Looking for contagion in currency futures markets

This article tests whether there are pure contagion effects in both conditional means and volatilities among British pound, Canadian dollar, Deutsche mark, and Swiss franc futures markets during the 1992 ERM crisis. A conditional version of international capital asset pricing model (ICAPM) in the absence of purchasing power parity (PPP) is used to control for economic fundamentals. The empirical results indicate that overall there are no mean spillovers among those futures markets, but they are detected during the crisis period. That is, past return shocks originating in any one of the four markets have no impact on the other three markets during the entire sample period, suggesting that these markets are weak‐form efficient. However, this weak‐form market efficiency fails to hold during the market turmoil, especially for British pound and Swiss franc, and the sources of contagion‐in‐mean effects are mainly due to the return shocks originating in three European currency futures markets. As for the contagion‐in‐volatility, it is detected for British pound only because its conditional volatility is influenced by the negative volatility shocks from Canadian dollar, Deutsche mark, and Swiss franc, with Deutsche mark playing the dominant role in generating these shocks. JEL Classifications: C32; F31; G12. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:957–988, 2003     

MANAGING VENDOR INVENTORY IN A DUAL LEVEL DISTRIBUTION SYSTEM

Collaborative arrangements among members of the supply chain have received a great deal of interest in recent years as a means of reducing costs. One such arrangement is vendor managed inventory (VMI). VMI allows the vendor to make decisions concerning the quantity and timing of deliveries to the retailer. Such an arrangement offers the potential of a more efficient supply chain by removing the negative effects of retail ordering policies. A thorough review of the literature was conducted to identify factors likely to impact the performance of a VMI partnership. Computer simulation was used to study the effects of these factors from both the vendor's and retailer's perspectives. The results lend insight into the performance of VMI and guidance for managers as to the environments in which VMI is most effective.     

AN EVALUATION OF PROCESS‐ORIENTED SUPPLY CHAIN MANAGEMENT FRAMEWORKS

Supply chain management (SCM) is implemented by integrating corporate functions using business processes within and across companies. Several process‐oriented frameworks for SCM have been proposed but only two of these provide sufficient detail to enable implementation. We evaluate the Supply‐Chain Operations Reference (SCOR) framework and The Global Supply Chain Forum (GSCF) framework using four criteria and identify their relative strengths and weaknesses.     

The Contingent Value of Responsive and Proactive Market Orientations for New Product Program Performance*

While the benefits of being market oriented are largely accepted, a group of scholars and managers remain skeptical. Marketing scholars have sought to counter the criticisms leveled against market orientation (MO) by arguing that it has both responsive and proactive dimensions. However, few studies have empirically examined the complexity of the effects of these dimensions on firm performance. Drawing on theories of resource‐based advantage and organizational search behavior, this article advances understanding by arguing that responsive and proactive market orientations have curvilinear effects on product development performance, that their interaction may be positively related to product development performance, and that their effects on new product program performance are moderated differentially by the organizational implementation conditions and marketing function power. Survey results of 175 U.S. firms indicate support for most of the hypotheses. Specifically, whereas responsive MO has a U‐shaped relationship with new product program performance, proactive MO has an inverted U‐shaped relationship with new product program performance. Contrary to the arguments presented here, the interaction of both orientations is negatively related to new product program performance. This study finds that both orientations are needed; however, new product program performance is enhanced when one is at higher level and the other is at lower level. Finally, responsive MO is only positively related to new product program performance under specific conditions such as when strategic consensus among managers is high. On the other hand, the positive effect of proactive MO on new product program performance is further strengthened when learning orientation and marketing power are high. Overall, this study suggests that the effects of responsive and proactive MO on new product program performance are more complex than previously theoretically argued and empirically examined.     

When Do Analysts Adjust for Biases in Management Guidance? Effects of Guidance Track Record and Analysts’ Incentives

Prior research indicates that analysts do not fully adjust for the general downward bias in earnings guidance issued by management. We report the results of two experiments designed to investigate how guidance track record and analysts’ incentives jointly explain the extent to which analysts adjust for guidance bias. Our results suggest that analysts with accuracy incentives adjust for management’s track record of downwardly biased guidance when the bias is relatively small (one cent), but those with relationship incentives do not. Furthermore, the difference in adjustment is larger when the bias track record is inconsistent than when it is consistent. Also, when guidance bias is larger (two cents) relative to smaller (one cent), analysts with relationship incentives partially adjust, as they appear to strike a balance between accuracy and their desire to please management. These findings hold implications for investors, regulators, and the interpretation of prior research.     

Blockholder Exit Threats and Financial Reporting Quality

Recent theoretical and empirical studies suggest that blockholders (shareholders with ownership ≥ 5 percent) exert governance through the threat of exit. Blockholders have strong incentives to gather private information and sell their shares when managers are perceived to underperform. To prevent blockholders from selling their shares and the firm from suffering a stock price decline, managers align their actions with the interests of shareholders. As a result of the greater manager‐shareholder alignment, managers' actions are more likely to be in shareholders' best interest, and consequently there is less need for managers to manipulate earnings. Consistent with these predictions from economic theory, we find evidence that as exit threat increases, firms have higher financial reporting quality. Theory also predicts that the impact of blockholders' exit threat on financial reporting quality (FRQ) should increase as the manager's wealth is tied more closely to the stock price, and this is what we find. Our study contributes to the research on the impact of shareholders on FRQ and to an emerging literature on the impact of blockholders in financial markets. Blockholders play an important role in managers' reporting outcomes through their actions as informed investors.     

Do Analysts Matter for Corporate Tax Planning? Evidence from a Natural Experiment

We exploit an exogenous shock to analyst coverage as a result of brokerage house mergers and closures to examine whether financial analysts influence the tax‐planning activities of the firms they cover. Using a difference‐in‐differences design, we find that, on average, firms affected by broker mergers and/or closures experience a reduction in their GAAP (cash) effective tax rates (ETR) of 2.5 percent (2.6 percent), relative to control firms, translating into average tax expense (cash tax) savings of $34 ($35) million. The treatment effect is more pronounced among firms with lower pre‐event analyst coverage. To explore how analysts affect tax planning, we further document that the treatment effect is greater among firms that lose an analyst who provided an implied ETR forecast in the past, suggesting that analysts influence tax planning via their tax‐specific research efforts. In addition, we find that after merger/closure, weakly governed firms increase their use of aggressive tax strategies, and financially distressed firms experience a larger reduction of cash effective tax rates, relative to control firms. Overall, we provide evidence that a shock to analyst coverage sufficiently changes the cost‐benefit trade‐off of tax planning.     

Age heaping and numeracy: looking behind the curtain

Age‐heaping‐based numeracy indicators have served as valuable tools to derive basic human capital estimates, especially for periods where other indicators are unavailable. However, the accuracy of individual age statements usually remains unknown, and due to the lack of precise information it can only be assumed that excessive occurrence of multiples of five in age distributions reflects inferior numerical skills. This article addresses this lacuna by identifying 162 individuals in two independent data sources: self‐reported age statements and independently kept records which are based on family heritage books and church registers. This method makes it possible to identify individual misreporting and the degree of accuracy of each individual. Findings show that not everyone who reported a multiple of five was reporting an incorrect age, nor was it the case that everyone who reported an age that was not a multiple of five was reporting an accurate age. The empirical analysis shows that the commonly used binary numeracy indicator is correlated with the observed degree of accuracy in age statements, and that a more sophisticated occupational background reduces this inaccuracy. These results tentatively suggest that the commonly used binary indicator measuring age heaping is a valuable proxy for numerical skills and occupational background in a population.