Excess Asset Reversions and Shareholder Wealth

The ownership of pension assets in a defined benefit pension plan is an unresolved issue in corporate finance. The issue is important because it defines the appropriate investment policy for a pension fund. In this paper, we summarize the ownership debate in the form of two mutually exclusive theories. We then focus on a recently popular event in pension finance, excess asset reversions. Our paper demonstrates the valuation effects associated with this event in a stochastic dominance framework. Under certain conditions, a reversion constitutes an expropriation of wealth from the participants and beneficiaries of the plan to the firm. Using data provided by the Pension Benefit Guaranty Corporation and the Center for Research in Security Prices tape, we examine the returns to the shareholders of 58 companies which conducted excess asset reversions between 1980 and 1984. Our results show that large abnormal returns accrued to these shareholders around the time of the reversion. These findings have implications both for the appropriate investment policy of pension funds and for public policy with respect to plan terminations.     

An Investigation of the Effects of Specialization in Audit Workpaper Review*

Abstract. This study examines the effect of specialization at the different stages of an audit workpaper review. Auditing literature advises focusing each review level on specific kinds of errors (i.e., seniors on mechanical errors and managers on conceptual errors), rather than having seniors and managers perform successive all-encompassing reviews. However, surveys of review practice suggest that all-encompassing reviews are common. To determine whether specialization at different levels of review improves reviewers' overall effectiveness, this study has 35 managers and 39 seniors actually perform a review of a realistic set of workpapers. Half the subjects performed specialized reviews, whereas the other half performed all-encompassing reviews. Overall accuracy rates in our study are consistent with prior research. In addition, the combined reviews of seniors and managers are more effective than those of either seniors or managers separately, demonstrating the benefits of hierarchical review. However, specialized review leads reviewers to be significantly less accurate than reviewers performing all-encompassing reviews. The results suggest specialization will not automatically improve review effectiveness, and that accounting firms may need to re-evaluate their review guidance and professional training on workpaper reviews.     

FAMILY LIFESTYLE AND ENERGY CONSUMPTION: AN ENERGY ADAPTATION MODEL*

The premise of the paper is that family energy consumption is a consequence of family lifestyle. To facilitate the development of policies that allow families to make satisfactory lifestyle choices as energy resources decline, we explore in detail the relationship between family lifestyle and energy consumption. A model is developed to illustrate the decision making processes that link individual and family behaviour patterns with energy consumption. A series of propositions is derived from the model that relates family values, family effectiveness and family decision making to energy prices, energy conservation adoption, attitude formation and family lifestyle changes. The model can be used by public and private decision makers to identify research and consumer information programs that will facilitate adoption of more energy efficient lifestyles.     

Nonlinearities in Exchange-Rate Dynamics: Evidence from Five Currencies, 1973–94

Although exchange rates appear to follow a random walk when tested against linear alternatives, the null hypothesis of a random walk is rejected against a cubic alternative which embodies the intuition that the rate of mean-reversion increases with distance from equilibrium. A possible theoretical foundation for such a model is suggested. The model is tested on bilateral real exchange rates between four major currencies, and on the real effective exchange rate of these four plus the Australian dollar. The cubic model consistently outperforms its linear counterpart and the results imply that real exchange rates are in fact stationary.