Commentary on: 'Accountability of accounting educators and the rhythm of the university: resistance strategies for postmodern blues'

Abstract

This Teaching Note reports on the support available in textbooks for graphicacy that will help students understand the complexities of graphical displays. Graphical displays play a significant role in financial reporting, and studies have found evidence of measurement distortion and selection bias. To understand the complexities of graphical displays, students need a sound understanding of graphicacy and support from the textbooks available to them to develop that understanding. The Teaching Note reports on a survey that examined the textbooks available to students attending two Scottish universities. The support of critical graphicacy skills was examined in conjunction with textbook characteristics. The survey, which was not restricted to textbooks designated as required reading, examined the textbooks for content on data measurement and graphical displays. The findings highlight a lack of support for graphicacy in the textbooks selected. The study concludes that accounting educators need to scrutinize more closely the selection of textbooks and calls for more extensive research into textbooks as a pedagogic tool.     

ON THE WEALTH EFFECTS OF THE SUPERVISORY GOODWILL CONTROVERSY

We provide evidence on the potential wealth effects of the 1996 U.S. Supreme Court decision that the U.S. government had violated contractual obligations when, in 1989, it passed legislation prohibiting savings and loan associations from counting “supervisory goodwill” as capital. The Supreme Court decision produced large wealth gains for the savings and loan plaintiffs, as did prior court decisions in favor of these savings and loans. However, little evidence exists to suggest negative market responses to important events surrounding the 1989 legislation.     

Trade and invasive species risk mitigation: Reconciling WTO compliance with maximising the gains from trade

This paper analyses the issue of balancing the gains from trade with the risk of pest and disease transference. Two decision frameworks for determining whether or not to permit trade in a potentially invasive species-carrying good are presented. The first considers only the potential production losses resulting from an invasive species entering through a trade pathway, as is prescribed by WTO compliance. The second is a unilateral welfare-maximising approach which considers the consumer gains from trade, the loss of domestic producers’ market share and expected damage from the invasive species. It is shown that these alternative decision frameworks can be reconciled such that they produce the same outcome regarding whether or not trade is to be permitted. The key parameters which influence these decisions are also highlighted.     

Targeting Monitoring Resources to Enhance the Effectiveness of the CAP

From its inception the operation of the CAP has required the compliance monitoring of farming activities and anticipated increases in the complexity of the monitoring tasks with the introduction of the SFP will stretch monitoring resources even further. We outline the scope for using targeting to enhance effectiveness of monitoring resources in dealing with non-compliant behaviour. Targeting resources can increase information on particular groups making identification of inappropriate behaviour easier. However, in reallocating monitoring resources towards the targeted sub-group, there is likely to be an associated reduction in resources allocated to monitoring non-targeted agents and therefore an increase in their incentive to cheat. To reduce this problem we suggest balancing the targeting-induced reduction in the probability of being caught cheating for non-targeted agents with an appropriate increase in the penalty for those agents if they are caught cheating. This increase in penalty results in an increased divergence between the outcomes from being caught or not caught cheating for non-targeted agents, which increases the overall perceived risk of the cheating option. And for risk-averse agents, this increase is a disincentive to cheating. On this basis we argue for greater use of target-based compliance monitoring as part of the revised and evolving CAP.     

A note on deposit rate deregulation, Super NOWs, and bank security returns

This paper empirically investigates the effects on the weekly returns of almost 100 banking organizations of the December 1982 authorization of Super NOWs. Examination of excess returns around the announcement date suggests that the announcement of the Super NOWs had a statistically significant (and negative) effect and that the impact differed significantly by type of bank. While returns for money center banks were generally unaffected, excess returns for regional retail banks were highly significant.     

The Role of Collateral in Entrepreneurial Finance

Abstract:  Previous research has suggested collateral has the role of sorting entrepreneurs either by observed risk or by private information. In order to test these roles, this paper develops a model which incorporates a signalling process (sorting by observed risk) into the design of an incentive-compatible menu of loan contracts which works as a self-selection mechanism (sorting by private information). It then tests this Sorting by Signalling and Self-Selection Model, using the 1998 US Survey of Small Business Finances. It reports for the first time that: high type entrepreneurs are more likely to pledge collateral and pay a lower interest rate; and entrepreneurs who transfer good signals enjoy better contracts than those transferring bad signals. These findings suggest that the Sorting by Signalling and Self-Selection Model sheds more light on entrepreneurial debt finance than either the sorting-by-observed-risk or the sorting-by-private information paradigms on their own.     

Natural resource accounting in theory and practice: A critical assessment

In this paper an extensive review of the theoretical and applied literature on natural resource accounting (NRA) is provided. The review begins by explaining the economic theory that underpins NRA, contrasting welfare and sustainability as policy goals, and presenting various distinct conceptions of national income. The state of play regarding official revisions to the system of national accounts (SNA) with respect to natural resources and the environment is presented and controversial areas are highlighted. Finally, the economic literature on proposed revisions, and applied studies that have proceeded using these methods, is summarised and critiqued. We argue that much of the literature proceeds with weak conceptual foundations, and that typical case studies produce results that are ambiguous in interpretation. Moreover, we highlight fundamental tensions between economic theory and national accounting methodology, and conclude that one outcome of this has been the insufficient attention paid by economists to the revisions to the SNA; instead devoting time and effort to 'freelance' NRA case studies utilising sometimes ad hoc methods from the economic literature.     

House prices, non-fundamental components and interstate spillovers: The Australian experience

Using Australian capital city data from 1984Q3--2008Q2, this paper utilizes a dynamic present value model within a VAR framework to construct time series of house prices depicting what aggregate house prices should be given expectations of future real disposable income - the “fundamental price” - and continues by comparing capital city fundamental prices with actual prices. The extent to which revealed capital city “non-fundamental” components spillover from state to state, as well as their long-term impact is also investigated. Results provide evidence of periods of sustained deviations of house prices from values warranted by income for all state capitals with the greatest deviations arising in the NSW market and starting around 2000. In general NSW is relatively more susceptible to spillovers transmitted from other states while ACT and WA are most isolated from the rest of the country.     

Violation of the iid-normal assumption: Effects on tests of asset-pricing models using Australian data

Financial data are typically not identically, independently and normally distributed (iid-normal). Yet, standard tests of asset-pricing models are based on this assumption, and we have little information on how sensitive the tests are to violations of iid-normality. Recent evidence suggests that test outcomes may be sensitive to these violations. In this paper, we use Australian data to compare the standard test results with those that do not require iid-normality: the GMM-J test and bootstrap-based tests. We find that different tests produce differences in prob values at least as large as those in US studies but that test outcomes are generally robust.     

House Prices, Fundamentals and Bubbles

Abstract:  This paper studies actual (real) house prices relative to fundamental (real) house values. Such a focus is warranted since housing constitutes a large fraction of most household portfolios, and its characteristics are such that, in contrast to what prevails in financial markets, arbitrage will be limited and hence correction toward 'true' value is likely to be a prolonged process. Using UK data and a time-varying present value approach, our results preclude the existence of an explosive rational bubble due to non-fundamental factors. We further find that intrinsic bubbles have an important role to play in determining actual house prices although price dynamics appear to impact, particularly in periods of strong deviation from fundamental value. Price dynamics are found to be driven by momentum behaviour.