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Tread lightly through these accounting minefields.

In the current economic climate, there is tremendous pressure--and personal incentive for managers--to report sales growth and meet investors' revenue expectations. As a result, more companies have been issuing misleading financial reports, according to the SEC, especially involving game playing around earnings. But it's shareholders who suffer from aggressive accounting strategies; they don't get a true sense of the financial health of the company, and when problems come to light, the shares they're holding can plummet in value. How can investors and their representatives on corporate boards spot trouble before it blows up in their faces? According to the authors, they should keep their eyes peeled for common abuses in six areas: revenue measurement and recognition, provisions and reserves for uncertain future costs, asset valuation, derivatives, related party transactions, and information used for bench-marking performance. If a disaster strikes, it will most likely be in one of these accounting minefields. This article examines the hazards of each minefield in turn, using examples like Metallgesellschaft, Xerox, MicroStrategy, and Lernout & Hauspie. It also provides a set of questions to ask in order to determine where a company's accounting practices might be overly aggressive. For those whose greatest interest is in fairly valuing the business--not presenting it in the best possible light--these questions are the first line of defense against creative accounting. Accounting game players are adroit, but it's both foolish and dangerous, contend the authors, to declare oneself ignorant and hence powerless against their machinations. They argue that members of corporate boards need to be financially literate.     

Responses to externally induced innovation: Their effects on organizational performance

Innovation may be externally induced; that is, an external threat or challenge such as the accident at the Three Mile Island (TMl) nuclear power plant sets the stage for outside parties such as the Nuclear Regulatory Commission (NRC) to propose that new practices be adopted. Managers then must make choices about how their organizations will respond. This study shows how prior performance can affect organizational responses and how these responses in turn can affect subsequent performance. Vicious cycles are shown to exist in which poorly performing organizations respond with rule-bound behavior, a response which only perpetuates their poor performance. Better-performing organizations, on the other hand, retain their autonomy, a response which reinforces their strong performance.     

Olive oil in the EC: Gift from the gods or Trojan Horse

The European Commission fears huge olive oil surpluses as a result of Spain's accession to the Community. It believes it can prevent this, at great cost, by increasing consumer aid for olive oil and adopting a protectionist policy towards other vegetable oils and fats. Thus, the burden would be shifted to consumers of other products and the outside world. Trade relations would suffer. The author considers that the Commission's analysis is unfounded and the Commission's remedies should be questioned. The author also points to possible budgetary savings in the Community's expenditure on olive oil.     

A spectral decomposition for structural VAR models

Based on structural VARs, this paper proposes a spectral decomposition which allows to infer the effects of changes in one variable on the other variables in the frequency domain. It is shown that there is a close relationship between this concept and conventional forecast error variance decomposition techniques for VARs. An empirical example demonstrates the usefulness of this additional tool in analyzing the relationships among time series.     

Information inductance and its significance for accounting

Information inductance is the process whereby the behavior of an individual is affected by the information he is required to communicate. Inductance is seen to be a formally distinct, useful and necessary concept in its own right for an informational approach to the study of behavior in social systems. This is demonstrated by reference to the particular case of accounting information—both for internal reporting in the firm and the firm's external reporting.     

Long waves,depression and innovation

Summary Schumpeter's (1939) proposition concerning long economic cycles which are given impetus by waves of radical innovations has been strongly criticized by Kuznets (1940). It is argued that in view of more recent research. Schumpeter's proposition appears to be highly realistic: First, there is evidence in recent history of a long wave pattern in indicators of general economic activity of various countries; secondly, innovation data on various definitions independently confirm that radical innovations are not distributed randomly over time but tend to cluster in the late depression and early upswing period of the long waves; thirdly, arguments are brought forward to explain the waves of innovations as an endogenous element of the long wave process.My research was supported by grants from the Dutch Ministry of Science Policy and by the Ministry of Economic Affairs.     

The Case for Economic Thought

Does the current state of the British economy provoke a sense of déjà vu? Sir Alfred Sherman, the co-founder and former Director of Studies at the Centre for Policy Studies, argues that monetarism is not enough.     

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