Defining management accounting constructs: A methodological note on the risks of conceptual misspecification

This paper stresses the need for a sound conceptual specification of research constructs prior to fitting them to explanatory models. It emphasizes that in addressing the conceptual level of the predictive validity framework [Libby, R., Bloomfield, R., & Nelson, M. (2002). Experimental research in financial accounting. Accounting, Organizations and Society, 27, 775–810], special attention must be paid to two issues: (1) the production of a specific agreed-upon meaning and domain for each construct of interest; and (2) the specification and conceptual justification of the nature and direction of the epistemic relationships between constructs, dimensions and indicators (i.e., reflective vs. formative models; latent vs. emergent models). The paper highlights the importance of both issues especially in the case of practice-defined variables, and it provides guidelines on how to address both aspects of conceptual specification. While the issues raised are pertinent to many research areas, the paper concentrates on the implications for management accounting and control systems (MACS) research, using interactive use of control systems [Simons, R. (1995a). Levers of control. Boston: Harvard Business School Press] to illustrate how researchers should go about specifying meaning and epistemic relationships in MACS research.     

Blanket guarantee,deposit insurance and restructuring decisions for multinational banks

This paper examines blanket guarantee, deposit insurance and restructuring decisions with respect to a multinational bank (MNB) using Nash bargaining when the threat of a bank panic motivates countries to make decisions quickly. Failure of the bank would unevenly distribute externalities across countries, influencing the restructuring incentives. In equilibrium, the bank is either liquidated or one of the countries – or both – recapitalizes it. A partition of the recapitalization costs is sensitive to the country-specific benefits and costs from recapitalization, panic and liquidation. The home regulator benefits from the advantage that it is the only entity that can legally liquidate the MNB. Rational expectations regarding the bargaining result affect the incentives to declare a blanket guarantee.     

Why Managers Use Cost Allocations: A Research Note

Using an experimental design, this paper investigates empirically the conditions under which managers use cost allocations for decision-making purposes. The paper focuses on decision-risk in the context of short-term decision-making when most capacity costs are unavoidable. Decision-risk is determined in this paper by a combination of two factors: uncertainty and irreversibility. Cost allocations can serve as a reference point for a decision maker to deal with decision-risk. Three hypotheses are formulated: (1) the combination of both uncertainty and decision irreversibility induces the use of cost allocations. However, (2) certainty or (3) decision reversibility alone are not expected to induce the use of cost allocations. The hypotheses were tested in an experiment, in which senior managers participated. The experimental results supported the hypotheses.     

Infantile mortality from an actuarial point of view

Abstract

1. The difficulties by which the actuary is confronted in dealing with infantile mortality resemble in several ways the difficulties experienced at extreme old age. In both cases the variation in the mortality is so rapid that the usual formulas of numerical approximation may break down. In both cases the observations of the life insurance companies are scarce, and hypothesis must therefore be resorted to. In both cases there is a question of convergence, if the force of mortality is assumed to tend to infinity, as the age tends to zero. In both cases it is, of course, impossible to tell with certainty whether the force of mortality does actually tend to infinity.     

<Emphasis Type="Bold">Measuring the market response to going concern modifications: the importance of disclosure timing</Emphasis>

Auditor going concern modifications (GCMs) are intended to provide market participants with information related to financial distress, and prior research suggests that the disclosure of a GCM elicits a substantial negative market reaction from investors. In this study, we investigate the market reaction to GCMs in a contemporary disclosure regime and consider whether the observed market reaction is confounded by other material disclosures. We find that the majority of GCMs are issued concurrently with earnings announcements (EAs) and that EAs in the year of new GCMs elicit large negative cumulative abnormal returns (CARs). We also find that CARs surrounding GCMs are significantly more negative when GCMs are disclosed with EAs versus following EAs. We then evaluate whether GCMs convey distress that is incremental to EA disclosures by measuring i) the market reaction to GCMs disclosed following EAs, and ii) whether EA CARs are substantially more negative for companies disclosing GCMs with EAs as opposed to after EAs. In both cases, we find that the incremental market response to GCMs is statistically weak and much smaller in economic magnitude than is suggested by prior research. Finally, we find that management disclosures in EAs, rather than the presence of a GCM, appear to convey information that investors use to anticipate bankruptcy. Taken together, these findings suggest that GCMs are confounded by other significant disclosures and that the informational benefits of GCM reporting are significantly smaller than previously thought.