Accounting conservatism and corporate governance

We predict that firms with stronger corporate governance will exhibit a higher degree of accounting conservatism. Governance level is assessed using a composite measure that incorporates several internal and external characteristics. Consistent with our prediction, strong governance firms show significantly higher levels of conditional accounting conservatism. Our tests take into account the endogenous nature of corporate governance, and the results are robust to the use of several measures of conservatism (market-based and nonmarket-based). Our evidence is consistent with the direction of causality flowing from governance to conservatism, and not vice versa, indicating that governance and conservatism are not substitutes. Finally, we study the impact of earnings discretion on the sensitivity of earnings to bad news across governance structures. We find that, on average, strong-governance firms appear to use discretionary accruals to inform investors about bad news in a timelier manner.

Systemic Risk, Dollarization, and Interest Rates in Emerging Markets: A Panel-Based Approach

This study investigates the impact of systemic risks and financialdollarization on real interest rates in emerging economies.Higher systemic risks induce both higher real interest ratesand increased dollarization. Using appropriate instruments forthe dollarization ratio, the study overcomes the simultaneousequation problem and correctly estimates a negative coefficientfor the dollarization ratio in the interest rate equation. Itconfirms the theoretical prediction that a strategy of "dedollarizing"the economy will raise the equilibrium domestic real interestrate if the strategy fails to address fundamental macroeconomicrisks. Even so, it also finds that this effect is small, aftercontrolling for the risks of dilution and default. The resultsbring to light the systemic-risk reasons for high interest ratesin emerging economies—and contribute to evaluating thedifficulties of dedollarization policies.     

OPTIMAL DIVIDEND POLICY WITH MEAN-REVERTING CASH RESERVOIR

Motivated by empirical evidence and economic arguments, we assume that the cash reservoir of a financial corporation follows a mean reverting process. The firm must decide the optimal dividend strategy, which consists of the optimal times and the optimal amounts to pay as dividends. We model this as a stochastic impulse control problem, and succeed in finding an analytical solution. We also find a formula for the expected time between dividend payments. A crucial and surprising economic result of our paper is that, as the dividend tax rate decreases, it is optimal for the shareholders to receive smaller but more frequent dividend payments. This results in a reduction of the probability of default of the firm.     

Simple and inertial behavior: an optimizing decision model with imprecise perceptions

Summary Simplicity and inertial (or status-quo) bias are common features of actual decision rules used by real-life agents. In this paper, we provide one possible rationale for these features in terms of a model in which the decision maker is subject to imprecise perceptions about the consequences of actions that differ from (an already experienced) status quo.I am grateful to participants in seminars at Harvard University, University of Virginia, Virginia Polytechnic Institute, and Universitat Autonoma de Barcelona for helpful comments. Finantial support by the CICYT, project no. PB86-0613, and the Institute for Advanced Studies of the Hebrew University of Jerusalem in gratefully acknowledged.     

Low carbon procurement: An emerging agenda

The importance of climate change is shaping public policy internationally at several levels with much of the effort aimed at reducing the amount of carbon emissions released to the atmosphere through anthropogenic activity. Public procurement is a key financial mechanism available to governments to drive policy change and because of its scale can be also one of the most effective. During the past decade Low Carbon Procurement (LCP) has emerged as focal policy agenda in the UK and other countries. However, the implementation of LCP requires improved definition by governments and a greater understanding of Carbon Management tools and concepts such as Lifecycle Analysis on the part of procurement chiefs. Focusing on public procurement in the UK within the context of international policy development, this paper develops a working definition and model for LCP to guide future discussions on policy and practice. The paper presents an agenda of expected challenges for the implementation of LCP, including problems associated with weighing trade-offs between carbon and wider environmental or sustainability objectives, use of carbon tools and methodologies. The paper concludes by identifying key directions for further LCP research.     

The need to establish a policy restricting the use of foreign trademarks in developing countries: The case of Mexico

The paper shows some of the negative effects of the use of foreign trademarks in the developing countries, taking into account the experience in Mexico. It also refers to the enactment of the new Law on Inventions and Trademarks as a response to the problems arising from that use. It contains statistical data concerning the licensing agreements registered in the Mexican Registry for the Transfer of Technology, which demonstrate the importance of the use of foreign trademarks, its cost and the type of restrictive business clauses that those agreements include.     

Direct mail response factors for an industrial service

This article addresses the lack of quantitative research on industrial services marketing communications by providing a quantitative study of a direct mail promotion for an industrial service. Prenotification, the structure of the letter, the ethnic background of the signatory, personalization, and prequalifying the respondent were tested as factors influencing the response rate in the direct mail promotion. The results are useful as baseline information for current practitioners and to provide insights for the future development of theories of marketing communications for industrial services.     

Book Reviews

Daniel T. Sicular, Scavengers, Recyclers, and Solutions for Solid Waste Management in Indonesia, Monograph No. 32, International and Area Studies, Berkeley: Center for Southeast Asia Studies, University of California at Berkeley, 1992, pp. xii + 201. US$16.50.

Pearl lmada and Seiji Naya (eds), AFTA: The Way Ahead, Singapore: Institute of Southeast Asian Studies, 1992, pp. xv + 143. Paper: S$19.

J.W.T. Bottema, F. Dauphin and G. Gijsbers, Soybean Research and Development in Indonesia, Proceedings of a Workshop held in Cipayung, CGPRT No. 10, Bogor: CGPRT Centre, 1987, pp. 477.

Aman Djauhari, Adimesra Djulin and Irlin Soejono, Maize Production in Java: Prospects for Improved Farm-Level Production Technology, CGPRT No. 13, Bogor: CGPRT Centre, 1988, pp. 50.

World Bank Support for Industrialization in Korea, India, and Indonesia, Washington DC: Operations Evaluation Department, World Bank, 1992, pp. x + 65.

Cornelis Fasseur, The Politics of Colonial Exploifation: Java, the Dutch, and the Cultination System, translated by R.E. Elson and Ary Kraal, edited by R.E. Elson, Studies of Southeast Asia, Ithaca: Southeast Asia Program, Cornel1 University, 1992, pp. 266.

P. Bwmgaard (ed.), The Colonial Past: Dutch Sources on lndonesian History, Bulletin 323, Amsterdam: Royal Tropical Institute, 1991, pp. 64. Dfl. 20.00.

John Sullivan, Local Government and Community in Java: An Urban Case-study, Southeast Asian Social Science Monographs, Singapore: Oxford University Press, 1992, pp. xvii + 242. A$59.95.