The Impact of the 2007 Liquidity Shock on Bank Jumbo Mortgage Lending

This paper explores the consequences of the collapse of the private‐label residential mortgage‐backed securities market in 2007 on banks’ originations of jumbo mortgages. We show that jumbo lending declined by more at banks that were more dependent on this market and were less well capitalized. In contrast, banks that had little dependence on this market and were well capitalized increased jumbo originations. These findings highlight how dependence on the secondary market may cause amplification of financial shocks, and the potential value of capital requirements that are higher during periods of economic growth in mitigating the amplification effects.     

ECONOMIES OF SCALE IN MINING – ASSESSING UPPER BOUNDS WITH SIMULATION

As part of the trend towards increasing levels of mechanisation and automation, mines are turning to the use of larger equipment in order to achieve economies of scale. Larger trucks, for example, result in fewer hauls and fewer drivers required to haul the same quantity of ore. resulting in lower production costs. This paper uses simulation to show that larger capacity trucks also have higher maintenance costs, primarily associated with lost production due to unscheduled downtime. Specific recommendations on how to estimate the scale and impact of these costs are included.     

Prospects: A Missing Piece of Current Selling Price Reporting

This article seeks to provide insights about a conceptual objection to current selling price reporting: that, in its determination of asset amounts, such reporting ignores the reporting entity's prospects (potential, promise, outlook) for achievement of possession of or of access to consumer general purchasing power beyond its achievement to date of such possession or access. The article argues that financial reports should provide (a) information that is helpful to the users to evaluate the prospects of the reporting entity, including financial statement information based on current selling price reporting, (b) a section of the income statement presenting amounts spent during the reporting period to enhance the reporting entity's prospects, and (c) various kinds of supplementary information to aid the evaluations, such as the kinds discussed in this article.     

Do Board Characteristics Influence Impression Management through Graph Selectivity Around CEO Changes?

Research has shown evidence of impression management through the selective use of graphs in financial reports of Australian firms changing chief executive officer. This paper examines whether boards with characteristics associated with strong corporate governance constrain impression management in the financial reports of Australian firms that change CEOs. Our tests of graph selectivity find that boards with a higher proportion of independent directors appear to be more effective in curbing any potentially opportunistic impression management by new CEOs in the period of their appointment.     

Pricing the School Lunch—A Consumer Problem

To what extent do rising prices for school lunches cause students to cease their purchases of the hot Type A lunch? How many who cease buying become eligible for free lunches? Will a high drop out rate for students who buy, accompanied by a moderate increase in the number receiving free lunches, lower Federal lunch costs? These and related questions, and implications are treated relying upon data from a study in Pittsburgh as a basis for discussion.     

How Wise Are Crowds? Insights from Retail Orders and Stock Returns

We analyze the role of retail investors in stock pricing using a database uniquely suited for this purpose. The data allow us to address selection bias concerns and to separately examine aggressive (market) and passive (limit) orders. Both aggressive and passive net buying positively predict firms’ monthly stock returns with no evidence of return reversal. Only aggressive orders correctly predict firm news, including earnings surprises, suggesting they convey novel cash flow information. Only passive net buying follows negative returns, consistent with traders providing liquidity and benefiting from the reversal of transitory price movements. These actions contribute to market efficiency.     

Making Sense of Cents: An Examination of Firms That Marginally Miss or Beat Analyst Forecasts

This paper examines the performance consequences of cutting discretionary expenditures and managing accruals to exceed analyst forecasts. We show that firms that just beat analyst forecasts with low quality earnings exhibit a short-term stock price benefit relative to firms that miss forecasts with high quality earnings. This trend, however, reverses over a 3-year horizon. Additionally, firms reducing discretionary expenditures to beat forecasts have significantly greater equity issuances and insider selling in the following year, consistent with managers understanding the myopic nature of their actions. Our results confirm survey evidence suggesting managers engage in myopic behavior to beat benchmarks.     

Investigating the Disconnect between Financial Knowledge and Behavior: The Role of Parental Influence and Psychological Characteristics in Responsible Financial Behaviors among Young Adults

Financial knowledge is an essential component in financial decision making; however, knowledge is insufficient to ensure responsible financial behavior. We investigate the weak association between financial knowledge and behavior by simultaneously testing the roles financial knowledge, parental influence, and individual psychological characteristics (self‐discipline and thoroughness) play in young adults' financial behaviors. Results from 2,712 respondents from the 1997 National Longitudinal Survey of Youth confirm there is a weak association between financial knowledge and behavior. Parental influence and self‐discipline positively associate with responsible financial behavior. We also investigate the moderating role of gender and observe that financial knowledge and parental influence improve women's financial behavior more than men, whereas being thorough has a larger impact among males. These findings suggest that considering social and individual psychological factors in financial education programs could improve program efficiency. The results also highlight the importance of adopting tailored financial education to suit gender differences.     

Incorrect Inferences When Using Residuals as Dependent Variables

We analyze a procedure common in empirical accounting and finance research where researchers use ordinary least squares to decompose a dependent variable into its predicted and residual components and use the residuals as the dependent variable in a second regression. This two‐step procedure is used to examine determinants of constructs such as discretionary accruals, real activities management, discretionary book‐tax differences, and abnormal investment. We show that the typical implementation of this procedure generates biased coefficients and standard errors that can lead to incorrect inferences, with both Type I and Type II errors. We further show that the magnitude of the bias in coefficients and standard errors is a function of the correlations between model regressors. We illustrate the potential magnitude of the bias in accounting research in four commonly used settings. Our results indicate significant bias in many of these settings. We offer three solutions to avoid the bias.     

Crowding Out and the Informativeness of Security Prices

Individual investors trade less agressively on any particular piece of information as more investors observe it. The trades of the new investors observing a piece of information “crowd out” some of the trades of the old investors who observe that same piece of information. This paper shows that when traders are risk averse, these crowding out effects lead the proportions of traders who choose to observe one signal versus another to differ from the proportions that maximize the informativeness of prices.