Parallel sourcing and supplier performance in the Japanese automobile industry

Japanese auto makers are reported to enjoy high supplier performance through long-term relationships, specific investments, and sole sourcing. Quality management consultants in the U.S. have been strongly advocating adoption of these practices. But economic and management theorists would predict that the combination of a high level of relationship-specific investments and sole sourcing will lead to problems with supplier performance. In fact the Japanese auto makers use a hybrid form of organization we term parallel sourcing. We present a transaction costs model that shows how parallel sourcing provides incentives for supplier performance associated with multiple sourcing while preserving claimed benefits of sole sourcing.     

Identity, appropriateness and the construction of regulatory space: the formation of the Public Accountant's Council of Ontario

Practice rights legislation in Canada continues to be contested 50 years after its first enactment. In Ontario, one of the earliest provinces to enact restrictive legislation, the challenges have focused on how the legislation has been implemented rather than on whether or not public accounting should be regulated. To better understand the contested issues in this field, we examine the process undertaken by the Public Accountants Council of Ontario to implement the Public Accountancy Act of 1950. Our analysis is based on the first 15 years of the minutes of the meetings of the Public Accountants Council for Ontario, augmented by other archival sources such as court cases, newspaper clippings, correspondence and reports. Our intent is to document the process and “logic of appropriateness” used by the Council to construct its identity and stake out its “regulatory space” in the face of the ambiguity of the law and pressure from interest groups. We also identify the contradictions that were institutionalized in this field resulting in repeated challenges to the Council. We conclude by relating the historical insights from this analysis to the continuing challenges to practice rights legislation in Ontario.     

Are Securitizations in Substance Sales or Secured Borrowings? Capital‐Market Evidence*

Two standard‐setting approaches have emerged globally to guide the choice of accounting for securitizations: the control and components approach (SFAS No. 125 and SFAS No. 140) and the risks and rewards transfer approach (IAS No. 39). A lack of consensus about derecognition accounting is a major impediment to achieving convergence in global standards that must be resolved. Thus, both SFAS No. 140 and IAS No. 39 will be reexamined, and evidence pertinent to the debate is timely and important. In this study, we present evidence consistent with the view of credit‐rating analysts, who view many securitizations as, in substance, secured borrowings. Specifically, for a sample of originators applying sale accounting guidance in SFAS No. 125 / 140 during the period 1997‐2003, we show that off‐balance‐sheet debt related to securitizations has, on average, the same risk‐relevance for explaining market measures of risk (that is, CAPM beta) as on‐balance‐sheet debt. We also find that, in a returns and earnings association framework, the pricing multiple on securitization gains declines as the amount of off‐balance‐sheet debt increases, implying that investors take off‐balance‐sheet debt into account when assessing the valuation‐relevance of such gains. For those who advocate the control and components approach to securitization accounting, our results suggest that, at least for frequent securitizers, the put option arising from implicit recourse is a “missing piece” that is not currently accounted for when calculating securitization gains. Our results challenge the extant measurement standards in SFAS No. 140.     

Dissertation abstract: Reputational benefits of altruism and altruistic punishment

Recent studies in experimental economics have shown that many people have other-regarding preferences, potentially including preferences for altruism, reciprocity, and fairness. It is useful to investigate why people possess such preferences and what functional purpose they might serve outside the laboratory, because evolutionary and social learning perspectives both predict that cooperative sentiments should only exist if they bring benefits that outweigh the costs of other-regarding behavior. Theories of costly signaling suggest that altruistic acts may function (with or without intention) as signals of unobservable qualities such as resources or cooperative intent, and altruists may benefit (possibly unintentionally) from the advertisement of such qualities. After reviewing the theories that could potentially account for the evolution of altruism (Chapter 1), I test some predictions about cooperation derived from costly signaling theory. In Chapter 2, I show that participants in experimental public goods games were more cooperative when they had cues that they could benefit from having a good reputation, and that there was apparently some competition to be the most generous group member. Furthermore, in subsequent trust games, people tended to trust high public goods contributors more than low contributors. Chapter 3 failed to find evidence that granting high status to people makes them more likely to contribute to public goods or punish free-riders, but there was suggestive evidence that physical proximity to the experimenter affected contributions and punishment. In Chapter 4, I found that people tended to trust others who were willing to incur costs to punish those who free-ride on group cooperation provided that such punishment was justified, and men were more punitive than women. In Chapter 5, I show that women find altruistic men more desirable than neutral men for long-term relationships. Together, these results suggest that humans do treat altruism as a signal of willingness to be cooperative. These findings are discussed with respect to the adaptive design of cooperative sentiments as well as the current debate over group selection. Dissertation: Department of Psychology, Neuroscience & Behaviour, McMaster University, Hamilton, Ontarion Currently: Post-Doc, Department of Neurobiology & Behavior, Cornell University     

Pricing mortgage-backed securities in a multifactor interest rate environment: a multivariate density estimation approach

Multivariate density estimation (MDE) suggests that mortgage-backedsecurity (MBS) prices can be well described as a function ofthe level and slope of the term structure. We analyze how thisfunction varies across MBSs with different coupons. An importantfinding is that the interest rate level proxies for the moneynessof the option, the expected level of prepayments, and the averagelife of the cash flows, while the term structure slope controlsfor the average rate at which these cash flows should be discounted.     

Do corporate insiders circumvent insider trading regulations? The case of stock repurchases

We use calculated values of standardized abnormal insider trading activity to investigate for patterns of unusual insider activity around fixed-price and Dutch auction repurchase announcements. Firms are classified according to whether the repurchase is signaling information about future cash flows, about the distribution of excess free cash flows, or about management's attempts to maintain control in the presence of a takeover. We find below normal levels of sales well before the event and above normal levels of sales after the event. This tendency is strongest for fixed-price offers and for firm's conveying information about future cash flows, and is absent for firms involved in takeovers. No evidence exists of abnormal levels of purchases before or after the event. We interpret the evidence as consistent with insiders successfully circumventing policies and regulations designed to prevent the exploitation of private information by timing the pattern of their security sales.     

The Relevance of Stock and Flow-Based Reporting Information In Assessing the Likelihood of Emergence from Corporate Financial Distress

A number of recent studies have shown that earnings information is less useful and value relevant when firms are financially troubled. This finding has given rise to the consideration of alternatives. In this paper, we examine the contributions of book value-based proxies (normal earnings and abandonment value) and flow-based proxies (earnings and operating accruals) to the assessment of the likelihood of emergence from financial distress. Our prior reasoning is that while book value-based proxies may provide information about potential future cash resources, flow-based proxies, because they capture the progress of reorganization efforts underway, as opposed to mere potential, should be relatively more useful in assessing the likelihood of emergence from distress. Our findings are consistent with this explanation. We document that the primary predictors of emergence are flow-based proxies—in particular, cash from operations, net of earnings.     

Relative accuracy and predictive ability of direct valuation methods, price to aggregate earnings method and a hybrid approach

In this paper, we assess the relative performance of the direct valuation method and industry multiplier models using 41 435 firm‐quarter Value Line observations over an 11 year (1990–2000) period. Results from both pricing‐error and return‐prediction analyses indicate that direct valuation yields lower percentage pricing errors and greater return prediction ability than the forward price to aggregated forecasted earnings multiplier model. However, a simple hybrid combination of these two methods leads to more accurate intrinsic value estimates, compared to either method used in isolation. It would appear that fundamental analysis could benefit from using one approach as a check on the other.     

Accounting as a legitimating institution

Recent attempts to reconceptualize the role of accounting in organizations and society have suggested that accounting may be examined as a “legitimating institution”. The concept of legitimation, however, has not developed within a single theoretic tradition, rather it emerges from three sociological traditions, each suggesting a distinct perspective on the phenomena and opening new areas for research. This paper reviews perspectives on legitimation, locates existing research on accounting within them, and suggests some areas for further research.