Pictures and the bottom line: The television epistemology of U.S. annual reports

In this analysis, we argue that the striking visual design that has characterized U.S. annual reports since the 1960s, including brilliant color pictures, gloss, and novelty formats, is a manifestation of the television epistemology that informs wide ranges of contemporary public discourse in America. Correspondingly, we contend that visual design in U.S. annual reports constitutes a form of rhetoric asserting the “truth claims” of the reports. Such truth claims relate not only to the values expounded in the text or projected in the pictures, but to those residing in the accounts themselves.     

Minority membership on boards of directors: the case for requiring pictures of boards in annual reports

Affirmative action and diversity continue to be contentious issues in the United States. Financial markets are still reeling from the effects of Enron, WorldCom and other corporate exemplars of corruption and malfeasance. The role of the board of directors in these scandals is the subject of serious and ongoing concern. Weak and/or ineffectual boards are often the consequences of “old-boy networks” and a lack of diversity in membership. This research study argues for an increased presence of gender and race diversity on boards of directors. Empirical evidence is presented that shows a significant increase in the presence of ethnic minorities and females when pictures of board members are included in annual reports. We suggest that requiring pictures of board members in annual reports and regulatory filings would result in a larger presence for gender and race diversity on boards of directors. This requirement is not a significant burden and merely represents compliance with the spirit and intent of the “full disclosure” principle.     

Modelling multiple term structures of defaultable bonds with common and idiosyncratic state variables

In this paper we develop a multi-factor “reduced-form” model that is general enough to capture simultaneously the dynamics of multiple term structures of corporate bonds, each with a different credit rating. In this way, we are able to fully incorporate a number of “stylised facts”, reported on a number of previous empirical studies. More specifically, we are able to estimate the different degrees of covariation between the term structure of each credit rating and the default-free yield curve. Furthermore, we report the differing sensitivities of the credit curves to a number of observable macro-factors that reflect changes in credit conditions, both domestic and international. Finally, the dependence of each credit curve on a number of idiosyncratic state-variables is also documented. Our results are based on two special cases of the model, estimated using US and UK corporate bond data.     

The impact of foreign board membership on firm value

This study examines the effect of foreign (Anglo-American) board membership on corporate performance measured in terms of firm value (Tobin’s Q). Using a sample of firms with headquarters in Norway or Sweden the study indicates a significantly higher value for firms that have outsider Anglo-American board member(s), after a variety of firm-specific and corporate governance related factors have been controlled for. We argue that this superior performance reflects the fact that these companies have successfully broken away from a partly segmented domestic capital market by “importing” an Anglo-American corporate governance system. Such an “import” signals a willingness on the part of the firm to expose itself to improved corporate governance and enhances its reputation in the financial market.     

An “American Dream” theory of corporate executive Fraud

In this paper, we first describe a “Broken Trust” theory that was introduced by Albrecht el al. [Albrecht, W. S., Albrecht, C. C., & Albrecht, C. O. (2004). Fraud and corporate executives: Agency, Stewardship and Broken Trust. Journal of Forensic Accounting, 5, 109–130] to explain corporate executive Fraud. The Broken Trust theory is primarily based on an “Agency” theory from economic literature and a “Stewardship” theory from psychology literature. We next describe an “American Dream” theory from sociology literature to complement Albrecht el al.'s (2004) Broken Trust theory. Like the Broken Trust theory, the American Dream theory relates to a “Fraud Triangle” concept to explain corporate executive Fraud. Finally, we provide some anecdotal evidence from recent high profile corporate executive Fraud to explore the American Dream theory. We conclude our thoughts on corporate executive Fraud from a teaching perspective.     

Strategy and accounting in a U.K. conglomerate

This paper sets out to explore various aspects of the relationship between the use of accounting information for performance reporting and control and the formulation and implementation of business and corporate strategy. It does this by means of a case study of the acquisition and subsequent management of “ELB Ltd” by “Conglom Inc.” The case gives an account of the structuring of relationships both between the Corporate centre and ELB senior management, and within ELB itself. A very complex picture of the relationship between strategy and accounting emerges. Although accounting results are often taken as a proxy for the relative success of strategy, the case suggests that in this respect accounts typically conceal as much as they reveal. Especially with a conglomerate structure it is quite possible for corporate financial “success” to be realized at the expense of the long term strategic positioning of individual unit companies. The paper illustrates how the sharing and integration of market knowledge required for the successful formulation and implementation of strategy can conflict with the conformity and distorted communication encouraged by the hierarchical use of accounting controls. It also describes some of the positive effects that can be realized from deliberate attempts to integrate strategic decision making with routine accountability.     

Mediating instruments and making markets: Capital budgeting, science and the economy

We examine in this paper how certain instruments link science and the economy through acting on capital budgeting decisions, and in doing so how they contribute to the process of making markets. We use the term “mediating instruments” to refer to those practices that frame the capital spending decisions of individual firms and agencies, and that help to align them with investments made by other firms and agencies in the same or related industries. Our substantive focus is on the microprocessor industry, and the roles of “Moore’s Law” and “technology roadmaps”. We examine the ways in which these instruments envision a future, and how they link a multitude of actors and domains in such a way that the making of future markets for microprocessors and related devices can continue. The paper begins with a discussion of existing literatures on capital budgeting, science studies, and recent economic sociology, together with the reasoning behind the notion of “mediating instruments”. We then address the substantive issues in three stages. Firstly, we consider the role of “Moore’s Law” in shaping the fundamental expectations of an entire set of industries about rates of increase in the power and complexity of semiconductor devices, and the timing of those increases. Secondly, we examine the roles of “technology roadmaps” in translating the simplified imperatives of Moore’s Law into a framework that can guide and encourage the myriad of highly uncertain and confidential investment decisions of firms and other agencies. Thirdly, we explore one particular and recent example of major capital investment, that of post-optical lithography. The paper seeks to help remedy the empirical deficit in studies of capital budgeting practices, and to demonstrate that investment is much more than a matter of valuation techniques. We argue, through the case of the microprocessor industry, for greater attention to investment as an inter-firm and inter-agency process, thus lessening the fixation in studies of capital budgeting on the traditional hierarchical and bounded organization. In addition, we seek to extend and illustrate empirically the richness of the notion of “mediating instruments” for researchers in accounting, science studies, and economic sociology.     

Psychology, meaning and the challenges of longevity

Humankind has begun to reap one of the most valued harvests of its scientific and technological pursuits: a significant increase in human longevity. We now live longer than ever before, due in large part to advances in medicine and health care that provide those who have the opportunity to afford them a lifespan that for many approaches or exceeds the 100-year mark. It is now within the realm of possibility that people will live lives of 125 years or more within the next century. However, our ability to increase physical longevity may have outstripped our ability to deal individually and socially with these new lives, these new existences that go well beyond what has traditionally been considered a “working life”. How well-prepared are we psychologically to cope with the meaning of a life that extends to as much as 150 years or more? In this new “age of longevity”, what are the challenges for psychology as a resource for humanity in its quest to give definition to the experience of being alive, as well as for managing the affairs of everyday life? Traditional developmental theories in psychology tend to articulate early stages of life in detail, but are generally mute on the matter of later life. Cognitive psychology has been inclined to view longevity as leading to a deterioration of mental faculties due to “aging”. This paper examines the psychological implications of increased lifespans from an optimistic perspective by reviewing current developments in research on cognition, emotion and aging. The review identifies trends in psychology that, if emphasized and strengthened, may lead to improved theoretical frameworks that cast longevity in a positive light, and that identify how people can find meaning and fulfillment throughout their whole lifespan.

“Grow old along with me! The best is yet to be, The last of life for which the first was made.” Robert Browning “Rabbi Ben Ezra”

I first encountered Browning’s works as an undergraduate, and being a pre-engineering student at the time my tendencies toward poetry were stunted to say the best. Few of the great works of literature my teachers compelled me to read at that stage of my life and development made enough of an impact to last beyond the length of the course requiring their reading. Much has changed since then and my interests in literature and what literature has to say that is of value for our lives has deepened. But Browning’s enthusiastic call to join him in aging has always been a fascination. Indeed, what could be more of a contradiction to modern attitudes about becoming elderly than to claim “the best is yet to be”? What can be more of a challenge to how we approach the relationship between being young and being old than to claim that the last of life is “for which the first was meant”? What can the possible rewards of the golden years be that transcend the glorious enthusiasms, unfettered optimisms, and just pure physical conveniences of being young? Or, was Browning simply trying to sucker us all into a fait accompli, the hopeful outcome of which is the envy of the very youth that the aged often envy so much?There is little enough envy of the aged today. I approach these years with great caution, recognizing that how I look upon those who are two decades older than myself will, in turn, condition me to see myself in those years much in the way that I see them now. “Aging” is not something anyone really wants to do. We want to, at best, “grow older”, a perspective that carries with it a more positive spin: growing wiser, growing up, or simply “growing” with all of its new-age connotations of personal enlightenment and becoming. I am not “aging”, I am “becoming at one”.The language we have adopted to talk about the time-course of life, and particularly about the years in the latter third of that course, does much to frame both how we live those years and how we anticipate them in our youth. Our expectations are ones of decline, physical debilitation and mental infirmity. We “retire”, as in withdrawal into seclusion, away from the mainstream of life and into the backwater eddy of inaction. On the shelf.Much of this view has been reinforced by how humanity has approached examining this aspect of its own time course through science. We study aging with an eye to how its effects influence the abilities of those so afflicted to perform or operate compared to those who still have a grasp on their full faculties. And, of course, we find that as people grow older, they do not approach life in the same way as do younger people.Part of our view on life comes from the very way in which science is funded: those interested in the last of life often receive their support from the National Institute on Aging, not the National Institute on The Last of Life for Which the First Was Made. Research agendas often focus on identifying sources of infirmity and potential prostheses, either physical or social, that can ease the lives of the elderly on their way toward achieving the goal of successful aging. All too often, success in aging means imposing relatively few demands on social resources or on the lives of younger people, such as family members. In our “ageist” society, elderliness is not generally equated with status and stature. Less and less, the young “listen” to the old out of deep interest in their lives and their experiences. Wisdom is the providence of the freshly matured and recently educated.The shortcomings of life in the advancing years are many and well-documented in the research literature. Memory spans decrease, information retrieval becomes less reliable, and new information is less readily assimilated. As people become older, they appear to rely more and more on automatic processing of information, quick associations and the like, rather than deliberative and conscious reasoning [1]. For the older mind, intuition is at least moderately preferred over analysis. For example, younger people tend to interpret stories analytically, focusing on details, while older people tend to focus less on a story’s details and more on its “gist” and its underlying significance to things that are important to them [2], and tend to do better at grasping and dealing with information in terms of its holistic meaning [3 and 4].The effects of these differences in information processing between young and old can be seen in practical matters of everyday life, such as decision making and judgment. Johnson [5], for example, found that older adults use simplifying decision strategies more often than younger adults. These strategies, such as noncompensatory rules that consider only the positive or the negative aspects of a decision option but not both, relieve one of the psychological burden of making complex and effortful tradeoffs, at the possible expense of efficiency and accuracy. Chasseigne et al. [6] found that as people age, they become less consistent in their use of information in making judgments and predictions; even reducing the overall information load and demands on memory does little to improve the reliability of their judgments. ¹     

Accounting and the examination: A genealogy of disciplinary power

Historical elaboration of Foucault's concept of “power-knowledge” can explain both the late-medieval developments in accounting technology and why the near-universal adoption of a discourse of accountancy is delayed until the nineteenth century. It is the disciplinary techniques of elite medieval educational institutions—the new universities and their examinations—that generate new power-knowledge relations. These techniques embody forms of textual rewriting (including the new “alphanumeric” system) from which the accounting advances are produced and “control” is formalised. “Double-entry” is an aspect of these rewritings, linked also to the new writing and rewritings of money, especially the bill of exchange. By the eighteenth century accounting technologies are feeding back in a general way into educational practice (e.g. in the deployment of “book-keeping” on pupils) and this culminates in the introduction of the written examination and the mathematical mark. A new regime of “objective” evaluation of total populations, made up of individually “calculable” subjects, is thereby engendered and then extended — apparently first in the U.S. railroads — into modern comprehensive management and financial accounting systems (systems of “accountability” embodying Foucault's “reciprocal hierarchical observation” and “normalising judgement”), while written examinations become used to legitimate the newly autonomous profession of accountancy.     

Fearful asymmetry: The consumption of accounting signs in the Algoma Steel pension bailout

This paper examines the role of accounting in society by looking at the consumption of accounting signs during the financial restructuring of a corporation. The paper builds upon insights from prior research on accounting as simulacrum and hyperreality. It examines how accounting numbers serve as reconfigurable signs that construct appropriate “crises”, motivate government intervention, and marshal stakeholders towards solutions. The incident at the heart of this study is the 2001 bailout of the Algoma Steel pension plan by the Ontario government. The incident demonstrates how accounting technologies are required both for the production of accounting signs and for their consumption. The paper asks how the production and consumption of accounting signs is different from that of other communication signs, what role consumers of accounting signs play in determining their meaning, and what difference this makes in how corporate pension plans are protected by government. It concludes that the structures and mechanisms surrounding the consumption of accounting signs enable different stakeholders to influence the production of meaning at the moment when accounting signs are consumed, changing the way that risk and wealth are redistributed, and shaping government intervention.     

Financialized accounts: Share buy-backs, mark to market and holding the financial line in the S&P 500

In recent years the US corporate sector has deployed more cash from operations to finance the repurchase of outstanding share capital for treasury stock. Shares repurchased for treasury stock can help flatter earnings per share, fund senior management share option compensation schemes and finance corporate acquisitions. In financialized accounts these are now significant transactions which, it is argued, serve the financial interests of managers and investors.The US Financial Accounting Standards Board (FASB) is now demanding a “greater use of fair value measurements in financial statements” with the result that share options and corporate acquisitions will be “marked to market”. This will force a financialized ratchet because managers in the S&P 500 will need step up cash extraction if they are to hold the financial line.     

The accounting of interpretations and the interpretation of accounts: The communicative function of “the language of business”

The objectivistic philosophical assumptions which underlie contemporary research in accountancy, as well as economics and elsewhere, are challenged and an interpretive alternative is proposed. A “hermeneutical” view of decision-making is examined, first with regard to science in general, and then concerning the human sciences in particular, and finally with regard to economics. Human decisions are not seen as objective, mechanical or behavioristic but as meaningful utterances of minds, as part of a bidirectional communicative process. That is, scientific decisions, like everyday decisions, are mutually interpretive processes of communication in language. Although it is true that much of mainstream neoclassical economics is incompatible with this interpretive approach, the “Austrian” school can be seen as an interpretive version of neoclassicism. This school of economics indicates a way to understand the communicative function the accounting “language” itself serves in the economic process. The professional judgments made by both accounting researchers and practicing accountants, then, are treated as “matters of interpretation,” but as not, thereby, arbitrary.     

Galton's Error and the under-representation of systematic risk

Science progresses by improving its measurement apparatus. This holds true in finance too. The new methodology of “complete identification”, using simple algebraic geometry, throws new light on Galton's Error in finance and economics and the resulting misinformation of investors. Mutual funds conventionally advertise their relative systematic market risk, or “betas”, to potential investors based on incomplete measurement by unidirectional bivariate projections: they commit Galton's Error by under-representing their systematic risk. Consequently, far too many mutual funds are marketed as “defensive” and too few as “aggressive”. Using the new methodology it is found that, out of a total of 3217 mutual funds, 2047 funds (63.7%) claimed to be defensive based on the current industry standard methodology, but only 608 (18.9%) actually are. This under-representation of systematic risk leads to inefficiencies in the capital allocation process, since biased betas lead to mispricing of mutual funds. Complete bivariate projections produce a correct representation of the epistemic uncertainty inherent in the bivariate measurement of relative market risk and provide a new CAPM taxonomy. Our conclusions have also serious consequences for the proper “bench-marking” and recent regulatory proposals for the mutual funds industry. Extension of the new methodology to multivariate systematic risk measurement by Asset Pricing Theory (APT) is suggested.     

Auditors’ decision-making under going-concern uncertainties in low litigation-risk environments: Evidence from Hong Kong

This study examines the audit opinions issued by auditors in a low litigation-risk environment at a time of high economic uncertainty – that of Hong Kong in the period immediately after the Asian financial crisis of 1997. Empirical research using United States data has shown that, contrary to professional guidance which restricts the issue of “disclaimer of opinion” only to situations where existing uncertainties prevent the auditor from forming an opinion, auditors tend to use the “disclaimer” report (in the going concern context) to signal more extreme client firm’s distress. In the high litigation-risk environment of the US, researchers have attributed this tendency to the idea that “disclaimer of opinion” reports are used by auditors to provide some protection against potential legal liability. The results of this study provide evidence that, even in the low litigation-risk environment of Hong Kong, auditors still use “disclaimer” reports to signal more extreme client firm financial distress. Thus, the maintenance of a high litigation-risk environment does not appear to be a necessary pre-requisite for high quality audits.     

Long memory options: LM evidence and simulations

This paper demonstrates the impact of the observed financial market persistence or long term memory on European option valuation by simple simulation. Many empirical researchers have observed the non-Fickian degrees of persistence in the financial markets different from the Fickian neutral independence (i.i.d.) of the returns innovations assumption of Black–Scholes’ geometric Brownian motion assumption. Moreover, Elliott and van der Hoek [Elliott, R.J., van der Hoek, J., 2003. A general fractional white noise theory and applications to finance. Math. Finance 13, 301–330] provide a theoretical framework for incorporating these findings into the Black–Scholes risk-neutral valuation framework. This paper provides the first graphical demonstration why and how such long term memory phenomena change European option values and provides thereby a basis for informed long term memory arbitrage. By using a simple mono-fractal fractional Brownian motion, it is easy to incorporate the various degrees of persistence into the Black–Scholes pricing formula. Long memory options are of considerable importance in corporate remuneration packages, since stock options are written on a company’s own shares for long expiration periods. It makes a significant difference in the valuation when an option is “blue” or when it is “red.” For a proper valuation of such stock options, the degrees of persistence of the companies’ share markets must be precisely measured and properly incorporated in the warrant valuation, otherwise substantial pricing errors may result.     

Corporate restructuring in Japan: Who monitors the monitor?

Peek and Rosengren [Peek, J., Rosengren, E., 2005. Unnatural selection: Perverse incentives and the misallocation of credit in Japan. American Economic Review 95, 1144–1166] showed that, when the bubble economy era ended, regulatory forbearance and perverse incentives allowed Japanese banks to engage extensively in evergreening. This is the first comprehensive study to empirically analyze the economics of private debt restructurings of financially distressed companies in Japan, where the corporate monitoring mechanism is not market based but large-stakeholder based – typically, banks and affiliated companies. These stakeholders are expected to efficiently resolve potential bankruptcy or collapse with better information resulting from long-term relationships with the distressed firms. Our study, however, finds that private restructurings led by them failed because of delays in implementing fundamental solutions. Forbearance in addressing the needs of distressed firms demonstrates the weakness of such stakeholders in instituting discipline, hence the need for a system to “monitor the monitor”.     

British central government and “the mercantile system of double entry” bookkeeping: a study of ideological conflict

The study examines the contest between rival interests following the Treasury's decision to explore the potential of “the mercantile system of double entry” bookkeeping as the basis for recording and reporting the financial affairs of British central government. At the heart of the ensuing dispute was an ideological conflict between individuals representing the competing interests of the aristocracy and those of the new capitalist classes. The battleground was whether the mercantile system of double entry should be designed to reflect the “old society” priorities of stewardship, patronage and personal accountability or “new society” pressure for a business framework judged capable of achieving “cheap and efficient government”.     

The interaction between national and organizational cultures in accounting firms

This paper reports the results of an empirical study of the interaction between national and organizational cultures at the firm level. Using Hofstede's Value Survey Module, the concept of culture was operationalized in six accounting firms in The Netherlands. Three of these firms were local offices of international “Big Eight” accounting firms with a strong U.S.-orientation in their organizational philosophies and policies, whereas the other three firms were Dutch in origin and organization. All six firms work virtually entirely with Dutch employees. We were specifically interested in any influences of the U.S. culture upon the Big Eight firms. For two Hofstede's four cultural dimensions, i.e. Uncertainty Avoidance and Masculinity, significant effects of the U.S. culture upon the organizational cultures of the Big Eight firms were found. Further analysis showed that these results may rather be due to (self-)selection than to socialization mechanisms.     

A CEO with many messages: Comparing the ideological representations provided by different corporate reports

This study analyzes how corporate reporting can be used to reinforce particular worldviews in the ongoing discursive debate over sustainability. The use of language is compared in CEO letters from two types of disclosures: the annual and sustainability reports of two Finnish companies during 2000–2009. The analysis is based on Thompson's (1990) schema regarding the modes of ideology. Significant differences are noted; the CEO letters in the annual reports prominently use the economic discourse of growth and profitability, but they rely on the ‘well-being’ discourse in the sustainability reports. Despite the difference in discourse, by using different forms of ideological strategies, both types of disclosure serve the dominant social paradigm. The findings presented in this study highlight the need to further develop corporate sustainability reporting practices.