Metabolic syndrome

This case study includes a sequence of underwriting events, as well as an overview of the mortality implications of this population health issue.     

A pilot study of venture capital investment appraisal in Australia

Illiquidity, volatile returns and lack of information are sources of the high risk that characterise the investments made by venture capitalists (VCs). Despite the importance of such investments in the contemporary business and technological environment, and the associated risk-related difficulties, little Australian research has been conducted into the decision-making processes of VCs. This study investigates both the investment process and some of the strategies used by VCs for reducing selected risks. The specific source of risk examined is information asymmetry, which is caused by lack of information on the part of the VCs, and which can lead to the added risks of adverse selection and moral hazard. Four Australian VC firms were surveyed using a comprehensive open-ended questionnaire. A manual content analysis was employed to analyse the questionnaire responses. Consistent with prior research, the Australian VCs sampled are found to employ Berger and Udell' three steps of investment: selection, contracting and monitoring. Furthermore, the semi-formal selection step of the investment process is found to consist of three distinct stages: deal sourcing, screening and evaluation. A number of techniques are used to minimise the risks of information asymmetry during the screening and evaluation stages, as well as during the later steps of contracting and monitorin.     

Inherent risk: An investigation of auditors' judgments

The assessment of inherent risk is a judgment required of auditors by Statement on Auditing Standards 47 (Auditing Standards Board, AICPA, New York, 1983) that normatively affects the scope of work performed on audit engagements. This study explores the judgments of auditors concerning inherent risk in inventory. Four inherent risk factors were examined: turnover of the controller, financing pressure, the amount of complexity of overhead in inventory, and the quality of the personnel responsible for the inventory calculation. A human information processing approach employing ANOVA was utilized to determine the relative reliance on these factors in the inherent risk judgments of 65 practicing auditors. Correlation techniques were used to measure consensus, reliability, and self-insight.The results suggest that although all four inherent risk factors were important to auditors, quality of personnel was the most significant. Reliability was slightly lower than in previous research, but was still fairly high. Self-insight was moderate.     

Municipal Bond Demand Premiums and Bond Price Volatility: A Note

The behavior of different components of municipal bond yields may have a significant impact upon bond price behavior. Specifically, demand premiums created by banks may stabilize bond yields in some maturity ranges but not in others; for example, short-term municipals may be stabilized but not long-term. This research implies that bank demand behavior may create demand premiums that stabilize prices of short-term municipal bonds relative to those of Treasury bonds of like maturity. While this implication is inconsistent with the residual theory of bank demand, it is consistent with the tax-shield theory attributed to Hendershott and Koch [3, 4].     

Simulating alternative social security responses to the demographic transition

"This paper uses a perfect foresight life cycle simulation model to examine the dynamic economic effects of baby 'booms' and baby 'busts' as well as the interaction of such demographic changes with social security policy. Demographic change can have sizeable short and long-run effects on saving rates and factors returns." The geographic focus is on the United States. "The model predicts long-run improvement in welfare associated with a prolonged baby bust. This improvement holds even in the absence of accommodating social security policy. It reflects a long-run decline in the dependency ratio, with the reduction in dependent children per worker more than offsetting the increase in retirees per worker."     

CEO stock options and analysts’ forecast accuracy and bias

This paper investigates the relationship between CEO stock options and analysts’ earnings forecast accuracy and bias. A higher level of stock options may induce managers to undertake riskier projects, to change and/or reallocate their effort, and to possibly engage in gaming (such as opportunistic earnings and disclosure management). These managerial behaviors result in an increase in the complexity of forecasting and hence, less accurate analysts’ forecasts. Analysts’ optimistic forecast bias may also increase as the level of stock options pay increases. Because forecast complexity increases with stock options pay, analysts, needing greater access to management’s information to produce accurate forecasts, have incentives to increase the optimistic bias in their forecasts. Alternatively, a higher level of stock options pay may lead to improved disclosure because it better aligns managers’ and shareholders’ interests. The improved disclosure, in turn, may result in more accurate and less biased analysts’ forecasts. Our empirical evidence indicates that analysts’ earnings forecast accuracy decreases and forecast optimism increases as the level of CEO stock options increases. This evidence suggests that the incentive alignment effects of stock options are more than offset by the investment, effort allocation and gaming incentives induced by stock options grants to CEOs.     

Developing Theories of Strategy Using Dominance Criteria

This article identifies key features of the strategy concept as a basis for reviewing existing theories of strategy. It also provides an agenda for future research. the article argues that there is a decision hierarchy in a firm, and defines strategy as the highest-level decision in the hierarchy. Consequently, strategy has to exhibit what may be called three features of dominance: vertical dominance, horizontal dominance, and dynamic dominance. A vertically dominant strategy is one that determines, directly or indirectly, other decisions of a firm. A horizontally dominant strategy seeks to optimize the value of the firm according to some criteria. Dynamic dominance implies that strategy should affect the subsequent decisions of a firm over a relevant period of time. With few exceptions, existing theories of strategy are issue-oriented and focus largely on horizontal dominance. More research should, therefore, be directed towards vertical and dynamic dominance criteria. If a comprehensive theory of strategy which satisfies the three dominance features cannot be developed, it is suggested that development should be directed towards integrating behavioural and economic approaches.     

The asymptotic efficiency of semiparametric estimators for censored linear regression models

This paper presents numerical comparisons of the asymptotic mean square estimation errors of semiparametric generalized least squares (SGLS), quantite, symmetrically censored least squares (SCLS), and tobit maximum likelihood estimators of the slope parameters of censored linear regression models with one explanatory variable. The results indicate that the SCLS estimator is less efficient than the other two semiparametric estimators. The SGLS estimator is more efficient than quantile estimators when the tails of the distribution of the random component of the model are not too thick and the probability of censoring is not too large. The most efficient semiparametric estimators usually have smaller mean square estimation errors than does the tobit estimator when the random component of the model is not normally distributed and the sample size is 500–1,000 or more.     

Cross-Subsidization,Cost Allocation,and Tacit Coordination

This paper considers the prospect that multiproduct firms facing each other in separate markets might tacitly coordinate their production through strategic common service cost allocations and mutually benefit from such action as a consequence. Our analysis suggests that decentralization cum tacit coordination may be possible in equilibrium, with or without public disclosure of allocation choices. In turn, tacit coordination may contribute to explanations for multiproduct firms' decisions to decentralize. The implications for trade oversight bodies are ambiguous. While tacit coordination results in an anti-competitive distortion toward monopolies, it also induces greater specialization which reduces the diseconomies of scope.