Mutual Fund Incubation

Incubation is a strategy for initiating new funds, where multiple funds are started privately, and, at the end of an evaluation period, some are opened to the public. Consistent with incubation being used by fund families to increase performance and attract flows, funds in incubation outperform nonincubated funds by 3.5% risk‐adjusted, and when they are opened to the public they attract higher flows. Postincubation, however, this outperformance disappears. This performance reversal imparts an upward bias to returns that is not removed by a fund size filter. Fund age and ticker creation date filters, however, eliminate the bias.     

Plantation accounting and management practices in the US and the British West Indies at the end of their slavery eras1

This article examines comparatively the slavery systems of the US and the British West Indies before and after their respective emancipations. The primary focus is on how differential factors in the two plantation economies, such as racial control, labour structures, and governmental mandates, impacted the development of accounting and those performing accounting functions. Other factors, such as plantation size and ownership structure, not only influenced accounting practices but management issues as well. These factors resulted in the substantially greater development of accounting in the British Caribbean, both in terms of the number of practitioners and the volume and uniformity of accounting records.     

CROSS‐MARKET TRADING IN CHINA'S LARGE STATE‐OWNED COMMERCIAL BANKS, 2006–2011

This paper examines the differential between the share prices of China's large state‐owned commercial banks traded in Shanghai versus prices observed in Hong Kong. We find a significant role for investor sentiment, as reflected in relative price‐earnings ratios, in explaining these price differentials for all four banks. The share price in Shanghai tends to move ahead of the share price in Hong Kong when more positive sentiment in Shanghai makes local investors willing to pay more for the same predicted earnings. We also identify common trends in relative bank price‐earnings ratios and price differentials across the two markets. (JEL G14, G15)     

Trading Complex Assets

We perform an experimental study to assess the effect of complexity on asset trading. We find that higher complexity leads to increased price volatility, lower liquidity, and decreased trade efficiency especially when repeated bargaining takes place. However, the channel through which complexity acts is not simply due to the added noise induced by estimation error. Rather, complexity alters the bidding strategies used by traders, making them less inclined to trade, even when we control for estimation error across treatments. As such, it appears that adverse selection plays an important role in explaining the trading abnormalities caused by complexity.     

Client Characteristics and the Negotiation Tactics of Auditors: Implications for Financial Reporting

Although the financial statements of an organization are considered a product of management, prior research suggests that a company's financial statements may be affected by the negotiation strategy employed by the auditor when resolving audit differences with management. However, little subsequent research discusses the potential strategies that auditors may employ during the negotiation process. Our study extends the literature by investigating, in a post–Sarbanes‐Oxley environment, whether auditors will employ a reciprocity‐based strategy for the resolution of audit differences and what client characteristics (client management's negotiating style and client retention risk) increase the extent to which it is utilized. Further, we explore the potential effect of a reciprocity‐based strategy on the quality of the financial statements. Such a strategy involves bringing inconsequential items to management and subsequently waiving these items in an effort to encourage management to be more cooperative in the posting of significant income‐decreasing adjustments. The results of experiment 1 indicate that client management's negotiating style and retention risk have an interactive effect on auditors' use of a reciprocity‐based strategy. Specifically, auditors are more likely to utilize a reciprocity‐based strategy when management's negotiating style is competitive and client retention risk is high. Experiment 2 findings suggest that the auditor's use of reciprocity during negotiation can actually result in more conservative financial statements by helping the auditor manage perceived client pressures to waive or reduce proposed adjustments.     

Voluntary Disclosure of Intellectual Capital by Hong Kong Companies: Examining Size, Industry and Growth Effects Over Time

This paper investigates voluntary intellectual capital disclosure (ICD) by listed Hong Kong companies. It uses data taken from the years 1992, 1998 and 2002 to give a longitudinal account of voluntary ICD. Company size and industry effects on voluntary ICD are tested, as are the effects of time and level of disclosure on the financial success of a company. We find that levels of voluntary ICD are low but increase over time. Size and industry effects are found, while company financial success is positively correlated with the voluntary disclosure. These findings have implications for policy formulation and practice in relation to the reporting of intellectual capital.     

MARKET POWER,VERTICAL INTEGRATION AND THE WHOLESALE PRICE OF GASOLINE*

This paper examines empirically the relationship between vertical integration and wholesale gasoline prices. We use discrete and differential changes in the extent of vertical integration generated by mergers in West Coast gasoline refining and retailing markets to test for incentives to raise rivals' costs. The research design allows us to test for a relationship between vertical integration and wholesale prices, controlling for horizontal market structure, cost shocks and trends. We find evidence consistent with the strategic incentive to raise competitors' input costs. This suggests that vertical integration can have a significant impact on wholesale prices.