Valuation Implications of Unconditional Accounting Conservatism: Evidence from Analysts' Target Prices

We examine whether financial analysts understand the valuation implications of unconditional accounting conservatism when forecasting target prices. While accounting conservatism affects reported earnings, conservatism per se does not have an effect on the present value of future cash flows. We examine whether analysts adjust for the effect of conservatism included in their earnings forecasts when using these forecasts to estimate target prices. We find that signed target price errors (actual minus forecast) have a significant positive association with the degree of conservatism in forward earnings, suggesting that target prices are biased due to accounting conservatism. Cross‐sectional analysis suggests that more sophisticated analysts and superior long‐term forecasters adjust for conservatism to a greater extent than other analysts. In additional analyses, we explore the mechanism through which conservatism leads to bias in target prices. We first show that analysts' earnings forecasts are negatively associated with the degree of conservatism; that is, analysts include the effect of unconditional conservatism in their earnings forecasts. Based on alternative earnings‐based valuation models that analysts may use, our evidence suggests that analysts fail to appropriately adjust their valuation multiple for the effect of conservatism included in their earnings forecasts when using these forecasts to derive target prices. As a consequence, we find that, for extreme changes in conservatism, the bias in analysts' target prices due to conservatism leads to a distortion of market prices. The evidence highlights the concern that analysts may not appreciate the valuation implications of conservative accounting which could inhibit price discovery.     

The Impact of Import Competition and Export Opportunities on the Dutch Labour Market

De Economist - We study the impact of rising Chinese and Eastern European import competition and export opportunities between 2001 and 2016 on the Dutch labour market. Both the participation of...     

Domestic value chains as stepping stones to global value chain integration

Identifying the determinants of global value chain (GVC) integration is essential to understand the past expansion and current slowdown in GVCs. In this paper, we study the role of domestic value chains (DVCs) for GVC integration. In the presence of industry‐specific fixed costs of fragmenting production and of switching across input suppliers, DVCs can either be stepping stones or stumbling blocks for subsequent GVC entry. Focusing on backward linkages, that is, the sourcing of intermediates, we provide robust empirical evidence in favour of the stepping‐stone hypothesis. In our benchmark specification, a one standard deviation increase in DVC integration raises subsequent GVC integration by about 0.4%. To identify the mechanisms at work, we exploit two dimensions of industry‐level heterogeneity: product differentiation (a proxy of fragmentation costs) and relationship specificity (a proxy of the costs of switching between suppliers). We find that DVC integration is less conducive to GVC integration in industries that are characterised by relatively high switching costs and relatively low fragmentation costs.     

Audit committees and financial reporting quality: The 8th EU Company Law Directive perspective

In order to increase corporate governance quality, the 8th EU Company Law Directive enacted a mandatory audit committee in publicly listed companies in the EU and defined its tasks and responsibilities. In response to the directive, we examine the incremental value of audit committee monitoring effectiveness and audit committee competencies over the mere existence of an audit committee. We find that audit committee monitoring effectiveness and competencies are positively associated with financial reporting quality, whereas, somewhat surprisingly, the effect of the existence of an audit committee is negative. This finding shows that the existence of audit committees is a necessary but not a sufficient condition for enhancing financial reporting quality. Collectively, the study’s findings suggest that the 8th Directive has had a positive effect on corporate governance quality and, in turn, financial reporting quality in the EU.     

The EU Elephant: Europe in the 2021 Dutch General Elections

Intereconomics - For the Netherlands, the single most important EU issue is the future of the eurozone.     

Ambiguous workarounds in policy piloting in the NHS: Tensions,trade‐offs and legacies of organisational change projects

Pilot projects are increasingly used as a mechanism to enact organisational change, particularly government policy. Information technology's centrality to organisations often makes it key to the introduction of new processes. However, it can give rise to workarounds as employees circumvent impediments it presents by rejecting its prescribed use. Workarounds tend to be conceptualised dichotomously, as either ‘good’ problem solving, or ‘bad’ subversion of the technology. In pilot projects, workarounds are more ambiguous because those that support projects' successful completion in the short‐term may undermine day to day operations longer term. We draw on interview data from a policy pilot in general practice in the National Health Service in England aimed at extending access to care. We problematise the dichotomous conceptualisation of workarounds, finding they can be simultaneously supportive and undermining of policy pilots. Workarounds thereby become political, as employees are required to trade‐off consequences for themselves and the wider organisation.     

La importancia económica de la legislación de protección del empleo y sobre modalidades diferentes de empleo en 117 países, 1990–2013

Mediante análisis econométrico de series temporales con datos de panel no estacionarios, se estiman los efectos de la legislación de protección del empleo y de la protección jurídica de modalidades diferentes de empleo (a tiempo parcial, temporal y a través de agencias) sobre los resultados económicos utilizando datos del CBR‐LRI. Se observa un aumento del nivel de protección a lo largo del tiempo. Una mayor protección se asocia a un incremento de la participación del trabajo en la renta nacional, de la tasa de actividad y del empleo y a una disminución del desempleo, aunque de magnitudes relativamente pequeñas en comparación con las tendencias económicas más generales.     

Pilot workload and fatigue on short-haul routes: an evaluation supported by instantaneous self-assessment and ethnography

In the context of claims that the European Aviation Safety Agency’s flight and duty- time regulations pose a threat to safety, pilot workload and fatigue were assessed on two short-haul routes using a mixed-methods approach. Data produced by the US Air Force School of Aerospace Medicine Crew Status Survey (CSS) showed that pilots rarely assessed workload and fatigue to be high-risk. Data produced by an ethnographic study somewhat contradicted the CSS findings, with some pilots claiming to be fatigued. The combined data suggested a correlation between both workload and fatigue and aviation system dynamics such as airspace manoeuvring restrictions, especially in the vicinity of busy airports. The research presented an opportunity to test claims made for the CSS, specifically that it is ‘easily understood, easy to administer and minimally intrusive’. Missing forms and errors suggest that it is not as reliable a research instrument as proponents suggest, although contextual factors may have served to reduce the volume and quality of data. It is concluded that a pre-survey, systems-thinking-informed evaluation of the host airline would suggest ways of improving buy-in.     

Institution Building and Variation in the Formation of the Australian Wool Market

The relocation of the wool market from London to the major Australian port cities from the late nineteenth century required the formation of an institution to govern the auction business, namely the wool brokers' association. Regional variations, among Sydney, Melbourne, and Brisbane, occurred in the structure and effectiveness of the institution despite each regional association having been formed around the same time, for the same purpose, and with an overlap of participating firms. We draw on institution theory to guide our account and find that the impact of legacy factors and differences in market conditions explain the regional variations.