Correlation of gender-related values of independence and relationship and leadership orientation

This study compares the relationship between the moral reasoning modes and leadership orientation of males versus females, and managers versus engineers/scientists. A questionnaire developed by Worthley (1987) was used to measure the degree of each participant's respective independence and justice, and relationships and caring moral reasoning modes. Leadership orientation values and attitudes were measured using the Fiedler and Chemers (1984) Least Preferred Coworker Scale.The results suggest that, although males differ from female in their dominant moral reasoning modes, managers are not distinguishable from the engineers/scientists they manage in terms of their moral reasoning mode or Least Preferred Coworker score.Clarence E. Butz is a Professor of Management in the School of Business and Management at Azusa Pacific University, California. Dr. Butz's teaching areas include general management, organizational behavior, and business ethics. Phillip V. Lewis is Dean of the School of Business and Management at Azusa Pacific University. He is the author of Organizational Communication (Gorsuch Scarisbrich, 1996) and Bank Ethics: An Exploratory Study of Ethical Behaviors and Perceptions in Small, Local Banks (Journal of Business Ethics, 11: 197–205, 1992).     

Finance, Politics, and the Accounting for Stock Options

The politics of option accounting crosses party lines, reflecting both the interests of the affected constituencies and the desire for power over standard setting. House Bill HR-3574, which mandates an assumption of zero stock price volatility, runs counter to the recently passed Financial Accounting Standards Board (FASB) rule requiring fair-value expensing of stock options. For any option issued at or out of the money, where strike prices are normally set, expense recognition is zero under this bill's mandated assumption.
Besides excessive use of stock options, the lack of a "final peace" in the option accounting war appears to have encouraged another questionable corporate practice. This article examines a sample of "six-and-one restructurings," exchanges of options in which expensing of re-priced (deep out-of-the-money) options can be avoided if employees wait at least six months and one day before receiving new options. The authors found that market-adjusted stock prices tend to decrease during the six-month period before the strike price is reset. This result provides one more reason why companies should be required to use fair-value option pricing models to expense options.     

An Isomorphism Between Asset Pricing Models With and Without Linear Habit Formation

We show an isomorphism between optimal portfolio selection orcompetitive equilibrium models with utilities incorporatinglinear habit formation, and corresponding models without habitformation. The isomorphism can be used to mechanically transformknown solutions not involving habit formation to correspondingsolutions with habit formation. For example, the Constantinides(1990) and Ingersoll (1992) solutions are mechanically obtainedfrom the familiar Merton solutions for the additive utilitycase, without recourse to a Bellman equation or first-orderconditions. More generally, recent solutions to portfolio selectionproblems with recursive utility and a stochastic investmentopportunity set are readily transformed to novel solutions ofcorresponding problems with utility that combines recursivitywith habit formation. The methodology also applies in the contextof Hindy–Huang–Kreps (1992) preferences, where ourisomorphism shows that the solution obtained by Hindy and Huang(1993) can be mechanically transformed to Dybvig's (1995) solutionto the optimal consumption-investment problem with consumptionratcheting.     

GAAP versus The Street: An Empirical Assessment of Two Alternative Definitions of Earnings

Managers, security analysts, investors, and the press rely increasingly on modified definitions of GAAP net income, known by such names as "operating" and "pro forma" earnings. We document this phenomenon and discuss competing explanations for the recent rise in the use of such modified earnings numbers and implications for the interpretation of related accounting research. Our results show that over the past 20 years there has been a dramatic increase in the frequency and magnitude of cases where "GAAP" and "Street" earnings differ. Further, there is a very strong bias toward the reporting of a Street earnings number that exceeds the GAAP earnings number. We also show that the market response to the Street earnings number has displaced GAAP earnings as a primary determinant of stock prices. Finally, through an analysis of earnings releases, we show that management has taken a proactive role in defining and emphasizing the Street number when communicating to analysts and investors.     

Employee Reload Options: Pricing, Hedging, and Optimal Exercise

Reload options, call options granting new options on exercise,are popularly used in compensation. Although the compound optionfeature may seem complicated, there is a distribution-free dominantpolicy of exercising reload options whenever they are in themoney. The optimal policy implies general formulas for numericalvaluation. Simpler formulas for valuation and hedging followfrom Black–Scholes assumptions with or without continuousdividends. Time vesting affects the optimal policy, but numericalresults indicate that it is nearly optimal to exercise in themoney whenever feasible. The results suggest that reload optionsproduce similar incentives as employee stock options and sharegrants.     

The Cost Efficiency of Real Estate Investment Trusts: An Analysis with a Bayesian Stochastic Frontier Model

Using a stochastic frontier methodology that incorporates Bayesian statistics, this paper analyzes the cost efficiency of real estate investment trusts (REITs) by observing the deviations of the measured costs of individual REITs from a defined efficient cost frontier. Using 1995–1997 data, we extend the previous research in this area and measure REIT efficiency more precisely by isolating random measurement error from the overall deviations from the efficient cost frontier. We calculate the magnitude of each REIT's managerial inefficiency, the industry inefficiency, and returns to scale. In addition, we assess specific characteristics of REITs for their contribution to inefficiency by calculating the odds ratio that a REIT with a specific characteristic is more efficient than a REIT with an alternative characteristic. The results show that, for the years studied, REITs are relatively cost efficient with most REITs facing increasing returns to scale. Additionally, the REIT's use of debt and the REIT's management style significantly affect the cost performance of REITs during the aforementioned time period. Finally, diversification across property types, as measured, does not seem to influence REIT cost efficiency.     

ADRs,Analysts, and Accuracy: Does Cross Listing in the United States Improve a Firm's Information Environment and Increase Market Value?

This paper investigates the relation between cross listing in the United States and the information environment of non‐U.S. firms. We find that firms that cross list on U.S. exchanges have greater analyst coverage and increased forecast accuracy than firms that are not cross listed. A time‐series analysis shows that a change in analyst coverage and forecast accuracy occurs around cross listing. We also document that firms that have more analyst coverage and higher forecast accuracy have higher valuations. Furthermore, the change in firm value around cross listing is correlated with changes in analyst following and forecast accuracy, suggesting that cross listing enhances firm value through its effect on the firm's information environment. Our findings support the hypothesis that cross‐listed firms have better information environments, which are associated with higher market valuations.     

Contagion or Competition: Going Concern Audit Opinions for Real Estate Firms

We examine whether intra–industry information transfers from going–concern audit opinion announcements create contagion or competitive stock price reactions for other real estate firms operating in the same line of business. Using returns from publicly-traded land subdivision/development firms and Real Estate Investment Trusts, we find modest evidence supporting a competitive effect among rival firms as a result of another real estate firm announcing the receipt of a Going Concern Opinion (GCO) from its independent auditors.     

Feedback loops, fair value accounting and correlated investments

This paper presents and tests a model of the price dynamics that arise when investors fail to recognize the redundancy of unrealized gains and losses (“UGLs”) that are correlated with the firm’s past returns. Consistent with the predictions of our model, our experiment shows that a firm’s prices and earnings become highly volatile when correlated investment is large and correlated UGLs are made salient by comprehensive income reporting. The results suggest that including correlated UGLs in performance numbers could induce violations of weak-form efficiency that exacerbate volatility in share prices and earnings.