A study of firms surrounding the threshold of Sarbanes–Oxley Section 404 Compliance

This study examines whether firms surrounding the Sarbanes–Oxley Section 404 market value compliance threshold behave opportunistically to reduce their market value to avoid compliance with Section 404. We find evidence that those firms reduce their market value temporarily during threshold measurement quarters, whereas control firms experience increasing market value. We find strong evidence of dampened stock returns and some evidence of insider trading as means to reduce the float. Additionally, we find that downward earnings management is used as a mechanism to alter investors’ expectations of firm value in order to temporarily reduce stock prices. We consider this opportunistic evidence of regulatory avoidance. Finally, we find that the likelihood of avoidance increases with the power of the CEO and decreases with the strength of the monitoring of the CEO, which suggest that avoidance is more likely to happen in firms with poor corporate governance mechanisms.     

Horizontal inequity under a dual income tax system: principles and measurement

Tax systems with separate taxation of wage and capital income, also called dual income tax systems, have gained relevance through the Mirrlees Review. Obviously, such tax systems are exposed to horizontal equity (HE) failures, or horizontal inequity (HI). HE and HI have a firm grip on assessment of fair tax policies, both from an academic point of view and in general public debate. The dual income tax system of Norway was modified by the tax reform of 2006 precisely because the previous schedule failed to deliver equal tax treatment of equals. This paper discusses the meaning and measurement of HI effects of dual income tax systems, and evaluates the development of HI for Norway over the time period 2000–2008 using microdata. A copula-based identification strategy efficiently establishes a framework for evaluations of HI over time. The dual income tax system and the early announcement of its impending revision during the period under examination created measurement problems which we had to account for by defining a new income concept for the empirical strategy. As expected, we find less HI in Norway after the reform of 2006.     

European Corporate Governance: a Thematic Analysis of National Codes of Governance

Using Latent Semantic Analysis techniques to analyse the corporate governance codes of 23 EU nations, we obtain a number of new findings regarding their thematic content, variability, and convergence. We determine that these codes can be decomposed into five common themes, with substantial cross‐sectional variability in their relative importance. We also find that the themes contained in these codes cluster in ways that are not fully consistent with the legal regime classifications of La Porta et al. (1997) , leading us to construct two new country clusters. We further discover that the identity of the code issuer (e.g., government versus stock exchange) is important in explaining a code's primary theme as well as changes in theme prominence over time. Finally, we fail to find evidence of an unchecked thematic convergence towards an Anglo‐Saxon model of corporate governance, with some code themes converging to UK practices while others diverge.     

U.S. International Equity Investment

Using a comprehensive data set of all U.S. investment in foreign equities, we find that the single most important determinant of the amount of U.S. investment a foreign firm receives is whether the firm cross‐lists on a U.S. exchange. Correcting for selection biases, cross‐listing leads to a doubling (or more) in U.S. investment, an impact greater than all other factors combined. Much of this increased U.S. investment is purchased in the foreign market, implying that the cross‐listing effect reflects something more fundamental about a firm than easier acquisition of its securities. We also demonstrate that cross‐listing is an important determinant of U.S. international investment at the country level and describe easy‐to‐implement methods for including a cross‐listing variable as an endogenous control.     

Are All Ratings Created Equal? The Impact of Issuer Size on the Pricing of Mortgage‐Backed Securities

Initial yields on both AAA‐rated and non‐AAA rated mortgage‐backed security (MBS) tranches sold by large issuers are higher than yields on similar tranches sold by small issuers during the market boom years of 2004 to 2006. Moreover, the prices of MBS sold by large issuers drop more than those sold by small issuers, and the differences are concentrated among tranches issued during 2004 to 2006. These results suggest that investors price the risk that large issuers received more inflated ratings than small issuers, especially during boom periods.     

Measuring competition in spatial retail

We propose and estimate a spatially aggregated discrete-choice model with overlapping consumer choice sets and demographic-driven heterogeneity that varies by chain. Our approach avoids the need to define markets ex ante and captures rich substitution patterns, even in the absence of price data. An application to the US grocery industry illustrates the importance of location, format, and the spatial distribution of consumers in shaping the competitive environment. Contrary to conventional wisdom, we find substantial cross-format competition between supercenters, clubs, and traditional grocers. Finally, we evaluate two representative mergers between supermarket chains to demonstrate how our estimates inform antitrust policy.     

How much does tax erode fund excess returns?

We model the tax drag from active fund management based on reported monthly holdings of active equity funds. Tax drag erodes 65 percent of the 0.74 percent excess return in Broad Market funds, but only 21 percent of the 1.80 percent excess return in Small-Cap funds for Australian superannuation (pension) fund investors. Tax drag varies with investment style; market state, which is most detrimental during bull markets; and fund turnover. For high-income individual investors, tax drag is exacerbated to the extent that active management only generates meaningful after-tax excess return for Small-Cap funds of certain styles.     

Forensic accounting services in English local government and the counter-fraud agenda

ABSTRACT

Fraud is a growing challenge for English local government, yet the resources and support local authorities (LAs) have available to prevent, detect and investigate it are limited. Forensic accounting services (FAS) provided by external specialist private sector firms, particularly those undertaking mandatory external audit, might be one solution. Research reported in this paper suggests, however, that existing English LA users are not all convinced. Nevertheless, better awareness and understanding of what FAS have to offer, perhaps through case studies of successful implementation, would be a valuable contribution to helping local government enhance its counter-fraud capabilities and make informed decisions about how best to meet the increasingly complex fraud challenge.     

How much do plant guarantees reduce perceived risk?

Abstract

Consumers do perceive risk in purchase decisions and seek to reduce both uncertainty and probability of loss. Risk also varies across persons and purchasing situations. Retailers promote product guarantees as risk reducers, but the quantitative evidence is lacking. They offer guarantees to help resolve outcomes from post-purchase problems mainly, product performance. We used an online survey to investigate the role of risk mitigation by money-back guarantees (MBGs) on a live product: plants. We obtained online responses from 504?US residents?≥?age 18 years who had made at least one live plant purchase in the six months prior to the study. As MBG length increased, perceived risk (PR) decreased. PR was higher for men than for women and declined as income increased. Subjects with a higher level of product involvement, expertise, delight, repurchase intentions, and regret had a higher level of PR. We conducted separate Chow tests for annual and perennial plants by price and MBG length and found several break points. As price increased from $5 to $10, a 30-d MBG reduced PR for annual plants while the reduction in PR was incrementally decreased for all guarantee lengths when annuals were priced over $20. With perennial plants, the MBG had an increasingly larger effect on reducing PR for each $10 increase in price. Overall, for each day increase in MBG length, we observed a 0.0337 decrease in PR, which meant that a 90-d MBG on a plant would reduce PR by 3%. This quantitative evidence of reduction in PR should encourage the use and communication of MBGs which have the potential to improve purchases, customer retention, and profitability.     

A Google–Wikipedia–Twitter Model as a Leading Indicator of the Numbers of Coronavirus Deaths

Forecasting the number of cases and the number of deaths in a pandemic provides critical information to governments and health officials, as seen in the management of the coronavirus outbreak. But things change. Thus, there is a constant search for real‐time and leading indicator variables that can provide insights into disease propagation models. Researchers have found that information about social media and search engine use can provide insights into the diffusion of flu and other diseases. Consistent with this finding, we found that a model with the number of Google searches, Twitter tweets, and Wikipedia page views provides a leading indicator model of the number of people in the USA who will become infected and die from the coronavirus. Although we focus on the current coronavirus pandemic, other recent viruses have threatened pandemics (e.g. severe acute respiratory syndrome). Since future and existing diseases are likely to follow a similar search for information, our insights may prove fruitful in dealing with the coronavirus and other such diseases, particularly in the early phases of the disease. Subject terms : coronavirus, COVID‐19, unintentional crowd, Google searches, Wikipedia page views, Twitter tweets, models of disease diffusion.