Abnormal real operations,real earnings management,and subsequent crashes in stock prices

We study the impact of firms’ abnormal business operations on their future crash risk in stock prices. Computed based on real earnings management (REM) models, firms’ deviation in real operations (DROs) from industry norms is shown to be positively associated with their future crash risk. This association is incremental to that between discretionary accruals (DAs) and crash risk found by prior studies. Moreover, after Sarbanes–Oxley Act (SOX) of 2002, DRO’s predictive power for crash risk strengthens substantially, while DA’s predictive power essentially dissipates. These results are consistent with the prior finding that managers shift from accrual earnings management to REM after SOX. We further develop a suspect-firm approach to capture firms’ use of DRO for REM purposes. This analysis shows that REM-firms experience a significant increase in crash risk in the following year. These findings suggest that the impact of DRO on crash risk is at least partially through REM.     

Motivating high‐impact innovation: Evidence from managerial compensation contracts

We investigate the relationship between Chief Executive Officer (CEO) compensation and firm innovation and find that long‐term incentives in the form of options, especially unvested options, and protection from managerial termination in the form of golden parachutes are positively related to corporate innovation, and particularly to high‐impact, exploratory (new knowledge creation) invention. Conversely, non‐equity pay has a detrimental effect on the input, output and impact of innovation. Tests using the passage of an option expensing regulation (FAS 123R) as an exogenous shock to option compensation suggest a causal interpretation for the link between long‐term pay incentives, patents and citations. Furthermore, we find that the decline in option pay following the implementation of FAS 123R has led to a significant reduction in exploratory innovation and therefore had a detrimental effect on innovation output. Overall, our findings support the idea that compensation contracts that protect from early project failure and incentivize long‐term commitment are more suitable for inducing high‐impact corporate innovation.     

Guest Editorial

Abstract

This study empirically examined the role of a personality trait, public individuation, in furthering our understanding of opinion leadership. Relevance of this new psychological dimension, and past findings on characteristics of opinion leaders are discussed. Discriminant analysis revealed that, in addition to personal involvement and product familiarity, public individuation was the only other variable which was important in distinguishing opinion leaders from non-leaders. Risk preference, open-mindedness, and mass media exposure, though correlated with opinion leadership, were not found to be important predictors of opinion leadership. Implications for advertisers are discussed.     

The Gall in Mother's Milk

How the 1981 WHO code on infant formula marketing came about: the roles played by Nestlé, the other manufacturers, and activist groups.     

Politics, policy and regional tourism administration: a case examination of Scottish area tourist board funding

The issue of Area Tourist Board (ATB) funding in Scotland has been of growing importance since 1996, when the Government empowered a reduction in the number of such Boards from 32 to 14. While much of the controversy surrounding this reduction in the number of Boards has centred on issues of the discharge of responsibilities, questions of ATB funding have recently been brought to the fore because of financial difficulties faced by several ATBs. This paper explores questions of ATB funding, beginning with an overview of Scotland's tourism administrative structure before proceeding to examine perceived difficulties with the role, structure and funding arrangements for the ATBs in the context of current debates to resolve these. With the ultimate objective of evaluating the most commonly propounded resolutions to the ATB funding problem, the paper describes and analyses opportunities for, and obstacles to long-term change, conluding that a possible palliative is a centralized funding mechanism tempered by safeguards to local accountability and the delivery of tourism services.     

Customer service—the missing dimension in marketing management

Although several writers have drawn attention to Customer Service as a vital ingredient for success in marketing there is still confusion over what is, how to measure it and hence how to manage it. Yet examples continue to emerge which suggest that Customer Service is the essence of the marketing concept in practice and therefore a source of differentiation and competitive advantage.

It is also suggested that the way firms deal with customer service is a more accurate reflection of their marketing orientation than organisational or other characteristics. A useful reminder that business is about creating and providing customer satisfactions would therefore seem appropriate and ways to improve Customer Service are suggested based on several case study examples.     

Ruling out pareto dominated monetary equilibria

It is well known that under nominal money supply rules accomplished through lump sum transfers, non-uniqueness and non-optimality of the resource allocation often obtains in monetary models. We show that uniqueness and optimality of the resource allocation obtains if the monetary authority conducts Friedman's rule through open market operations. Our result necessitates and we provide a clarification of existing irrelevance theorems for open market operations. Our result also provides a partial resolution of the uniqueness-efficiency conflict of nominal money supply rules raised by Woodford (Economic Theory 4 (1994) 345–380).     

Facts & figures: Value‐for‐money auditing in local government; Access to information

Although there have been restrictions on access to health care since the inception of the National Health Service (NHS), there has been increasing debate on rationing and priority-setting following the changes introduced from 1991. Much of this debate has been fuelled by the fact that local Health Authorities (HAs), working with limited budgets to purchase health care services for their local population, must set priorities in order to remain within their budget. Some commentators go further and argue that health care rationing is both necessary and inevitable. Others suggest that acceptance of the necessity of rationing may be self-defeating, and question the underlying assumptions. This article reviews some of the arguments and asks whether health care rationing is really necessary.     

Interpretation and Sustainable Tourism: The Potential and the Pitfalls

From the outset, proponents of sustainable tourism have, consciously or not, set great store by interpretation, and gradually the linkages between sustainable tourism and interpretation have begun to be developed. This discussion examines the potential benefits of linking interpretation and sustainable tourism and assesses a number of the pitfalls or difficulties which are involved. The potential benefits include improved visitor management, local economic and environmental gains and fuller community involvement. Among the several pitfalls of linking interpretation and sustainable tourism which are considered are the dangers of over-interpretation, intrusion, creating ‘quaint’ tourist landscapes, and those of elitism.