The Welfare Loss of the Voluntary Export Restraint For Japanese Automobiles

The welfare loss from the voluntary export restraint (VER) on Japanese automobiles was estimated for the first year of the VER (April 1, 1981 to March 31, 1982). The impact of quantity reductions on the price of Japanese and domestic automobiles was used to estimate the welfare loss. Losses were estimated separately for the domestic small car market and the Japanese market in view of the existence of product differentiation. Welfare losses ranged from $446 million to $1,386 million depending on the price elasticity of demand assumed for Japanese automobiles. The welfare loss for domestic automobiles accounted for only a small proportion of this loss. The VER had a minor impact on the domestic automobile industry where sales remained low due to general economic conditions and limited substitutability between domestic and Japanese cars. However, the limited assistance provided by the VER to the domestic automobile industry entailed considerable costs as demonstrated by the magnitude of the welfare loss. A considerable part of this loss could have been avoided if other forms of trade protection such as tariffs had been used instead of the VER.     

Expected Mispricing: The Joint Influence of Accounting Transparency and Investor Base

We examine how accounting transparency and investor base jointly affect financial analysts' expectations of mispricing (i.e., expectations of stock price deviations from fundamental value). Within a range of transparency, these two factors interactively amplify analysts' expectations of mispricing—analysts expect a larger positive deviation when a firm's disclosures more transparently reveal income‐increasing earnings management and the firm's most important investors are described as transient institutional investors with a shorter‐term horizon (low concentration in holdings, high portfolio turnover, and frequent momentum trading) rather than dedicated institutional investors with a longer‐term horizon (high concentration in holdings, low portfolio turnover, and little momentum trading). Results are consistent with analysts anticipating that transient institutional investors are more likely than dedicated institutional investors to adjust their trading strategies for near‐term factors affecting stock mispricings. Our theory and findings extend the accounting disclosure literature by identifying a boundary condition to the common supposition that disclosure transparency necessarily mitigates expected mispricing, and by providing evidence that analysts' pricing judgments are influenced by their anticipation of different investors' reactions to firm disclosures.     

Volatility in Wheat Spot and Futures Markets, 1950–1993: Government Farm Programs,Seasonality, and Causality

We explore how wheat spot and futures market volatility has been impacted by government farm programs during the 1950–1993 period. We find that changing volatility in both markets is highly associated with changing farm programs. The mandatory allotment programs of the 1950s and early 1960s (1/3/50–4/10/64) were associated with low volatility, while the voluntary programs initiated in the mid 1960s seem to have induced high volatility (4/11/64–12/22/85). Both market-driven loan rates and conservation reserve programs appear to have helped volatility revert to lower levels since the mid 1980s (12/23/85–12/30/93). We also examine seasonality and causality in conjunction with the farm programs.     

An Examination of the Effect of Hypothesis Framing on Auditors'Information Choices in an Analytical Procedure Task

Libby (1985) contends that auditors'search for and evaluation of audit evidence, particularly during analytical procedures, is influenced by an explicitly or implicitly formulated hypothesis. Often a hypothesis may be'framed'in alternative ways. For example, an auditor may frame analytical procedure results in terms of a'misstatement'or a'non-misstatement'frame. The concern arises that alternatively framed, but otherwise identical, audit issues may be treated differently. This concern has led Kinney and Haynes (1990) to propose modifying auditing standards to direct auditors to adopt a'misstatement'frame. The purpose of the present study was to examine whether alternative analytical procedure frames affect auditors'information choices in an analytical procedure task. An experiment was conducted in which auditors listed which information cues were relevant to explain an unusual financial statement fluctuation. Half of the information cues made a misstatement explanation more plausible whereas half of the information cues made a non-misstatement explanation more plausible. The results indicate that hypothesis frame significantly affected auditors'information choices. Specifically, auditors in the misstatement (non-misstatement) frame select more misstatement (non-misstatement) cues as relevant. The hypothesis frame, however, did not significantly affect probability assessments.     

Internal Audit Quality and Financial Reporting Quality: The Joint Importance of Independence and Competence

In light of the growing importance of internal audit functions (IAF) and the limited archival evidence on internal audit quality, we examine an interactive model of IAF quality (comprised of competence and independence) to better understand the determinants of IAF effectiveness as a financial reporting monitor. Our tests support the hypothesis that the joint presence of competence and independence is a necessary antecedent to effective IAF financial reporting monitoring. In sum, our results show that, the answer to “what is the effect of internal audit competence (independence) on financial reporting quality?” is “it depends on the independence (competence) of the internal auditor.” Our study extends the understanding of IAF quality determinants in the realm of financial reporting as it relates to ongoing discussions by researchers, standard setters, regulators, and practitioners.     

Consumption and material culture in sixteenth‐century Ireland1

New evidence from a series of 11 Bristol customs accounts indicates that Irish consumption patterns underwent significant changes over the course of the sixteenth century. This article considers the use of the Bristol ‘particular’ accounts and port books as a source for Irish material culture and consumption studies and uses the customs data as a statistical framework on which to establish how, why, and to what extent patterns of consumption changed in Ireland. It considers who was consuming the increasing range of commodities that were imported into Ireland from Bristol towards the end of the century, and what changing consumption patterns may reveal about the nature of Ireland's economy, society, and culture during this critical period in Irish history.     

Do Managers Always Know Better? The Relative Accuracy of Management and Analyst Forecasts

We examine the relative accuracy of management and analyst forecasts of annual EPS. We predict and find that analysts’ information advantage resides at the macroeconomic level. They provide more accurate earnings forecasts than management when a firm's fortunes move in concert with macroeconomic factors such as Gross Domestic Product and energy costs. In contrast, we predict and find that management's information advantage resides at the firm level. Their forecasts are more accurate than analysts’ when management's actions, which affect reported earnings, are difficult to anticipate by outsiders, such as when the firm's inventories are abnormally high or the firm has excess capacity or is experiencing a loss. Although analysts are commonly viewed as industry specialists, we fail to find evidence that analysts have an information advantage over managers at the industry level. The two have comparable abilities to forecast earnings for firms with revenues or earnings that are more synchronous with their industries.