Testing for abnormal security-price performance under conditions of event-period uncertainty

This paper examines an event study test procedure based on cumulative average residuals (CARs) and a boundary-crossing probability for Brownian motion. The boundary-crossing test procedure is designed to detect abnormal security-price performance under conditions of event-period uncertainty. Simulations with daily security-return data show that the boundary-crossing test is well specified under the null hypothesis and has good power properties under the alternative hypothesis of abnormal security-price performance distributed over an event period of uncertain length.     

AN EMPIRICAL INVESTIGATION INTO THE IMPACT OF PROFIT SHARING SCHEMES OF EXECUTIVIES ON THE CONTENT OF CORPORATE SUBMISSIONS ON PROPOSED ACCOUNTING STANDARDS

This paper examines the comments submitted by UK companies on 20 proposed accounting standards to test the hypotheses that executives favor standards that increase, or dampen the variance of, accounting profit numbers on which their incentive remuneration is based. Test results were generally as hypothesised but only the profit variance outcomes were statistically significant. Allowing for political environment changes affected only the profit variance results. There was no evidence that the relative monetary size of bonus payments was a significant lobbying factor. No significant differences were found between the lobbying preferences of companies with or without executive incentive schemes.     

Stock Market Reactions to SFAS No. 96: Evidence from Early Bank Adopters

Statement of Financial Accounting Standards (SFAS) No. 96, “Accounting for Income Taxes,” issued by the Financial Accounting Standards Board (FASB) in December 1987 changed accounting for income tax recognition and accrual. The original deadline for implementation of SFAS No. 96 was December 15, 1988, and earlier adoption was encouraged. This study examines empirically the stock price impact of four pertinent announcement dates regarding SFAS No. 96 for 19 banks that adopted the statement in late 1987 and early 1988. Our results suggest that these early bank adopters have different characteristics from other banks that cause them to benefit from the changes in accounting for deferred taxes and explain their voluntary adoption of the standard.     

Do Small Banks have an Advantage in Lending? An Examination of Risk-Adjusted Yields on Business Loans at Large and Small Banks

Consolidation in the banking industry has sparked concern about the survival of small banks, particularly as it relates to the availability of credit to small businesses. However, if small banks have an advantage in processing credit information, compared to large banks, they should continue to survive in a competitive environment. We evaluate risk-adjusted commercial loan yields (gross yields less net charge-offs and the risk-free rate of return) at small and large banks for the period of 1996 through 2001. Our primary finding is that, after controlling for market concentration, cost of funds, and a variety of other factors that might influence yields, smaller banks earn greater risk-adjusted yields than larger banks. This result suggests that small banks make better choices from the available small business loans and is consistent with the notion that these banks have an information advantage in evaluating credit.     

A longitudinal study of the cause and consequences of changes in diversification in the U.S. pharmaceutical industry 1977–1986

The paper hypothesizes that diversification by firms based in the pharmaceutical industry during the 1977-86 time period was primarily undertaken to reduce the risks associated with being dependent upon a technologically dynamic environment. Consistent with this non-efficiency motive for diversification, declining economic performance is predicted. A longitudinal empirical analysis provides support for these propositions.     

The Determinants of Enterprise Risk Management: Evidence From the Appointment of Chief Risk Officers

Enterprise risk management (ERM) has captured the attention of risk management professionals and academics worldwide. Unlike the traditional "silo-based" approach to corporate risk management, ERM enables firms to benefit from an integrated approach to managing risk that shifts the focus of the risk management function from primarily defensive to increasingly offensive and strategic. Despite the heightened interest in ERM, little empirical research has been conducted on the topic. This study provides an initial attempt at identifying the determinants of ERM adoption. We construct a sample of firms that have signaled their use of ERM by appointing a Chief Risk Officer (CRO) who is charged with the responsibility of implementing and managing the ERM program. We use a logistic regression framework to compare these firms to a size- and industry-matched control sample. While our results suggest a general absence of differences in the financial and ownership characteristics of sample and control firms, we find that firms with greater financial leverage are more likely to appoint a CRO. This finding is consistent with the hypothesis that firms appoint CROs to reduce information asymmetry regarding the firm's current and expected risk profile.     

Food Safety Through Food Irradiation: Should it be Adopted More by the EU?

Food Safety Through Food Irradiation: Should it be Adopted More by the EU? Food Irradiation is a food safety technology that can eliminate disease‐causing germs from foods. Faut il encourager ?irradiation pour améliorer la sécurité des aliments en Europe? ?irradiation des aliments est une technique de sécurité alimentaire, qui permet ?en éliminer les germes pathogènes. De même que la pasteurisation du lait, le traitement par des radiations ionisantes permet de tuer les bactéries susceptibles de causer des infections ?origine alimentaire. Celles‐ci sont toujours présentes, et ont de graves conséquences tant pour la santé que pour ?économie. Aux Etats‐Unis, ?irradiation est une technique autorisée pour beaucoup de produits alimentaires. Dans ce pays, le nombre de restaurants et de supermarchés vendant des produits irradiés a augmenté de façon considérable au cours des trois dernières années. Des expérimentations économiques montrent que les consommateurs américains sont disposés à dépenser pour le b?uf irradié des sommes sensiblement supérieures aux suppléments de coûts associés à?irradiation. En Europe, ?utilisation de ?irradiation comme technique de conservation des aliments, susceptible de s'insérer dans des programmes de sécurité alimentaire rigoureux, est beaucoup plus limitée. Jusqu'ici, laliste des produits dont ?irradiation est autorisée dans ?ensemble de la Communauté Européenne ne contient qu'une seule catégorie de produits alimentaires:les herbes aromatiques, épices, et assaisonnements ?origine végétale. Avec la globalisation des circuits commerciaux et le renforcement, exigé par les agences de régulation, des normes de sécurité du champ à la fourchette, la généralisation de l0'irradiation des produits alimentaires devrait profiter à?ensemble des producteurs et des consommateurs européens. Nahrungsmittelsicherheit durch Bestrahlung von Nahrungsmitteln: Sollte dies in der EU verstärkt angewandt werden? Bei der Bestrahlung von Nahrungsmitteln handelt es sich um ein Verfahren zur Gewährleistung der Nahrungsmittelsicherheit, bei der krankheitsverursachende Keime in den Nahrungsmitteln abgetötet werden. Wie bei der Pasteurisierung von Milch können Bakterien mit Hilfe von ionisierenden Strahlen in Nahrungsmitteln abgetötet werden, die anderenfalls durch Nahrungsmittel übertragbare Erkrankungen hervorrufen würden. Diese Erkrankungen stellen eine permanente Bedrohung dar und Ziehen ernstzunehmende Konsequenzen für Gesundheit und Wirtschaft nach sich. In den USA dürfen verschiedene Nahrungsmittelarten bestrahlt werden. In den vergangenen drei Jahren hat die Anzahl der Supermärkte und Restaurants in den USA, die strahlungsbehandelte Produkte anbieten, enorm zugenommen. Erste ökonomische Versuche in den USA legen es nahe, dass die Bereitschaft der Verbraucher, einen höheren Preis für bestrahltes Rinderhackfleisch zu zahlen, sehr viel höher ist als die mit der Bestrahlung verbundenen zusätzlichen Kosten. Die Anwendung der Bestrahlung von Nahrungsmitteln als Werkzeug zur Gewährleistung der Nahrungsmittelsicherheit, welches die strengenNahrungsmittelsicherheitspro‐gramme ergänzen könnte, ist in Europa eher begrenzt. Bislang handelt es sich bei den Produkten, die für die Bestrahlung innerhalb der gesamten EU zugelassen sind, nur um eine einzige Nahrungsmittelklasse: getrocknete aromatische Kräuter und Gewürze. Durch die zunehmende Nachfrage der Aufsichtsbehörden nach Nahrungsmittelsicherheit ?vom Stall bis zum Teller? und die Globalisierung des Nahrungsmittelhandels könnten die Produzenten und Verbraucher in der EU von einer verstärkten Anwendung der Bestrahlung von Nahrungsmitteln profitieren. Like pasteurization of milk, treating food with ionizing radiation can kill bacteria that would otherwise cause foodborne disease. Foodborne illnesses are ever present and have serious health and economic consequences. In the US, food irradiation is approved for use in various foods. The number of supermarkets and restaurants in the US that offer irradiated products has increased dramatically in the last three years. Preliminary economic experiments in the US suggest that consumer willingness to pay for irradiated ground beef is substantially greater than the additional costs associated with irradiation. The use of food irradiation as a food safety tool that could complement rigorous food safety programmes is rather limited in Europe. So far, the list of products authorized for irradiation within the whole EU contains only a single food category: dried aromatic herbs, spices, and vegetable seasonings. With increasing demand by regulatory authorities on food safety from ‘farm to fork’ and the globalization of food trade, EU producers and consumers may benefit from wider adoption of irradiation of food products.     

Costs of financial instability, household-sector balance sheets and consumption

Extant work on costs of financial instability focuses on fiscal costs and declines in aggregate GDP following banking crises. We estimate effects of banking and currency crises on consumption in 19 OECD countries, showing consumption plays an important role in the adjustment following a crisis, and effects are not captured solely by the impact of crises on standard consumption determinants, income and wealth. Additional effects, attributable to factors such as time-varying confidence, uncertainty and credit rationing, are aggravated by high and rising leverage, despite financial liberalisation easing liquidity constraints. High leverage implies that banking crises taking place now could have greater incidence than in the past.     

Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local U.S. Markets

This paper tests how competition in local U.S. banking markets affects the market structure of nonfinancial sectors. Theory offers competing hypotheses about how competition ought to influence firm entry and access to bank credit by mature firms. The empirical evidence, however, strongly supports the idea that in markets with concentrated banking, potential entrants face greater difficulty gaining access to credit than in markets in which banking is more competitive.