Voluntary fair value disclosures beyond SFAS 157’s three-level estimates

Some firms voluntarily make disclosures about the controls and processes in place to ensure the reliability of fair value estimates. Consistent with these disclosures being driven by investors’ concerns about the reliability of their SFAS 157 estimates, we find that firms with more opaque estimates are more likely to provide such disclosures. We then examine whether these disclosures improve investors’ perception about the reliability of fair value estimates. We find that they are associated with higher market pricing and lower information risk for Level 3 estimates. Further analyses of the disclosures reveal that the following types of information are particularly important to investors: discussion of the external and independent pricing of fair value estimates and their proper classification according to the SFAS 157 hierarchy. Overall, our results suggest that the voluntary reliability disclosures that firms provide beyond SFAS 157’s three-level estimates help reduce investors’ uncertainty toward the more opaque fair value estimates.     

Volatility and Market Risk of Rubber Price in Malaysia: Pre- and Post-Global Financial Crisis

The volatility in rubber price is a significant risk to producers, traders, consumers and others who are involved in the production and marketing of natural rubber. Such being the case, forecasting the rubber price volatility is desired to assist in decision-making in this uncertain situation. The 2008 Global Financial Crisis caused some disruptions and uncertainties in the future supply or demand for natural rubber and thus leading to higher rubber price volatility. Using ARCH-type models, this paper intends to model the dynamics of the price volatility of Standard Malaysia Rubber Grade 20 (SMR 20) in the Malaysian market before and after the Global Financial Crisis. Additionally, Value-at-Risk (VaR) approach is implemented to evaluate the market risk of SMR 20. Our empirical result denotes the existence of volatility clustering and long memory volatility in the SMR 20 market for both crisis periods. Leverage effect is also detected in the SMR 20 market where negative innovations (bad news) have a larger impact on the volatility than positive innovations (good news) for post-crisis period. When tested with Superior Predictive Ability (SPA) test, FIGARCH model is the best model across five loss functions for short- and long-term forecasts for pre-crisis period. Meanwhile, over post-crisis period, FIGARCH and GJR GARCH indicate the superior out-of-sample-forecast results and better forecasting accuracy over short- and long-term horizons, respectively. In terms of market risk, the short trading position encounters higher risk or greater losses than the long trading position at both 1 and 5 % VaR quantile for pre-crisis period. In contrast, over post-crisis period, long traders of rubber SMR 20 tend to face limited gains but unlimited losses.

     

An economic evaluation of tofacitinib for the treatment of moderately-to-severely active ulcerative colitis: modeling the cost of treatment strategies in the United States

Abstract

Aims: To evaluate the cost differences between a treatment strategy including tofacitinib (TOFA) vs treatment strategies including adalimumab (ADA), golimumab (GOL), infliximab (IFX), and vedolizumab (VEDO) among all patients with moderate-to-severe ulcerative colitis (UC) (further stratified by patients naïve/exposed to tumor necrosis factor inhibitors [TNFis]).

Materials and methods: An Excel-based decision-analytic model was developed to evaluate costs from the perspective of a third-party US payer over 2 years. Efficacy and safety parameters were taken from prescribing information and published trials. All patients started induction therapy on the first treatment in the strategy and continued if efficacy criteria were met and no major adverse event occurred (in which cases they proceeded to the next treatment in the strategy).

Results: The cost per member per month (PMPM) of the TOFA–>IFX–>VEDO–>GOL strategy ($1.11) was lower than that of the ADA–>IFX–>VEDO–>GOL strategy ($1.34; Δ = $?0.23) among the TNFi-naïve population (n?=?204 patients out of a plan of one million members). Similarly, the use of TOFA before ADA (i.e. TOFA–>ADA–>IFX–> VEDO) was also associated with lower PMPM costs than the use of ADA before TOFA (i.e. ADA–>TOFA–>IFX–>VEDO): $1.15 vs $1.25 (Δ = $?0.10). Similar, and often larger, differences were observed in both the overall moderate-to-severe population and the TNFi-exposed population. Sensitivity analyses resulted in the same conclusions.

Limitations: Our model relied on efficacy data from prescribing information and published trials, which were not head-to-head and slightly differed with respect to methods. Additionally, our model used representative minor and major ADRs (and the associated costs) to represent toxicity management, which was a simplifying assumption.

Conclusions: This analysis, the first of its kind to evaluate TOFA vis-à-vis other advanced therapies in the US, suggests the early use of TOFA among both TNFi-naïve and TNFi-failure patients results in lower PMPM costs compared with other treatment alternatives.     

Internal Control and Operational Efficiency

In this study, we examine whether internal control over financial reporting affects firm operational efficiency. We find that operational efficiency, derived from frontier analysis, is significantly lower among firms with material weaknesses in internal control relative to firms without such weaknesses. We also find that the remediation of material weaknesses leads to an improvement in operational efficiency. Additional analyses indicate that the negative effect of material weaknesses on operational efficiency is stronger for firms with a greater demand for higher quality information for decision making, for weaknesses that are deemed to be more severe, and to a certain extent, for smaller firms. Overall, our study extends the literature by presenting systematic evidence on the effect of effective internal control on operational efficiency and informs the debate over the costs and benefits of the internal control reporting requirements under the Sarbanes‐Oxley Act of 2002.     

Corporate Tax Aggressiveness and Insider Trading

We examine the association between corporate tax aggressiveness and the profitability of insider trading under the assumption that insider trading profits reflect managerial opportunism. We document that insider purchase profitability, but not sales profitability, is significantly higher on average in more tax aggressive firms. We also find that the positive association between tax aggressiveness and insider purchase profitability is attenuated for firms with more effective monitoring and is accentuated for firms with a more opaque information environment. In addition, we provide empirical evidence that tax aggressiveness is significantly associated with greater insider sales volume in the fiscal year prior to a stock price crash. Finally, we find that the association between tax aggressiveness and insider purchase profitability weakens after the introduction of FIN 48, consistent with the increased transparency of tax positions under the new disclosure requirement reducing insiders' information advantage and hence their ability to profit from insider trading. To the extent that insider trading profits reflect managerial opportunism, our results are consistent with managers exploiting the opacity arising from tax aggressive activities to extract rent from shareholders, particularly those shareholders who sold their shares to the managers. Our findings are particularly important in light of the number of studies relying on the agency view of tax avoidance to develop arguments or to draw inferences.