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.     

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.     

Estimating Households' Preferences for Environmental Amenities Using Equilibrium Models of Local Jurisdictions

Much research has focused on the development of equilibrium models of local jurisdictions to analyze the formation of social structures and community characteristics. These models, however, have been subjected to little empirical testing. In a recent paper, Epple and Sieg (1999) developed a new method for estimating equilibrium models of local jurisdictions, but they did not include environmental amenities in their empirical application. In this paper, we extend and apply this new method to estimate households’ preferences for alternative environmental amenities in the Portland Oregon metropolitan area. We show that estimated structural parameters would be biased if environmental amenities are ignored. By including amenities into the structural models of local jurisdictions, households’ preferences for alternative environmental amenities and public goods are estimated. Parameter values underlying households’ residential choices are uncovered. Many of the empirical regularities observed in the data are replicated (JEL R1, R2, Q2).     

DETERMINANTS OF EARNINGS-PRICE RATIOS: A REEXAMINATION

This paper incorporates recent equity valuation theories into the examination of determinants of earnings-price (E/P) ratios to explain cross-sectional differences in E/P ratios. The results show that ex ante measures of risk and growth as well as the payout ratio are the main determinants of E/P ratios. The persistence measure is not significantly related to E/P ratios. The results are robust to ordinary least square models as well as to a tobit censored regression.     

Appraisals,Transaction Incentives,and Smoothing

This article is structured around three principal objectives. The first is to determine whether any incentives for appraisals support an underlying purchase offer, which may be termed a transaction bias. Appraisals that are lower than purchase prices could involve additional cost for justification and thus undermine the transaction. The second objective is to test whether appraisal data are smoothed or exhibit less volatility than purchase data. The article compares the volatility of separate appraisal and purchase data. Given separate appraisal and purchase time series, the third objective is to derive the implied optimal appraisal updating rule.The model is applied to appraisal and purchase price indices for 3.7 million repeat transactions on mortgages bought by Fannie Mae and Freddie Mac by using monthly data from January 1975 to December 1993. The estimation procedure uses generalized autoregressive conditioned heteroskedastic (GARCH) analysis to take account of persistence in means and volatility in the house price time series. The article draws three principal conclusions. First, appraisals are systematically higher than purchase data, a first-moment differential. Second, appraisal smoothing does not occur generally. Third, the appraisal updating rule for the United States appears to involve error correction whereby underappraisals from pervious periods are eventually adjusted.     

Tour Leaders' Impression Management and Job Performance: Exploring the Moderating Role of Tourists' Self-Monitoring

A tour leader (TL) is a first-line service provider whose performance shapes a tourist's experience and satisfaction during a journey. We examine the moderating effects of the self-monitoring level of group package tour members on the relationship between the use of impression management (IM) tactics by TLs and tourists' subsequent job performance ratings (PRs) of a TL. Data from 485 responses of tourists from 59 outbound tour groups in Taiwan revealed that TLs' use of positive IM tactics – that is, ingratiation, self-promotion, and exemplification – is positively related to tourists' PRs. In contrast, their use of non-positive IM tactics – that is, supplication and intimidation – is negatively related to tourists' PRs. Furthermore, tourists' self-monitoring appears to weaken the effects of supplication and intimidation on their PRs. We also found that tourists' level of self-monitoring is a stronger moderator when TLs use supplication than when they use other tactics.     

How Actuarial Assumptions Affect Defined Benefit Obligations under International Financial Reporting Standards? Evidence from Korea

This paper examines how actuarial assumptions affect defined benefit obligations (DBOs) under the newly adopted Korean International Financial Reporting Standards (K‐IFRS) with the help of evaluation reports provided by the pension provider. The results show that there is no significant discrepancy between the DBOs estimated on a going concern basis under K‐IFRS, and the retirement benefits estimated on a non‐going concern basis under traditional K‐GAAP. Also, the rate of salary increase, average salary and average years of service have a statistically significant positive impact on DBOs, irrespective of the adoption of K‐IFRS.     

Competing risk model for predicting stabilization period of university spin-off ventures

University spin-offs (USOs) are considered as a means of value creation derived from academic research. However, due to financial and managerial constraints, many USOs find it difficult to maintain their business and achieve stabilization. In this study, we investigate the factors affecting the time taken by USOs to reach their break-even point or to secure initial investment from venture capitals, whichever comes earlier. We specifically examine the effect of knowledge diversity, experiential knowledge, intellectual property, and the communication capacity of the USO founders on the time taken to reach stabilization. A competing risk model is applied to the survey data of USO founders in Korea. According to our findings, knowledge diversity, experiential knowledge, and communication capacity are significantly related to the time taken to reach the break-even point. Knowledge diversity, intellectual property, and communication capacity, on the other hand, are associated with the time taken to receive initial investment from venture capitals. Our study can contribute toward deriving strategies for USOs to increase their stabilization speed.     

A study on the influence of eWOM using content analysis: how do comments on value for money,product sophistication and experiential feeling affect our choices?

The influence of electronic word of mouth (eWOM) has been heavily investigated in relation to online ratings. However, only a few studies examined the content of eWOM. From the perspective of the consideration sets model, consumers formulate an awareness set, a consideration set and a choice set before making a purchase. We argue that the formulation of these sets is influenced by eWOM based on its volume, valance and content relating to product attributes such as value for money, product sophistication and experiential feeling. In this study, the content of posts relating to Shure professional earphones in the online forum Mingo (www.mingo-hmw.com/forum) was captured and annotated. During the data collection period, Mingo was the sole online forum relating to professional earphones. Without much interference from other online forums, the circumstances of this study closely approximate a laboratory setting. In addition, we collected the actual sales, marketing costs, fault rates and number of retail stores selling the Shure professional earphones for 126 weeks. Our findings show that the weekly volume of posts, their relative number of positive (negative) comments, especially regarding value for money and sound quality, and those posts from the earlier week impinged strongly on weekly sales of Shure products. From the regression models, the explained variance in sales jumps from 0.236 to 0.732 due to the influence of eWOM.