Risk-managed industry momentum and momentum crashes

This paper investigates Barroso and Santa-Clara’s [J. Financ. Econ., 2008, 116, 111–120] risk-managed momentum strategy in an industry momentum setting. We investigate several traditional momentum strategies including that recently proposed by Novy-Marx [J. Financ. Econ., 2012, 103, 429–453]. We moreover examine the impact of different variance forecast horizons on average pay-offs and also Daniel and Moskowitz’s [J. Financ. Econ., 2016, 122, 221–247] optionality effects. Our results show in general that neither plain industry momentum strategies nor the risk-managed industry momentum strategies are subject to optionality effects, implying that these strategies have no time-varying beta. Moreover, the benefits of risk management are robust across volatility estimators, momentum strategies and subsamples. Finally, the ‘echo effect’ in industries is not robust in subsamples as the strategy works only during the most recent subsample.     

Predictive safety analytics: inferring aviation accident shaping factors and causation

This paper illustrates the development of an object-oriented Bayesian network (OOBN) to integrate the safety risks contributing to an in-flight loss-of-control aviation accident. With the creation of a probabilistic model, inferences about changes to the states of the accident shaping or causal factors can be drawn quantitatively. These predictive safety inferences derive from qualitative reasoning to conclusions based on data, assumptions, and/or premises, and enable an analyst to identify the most prominent causal factors leading to a risk factor prioritization. Such an approach facilitates a mitigation portfolio study and assessment. The model also facilitates the computation of sensitivity values based on perturbations to the estimates in the conditional probability tables. Such computations lead to identifying the most sensitive causal factors with respect to an accident probability. This approach may lead to vulnerability discovery of emerging causal factors for which mitigations do not yet exist that then informs possible future R&D efforts. To illustrate the benefits of an OOBN in a large and complex aviation accident model, the in-flight loss-of-control accident framework model is presented.     

IMag[in]ing annual reports

Visual images are integral elements within corporate annual reports. Yet, these visual images have been largely ignored in accounting research. We begin to explore the significance of selected visual images appearing in U.S. annual reports during the late 1980s and early 1990s. Our intent is not to produce a general survey of images, but rather to offer different “ways of seeing” images and through these “ways of seeing” to encourage a critical dialogue that focuses upon the representational, ideological and constitutive role of images in annual reports. Our first way of seeing views the image as transparently conveying an intended corporate message. The second way of seeing draws upon neo-Marxist aesthetic literature and considers the ways in which images in annual reports may be mined for their ideological content and may also reveal society's deep structures of social classification, institutional forms and relationships. Finally, we employ critical postmodernist art theory to see images in terms of their constitutive role in creating different types of human subjectivities and realities. We argue that this way of seeing creates the potential for new voices to be heard and the possibility to subvert the dualisms typical of the totalizing theories of modernity.     

The market response to product safety litigation

This paper examines the stock market impact of 29 product liability lawsuits reported in the Wall Street Journal from 1970–1985, an additional series of Agent Orange events, and a set of regulatory events involving product risks. If these events and the costs associated with them were fully anticipated, then there would be no effect on the stock market price. Adverse stock market effects increase if the event involves a product liability action, bodily injury, or a court decision. Lengthy newspaper coverage and initial reports also have a strong effect. If there are multiple defendants, the market cost per firm is reduced. One widely publicized good news event—the final Agent Orange decision—led to a dramatic increase in stock prices.     

Separating the Political and Technical: Accounting Standard‐Setting and Purification

The U.S.‐based Financial Accounting Standards Board (FASB) emphasizes that accounting standard‐setting is not and should not be regarded as a “political process.” Employing the case of accounting for stock compensation, I examine a recent debate in which FASB appears to have successfully established and maintained a boundary between a technical accounting process and politics. This case is interesting because an earlier, failed effort to expense stock compensation was described as highly politicized. However, the boundary between technical and political processes was maintained in the more recent episode. I find that a focus on due process, characterizations of existing accounting requirements as anomalous and available measurement methods as reliable, and warnings about the dangers of injecting “politics” into standard‐setting were important to this boundary work. I also find that the boundary work required considerable interpretive flexibility in selecting (or ignoring) the evidence to be used in justifying the standard‐setting project and its conclusions. I conclude by suggesting that a different understanding of what it means to be involved in a “political process” might help all parties understand more fully what is taking place during the accounting standard‐setting process. Attention could be turned to developing processes to facilitate debates over which values should guide decisions occurring throughout the standard‐setting process. To this end, an enhanced standard‐setting process might allow for increased participation in agenda setting, in framing and scoping standard‐setting projects, and in providing opportunities for nonexperts to participate.     

Institutional thinking: The case of financial instruments

Although financial accounting practices and disclosures are frequently altered, such changes appear to be constrained by “institutional thinking”. In this paper, I explore an instance of institutional thinking — the emergence and development of an FASB project on financial instruments. This study illustrates the programmed ways in which accounting problems are constructed and resolved, a process that shadows certain questions while emphasizing the traditional accounting concerns with disclosure, recognition and measurement.     

Reconciling conflict: The role of accounting in the American Indian Trust Fund debacle

In 1887, the United States Congress broke American Indian Tribal lands into allotments which it held and controlled “on behalf” of individual American Indians in trust funds. The following century has been marked by allegations of fraud, mismanagement and accounting failures prompting repeated calls for reform, none very successful. As a result, neither the federal government nor trust holders themselves are sure whether the account balances are $7 or $100 billion currently.In 1994, Congress passed yet another attempt to reconcile the American Indian Trusts. This time, legislation spelled out the responsibility of the Secretary of the Interior (the department in charge of the trust accounts) to provide a complete “historical” accounting including accurate reports of balances, and to ensure that future payments of principal and interest were accurate and timely. More than 10 years later, the Interior reported its progress in a 24-page brochure that defended the Interior's narrowed definition of “historical” and its decision to limit its reconciliation to accounts that were open on 1994 or later. In the brochure, the Interior argued that its limited definition of historical and any other shortcoming in the Interior's efforts were acceptable given the cost of a more complete accounting. Finally, the brochure argued that the Interior Department had fulfilled its role as trustee and, as such, is the good guy in the conflict over these accounts. It is the Interior's American Indian Trust holders who are unreasonable troublemakers.In this paper, we examine the Interior's brochure and locate it within the larger conflicted relations between American Indians and the federal government. We are interested in the Interior's narrow vision of historical accounting, and the role this narrowness might play in deepening or resolving centuries long conflicts. We argue that the brochure provides an example of how parties in dispute over economic resources may attempt to frame or control the accounting process itself as a way to control those conflicts and limit the possible meanings that could be accorded to accountability within a particular set of relations. This episode illustrates how the ability to frame accounting definitions, formulations, and boundaries becomes a powerful means of controlling the final allocation of both dollars and political privilege. We conclude by accentuating the limitations of accounting in restoring a sense of justice and “balance” to relationships that embody uneven access to power and long-standing conflicts over economic claims.     

Sorting and comparing: Standard-setting and “ethical” categories

The Financial Accounting Standards Board (FASB) describes its public interest function as “…developing standards that result in accounting for similar transactions and circumstances in a like manner and different transactions and circumstances…in a different manner (Facts about FASB).” This statement implies that rule-makers possess an expertise that makes analogizing transactions or circumstances to other transactions or circumstances unproblematic. In this paper we utilize two instances of standard-setting, SFAS 123R and SFAS 143, to demonstrate from FASB's analogic reasoning in these cases that similarity and dissimilarity are not so easily ascertained. A judgment about similarity invariably involves ignoring some perspectives of similarity that would lead to substantially different conclusions about the appropriate accounting. We also illustrate via the two examples the inherent value judgments that underlie the conclusions reached by FASB and how these value judgments raise questions about the ethics of the current standard-setting process.