The impact of litigation risk on the association between audit quality and auditor size: Evidence from China

We examine whether audit quality varies across different sizes of CPA firms under high or low auditor‐specific litigation risk exposure. We measure audit quality by the issuance of modified audit opinions and the audit fees charged to clients, and we use the organizational form of CPA firms as the proxy for auditors’ litigation risk exposure, where a partnership (limited liability) CPA firm represents a high (low) litigation risk exposure. Built on Choi, Kim, Liu, and Simunic's (2008) theoretical framework, we hypothesize that the litigation risk exposure of CPA firm moderates the association between auditor size and audit quality. Our results show that when the auditor's liability is capped (i.e., registered as a limited liability form of CPA firm), larger size CPA firms are associated with higher audit quality when compared to smaller size CPA firms. However, this positive association between auditor size and audit quality disappears for audit firms that are subject to high litigation risk exposures (i.e., registered as a partnership form of CPA firm). Our research provides new insights on the impact of auditor‐specific litigation risks on the relation between audit quality and auditor size. In particular, we show that only when auditor‐specific litigation risk is limited, do large CPA firms appear to perform higher quality audits than small CPA firms.     

The trade-off between environmental care and long-term growth—Pollution in three prototype growth models

The effects of increased environmental care on optimal technology choice and long-term growth are studied for an economy in which pollution is a side-product of physical capital used in production. First, it is shown that in case of a standard neoclassical production structure, the result is a less capital-intensive production process whereas the long-run growth rate is not affected. Next, we introduce assumptions of the endogenous growth literature. When there are constant returns to physical capital, an increase in abatement activities crowds out investment and lowers the endogenous growth rate. When human capital accumulation is the engine of growth, physical capital intensity declines and the endogenous optimal growth rate is unaffected by increased environmental care or is even higher, depending on whether or not pollution influences agents' ability to learn.The authors are grateful to an anonymous referee, to Lans Bovenberg, Noud Gruijters, Theo van de Klundert, Lex Meijdam, and Sweder van Wijnbergen for helpful and stimulating comments. The views expressed in this paper are the authors' own and should not be attributed to the Ministry of Finance.     

Reducing carbon emissions through employee participation: evidence from Australia

Based on a survey of 682 Australian organisations, we find that employee participation influences organisations' behaviours to reduce carbon emissions. Representative forms of participation and mechanisms dedicated specifically to environmental management are particularly important. Utilisation of a range of forms of participation is also associated with a broader suite of emission reduction activities.     

Modelling Group Heterogeneity for Small Area Estimation Using M‐Quantiles

Small area estimation typically requires model‐based methods that depend on isolating the contribution to overall population heterogeneity associated with group (i.e. small area) membership. One way of doing this is via random effects models with latent group effects. Alternatively, one can use an M‐quantile ensemble model that assigns indices to sampled individuals characterising their contribution to overall sample heterogeneity. These indices are then aggregated to form group effects. The aim of this article is to contrast these two approaches to characterising group effects and to illustrate them in the context of small area estimation. In doing so, we consider a range of different data types, including continuous data, count data and binary response data.     

Dynamics of Firm-Supplier Relationships in a Less Developed Economy: Evidence from African Manufacturing Firms

In this paper, we study supplier-firm interactions to explain firms' outsourcing relationships. We show that in an imperfect information setup a firm learns about the quality of its suppliers through repeated interaction. As the firm determines the suppliers' quality with greater precision, it gives a greater proportion of its contracts to these “better” suppliers. We report evidence from African manufacturing firms that is consistent with our hypothesis: both frequency and volume of transactions increase with the length of a firm's relationship with its supplier. These effects are stronger in poor contracting environments.     

US state-level economic freedom during the COVID-19 pandemic

The COVID-19 pandemic led to extensive new government regulations and lockdown policies that significantly reduced economic freedom across US states. Many of these new pandemic-related regulatory restrictions on economic freedom varied significantly from state to state but are largely missed by the existing Economic Freedom of North America Report (EFNA). This paper adjusts the Our World in Data COVID-19 Stringency Index into a state-level measure of lockdown regulatory freedom and then merges it into the EFNA index to better measure relative economic freedom across US states in 2020. We find significant differences in the relative ranking of economic freedom between states once we adjust for lockdown regulatory restrictions.     

Alternatives to polynomial trend-corrected differences-in-differences models

A common problem with differences-in-differences (DD) estimates is the failure of the parallel-trend assumption. To cope with this, most authors include polynomial (linear, quadratic…) trends among the regressors, and estimate the treatment effect as a once-in-a-time trend shift. In practice, that strategy does not work very well, because inter alia the estimation of the trend uses post-treatment data. An extreme case is when sample covers only one period before treatment and many after. Then the trend’s estimate relies almost completely on post-treatment developments, and absorbs most of the treatment effect. What is needed is a method that i) uses pretreatment observations to capture linear or nonlinear trend differences, and ii) extrapolates these to compute the treatment effect. This article shows how this can be achieved using a fully flexible version of the canonical DD equation. It also contains an illustration using data on a 1994–2000 EU programme that was implemented in the Belgian province of Hainaut.     

An EU Recycling Target: What Does the Dutch Evidence Tell Us?

The European Union (EU) advocates a household waste recycling rate of more than 65 %. Although the Netherlands has already invested heavily in recycling policies, this is still a big challenge as nowadays this rate is approximately 50 % on average and very few no municipalities have a rate above 65 %. Given this practice, it is possible to learn from the Dutch experience which policies are effective in increasing recycling rates. Based on a large panel data set for the Netherlands, we show that unit-based pricing, avoiding a duo-bin for unsorted and compostable waste, and reducing the frequency of collecting unsorted and compostable waste at the curbside are effective in raising the recycling rate. However, only a bag-based pricing system has a substantial effect, but this policy can have some adverse effects. Other unit-based pricing systems have effects of less than 10 % points. In nearly all cases, changing the frequency of collection of recyclables has no or very small effects. Moreover, the complementarity between unit-based pricing and curbside service is low. Overall, it seems very difficult to reach the EU goal of 65 % with the policies applied.     

Everything Old is New Again: The Age of Consumer-Centric Supply Chain Management

Over the past several decades, the disciplines of marketing and logistics grew apart from their common historical origins as marketing became more behavioral and more quantitative, while logistics leaned toward a more operational orientation. We argue in this editorial that social and technological changes in the past 20 years, coupled with the effects of the COVID pandemic, have created the conditions for the two disciplines to reconnect. We propose that scholars and practitioners consider a consumer-centric approach to supply chain management. Such an approach advocates that the entire supply chain should focus on consumer experience rather than mere customer service and that experiences might include issues such as last-mile delivery, supply chain visibility, and consumer values. We also introduce the papers appearing in this issue of the journal.