Abnormal real operations,real earnings management,and subsequent crashes in stock prices

We study the impact of firms’ abnormal business operations on their future crash risk in stock prices. Computed based on real earnings management (REM) models, firms’ deviation in real operations (DROs) from industry norms is shown to be positively associated with their future crash risk. This association is incremental to that between discretionary accruals (DAs) and crash risk found by prior studies. Moreover, after Sarbanes–Oxley Act (SOX) of 2002, DRO’s predictive power for crash risk strengthens substantially, while DA’s predictive power essentially dissipates. These results are consistent with the prior finding that managers shift from accrual earnings management to REM after SOX. We further develop a suspect-firm approach to capture firms’ use of DRO for REM purposes. This analysis shows that REM-firms experience a significant increase in crash risk in the following year. These findings suggest that the impact of DRO on crash risk is at least partially through REM.     

Motivating high‐impact innovation: Evidence from managerial compensation contracts

We investigate the relationship between Chief Executive Officer (CEO) compensation and firm innovation and find that long‐term incentives in the form of options, especially unvested options, and protection from managerial termination in the form of golden parachutes are positively related to corporate innovation, and particularly to high‐impact, exploratory (new knowledge creation) invention. Conversely, non‐equity pay has a detrimental effect on the input, output and impact of innovation. Tests using the passage of an option expensing regulation (FAS 123R) as an exogenous shock to option compensation suggest a causal interpretation for the link between long‐term pay incentives, patents and citations. Furthermore, we find that the decline in option pay following the implementation of FAS 123R has led to a significant reduction in exploratory innovation and therefore had a detrimental effect on innovation output. Overall, our findings support the idea that compensation contracts that protect from early project failure and incentivize long‐term commitment are more suitable for inducing high‐impact corporate innovation.     

Guest Editorial

Abstract

This study empirically examined the role of a personality trait, public individuation, in furthering our understanding of opinion leadership. Relevance of this new psychological dimension, and past findings on characteristics of opinion leaders are discussed. Discriminant analysis revealed that, in addition to personal involvement and product familiarity, public individuation was the only other variable which was important in distinguishing opinion leaders from non-leaders. Risk preference, open-mindedness, and mass media exposure, though correlated with opinion leadership, were not found to be important predictors of opinion leadership. Implications for advertisers are discussed.     

The Gall in Mother's Milk

How the 1981 WHO code on infant formula marketing came about: the roles played by Nestlé, the other manufacturers, and activist groups.     

The Role of Pre-Exposure Cognitive Structure in Mediating Consumer Responses to Advertising

Measurement of cognitive responses has evolved around the use of post-test only research designs. The failure to include pre-exposure cognitive structure into research designs threatens the validity of results. In the present study, we show that consumers' product attitudes influence how they respond to television commercials and what reactions they have toward advertised products following exposure.     

Politics, policy and regional tourism administration: a case examination of Scottish area tourist board funding

The issue of Area Tourist Board (ATB) funding in Scotland has been of growing importance since 1996, when the Government empowered a reduction in the number of such Boards from 32 to 14. While much of the controversy surrounding this reduction in the number of Boards has centred on issues of the discharge of responsibilities, questions of ATB funding have recently been brought to the fore because of financial difficulties faced by several ATBs. This paper explores questions of ATB funding, beginning with an overview of Scotland's tourism administrative structure before proceeding to examine perceived difficulties with the role, structure and funding arrangements for the ATBs in the context of current debates to resolve these. With the ultimate objective of evaluating the most commonly propounded resolutions to the ATB funding problem, the paper describes and analyses opportunities for, and obstacles to long-term change, conluding that a possible palliative is a centralized funding mechanism tempered by safeguards to local accountability and the delivery of tourism services.     

Customer service—the missing dimension in marketing management

Although several writers have drawn attention to Customer Service as a vital ingredient for success in marketing there is still confusion over what is, how to measure it and hence how to manage it. Yet examples continue to emerge which suggest that Customer Service is the essence of the marketing concept in practice and therefore a source of differentiation and competitive advantage.

It is also suggested that the way firms deal with customer service is a more accurate reflection of their marketing orientation than organisational or other characteristics. A useful reminder that business is about creating and providing customer satisfactions would therefore seem appropriate and ways to improve Customer Service are suggested based on several case study examples.     

Ruling out pareto dominated monetary equilibria

It is well known that under nominal money supply rules accomplished through lump sum transfers, non-uniqueness and non-optimality of the resource allocation often obtains in monetary models. We show that uniqueness and optimality of the resource allocation obtains if the monetary authority conducts Friedman's rule through open market operations. Our result necessitates and we provide a clarification of existing irrelevance theorems for open market operations. Our result also provides a partial resolution of the uniqueness-efficiency conflict of nominal money supply rules raised by Woodford (Economic Theory 4 (1994) 345–380).     

The evolution and resilience of community-based land tenure in rural Mexico

This paper examines the evolution of ejido tenure in Mexico since the 1992 constitutional and legal reforms in that country. Prior to the Mexican Revolution, communal tenure had all but disappeared, but since 1920 community-based tenure re-emerged to become the dominant tenure form in Mexico. The paper investigates ejido land tenure through an examination of ejido governance structures and the tenure rules relating to the acquisition, transfer and extinction of land and resource rights. It draws on community-level research and numerous published case studies, relevant laws, and on data describing the status of ejidos countrywide. This reveals a diverse set of practices, which in many instances depart from the rules as defined in the Agrarian Law and even in internal community regulations. Land tenure plays a critical mediating role in the inter-relationship between humans and the environment. Using the framework of resilience I examine the persistence of ejido tenure and its dynamics in the aftermath of major land policy and legal reforms. Three major ‘shocks’ are identified which are seriously challenging the resilience of ejidos. These are the 1992 legal reforms, NAFTA and the resulting out-migration from rural Mexico, and urbanization. I conclude that ejidos have generally been resilient enough to accommodate the 1992 reforms, but problems with cross-generational transfers that stem in part from labor migration, and urbanization have set ejidos on a course that could ultimately overcome all but the most resilient communities.