The Bank Lending Channel: A FAVAR Analysis

We examine the bank lending channel (BLC) of monetary transmission in a factor‐augmented vector autoregression (FAVAR). A FAVAR exploits large numbers of macro‐economic indicators and allows us to consider an alternative identification of monetary shocks and analyze the lending response of banks at the aggregate and individual levels. We find that the existence of the BLC is more prevalent than previously thought using aggregated lending data, while the lending response of individual banks are driven more by specific innovations than monetary shocks. Nonetheless, the average individual bank response to a monetary shock is consistent with the existence of a BLC.     

THE IDENTIFICATION OF TARGET FIRMS AND FUNCTIONAL AREAS FOR STRATEGIC BENCHMARKING

In recent years there has been an increased emphasis on quality, Total Quality Management (TQM), and re-engineering. The practice of benchmarking is inherent to the success of any of these. Despite its obvious strategic implications, benchmarking has received little theoretical or analytical attention in the literature. Moreover, studies show that many firms are unsure about how to implement the benchmarking process. A critical aspect of benchmarking is the identification of who to benchmark against and what functional areas to benchmark. In this paper we show that Data Envelopment Analysis (DEA) can provide a structured methodology which, when used in conjunction with expert/managerial insight, can be a useful toot for providing necessary analytic support for the managerial practice of benchmarking. DEA uses multiple input and multiple output measures to assess efficiency. In this paper we first use DEA analysis to identify a subset of efficient firms which could be targeted for benchmarking. In a second stage, a constrained least absolute value (goal programming) method is used to ascertain input elasticities for the designated efficient firms in order to pinpoint important specific areas for benchmarking comparisons. We use macro-level data from the computer industry to illustrate this application of DEA and constrained least absolute value regression to benchmarking.     

A Research Note on the Use and Perceived Usefulness of Analytical Procedures by Australian Auditors

This paper provides Australian evidence on the use and perceived usefulness of analytical procedures (AP) by both Big 6 and non-Big 6 auditors. The following questions are posed in the paper. First, what is the extent of usage of AP? Second, which AP are used most frequently? Third, at what stage of the audit are AP used most frequently? Fourth, how effective are AP? Fifth, do auditors expect more or less use of AP in the future? In the context of these questions comparisons are drawn between Big 6 and non-Big 6 auditors and with two recent overseas studies.     

Neighbors Matter: Causal Community Effects and Stock Market Participation

This paper establishes a causal relation between an individual's decision whether to own stocks and average stock market participation of the individual's community. We instrument for the average ownership of an individual's community with lagged average ownership of the states in which one's nonnative neighbors were born. Combining this instrumental variables approach with controls for individual and community fixed effects, a broad set of time-varying individual and community controls, and state-year effects rules out alternative explanations. To further establish that word-of-mouth communication drives this causal effect, we show that the results are stronger in more sociable communities.     

Accountancy as Computational Casuistics

If a company's share price rises when it sacks workers, or when it makes money from polluting the environment, it would seem that the accounting is not being done correctly, since real costs are not being paid. This article argues for a synthesis of ethics with accountancy's tradition of quantification, which would allow ethical rights to become legally enforceable.     

QUALITY DISCLOSURE AND COMPETITION*

We analyze costly quality disclosure with horizontally differentiated products under duopoly and a cartel, and characterize the effect of competition on disclosure and welfare. We show that expected disclosure is higher under a cartel than under duopoly, and the welfare comparison depends on the level of disclosure cost: when the disclosure cost is low, welfare is higher under a cartel than duopoly, but when the disclosure cost is high, welfare is higher under duopoly. In either market structure, disclosure is excessive in terms of total surplus, but insufficient in terms of consumer surplus.     

THE ECONOMICS OF HOMELAND SECURITY EXPENDITURES: FOUNDATIONAL EXPECTED COST‐EFFECTIVENESS APPROACHES

While most economists expect some marginal conditions to result from basic expected value models involving government expenditures and homeland security investments, such models are not readily found in the literature. The article presents six basic models that all incorporate uncertainty; they also capture various problems involving technological limits, behavioral interactions, false negatives and false positives, and decision making with uncertainty and irreversibility. Recent reviews of homeland security programs by the U.S. Government Accountability Office are used to illustrate the relevance of the models.(JEL H100)