Auditors' legal liability,collusion with management,and investors' loss*

Abstract. The purpose of this paper is to model the legal exposure of auditors and to study the extent to which limitations on this exposure affect auditors' chosen audit intensity and collusion with management. Résumé. L'article qui suit a pour but de modéliser les risques auxquels sont exposés les vérificateurs de par la loi et de voir dans quelle mesure les limites de ce risque influent sur l'intensité de la vérification dont décident les vérificateurs et sur la collusion avec la direction.     

UNRELIABLE MARKETS AND PERISHABLE PRODUCTS

This paper considers the behaviour of a farmer facing an unreliable market for his perishable product. In the context of a simple model, where unreliability is characterised as demand uncertainty at the going market price, the optimal responses of a risk-averse farmer both to the introduction and to an increase in the level of unreliability are analysed. Conditions determining these responses are described and are shown to contrast markedly with the conditions determining a farmer's responses to uncertainty in other parameters such as price. Finally, the policy implications of the paper are discussed, with particular reference to the problem of unstable supply.     

The unintended consequences of grouping in tests of asset pricing models

We identify a number of unintended consequences of grouping when the capital asset pricing model is true and when it is false. When the model is true, grouping may cause fundamental problems with the most basic capital asset pricing and cross-sectional regression relationships. For example, with traditional grouping, the market portfolio is super-efficient––unless securities in each group are value weighted. Yet, when the model is grossly false, grouping may cause the model to appear to be absolutely correct. Ironically, the only way this can occur is when securities in each group are value weighted. To make matters worse, when the model is false, the slope of a cross-sectional regression of expected returns on betas fitted to grouped data may be either steeper or flatter than when the regression is fitted to ungrouped data. In other words, grouping may exacerbate the very problem it was meant to alleviate.     

Costs and benefits of Danish active labour market programmes

Since 1994, unemployed workers in the Danish labour market have participated in active labour market programmes on a large scale. This paper contributes with an assessment of costs and benefits of these programmes. Long-term treatment effects are estimated on a very detailed administrative dataset by propensity score matching. For the years 1995 – 2005 it is found that private job training programmes have substantial positive employment and earnings effects, but also public job training ends up with positive earnings effects. Classroom training does not significantly improve employment or earnings prospects in the long run. When the cost side is taken into account, private and public job training still come out with surplusses, while classroom training leads to a deficit.     

The Persistence of Profits in the Long Run: A New Approach

We present a trend‐based alternative to the standard first‐order autoregression model in persistence of profits studies. This is motivated by reservations over the interpretation of the standard model, and rests on a different concept of dynamic competition. A nine‐category taxonomy of long‐run persistence stereotypes is developed. Structural time series estimates are presented for a sample of UK companies. We find the null of long run competitive equilibrium not rejected in nearly a third of cases, but non‐eroding persistence to be present in around 60%.     

Currency Unions in Africa: Is the Trade Effect Substantial Enough to Justify their Formation?

Using estimates that currency unions double trade, we quantify the welfare effects of forming currency unions for the African regional economic communities and for the African Union as a whole. The potential increase in trade is shown to be small, and much less than that resulting from the adoption of the euro. Allowing for increased African trade does not overturn the negative assessment of African currency unions, due to asymmetries in countries’ terms‐of‐trade shocks and their degree of fiscal discipline.