The Theory-Practice Gap in Capital Budgeting: Evidence from the United Kingdom

We report the results of a survey of capital budgeting techniques used by United Kingdom firms. Where possible, the evidence is combined with data collected over a 22 year period to provide a basis for the discussion of causes of trends. We observe that there has been a substantial narrowing of the theory-practice gap in the use of project appraisal methods. The gap has also narrowed in other areas: the analysis of risk, inflation adjustment, capital budget preparation, WACC calculation and post-auditing. However, there are other elements of capital budgeting theory, e.g. probability and beta analysis which have been adopted by very few practising managers. We also discuss non-economic projects, capital rationing and hurdle rates.     

Disclosing new worlds: a role for social and environmental accounting and auditing

This essay critically analyses modern social and environmental accounting. First, I argue that modern social and environmental accounting models have been developed based on procedural liberal frameworks that limit the proposals for reform. Second, social and environmental accounting focuses on the corporation as the accounting entity and mistakenly claims to be able to influence it. In developing another way to think and act about the environmental and social role of accounting, I consider whether modern communitarian thought can enrich the democratic process. The aim is to foster debate and dialogue concerning the role of corporations and their impact on nature. I argue that implicit in communitarian theory is a democratic model through which language acts as a means to critically focus on the direction of accounting as an institution in the public sphere.     

Hayek contra Pangloss on Evolutionary Systems

Some analysts have criticized Friedrich Hayek's theory of cultural evolution for implying that the rules, customs, norms, and institutions that emerge from the evolutionary process are necessarily efficient or desirable in all cases. This charge is unfounded. The present article defends Hayek versus his critics in two ways: First, it restates Hayek's own objections to the idea that cultural evolution produces optimal outcomes. Second, it shows, through an analogy with biological evolution, that Hayek's theory need not imply any such conclusion. Contrary to a widely held misconception, biological evolution does not produce organisms that are perfectly adapted to their habitats; insofar as cultural evolution shares common features with biological evolution, cultural evolution may be expected to display similar types of suboptimality or mal-adaptation. Insights from the theory of biological evolution also help to illuminate some areas of controversy with regard to Hayek's theory of cultural evolution, including: Hayek's advocacy of gradual change; the question of what selective forces drive the process of cultural evolution; and the alleged conflict between group selectionism and methodological individualism.     

The Optimal Construction of Internationally Diversified Equity Portfolios Hedged Against Exchange Rate Uncertainty

Much of the empirical work on hedging exchange rate exposure in portfolios of financial assets has used a unitary hedge ratio, or a currency overlay. Alternatively, the currencies themselves can be treated as assets and the position in them optimized. This study empirically tests whether the ex post results of recent studies, which conclude that currencies should themselves be optimized, stand up under parameter uncertainty. It may very well be that ex ante, when parameter inputs must be estimated from historical data, the attempt to determine the optimal currency weights results in inferior performance in comparison to using a simple unitary hedging strategy, or even unhedged international investment. The results suggest that a local currency return unitary hedging strategy works best in the presence of parameter uncertainty.     

Human Rights,Transnational Corporations and Embedded Liberalism: What Chance Consensus?

I assessed change in students’ moral reasoning following five 75-min classes on business ethics and two assignments utilizing a novel pedagogical approach designed to foster ethical reasoning skills. To minimize threats to validity present in previous studies, an untreated control group design with pre- and post-training measures was used. Training (n = 114) and control (n = 76) groups comprised freshmen business majors who completed the Defining Issues Test before and after the training. Results showed that, controlling for pre-training levels of moral reasoning, students in the training group demonstrated higher levels of post-training principled moral judgment than students in the control group.     

The rules of abstraction

Friedrich Hayek’s work on spontaneous order suggests that the emergence of a spontaneous order requires the existence of abstract rules of conduct. But how much abstraction is required? Abstraction exists on a gradient, from the highest specificity (pertaining to particular persons and narrowly defined circumstances) to the highest generality (pertaining to all persons in all circumstances). If rules create order by coordinating expectations, either end of the spectrum is undesirable; the most specific and the most abstract rules fail to provide decision makers with useful guidance. This article argues that rules that foster coordination must be characterized by an intermediate degree of abstraction. This conclusion will be explained and applied to law, language, and etiquette in order to draw out the similar character of rules across various contexts. The article concludes by discussing four properties that rules of intermediate abstraction must also possess to foster spontaneous order.     

Return Behavior in Emerging Stock Markets

This article investigates the behavior of stock returns in thetwenty stock markets represented in the International FinanceCorporation's Emerging Markets Data Base. The aim is to testfor return anomalies and predictability. Using statistical methodologiesthat have identified seasonal and size-based return differences,as well as general return predictability in industrial markets,we find that these emerging markets display few of the sameanomalies. In particular, we find limited evidence of turn-of-the-tax-yeareffects and small-firm effects. We do find, however, evidenceof return predictability.     

Intermarket shopping behavior and the small community: Problems and prospects of a widespread phenomenon

The purpose of this study is to explain intermarket shopping behavior in small communities where everyone, to some degree, is an outshopper. Results of the study suggest that outshopping in small communities is primarily a function of the satisfaction (or dissatisfaction) with local retail facilities.     

Longevity and Genetic Improvement Issues in Replacing Dairy Cows

The objective of this research is to identify optimal economic replacement strategies for dairy cows within the framework of genetic improvement and to compare these strategies with those followed by Alberta dairy farmers. Production records from four commercial dairy herds are used to model the optimum replacement policy within a wealth-maximizing objective, allowing comparison of predicted results with observed practice in the industry. Unplanned replacement, due to biologial failure of cows, is included in the model as a finite Markov process. The economically optimal replacement time is found to occur at the end of the sixth lactation, with only minor penalties for suboptimality. Planned replacement after the sixth lactation requires culling approximately one quarter of the herd annually, and results in an average herd age of 5.77 years. Since the band of economically reasonable replacement policies extends from the third to the tenth lactation, the average herd age ranges from 4.48 years and 7.02 years. The observed average age of Alberta milking herds of 4. 78 years lies in the lower part of this predicted range. While one can conclude that the model leads to an optimum that is consistent with the observed behavior of Alberta dairy farmers, one must temper this conclusion with the caution that additional research, especially regarding the technical lactation curve, is indicated L'objet de la présente recherche était de dégager des stratégies de remplacement economiquement opti-males pour les vaches laitières, compte tenu des exigences de l'amelioration génétique, et de comparer ces stratégies avec celles qu'utilisent les producteurs laitiers de I 'Alberta. On a utilisé les relevés de production de quatre exploitations laitières commercials pour modéliser les stratégies de remplacement optimales dans un objectif de maximisation des revenus. Le modèle permet également de comparer les résultats prédits avec ceux observés sur le terrain. Les remplacements non prévus, à cause de défauts biologiques des vaches, étaient inclus dans le modèle comme processus de Markov fini. L'époque de remplacement économiquement optimale s'est révélée être le fin de la sixième lactation, avec seulement de légères pertes de rentabilité pour les situations suboptimales. Le remplacement planifié après la sixième lactation exigeait la mise à la réforme d'environ un quart du troupeau chaque année et donnait pour le troupeau un age moyen de 5,77 ans. Comme l'écart des possibilités de remplacement économiquement plausibles va de la troisième à la dixieme lactation, l'âge moyen des troupeaux se situe entre 4,48 et 7,02 ans. L'âge moyen réel des troupeaux laitiers de l'Alberta (4,78 ans) se situe dans le bas de eel écart de prédiction. Tout en reconnaissant que le modèle conduit à un optimum cohérent avec le comportentent réel des producteurs laitiers de l'Alberta, il reste qu'on a besoin de plus de recherche dans ce domaine, en particulier en ce qui concerne la courbe de lactation technique