The social constitution of regulation: The endogenization of insider trading laws

Accounting research, whether founded in an economics or sociological paradigm, has generally treated regulation as an exogenous part of the environment that shapes the behavior of those who operate within it. Recently, joining those who have advanced the regulator capture hypothesis, the exogenous presumption of the regulatory framework has been challenged by institutional theorists within the sociology literature, and it has been reasoned that those regulated seek to influence the regulations applied to them to gain advantage. In effect, the actions of those regulated “endogenize” the regulations that gird them. Employing this emerging strand of institutional theory research, we probe efforts to “endogenize” the Securities and Exchange Commission’s (SEC) regulation of insider trading. More specifically, applying both latent and manifest content analyses, we examine archival material relating to the development of insider trading regulations, focusing in particular on the social negotiation of the SEC’s Rule 10b5-1, which prohibits company officers from trading in their company’s stock while in “knowing possession” of material, non-public information. Our results suggest that those regulated by 10b5-1 effectively influenced this regulation (viz., by way of successfully advocating for an affirmative defense provided for so-called “planned trades”). Our analysis suggests that endogenization is an on-going, recursive process marked by moves and counter-moves among contending factions. Implications are explored.     

Impact of Post-restatement Actions Taken by a Firm on Non-professional Investors’ Credibility Perceptions

The frequency of earnings restatements has been increasing over the last decade. Restating previous earnings erodes perceived trustworthiness and competence of management, giving firms strong incentives to take actions to enhance perceived credibility of future financial reports [Farber, D. B.: 2005, The Accounting Review 80(2), 539–561.]. Using an experimental case, we examine the ability of post-restatement actions taken by a firm to positively influence non-professional investors’ perceptions of management’s financial reporting credibility. Our examination considers credibility judgments following two types of restatements – those resulting from fraud in which the character, ethics, and values of an organization may be called into question [cf. Copeland, Jr., J. E.: 2005, Accounting Horizons 19(1), 35–43.], and those resulting from non-fraud (i.e., aggressive accounting). Based on the information in the experimental case, non-professional investors take the role of potential equity investors and make a judgment about management’s financial reporting credibility after reviewing a set of post-restatement actions taken by a firm. The possible actions include changes in four corporate governance mechanisms (i.e., internal audit function, external audit firm, board of directors, CFO) and a buyback of company stock. Our results provide an important contribution to the literature by demonstrating that among non-professional investors, perceptions of management’s financial reporting credibility are affected both by the post-restatement action taken and the nature of the restatement. These results offer insight into the formation of a key credibility judgment made by non-professional investors following a trust-destroying event, an earnings restatement. Data Availability: The data are available upon request.     

Financial slack and venture managers' decisions to seek a new alliance

We examine two distinct perspectives to analyze the role of financial slack in the decisions of technology venture managers to seek strategic alliances. According to the capabilities perspective, financial slack provides managers with the ability to maximize the benefits from acquiring missing capabilities through alliance formation, whereas according to the resource dependence perspective, financial slack buffers the managers' motivations to seek alliances as a reaction to external environmental scarcity. Drawing on an experimental design and data on 1632 decisions nested within 51 managers, we find support for a combined perspective demonstrating that managerial discretion in the form of financial slack moderates how internal capabilities and context encourage managers to seek alliances. We discuss implications of our work for the alliance literature.     

Consumer knowledge and meat consumption at home and away from home

We investigate the roles of consumer knowledge and sociodemographic factors in the consumption of meat products at home and away from home. Censored dependent variables and endogenous dietary knowledge are accommodated by developing and estimating a simultaneous-equations system. Results suggest endogeneity of knowledge and support the system approach to demand functions for meat products. Dietary knowledge decreases consumption of beef and pork at home and away from home but does not affect poultry or fish consumption in either location. Men eat more meat and fish than women, meat consumption declines with age, and regional and racial/ethnic differences are present.     

Effects of interest rate swaps

In this paper we examine the effect of interest rate swaps on the firm, and identify characteristics of firms that use interest rate swaps, reporting findings consistent with interest rate swaps being used as a risk-reducing instrument. Relative to nonswappers, firms using swaps are more likely to experience decreased cash flow variance in the five-year period subsequent to swap initiation. In addition, firms that engage in swaps are found to be larger and more highly levered than a control sample of nonswappers. Dividing our sample based upon type of swap, we find different characteristics explain different types of swap. In particular we find evidence consistent with swaps from variable to fixed interest rates being engaged in for risk reduction, i.e., hedging purposes.     

Benchmarking Warehousing and Distribution Operations: An Input-Output Approach

We developan input-output model of a warehouse system to assess operationalefficiency. Our model simultaneously accounts for all of thecritical resources (labor, space, storage and handling equipment)and the different workload requirements (broken case, full caseand pallet picking, storage and order accumulation) of a warehouse.We collected extensive data on 57 warehouse and distributionfacilities from a variety of industries, including auto parts,dental and office supplies, electronics, fine papers, hardware,health care, industrial packaging, mail order apparel, officemachines, photographic supplies, and wholesale drugs, and usedthe model to assess and compare their efficiencies. We offer3 conclusions based on a statistical analysis of the operatingefficiencies obtained from several models: Smaller warehouses tend to be more efficient than larger warehouses.Warehouses using lower levels of automation tend to be moreefficient. This association is more pronounced in small firms.Unionization is not negatively associated with efficiencyand in fact may actually contribute to higher efficiency.     

Environmental Input-Output Models for Life-Cycle Analysis

The Leontief input-output model has beenapplied for macro environmental analysis since1970, and life cycle analysis has been used inindustrial design over the last decade. Thispaper presents two extended environmentalinput-output models for life cycle analysis inpollutant abatement and towards resourcerecycling. It is demonstrated that thesuggested models are systematic tools that canbe used for integrated environmental analysisand planning.