Employee Movements from Audit Firms to Audit Clients

Regulators have expressed concerns about the “revolving door” between auditors and clients, whereby audit employees move directly from audit firms to audit clients (i.e., “direct alumni hires”). Regulators are concerned that these direct hires could compromise audit quality, partly because these employees could have previously audited their hiring company's financial statements. In contrast, we examine accounting and finance executives who move indirectly from audit firms to audit clients and who could not have previously audited the hiring company's financial statements (i.e., “indirect alumni hires”). We show that indirect hires occur more often than the direct hires that have concerned regulators. We predict and find that both direct and indirect alumni hires are associated with lower rates of executive turnover and audit firm turnover. However, there is no evidence that the reduced rates of executive turnover are explained by managerial entrenchment or that these hires are associated with lower audit quality. Overall, our findings suggest that direct and indirect employee movements from audit firms to audit clients are beneficial to executives, audit clients, and audit firms because they reduce the incidence of costly turnover.     

An Economist's Comment on Philosophico-Economic Relationships

In this journal, Welch and Mueller (WM) (2001) demonstrated a classificatory method for conceptualizing relationships between religion and economics. No judgement can be drawn from WM as to which of their four classifications might be a, or the, correct one. They conclude that the relationships are “both complex and controversial”, and that before any assessment can be apprehended adequately of how the two fields interact, “the permutations and subcategories implied by the system” used need to be identified and explored more thoroughly. This paper pursues that path, but argues that a more determinate verdict than WM's is possible. Here, an alternative interpretation of the relationship between religion and economics is investigated, in which WM's categories are assessed. In the alternative, WM's four classes are not taken to possess equal intellectual merit, as they appear to be. Using more current and comprehensive definitions of religion than WM's, a case is constructed that three of their four categories possess greater intellectual value than the remaining one. These three are here collapsed into one new mega-category regarded as that most validly describing the relationship between religion and economics.     

A long memory property of stock market returns and a new model

A ‘long memory’ property of stock market returns is investigated in this paper. It is found that not only there is substantially more correlation between absolute returns than returns themselves, but the power transformation of the absolute return ¦r_t¦^d also has quite high autocorrelation for long lags. It is possible to characterize ¦r_t¦^d to be ‘long memory’ and this property is strongest when d is around 1. This result appears to argue against ARCH type specifications based upon squared returns. But our Monte-Carlo study shows that both ARCH type models based on squared returns and those based on absolute return can produce this property. A new general class of models is proposed which allows the power δ of the heteroskedasticity equation to be estimated from the data.     

The relevance of christian fictive domestic economy

The theologian, Bruce Malina, argued in this journal (1997) that the Bible is not relevant to economics in the contemporary world. This paper contends the contrary. A body of economists and social theologians hold that a set of consistent socio-economic principles and ethics underlying the long history of the Biblical texts can be applied to the modern world, and are so intended to apply. An assumption of this group is that the Bible depicts the word of God interpreted and ultimately written down by people in their day and age. It is the socio-economic warrants in principle contained in this material that are relevant today. The argument here has two aspects. One questions Malina, concluding that he does not sustain his conclusions. The second aspect is to illustrate something of the methodology and conclusions of the economist/social theologian group that asserts the relevance of Biblical principle to contemporary society.     

Optimal compensation for potential fatality

Cordes and Weisbrod have recently demonstrated that the requirement that the government actually compensate individuals adversely affected by public projects is likely to have serious resource allocation implications. We examine a rudimentary model of government discretionary behaviour subject to a compensation requirement in the presence of physical risks. Risk assessments are endogenous and asymmetrically held — features enabling analysis of the trade- offs between compensation and protection or information available to the government, and of the structure of compensation which motivates it to do what is objectively best for the individual. We show that, paradoxically, greater government discretion seems more likely to ensure the latter.     

Income Shifting and International Transfer Pricing: A Three-Country Example

There is a long held belief that international transfer pricing (ITP) is used by multinational enterprises (MNEs) to minimize global tax liability. On the one hand, this is a rational economic response to market imperfections created by national governments. An alternative view decries such actions as anti-competitive and an abuse of power. This article ex-amines the potential benefit to enterprises of ITP manipulation when a real world combination of fiscal rules are simultaneously applied in practice. The countervailing impact of different national rules appears to result in ITP having a minor significance on parent after-tax income. Differential rates cause minor benefits but the absence of a form of tax, such as withholding tax, can provide substantial opportunities to maximize global after-tax income through the choice of transfer price. ITP can therefore provide benefits when national jurisdictions do not have consistent forms of taxation. In all the scenarios explored, major variations are apparent in the after-tax income of subsidiaries operating under different combinations of fiscal regimes and ITP policies. The tension between head-quarter and subsidiary management may be most pronounced when a subsidiary is located in a jurisdiction not having a complete range of tax forms.