A Chain-Type Price Index for New Business Jet Aircraft

This paper presents a price index constructed to measure the real price and real output of corporate business jet aircraft. It employs a chained price index methodology to properly account for the effect of changes in aircraft quality and product lines on the price index. The index indicates that the average price level of corporate jets has significantly outpaced the general price level measured by the GDP deflator, nearly doubling the real price of the product over a 35-year period from 1968 to 2003, which could have negatively affected the demand for the product. Because the GDP deflator significantly understates the price increase in corporate jets, the industry’s real output is overstated when its nominal sales are deflated with a general price index. The paper suggests that an industry-specific price index allows more accurate analyses of real economic activity of an industry. The methodology used in this paper could be useful for other industries where product price movements vary significantly from the changes in the general price level. JEL Classification L160,L620     

Are Commercial Mortgage Defaults Affected by Tax Considerations?

We study whether tax considerations are an important determinant of commercial mortgage default. We also study whether large lenders are better informed, or better at interpreting information for lending purposes, and hence have lower foreclosure rates; whether lenders have more information on larger borrowers than smaller borrowers, and hence have lower foreclosure rates on larger loans; and whether commercial mortgage defaults are related to debt service coverage and loan-to-values, both initial and contemporaneous. The paper’s main findings are fourfold. First, holding all else equal, there is evidence that tax considerations influence investors’ decisions about when to “put” assets to lenders. The results are consistent with the argument of Constantinides (J Financ Econ 13:65–89, 1984). Second, the evidence suggests that large lenders are especially knowledgeable about commercial mortgage borrowers and commercial property markets, in that they have lower foreclosure rates than smaller lenders. Third, on the question of whether lenders have more information on larger borrowers than smaller borrowers, we find that larger loans have, on average, lower default rates than smaller loans. Fourth, the findings suggest that lower default rates are associated with higher debt service coverage ratios, both initial and contemporaneous.     

Business cycle accounting East and West: Asian finance and the investment wedge

While a large literature studies the causes of financial crises, little is known about the mechanisms by which crises lead to output drops. We perform an exploratory analysis of output drops by applying the Business Cycle Accounting (BCA) methodology developed by Chari et al. (2007) to a sample of 23 crises. The BCA procedure estimates the wedges, and thus the kinds of distortions, that are most relevant in explaining output movements in each episode. Our results make a case for separating East Asian crises, which are mostly driven by the efficiency and investment wedges, from crises elsewhere, which are mostly driven by the efficiency and labor wedges. These findings are consistent and complementary with studies of Asian financial systems, which highlight the influence of Japanese institutions and practices, including relationship-based as opposed to market-based lending, and reluctance to impose bankruptcy.     

Green accounting: Reflections from a CSR and environmental disclosure perspective

In this commentary, we reflect on Thornton's (2013) extension to his original CA Magazine article on environmental accounting (Thornton, 1993) as well as the original contribution. Given our background in social and environmental disclosure research, we question Thornton's narrow focus on environmental accounting as it relates to the debits and credits of financial reporting, and we attempt to illustrate the problems that voluntary environmental disclosure creates with respect to reduced incentives for companies to improve environmental performance. We conclude by identifying our concerns with the future of environmental accounting given the recent ‘rediscovery’ of the topic by mainstream accounting researchers.     

Non-linear adjustments on the excess sensitivity of consumption with liquidity constraints

This article investigates the role of domestic credit markets in explaining the excess sensitivity of private consumption to disposable income using heterogeneous panel data of 19 OECD countries over the last two decades. We find that the degree of the excess sensitivity has decreased as the liquidity constraints of households have been alleviated: the estimated time-varying coefficients for the marginal propensity to consume vary between 0.16 for the countries with low liquidity constraints and 0.38 for those with high liquidity constraints. We also provide evidence that the excess sensitivity has been more prominent after the global financial crisis in some advanced countries, such as Japan, Spain, and the United States, where sharp deleveraging of households has been ongoing.     

The impact of labour unions on external auditor selection and audit scope: evidence from the Korean market

We examine whether labour unions influence external auditor selection and audit scope. As a major user group of financial information, labour unions likely demand financial information of high quality and thus high-quality audits. As a union’s request for wage increases is likely strong when a firm is performing well, management facing wage negotiations with the labour union has incentives to manipulate earnings downward and may therefore prefer auditors who allow more discretion. Using union data unique to Korea during 2005–2008, we find that firms with a stronger labour union tend to choose higher-quality auditors (i.e. Big N or industry specialist auditors). We also find that unionization is negatively (positively) associated with positive (negative) abnormal audit fees and audit hours, and the effects are more pronounced when the union is stronger and more active. Given that departures from normal audit fees and audit hours in either direction arguably impair audit quality, this finding is consistent with our prediction of unions’ demand for high-quality audits. Overall, our findings suggest that labour unions play an important role in determining audit quality.     

Understanding college students' opinions on a smoking policy

Because of the negative aspects of smoking, the US National Center on Addiction and Substance Abuse has recommended that university campuses should be smoke free. The purpose of this research was to learn students' opinions about the effectiveness of a smoking policy on campus. The policy simply stated there should be no smoking within 30 feet of a building. However, no areas were designated as smoking areas. Using phenomenological inquiry, the authors observed and interviewed both smoking and non‐smoking students. Findings suggest that the existing smoking policy was weak and often ignored. Students felt the purpose of the smoking policy should be clearly stated because they were not sure if the policy was intended to make smokers quit or prevent them from smoking in front of doors. This study demonstrates the utility of careful observation as a prelude to the design and implementation of qualitative data collection methods. The results indicate observation is a valuable part of a qualitative research strategy.     

The effect of service quality on trust and commitment varying across generations

We examine the effect of service quality on consumer trust and commitment in the context of obtaining a financial loan and how these relationships vary across different generational cohorts. We find that the service quality offered by a loan officer has a significant effect on consumer trust towards a financial institution, which in turn influences consumer commitment to a financial institution for a future transaction. We also find that relative strengths of a few paths in the model differ across different age cohorts, indicating some generational variability in the relationship between service quality, trust and commitment.     

Household wealth accumulation and portfolio choices in Korea

This paper constructs a quantitative lifecycle model with uninsurable labor income and housing return risk to investigate how Korean households make saving and portfolio decisions. The model not only incorporates the special roles housing plays in the portfolio of households: collateral, a source of service flows, as well as a source of potential capital gains or losses, but also adds to existing models of wealth accumulation some unique institutional features present in Korea, namely the rental system (‘chonsae’) and the lack of a mortgage system. When the model is calibrated to match the Korean economy, several key features of the data are better able to be reproduced. The paper also analyzes the role of institutional features by comparing several alternative housing market arrangements to assess their impact on wealth accumulation, portfolio choices, and homeownership. A 10 percentage points reduction in down-payment requirement is associated with approximately 1 percentage point increase in the aggregate homeownership ratio in Korea. Lower down-payment also increases the fraction of aggregate wealth held in housing assets but lowers aggregate net worth with mixed demographic implications.     

How do Labor Unions Influence the Gender Earnings Gap? A Comparative Study of the US and Korea

Abstract

This paper provides a comparative study of the United States and Korea regarding the effects of unions on gender earnings gaps in 2004. Using datasets representative of the population of the US and Korea, this contribution shows that gender differences in the workers' observed characteristics and the unobserved component reduce gender earnings gaps in union jobs in both the US and Korea. Fringe benefits in the union sector attract women workers with higher labor market qualifications into the union sector and thereby reduce the gender earnings gap in this sector. The study finds that this self-selection process in the union sector is stronger in Korea than in the US, but the seniority-based wage system that prevails in the Korean union sector widens the gender earnings gap.