Reporting Discretion and Private Information Communication through Earnings

We model a two-period pure exchange economy where a risk averse manager, who has private information regarding future earnings, is required to issue an earnings report to investors at the end of each period. While the manager is prohibited from directly disclosing her private information, she is allowed to bias reported earnings in the first period, subject to GAAP rules that require that a specified proportion of the bias be reversed subsequently. We show there is a minimum threshold of reversal, such that, when the proportion of required reversal is above this threshold, the manager smooths income and communicates her private information through reported earnings. Consequently, the market attaches greater weight to reported earnings than under a regime that allows no discretion. When the required reversal is below the minimum threshold, the manager increases reported earnings without limit and the equilibrium degenerates. When the manager is not endowed with any private information, the market unravels the "true" earnings and price is unaffected by earnings management. Our results underscore the importance of both allowing and restricting reporting discretion through formal mechanisms.     

Service Competitiveness – An Anglo-US Study

This article reports on the latest in a series of international comparisons of management practices and performance outcomes of industries in various countries. Here, it is the service industries in the UK and the US which come under the microscope. Among the companies surveyed, there were more world-class performers in the US than the UK, but also more low performers. The concluding part of the article is diagnostic – the authors also suggest measures which could improve performance.     

UNIT MANAGEMENT BUYOUTS, STOCKHOLDER WEALTH, AND SELLING FIRMS' CHARACTERISTICS

Previous research on unit management buyouts, UMBs, has shown that selling firms benefit from the selloff transaction. The current research demonstrates that when the selling firm has either poor liquidity or poor earnings, selling firm shareholders do not benefit as much. We hypothesize that the unit managers have knowledge about the selling firm's difficulties so they do not pay as large a premium for the assets. Since the unit managers technically are employed by the selling firm shareholders, their bargaining to achieve a better price is an agency cost. Finally, selloff frequency does not affect seller abnormal returns.     

Rates of Return to Schooling in China

This study uses data from a 1988 survey of Chinese individuals to estimate rates of return to schooling in China. The Mincer-type rate of return to schooling was estimated at 4.02 percent in the rural areas and 3.29 percent in the urban areas; these are fairly low estimates compared with similar estimates in other countries. The rate of return to schooling for females was significantly higher than that for males in urban areas. In addition, members of the Communist Party in urban areas had significantly lower returns to schooling compared with non-members.     

The impacts of Hong Kong’s Currency Board reforms on the interbank market

Among the economies with a Currency Board System (CBS), Hong Kong (HK) is probably the one with the largest and most developed financial sector, as well as the highest capital mobility. Hence, studying HK’s CBS is not only crucial to HK, but also important for the understanding of the modern CBS. This paper outlines the major monetary reforms in HK since the late 1980s. The impacts of these reforms and the 1997–1998 Asian Financial Crisis are then examined empirically. We focus on the differentials between the US and HK interbank interest rates. We assume the conditional-mean equation follows an autoregressive process and the conditional-variance equation follows a generalized autoregressive conditional heteroscedasticity process. This model captures the time-varying level and volatility of the differential. In light of the empirical results we provide an assessment of the reforms in HK.     

The persistence of knowledge‐based advantage: an empirical test for product performance and technological knowledge

Resource‐based theory maintains that intrinsic characteristics of resources and capabilities, such as their tacitness, complexity, and specificity, prevent imitation and thereby prolong exceptional performance. There is little direct evidence to verify these claims, yet a substantial literature encourages firms to formulate competitive strategies around resources with these attributes. Further, work outside the resource‐based tradition suggests that these attributes can slow innovation, and it is not clear when this effect outweighs the benefits of inimitability. This paper seeks to clarify whether and how the complexity, tacitness, and specificity of a firm's knowledge affect the persistence of its performance advantages. We find that the complexity and tacitness of technological knowledge are useful for defending a firm's major product improvements from imitation, but not for protecting its minor improvements. The design specificity of technological knowledge delayed imitation of minor improvements in this study. Copyright © 2002 John Wiley & Sons, Ltd.     

Productivity growth in Indian agriculture: is there evidence of convergence across states?

This paper explores the question of convergence in total factor productivity (TFP) in agriculture across fourteen major agricultural states of India. Using a Törnqvist–Theil index for TFP growth for the period 1973–1993, we find no evidence to support convergence to a single TFP level (σ‐convergence). After grouping the various states on the basis of their productivity performance, we find that the high‐performing states show a gradual movement towards the trend, whereas the low‐performing states generally show more volatility. Testing for long‐run convergence in levels of agricultural productivity, we find evidence of conditional beta‐convergence after controlling for state‐specific factors and idiosyncratic year‐specific volatility. The results are robust to alternative specifications of tests of unit root in panel data developed recently.     

Cross Entropy Estimation of the Almost Ideal Demand System for Greek Consumption

Cross entropy is used to estimate the Almost Ideal Demand System for consumption in Greece. The entropy estimates are found to improve upon the SUR estimates. It is recommended that practitioners consider employing entropy based procedures in systems where the data set is small, where there are a large number of parameters, or where the data are deficient.