Review of Categorical Models for Classification Issues in Accounting and Finance

Recent studies have extensively used the logit or probit models for classification problems in accounting and finance. More than 289 articles in prestigious journals have used these or similar methods from 1989 through 1996. This paper reviews several categorical techniques and compares the performance of logit or probit with alternative procedures. Intuitive and mathematical explanations of how the models examined differ in terms of underlying assumptions and other attributes are provided. The alternative techniques are applied to two substantive research questions: predicting bankruptcy and auditors' consistency judgements. Four empirical criteria provide some evidence that the exponential generalized beta of the second kind (EGB2), lomit, and burrit (all new to the accounting and finance literature) improve the log-likelihood functions, and the explanatory power, compared with logit and other models. EGB2, lomit and burrit also provide significantly better classifications and predictions than logit and other techniques.     

Call Options, Points, and Dominance Restrictions on Debt Contracts

We analyze the impact of a contract's length, callability, amortization, and original discount by arbitrage methods. Among instruments that are callable without penalty, longer instruments command a higher interest rate because the borrower possesses the option of repaying relatively more slowly. However, the rate on longer self-amortizing loans cannot be substantially larger than for shorter ones because the payments decrease with contract length. Bounds on the trade-off between points and rate for callable debt are characterized using the trade-off for noncallable debt and the property that the value of the prepayment option increases with the loan's interest rate.     

Total factor productivity, the east Asian miracle, and the world production frontier

Total Factor Productivity, the East Asian Miracle, and the World Production Frontier. — The post WWII growth of the East Asian Tiger states has stimulated the discussion about its determinants. Young and Krugman hold that high capital accumulation rather than gains in efficiency or technological progress has spurred growth. Nelson and Pack, however, have recently criticized the methods of measuring technological progress. Applying the nonparametric approach to frontier production function determination and the Malmquist index of total factor productivity change, the authors take up this criticism. They calculate productivity indicators for a sample of 18 American, Asian, and European countries. For the Tiger states, their results confirm that capital accumulation was the main source of growth in 1960-1973, whereas they find evidence for an increasing importance of efficiency improvements for the growth in 1973-1990.     

A theory of system-transcending integration

The integration of national economies of a different level of development and an opposite quality of system will have a more profound influence in shaping the world of tomorrow. Therefore a theory of economic integration must be formulated which transcends the existing systems, i.e. a theory of co-integration.     

On seeking first to understand

There are fundamental differences between seeking-to-solve and seeking-to-understand. We are strongly biased toward seeking-to-solve on a number of dimensions. As a result, we are increasingly at risk in a world that is becoming increasingly complex and fast paced. We therefore need to understand these biases so that we can defend ourselves -- we need to develop (moral) concepts and methods of inquiry that transcend our dominant and pervasive analytical presuppositions.     

The future of the uplands

Upland areas provide UK society with many important functions, goods and services, but have experienced a number of disturbing trends and face an uncertain future. This paper outlines historic, current and future drivers of environmental, economic, socio-cultural and policy change in UK uplands, and assesses how these have affected or are likely to affect ways in which land is used and the provision of ecosystem services. Information is synthesised into scenarios summarising a range of possible futures anticipated for UK uplands to 2060 and beyond. Finally, innovations in science, technology, governance and policy are evaluated that could enable uplands to continue providing key ecosystem services under a range of scenarios. The paper concludes that many upland areas will need to be prepared for significant reductions in grazing and prescribed burning. Conversely, other areas could experience agricultural intensification, for example significant increases in grazing or an expansion of arable or bioenergy crops into upland valleys, due to anticipated increases in global demand for food and energy. These scenarios will take place in the context of climate change. Many may take place together and may interact with each other, with complex and unpredictable implications for the upland environment, economy and society. In this context, a number of advances are needed in science, technology and policy to maintain viable upland communities and the future provision of ecosystem services. These may include funding for ecological and hydrological restoration via carbon offsetting or other means. It may also involve advances in ecosystem service modelling, mapping and valuation, which through stakeholder participation could facilitate more integrated rural planning. New forms of environmental governance need to be explored that can empower those interested in developing upland economies to maintain thriving upland communities, while managing the ecosystem services they provide as efficiently as possible.