Inference with Dependent Data in Accounting and Finance Applications

We review developments in conducting inference for model parameters in the presence of intertemporal and cross‐sectional dependence with an emphasis on panel data applications. We review the use of heteroskedasticity and autocorrelation consistent (HAC) standard error estimators, which include the standard clustered and multiway clustered estimators, and discuss alternative sample‐splitting inference procedures, such as the Fama–Macbeth procedure, within this context. We outline pros and cons of the different procedures. We then illustrate the properties of the discussed procedures within a simulation experiment designed to mimic the type of firm‐level panel data that might be encountered in accounting and finance applications. Our conclusion, based on theoretical properties and simulation performance, is that sample‐splitting procedures with suitably chosen splits are the most likely to deliver robust inferential statements with approximately correct coverage properties in the types of large, heterogeneous panels many researchers are likely to face.     

Modified efficient importance sampling for partially non‐Gaussian state space models

The construction of an importance density for partially non‐Gaussian state space models is crucial when simulation methods are used for likelihood evaluation, signal extraction, and forecasting. The method of efficient importance sampling is successful in this respect, but we show that it can be implemented in a computationally more efficient manner using standard Kalman filter and smoothing methods. Efficient importance sampling is generally applicable for a wide range of models, but it is typically a custom‐built procedure. For the class of partially non‐Gaussian state space models, we present a general method for efficient importance sampling. Our novel method makes the efficient importance sampling methodology more accessible because it does not require the computation of a (possibly) complicated density kernel that needs to be tracked for each time period. The new method is illustrated for a stochastic volatility model with a Student's t distribution.     

Logics,Leaders, Lab Coats: A Multi‐Level Study on How Institutional Logics are Linked to Entrepreneurial Intentions in Academia

Situated in the context of academia, this study integrates ideas from institutional theory, person‐environment fit theory and leadership research to conceptualize and examine the cross‐level link between the organizational‐level institutional logic of research commercialization and the entrepreneurial intentions of researchers. Multi‐level analyses based on a sample of 254 researchers working for 85 research group leaders in 49 German research institutes reveal that two distinct attributes of research group leaders – that is, their track records of entrepreneurial behaviour and their entrepreneurial intentions – play a significant role in transmitting the organizational‐level logic to the individual level. We also observe a complementary interaction between organizational‐level commercialization logic and the entrepreneurial track records of leaders. We discuss how these findings advance our understanding of science commercialization through academic entrepreneurship and how they inform institutional theory and theory development in other domains of entrepreneurship research.     

Design efficiency for non‐market valuation with choice modelling: how to measure it,what to report and why*

We review the basic principles for the evaluation of design efficiency in discrete choice modelling with a focus on efficiency of WTP estimates from the multinomial logit model. The discussion is developed under the realistic assumption that researchers can plausibly define a prior belief on the range of values for the utility coefficients. D‐, A‐, B‐, S‐ and C‐errors are compared as measures of design performance in applied studies and their rationale is discussed. An empirical example based on the generation and comparison of fifteen separate designs from a common set of assumptions illustrates the relevant considerations to the context of non‐market valuation, with particular emphasis placed on C‐efficiency. Conclusions are drawn for the practice of reporting in non‐market valuation and for future work on design research.     

The influence of relative values of outside director stock options on firm strategic risk from a multiagent perspective

Prior work has examined the effects of absolute levels of outside director stock option grants on risk behavior without recognizing that relative stock option values could differentially affect risk taking. Drawing from the house money effect perspective, we extend this literature by examining how positive deviation from prior outside director option grants values influences firm strategic risk. Additionally we draw from the behavioral agency model and the power literature to develop a multiagent contingency framework suggesting the effect of positive director pay deviation depends on the incentives and power of CEOs reflected in CEO stock ownership and CEO duality, respectively. Our empirical results indicate positive pay deviation has a positive effect on firm risk taking while high ownership and duality independently and jointly weaken this base relationship. Copyright © 2013 John Wiley & Sons, Ltd.     

Risk‐Coping Measures against Health Shocks during the Process of Penetration of Health Insurance in Vietnam

Does the recent introduction of public health insurance influence households' risk‐coping measures in developing countries? This study investigates risk‐coping measures for health shocks using a Living Standard Measurement Survey in Vietnam where universal health coverage is aimed to be achieved. The estimated results suggest that precautionary savings are the main form of assets in poor households. Health insurance seems to be used by people in poor health, which indicates that the problem of adverse selection exits. Importantly, get well gifts in the form of money play a significant role in helping households cope with health shocks. A traditional informal insurance system still exists in close Vietnamese communities.     

Spillovers in Exchange Rates and the Effects of Global Shocks on Emerging Market Currencies

This paper provides an investigation into the spillover effects of exchange rate returns and volatility for developed and emerging market currencies, using data from 1997 to 2011. The results suggest that spillovers in exchange rate returns have increased steadily over time, in moderate reaction to economic events. In contrast, spillovers in total observed volatility (measured by squared returns) react more strongly to economic events, and this transmission has remained at a relatively high level since the global financial crisis. Furthermore, over the course of time, global shocks would appear to account for a larger proportion of aggregate exchange rate volatility (and the relative importance of domestic shocks has declined). The paper also considers whether the increase in volatility spillover is due to sudden shocks, or whether it is due to changes in the stochastic trend of the underlying volatility process. The results suggests that in most cases, this increase is due to sudden shocks, however, in certain instances country‐specific events may perpetuate changes to the trend of the underlying volatility spillover.     

DEA APPLIED TO A GAUTENG SAMPLE OF PUBLIC HOSPITALS1

The research presented in this paper provides an analysis of the delivery of a few health care services by the public sector in Gauteng, South Africa. The data for the study was especially difficult to collect, suggesting the need for hospital level data information systems, as well as staff who are trained to analyze the information collected. The empirical results from the analysis suggest that services provided by small‐scale medical facilities waste fewer resources, while medical centres offering more technical services, such as surgeries, also appear to deliver medical services more efficiently.     

The Unintended Consequences of the Frequency of PCAOB Inspection

After more than 50 years of self‐regulation of the US auditing profession, the Sarbanes‐Oxley Act of 2002 (SOX) created the Public Company Accounting Oversight Board (PCAOB) as a quasi‐governmental entity with statutory authority to inspect accounting firms that audit public clients. The frequency of this inspection is annual or triennial, based upon the number of public clients the firm audits. We examine the effects of these two levels of inspection frequency on financial reporting quality and audit fees for clients of small and midsize public accounting firms. Our findings provide evidence of significantly higher audit quality and audit fees for clients of annually inspected firms relative to clients of triennially inspected firms. These findings are robust to auditor‐client alignment analyses, propensity score matching, time‐series analyses, examination of firms that have changed from triennial to annual inspection, and particular examination of firms with inspection deficiencies. Overall, our study suggests that the two‐tier frequency system of PCAOB inspection may have also resulted in two‐tier audit quality and audit fee systems for small and midsize public accounting firms, with more frequent inspection leading to more rigorous and informed auditor decisions. We discuss the implications of our results for the Board and the profession at large.     

Tax avoidance and ex ante cost of capital

This study examines the association between tax avoidance and ex ante cost of equity capital. Based on prior research, we develop two proxies for investors’ expectations of tax avoidance and explore whether deviations from those expectations result in higher ex ante cost of equity capital. We find that the ex ante cost of equity capital increases with tax avoidance that is either below or above investor expectations and that the increase is larger for tax avoidance that exceeds investors’ expectations. We then examine whether firms that alter their future tax avoidance exhibit a lowering of their ex ante cost of equity capital and find that tax avoidance decreases (increases) from the prior year for firms that were above (below) investors’ expectations in the prior year. These results are consistent with the trade‐off suggested by the Scholes and Wolfson framework and reinforce the notion that balancing tax benefits and non‐tax costs is an important feature of firms’ tax planning.