Age heaping and numeracy: looking behind the curtain

Age‐heaping‐based numeracy indicators have served as valuable tools to derive basic human capital estimates, especially for periods where other indicators are unavailable. However, the accuracy of individual age statements usually remains unknown, and due to the lack of precise information it can only be assumed that excessive occurrence of multiples of five in age distributions reflects inferior numerical skills. This article addresses this lacuna by identifying 162 individuals in two independent data sources: self‐reported age statements and independently kept records which are based on family heritage books and church registers. This method makes it possible to identify individual misreporting and the degree of accuracy of each individual. Findings show that not everyone who reported a multiple of five was reporting an incorrect age, nor was it the case that everyone who reported an age that was not a multiple of five was reporting an accurate age. The empirical analysis shows that the commonly used binary numeracy indicator is correlated with the observed degree of accuracy in age statements, and that a more sophisticated occupational background reduces this inaccuracy. These results tentatively suggest that the commonly used binary indicator measuring age heaping is a valuable proxy for numerical skills and occupational background in a population.     

Blockholder Exit Threats and Financial Reporting Quality

Recent theoretical and empirical studies suggest that blockholders (shareholders with ownership ≥ 5 percent) exert governance through the threat of exit. Blockholders have strong incentives to gather private information and sell their shares when managers are perceived to underperform. To prevent blockholders from selling their shares and the firm from suffering a stock price decline, managers align their actions with the interests of shareholders. As a result of the greater manager‐shareholder alignment, managers' actions are more likely to be in shareholders' best interest, and consequently there is less need for managers to manipulate earnings. Consistent with these predictions from economic theory, we find evidence that as exit threat increases, firms have higher financial reporting quality. Theory also predicts that the impact of blockholders' exit threat on financial reporting quality (FRQ) should increase as the manager's wealth is tied more closely to the stock price, and this is what we find. Our study contributes to the research on the impact of shareholders on FRQ and to an emerging literature on the impact of blockholders in financial markets. Blockholders play an important role in managers' reporting outcomes through their actions as informed investors.     

Do Analysts Matter for Corporate Tax Planning? Evidence from a Natural Experiment

We exploit an exogenous shock to analyst coverage as a result of brokerage house mergers and closures to examine whether financial analysts influence the tax‐planning activities of the firms they cover. Using a difference‐in‐differences design, we find that, on average, firms affected by broker mergers and/or closures experience a reduction in their GAAP (cash) effective tax rates (ETR) of 2.5 percent (2.6 percent), relative to control firms, translating into average tax expense (cash tax) savings of $34 ($35) million. The treatment effect is more pronounced among firms with lower pre‐event analyst coverage. To explore how analysts affect tax planning, we further document that the treatment effect is greater among firms that lose an analyst who provided an implied ETR forecast in the past, suggesting that analysts influence tax planning via their tax‐specific research efforts. In addition, we find that after merger/closure, weakly governed firms increase their use of aggressive tax strategies, and financially distressed firms experience a larger reduction of cash effective tax rates, relative to control firms. Overall, we provide evidence that a shock to analyst coverage sufficiently changes the cost‐benefit trade‐off of tax planning.     

DISCRIMINATION IN A MODEL OF CONTESTS WITH INCOMPLETE INFORMATION ABOUT ABILITY

We study contests with private information and identical contestants, where contestants' efforts and innate abilities generate output of varying qualities. The designer's revenue depends on the quality of the output, and she offers a reward to the contestant achieving the highest quality. We characterize the equilibrium behavior, outcomes, and payoffs for both nondiscriminatory and discriminatory (where the reward is contestant‐dependent) contests. We derive conditions under which the designer obtains a larger payoff when using a discriminatory contest and describe settings, where these conditions are satisfied.     

Do Education and Income Really Explain Inequalities in Health? Applying a Twin Design

We apply a twin design to examine the relationship between health and education and income. The estimated associations between health and education and income, controlling for unobserved endowments, at the twin‐pair level, are lower than estimates obtained via ordinary least‐squares (OLS) on the same sample. Thus, OLS‐based effects of education and income are biased, exaggerating the contribution of education and income to health inequality. The main part of health inequality is explained by within‐twin‐pair fixed effects, incorporating family background and genetic inheritance. It appears that education and income policies have less to offer for reducing health inequality than is usually assumed.     

Are entrepreneurial venture's innovation rates sensitive to investor complementary assets? Comparing biotech ventures backed by corporate and independent VCs

Entrepreneurial ventures are a key source of innovation. Nowadays, ventures are backed by a wide array of investors whose complementary asset profiles differ significantly. We therefore assert that entrepreneurial ventures can no longer be studied as a homogeneous group. Rather, we harness the inherent dichotomy in the profiles of independent VCs and corporate investors to study ventures' innovation outcomes. Our sample consists of 545 U.S. biotechnology ventures founded between 1990 and 2003 and backed by independent venture capitalists (VCs) or corporate VCs (CVC). We find CVCs' investees exhibit higher rates of innovation output, compared to independent VC‐backed peers. Moreover, the performance of CVC‐backed ventures is sensitive to their ability to leverage corporate assets, underscoring the role of CVC accessibility and FDA approval requirements as the mechanisms associated with CVC contribution. Copyright © 2014 John Wiley & Sons, Ltd.     

Extending multi-tenant architectures: a database model for a multi-target support in SaaS applications

Multi-tenant architectures (MTAs) are considered a cornerstone in the success of Software as a Service as a new application distribution formula. Multi-tenancy allows multiple customers (i.e. tenants) to be consolidated into the same operational system. This way, tenants run and share the same application instance as well as costs, which are significantly reduced. Functional needs vary from one tenant to another; either companies from different sectors run different types of applications or, although deploying the same functionality, they do differ in the extent of their complexity. In any case, MTA leaves one major concern regarding the companies’ data, their privacy and security, which requires special attention to the data layer. In this article, we propose an extended data model that enhances traditional MTAs in respect of this concern. This extension – called multi-target – allows MT applications to host, manage and serve multiple functionalities within the same multi-tenant (MT) environment. The practical deployment of this approach will allow SaaS vendors to target multiple markets or address different levels of functional complexity and yet commercialise just one single MT application. The applicability of the approach is demonstrated via a case study of a real multi-tenancy multi-target (MT²) implementation, called Globalgest.     

ASYMMETRY OF CUSTOMER LOSS AND RECOVERY UNDER ENDOGENOUS PARTNERSHIPS: THEORY AND EVIDENCE*

This article is inspired by real‐world phenomena that firms lose customers based on imprecise information and take a long time to recover. If consumers are playing an ordinary repeated game with fixed partners, there is no clear reason why recovery happens slowly. However, if consumers are playing an endogenously repeated game, a class of simple efficient equilibria exhibits the asymmetry of fast loss and slow recovery of customers after a bad signal. Exit is systematic, but formation of a new partnership is random. We also give empirical evidence of our equilibria at an individual‐firm level.