The Effect of SOX Section 404: Costs,Earnings Quality,and Stock Prices

This paper exploits a natural quasi‐experiment to isolate the effects that were uniquely due to the Sarbanes–Oxley Act (SOX): U.S. firms with a public float under $75 million could delay Section 404 compliance, and foreign firms under $700 million could delay the auditor's attestation requirement. As designed, Section 404 led to conservative reported earnings, but also imposed real costs. On net, SOX compliance reduced the market value of small firms.     

A Market Efficiency Study of Used Car Reliability and Prices

This study explores the relationship between price and reliability in the used car market. Some of the measurement concerns, expressed by others in price-quality studies of new products, are absent because of the choice of the secondary data sources from which the relationships were derived. The finding that depreciation is independent of reliability performance raises a number of public policy issues regarding the information efficiency of the used car market.     

Initial Evidence on the Role of Accounting Earnings in the Bond Market

We document that: (1) the incidence of bond trade increases during the days surrounding earnings announcements, (2) there is a bond‐price reaction to the announcement of earnings, and (3) there is a positive association between annual bond returns and both annual changes in earnings and annual analysts' forecast errors. All of these effects are larger when earnings convey bad news or when the underlying bond is more risky. Taken together, our results suggest that the nonlinear payoff structure of bond securities affects the role of accounting earnings in the bond market.     

AGENCY CONFLICT AND CORPORATE STRATEGY: THE EFFECT OF DIVESTMENT ON CORPORATE VALUE

Among the various stakeholders of a firm, senior managers are the most likely targets for private and public political pressures. Other stakeholder groups are less visible and may be perceived as less influential in corporate strategy formulation and implementation. In some situations, consequently, senior executives may adopt corporate strategies in response to political pressures even if these strategies may be costly to shareholders. In this study, a special case is examined: the effect of divestment of South African business units on firm value. Using data from 1984 through 1990, we examine the impact that announcements of divestments have upon the stock return behavior of publicly traded firms. Our results indicate that significant and negative excess returns accrue to shares of companies announcing divestments of South African operations. These results are supportive of the premise that noneconomic pressures may influence managerial strategies rather than value-enhancement goals. © 1997 by John Wiley & Sons, Ltd.     

Community-Wide Discount Programs for Older Persons: A Review and Evaluation

An evaluation of a community-wide discount program for elderly people in Richmond, Virginia is reported. The costs and benefits to both the elderly card holders and participating merchants were examined. While some elderly shoppers reported significant savings, many realized little benefit from the program. Most merchants did not vigorously promote the program, and experienced little impact on sales and profits. Implications for program management are explored.     

Returns to Scale in the Australian Life Insurance Industry*

This paper seeks evidence of economies of scale for superannuation, ordinary and total business of a sample of 38 Australian insurance companies. It was motivated by the work of Rutledge and Tuckwell, but in contrast to their results, significant evidence, of economies is found.     

Briefing Paper Import Penetration in the United Kingdom

There is widespread concern about the growth of imports in the United Kingdom. British industry is said to be ‘bleeding to death’ as a result of foreign competition and calls are heard for protective measures such as import controls to save the economy. There are three elements in the case for protection. The first is that trends in Britain's foreign trade in manufactured goods have been extremely adverse and that there are no good grounds for believing that they will change spontaneously. The second is that the growth of the economy is constrained by the balance of payments and that consequently a serious and growing depression will develop throughout the 1980s which could reach catastrophic proportions towards the end of the decade when North Sea oil production declines. The third is that import controls are an effective way of coping with the problem. It is recognised that the second two elements are controversial. As it happens we disagree with both of them. However, it is generally assumed that the first element - the view that increasing import penetration will destroy British industry - is common ground and that no-one disagrees with it. Our aim in this Briefing Paper is to challenge this view. There is no doubt that import penetration (which we measure as the share of imports in GDP) has growth rapidly, especially over the past two decades. In 1960 imports amounted to 25 per cent of GDP. By 1970 this proportion had risen to 28 per cent and in 1979 it had risen to 35 per cent. However, we shall argue that the economic processes that have been responsible for this development have on the whole been poorly understood. We reject the popular view that Britain is structurally unable to compete in world markets. Instead we propose an alternative interpretation of import penetration which explains UK trade performance in terms of the broader pattern of the world trade order. In the light of this theory we argue that import penetration in the UK is not an inexorable trend reflecting the relative weakness of the UK in international trade. On the contrary, UK import penetration has been adjusting to a new world trading environment and now that this process of adjustment is nearing completion the rate of increase of import penetration seems likely to abate. Moreover, the British people have benefited from this greater degree of free trade and any protective measures designed to inhibit the economic forces that we describe below would damage the economic welfare of the British public as a whole.     

A NEW THEORY OF THE BUDGETARY PROCESS

This paper offers an alternative to the view that budgetary decisions are incremental because they are complex, extensive, and conflicted. Our model interprets incrementalism as the result of a legislative political strategy in response to interest group politics and economic conditions. Accordingly, a legislator chooses between single-period budgeting or multiperiod budgeting, where single-period budgeting is associated with a greater chance of non-incremental budgeting outcomes. We use a statistical procedure developed by Dezhbakhsh et al. (2003) for identifying non-incremental outcomes to test the implications of the model. Results support the model's predictions: a higher discount rate and a persistently large deficit appear to cause departures from incremental budgeting; Democrats' control over the political process have a similar effect, while a higher inflation rate has an opposite effect.