Changes in accounting estimates: An update of priors or an earnings management strategy of “last resort”?

Evidence from prior research is mixed about whether accounting estimate changes are strategically motivated, on average, or whether they reflect new or updated information. To interpret this difference, we investigate, by category of material changes in accounting estimates, the association between estimate changes and subsequent restatements. We also explore the determinants of both income-increasing and income-decreasing estimate changes for different categories of estimate changes. We find that the motivations for and the determinants of estimate changes depend on the type of change and on whether the changes in estimates are income-increasing or income-decreasing. Overall, we conclude that when companies are motivated to bias earnings and they cannot do so by manipulating other within generally accepted accounting principles (GAAP) accruals, they sometimes resort to using estimate changes. Our more detailed investigation of estimate changes at the account level suggests a more nuanced view of the determinants of changes in accounting estimates. We develop a more complete model of the determinants of changes in accounting estimates than those used in this emerging literature, which should be of interest to accounting academics, regulators, audit practitioners and audit committee members.     

Multivariate residual‐based finite‐sample tests for serial dependence and ARCH effects with applications to asset pricing models

In this paper, we propose several finite‐sample specification tests for multivariate linear regressions (MLR). We focus on tests for serial dependence and ARCH effects with possibly non‐Gaussian errors. The tests are based on properly standardized multivariate residuals to ensure invariance to error covariances. The procedures proposed provide: (i) exact variants of standard multivariate portmanteau tests for serial correlation as well as ARCH effects, and (ii) exact versions of the diagnostics presented by Shanken ( 1990 ) which are based on combining univariate specification tests. Specifically, we combine tests across equations using a Monte Carlo (MC) test method so that Bonferroni‐type bounds can be avoided. The procedures considered are evaluated in a simulation experiment: the latter shows that standard asymptotic procedures suffer from serious size problems, while the MC tests suggested display excellent size and power properties, even when the sample size is small relative to the number of equations, with normal or Student‐t errors. The tests proposed are applied to the Fama–French three‐factor model. Our findings suggest that the i.i.d. error assumption provides an acceptable working framework once we allow for non‐Gaussian errors within 5‐year sub‐periods, whereas temporal instabilities clearly plague the full‐sample dataset. Copyright © 2009 John Wiley & Sons, Ltd.     

The Workweek of Capital and Capital Utilization in Manufacturing

Over the typical intervals of time studied in economic analysis, the flow of capital services is not a fixed proportion of the capital stock. Much of the short-run variation in capital services comes from the duration of operations. This paper presents new estimates of the workweek of capital from the Census Bureau' Survey of Plant Capacity (SPC), both for our own analytical use and to make workweek data more widely available to other researchers. The paper uses these workweek estimates to reconsider various results in the literature on capital utilization and productivity growth.     

Political uncertainty and stock market returns: evidence from the 1995 Quebec referendum

Abstract.  In this study, we investigate the short run effect of the 30 October 1995 Quebec referendum on the common stock returns of Quebec firms. Our results show that the uncertainty surrounding the referendum outcome had an impact on stock returns of Quebec firms. We also find that the effect of the referendum varied with the political risk exposure of Quebec firms, that is, the structure of assets and principally the degree of foreign involvement. JEL classification: G14, G15     

Asset-pricing anomalies and spanning: Multivariate and multifactor tests with heavy-tailed distributions

In this paper we propose a multivariate regression based assessment of the multifactor model first developed by Fama and French (1993). We study mean-variance efficiency and spanning, as well as factor relevance. In particular, we assess the relative contribution of the factors in accounting for asset pricing anomalies. Our tests are motivated by a finite-sample distributional theory, invariant to portfolio repackaging, and achieve size control exactly conditioning on observed factors, in normal and non-normal contexts. We focus on the multivariate normal and Student-t distributions, in which case we rely on the simulation procedure proposed and applied in Beaulieu et al. (2007). We also assess, from a finite-sample and multivariate test perspective, the specification and fit of the model and error distributions considered. In its most general form, the model considered includes six factors: the market portfolio, size, the ratio of book equity to market equity as well as term structure variables (a term premium and a default premium) and momentum. Portfolio returns (coming from assets traded at NYSE, AMEX and NASDAQ) from Fama and French's data base are analyzed on monthly frequencies from 1961–2000.Our results show the following. (1) Normality in model residuals becomes more dependable as a working hypothesis, over short time spans, when the book to market equity and size factors or when the momentum factor are accounted for. (2) Allowing for heavy tailed distributions empirically accommodates some stylized asset pricing anomalies. (3) Loadings on the term structure variables and the momentum factor seem (jointly, across portfolios) statistically insignificant at usual levels in many sub-periods. (4) Mean-variance efficiency is rejected in fewer subperiods allowing for non-normal errors in multi-factor settings; the book to market equity and size factors contribute importantly in reinforcing efficiency. (5) Enlarging the set of assets [from a one factor to a six factor model] does not reinforce the mean-variance spanning hypothesis, which is globally rejected at usual levels.     

Measuring Purchasing Groups Performance in the Health Care sector

For many decades, governments in Western countries have attempted to control health costs. One of the strategies used is through purchasing groups, since consolidated needs generate additional savings. Although various aspects of purchasing groups have been studied, performance measurement has been neglected; due to the lack of proper measures, tensions between the purchasing group and its members can't be addressed with more objective information. However, appropriate performance indicators are considered a prerequisite to successful collaboration. Using the in‐depth case of a Canadian purchasing group in the health care sector, this article suggests a set of performance indicators to measure results considering dimensions of the purchasing process and the interactions between the purchasing group and its members (who are also its customers). © 2018 ASAC. Published by John Wiley & Sons, Ltd.     

Labour and Environmental Standards: The ‘Lemons Problem’ in International Trade Policy

Environmental and labour standards have become an important international trade issue. This article examines and ranks alternative trade policy responses available to an importing country with concerns over such standards. While a full import embargo may sometimes be preferable to allowing unrestricted access to unlabeled noconforming imports, a partial embargo that allows imports which demonstrably conform to the standard is always a better policy; and labeling solutions, which separate conforming and non‐conforming imports, are typically better still. Consequently, full import embargoes based on non‐conformity with labour or environmental standards are poor policy choices and should generally remain prohibited by WTO rules.     

Who Supports Free Trade in Latin America?

This paper examines individual trade policy preferences across 17 countries in Latin America. The focus is on whether skilled or unskilled workers are more likely to support liberalised trade and on whether country characteristics, such as factor endowments, alter the preferences of skilled and unskilled workers. Based on the standard Heckscher‐Ohlin model and the Stolper‐Samuelson theorem, wage inequality in developing countries will decrease under free trade and unskilled workers will benefit. We find that on average skilled workers are more likely than unskilled workers to support free trade in Latin American countries. Separate country regressions reveal that this pattern is only statistically significant in 8 out of 17 Latin American countries. However, there are no countries in our sample in which unskilled workers are statistically more likely to support free trade than skilled workers, not even in the lowest skill‐endowed country in the sample. We also find that people from Latin American countries with higher GDP, faster growth, more cropland and a longer period of time since reform were more likely on average to support free trade.     

A multidimensional analysis of supply chain integration in canadian manufacturing

Supply chain management is a key element in companies' competitiveness. We surveyed 512 Canadian manufacturers, most of which were small or medium‐sized enterprises (SMEs). Our survey was structured around four dimensions of supply change integration, namely: nesting, collaboration, financial incorporation, and distancing. In this paper we describe the use of supply chain management practices and show that their use is dependent on the nature of the business partners (i.e., upstream or downstream positioning of partnership in chain logistics of businesses studied), business field (i.e., sector of activities in which the business operates), and organizational size. Our findings suggest that supply chain practices were used more intensively with clients than with suppliers. They also show that practitioners and scholars need to qualify the concept of integration which is often used in a one‐dimensional perspective. Copyright © 2010 ASAC. Published by John Wiley & Sons, Ltd.     

A note on the role of memory in commercial loan officers' use of accounting and character information

A concept called “the five C's of credit” is the basis of a theory about the role of memory in loan officers' credit analysis. It is predicted that recall of two related types of information, accounting and information about borrowers' character, is greater when facts are consistent with loan decisions and judgments than when they are inconsistent. Results of an experiment support the prediction when information consistency is denned relative to decisions whether to approve or deny loans, but not when it is related to judgments of the risk of nonpayment.