Reexamining dual-class stock

Snapchat’s initial public offering, which provided shares with no voting rights, is a culmination of the growing trend of dual-class shares. It contradicts the precept of one-share, one-vote that is essential for corporate democracy. Snapchat’s action caused an uproar among influential investors. In January 2017, a coalition of the world’s biggest money managers, which together control more than $17 trillion in assets, demanded a total ban on dual-class shares. We reason that the increasing prominence of dual-class stock is explained by the confluence of three economic trends: the growing importance of intangible investments, the rise of activist investors, and the decline of staggered boards and poison pills. A dual-class structure offers immunity against proxy contests initiated by short-term investors. It enables managers to ignore capital market pressures and to avoid myopic actions such as cutting research and development, which hurt companies in the long term. Thus, a dual-class structure is optimal in certain scenarios. We put forth alternatives to dual-class structure that enable managers to maintain control while retaining focus on sustainable value creation.     

Did the 1998 Merger of Price Waterhouse and Coopers & Lybrand Increase Audit Quality?

We examine the effects of the 1998 merger of Price Waterhouse (PW) and Coopers & Lybrand (CL) on the audit quality of the merged firm PricewaterhouseCoopers (PwC) at both the firm and office levels, where audit quality is surrogated by the auditor's propensity to issue a going‐concern opinion, clients’ likelihood of meeting or beating analysts’ earnings forecasts, and clients’ accrual quality. At the firm level, we find that the merger increased audit quality for PwC relative to the audit quality of the other Big N firms. At the office level, our findings, albeit mixed, collectively suggest that the improvement in firm‐level audit quality was likely driven by the improvement in audit quality at PwC's overlapping offices, that is, offices in cities where both PW and CL had separate offices prior to the merger. Further, our findings suggest that although the PW/CL merger increased auditor concentration in local audit markets with PwC overlapping offices, the merger improved (rather than hurt) audit quality in those markets. Overall, our study contributes to the extant sparse literature on the effect of Big N mergers on audit quality, and is of potential interest to regulators.     

Detection of Management Fraud: A Neural Network Approach

The detection of management fraud is an important issue facing the auditing profession. A major contributor to this issue is the Loebbecke and Willingham (1988) conceptual model for the detection of management fraud. A cascaded Logit approach using the Loebbecke and Willingham model was developed in Bell et al. (1993). The present study offers an alternative approach using Artificial Neural Networks (ANNs). This paper develops a successful discriminator of management fraud using both the generalized adaptive neural network architectures (GANNA) and the Adaptive Logic Network (ALN) approaches to designing neural networks. The discriminant functions can distinguish between fraudulent and non-fraudulent companies with superior accuracy to the cascaded Logit results of Bell et al. (1993). Finally, the discriminant function provides a parsimonious set of questions useful for detecting management fraud.     

On Lindley-like mean correction in the improved estimation of linear regression models

The risks of estimators incorporating the correction to the sample mean in the spirit of Stein and Lindley are approximated in the case of small disturbances.     

State regulation of accounting practices and municipal borrowing costs

This article examines the association between state regulation of accounting practices and municipal borrowing costs. The results demonstrate that stringent accounting regulations do have an effect on borrowing costs after abstracting the effects of other explanatory variables. The direction of the observed effect is difficult to assess due to presence of multicollinearity in the model. However, lower borrowing costs are suggested by the analysis.     

Volatility of stock prices and market efficiency

Recently, historical price series along with the dividend series have been used to severely question the Efficient Markets Hypothesis. The literature suggests that the stock prices vary too much to be explained by subsequent changes in dividends. It is argued in this paper that these results require the assumption of stationarity of the price process and that this assumption is not compatible with the random walk model of Efficient Markets. A non-stationary dividend process, which is compatible with the random walk model of Efficient Markets, results in a reversal of earlier results. The new results are shown to be consistent with the empirical findings. Simulations are run to verify the results.     

Think exogenous to excel: alternative supply chain data to improve transparency and decisions

Efficient decisions along the supply chain have traditionally demanded sophisticated information sharing processes. Even with decades of research on theoretical and practical developments on integrating systems and stakeholders, in practice, we still seem to struggle to achieve full transparency and mitigate inefficiency challenges. We explore the emerging sentiment analysis technique to augment sales and operations planning with currently unavailable exogenous information. Even though sentiment analysis has gained traction, a comprehensive application in supply chains has not yet been attempted. Relevant topics are reviewed to allow an examination of the key relationships in a process framework, grounded in dual-process and bullwhip effect theory. Our proposed conceptual framework extends our conception of sentiment analysis integration to improve supply chain decisions and performance. The framework addresses managers interested in developing additional analytical capabilities and researchers to initiate further empirical research on the potential held by sentiment analysis in supply chain research.     

Exchange rate volatility and international trade: A general-equilibrium analysis

We analyze the relation between exchange-rate volatility and the volume of international trade, in a general-equilibrium stochastic-endowment economy with imperfect international commodity markets, and treating both variables as endogenous. Even in the simplest model, the sign of the relation depends on the source for the change in volatility. For instance, more volatility of the endowments and higher costs to international trade both boost exchange risk (and lower welfare); but the first increases the expected volume of trade, while the second decreases trade. Note that even the (inter-equilibria) relation between trade and welfare is ambiguous.     

Timely loss recognition and termination of unprofitable projects

Ideally,firms should discontinue projects that become unprofitable.Managers,however,continue to operate such projects because of their limited employment horizo...     

Vertical Coordination in the Swine Industry: A Multi-Country Study

Pork constitutes about 45 percent of the world's total meat consumption. Recent trends indicate that pork consumption is likely to increase in future as well. The international pork industry is undergoing a structural and organizational change as a result of changes in the method of pork production and processing technology. This paper identifies a variety of pressures that are leading to these changes. One of the most important factors is the change in consumer demand patterns. Consumers now demand more specific product characteristics. In case of pork, the specificity of the product includes color and texture of the meat, origin of the meat, labeling information pertaining to nutritional contents, drug and chemical residues, and production methods used. In order to meet all these specific demands and to further reduce production costs, various stages of pork production have started to coordinate in many countries. The extent of vertical coordination varies both within and among the countries. This paper identifies the types of linkages and the methods of transaction(s) used between various stages of pork production in Canada, the Netherlands and the U.S. The paper also identifies the upcoming pressures for change and illustrates the analytical framework developed to compare coordination mechanisms that exist between stages of pork production in the three countries. The paper concludes that industrialization, globalization, and changes in consumer demand and preferences are resulting into massive structural and operational changes in the international pork industry.