The Effect of Marginal Tax Rates on the Advantage of Tax-Sheltered Savings Plans

Tax-sheltered savings plans such as the Individual Retirement Account are increasingly popular as a means of saving for future needs. The notion that these plans favor the highest tax bracket individual is investigated. The results demonstrate that in the early years of a single investment the advantage is to the higher tax bracket individual in terms of additional income generated by the tax deferral over that which would have been generated without such a deferral. However, the advantage shifts to lower tax bracket investors as the number of years invested increases, and further, the highest bracket investors generate no more additional income due to the tax shelter than investors in much lower tax brackets.     

Delegation to Encourage Communication of Problems

We study a principal's choice to centralize or delegate decisions to an agent when delegation can be used to encourage the agent to communicate potential problems. We find that the principal may choose centralization either to exercise better control over the agent's actions or to provide stronger incentives. Delegation emerges in equilibrium only if the costs of effort to acquire information for both the principal and the agent are sufficiently high. We find that increases in the principal's penalties for an incorrect decision may increase the principal's expected payoff, owing to optimal organizational responses. In addition, catastrophic risk, the risk of incorrectly accepting a defective audit (or product), may be greater under centralization than under delegation. Furthermore, catastrophic risk can be increased by well-intentioned legislative efforts to decrease such risk by, for example, increasing the agent's penalties for failing to take a corrective action, because the organizational structure may change.     

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.     

Consumer acceptability of foods using low salt levels and salt substitutes

The purpose of this research was to investigate the effect first of sodium reduction and second its substitution (using LoSalt) on the acceptability of eating quality of chilli con carne and ratatouille. Hedonic assessment tests were carried out to determine the lowest levels of sodium necessary to produce acceptable dishes. Triangle tests were carried out to investigate whether differences could be observed when table salt was replaced by a salt substitute. Total sodium content of the dishes was determined by flame photometry. In the case of both dishes the sodium concentration of the most preferred samples was found to be similar. However, the chilli con carne was found to be acceptable at all additions of table salt. It was also found to be acceptable without the addition of any salt. Total substitution of added table salt with LoSalt was also successful in both dishes with panel members being unable to differentiate between salt and LoSalt samples. Thus it would appear that successful dishes can be produced by reducing added table salt levels or by substituting LoSalt, without affecting overall acceptability of the products.     

Specialized knowledge and its communication in auditing*

Abstract. The purpose of this paper is to describe certain aspects of specialized knowledge communication in auditing. The paper discusses the possible organizational responses an audit firm could make when competitive markets require efficient knowledge sharing among auditors and when economies of scale opportunities through division of responsibilities exist. Experienced auditors were surveyed about their consultation with others in their firms for specific types of clients and for different phases of audit engagements. In general, the results suggest limits to expertise-related economies of scale in the audit setting studied. The required specialized knowledge seems to be close at hand and accessible in most engagements with little need to consult with nonlocal specialists. When consulted, however, the nonlocal specialists are believed to convey important information. Résumé. Les auteurs ont pour but de décrire certains aspects de la communication de connaissances spécialisées en vérification. Ils traitent des différentes réponses organisation-nelles que peut donner un cabinet de vérification aux exigences des marchés concurrentiels relatives au partage efficient des connaissances chez les vérificateurs et à la possibilité de réaliser des économies d'échelle grâce au partage des responsabilités. Les auteurs ont interrogé des vérificateurs expérimentés dans le but de déterminer s'ils consultaient d'autres vérificateurs de leur cabinet au sujet de certains types précis de clients et pour différentes phases des missions de vérification. De façon générale, les résultats obtenus donnent à penser que les économies d'échelle reliées à l'expertise dans les contextes de vérification étudiés sont limitées. Dans la plupart des missions, il semble que les connaissances spécialisées requises soient à portée de la main et facilement accessibles, sans qu'il soit nécessaire de consulter des spécialistes de l'extérieur. On croit cependant que les spécialistes de l'extérieur livrent de l'information importante lorsqu'ils sont consultés.     

Earnings and Occupational Attainment among Immigrants1

This paper examines the determinants of occupational attainment and the impact of occupation on earning among foreign‐born men using the U.S. 2000 Census. Years of schooling and proficiency in English are the key factors determining access to high‐paying occupations among immigrants. Foreign labor market experience, however, has a negative impact on current occupational status, especially among those in high‐status jobs, due to the limited international transferability of skills acquired on the job.     

Pricing Warrants: An Empirical Study of the Black-Scholes Model and Its Alternatives

This paper uses a sample of over 25,000 daily warrant prices to empirically investigate potential problems with the commonly used warrant pricing model proposed by Black and Scholes as an extension of their call option model. One problem seems to be especially important: the constant variance assumption of the dilution adjusted Black-Scholes model appears to cause biases in model prices for almost all warrants and over the entire sample period. We show that more accurate price forecasts are obtained with a specific form of the constant elasticity of variance model.