Auditor quality effects on the relationship between accruals,cash flows and equity returns: a variance decomposition analysis

In this paper, we examine the relative importance of the cash flow and accruals components of earnings in explaining the variation in UK company equity returns, together with the extent to which these relationships vary by auditor quality. We use a multivariate time-series approach that can be reconciled to a log-linear theoretical valuation model and, unlike the standard linear regression of returns on earnings components, accommodates time-varying discount rates. Based on a decomposition of the variance of equity returns, cash flows and accruals, our results indicate that both cash flow news and accruals news are important drivers of UK equity returns, although cash flows are more influential than accruals. We also find that variation in both earnings components has a more significant effect on returns for clients of large auditors. Finally, our results provide mixed evidence on the question of whether the impact of auditor quality is highest for the accruals component of earnings.     

Demand disruption and coordination of supply chain via effort and revenue sharing

This article explores the equilibrium behaviour of a basic supplier–retailer distribution channel under demand disruption via effort and revenue sharing contract. This differs from the traditional supply chain coordination model. Firstly, demand is simultaneously affected by retail price and nonprice marketing effort from manufacturers and retailers. Secondly, when the demand is disrupted, this article considers disruptions in the market scale and price sensitivity coefficient. Thirdly, the supply chain coordination model is proposed via effort and revenue sharing contract. In this way, the manufacturer reduces the wholesale price as an incentive for the retailer to share revenue. Finally, the total supply chain profit is greater with contract than no contract. This also constitutes another incentive for the players to follow the effort and revenue sharing contract.     

Transplanting Social Capital to the Online World: Insights from Two Experimental Studies

The recent proliferation of computer networks has stimulated the emergence of thousands of online communities. Facebook, which has grown to 175-million users in five years and recently surpassed megasite MySpace to become the world's largest social networking site, is a classic example. As the importance of online communities continues to grow, a good understanding of their success factors for building and sustaining a community becomes crucial.

In this article, we apply social capital theories to examine the interactions among individuals and trust building at the initial development of an online community. Specifically, we postulate that offline social capital can be transplanted into an online community (small or large) to foster the development of trust and social norms that make a community thrive. We conduct two experimental studies: one in the context of real-world, small-scale online communities, and the other in the context of computer-simulated large-scale online communities. Results from these studies provide strong support for our proposition. We interpret these results and discuss their implications and contributions to theory and practice.     

The impact of R&D on value added for domestic and foreign firms in a newly industrialized economy

This study compares the impact of R&D on value added between domestic and foreign firms in Singapore. The analysis is based on a comprehensive panel database from 1993 to 1999 provided by the Singapore Government. Our results found that R&D investments of foreign firms generated higher value added than those of domestic firms, and that the difference in value added contributed by R&D was moderated by the type of R&D and the technological level of industry. The study supports the argument that the ownership advantages possessed by foreign firms, relative to domestic firms, have positive effects on R&D performance.     

Municipal Finance in Poland,the Slovak Republic,the Czech Republic and Hungary: Institutional Framework and Recent Development

The recent process of political and economic transition in eastern European countries has not only contributed to the decentralisation of political structure but also significantly enhanced the fiscal autonomy of municipalities in these countries. In this context many similar types of public activities have recently been assigned to local governments, and some taxes were also declared to be local taxes. To be sure, this type of fiscal decentralisation has caused some additional problems, particularly for safeguarding the quality of publicly provided goods and services and for co-ordinating intergovernmental fiscal transfers between the central and local governments. For instance, some criticise that many small-sized municipalities in the transition economies have suffered from financial bottlenecks and have not been able to receive sufficient financial support from the central government. However, such a fiscal devolution trend appears to continue. This study primarily deals with issues surrounding the impact of national fiscal policy and the regulatory framework on local governments' expenditure behaviour and their ability to mobilise necessary revenues under the particular consideration of the institutional and administrative co-operation with the central government and of the less well-developed financial market in Poland, the Slovak Republic, the Czech Republic and Hungary.     

Overconfidence and Resistance to Abandoning Unprofitable Capital Budgeting Projects: The Effects of Autonomy,Internal Audit,and Accountability

The purpose of this study is to investigate the effects of managers' autonomy in choosing a capital budgeting project has on their confidence in managing the project. Furthermore, this study examines the role that internal audit reports and accountability play in mitigating the impact of autonomy on managers' resistance to abandoning unprofitable capital budgeting projects. Building on motivated reasoning theory, we hypothesize and find that managers who are given autonomy to choose their own projects are more confident that their projects will be successful than managers who are assigned the projects by their superiors. This study also shows that internal audit reports and accountability are effective mechanisms for reducing the influence of prior decisions on managers' resistance to abandoning unprofitable projects.     

Dynamic portfolio choice without cash

We consider the dynamic mean–variance portfolio choice without cash under a game theoretic framework. The mean–variance criterion is investigated in the situation where an investor allocates the wealth among risky assets while keeping no cash in a bank account. The problem is solved explicitly up to solutions of ordinary differential equations by applying the extended Hamilton–Jacobi–Bellman equation system. Given a constant risk aversion coefficient, the optimal allocation without a risk-free asset depends linearly on the current wealth, while that with a risk-free asset turns out to be independent of the current wealth. We also study the minimum-variance criterion, which can be viewed as an extension of the mean–variance model when the risk aversion coefficient tends to infinity. Calibration exercises demonstrate that for large investments, the mean–variance model without cash yields the highest certainty equivalent return for both short-term and long-term investments. Furthermore, the mean–variance portfolio choices with and without cash yield almost the same Sharpe ratio for an investment with large initial wealth.     

A competition‐based explanation of collaborative invention within the firm

Existing literature shows that collaborative invention within the firm enhances innovativeness by facilitating knowledge recombination. Despite such benefit, firms vary in their use of collaborative invention when drawing on their individual inventors' knowledge. In addressing this puzzle, we argue that competition from rival products building on similar knowledge compels firms to favor search depth over exploratory search and respond expeditiously, thus reducing a firm's inclination toward collaborative invention. In contrast with prior research's focus on how upstream resources influence a firm's position in downstream markets, this study shows that downstream competition drives heterogeneity across firms in their utilization of upstream resources. Copyright © 2013 John Wiley & Sons, Ltd.