The 4% rule: Does real estate make a difference?

This paper examines the wealth maximisation and preservation effects of including commercial real estate in retirement-phase portfolio management. Prior research addresses the role of real estate during the wealth-accumulation phase of the investor lifecycle; however, little is known about the contribution of real estate during the invest-and-spend, or decumulation, phase. To address this issue, we estimate short-fall risk based on the widely known 4% Rule. We use pricing data for multiple asset classes and simulation techniques, combined with a robust correlation structure, to examine: short-fall risk sensitivity to alternative spending rules; the impact of public vs. private real estate allocations; wealth preservation as an investment objective; and the effect of real estate on upside, or wealth maximisation, potential. We find short-fall risk in a decumulation portfolio decreases with substantial allocations to real estate. This result holds for a portfolio including either public or private real estate. Additionally, and under most conditions, the best performing decumulation-phase portfolios include a real estate allocation with both public and private real estate exposure. These results have significant implications for investors, whether they be retirees, plan administrators or endowments, as well as financial economists studying the lifecycle of investment decisions.     

Bundling and Menus of Two-Part Tariffs

Inducing self-selection among different segments of consumers is an important issue in pricing. Some firms induce self-selection by offering a menu of two-part tariffs (e.g., different rate plans) and letting consumers select the tariff and quantity they prefer. Other firms induce self-selection by offering a menu of price-quantity bundles (e.g., different package sizes) and letting consumers select only from among these bundles. We show that bundling is more profitable absent cost considerations. Social welfare may be higher or lower with bundling.     

在日常工作过程中使用SPC

统计质量控制（SQC），以控制图为人们所熟悉，源于休哈特20世纪20年代在芝加哥城外的西方电气厂的工作。     

The Usefulness of Direct and Indirect Cash Flow Disclosures

We investigate the ability of disclosed operating cash flow and indirect accruals components to explain annual returns for a sample of Australian firms. Consistent with claims made by accounting standard setters, we find evidence of significant explanatory power for disclosed operating cash flow components beyond aggregate operating cash flows when they also have significant incremental predictive power for future (one year ahead) operating cash flows. Accrual components also have incremental explanatory power for returns. In addition, we find evidence of significant explanatory power for operating cash flow components beyond estimates of the components (based on other financial statement disclosures) for firms with large differences between disclosed and estimated components.     

Beyond EVA

A former partner of Stern Stewart begins by noting that the recent acquisition of EVA Dimensions by the well‐known proxy advisory firm Institutional Shareholder Services (ISS) may be signaling a resurgence of EVA as a widely followed corporate performance measure. In announcing the acquisition, ISS said that it's considering incorporating the measure into its recommendations and pay‐for‐performance model. While applauding this decision, the author also reflects on some of the shortcomings of EVA that ultimately prevented broader adoption of the measure after it was developed and popularized in the early 1990s. Chief among these obstacles to broader use is the measure's complexity, arising mainly from the array of adjustments to GAAP accounting. But even more important is EVA's potential for encouraging “short‐termism”—a potential the author attributes to EVA's front‐loading of the costs of owning assets, which causes EVA to be negative when assets are “new” and can discourage managers from investing in the business. These shortcomings led the author and his colleagues to design an improved economic profit‐based performance measure when founding Fortuna Advisors in 2009. The measure, which is called “residual cash earnings,” or RCE, is like EVA in charging managers for the use of capital; but unlike EVA, it adds back depreciation and so the capital charge is “flat” (since now based on gross, or undepreciated, assets). And according to the author's latest research, RCE does a better job than EVA of relating to changes in TSR in all of the 20 (non‐financial) industries studied during the period 1999 through 2018. The article closes by providing two other testaments to RCE's potential uses: (1) a demonstration that RCE does a far better job than EVA of explaining Amazon's remarkable share price appreciation over the last ten years; and (2) a brief case study of Varian Medical Systems that illustrates the benefits of designing and implementing a customized version of RCE as the centerpiece for business management. Perhaps the most visible change at Varian, after 18 months of using a measure the company calls “VVA” (for Varian Value Added), has been a sharp increase in the company's longer‐run investment (not to mention its share price) while holding management accountable for earning an adequate return on investors’ capital.     

Audit Firm Tenure and Audit Quality in a Constrained Market

We examine the relation between audit quality and audit firm tenure in the Iranian audit market, which is constrained by government policies that create intense competition for clients among many small audit firms. We develop arguments that these circumstances create cost pressures that entrench low audit quality and render auditors' plans more predictable to managers wishing to misstate their accounts. Using publicly available data for the audits of listed companies in Iran prior to mandatory audit firm rotation and the incidence of misstated financial reports identified by the Iranian Association of Certified Public Accountants Inspection Office, we find that the likelihood of a misstatement is lowest in the first two years of audit firm tenure. We also find that the likelihood of misstatement is not associated with the year preceding a mandatory audit firm rotation, suggesting outgoing auditor effort is not sensitive to the prospect of subsequent revelations of deficiencies. Although our results from a pre-mandatory rotation period show that frequent rotations appear to improve the financial reporting quality in our sample, we are wary of interpreting these results as support for the mandatory audit firm rotation policy in Iran. Rather, we suggest this is a peculiar consequence of deficiencies in audit quality inherent in the Iranian market.     

Incentive Effects of Rate-of-Return Regulation in Hong Kong: Reply

Journal of Regulatory Economics -     

Market Effects of Recognition and Disclosure

Our recognition and disclosure model reveals that price informativeness is determined by the interaction of the qualities of three information sources—the recognized amount, the disclosed information, and the information revealed by price—and accounting expertise acquisition. It also reveals that recognition of an accounting amount alters each of these, thereby affecting price informativeness. Perhaps surprisingly, we find that recognition of a highly unreliable accounting amount, rather than simply disclosing it, can result in greater price informativeness. Likewise, recognition of a highly reliable amount can result in lower price informativeness. Our findings suggest that, because of the effects of aggregation, basing recognition decisions on reliability alone is too simplistic. Reliability relative to relevance is key, not reliability per se. We also find that recognition and disclosure affect the coefficients in a regression of price on accounting amounts.     

Entrepreneurial Hustle: Navigating Uncertainty and Enrolling Venture Stakeholders through Urgent and Unorthodox Action

Entrepreneurs need to act under conditions of uncertainty and resource constraints to bring new, often-unrecognizable products to market and convince an unknown set of stakeholders to support their endeavours. The type of action entrepreneurs take to navigate uncertain entrepreneurial contexts is underspecified. We analysed 48 interviews with entrepreneurs to inductively identify an action-oriented construct we labelled as entrepreneurial hustle – an entrepreneur’s urgent, unorthodox actions that are intended to be useful in addressing immediate challenges and opportunities under conditions of uncertainty. In a follow-up study, we use an experimental vignette approach to assess the impact of an entrepreneur’s hustle on venture stakeholders. Findings suggest that entrepreneurial hustle positively influences stakeholder perceptions of the entrepreneur’s leadership effectiveness and a venture’s legitimacy, mediated by perceptions of the entrepreneur’s ability-based trustworthiness. We conclude that entrepreneurial hustle is a fundamental behaviour that enables entrepreneurs to enrol new venture stakeholders and lead their entrepreneurial efforts.     

What do accruals tell us about future cash flows?

Our model, which is adapted from Feltham and Ohlson (Contemp Account Res 11:689–731, 1995) and Ohlson (Contemp Account Res 11:661–687, 1995) and extends Dechow and Dichev (Account Rev 77:35–59, 2002), characterizes the information about future cash flows reflected in accruals. It reveals investors can extract from accruals information about next period’s economic factor and the transitory part of one component of next period’s cash flow. The extent to which each accrual provides this information depends on whether the accrual aligns future or past cash flows and current period economics and whether it relates to the current or prior period. Thus each type of accrual has a different coefficient in valuation and forecasting cash flows or earnings. Each coefficient combines an information weight reflecting the information that accrual type provides and a multiple reflecting how that information is used in valuation and cash flow and earnings forecasting. The empirical evidence supports our main insight, namely that partitioning accruals based on their role in cash-flow alignment increases their ability to forecast future cash flows and earnings and explain firm value.