Statistical inference using the T index to quantify the level of comparability between accounts

The extent to which the accounts of companies are comparable is considered important to users and regulators. However, prior research has been restricted by a lack of appropriate statistical methods for testing comparability indices. This has made it difficult to assess the true level of comparability from sample data and to test research hypotheses such as whether the level of comparability (a) differs by policy, (b) differs by country, and (c) changes over time. This paper fills this gap by exploring the statistical properties of the T index. The T index generalises the H, C, I and various modifications of these indices and represents a unified framework for the measurement of the extent to which the accounts of companies are comparable. Formulae for the bias and standard error for any index under this framework are provided and proved. The bias is shown to equal zero or be negligible in most practical situations. Using historical data, the standard error is used to illustrate the accuracy with which comparability is estimated and to perform formal statistical inference using confidence intervals and p‐values. Furthermore, the sampling distribution of the T index is assessed for normality. Implications for research design and sample size determination are also discussed.     

On the Effects of Uncertainty on Investment Timing and Option Value

This article demonstrates that when the relationship between systematic risk and project value is taken into account, the sensitivity of investments with respect to volatility changes dramatically. By taking cash flows as a fundamental variable, the article shows that the value of an option to invest can be decreasing in volatility, contradicting the conventional wisdom. Second, the recent proposition, according to which the expected time to invest is U-shaped, does not generally hold; the expected time and the cash flow trigger are likely to be always increasing in volatility.     

Firm and industry elasticities of substitution: The two factor case

Summary For the industry composed of single output, two factor firms, industry elasticity of demand for one of the factors with respect to the price of the other is negative or positive as the elasticity of demand for industry output is greater or less thanindustry elasticity of substitution between the factors. Using isoclines, vectors, isoquants, and isoscales, it is shown that, where firm isoquants are non-homothetic, industry elasticity of substitution for constantindustry output allows for adjustment of the level of firm output, and thus exceeds firm elasticity of substitution for constantfirm output.He wishes to thank two anonymous referees for helpful suggestions.