Accruals and the naïve out-of-sample prediction of operating cash flow

Recent evidence indicates that a naïve no-change out-of-sample forecast of operating cash flow is as accurate as regression model forecasts. The current study uses this evidence to compare the accuracy of two naïve cash flow forecasts: 1) a pure no-change forecast and 2) a no-change forecast which includes adjustments for changes in accounts receivable, inventory and accounts payable. The size- and accrual-matched results indicate that the naïve cash flow forecast with accruals is notably more accurate than the naïve forecast without accruals. Moreover, the results indicate that large sums of positive accruals are more useful for cash flow prediction than large sums of negative accruals. Overall, the study provides creditors, analysts and other members of the financial community with an efficient and effective protocol for cash flow prediction.     

Enterprise Risk Management Through Strategic Allocation of Capital

This article presents a conceptual framework for operationalizing strategic enterprise risk management (ERM) in a general firm. We employ a risk‐constrained optimization approach to study the capital allocation decisions under ERM. Given the decision maker's risk appetite, the problem of holistically managing enterprise‐wide hazard, financial, operational, and real project risks is treated by maximizing the expected total return on capital, while trading off risks simultaneously in Value‐at‐Risk type of constraints. This approach explicitly quantifies the concepts of risk appetite and risk prioritization in light of the firm's default and financial distress avoidance reflected in its target credit rating. Our framework also allows the firm to consider a multiperiod planning horizon so that changing business environments can be accounted for. We illustrate the implementation of the framework through a numerical example. As an initial conceptual advancement, our formulation is capable of facilitating more general ERM modeling within a consistent strategic framework, where idiosyncratic variations of firms and different modeling assumptions can be accommodated. Managerial implications are also discussed.     

Accounting in organized anarchies: Understanding and designing accounting systems in ambiguous situations

This paper explores the relationship between organizations in ambiguous situations, the technology of choice and the uses of internal accounting systems (systems of cost accumulation, performance evaluation and budgetary control). Accounting systems are examined in terms of the two elements of March's technology of foolishness (Civilokonomen, May 1971, pp. 7–12). Relaxation of traditional prohibitions in choice behaviour against imitation, coercion and rationalization suggest that accounting systems might be understood both in terms of their impact on sustaining and influencing an organization's culture and language and in terms of their ideological and legitimizing influence in maintaining systems of power and control in organizations. Allowing playfulness in the choice process suggests that accounting systems might be designed to facilitate creativity and innovation in organizations, insofar as these characteristics are appropriate in contributing to organizational effectiveness.     

The new product process: an empirically-based classification scheme

New product successd is largely determined by the way a firm conceives, develops and commercializes a new product—the new product process. Traditionally, the new product process is portrayed as proceeding in an orderly, stepwise fashion from product idea to launch. This article reports the results of a research study whose purpose was to uncover what actually occurs during the new product process. Fifty-eight case histories were obtained from industrial product firms, and their process flow charts analyzed using a novel comparison method. No two projects were found to follow the identical process, and seven distinct types of processes were identified. Several of the processes were found to yield generally inferior results. The "best' process, in terms of success versus failure and overall program performance, featured a balance between marketing oriented and technically oriented activities, and was characterized by a large number of varied steps in the process.     

Monitoring and governance of private banks

In this paper I examine regulation and corporate governance mechanisms at a sample of non-publicly traded state member banks in 2006. Using a simultaneous regression approach, results show that insider representation on the board has a positive influence on both director and executive compensation in commercial banks. Regulatory ratings, however, are only related to bank performance—not to board structure or compensation schemes. This may be attributed to less information asymmetry between managers and owners at private banks. Also, directors are rewarded for strong CAMELS ratings. The governance structure of private banks is not affected by regulatory ratings; however, the percent of insiders on the board influences actions of the board to a large extent.     

The Implications of the Home Bias in Equity Portfolios

Although the diversification benefits of international investment are well documented, many large equity portfolios remain heavily concentrated in their domestic stock market. The reason for this is sometimes given as a desire to hedge domestic inflation by holding domestic equities. The evidence is, however, that equities do not hedge inflation in this way for the types of investment horizon relevant to most portfolios. An alternative explanation is that there are costs, such as taxes, which prevent investors taking full advantage of international diversification. The magnitude of these costs necessary to explain the level of "home bias" is above the level of observable costs, such as withholding taxes. The implications of these results are that international capital markets are segmented not only by costs and restrictions, but also by other informational imperfections. They also imply that international corporate investment and financing decisions depend on the location of the investing company.     

Survivors of industry shake-outs: The case of the U.S. color television set industry

In this article survivors and non-survivors of the ‘shake-out’ in the U.S. color television set industry are compared to determine how and along what dimensions these two classes of businesses differ. Two types of strategy variables are used in 18 hypotheses to probe similarities and differences at both the ‘corporate level’ and ‘business level’ of strategy. Significant differences are found, particularly at the business level. The findings are consistent with those of previous strategy research, but suggest that traditional wisdom regarding size, low costs and market share did not necessarily hold in this industry.     

对话:中国人的外汇与美国人的外债

每一位美国经济学家都会说中国经济的高速增长会对美国消费者有直接影响。但是怎么影响,影响究竟有多大?本刊特约编辑杰姆斯·巴茨(James Barth)博士和《美国新闻与世界报道》首席文案里克纽曼之间的对话,生动贴切地道出了美国老百姓的切身体会和疑虑。