NATIONAL DEFENSE, OIL IMPORTS, AND BIO-ENERGY TECHNOLOGY

Terrorist disruptions of crude oil supplies anywhere in the world now pose a serious threat to the U.S. economy. Price shocks from terrorist acts could have a pervasive negative effect on producer costs and consumer behavior, with the potential to derail the current eco-nomic recovery. The authors pro-pose insulating U.S. energy prices from world price volatility by gradu-ally eliminating imports of crude oil from non-Western Hemisphere sources.
The U.S. now operates with half of its crude supply from offshore sources. As much as half of these imports could be replaced by ex-panded production from projects that have been shelved for political reasons or because prices are cur-rently too low. The remainder could come from an extensive and cur-rently untapped supply of crude oil substitutes, particularly bio-energy sources such as ethanol from corn and switchgrass. These sources would be much less vulnerable to terrorist disruption.
The authors also argue that the expected costs of pursuing a strat-egy of eliminating imports would not be nearly as large as the con-ventional wisdom suggests. Even though crude prices would be some-what higher than current levels, they would also be much more stable, and this price stability would help promote a stronger and more secure economy in the long run.     

The Economics of Wind Energy

In the summer of 2008 the authors of this article met with Boone Pickens to discuss the centerpiece of the Pickens plan for moving the U.S. toward energy independence: the feasibility of wind power as a source for the production of electricity. That meeting, along with their survey of published sources, leads the authors to the following conclusions:

• •

  Wind power is an abundant and clean source of energy for the U.S. both now and in the future.
• •

  Wind power is now economically viable in some parts of the country, and would be viable throughout the wind-rich mid-section of the U.S. if we had a national transmission grid.

But developing such a grid faces several hurdles, including the cost of construction and the need for state-by-state approvals of interstate transmission lines. To overcome these obstacles, the authors offer the following policy recommendations:

• Federal oversight of the construction of the national transmission grid. Moving toward renewable sources of energy and reduced greenhouse gas from the use of coal changes the problem of managing electric power generation from a local to regional and national problem. This requires broader cooperation and coordination to ensure the construction and management of reliable sources of electric power.

• Identify adequate sources of financing. The positive economics of wind power suggest that wind farm development and transmission grid installation should attract sufficient private funding to fully develop the 20% wind solution. But because of the sheer size of the plan, completing it may require innovative financing structures that include the possibility of some combination of public and private funding sources.

     

Should Shareholders Have a Say on Acquisitions?

Shareholders of U.S. corporations have lost billions of dollars in acquisitions they never approved. In the United Kingdom, the listing rules give shareholders a binding say when targets are large relative to their acquirers. A transatlantic comparison of M&A activity suggests that if U.S. shareholders had a say on acquisitions, U.S. acquirers would do fewer value‐destroying acquisitions and their own shareholders would experience smaller losses. The authors also report finding a significant difference in the performance of the large U.K. deals that are subject to a mandatory vote and those that are not. The United States has given shareholders a mandatory say on pay. Is it time for U.S. shareholders to have a binding say on corporate acquisitions?     

University of Texas Roundtable on Financing and Managing Energy Investments in a Low‐Price Environment

During the past 18 months, the U.S. oil industry has seen oil prices plunge from well over $100 a barrel to under $30. In a session that was part of a recent Private Equity Conference at the University of Texas in Austin, the CEO of a small independent producer and a representative of a large global oil and gas company discussed the challenges of financing and operating energy companies in today's low‐price environment with the director of energy research at a brokerage firm, the senior partner responsible for the natural resource investments of a well‐known private equity firm, and the head of the oil and gas restructuring practice of a national law firm. The panelists appeared to reach a consensus on at least the following three arguments:

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The prospects for synthetic fuels in the UK

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Cash balance pension plans: A case of standard-setting inadequacy

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Exchange rate variability and monetary policy under rational expectations: Some Euro-American experience 1973–1979

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Oil price shocks and their transmission mechanism in an oil-exporting economy: A VAR analysis informed by a DSGE model

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Possible consequences of very large-scale use of unconventional energy sources

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Energy scenarios: Toward a new energy paradigm

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关税冲击与中国进口行为

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Director–Liability–Reduction Laws and Conditional Conservatism

We study nonofficer directors’ influence on the accounting conservatism of U.S. public firms. Between 1986 and 2002, all 50 U.S. states enacted laws that limited nonofficer directors’ litigation risk but often left officer directors’ litigation risk unchanged. We find that conditional conservatism decreased after the staggered enactments of the laws, which we attribute to less nonofficer director monitoring of financial reporting in affected firms. Conservatism fell less when shareholder or debtholder power was high, consistent with major stakeholders moderating the influence of nonofficer directors. We verify that our results stem from reductions in the asymmetric timeliness of accruals and, specifically, its current assets components. We also show that affected firms switched away from Big N auditors more often, which reduced these firms’ commitment to conservative financial reports.     

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This study examines whether accounting quality changed following a switch from U.S. GAAP to IFRS. Using a sample of German high tech firms that transitioned to IFRS from U.S. GAAP in 2005, we find that accounting numbers under IFRS generally exhibit more earnings management, less timely loss recognition, and less value relevance compared to those under U.S. GAAP. In addition, after analyzing the accounting quality of firms that applied IFRS throughout the entire sample period, we find that, for the metrics suggesting a decline in accounting quality for both groups of firms, the change is significantly more pronounced for firms switching to IFRS from U.S. GAAP. Overall, our findings indicate that the application of U.S. GAAP generally resulted in higher accounting quality than application of IFRS, and a transition from U.S. GAAP to IFRS reduced accounting quality. Our findings provide the first evidence on the potential consequences of a switch from U.S. GAAP to IFRS.     

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