UNIVERSITY OF ROCHESTER ROUNDTABLE ON Bankruptcy vs. Bailouts: The Case of General Motors and the U.S. Auto Industry

In an event staged at Rochester's Geva Theatre in the midst of the global financial crisis in 2009, Tom Jackson, one of the world's two most highly regarded bankruptcy scholars (the other is Doug Baird) as well as a former President of the University of Rochester, begins by explaining why the U.S. Chapter 11 reorganization process is well suited to resolving the problem of excess capacity that has long plagued the U.S. auto industry. As Jackson has noted elsewhere, thanks to both academic research and the efforts of legal and corporate practitioners to implement the findings of this research, The current Chapter 11 process is a dramatic improvement over the world of 1985. In those days, our system put the bankruptcy judges— people who generally do not have a great deal of financial sophistication—in the impossible position of deciding among the conflicting claims of parties whose incentives were to provide biased information. The great thing about the auction process that is now routinely used by the ABI—and which wasn't being used anywhere in the bankruptcy process 20 years ago—is that we're likely to get more reliable information from people who are putting up their own money…[and so] backing their projections of future performance and value with cash. This has the great benefit of taking the judges out of a role for which they have neither the proper training or experience—or the right incentives… [As a result of recent reforms,] what we have today is a much more streamlined process. Sale mechanisms are more likely to be used, exclusivity periods are less likely to be extended, and it has begun to look a lot like the auction or M&A model that some of us proposed years ago. This relatively new reliance on an M&A‐type auction process is reassuring because, as Cliff Smith points out, One of the biggest challenges in bankruptcy is determining the value of the firm, or the size of the pie that can end up being divided among the creditors. And this means that before you start divvying up the firm's assets, it's critically important to get reliable answers to questions like: How valuable is this business under the current management? And how valuable could it be if we allowed the ownership to change? Judges don't have a comparative advantage in answering these questions because they simply don't have the specific knowledge to make this kind of determination. Using the auction system in a market setting is likely to generate much more reliable answers. Besides preserving value for creditors, a better informed and more efficient reorganization process can also have the critically important effect of removing excess capacity in industries that are weighed down by it. And as Smith goes on to say, Financially troubled companies that will not be viable under any management team and are therefore worth more dead than alive are clearly candidates for Chapter 7, and the job of the bankruptcy courts is to get them there as expeditiously as possible. Liquidate the business and free those assets to move to higher‐valued uses… Take the case of the airline industry. Although keeping extra carriers in business through prolonged stays in Chapter 11 may help keep airfares down, these artificially low fares are also likely to discourage even profitable competitors from investing in the future. And this ends up working against the long‐run interest of the industry and the general public. In sum, bankruptcy has at least two potentially important roles to play in a well‐functioning economy. First is distinguishing companies that should survive and remain intact from those that should be pulled apart. In cases of chronic overcapacity in which companies are clearly worth more dead than alive, the firm's assets should be sold, either piecemeal or in their entirety, to the highest bidders. But for all economically viable businesses, there are two general outcomes: In cases where a competent management team is the victim of external circumstance—and perhaps the wrong capital structure—the likely outcome is an LBO‐type transaction in which outsiders provide new funding for the current team. But in those cases where the current management is viewed as part of the problem, the system is designed to shift control to new owners and management—and as quickly as possible. Such a process can be expected to contribute to long‐run economic growth by helping ensure that industries end up with the right amount of capacity, neither too much nor too little.     

Accounting to parliament

The Public Accounts Committee has long been Parliament's main watchdog, but there are large areas of public spending over which the Committee's writ does not run. Despite the Government's recent rejection of the Committee's proposals, there is a case for bringing them under one central umbrella.     

Manufacturing Firms’ Demand for Water Recirculation

Relatively little is known about the factors that influence firms’ water recirculation decisions. This paper estimates an econometric model that jointly considers two facets of firms’ recirculation behavior: first, the discrete decision of whether to recirculate and, second, the decision of how much to recirculate. The model is estimated by applying the Heckman two-stage estimation procedure to cross-sectional data from Environment Canada's 1996 Industrial Water Use Survey. In the first stage, long-run factors, such as relative water scarcity and production technologies, are found to influence the decision whether to recirculate water. In the second stage, the imputed prices of intake water and water recirculation as well as the scale of operations are found to influence the choice of the optimal quantity of water to recirculate. Les facteurs qui influencent les décisions des entreprises concernant le recyclage de l’eau sont assez peu connus. Dans le présent article, nous avons estimé un modèle économétrique qui tient compte de deux aspects du comportement des entreprises envers le recyclage de l’eau : le choix de recycler l’eau ou non et le choix de la quantité d’eau à recycler. Nous avons estimé le modèle à l’aide de la procédure en deux étapes de Heckman que nous avons appliquée à des données transversales tirées de l’Enquête sur l’utilisation industrielle de l’eau, réalisée par Environnement Canada en 1996. À la première étape, des facteurs à long terme tels que la rareté relative de l’eau et les technologies de production influent sur la décision de recycler l’eau ou non. À la deuxième étape, les prix imputés du captage et du recyclage de l’eau ainsi que l’envergure des opérations influent sur le choix de la quantité optimale d’eau à recycler.     

Understanding accounting through conceptual metaphor: ACCOUNTING IS AN INSTRUMENT?

This paper extends the conversation about metaphors in accounting that were presented in this journal by McGoun et al. [McGoun EG, Bettner MS, Coyne MP. Pedagogic metaphors and the nature of accounting signification. Critical Perspectives on Accounting 2007a;18:213–30; McGoun EG, Bettner MS, Coyne MP. Money n’ motion—born to be wild. Critical Perspectives on Accounting;2007b;18:343–61.]. Our aim is to promote further critical conversations about how metaphor is implicated in accounting. We assemble and review some of the empirical evidence we have gathered from close readings of discourse about accounting over the past decade. Based on this empirical grounding, we propose that the fundamental conceptual metaphor, ACCOUNTING IS AN INSTRUMENT, has been deployed commonly to describe the essence of accounting. We contend that such deployment has insidious, distortive and confounding outcomes because it encourages belief that accounting is incapable of reporting other than with representational faithfulness; and that it confounds the (alleged) primary qualitative characteristics of accounting information (relevance and reliability) outlined in the Financial Accounting Standards Board's SFAC 2 Qualitative Characteristics of Accounting.     

Workers with Disabilities: Exploring the Hiring Intentions of Nonprofit and For-profit Employers

Using the Theory of Planned Behavior as a conceptual framework, focus groups were held with nonprofit and for-profit employers in order to examine behavioral intentions to hire workers with disabilities. Content analysis revealed the following main themes: (1) For-profit hiring strategies were driven by a mission to sell a product or service; (2) Nonprofit hiring strategies were driven by a mission to serve the community; (3) Forprofit hiring and nonprofit hiring were impacted by the economy; (4) Although driven to have diverse workforces, the number of workers with disabilities was largely unknown; and (5) Employer attitudes mattered and impacted job opportunities for people with disabilities. Implications of this qualitative study highlight the utility of the Theory of Planned Behavior and the role that nonprofit managers and leaders may play in improving employment opportunities for individuals with disabilities.     

Examining the influence of control and convenience in a self-service setting

The constructs of perceived control and convenience have been identified in previous qualitative studies of self-service technology (SST) use as important factors; yet empirically their effects are relatively unknown. Based on the theory of planned behavior, this study explores how control and convenience perceptions influence customers’ utilitarian (speed of transaction) and hedonic (exploration) motivations for using an SST. In addition, we explore how trust in a service provider influences customers’ future SST intentions. Two studies were undertaken to assess both users and nonusers’ evaluations of an SST. The results revealed that perceived control and convenience do impact the intentions of customers to use an SST in the future; however, their impact was mediated through the constructs of speed of transaction, exploration, and trust. Increased control and convenience perceptions influenced exploration, trust and speed evaluations, which in turn were associated with stronger perceived value, higher SST satisfaction judgments, and increased SST usage intentions. Managerial implications stemming from the empirical findings are discussed along with directions for future research.