Will Any q Do?

We find that the relative levels of computationally costly q estimators and simple q estimators, when used as continuous variables, are affected by variations in many firm financial characteristics. In contrast, when the estimators are used as dichotomous variables, they classify the vast majority of firms identically with respect to the unit q breakpoint. Finally, we find that the computationally costly approach may induce sample‐selection bias as a result of data unavailability. Our results suggest that the simple approach is preferable except when extreme precision of the q estimate is of paramount importance and sample‐selection bias is not likely to be an issue.     

Ethics and the Auditing Culture: Rethinking the Foundation of Accounting and Auditing

Although the foundation of financial accounting and auditing has traditionally been based upon a rule-based framework, the concept of a principle-based approach has been periodically advocated since being incorporated into the AICPA Code of Conduct in 1989. Recent high profile events indicate that the accountants and auditors involved have followed rule-based ethical perspectives and have failed to protect investors and stakeholders – resulting in a wave of scandals and charges of unethical conduct. In this paper we describe how the rule-based traditions of auditing became a convenient vehicle that perpetuated the unethical conduct of firms such as Enron and Arthur Andersen. We present a model of ten ethical perspectives and briefly describe how these ten ethical perspectives impact rule-based and principle-based ethical conduct for accountants and auditors. We conclude by identifying six specific suggestions that the accounting and auditing profession should consider to restore public trust and to improve the ethical conduct of accountants and auditors.     

Organizational Trustworthiness: An International Perspective

Although trust has been widely recognized as a vital component ofrelationships and a critical element to the success of organizations,the literature describing trust and trustworthiness is known for itsvarying perspectives and its inconsistencies. Trustworthiness has beenidentified as a condition precedent to the development of trust.Building upon the established constructs of interpersonaltrustworthiness, we propose a related model containing the sevenconstructs of Competence, Legal Compliance, Responsibility to Inform,Quality Assurance, Procedural Fairness, Interactional Cour-tesy, andFinancial Balance. Citing evidence from trust-related literature, weidentify the utility of these seven constructs in encompassingorganizational trustworthiness as a subjectively perceived aspect oforganizational effectiveness. We analyzed questionnaire data andconducted comparative world-region analyses.     

Trust, Faith, and Betrayal: Insights from Management for the Wise Believer

Trust within a secular or organizational context is much like the concept of faith within a religious framework. The purpose of this article is to identify parallels between trust and faith, particularly from the individual perspective of the person who perceives a duty owed to him or her. Betrayal is often a subjectively derived construct based upon each individual’s subjective mediating lens. We analyze the nature of trust and betrayal and offer insights that a wise believer might use in understanding his or her relationship with the divine. We suggest that the parallels between trust and faith involve a willingness to relinquish one’s power or control in the expectant hope that our needs will be met. Betrayal, however, is often profoundly misunderstood.     

For Rigour in Organizational Management Theory Research

Rigour is required in examining the empirical validity of theories in organizational management, and is often considered to be the opposite of creativity in the development of knowledge about managing organizations. In this article, we argue that rigour is necessary in the enterprise of organizational management research. Moreover, it can actually be a contributor to creativity. The issue is not rigour versus creativity, but rather how rigour can foster creativity. We show that rigour in both theory and methodology can foster creativity. Rigour in theory provides the logical thinking that is the foundation that allows the development of sound theory. This can be achieved in various ways, including theory building, mathematical modelling, causal modelling, and theory analysis. Rigour in methodology can assist creativity in quantitative integration. The contribution of rigour to creativity is evidenced by the recently created statistico‐organizational theory and other new advancements in the field of structural contingency research.     

Non-falsified Expectations and General Equilibrium Asset Pricing: The Power of the Peso

We discuss the extent to which the expectation of a rare event which happens not to materialise over the sample period, but which is not rationally excludable from the set of possibilities – the peso problem –, can affect the behaviour of rational agents and the characteristics of market equilibrium. To that end we describe quantitatively the macroeconomic and financial properties of a standard equilibrium business cycle model modified to allow for a very small probability of a depression state. We produce a model specification for which both business cycle characteristics and mean financial returns are in accord with United States observations.This paper examines the possibility that the large equity premium observed in the United States may result from the expectations of a disaster event, or set of events, which happen not to have materialised in the sample period of observations. Such a possibility, which falls under the rubric of a peso phenomenon, is supported by recent empirical work of Goetzman and Jorion (1997). Using return data for a wide range of countries, these authors conclude that the high historical premium in the United States is unique, and they conjecture that it may be attributable to the fact that disastrous events affecting other financial markets (e.g. WWII for Japan, Germany, and other European countries) have largely bypassed the American economy.     

Information Invariance in Variable-Population Social-Choice Problems

We examine the possibilities of extending Sen's taxonomy of fixed-population information assumptions regarding the measurability and interpersonal comparability of individual utilities to social-choice problems where the population may vary. It is shown that in order to avoid impossibility results, informationally more demanding assumptions than in the fixed-population framework are required. We provide characterizations of variable-population social-welfare orderings based on information assumptions, and we suggest a way of generating the required informational environment by means of norms that impose a domain restriction on the set of possible utility profiles.     

Arrow-Debreu preferences and the reopening of contingent claims markets

The Arrow-Debreu intertemporal general equilibrium paradigm is typically interpreted as suggesting that contingent claims markets need not reopen as time passes and uncertainty resolves. We show that this property, if satisfied, has strong implications for the structure of agents' preferences and for the updating of probabilistic beliefs.