Disappearing investment-cash flow sensitivities: Earnings have not become a worse proxy for cash flow

According to a recent conjecture in the literature, earnings have become a poorer proxy for cash flow from operations over time. We find that since 1988, when cash flow statements started to be consistently reported in Compustat, the cash effectiveness of earnings has actually increased for a large sample of US manufacturing firms. This occurs despite the introduction of fair value accounting and increasing accounting accruals during the last three decades. Also contrary to the conjecture, using more comprehensive measures of cash flow does not restore the investment-cash flow sensitivity, which continues to be around 0.05 in more recent periods.     

The looks of a winner: Beauty and electoral success

We study the role of beauty in politics using candidate photos that figured prominently in electoral campaigns. Our investigation is based on visual assessments of 1929 Finnish political candidates from 10,011 respondents (of which 3708 were Finnish). As Finland has a proportional electoral system, we are able to compare the electoral success of non-incumbent candidates representing the same party. An increase in our measure of beauty by one standard deviation is associated with an increase of 20% in the number of votes for the average non-incumbent parliamentary candidate. The relationship is unaffected by including education and occupation as control variables and withstands several other robustness checks.     

How common are common priors?

To answer the question in the title we vary agents? beliefs against the background of a fixed knowledge space, that is, a state space with a partition for each agent. Beliefs are the posterior probabilities of agents, which we call type profiles. We then ask what is the topological size of the set of consistent type profiles, those that are derived from a common prior (or a common improper prior in the case of an infinite state space). The answer depends on what we term the tightness of the partition profile. A partition profile is tight if in some state it is common knowledge that any increase of any single agent?s knowledge results in an increase in common knowledge. We show that for partition profiles that are tight the set of consistent type profiles is topologically large, while for partition profiles that are not tight this set is topologically small.     

On the ‘Review of Structure and Effectiveness of the IFRS Foundation’: the EAA’s Financial Reporting Standards Committee’s View

In July 2015 the International Financial Reporting Standards (IFRS) Foundation launched its third five year review of its structure and effectiveness of the organisation. In a public call, the Trustees solicited stakeholders’ input on the relevance of IFRS Standards with respect to broadening the IFRS scope and to the impact of new technology, on the consistent application of IFRS and on the governance and funding of the International Accounting Standards Board and the IFRS Foundation. The European Accounting Association (EAA)’s Financial Reporting Standards Committee responded to this request for views by submitting a comment letter based on research-informed opinions. This article provides an overview of this Review of Structure and Effectiveness of the IFRS Foundation and the EAA’s opinions in response to this Review.     

Weakly rational expectations

Aumann and Drèze (2008) characterised the set of interim expected payoffs that players may have in rational belief systems, in which there is common knowledge of rationality and a common prior. We show here that common knowledge of rationality is not needed: when rationality is satisfied in the support of an action-consistent distribution (a concept introduced by Barelli (2009)), one obtains exactly the same set of rational expectations, despite the fact that in such ‘weakly rational belief systems’ there may not be mutual knowledge of rationality, let alone common knowledge of rationality. In the special case of two-player zero-sum games, the only expected payoff is the minmax value, even under these weak assumptions.     

The interaction between product market and financing strategy: the role of venture capital

Venture capital financing is widely believed to be influentialfor new innovative companies. We provide empirical evidencethat venture capital financing is related to product marketstrategies and outcomes of start-ups. Using a unique hand-collecteddatabase of Silicon Valley high-tech start-ups. Using a uniquehand-collected database of Silicon Valley high-tech start-upswe find that innovator firms are more likely to obtain venturecapital than imitator firms. Venture capital is also associatedwith a significant reduction in the time to bring a productto market, especially for innovators. Our results suggest significantinterrelations between investor types and product market dimensions,and a role of venture capital for innovative companies.     

From sponsorship to partnership in academy-industry relations

One practical result of the advent of the knowledge society has been an increased reliance on academic-industry partnerships as important sources for the creation of economic value. This paper argues that this renewed emphasis on knowledge has led to a shift in the nature of the relations between the academy and industry from sponsorship to partnership and the formation of new research institutions that allow researchers and practitioners to engage in continuous rather than problem based dialogue. These developments are illustrated by providing a case study based on the experience of one research team with its industrial partners. The paper presents results pertaining to some of the issues and challenges raised by continuous dialogue in partnerships, and emphasises the creative yet demanding implications of close collaboration between the two communities.     

Extractive Industries Reporting: A Review of Accounting Challenges and the Research Literature

While the extractive industries (EI) are of major significance economically, the reporting of their activities has been the subject of contentious debate posing dilemmas for regulators and standard setters over many decades. In order to ensure alignment with the International Accounting Standards Board (IASB) research project on EI, we first identify some important economic characteristics of EI and associated accounting challenges together with an overview of how current accounting standards deal with these challenges using International Financial Reporting Standards as the focus. Second, we conduct a review of extant research on EI reporting analyzed around the key areas of: (a) international diversity of accounting practices and the challenges facing information users; (b) standard-setting processes and lobbying behaviour that deals with why the IASB (and other standard setters) have not succeeded in developing rigorous standards for extractive activities; (c) the reporting of oil, gas, and mineral reserves, given that large proportions of the assets of EI firms (the reserves) are off-balance sheet; (d) environmental, social, and governance (ESG) reporting dealing with how EI firms have increased their reporting of ESG information in response to regulatory demands and pressure for voluntary disclosures; and (e) other EI related topics such as earnings management, risk disclosures, and voluntary disclosure behaviour. Finally, we present some conclusions together with suggestions relating to key areas for future research on EI reporting.