Market Response to Earnings Surprises Conditional on Reasons for an Auditor Change*

Our interest in this study is the relative informativeness of earnings announcements reported before and after Form 8‐K disclosures of the reason for an auditor change. We appeal to several models that predict that the market's response to an earnings surprise is positively related to the perceived precision of the earnings report. We predict that the Form 8‐K reason disclosures aid investors in updating their expectations of earnings precision by providing useful information about the financial reporting process that produces the earnings report. For 802 auditor changes from late 1991 through late 1997, the average price response per unit of earnings surprise is lower subsequent to an auditor change for companies that switched for disagreement‐related or fee‐related reasons and higher for those that switched for service‐related reasons. This paper provides further evidence on the effects of differential earnings quality on differences in the returns‐earnings relation across companies and over time as well as the efficacy of Form 8‐K disclosures of reasons for auditor changes.     

Equilibrium Selection and Public-good Provision: The Development of Open-source Software

Collective-action problems arise in a variety of situations.Open-source software is a recent and important example. Copyrightrestrictions on open-source projects stipulate that any usermay modify the software so long as any resulting innovationis freely available to all. In economic parlance, the innovationis a public good. The economic theory of public-good provisionraises a number of important questions. Who contributes to sucha project, and who free rides? How might a social planner exploitthe interdependence of project components to encourage contributions?Under what conditions will such actions result in successfulprovision? Using a simple game-theoretic framework and recentresults from the study of equilibrium selection, we attemptto answer these questions. Under reasonable assumptions of asymmetryand less than complete information, the most efficient providerswill contribute. Contributions can be elicited by ‘integrating’the provision process when providers are sufficiently optimisticabout the success of the project. Otherwise, the social plannermay be better off ‘separating’ the components sothat individual contributions are independent of each other.The analysis yields recommendations for the leaders of open-sourceprojects and other similar collective-action problems.     

Virtual Environments and the Acceleration of Experiential Learning

Darius et al. (2007) and Nolan & Temple Lang (2007) give examples of virtual environments that can, for specific purposes, substitute for the real world. We are in the early stages of developments that could revolutionize statistics education by making it possible to capture efficiently important aspects of the thinking and practice of professional statisticians previously learned only from long years of experience. The ability of virtual environments to automate processes provides a potent weapon for tackling the tyranny that Time exercises over such modes of learning. We discuss the many new possibilities that are opened up by virtual environments together with cognitive and pedagogical imperatives to be addressed to ensure that environments actually do teach the lessons they were designed to teach. We echo Nolan and Temple Lang's call for the development of environments to be modular and open source. Taking the R‐project as a model, this can lead to a growing repository of building blocks that make the construction of future environments less costly, thus facilitating the realization of more and more ambitious conceptions.     

The Regulation of Professional Migration: Insights from the Health and IT Sectors in ASEAN

This paper develops several indicators to measure the extent and depth of rules governing international migration. It is set in the context of moves towards further liberalisation of services trade and associated labour mobility (Mode 4) under GATS and related regional trading arrangements. Ten Southeast Asian countries at various stages of economic development are examined as a case study, with special reference to health care and information technology. These sectors are priority sectors for regional cooperation in services trade in ASEAN, but were expected to represent opposite extremes in terms of the regulation of migration. The study finds that the more advanced countries tend to have more liberal regimes for international movements of skilled manpower, although there were smaller differences regarding general visa and work permit arrangements. Generic restrictions on mobility were related to trade policies, as well as to direct barriers (often country‐specific) to migration. They included minimum salary requirement, levies on foreign workers, economic needs tests, and limitations related to language, education and job experience. Controls were more extensive in the health care sector, related to social considerations as well as professional organisational interests.     

WORD OUTLOOK

As the world economy enters the 1990% a significant reorientation of growth and demand is taking place amongst the major economies. The desynchronuation of the economic cycle, which occurred last year as the US economy slowed down while Europe and Japan continued to advance rapidly, is likely to be taken a stage further. Europe, in particular West Germany, is expected to continue to grow quickly in the run-up to the completion of the single EC market in 1992 and as a result of the opening of eastern Europe. Japan and the Asian NICs, adapting with an unprecedented programmed of industrial re-tooling to their new circumstances, are already set on an accelerated growth path. In contrast, the US appears to be in for a period of sluggish growth, as the Fed attempts to press down on inflation without causing a recession. As a result we expect US output growth of only 2 per cent a year over the next few years compared with a sustainable 3 per cent in Germany and 4 per cent in Japan. Despite these differences in growth, US inflation performance lags behind that in Germany and Japan and, partly because of the sue of existing IPD flows, little progress is like& on reducing current account imbalances.