Discussion of “Earnings Surprises,Growth Expectations,and Stock Returns,or, Don't Let an Earnings Torpedo Sink Your Portfolio”

Review of Accounting Studies -     

Research notes and communications management and organizational change: A note on the railroad industry

Hypotheses which relate top-level managers' age, years of company and industry service, and education to strategic change are studied with a sample of 855 managers from 27 railroads. Results generally support hypotheses that younger managers and those with less experience are more likely to alter their strategies with changing environmental conditions.     

EFFECTS OF SMALL BUSINESS ACCOUNTING BASES AND ACCOUNTANT SERVICE LEVELS ON LOAN OFFICER DECISIONS

This study examines effects of four combinations of accounting bases and service levels — GAAP and income tax bases, and audit and review service levels — on loan officers' decisions, both separately and in interaction. It examines effects on loan decisions and perceptions of interest rates, default risk, confidence, and usefulness. The interaction of accounting basis and service level significantly affects perceived confidence but does not affect other decisions. Accounting basis and service level separately affect interest rates, default risk, and report usefulness, but do not affect the loan decision.     

Daylight saving effect

Kamstra et al. [Kamstra, M.J., Kramer, L.A., Levi, M.D., 2000. Losing sleep at the market: the daylight saving anomaly. The American Economic Review 90, 1005–1011] argue that the mean weekend return following the changes in daylight saving time is less than the mean weekend return throughout the rest of the year. Opposing studies, such as Pinegar [Pinegar, J.M., 2002. Losing sleep at the market: comment. The American Economic Review 92, 1251–1256), reason that the observed results depend upon methodology. We extend the ongoing discussions by providing further evidence for equity markets and bond markets in Germany and across Europe. We further demonstrate that the daylight saving effect does not serve as a potential rationale for the weekend effect.     

Sustaining Collusion in Growing Markets

The impact of demand growth on the collusion possibilities is investigated in a Cournot supergame where market growth may trigger future entry and the collusive agreement is enforced by the most profitable ‘grim trigger strategies’ available. It is shown that even in situations where perfect collusion can be sustained after entry, coping with a potential entrant in a market which is growing over time may completely undermine any pre‐entry collusive plans of the incumbent firms. This is because, before entry, a deviation and the following punishment phase may become more attractive thanks to their additional effect in terms of delaying entry.     

Bayesian MCMC Mapping of Quantitative Trait Loci in a Half-sib Design: a Graphical Model Perspective

Graphical models provide a powerful and flexible approach to the analysis of complex problems in genetics. While task-specific software may be extremely efficient for any particular analysis, it is often difficult to adapt to new computational challenges. By viewing these genetic applications in a more general framework, many problems can be handled by essentially the same software. This is advantageous in an area where fast methodological development is essential. Once a method has been fully developed and tested, problem-specific software may then be required. The aim of this paper is to illustrate the potential use of a graphical model approach to genetic analyses by taking a very simple and well-understood problem by way of example.     

Real Investment Implications of Employee Stock Option Exercises

This paper examines a real cost of awarding employee stock options. Based on the observation that managers are extremely concerned about earnings-per-share dilution in equity related compensation, we predict and find that firms experiencing significant employee stock option (ESO) exercises shift resources away from real investments towards the repurchase of their own stocks. We further find weak evidence of a decline in subsequent firm performance (as measured by return on assets) for several years following the cut in discretionary investments as a result of stock option exercises, though this result is sensitive to the metric used to measure performance. Collectively, our findings indicate that ESO exercises potentially impose a real cost on the firm in terms of foregone investment opportunities.     

Bank and Business Performance Measurement

Given the objective of maximizing the wealth of existing shareholders, this paper discusses some of the issues that arise in attempting to measure the performance of individual businesses within a bank. The paper describes two return measures – return on assets within a business and the return on the 'equity' of an individual business – and discusses the appropriate bench–marks. The paper ends with a discussion of the cost of unused allocated capital and the appropriate performance metric.
(J.E.L.: G30, G31).     

Pre-Harvest Price Expectations for Corn: The Information Content of USDA Reports and New Crop Futures

This article examines the puzzle of why futures prices continue to react to USDA crop reports despite the fact that reports appear to be no longer "newsworthy," that is, provide no better production estimates than private forecasts. The information value of reports is measured in terms of their influence on rational agents' harvest-time corn price expectations, which are uncovered using a Hamilton-type modeling approach. Results show that reports are still "newsworthy," as they would contribute to agents' price expectations if released a day early. Thus futures price reactions, which closely reflect price expectations, are rational and consistent with efficient markets hypothesis.     

Is your vision consistent?: A method for checking, based on scenario concepts

Common sense tells us that the future is an essential element in any strategy. In addition, there is a good deal of literature on scenario planning, which is an important tool in considering the future in terms of strategy. However, in many organizations there is serious resistance to the development of scenarios, and they are not broadly implemented by companies. But even organizations that do not rely heavily on the development of scenarios do, in fact, construct visions to guide their strategies. But it might be asked, what happens when this vision is not consistent with the future? To address this problem, the present article proposes a method for checking the content and consistency of an organization's vision of the future, no matter how it was conceived. The proposed method is grounded on theoretical concepts from the field of future studies, which are described in this article. This study was motivated by the search for developing new ways of improving and using scenario techniques as a method for making strategic decisions. The method was then tested on a company in the field of information technology in order to check its operational feasibility. The test showed that the proposed method is, in fact, operationally feasible and was capable of analyzing the vision of the company being studied, indicating both its shortcomings and points of inconsistency.