Family firms, debtholder�Cshareholder agency costs and the use of covenants in private debt

We ask whether the private debt contracts of family firms contain more restrictive covenants tied to accounting numbers than those of non-family firms. Our examination of Dealscan data indicates that credit agreements of Standard and Poor (S&P) 500 family firms are more likely to include accounting-based covenants that limit the lender(s)’ risk that managers will divert cash or assets to shareholders than those of S&P 500 non-family firms. The likelihood is further increased by presence of a dual class stock system that includes supervoting shares. Our results suggest that lenders are more willing to rely on accounting-based covenants to solve the shareholder–private lender agency problem in family firms given that the reporting quality is higher due to better alignment of owner and manager interests in such firms.     

Analyst estimation revision clusters and corporate events, Part II

Summary In Part I of this study, we evaluated the relative usefulness of information in alternative corporate information events (CIEs) to analysts by examining the frequency with which they trigger clusters of analysts’ earnings estimate revisions. In Part II, we examine investor response to various CIEs and their revision clusters. We find that stock prices react most strongly and adjust most quickly to revision clusters that accompany CIEs that focus on financial statement information. CIEs that offer strategic information take longer for analysts and investors to assimilate, and investors appear to rely heavily on later analyst revisions following such events.     

Reviews

“THE LONDON EMPLOYMENT PROBLEM” Buck, N., Gordon, I. and Young, K. with Ermisch, J. and Mills, L., 1986: The London Employment Problem. Oxford: Clarendon Press, £7.95.

“CLYDESIDE IN TRANSITION” Lever, W. and Moore, C., 1986: The City in Transition: Policies and Agencies for the Economic Regeneration of Clydeside. Oxford: Clarendon Press, £7.95.

“MANAGING THE LOCAL ECONOMY” Wilmers, Peter and Bourdillon, Bernard, Editors, 1985; Managing the Local Economy: Planning for Employment and Economic Development. Norwich: Geo Books, £15.00 paper.

“SUNBELT CITY?” Boddy, M., Lovering, J. and Bassett, K., 1986: Sunbelt City? A Study of Economic Change in Britain's M4 Growth Corridor. Oxford: Oxford University Press, £7.95 paperback.     

Can Normality of Yields Be Assumed for Crop Insurance?

Normality of crop yield residuals pooled to the state and regional level is examined using a procedure that accounts for trend and heteroscedasticity. Normality tests are conducted using farm-level yield data from over 200,000 producers of six crops in seven U.S. states. The results indicate consistent non-normality of crop yields. The effects of assuming normality on insurance premium rates are examined. Assuming normality is found to generate premiums that can differ substantially from premiums derived using data-based empirical distributions.
Montana Agricultural Experiment Station Journal Series No. 2001-7. The Risk Management Agency, USDA, also provided support for this research. The views expressed herein are the authors' and do not necessarily represent those of Montana State University or the Risk Management Agency.
Les auteurs ont analysé la normalité du rendement résiduel des cultures à l'échelon de l'État et à l'échelon régional au moyen d'une méthode tenant compte des conjectures et de l'hétéroscédasticité. Ils ont utilisé les données sur le rendement fournies par plus de 200 000 cultivateurs produisant six cultures dans sept États américains pour effectuer des tests de normalité. Les résultats révèlent l'anormalité constante des rendements. Les auteurs s'interrogent sur les conséquences d'une normalité hypothétique sur les primes d'assurance. En supposant des rendements normaux, on obtient des primes sensiblement différentes de cedes calculées avec une distribution empirique des données.     

Innovation forecasting

Technological forecasting is premised on a certain orderliness of the innovation process. Myriad studies of technological substitution, diffusion, and transfer processes have yielded conceptual models of what matters for successful innovation, but most technological forecasts key on limited empirical measures quite divorced from those innovation process models. We glean a number of concepts from various innovation models, then present an array of bibliometric measures that offer the promise of operationalizing these concepts. Judicious combination of such bibliometrics with other forms of evidence offers an enriched form of technological forecasting we call “innovation forecasting.” This provides a good means to combine technological trends, mapping of technological interdependencies, and competitive intelligence to produce a viable forecast. We illustrate by assessing prospects for ceramic engine technologies.     

The Effect of Accounting Conservatism on Corporate Investment during the Global Financial Crisis

This paper examines the effect of accounting conservatism on firm‐level investment during the 2007–2008 global financial crisis. Using a differences‐in‐differences design, we find that firms with less conservative financial reporting experienced a sharper decline in investment activity following the onset of the crisis compared to firms with more conservative financial reporting. This relationship was stronger for firms that were financially constrained, faced greater external financing needs, or had higher information asymmetry. We also find that more conservative firms experienced lower declines in both debt‐raising activity and stock performance. The evidence suggests that accounting conservatism reduces underinvestment in the presence of information frictions.