Auditors as modern pharmakoi: Legitimacy paradoxes and the production of economic order

Despite a continuous flow of audit failure episodes the auditing profession keeps on being seen as technically and morally legitimate. This paper seeks to better understand how the paradox that surrounds the legitimacy of financial auditing develops. Relying on René Girard's theoretical developments on scapegoating, sacrificial rituals and mythification, we argue that auditors are often (but not always) selected as sacrificial victims in the wake of major corporate scandals. Rationalized mythologies are mobilized in the process by which auditors are morally and/or legally condemned, in a way which maintains or strengthens the legitimacy of the financial audit function. Fundamentally speaking, we contend that financial auditors can be conceived of as modern pharmakoi, constituting a reservoir of victims to sacrifice whenever fraudulent financial statements surfacing in the public arena threaten to severely disrupt the credibility and smooth-functioning of capital markets. We confront our theoretical translation of Girardian theory to the empirical domain through an analysis of the breakdown of accounting firm Arthur Andersen, in which we examine how the legitimacy paradox surrounding the financial audit function is produced and reproduced. One of our key conclusions is as follows: despite claims which commonly celebrate the rationality of capital markets, the latter's functioning and the sustaining of economic order are predicated on the production and reproduction of mythologies.     

The Trade‐Off between Foreign Direct Investments and Exports: The Role of Multiple Dimensions of Distance

To serve foreign markets, firms can either export or set up a local subsidiary through horizontal foreign direct investment (FDI). The conventional proximity–concentration theory suggests that FDI substitutes for trade if distance between countries is large, while exports become more important if scale economies in production are large. This paper investigates empirically the effect of different dimensions of distance on the choice between exports and FDI. We find that different dimensions of distance affect exports and FDI differently. There is clear evidence of a proximity–concentration trade‐off in geographical terms: the share of FDI sales in total foreign sales increases with geographical distance. The positive relation between import tariffs and FDI intensity provides further evidence for a trade‐off resulting from trade costs. On the other hand, the share of FDI decreases with language differences and cultural and institutional barriers. The latter dimensions of distance thus affect FDI more strongly than exports.     

A simple and efficient estimation method for a non-linear demand system

A least-squares-type estimation method appears to be about as efficient as maximum likelihood with a known contemporaneous covariance matrix.     

book reviews

THE CHANGING CONTOURS OF BRITISH INDUSTRIAL RELATIONS Nuffield College, Oxford WORK AND PEOPLE: AN ECONOMIC EVALUATION OF JOB ENRICHMENT Lodon School of Economics THE HIDDEN MEANING OF PAY CONFLICT University of Edinburgh COMPETITION AND CONTROL AT WORK Centre for Research in Industrial Democracy and Participation Glasgow University     

A Monte Carlo test of Slutsky symmetry

This paper demonstrates how Barnard's (1963) Monte Carlo test procedure can be applied to Slutsky symmetry in demand systems.