Auditor Fees, Market Microstructure, and Firm Transparency

Abstract:  Auditors, as corporate insiders, have access to private information regarding the firm's financial and business opacity that is unavailable to outside investors. We test whether auditors price their knowledge of firm opacity in their audit fees by examining two competing hypotheses. The first states that higher audit fees may reflect the greater risk that the auditor faces in auditing an opaque firm. Under this hypothesis, market based measures of opacity will be positively correlated with higher fees. The second hypothesis states that firms buy reputational capital from their auditor by paying high fees in an attempt to improve the market's perception of the firm's transparency. In this case, higher audit fees are negatively correlated with market based measures of opacity. Our results are consistent with the first hypothesis, that auditors price opacity risk into their fees.     

Modeling and predicting the development of the CES of Russia,Belarus, Kazakhstan,and Ukraine

The paper describes new approaches to the prediction of integration processes in the post-Soviet space and to the macroeconomic evaluation of the integration effect with the use of a cross-country model of structural interactions.     

Investment decisions and internal capital markets: Evidence from acquisitions

In this paper, we examine the workings of internal capital markets in diversified firms that engage in related and unrelated corporate acquisitions. Our evidence indicates that bidders invest outside their core business (diversify) when the cash flows of their core business fall behind those of their non-core lines of business. However, bidders invest inside their core business (i.e., undertake non-diversifying investments) when their core business experiences superior cash flows. We also find that bidders whose core business are in industries with low growth prospects engage in diversifying acquisitions while bidders whose core business are in high growth industries undertake non-diversifying acquisitions. The pre-acquisition evidence, then, suggests that firms tend to diversify when the cash flows and the growth opportunities of their core business are considerably lower than those of their non-core business. Subsequent to acquisitions we find that diversifying bidders continue to allocate financial resources from less profitable business segments (i.e., core business) to more profitable business segments (i.e., non-core business). Given the low profitability of diversifying bidders’ core business, this capital resource allocation suggests that diversification increases do not result in capital allocation inefficiencies. The evidence for non-diversifying bidders, however, supports the existence of “corporate socialism” in the sense that there is transfer of funds from the profitable (core) to the less profitable (non-core) business segments in multi-segment bidders. We find that the capital expenditures of bidders’ non-core business segments rely on both core and non-core cash flows.     

Sedimentation of reservoirs in India

The sedimentation of Indian reservoirs has become a serious problem due to the synergistic action of population growth, intensity of agricultural operations, poor soil conservation and deforestation. This article examines the reasons for and responses to, sedimentation in three Indian reservoirs — Nizamsagar, Tungabhadra and Sriramsagar. The land management practices adopted in each case are analysed with reference to current and future needs. The article highlights particularly the need to monitor methodically the land use changes in the catchments of reservoirs.     

THE PRESIDENT'S COMMISSION ON PENSION POLICY HOUSEHOLD SURVEY 1979: NET WEALTH DISTRIBUTIONS BY TYPE AND AGE FOR THE UNITED STATES

A household survey was done for the U.S. President's Commission on Pension Policy (1979-81). This paper reports on the net wealth of families in the United States for the year 1979, the first wave of the survey. The survey was begun in September 1979 and was a two-wave, nationwide random sample of households in the United States. The survey instrument gathered information on income, wealth, labor supply, participation in pension plans, vesting status, entitlement to various benefits, attitudinal views on retirement, social security wealth, and individual demographic characteristics. Details of the survey methodology are reported. A response rate of sixty-two percent was achieved among the 6,384 dwelling units in the first wave. Imputations are made to calculate the wealth embodied in private and public employee-based pensions. Included in this valuation is an adjustment for expected vesting status in the pension plan. Net wealth is examined by type and age of the head of household. The average net wealth of the family is $53,956, and the average value of retirement wealth is $3,281 which comprises about 5 to 6 percent of net wealth. The striking changes in the portfolio of net wealth are depicted over the cross-section of age cohorts. The oldest age cohort, 65 and over, is found to have for retirement wealth the lowest frequency of ownership, the lowest proportion of their portfolio in this form of wealth, and the second to lowest average value.     

Agency Costs in Apartment Property Management Contracts

Because fees for property management services are based on gross rental collections rather than on net operating incomes, property managers may not always act in the best interest of property owners. This study is an examination of the agency costs that result from the conflict of interests between owners and managers. A nationwide proprietary sample of 242 apartment properties is analyzed to compare agency costs of four distinct types of ownership structures. Agency costs, measured as operating expenses per square foot, are found to be significantly higher for institutional owners than for noninstitutional owners, but not significantly higher in cases where no competition for property management services exists. We conclude that agency costs of property management contracts are significant and the fee provisions of standard property management contracts should be changed to better align the interests of managers and owners.