Optimal reinsurance under general law-invariant risk measures

In recent years, general risk measures play an important role in risk management in both finance and insurance industry. As a consequence, there is an increasing number of research on optimal reinsurance decision problems using risk measures beyond the classical expected utility framework. In this paper, we first show that the stop-loss reinsurance is an optimal contract under law-invariant convex risk measures via a new simple geometric argument. A similar approach is then used to tackle the same optimal reinsurance problem under Value at Risk and Conditional Tail Expectation; it is interesting to note that, instead of stop-loss reinsurances, insurance layers serve as the optimal solution. These two results highlight that law-invariant convex risk measure is better and more robust, in the sense that the corresponding optimal reinsurance still provides the protection coverage against extreme loss irrespective to the potential increment of its probability of occurrence, to expected larger claim than Value at Risk and Conditional Tail Expectation which are more commonly used. Several illustrative examples will be provided.     

The Communication Skills of Accountants: What we Know and the Gaps in our Knowledge

Abstract

This paper critically reviews 19 studies published between 1972 and 2012 that investigated the written and/or oral communication skills of practicing accountants. The core aim of the review was to identify skills considered important and highlight gaps regarding what is known about existing and desired communication skills in the accounting profession. Key findings include that most studies did not detail the basis used to select the skills examined, used very broad skill-set categories and/or did not sufficiently incorporate information already established in the literature. Differing views on the importance of communication skills were found between educators and accountants. Knowledge gaps identified relate to the communication skills considered most important at varying career stages and different career paths, the specific types of oral and written communication skills needed and the role and importance of oral versus written and informal versus formal communication skills. A fundamental concern is that much of the existing communication skills research is crucially out of date. Of the 19 studies reviewed, only three have been published in the past decade. This suggests that further research is needed in the area.     

Non-rating revenue and conflicts of interest

Rating agencies produce ratings used by investors, but obtain most of their revenue from issuers, leading to a conflict of interest. We employ a unique data set on the use of non-rating services, and the associated payments, in India, to test if this conflict affects ratings quality. Agencies rate issuers that pay them for non-rating services higher (than agencies not hired for such services). Such issuers also have higher default rates. Both effects are increasing in the amount paid. These results suggest that issuers which hire agencies for non-rating services receive higher ratings despite having higher default risk.     

Can incentives mitigate student overconfidence at grade forecasts?

Research shows that college students exhibit bias in their forecasts of exam performance. Most students are overconfident in their forecasts, academically weaker students are the most overconfident, and top-performing students are underconfident. The literature identifies negative repercussions of these biases, including inadequate preparation for exams. A recurring attribute of this literature is the absence of meaningful incentives for students to forecast accurately. We implement an extra credit scheme to incentivize accurate forecasts. Depending on how forecast bias is measured, the scheme mitigates bias by top-performing students and marginally mitigates bias by other students. Our results have several implications. First, we illustrate an extra credit tool instructors can use to incentivize students to make more thoughtful assessments of their future exam performance. Second, we show how the association between incentives and forecast bias differs across student groups. Finally, we show that results in this literature are sensitive to how bias is measured.     

Short term real earnings management prior to stock repurchases

This study examines whether firms engage in income-decreasing real earnings management before open market stock repurchases to reduce the cost of stock buybacks. In the short run, managers have the ability to underproduce inventory and increase discretionary expenditures, thus decreasing current period earnings. We find that managers engage in both of these activities before repurchasing their firms’ shares, especially the latter. Also, companies increase their discretionary spending before making repurchases to a greater extent following the passage of the Sarbanes–Oxley Act of 2002 as well as when they are financially healthy and have high marginal tax rates. Finally, we document that firms with the most income-decreasing real earnings management experience the largest positive abnormal returns during the subsequent period. Our findings highlight the importance of considering firms’ use of real operating decisions, as opposed to just opportunistic disclosure practices, around significant corporate events, such as the repurchase of their own stock.     

Five dimensions of organizational citizenship behavior: Comparing antecedents and levels of engagement in China and the US

The purpose of this article is to investigate differences between the US and China in (1) employees’ level of engagement in the five dimensions of organizational citizenship behavior (OCB) identified by Organ (1988), and (2) the effects of perceived distributive justice and perceived supervisor support on OCB. Results suggest that Chinese respondents have a higher level of sportsmanship and courtesy, but a lower level of civic virtue than the US respondents. In addition, perceived supervisor support is significantly related to all five OCB dimensions for the Chinese sample, whereas for the US sample, perceived distributive justice is significantly related to conscientiousness and sportsmanship and marginally related to altruism. A follow-up study was conducted in the US to examine the direct effects of such cultural factors as individualistic/collectivistic orientation and power distance orientation on each of the five OCB dimensions, and their moderating effects on the relationships of the five OCB dimensions with perceived supervisor support and perceived distributive justice. Results suggest an effect of individualistic/collectivistic orientation on the five OCB dimensions. No relationship was found between power distance orientation and OCB. Moreover, the results did not support our predictions regarding the moderating effects of individualistic/collectivistic orientation and power distance orientation on the relationships between OCB dimensions and perceived supervisor support or perceived distributive justice.     

Perceptions of the ethicality of favors at work in Asia: An 11-society assessment

We explore macro-level factors that shape perceptions of the ethicality of favors in Asian workplaces using the subordinate influence ethics (SIE) measure. We also expand and use the crossvergence model to examine the cross-level relationship between socio-cultural (i.e., traditional/secular; survival/self-expression; in-group favoritism) and business ideology influences (i.e., human development level, control of corruption) on perceptions of favor-seeking at work. This study examines the perceptions of a total of 4,325 managers and professionals in a diverse set of 11 Asian societies: China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Singapore, South Korea, Taiwan, Thailand, and Vietnam. Our investigation focuses on both the “softer” (image management) and “harder” (self-serving) sides of subordinate influence attempts to seek favors, as well as the degree of ethical differentiation across these societies. Key results based on hierarchical linear modeling (HLM) suggest that both the World Value Survey’s socio-cultural values as well as in-group favoritism contribute to our understanding of influence behaviors in Asia. Likewise, level of human development and control of corruption also appear to be promising predictors of influence ethics. In sum, our results suggest that widening the scope of the crossvergence conceptualization of socio-cultural and business ideology influences engender a better understanding of differences in attitudes toward subordinate use of favoritism across Asian societies.     

Quadratic Hawkes processes for financial prices

We introduce and establish the main properties of QHawkes (‘Quadratic’ Hawkes) models. QHawkes models generalize the Hawkes price models introduced in Bacry and Muzy [Quant. Finance, 2014, 14(7), 1147–1166], by allowing feedback effects in the jump intensity that are linear and quadratic in past returns. Our model exhibits two main properties that we believe are crucial in the modelling and the understanding of the volatility process: first, the model is time-reversal asymmetric, similar to financial markets whose time evolution has a preferred direction. Second, it generates a multiplicative, fat-tailed volatility process, that we characterize in detail in the case of exponentially decaying kernels, and which is linked to Pearson diffusions in the continuous limit. Several other interesting properties of QHawkes processes are discussed, in particular the fact that they can generate long memory without necessarily being at the critical point. A non-parametric fit of the QHawkes model on NYSE stock data shows that the off-diagonal component of the quadratic kernel indeed has a structure that standard Hawkes models fail to reproduce. We provide numerical simulations of our calibrated QHawkes model which is indeed seen to reproduce, with only a small amount of quadratic non-linearity, the correct magnitude of fat-tails and time reversal asymmetry seen in empirical time series.