Estimating the Euler equation for output

New Keynesian macroeconomic models have generally emphasized that expectations of future output are a key factor in determining current output. The theoretical motivation for such forward-looking behavior relies on a straightforward generalization of the well-known Euler equation for consumption. In this paper, we use maximum likelihood and generalized method of moments (GMM) methods to explore the empirical importance of output expectations. We find little evidence that rational expectations of future output help determine current output, especially after taking into account the small-sample bias in GMM.     

The valuation relevance of R&D expenditures: Time series evidence

The literature on the valuation relevance of R&D investments is based primarily on cross-sectional regressions or panel data regressions with time and firm (or industry) fixed effects such that the parameters relating R&D to market value are cross-sectionally constant. In an alternative approach, this paper investigates the value relevance of R&D investment using an earnings-based time series valuation model. Model parameters are estimated for each firm separately. In contradistinction to the results obtained from cross-sectional and fixed effects panel models, this study finds weak empirical support at best for the value relevance of R&D expenditures at the firm level.     

Audit personnel salaries and audit quality

This study examines the relation between audit personnel salaries and office-level audit quality. We measure audit personnel salaries at the associate, senior, and manager ranks for Big 4 audit offices from 2004 to 2013, using unique individual-auditor-level data obtained from the U.S. Department of Labor. We find that offices that pay lower salaries have a higher percentage of clients that experience restatements. In related analyses, we also find lower levels of audit quality when audit employees are paid less, relative to other lines of service in accounting firms. Finally, we document positive and significant associations between salary and fees, suggesting that audit offices pass some of the cost of higher labor onto their clients. Overall, our findings provide important initial evidence on the role of audit salary and its relation to audit quality and audit fees.     

Leveraging Intercollegiate Athletics to Support Academic Giving at NCAA Division I Institutions

On average, National Collegiate Athletic Association Football Bowl Division (top-level of U.S. Intercollegiate athletics) schools raise 15% of their athletic budget from private fundraising. Key questions remain as to how increased emphasis on athletic fundraising influences academic giving. Some authors claim symbiotic effects while others assert that athletic gifts “crowd out” academic giving. The current study analyzes the largest single-institution set of individual donor data available to date. First time donors were more than twice as likely to give to athletics as academics. Fifty-one percent of donors making gifts to both athletics and academics (SPLIT donors) made their initial gift to athletics. Problematically, the conversion rate of athletic-only to split donors has fallen to less than 1%. On three different retention measures split donors have higher retention rates than athletic-only donors, who have higher retention rates than academic-only donors. Among split donors, 41.67% give their largest gift to support an academic program. Rather than competing, development officers would be better advised to systematically cultivating donors to support both athletics and academics.     

Are Unrealistic Assumptions/Simplifications Acceptable? Some Methodological Issues in Economics

Are unrealistic assumptions acceptable? If results are not changed in a misleading way, they are acceptable. The same assumption may be acceptable in one context and not in another. Assuming identical pairs of individuals in the parity and limit theorems in general equilibrium theory is acceptable as results are not changed substantially. The alleged equivalence of the first‐price and second‐price auctions is based on misleading assumptions; Coase's case against taxing pollution is based on a misleading all‐or‐nothing comparison. The contrasting results (neutrality versus non‐neutrality of money) of perfect versus imperfect competition in macroeconomics with important real‐world policy relevance are also used to illustrate the point.     

On a general periodic preventive maintenance policy incorporating warranty contracts and system ageing losses

In this paper, a general periodic preventive maintenance (PM) policy for a repairable revenue-generating system is developed and studied. We define ‘ageing losses’ as the difference in revenues generated by an ideal system (no ageing) and a real system that ages over the same period of consideration. It is assumed that preventive maintenance slows the system deterioration process and therefore reduces ageing losses. The proposed model is general in the sense that (1) both the warranty contracts and system ageing losses are incorporated in the maintenance cost modeling and (2) the implementation of PM actions does not have to be strictly periodic. A cost model is developed for the buyer under two decision variables—the calendar time of the first PM and the degree of each PM. Numerical examples are then presented to show the effectiveness of the proposed model. Sensitivity analyses are further conducted to investigate the impact of model parameters on optimal solutions.     

The contribution of Western fast food to fast-growing body mass in China

The westernization of Asian countries has led to the rapid expansion of Western-style fast-food restaurants, which are believed to be fueling an unprecedented rise in body mass in these countries. This study tests this belief using longitudinal data from China. Exploiting the opening of a Western-style fast-food restaurant in a particular community, we conduct a transition analysis to make a more convincing causal interpretation than the standard cross-sectional or fixed-effects approach. Considering several measures of fatness, we find no robust evidence of Western fast food having a substantial effect overall, but there is some indication of effect heterogeneity.