Non-GAAP reporting following debt covenant violations

Review of Accounting Studies - We investigate whether firms change their non-GAAP reporting practices after debt covenant violations. We find that the likelihood that a firm will disclose non-GAAP...     

Real Incentive Effects of Soft Information

Both soft, noncontractible, and hard, contractible, information are informative about managerial ability and future firm performance. If a manager's future compensation depends on expectations of ability or future performance, then the manager has implicit incentives to affect the information. We examine the real incentive effects of soft information in a dynamic agency with limited commitment. When long-term contracts are renegotiated, the rewards for future performance inherent in long-term contracts allow the principal partial control over the implicit incentives. This is because the soft information affects the basis for contract renegotiation. With short-term contracts, the principal has no control over the basis for contract negotiation, and thus long-term contracts generally dominate short-term contracts. With long-term contracts, the principal's control over implicit incentives is characterized in terms of effective contracting on an implicit aggregation of the soft information that arises from predicting (forming expectations of) future performance. We provide sufficient conditions for soft information to have no real incentive effects. In general, implicit incentives not controllable by the principal include fixed effects, such as career concerns driven by labor markets external to the agency. When controllable incentives span the fixed effects of career concerns, the latter have no real effects with regard to total managerial incentives—they would optimally be the same with or without career concerns. Our analysis suggests empirical tests for estimating career concerns that should explicitly incorporate noncontractible information.     

Without `Reinventing the Wheel': Business Accounting Applied to the Public Sector

This article considers why a business accounting model was applied in an early adoption of public-sector accrual accounting. The history of that change shows that large private-sector consulting firms were active in the promotion and implementation of a commercial model of public-sector accrual accounting. It is argued here that the consulting firms' actions are best understood using concepts of mimetic isomorphism and the interplay between self-interest and perceived public interest. They formed an epistemic community in which self-interest was present but with a zealous belief that private-sector accounting was an inherently righteous objective for the public sector.     

E-Business Transformation via Alliance Clusters

The number of firms using alliances as part of their corporate venturing or market entry strategies has surged over the past decade. Three common reasons cited for pursuing alliances are technology convergence, market access and alliance partners' complementary resources. This paper contrasts the alliance strategies of HP and IBM, two major competitors in electronic services (i.e. Internet-based 'e- service') businesses, using the Familiarity Matrix as a display tool to portray the strategies. Whereas the HP strategy is to attempt to establish its technology infrastructure as the standard e-services infrastructure on the Internet, IBM aims to position its IBM Global Services, rather than its technology, at the center of this ecosystem.     

Water and Economic Growth

Several hydrological studies forecast a global problem of water scarcity. This raises the question as to whether increasing water scarcity may impose constraints on the growth of countries. The influence of water utilisation on economic growth is depicted through a growth model that includes this congestible nonexcludable good as a productive input for private producers. Growth is negatively affected by the government's appropriation of output to supply water but positively influenced by the contribution of increased water use to capital productivity, leading to an inverted-U relationship between economic growth and the rate of water utilisation. Cross-country estimations confirm this relationship and suggest that for most economies current rates of fresh water utilisation are not yet constraining growth. However, for a handful of countries, moderate or extreme water scarcity may adversely affect economic growth. Nevertheless, even for water-scarce countries, there appears to be little evidence that there are severe diminishing returns to allocating more output to provide water, thus resulting in falling income per capita. These results suggest caution over the claims of some hydrological-based studies of a widespread global 'water crisis'.     

ASSET POVERTY IN THE UNITED STATES, 1984–99: EVIDENCE FROM THE PANEL STUDY OF INCOME DYNAMICS

Using PSID data for the years 1984–99, we estimate the level and severity of asset poverty. We find that despite a sharp decline in the official poverty rate, the asset poverty rate barely budged over this period. Moreover, the severity of asset poverty increased during this period. The likelihood of being asset-poor decreased for those who are college graduates or married with children, whereas it increased for those who are white, for the unmarried elderly, and for those without a college degree. Lifetime events such as changes in job market, marital and homeownership status are correlated with transitions into and out of asset poverty.     

Accounting Policies in Agencies with Moral Hazard and Renegotiation

We emphasize the role of accounting policies, and their audit, in an earnings management setting. We use a two–period agency in which three frictions interact: the agent privately observes action (or effort) supply and output, and the initial contract is subject to renegotiation. This creates a setting in which both players' behavior is of concern, and, importantly, information rationing is efficient. Moreover, this information rationing is directly interpretable as being produced by an accounting policy whose application is ensured by an auditor.     

An Analysis of the Determinants and Shareholder Wealth Effects of Mutual Fund Mergers

This study examines the determinants of mutual fund mergers and their subsequent wealth impact on shareholders of target and acquiring funds. Results indicate significant improvements in postmerger performance and a reduction in expense ratios for target fund shareholders. In contrast, acquiring fund shareholders experience a significant deterioration in postmerger performance. The net asset flows continue to remain negative for the combined fund in the year following the merger. The likelihood of a fund merger is inversely related to fund size for both within- and across-family mutual fund mergers. However, poor past performance is a significant determinant for only within-family mergers.