Earnings Quality under Rules‐ versus Principles‐based Accounting Standards: A Test of the Skinner Hypothesis / LA QUALITÉ DES RÉSULTATS SELON QUE LES NORMES COMPTABLES SONT AXÉES SUR LES RÈGLES OU SUR LES PRINCIPES: VÉRIFICATION DE L'HYPOTHÈSE DE SKINNER*

We provide preliminary evidence, consistent with Skinner (1995), that Canada's relatively principles‐based GAAP yield higher accrual quality than the United States' relatively rules‐based GAAP. These results stem from a comparison of the Dechow‐Dichev (2002) measure of accrual quality for cross‐listed Canadian firms reporting under both Canadian and U.S. GAAP. However, we document lower accrual quality for Canadian firms reporting under U.S. GAAP than for U.S. firms, which are subject to stronger U.S. oversight, reporting under U.S. GAAP. The latter results suggest that stronger U.S. oversight compensates for inferior accrual quality associated with rules‐based GAAP. Consistent with the positive effect of Canada's principles‐based GAAP and the offsetting negative effect of Canada's weaker oversight, we find no overall difference in accrual quality between Canadian firms reporting under Canadian GAAP and U.S. firms reporting under U.S. GAAP. Our results imply that (1) policymakers who wish to compare the effectiveness of oversight across jurisdictions must control for the GAAP effect; and (2) accounting standard‐setters who wish to compare the effectiveness of principles‐ versus rules‐based GAAP must control for oversight strength.     

Sweatshops,Opportunity Costs,and Non‐Monetary Compensation: Evidence from El Salvador1

Using evidence from field interviews, this article examines the alternative employment opportunities of thirty‐one sweatshop factory workers in El Salvador and their perceptions about what types of non‐monetary benefits they receive in their current employment. Interview subjects provide insights into the benefits of their own and peers' employments, their next‐best alternative employment, and other aspects of total compensation. We find that workers perceive factory employment to provide more desirable compensation along several margins.     

ANOTHER LOOK AT THE RELATIONSHIP BETWEEN INNOVATION PROXIES*

Shortcomings in the treatment of intangible investment in company accounts imply that there is no statistical collection for innovative activity which abides by the logic used for other economic activity data. As a consequence, analysts rely on innovation proxies derived from administrative and survey data. However, it is still unclear exactly how the different proxies are correlated, and whether the choice amongst different proxies matters. In the light of the innovation measurement, this paper takes another look at the relationship between different proxies of firm innovation. The results show that firm‐level correlations between survey‐based indicators and other proxies for innovation are highest for manufacturing firms and for product innovations.     

Accounting for Expenditure on Intangibles

In search of a unifying measurement feature on which to base a more systematic and potentially comprehensive analysis of intangibles, this paper first analyses the economic and accounting properties of intangibles, and second, empirically evaluates managerial practices for measuring and analysing expenditure on intangibles. We present evidence from a survey of 614 large Australian firms that suggests gaps in the extent with which firms plan, monitor, record, analyse, and report on intangibles. Third, we evaluate the implications of our analysis and survey for accounting practice. Our evidence suggests GAAP has a role to provide guidance that helps firms identify and classify their expenditure on intangibles in ways that elucidate the strategic implications of the different types of intangibles for future output. A secondary step for accountants, after identifying and classifying the expenditure on intangibles, is to apply a capitalization test to distinguish expenses from assets. The current asymmetric treatment of expenditure on purchased versus internally generated intangibles is not supportable on economic grounds. However, economists identify weak property rights as a major cause of uncertainty associated with the outcomes from expenditure on intangibles, suggesting verifiable property rights is a unifying measurement feature on which to base a capitalization test for intangible assets.     

CONSUMPTION UNDER NOISY PRICE SIGNALS: A STUDY OF ELECTRICITY RETAIL RATE DEREGULATION IN SAN DIEGO*

Utility services employ nonlinear tariffs that attempt to convey information on cost convexities. This paper examines how customers respond to noisy and volatile tariffs by measuring deregulated retail rates' impact on electricity consumption in San Diego. When rates doubled in 2000, consumers appear to have reacted more to recent past bills than to current price information. By summer's end, we find consumption fell 6% while lagging price increases. Even months after the utility restored low historic rates customers continued curtailing demand. We conclude that rate structures relying upon lagged wholesale price averages produce delayed responses to scarcities or high costs.     

DO OLIGOPOLISTS POLLUTE LESS? EVIDENCE FROM A RESTRUCTURED ELECTRICITY MARKET*

Electricity restructuring has created the opportunity for producers to exercise market power. Oligopolists increase price by distorting output decisions, causing cross‐firm production inefficiencies. This study estimates the environmental implications of production inefficiencies attributed to market power in the Pennsylvania, New Jersey, and Maryland electricity market. Air pollution fell substantially during 1999, the year in which both electricity restructuring and new environmental regulation took effect. I find that strategic firms reduced their emissions by approximately 20% relative to other firms and their own historic emissions. Next, I compare observed behavior with estimates of production, and therefore emissions, in a competitive market. According to a model of competitive behavior, changing costs explain approximately two‐thirds of the observed pollution reductions. The remaining third can be attributed to firms exercising market power.     

LABELLING CHARACTERISTICS AND DEMAND FOR RETAIL GROCERY PRODUCTS IN AUSTRALIA*

This paper examines whether labelling characteristics affect short‐run demand for manufactured foods in Australia. We estimate the effect of common labelling characteristics on demand using data from 92 brands in 12 product categories from major supermarket stores across Australia over the period 2002 to 2005. We find that certain characteristics – such as whether the product is made from recycled materials, certified as being Australian‐made, is a private label product, is health‐conscious or supports a charity – have a positive effect on demand. However, being an environmentally‐friendly good had a negative impact on demand as did products which offer the chance to win a prize and uncertified Australian‐made goods.