Bank Monitoring and Environmental Risk

Abstract:  Loan announcement effects for 152 Canadian companies are examined to investigate the efficiency of monitoring by banks facing lender environmental liability. Market reaction to the announcement of bank debt to 'environmental' firms is more positive and significant than for 'non-environmental' firms and, for firms in industries with a higher likelihood of experiencing spill events, is more positive and significant, reinforcing earlier results that establish a relationship between specific loan/borrower characteristics and announcement period excess returns and providing further evidence on the 'uniqueness' of bank loans by demonstrating the superior ability of banks to monitor corporate borrowers exposed to environmental liability.     

Poverty in America 1970–1990: who did gain ground? An application of stochastic dominance criteria employing simultaneous inequality tests in a partial panel

Atkinson ( 1987 ) proposed stochastic dominance criteria for analysing poverty which, under certain conditions, establish orderings of states for any poverty line and any poverty measure within given class, refocusing debate on the nature of the income distribution of the poor. Employing new empirical techniques, these criteria are implemented for the United States from 1970 to 1990 using the Panel Study of Income Dynamics. Results highlight the pivotal role of family size scale economies in consumption, indicate different experiences for white versus non‐white groups and suggest that optimism over the progress of the poor is not warranted. Copyright © 2003 John Wiley & Sons, Ltd.     

中国负债知多少？

【美国《华尔街日报》7月23日】中国的隐性债务可能成为一大麻烦。     

Are Securitizations in Substance Sales or Secured Borrowings? Capital‐Market Evidence*

Two standard‐setting approaches have emerged globally to guide the choice of accounting for securitizations: the control and components approach (SFAS No. 125 and SFAS No. 140) and the risks and rewards transfer approach (IAS No. 39). A lack of consensus about derecognition accounting is a major impediment to achieving convergence in global standards that must be resolved. Thus, both SFAS No. 140 and IAS No. 39 will be reexamined, and evidence pertinent to the debate is timely and important. In this study, we present evidence consistent with the view of credit‐rating analysts, who view many securitizations as, in substance, secured borrowings. Specifically, for a sample of originators applying sale accounting guidance in SFAS No. 125 / 140 during the period 1997‐2003, we show that off‐balance‐sheet debt related to securitizations has, on average, the same risk‐relevance for explaining market measures of risk (that is, CAPM beta) as on‐balance‐sheet debt. We also find that, in a returns and earnings association framework, the pricing multiple on securitization gains declines as the amount of off‐balance‐sheet debt increases, implying that investors take off‐balance‐sheet debt into account when assessing the valuation‐relevance of such gains. For those who advocate the control and components approach to securitization accounting, our results suggest that, at least for frequent securitizers, the put option arising from implicit recourse is a “missing piece” that is not currently accounted for when calculating securitization gains. Our results challenge the extant measurement standards in SFAS No. 140.     

The Poverty of Politics: How Income Redistribution Hurts the Poor

In spite of the significant research literature identifying a tradeoff between income redistribution and economic growth, massive public programs have been implemented to help the poor by transferring income to them. Since Lyndon Johnson's war on poverty began in 1964, over 3.5 trillion dollars have been transferred. However, the possibility that everyone, including the poor, may in fact be made worse off by the transfer has largely been ignored. With a simple algebraic model, the authors demonstrate that, over time, both high and low-income groups are harmed by redistribution. In addition, social mobility, as well as political concerns with relative poverty and international income redistribution increases the damage to all income groups produced by redistribution.     

Auditor Experience and the Timeliness of Litigation Loss Contingency Disclosures*

This paper hypothesizes and finds that firms audited by city‐industry specialists have more timely disclosures of contingent losses from litigation when there is no news coverage relating to the legal case prior to management disclosures. A closer examination reveals that this result is explained by the specialist auditors’ prior experience auditing clients in the same office and industry who are involved with litigation. In our setting, disclosures of litigation‐related contingent losses, we identify two kinds of knowledge generated from experience: industry knowledge and litigation knowledge. Industry knowledge helps auditors detect and correct poor implementation of guidance for litigation loss contingency disclosures. Auditors gain litigation knowledge from auditing clients in a given office and industry with previous involvement as defendants. Thus, the two types of knowledge interact in their effects on reporting outcomes.     

Localism and the Big Society: the asset transfer of leisure centres and libraries – fighting closures or empowering communities?

This paper critically examines the ‘asset transfer’ of leisure services from the public to the voluntary sector. Asset transfer might be theorised as ‘austerity localism’, in which volunteers are obliged to fill the gaps left by retreating public provision, or as ‘progressive localism’, which represents new opportunities through the localism and Big Society agendas to develop more locally responsive, cooperative and mutualist visions. In this way, asset transfer might overcome the limitations of the United Kingdom policies in which ‘Big Government’ is replaced by civic society. Drawing on qualitative interviews with key personnel (volunteers, managers and local authority officers) at 12 leisure facilities, a grounded assessment of the nuanced balance between ‘austerity localism’ and ‘progressive localism’ is provided, including three observations. First, the main impetus for transfer was cuts in local authority budgets which stimulated the emergence of local groups of volunteers. Secondly, the transfers themselves required interaction between local government and the volunteer groups; however, the nature of the relationship and support given varied and support was limited by austerity measures. Thirdly, volunteers do not automatically fill a gap left by the state: without support transfer viability relies on the financial and social capital among volunteer groups, and this is unevenly distributed. These findings suggest that the capacity for a ‘progressive localism’ to emerge through asset transfer is limited. However, where transfer has occurred, there are some progressive benefits of volunteer empowerment and a more flexible service.