When a Gain Comes at a Price: Pay Attitudes after Changing Tier Status

This study compares attitudes toward pay and work of employees who changed from the high tier to the low tier after transferring jobs from low-to high-paying departments with those who similarly transferred but did not change tiers. The former had lower Pay Satisfaction than the latter, but they did not differ in Job Satisfaction and Union and Employer Commitment. The findings suggest that the change-tier employees' loss of high-tier status was a likely reason for their pay dissatisfaction.     

Factors Related to Auditor-Client Disagreements over Income-Increasing Accounting Methods*

Abstract. The Securities and Exchange Commission requires disclosure of auditor-client disagreements that precede a change in auditor. Although prior research has documented that disclosure of disagreements is associated with a decline in equity value, no empirical work has examined factors that result in auditor-client disagreements. We hypothesize that managers are motivated by debt and compensation arrangements to propose methods that are objected to by their auditors (resulting in a disagreement). Because of their greater independence, we also hypothesize that reported disagreements will be more likely for Big Eight (now Big Six) auditors, A comparison of 40 firms that changed auditors and reported a disagreement with a control group of 40 firms that simply changed auditors revealed that disagreement firms are more likely to have debt covenant violations. Disagreement firms are also more likely to have higher leverage, a decline in earnings, and Big Eight auditors. For firms that disclosed the magnitude of the disagreement's effect on earnings, the use of the questionable procedure tended to enhance “flat” earnings growth. Résumé. La Securities and Exchange Commission exige que soit publiée l'information relative aux désaccords vérificateur-client qui précèdent un changement de vérificateurs. Bien que les recherches antérieures aient démontré que la publication de cette information est accompagnée d'un déclin de la valeur des titres, aucun travail empirique n'a examiné les facteurs qui sont à l'origine des désaccords vérificateur-client. Les auteurs posent l'hypothèse selon laquelle ce sont le passif et les régimes de rémunération qui motivent les gestionnaires à proposer des méthodes auxquelles s'opposent les vérificateurs (et qui donnent lieu à un désaccord). Les auteurs posent également l'hypothèse selon laquelle il est plus probable que les désaccords déclarés mettent en cause les huit grands cabinets d'experts-comptables (maintenant les six grands), étant donné leur indépendance plus grande. La comparaison de 40 entreprises ayant changé de vérificateurs et fait état d'un désaccord à un groupe de contrôle de 40 entreprises ayant simplement changé de vérificateurs a révélé que les entreprises en désaccord sont davantage susceptibles d'avoir dérogé à des clauses restrictives. Les entreprises qui déclarent être en désaccord avec leurs vérificateurs sont aussi davantage susceptibles d'être caractérisées par un levier financier élevé, un déclin dans les bénéfices et le recours aux services d'un cabinet d'experts-comptables appartenant aux huit grands. Dans le cas des entreprises qui ont fait état de l'ampleur des conséquences du désaccord sur les bénéfices, l'utilisation du procédé discutable a eu tendance à favoriser une croissance « horizontale » des bénéfices.     

Default Risk in Futures Markets: The Customer-Broker Relationship

The traditional view of the futures clearinghouse as an insurer that eliminates the need for customers to evaluate default risk is inaccurate. A clearinghouse member default in 1985 confirms that the clearinghouse only guarantees payment from member to member, not from customer to customer or member to customer. Thus, non-defaulting customers are subject to losses as a result of the action of individuals with whom thay have no contractual obligations. This study models the behavior of customers choosing a futures commission merchant (FCM) given the current legal position of the clearinghouse. In a single-period model with symmetric information, customers can eliminate their exposure to defaults of other customers or of their FCM only by choosing to trade through “boutique” (undiversified) FCMs. In practice, monitoring and rebalancing costs may impede the attainment of zero default risk. However, FCM diversification remains an important factor in customer choice of an FCM. When setting capital requirements, clearinghouses and government regulators need to consider the implications of diversification for both customer and market protection.     

The Effect of Taxes on the Relative Valuation of Dividends and Capital Gains: Evidence from Dual-Class British Investment Trusts

We provide evidence that taxes affect equity valuation by studying British investment trusts having otherwise identical classes of cash- and stock-dividend-paying shares outstanding. We study 1969–1982, a period in which there were two dramatic changes in tax policy. We find that stock-dividend shares, which are convertible into cash-dividend shares, sell at premiums when the tax system favors capital gains and at discounts when the tax advantage of capital gains is reduced. After the 1975 elimination of the tax advantage to stock-dividend shares, we observe that investors convert virtually all stock-dividend shares into cash-dividend shares.     

A VARMA Analysis of the Causal Relations Among Stock Returns,Real Output,and Nominal Interest Rates

Previous research has documented a negative relation between common stock returns and inflation. Recently, Fama 3 and Geske and Roll 6 have argued that this relation results from a more fundamental one between real activity and expected inflation. Stock returns, they argue, signal changes in real activity, which in turn affect expected inflation. However, unlike Fama, Geske and Roll argue that changes in real activity result in changes in money supply growth, which in turn affect expected inflation. Empirical tests have analyzed separately each link in the proposed causal chain. In this article, we investigate simultaneously the relations among stock returns, real activity, inflation, and money supply changes using a vector autoregressive moving average (VARMA) model. Our empirical results strongly support Geske and Roll's reversed causality model.     

Marginal Tax Rates: Evidence from Nontaxable Corporate Bonds: A Note

This study offers an alternative method of calculating marginal personal tax rates through the pairing of nontaxable (industrial development and pollution control) and taxable corporate bonds. This procedure is shown to produce matched bond pairs that are comparable. Two hundred pairs of bonds are examined from the second quarter of 1973 through the second quarter of 1983. Testing of the marginal tax rate relationships indicates that the marginal personal tax rate is less than the corporate statutory tax rate.