The Role of Alternative Methodology on the Relation Between Portfolio Size and Diversification

An important concern in portfolio management is the number of securities needed to create a well-diversified portfolio. The number of securities that constitute a welldiversified portfolio, however, varies widely among studies. It is demonstrated that past conclusions are highly sensitive to the methodology used in quantifying diversification. This finding motivates the development of alternative methods that reduce the effect of repeated replications on test results. The first approach exploits the power curves of statistical tests, whereas the second approach suggests the use of more robust statistics. Both approaches provide researchers with guidance in the design of future diversification studies.     

THE ADOPTION OF NEW-ISSUE DIVIDEND REINVESTMENT PLANS AND SHAREHOLDER WEALTH

This study examines security price reactions to the adoption of new-issue dividend reinvestment plans. The sample is broken down into three subsamples: nonutilities, utilities adopting plans prior to May 1981, and utilities adopting plans after July 1981. For the nonutility corporations, no significant market reaction is observed. The utilities adopting prior to the change in the tax law experience a negative reaction the day following registration for the plan. Corporations adopting after July 1981, whose dividends receive preferential tax treatment, experience abnormal returns significantly greater than those of the utilities without preferential tax treatment.     

REINCORPORATION: MOTIVES AND SHAREHOLDER WEALTH

This study provides evidence on the wealth effects of reincorporation and the association of these wealth effects with motives to change the state of incorporation. There are no wealth effects observed on the announcement of the change for shareholders of corporations that change as part of a set of measures to defend against a pending or possible hostile takeover. However, for corporations that reincorporate without stated antitakeover intentions, a positive reaction is observed at the announcement of the change. These results indicate that the defensive posture assumed by reincorporating may offset other positive effects of the change in corporate charters.     

Attitude,Machiavellianism and the rationalization of misreporting

Audit standards around the world describe three factors, known together as the fraud triangle, that purportedly predict the likelihood of fraudulent financial reporting ( and ). The first two factors, opportunity and incentive/pressure, are largely accepted as being associated with fraud (,  and ), whereas the third factor, attitude/rationalization, remains a relative mystery ( and ). I conducted an experiment in which participants were provided the opportunity and motivation to misreport, in order to explore attitude and rationalization in greater detail. As expected, I found that participants whose attitude favors misreporting and individuals who are higher in Machiavellianism are both more likely to misreport; and participants who misreport experience negative emotions (affect). Of concern, however, is that higher Machiavellians who misreport feel significantly less guilt than others who misreport. When I changed the experimental setting and asked participants to think about common rationalizations they may use, in an attempt to reduce rationalizing before they made their reporting decision, significantly fewer participants misreported; while those who still misreported rationalized to an even greater extent. Implications for future research and fraud detection and prevention are discussed.