Optimal commodity taxation with duty-free shopping

International travellers are frequently offered the opportunity to purchase a certain quantity of goods duty-free. Individuals differ in their opportunities to benefit from duty-free shopping, and we focus on the implications of these differences for optimal commodity taxation within a version of the optimal tax model of Mirrlees (Review of Economic Studies, 38, 175–208, 1971). We show how duty-free alters the constraints on the use of commodity taxes to reduce the distortionary costs of income taxation or to reflect externalities. Beyond characterising optimal taxes in the duty-free regime, we discuss conditions under which allowing duty-free would increase or reduce social welfare.      

A note on “Modelling exchange rate returns: which flexible distribution to use?”

Corlu and Corlu [Quant. Finance, 2014, doi: 10.1080/14697688.2014.942231] provided a novel modelling of exchange rate data for nine currencies using five flexible distributions. They stated that the generalized lambda, skew t and normal inverse Gaussian distributions ‘do a good job’. Here, we reanalyse the data and show that a distribution simpler than all of these fits at least as well as these distributions. We also find that the normal inverse Gaussian distribution provides good fits for only one of the data-sets.     

More than nothing? Accounting,business, and management studies,and the research audit

This paper argues that business school scholarship can be seen as the example par excellence of what we are calling extreme neo-liberalism. By extreme neo-liberalism we mean the coexistence in the same sphere of extreme externalization of costs and extreme regulation of the sources of value. We argue that this condition is most obvious in the research audits conducted in Britain, and spreading globally, audits that record both the extreme externalization in business scholarship of all the sources of the wealth expropriated by business, and at the same time, regulate the very labour that produces this extreme self-regulation. Although this self-regulated labour regards itself as complete, and although it regards its acts of externalization as acts of self-making, we consider the relation between pedagogy and scholarship in order to show how this pervasive form of self-regarding simply does not hold. We conclude by noting that if business scholarship persists in defining itself against all that makes wealth possible, and thus making itself, logically at least, worthless, it also opens the possibility of starting an investigation of wealth, worth and value, from another point of view, one not dependant of completing business, but competing with it.     

The role of “other information” in analysts’ forecasts in understanding stock return volatility

This study identifies “other information” in analysts’ forecasts as a legitimate proxy for future cash flows and examines its incremental role in explaining stock return volatility. We suggest that “other information” contains information about fundamentals beyond that reflected in current financial statements and reflects firms’ fundamentals on a more timely basis than dividends or earnings. Using standardized regressions, we find volatility increases when current “other information” is more uncertain and increases more in response to unfavorable news compared to favorable news. Variance decomposition analysis shows that the variance contribution of “other information” dominates that of expected-return news. The incremental role of “other information” is at least half of the effect of earnings in explaining future volatility. The results are more pronounced for firms with poor information environments. Overall, our results highlight the importance of including “other information” as an additional cash-flow proxy in future studies of stock prices and volatility.     

Financial Opacity and Firm Performance: The Readability of REIT Annual Reports

We examine the capital market pricing implications of firm disclosure opacity as measured by the linguistic readability of REIT annual reports. The SEC has expressed concern that firms selectively manage the transparency of disclosures in order to hide adverse information. After controlling for other non-experimental factors that influence the readability of REIT financial statements, we find (1) financial opacity is negatively related to reported firm performance, and (2) the residual opacity that remains after controlling for other determinants of annual report readability has incremental explanatory power for returns beyond the Fama and French (1992, 1993) risk factors. The opacity risk-return premium persists after controlling for a (heretofore undocumented) stark monotonic decrease in annual report readability following the Sarbanes-Oxley Act of 2002.     

Executive Compensation and Financial Performance Measures: Evidence from Significant Financial Institutions

We survey the use of financial performance measures in determining executive pay among significant Australian financial institutions. We document evidence of the pervasiveness with which externally disclosed non‐GAAP (non‐Generally Accepted Accounting Principles) financial measures are also used internally to determine variable remuneration, with the apparent popularity of cash profit after tax in short‐term incentives plans. Our evidence also highlights the increasing use of peer group‐adjusted measures (e.g., relative cash earnings per share and return on equity ranking against a peer group) in determining longer‐run incentives, despite the fact that members of the peer group do not measure financial performance in a directly comparable manner. Detailed analysis of the four major trading banks (Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank and Westpac) reveals differences in the way non‐GAAP earnings measures are calculated across the major banks, as well as some variation over time in the way individual banks measure performance. We also document evidence of non‐GAAP earnings restatements, with around 25% of non‐GAAP results subsequently being restated. These restatements are more likely to result in a downward revision of the initially reported non‐GAAP result than an upward revision. We therefore conclude that existing measures of financial performance used to determine senior executive compensation are not as ‘objective’, as might be assumed.     

Non-audit fees, institutional monitoring, and audit quality

We posit that the effect of non-audit fees on audit quality is conditional on the extent of institutional monitoring. We suggest that institutional investors have incentives and the ability to monitor financial reporting quality. Because of the reputation concerns and potential litigation exposure, auditors are likely to provide high audit quality, when they also provide non-audit services to clients, particularly when clients are subject to high institutional monitoring. We find evidence that, as non-audit fees increase, audit quality (measured by performance-adjusted discretionary current accruals and earnings-response coefficients) reduces only for clients with low institutional ownership but not for clients with high institutional ownership. Our results are robust after controlling for auditor industry specialization, firms’ operating volatility, size effect, and potential endogeneity between institutional ownership and audit quality.     

The Role of the Budget in Medium and Large UK Companies and the Relationship with Budget Pressure and Participation

This study examines the perceived and desired role of the budget in thirteen medium or large UK companies, where the budget was usually perceived as a forecast of future performance although in all companies there was a minority who perceived a target element. The budget was generally used as a control device by means of calculating and investigating variances. Further, pressure to meet the budget came most strongly from the individual, not senior management or accountants. In fact, greater pressure was considered beneficial and no dysfunctional consequences from budget pressure were apparent. There was only limited participation in the budget-setting process and there was a general desire for more. No systematic explanation of the different responses between companies was found but convincing company-specific explanations were discovered. Some interesting differences between US and UK practice were observed.     

Is prior director experience valuable?

Previous studies have investigated the effectiveness of directors in performing their monitoring and advising functions by examining characteristics such as independence, qualifications and professional expertise. In this study, we propose a more direct measure of director effectiveness – prior experience as a director. Using hand‐collected data from Australia, we find that both the depth (number of prior years) and breadth (number of current directorships) of a new appointee’s director experience is valued by shareholders at appointment. In particular, the market reaction is highest for appointees with the most prior director experience (two or more other current directorships in listed companies and four or more years of director experience) and when experienced appointees join less‐experienced boards.     

Imaginable surprise in global change science

Decisionmakers at all scales (individuals, firms, and local, national, and international governmental organizations) are concerned about reducing their vulnerability to (or the likelihood of) unexpected events, 'surprises.' After briefly and selectively reviewing the literature on uncertainty and surprise, we adopt a definition of 'surprise' that does not include the strict requirement that it apply to a wholly unexpected outcome, but rather recognizes that many events are often anticipated by some, even if not most observers. Thus, we define 'imaginable surprise' as events or processes that depart from the expectations of some definable community. Therefore, what gets labelled as 'surprise' depends on the extent to which what happens departs from community expectations and on the salience of the problem. We offer a typology of surprise that distinguishes imaginable surprises from risk and uncertainty, and develops several kinds of impediments to overcoming ignorances. These range from the need for more 'normal science' to phenomenological impediments (e.g., inherentunpredictability in some chaotic systems) to epistemological ignorance (e.g., ideological blocks to reducing ignorance). Based on the input of some two dozen scholars at an Aspen Global Change Institute Summer Workshop in 1994 *, we construct two tables in which participants offer many possible 'imaginable surprises' in the global change context, as well as their potential salience for creating unexpectedly high or low carbon dioxide emissions. Improving the anticipation of surprises is an interdisciplinary enterprise that should offer a sceptical welcoming of outlier ideas and methods.