Naturalised epistemology and economics

The relevance to economics of naturalised epistemology (alsoknown as the naturalistic turn) from philosophy of science hasrecently been argued by economic methodologists, especiallyby D. Wade Hands (Reflection Without Rules: Economic Methodologyand Contemporary Science Theory, Cambridge, Cambridge UniversityPress, 2001). This concept is held by Hands to constitute partof the ‘new economic methodology’ that consistsof the ‘interpenetration of economics and science theory’.Contrary to Hands's case, naturalised epistemology is shownhere not to represent a qualitatively new concept, to possesslittle coherent meaning, and to be incapable of charting aninnovative way forward for economics. Although there are moreissues concerning naturalism bearing on economics than are notedby Hands, three specific limitations of naturalised epistemologyare discussed. These and other limitations are related to theeconomics examples Hands proposes suggesting the usefulnessof naturalised epistemology for economics.     

Income Shifting and International Transfer Pricing: A Three-Country Example

There is a long held belief that international transfer pricing (ITP) is used by multinational enterprises (MNEs) to minimize global tax liability. On the one hand, this is a rational economic response to market imperfections created by national governments. An alternative view decries such actions as anti-competitive and an abuse of power. This article ex-amines the potential benefit to enterprises of ITP manipulation when a real world combination of fiscal rules are simultaneously applied in practice. The countervailing impact of different national rules appears to result in ITP having a minor significance on parent after-tax income. Differential rates cause minor benefits but the absence of a form of tax, such as withholding tax, can provide substantial opportunities to maximize global after-tax income through the choice of transfer price. ITP can therefore provide benefits when national jurisdictions do not have consistent forms of taxation. In all the scenarios explored, major variations are apparent in the after-tax income of subsidiaries operating under different combinations of fiscal regimes and ITP policies. The tension between head-quarter and subsidiary management may be most pronounced when a subsidiary is located in a jurisdiction not having a complete range of tax forms.     

The Situations of Urban Inquiry: Thinking Problematically about the City

In the context of debates about the epistemological and ontological coherence of concepts of critical urban studies, we argue that urban concepts should be conceptualized problematically. We do so by aligning Michel Foucault's genealogical work on problematization with John Dewey's pragmatist understanding of problem formation and responsiveness. This approach brings into view the degree to which debates about urban futures are shaped by a variety of critical perspectives that extend beyond the academy and activism. We elaborate this argument through examples of global urban policy formation and practices of neighbourhood change. Approaching urban concepts problematically suggests a move away from the idea of critique as a form of scholastic correction towards an appreciation of the contested fields of practice in and through which critical understandings of urban problems emerge.     

book reviews

WOMEN FOR HIRE, A STUDY OF THE FEMALE OFFICE WORKER London School of Economics and Political Science A HANDBOOK OF INDUSTRIAL RELATIONS PRACTICE Personnel Director British Aluminium VOTES, VIRTUES AND VICES: TRADE UNION POWER THE TROJAN HORSE: UNION POWER IN BRITISH POLITICS School of Industrial & Business Studies University of Warwick WHITE COLLAR UNIONISM: THE REBELLIOUS SALARIAT Manchester Business School THE INTERNATIONAL YEARBOOK OF ORGANIZATION STUDIES Centre for European Industrial Studies University of Bath     

The hiring of accounting and finance officers from audit firms: how did the market react?

This study investigates the market’s reaction to companies hiring accounting and finance officers directly from their external audit firms—the auditor-to-client hiring practice referred to as the “revolving door.” The Sarbanes-Oxley Act (SOX) eliminated this hiring practice, reflecting concerns that such appointments may impair audit and financial reporting quality. However, it was also argued that companies may have benefited from hiring individuals already familiar with their systems, organization and personnel. To determine the prevalence of this hiring practice and how shareholders viewed these appointments, we examine 3-day cumulative abnormal returns around the announcements of newly appointed accounting and finance officers over the period 1985–2002. We find that the proportion of revolving door hires is relatively low (only 6.1% of all hires in our sample), but that when they did occur the market valued the revolving door appointments more positively than other appointments. Further tests reveal that the positive market reaction to revolving door appointments is driven mainly by smaller companies, and that these appointments are not associated with lower financial reporting quality when assessing subsequent discretionary accruals or the receipt of an Accounting and Auditing Enforcement Release (AAER). Overall, the low frequency of occurrence, investors’ positive perceptions, and the lack of association with deteriorated reporting quality indicate that the SOX restriction on revolving door appointments may have been unnecessary and will do little to protect shareholders.

Employer size–wage effects: evidence from matched employer–employee survey data in the UK

This paper employs a random sample of matched employer–employee data from the UK to test seven possible explanations for the positive relationship between employer size and pay. Individual wage equations show a large employer size–wage premium. We then control for a range of establishment-level variables, based on seven hypotheses typically advanced to explain this premium. Each establishment-level factor reduces the wage premium, but a sizeable premium nonetheless remains. In adjudicating on these hypotheses, we find a strong association between the internal labour market and the employer size–wage premium. This finding supports the theory that the employer size–wage effect may be due to the higher costs of turnover or monitoring in larger firms. However, we find contrasting effects for public versus private sector establishments.     

Employee Movements from Audit Firms to Audit Clients

Regulators have expressed concerns about the “revolving door” between auditors and clients, whereby audit employees move directly from audit firms to audit clients (i.e., “direct alumni hires”). Regulators are concerned that these direct hires could compromise audit quality, partly because these employees could have previously audited their hiring company's financial statements. In contrast, we examine accounting and finance executives who move indirectly from audit firms to audit clients and who could not have previously audited the hiring company's financial statements (i.e., “indirect alumni hires”). We show that indirect hires occur more often than the direct hires that have concerned regulators. We predict and find that both direct and indirect alumni hires are associated with lower rates of executive turnover and audit firm turnover. However, there is no evidence that the reduced rates of executive turnover are explained by managerial entrenchment or that these hires are associated with lower audit quality. Overall, our findings suggest that direct and indirect employee movements from audit firms to audit clients are beneficial to executives, audit clients, and audit firms because they reduce the incidence of costly turnover.