[In]visible [in]tangibles: Visual portraits of the business élite

Visual portraits of the business élite are widely disseminated, and form significant sites for communicating messages regarding leadership and associated intellectual, symbolic and social intangibles, yet have been neglected in accounting research. At the same time, accounting for intangibles is recognised to be inadequate. This inter-disciplinary article constructs a framework from art theory to interpret portraits of the business élite and their associated [in]visible [in]tangibles. Four sets of rhetorical codes in portraiture are identified: physical, dress, spatial and interpersonal. Illustrative portraits from annual reports and the media are analysed to indicate how [in]visible [in]tangibles are portrayed through visual rhetoric.     

Why managers with low forecast precision select high disclosure intensity: an equilibrium analysis

Shin (J Account Res 44(2):351–379, 2006) has argued that in order to understand the equilibrium patterns of corporate disclosure, it is necessary for researchers to work within an asset pricing framework in which corporate disclosures are endogenously determined. Echoing this sentiment, Larcker and Rusticus (J Account Econ 49(3):186–205, 2010) have argued that earlier empirical results claiming to find a negative relationship between disclosure and cost of capital may suffer fatally from endogeneity issues which, once addressed by a formal structural model, may reverse the sign of the relationship. The purpose of this paper is to introduce a general equilibrium model following the Black–Scholes paradigm with endogeneous disclosure in which firms select uniquely determined optimal probabilities of early equity-value discovery in a noisy environment. As firms may differ also in the uncertainty (precision) with which management can forecast the future, managers strategically increase the intensity of their (voluntary) disclosures to provide partial compensation for this perceived differential risk. A positive relationship then results between disclosure and the cost of capital.     

A macroeconomic model with asset equilibrium for an open economy

This article is concerned with the problem of the effects of monetary policy in an open economy in the long run. In order to analyze this problem under assumptions that are more suitable for long-run analysis than those of the usual IS-LM model a new model has been constructed with flexible prices, fixed exchange rates and a flexible capital stock. Within this framework it is found that the effectiveness of monetary policy crucially depends upon the degree of asset and goods arbitrage across national borders. Sufficient asset or goods arbitrage are both sufficient conditions to yield a zero effect of monetary policy except on foreign exchange reserves.     

Capital Structure Theory and the Fisher Effect

This paper incorporates capital structure theory to model the response of nominal interest rates to expected inflation in a world with taxes. Within an otherwise common framework, the model includes Modigliani-Miller (MM) and Miller capital structure theory, as well as a variation of the Miller model with bankruptcy costs, developed by DeAngelo and Masulis. Within this framework, we derive an equation to predict the response of nominal interest rates under each capital structure hypothesis. With MM theory, our model predicts di_D/d_π value consistent with empirically observed ranges. With Miller theory, the predictions are inaccurate. With DeAngelo-Masulis, the predictions vary widely; the midpoint of the predicted range is less accurate than with Miller theory.     

Explicit solutions to some single-period investment problems for risky log-stable stocks

Numerical approximations are presented for the expected utility of wealth over a single time period for a small investor who proportions her or his available capital between a risk-free asset and a risky stock. The stock price is assumed to be a log-stable random variable. The utility functional is logarithmic or isoeleastic ($\text{y}{}^{\mathrm{a}}\text{q}$, q < 0). Analytic results are presented for special choices of model parameters, and for large and small time periods.     

The stock market valuation of human capital creation

We develop a measure of firm-year-specific human capital investment from publicly disclosed personnel expenses (PE) and examine the stock market valuation of this investment. Measuring the future value of PE (PEFV) based on the relation between lagged PE and current operating income, we first show that PEFV is positively associated with characteristics of human-capital-intensive firms. Next, we find that PEFV has a positive pricing coefficient, implying that the market recognizes some of its variation. In our main analysis, we find that market participants fail to fully impound the investment in human capital. The absolute value of analyst forecast errors is increasing in firm PEFV, and the signed value of these errors reveals that analysts are pessimistic for earnings of firms with high human capital investments. A long-short portfolio based on PEFV produces annualized value-weighted (equal-weighted) abnormal returns of 6.5% (3.5%). Portfolios formed by interacting PEFV with total PE, which combines the current potential investment in human capital with the historic portion of PE that created human capital, increase these returns to between 4.8% and 7.8%. These results are insensitive to numerous empirical choices.     

Institutional characteristics and capital structure: A cross-national comparison

The main objective of this paper is to investigate whether differences in institutional characteristics result in different capital structure determination among countries. First, we analyze the institutional setting in Greece compared with that of other countries. Second, we provide survey information about the determinants of capital structure in Greece and compare our findings with those of similar surveys in the United States and Europe based on Graham and Harvey [Graham, J., & Harvey, C. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60, 187–243], Bancel and Mittoo [Bancel, F., & Mittoo, U. (2004). Cross-country determinants of capital structure choice: A survey of European firms. Financial Management, 33(4), 103–133 Winter 2004] and Brounen, de Jong and Koedijk [Brounen, D., de Jong A., & Koedijk, K. (2006). Capital structure policies in Europe: Survey evidence. Journal of Banking and Finance, 30, 1409–1442] respectively. Greek firms seem to follow an own-business policy and seem to care more about the disadvantages of debt than try to exploit its advantages. Financial distress considerations, market timing and competitiveness are important factors, whereas agency costs of equity, pecking order and the signalling theory do not seem to apply. Conclusions are relatively similar with those of other countries, though specific differences that can be attributed to the different institutional settings do exist. In general however, we conclude that differences in institutional characteristics do not seem to affect the way of thinking of financial managers when they decide on capital structure issues.     

Dividend change announcements,ROE, and the cost of equity capital

We hypothesize and present strong evidence that dividend increases (decreases) result in a general decrease (increase) in the opportunity cost of equity capital (K_e), measured by the discount rate implicit in analysts' forecasts. Estimates of K_e obtained from analyst forecast data likely capture priced information risk that is not reflected in cost of equity capital estimates customarily obtained from empirical excess returns data. In the presence of a full menu of control variables, our measured changes in the cost of equity capital are shown to provide high explanatory power for the market reaction to dividend change announcements. We also hypothesize and demonstrate that the impact of dividend changes on the cost of equity is conditional on how preannouncement K_e relates to preannouncement return on equity (ROE). Specifically, dividend increases result in a reduction in the cost of equity capital only when currently experienced ROE < K_e. This is consistent with shareholders preferring earnings to be reinvested by managers to earn a higher rate than their opportunity rate. When ROE > K_e, on the other hand, the cost of equity capital actually increases. For dividend decreases, the cost of equity capital increases only when ROE > K_e, consistent with firms currently experiencing positive economic income using dividend cuts to signal anticipated permanent earnings declines. Together with extensive robustness tests, our results indicate that dividend changes significantly affect shareholder value, contrary to the longstanding dividend irrelevance argument.     

Theoretical perspectives on intellectual capital: A backward look and a proposal for going forward

In recent years the intellectual capital literature has exhibited relatively few new theoretical contributions, in contrast to the flurry of such work in the period 1996-2003. The purpose of the present paper is to revisit a number of the major theoretical contributions to the intellectual capital field in order to identify where any renewal of theoretical endeavour might be targeted. The greater part of the existing theoretical corpus is found to have a normative quality, something particularly evident in policy-oriented contributions on accounting for intellectual capital. The continued absence of a critical perspective on intellectual capital is identified to be a worrying lacuna, and thereby a potentially valuable space for a further round of theoretical activity.     

Intellectual capital and the ‘capable firm’: narrating,visualising and numbering for managing knowledge

Intellectual capital statements are ‘new’ forms of reporting whose object is knowledge management activities. Based on 17 firms’ work to develop intellectual capital statements, this paper analyses them as managerial technologies making knowledge amenable to intervention. Aspects of actor-network-theory are mobilised to suggest that the intellectual capital statement is a centre of translation, which mobilises knowledge management via three interrelated elements: knowledge narratives, visualisations and numbers. Intellectual capital statements report on the mechanisms put in place to make knowledge manageable. Writing intellectual capital is a local story, which often concerns making knowledge collective and a process of allowing it to be oriented towards organisational ends. In such a story, knowledge is about a firm's capabilities and abilities to make a difference to a user. When writing an intellectual capital statement, firms locate employees, customers, processes and technologies and orient them towards a user. However, the statement as such is a means of ‘dis-locating’ knowledge resources making them amenable to intervention. There are certain broad types of intervention that allows a classification of strategies of intervention to be proposed. These terms are portfolio management, improvement activities and productivity. Such forms of intervention circumscribe the aspiration to transform knowledge from something internal to the person into something that is the effect of a collective arrangement. They allow—through intellectual capital statements—the dark, tacit knowing of individuals to come into the open space of calculation and action at a distance.     

Overreaction in capital flows to emerging markets: Booms and sudden stops

This paper applies the overreaction hypothesis of De Bont and Thaler [De Bont, W., Thaler, R., 1985. Does stock market overreact? Journal of Finance 40(3), 793–805], developed for stock price behavior, to capital flows to emerging markets. We find that a surge in capital flows, or what we call a capital boom, can predict future sharp contractions in capital flows, or sudden stops. We use a large list of possible economic fundamentals as control variables, and the results show that the best predictor of a sudden stop is a preceding capital boom. Moreover, the probability of a country undergoing a sudden stop increases considerably with the length of the boom: this probability more than doubles when the boom is three years old, and rises by three to four times when the boom lasts for four years. These results are interesting for two reasons. In the first place, they contradict previous studies that emphasize worsening fundamentals as the ultimate cause of a sudden stop. Second, they are of policy interest because of the enormous negative impacts that sudden stops have on the real economy.     

Communities of tomorrow

The social spotlight seems to be refocusing to the scale of local community at a time when globalisation of the economy is threatening the authority of nation-states. Certain small communities are in peril of falling out of the global economy while losing local customs to a globalised culture. Globally beleaguered nation-states are being squeezed in a two-pronged grip: from the growing weight of global capital and from local communities rising to global pressures by demanding local solutions. National authority is also being bypassed as new global communities of interest form on the Internet, expanding the meaning of the term community. But, is community more than common interest—a celebration of difference, negotiating symbiosis among diversity of ethnicity, lifestyle and aspirations for the future? This paper explores five scenarios of tomorrow’s communities. One scenario is a nostalgic return to the romantic notion of the white-picket fence. Then there is the drop-out feral community. In another future the fence becomes a fortress wall, or a ring of barbed wire. Yet another is a virtual community beyond place, where people sharing a common interest live in cyber-reality. The viable community is one for the long haul. To be viable in a global world it must make local-global links to create synergies by sharing resources and inspirations throughout a diverse, planetary society. Viable, local-global network communities of tomorrow set a global example for creativity by honouring difference and open exchange. They take responsibility for their own futures.Two powerful images from recent events remain with me, in juxtaposition. After considering the American attacks on Afghanistan, a well-experienced teacher feels isolated at the periphery, and powerless. In addition, she watches, in “quiet despair”, one of her pupils “virtually going crazy” before her eyes. She shares these words with me:

“Neither he nor I, it seems, have anywhere to run except to the graciousness and the care of the other children, that as classroom leader I’m tying daily to coalesce, in order to put a cocoon of community around him. Bit like the planet!”

“We all work to keep our very bright and fairly disturbed ADHD-labelled¹ learner connected to us in genuine relationship. That’s the foundation of authentic learning support. I’m not operating a medical model!”

Our leaders and the babbling mass media ignore this, the first image, and many similar to it.By contrast, the second image gets constant exposure. It gets instant recall from most TV viewers. It is the scramble of screen jockeys, on what is left of Wall Street, playing the casino economy, in a frenzy of greed. Curiously the main media focus emphasizes images that represent the world at the global scale. They largely ignore images of life at the scale of community.Why is this? Why does the second image of the so-called finance community, where the focus is the dollar, override the more basic image of a hometown community where the focus is human life-support? Are the media reflecting our true priorities, and have we got it wrong? Is money more important than community?     

On the effectiveness of monetary policy under fixed rates of exchange

The IS-LM framework traditionally used to discuss the role of monetary policy under fixed rates of exchange has several weaknesses. The theoretical findings based on such a model cannot be accepted uncritically. The paper reassesses the role of monetary policy by appropriately modifying the IS-LM apparatus so that its resilts can be easier to compare with much of the existing literature. The meaning and effectiveness of monetary policy is analysed in short-run equilibrium, stock-flow equilibrium and full long-run equilibrium. Dynamical equations linking the short to the long run are specified. The notable implication is that monetary policy is effective in the short run and need not be ineffective in the long run. Complete emasculation of monetary policy occurs when the central authorities relinquish control over the flow distribution of government debt between money and bonds in favour of an independent use of a set of fiscal instruments. Perfect capital mobility requires that the central authorities decide whether monetary or fiscal policy become totally dependent on external forces. Whether one or the other is chosen is more a matter of specific circumstances than theoretical necessity. Critical comments are directed at the literature on offsetting capital flows.     

Integrated accounting à la française: The perspective of the Système Croisé

This paper examines the way in which cost accounting is decoupled from the financial accounting model that is circumscribed by the framework of the French plan comptable(i.e. comptabilité générale). Some attendant problems are investigated, and the conflicting views of leading commentators on French accounting are brought to bear. In particular, the tension between managerial accounting requirements of enterprise accounting, on the one hand, and the macroeconomic orientation of comptabilité générale, on the other, are analysed. Finally, the paper offers a concise appraisal of the Système Croisé, an integrated accounting model that was designed to resolve problems arising from the gulf between cost accounting and financial accounting in France.     

Tests of the multiperiod two-parameter model

Although investors face multiperiod decision problems, there are conditions under which the results of the one-period two-parameter model apply period by period. In addition to the assumptions made in the development of the two-parameter model itself (a perfect capital market, investor risk aversion, and normal distributions of one-period portfolio returns), the critical assumption in a multiperiod context is that, for any t, returns on portfolio assets from t?1 to t are independent of stochastic elements of the state-of-the-world at time t that affect investor tastes for given levels of wealth to be obtained at t.One such element of the state-of-the-world is the nature of investment opportunities to be available at t. For example, if the level of expected returns on investment portfolios to be available at time t is uncertain at time t?1, and if the returns from t?1 to t on some investment assets are more strongly related to the level of expected returns at t than returns on other assets, then the former assets are better vehicles for hedging against the level of expected returns at t. This can affect the demands for assets and their prices in such a way that the simple results of the one-period two-parameter model do not hold.The empirical tests of this paper reveal no evidence of measurable relationships between the returns on portfolio assets from t?1 to t and the level of expected returns to be available at t. Indeed, in our opinion there is no reliable evidence that the level of expected returns changed during the 1953–1972 period.     

Outperformance portfolio optimization via the equivalence of pure and randomized hypothesis testing

We study the portfolio optimization problem of maximizing the outperformance probability over a random benchmark through dynamic trading with a fixed initial capital. Under a general incomplete market framework, this stochastic control problem can be formulated as a composite pure hypothesis testing problem. We analyze the connection between this pure testing problem and its randomized counterpart, and from the latter we derive a dual representation for the maximal outperformance probability. Moreover, in a complete market setting, we provide a closed-form solution to the problem of beating a leveraged exchange traded fund. For a general benchmark under an incomplete stochastic factor model, we provide the Hamilton–Jacobi–Bellman PDE characterization for the maximal outperformance probability.     

Attitudes towards the future and their influence on the present

Within the last 15 years a radically different orientation towards the future and its planning has evolved in France. This orientation and its associated attitudes and techniques, collectively termed prospective, have had strong effects on French intellectual and governmental life, most impressively in relation to the fourth and fifth national plans. In England and the USA, virtually nothing is known of prospective or of its founder, Gaston Berger. This article is one of a collection of the principal writings which are to be published in English late this year¹. Writing in 1966 the author compares forecasting and prospective in the light of several years' experience with prospective, and he isolates the effect of “tomorrow's image on today's acts” as a central phenomenon underlying prospective thinking.     

Using a robust performance measurement system to illuminate intellectual capital

The central premise of the “fit-as-mediation” view states that knowledge-related factors could determine the usage and design of specific organizational systems, such as management accounting and control systems. This could, in turn, facilitate information processing and bring about positive organizational outcomes. While the influence of knowledge-based assets on measurable performance has been examined extensively in the intellectual capital literature, little is known concerning the role of an organizational control system in fostering the management of intellectual capital as the most strategic asset for organizations. As such, this study primarily aims to explore what role a performance measurement system plays in terms of the diversity of measurement in the relationship between intellectual capital and organizational performance. We incorporate social capital into the general three-dimensional classification of intellectual capital; namely, human capital, structural capital, and relational capital, to provide a more comprehensive measure of intellectual capital. Further, we conceptualize the diversity of measurement by supplementing the original Kaplan and Norton's BSC model with a new perspective, social and environmental measures. Such integration of financial, customer, internal business process, learning, and growth, along with social and environmental measures could result in an overarching and robust conceptualization of performance measurement; a concept that was barely mentioned in previous literature. We conducted a questionnaire survey involving chief financial officers of 128 Iranian public listed companies. Using the partial least squares (PLS), we find that companies with higher levels of intellectual capital emphasize a greater diversity of performance measures. The findings also show that the diversity of measurement mediates the relationship between intellectual capital and organizational performance. This paper may offer guidance to companies concerning the competencies needed for securing positive organizational outcomes from their knowledge resources, such as intellectual capital.