

We model demand for four cephalosporins and compute own- and cross-price elasticities between branded and generic versions of the four drugs. We model demand as a multistage budgeting problem, and we argue that such a model is appropriate to the multistage nature of the purchase of pharmaceutical products, in particular the prescribing and dispensing stages. We find quite high elasticities between generic substitutes and also significant elasticities between some therapeutic substitutes.     

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.     

Ecoefficiency: Defining a role for environmental cost management

This study investigates the relationship between environmental performance and productive efficiency in the United States electric utility industry before and after the 1990 Clean Air Act Amendments. Using Data Envelopment Analysis (DEA), cross-sectional examinations reveal lower polluting plants are more efficient than higher polluting plants. Longitudinal analyses indicate plants can simultaneously reduce pollution and increase relative efficiency. Collectively, these results are evidence that proactive environmental management can reduce environmental costs and thus, lends support for adopting an environmental cost management system.     

Evidence and Argument: Another look at Audit Fundamentals

Traditionally, accounts of fundamental audit theory have been based on a “common sense" epistemological framework, incorporating a correspondence theory of truth and a “naı̈ve empirical" approach to discovery and demonstration. Although these accounts generally fail to link this theory convincingly to audit practice, most writers on technical audit processes have assumed (usually implicitly) that no practical problems arise as a result of this. This disengagement between epistemological grounding and day-to-day practice is mirrored in some current writing, which takes its inspiration from the sociology of knowledge. This writing, also, fails to (and indeed cannot) engage in a discourse with practitioners on fundamental theory since it conceives the practitioner’s rationality as constructed, and, therefore, contingent. This paper attempts to set out an approach to fundamental theory, aimed at avoiding the errors of the early theorists; preserving the insights gained from the sociology of knowledge, without coming to grief on its self-referential difficulties; and suggesting a route towards reconciling practice with conceptual basics.     

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.     

Driving force of globalization: A multi- paradigmatic look

Any explanation of the driving force of globalization is based on a worldview. The premise of this paper is that any worldview can be associated with one of the four broad paradigms: functionalist, interpretive, radical humanist, and radical structuralist. This paper takes the case of the driving force of globalization and discusses it from the four different viewpoints. It emphasizes that the four views expressed are equally scientific and informative; they look at the phenomenon from their certain paradigmatic viewpoint; and together they provide a more balanced understanding of the phenomenon under consideration. This approach is applicable to any phenomena, including financial phenomena.     

Agency research in managerial accounting: A second look

This paper surveys the recent agency literature, emphasizing its managerial accounting implications. The paper first describes and compares three branches of the agency literature. Attention is paid to the assumptions, focus, contributions and criticisms of each branch. Empirical tests of implications of the agency model are reviewed. Recent theoretical agency papers with managerial accounting implications are then discussed. The last section of the paper discusses possible directions in future research which may increase the insights which the agency paradigm can bring to managerial accounting research.     

Mandatory audit firm rotation: Fresh look versus poor knowledge

Our aim in this paper is to investigate the effects of mandatory audit firm rotation (MAR) on companies’ investment decision and auditor choice in a capital market setting. We compare a MAR regime with a non-MAR regime in a setting in which auditors’ independence and companies’ opinion shopping are real concerns. To capture auditor independence and opinion shopping, we model auditor biases (a conservative bias or an aggressive bias) and client firms’ incentives to engage auditors with desired biases. We find that when firms engage in opinion shopping, MAR improves investment efficiency for some firms but impairs investment efficiency for other firms. More generally, we contribute to the literature by demonstrating the real effects of auditing on corporate resource allocation decisions.     

The monotonicity of the term premium: A closer look

Fama's evidence that the term premium on Treasury securities is not monotonically increasing is found to depend entirely on the behavior of bid-asked mean returns on 9- and 10-month bills, and only during the subperiod 8/64–12/72. When transactions costs, as reflected in the bid-asked spread, are taken into account, there is found to be no way to exploit this non-monotonicity. The anomalous behavior of the quotations is attributed to the Treasury's auctions of 9-month bills during the period 9/66–10/72. The hypothesis that the term premium is a monotonically increasing function of maturity remains unrefuted.     

Insurance Fraud: What makes a case look suspicious?

By many, insurance fraud is believed to be widespread, but little is known about how to detect it. In recent years, some attempts have been made to find indicators for fraud. They are, however, probably hampered when relying on characteristics of established fraud, since the majority of fraudulent cases then remains excluded, leaving many white spots on the map. In choosing a different approach, we let subjects reason freely about insurance fraud, recording and analysing their clues, and comparing them to indicators found in previous research. Our findings show that not only much of available information is largely ignored, subjects tend to concentrate on other aspects than supposedly reliable fraud characteristics and experts fail to fare better than laypeople.