Seebohm Rowntree and secondary poverty, 1899–19541

This article, focusing on Seebohm Rowntree's poverty surveys, considers the importance and durability of the concept of secondary poverty. It argues that secondary poverty was a central component of Rowntree's first survey of York, carried out in 1899, and in his lectures and writing in the Edwardian period. Moreover, secondary poverty remained an important feature of Rowntree's analysis during the interwar years and after the Second World War, and was adopted by other researchers in various ways. Although secondary poverty was not seriously examined in the published version of Rowntree's 1936 York survey, there is evidence that it was originally intended to feature, and it is clear that impressionistic evidence of poverty was gathered by Rowntree's investigators, as had been the case in 1899. Moreover, although it was completely expunged from the third survey of York, carried out by Rowntree and Lavers in 1950, a separate inquiry into secondary poverty was carried out in the early 1950s, with a number of prominent supporters. Subsequently, dissatisfaction with income‐based definitions and measurements of poverty allowed the concept of secondary poverty to continue to exercise an influence on the study of poverty in the postwar period.     

MODELING THE INCIDENCE OF SELF‐EMPLOYMENT: INDIVIDUAL AND EMPLOYMENT TYPE HETEROGENEITY

Modeling the incidence of self‐employment has traditionally proved problematic. Although the supply‐side characteristics of the self‐employed are well documented, we argue that the literature has neglected demand‐side aspects. We explore the determinants of self‐employment using the U.S. Survey of Consumer Finances. We present results from an econometric framework that allows us to model, separately and simultaneously, the influences of individual heterogeneity (i.e., supply‐side factors) and employment type heterogeneity (i.e., demand‐side factors) on the probability of self‐employment. Our findings suggest that while individual characteristics are important determinants of self‐employment, there are factors specific to the type of employment that influence self‐employment. (JEL J23, J33, C25, C10)     

External Constraints on Monetary Policy and the Financial Accelerator

We develop a small open economy macroeconomic model where financial conditions influence aggregate behavior. Our goal is to explore the connection between the exchange rate regime and financial distress. We first show that a calibrated version of the model captures well the behavior of the Korean economy during its financial crisis period of 1997–98. In particular, the model accounts for the sharp increase in lending rates and the large drop in output, employment, investment, and measured productivity. The financial market frictions play an important role, further, explaining roughly half the decline in overall economic activity. We then perform some counterfactual exercises to illustrate how the fixed exchange rate regime likely exacerbated the crisis by tying the hands of monetary policy.     

Credit Losses in Australasian Banking

We analyse the determinants of bank credit losses in Australasia. Despite sizeable credit losses over the past two decades, ours is the first systematic study to do so. Analysis is based on a comprehensive dataset retrieved from original financial reports of 32 Australasian banks (1980–2005). Credit losses rise when the macro economy is weak. Asset markets, particularly the equity market, are also important. Larger banks provide more for credit losses while banks with high cost-income-ratios show greater loan loss provisions. Strong loan growth translates into significantly higher credit losses with a lag of 2–4 years. Finally, the results show strong evidence of income smoothing activities by banks.     

The Effect of Audit Quality on Earnings Management*

This study examines the relation between audit quality and earnings management. Consistent with prior research, we treat audit quality as a dichotomous variable and assume that Big Six auditors are of higher quality than non-Big Six auditors. Earnings management is captured by discretionary accruals that are estimated using a cross-sectional version of the Jones 1991 model. Prior literature suggests that auditors are more likely to object to management's accounting choices that increase earnings (as opposed to decrease earnings) and that auditors are more likely to be sued when they are associated with financial statements that overstate earnings (as compared to understate earnings). Therefore, we hypothesize that clients of non-Big Six auditors report discretionary accruals that increase income relatively more than the discretionary accruals reported by clients of Big Six auditors. This hypothesis is supported by evidence from a sample of 10,379 Big Six and 2,179 non-Big Six firm years. Specifically, clients of non-Big Six auditors report discretionary accruals that are, on average, 1.5-2.1 percent of total assets higher than the discretionary accruals reported by clients of Big Six auditors. Also, consistent with earnings management, we find that the mean and median of the absolute value of discretionary accruals are greater for firms with non-Big Six auditors. This result also indicates that lower audit quality is associated with more “accounting flexibility”.     

A note on the value of information given asymmetric information and self-reporting*

Abstract. This note demonstrates purely statistical conditions under which a monitor will be valuable in the presence of predecision asymmetric information and self-reporting. This result is an extension of the information value results found for principal-agent problems with symmetric information. Résumé. Cette note démontre les conditions statistiques pures sous lesquelles un moniteur sera valable en présence d'une information asymétrique préalable. Ce résultat est un prolongement des résultats de la valeur de l'information obtenus pour des problèmes de mandant-mandataire avec une information symétrique.