The Revealed Preference Theory of Changing Tastes

We analyse preferences over finite decision problems in order to model decision-makers with „changing tastes”. We provide conditions on these preferences that identify the Strotz model of consistent planning. Building on an example given by Peleg and Yaari (1973) , we show that for problems with infinitely many choices, Strotz's representation of preferences may not be well defined. For that case, we propose a well-defined approximation which is empirically indistinguishable from the Strotz preference that is being approximated.     

QUALIFIED AUDIT REPORTS,FIELD DEPENDENCE COGNITIVE STYLE,AND THEIR EFFECTS ON DECISION MAKING

This paper reports the findings of an experiment designed to investigate the effects of an unqualified versus an “except for” qualified audit report on subjects' share price estimates and the moderating role of cognitive style in this relationship. Using ANOVA experimental design, 34 subjects were administered identical financial information on a hypothetical company except that 17 subjects received a qualified auditors' opinion and the other 17 received an unqualified auditors' opinion. In addition, the subjects in each group were classified as either field dependent or field independent on the basis of their scores in the Embedded Figures Test. Results showed that the “except for” audit qualification affected share price estimates and field dependence cognitive style interacted with qualified/unqualified audit opinion to also affect subjects' share price estimates.     

Bi-objective decision support system for routing and scheduling of hazardous materials

This paper presents a Pareto-based bi-objective optimization of hazardous materials vehicle routing and scheduling problem with time windows and shows its application to a realistic hazardous material logistics instance. A meta-heuristic solution algorithm is also proposed, which returns a set of routing solutions that approximate the frontier of the Pareto optimal solutions based on total scheduled travel time and total risk of whole transportation process. It works in a single-step fashion simultaneously constructing the vehicle route and selecting the optimal paths connecting the routed locations from a set of non-dominated paths obtained in terms of travel time and risk value.     

The joint information role of analysts’ cash flow and earnings forecasts

We study whether the relative magnitudes of analysts’ cash flow and earnings forecasts convey information about the persistence and value relevance of reported earnings. We find that reported earnings are likely to be more (less) persistent and value relevant when analysts forecast relatively moderate (extreme) levels of operating cash flows, relative to earnings. We also find that the market’s response to a given earnings surprise is the strongest for moderate levels of cash flow forecasts relative to earnings. The joint information role of analysts’ cash flow and earnings forecasts persists even after controlling for the absolute accruals in the model.     

Cost of capital and valuation in the public and private sectors: Tax,risk and debt capacity

Cost of capital and valuation differ in the private and public sectors, because taxes are a cost to the private sector but are only a transfer to the public sector. We show how to transform the after-tax private sector cost of capital into its pre-tax equivalent, for comparison with the public sector cost of capital. We establish the existence of a tax induced wedge between these two costs of capital. The wedge introduces a preference on the part of the private sector for assets with rapid tax depreciation, high debt capacity and low risk. We show that, in circumstances where an asset has identical public and private sector valuation in the absence of taxes, the tax induced difference in valuation is identical to the change in government tax receipts that results from having the asset owned by the private rather than the public sector. We provide some examples of distortions that result from failure to adjust for changes in tax revenues, and show how to effect such adjustment.     

Political connection and cost of debt: Some Malaysian evidence

This paper investigates the association between Malaysian politically connected (PCON) firms and the cost of debt. We extend previous research that finds Malaysian PCON firms are perceived as being of higher risk by the market, and by audit firms, by providing evidence that lenders also perceive these firms as being of higher risk. We also find that PCON firms have a significantly (1) higher extent of leverage, (2) higher likelihood of reporting a loss, (3) higher likelihood of having negative equity, and (4) higher likelihood of being audited by a big audit firm. We suggest that PCON firms are charged higher interest rates by lenders as a result of efficient contracting given their higher inherent risks. Additionally, we find that CEO duality present in PCON firms is perceived by lenders as being more risky, and that a higher proportion of independent directors on the audit committee mitigate this perceived risk.     

Split-share reform and earnings management: Evidence from China

This paper investigates the impact of split-share structure reform on earnings management in China. A unique institutional feature of China was the co-existence of two types of share that endowed all shareholders with equal voting and cash flow rights but different tradability. This split-share structure significantly constrained the tradability of shares that led the Chinese Securities Regulatory Commission to make it mandatory for the conversion of non-tradable shares into tradable shares from 2006 onwards. We investigate whether such a conversion has any effect on information quality through reduced earnings manipulation. We specifically examine the incentives for earnings management during the reform-transition period. A unique feature of the split-share reform has been the requirement for non-tradable share holders to compensate the tradable share holders. We argue that the rational response from the non-tradable share holders would be to pay a lower consideration to tradable share holders by portraying a favorable picture through income-increasing earnings management. We also test for the effect of an increase in tradable shares on earnings management during the reform-transition and post-reform period.     

Auditee Religiosity,External Monitoring,and the Pricing of Audit Services

This paper demonstrates the political perspective of corporate social responsibility (CSR) disclosures and, drawing on Weber’s notion of traditionalism, seeks to explain what motivates companies to make such disclosures in a traditional setting. Annual reports of 23 banking companies in Bangladesh are analysed over the period 2009–2012. This is supplemented by a review of documentary evidence on the political and social activities of corporations and reports published in national and international newspapers. We found that, in the banking companies over the period of study, apparently neutral, corporate, philanthropic activities disclosed and promoted in CSR reports are inextricably linked to powerful leaders’ personal projects and the ruling party’s agendas. We have demonstrated elements of traditional societies, including personal loyalty and the public display of loyalty, the master–servant relationship, and obedience to personal rather than formal authority, provide an understanding of why banks (with or without explicit political linkages with the ruling party) have employed politically charged CSR disclosure strategies. The paper contributes to disclosure studies where political motivations of corporate disclosure rarely discussed. The paper extends the debate on political CSR by demonstrating that the role of family and familial values at the organisational and national levels may be much more important when it comes to CSR disclosure and activities.