Strategic organizational conditions for risks reduction and earnings management: A combined strategy and auditing paradigm

Business world is complex and fast changing. This paper brings strategy paradigms to the auditing domain in an attempt to advance existing understanding on the audit risk reduction and firms’ economic performance. Grounded in existing literatures, we establish some crucial convergence points between the external auditors’ audit processes and the firms’ strategic management agendas. A theoretical framework that embeds some proposed strategic organizational conditions, which align organizational internal and external effects for performance, and the theories of the firm is then presented. The literature review suggests that the integration of the audit processes and the organizational conditions is inherently beneficial to both auditors and firms. The routine from such integration can be a tacit knowledge asset or capability hard to be emulated. It shall reduce audit risks and sustain earnings performance. Hence, the practices and leveragabilities of such routine merit further managerial and research attention. We highlight at the end how our works can be tested in future research.     

Cost-effectiveness of metformin plus vildagliptin compared with metformin plus sulphonylurea for the treatment of patients with type 2 diabetes mellitus: a Portuguese healthcare system perspective

Objective:

To evaluate the cost-effectiveness of vildagliptin plus metformin vs generic sulphonylurea plus metformin in patients with type 2 diabetes mellitus, not controlled with metformin, from a Portuguese healthcare system perspective.

Methods:

A cost-effectiveness model was constructed using risk equations from the UK Prospective Diabetes Study Outcomes Model with a 10,000-patient cohort and a lifetime horizon. The model predicted microvascular and macrovascular complications and mortality in yearly cycles. Patients entered the model as metformin monotherapy failures and switched to alternative treatments (metformin plus basal-bolus insulin and subsequently metformin plus intensive insulin) when glycated hemoglobin A1c >7.5% was reached. Baseline patient characteristics and clinical variables were derived from a Portuguese epidemiological study. Cost estimates were based on direct medical costs only. One-way and probabilistic sensitivity analyses were conducted to test the robustness of the model.

Results:

There were fewer non-fatal diabetes-related adverse events (AEs) in patients treated with metformin plus vildagliptin compared with patients treated with metformin plus sulphonylurea (6752 vs 6815). Addition of vildagliptin compared with sulphonylurea led to increased drug acquisition costs but reduced costs of AEs, managing morbidities, and monitoring patients. Treatment with metformin plus vildagliptin yielded a mean per-patient gain of 0.1279 quality-adjusted life years (QALYs) and a mean per-patient increase in total cost of €1161, giving an incremental cost-effectiveness ratio (ICER) of €9072 per QALY. Univariate analyses showed that ICER values were robust and ranged from €4195 to €16,052 per QALY when different parameters were varied.

Limitations:

The model excluded several diabetes-related morbidities, such as peripheral neuropathy and ulceration, and did not model second events. Patients were presumed to enter the model with no diabetes-related complications.

Conclusion:

Treatment with metformin plus vildagliptin compared with metformin plus sulphonylurea is expected to result in a lower incidence of diabetes-related AEs and to be a cost-effective treatment strategy.     

Do changes in credit ratings of REITs affect their capital structure decisions?

Existing research has highlighted the high leverage ratio of Real Estate Investment Trusts (REITs). To the extent that credit rating is important to REITs when sourcing for capital from the public debt markets, our paper investigates the effect of changes in REIT credit ratings on capital structure decisions while controlling for endogeneity effects. Our results indicate that REITs that face the prospect of an imminent credit rating downgrade issue approximately 11% less debt net of equity as a percentage of total assets than other REITs. This effect is asymmetric in that positive rating outlooks do not have a significant impact on REIT capital structure activities.     

On the deviations from purchasing power parity: the case of the Ringgit effective exchange rate

The paper investigates the extent to which the Ringgit exchange rate converges on its purchasing power parity level in the long run, using the cointegration and variance ratio tests. The results indicate that shifts in the real exchange rate are dominated by permanent stochastic shocks which prevent it from reverting to its PPP base level. Further analysis indicates that low frequency movements in the relative price of tradable goods and the external terms of trade cannot explain the long-run swing in the real exchange rate.     

Corporate Social Responsibility and the Operationalization Challenge for Global Tourism Organizations

Tourism businesses have increasingly sought to contribute to society through corporate social responsibility (CSR) initiatives. Larger tourism organizations normally seek to institutionalize CSR under their corporate CSR policy and strategy that is common for their whole organization. This presents challenges for organizations with global operations. This article examines the operationalization of CSR policy by hotel properties in coastal destinations in Thailand. The research found that stakeholders other than the hotels played pivotal roles in the implementation of CSR programs and that there was a preference for involvement by hotels in local projects, over those situated elsewhere in the country or internationally. These hotels tended to partner with other non-hotel stakeholders to execute their external CSR programs and for these to be directed at social issues rather than environmental issues. Overall it was concluded that there are limits to the extent that corporate headquarters may direct the implementation of CSR.     

Bivariate non-central negative binomial distribution: Another generalisation

Summary Another bivariate generalisation (Type V) of the non-central negative binomial distribution is considered. This generalisation is constructed (i) as a latent structure model; (ii) as an extension of an accident proneness model investigated by Edwards/Gurland (1961); and (iii) as a reversible stochastic counter model. The third construction gives, as a result, an apparently new formulation of the Edwards/Gurland model. The probabilities, moments, recurrence formulas and some properties are given. An application to the data used by Holgate (1966) is considered.     

Race and rehiring in the high-tech industry

Previous research reveals that economic dislocation generates racial inequality because minorities suffer greater consequences from job displacement-longer unemployment duration and greater downward mobility. These outcomes, however, are conditional on being permanently laid off. This article examines the factors, including race, that influence whether or not a worker becomes displaced. More specifically, the article analyzes the probability of being rehired after an initial layoff using administrative data collected on workers laid off after the severe 1985 sectoral recession in Silicon Valley’s semiconductor industry. The results from logit regressions show that, after controlling for observable worker and firm characteristics, black workers are less likely to be rehired than other workers.     

Delinquency and Default in Arms: The Effects of Protected Equity and Loss Aversion

This paper extends the extant literature in understanding the effects of equity and debt on delinquency and default by focusing on a variant of borrower equity where part of equity is “protected”. The CPF scheme in Singapore stipulates that the refund of borrower’s retirement funds utilized for property purchase prior to September 2002 takes priority over loan obligations. A decision to utilize CPF for property purchase actually increases ex post delinquency and default risk as it effectively reduces cash equity commitment. In particular, any erosion in house value that places protected equity at risk translates into potential wealth reduction or financial liability for the borrower. While loss aversion is evident for non-distressed sellers, the effect of equity losses for distressed borrowers is not as clear. Our research suggests that averting losses in committed equity may be a secondary consideration for borrower subject to income shocks, recognizing that delinquency and default are precursors to foreclosure. Interestingly, we find that the borrowers are strongly averse to incurring protected equity-induced wealth loss or financial liability. This study suggests that the first-lien “anomaly” associated with CPF refund may reduce delinquency and default risks for mortgage backed securities.

Analyst Activity and Firm Value: Evidence from the REIT Sector

This paper is the first to examine (1) properties of analyst forecasts and (2) effects of analyst following on firm value for all REITs on CRSP, Compustat and I/B/E/S. Our results suggest that REITs operate in an information environment that has changed over time. We find that for periods when the REIT industry was either in the developmental stage (pre-1992), or after other structural changes in the industry (post-2000), more analysts cover REITs and forecasts are more accurate and less biased. Further, we find that mortgage REITs are more transparent than other REIT structures and exhibit properties of analyst behavior that are different from other types of REITs. Our investigation into the effect of analyst coverage on REIT value suggests that analyst coverage increases REIT value (as measured by Tobin’s q) and that the causality does not run the opposite way.

Sponsor Backing in Asian REIT IPOs

This paper tests the significance of sponsors in REIT IPOs viz-a-viz quality certification, signal of firm value, and commitment to alleviate moral hazard concerns. We model the REIT pricing and sponsor share retention decisions within a simultaneous decision framework as motivated by Grinblatt and Hwang (Journal of Finance 44:393–420, 1989). We find positive and significant bidirectional relationship between the fraction of shares held by the sponsor in IPO and underpricing which is consistent with Grinblatt and Hwang’s (Journal of Finance 44:393–420, 1989) signaling model. Our results also support the commitment hypothesis that developers that spin off REITs tend to hold more shares at IPO, possibly to compensate investors for the potential moral hazard problems in the aftermarket.