Bankruptcy outcomes: Does the board matter?

Dahlia Robinson, Michael Robinson and Craig Sisneros
Advances in Accounting, Vol 28, Issue 2, Dec 2012, Pages 270–278

We examine the association between board composition and bankruptcy outcomes. Preliminary analyses provide no evidence that the proportion of outside directors is significantly associated with the likelihood that a Chapter 11 firm liquidates. Further analyses indicate, however, that the relation between the proportion of outside directors and bankruptcy outcomes is a function of the outside directors’ ownership. More specifically, we find that the association is positive when outside director ownership is low and negative when it is high. The overall evidence supports the notion that a one-size-fits-all approach to corporate governance is likely to result in suboptimal board structures and hinder firms’ strategies for dealing with poor performance.

onsumption Smoothing and Portfolio Rebalancing: The Effects of Adjustment Costs

Yosef Bonaparte, Russell Cooper and Guozhong Zhu
Journal of Monetary Economics, Volume 59, Issue 8, Pp. 751–768

A household’s response to income and return shocks depends on the costs of portfolio adjustment. In particular, the extent of portfolio rebalancing and consumption smoothing are influenced by the presence of non-convex portfolio adjustment costs. Suppose bonds can be adjusted costlessly while adjustments to stock accounts entail adjustment costs. Due to these portfolio adjustment costs, the household demands both stocks and bonds. A household can buffer some income fluctuations without incurring adjustment costs and engage in costly portfolio rebalancing less frequently. Using the estimated preference parameters and portfolio adjustment costs, the response to income and return shocks is nonlinear and reflects the interaction of portfolio rebalancing and consumption smoothing.

Practitioner summary “Should PCAOB Disciplinary Proceedings Be Made Public? Evidence from Sanctions against a Big 4 Auditor”

Carol Callaway Dee,Ayalew Lulseged,and Tianming Zhang
Current Issues in Auditing, Volume 6, Issue 2, pp. 18-24

In our paper “Client Stock Market Reaction to PCAOB Sanctions against a Big 4 Auditor” (Dee et al. 2011), we examine stock price effects for clients of a Big 4 audit firm when news of sanctions imposed by the PCAOB against the audit firm was made public. These PCAOB penalties were the first against a Big 4 auditor, and they revealed information about quality-control problems at the audit firm that were not publicly known until the sanctions were announced. Our analysis of stock prices suggests that investors in clients of the penalized Big 4 firm reevaluated their perceptions of the quality of the firm’s audit work after learning of the sanctions. The negative stock price effects for the firm’s clients were consistent with investors inferring that the financial statements were of lower quality. In the paper, we conclude that investors find information about PCAOB sanctions against audit firms to be relevant in assessing audit quality and use that information in setting stock prices for audit firms’ clients. This finding has relevance for the debate on the proposed legislation in Congress (H.R. 3503), which would allow the PCAOB to disclose proceedings against auditors before the investigations are concluded. Our results suggest that, although investors may find early disclosure of this information useful, public disclosure of Board disciplinary proceedings before they are completed could unfairly harm an audit firm’s reputation if the firm is ultimately vindicated of wrongdoing.

Consumption smoothing and portfolio rebalancing: The effects of adjustment costs

Yosef Bonaparte, Russell Cooper, Guozhong Zhu
Journal of Monetary Economics,Vol. 59, Issue 8, Pages: 751-768.

A household’s response to income and return shocks depends on the costs of portfolio adjustment. In particular, the extent of portfolio rebalancing and consumption smoothing are influenced by the presence of non-convex portfolio adjustment costs. Suppose bonds can be adjusted costlessly while adjustments to stock accounts entail adjustment costs. Due to these portfolio adjustment costs, the household demands both stocks and bonds. A household can buffer some income fluctuations without incurring adjustment costs and …
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Crossing the threshold: The spillover of community racial diversity and diversity climate to the workplace

Belle Rose Ragins, Jorge A. Gonzalez, Kyle Ehrhardt, and Romila Singh
Personnel Psychology,Vol. 65, Issue 4, Winter 2012, Pages 755-787

We examined the spillover of community diversity to the workplace using a sample of 2,045 professionals living in communities across the U.S. Spillover effects were examined using 2 measures of community diversity: the degree to which employees were racially or ethnically similar to others in their community and perceptions of their community’s diversity climate. Aligned with theories of group threat and racial segregation, Whites who were racially dissimilar to their communities expressed stronger intentions to leave their communities, and ultimately their workplaces, than those living in primarily White communities. However, community diversity climate offset these relationships; Whites who lived in communities that were racially dissimilar to them, but experienced the climate as inclusive, had lower moving intentions than those in communities that were experienced as racially intolerant. In contrast, for people of color, community diversity climate, rather than racial similarity to the community, predicted moving intentions. For both groups, the diversity climate in the community predicted moving intentions, which in turn predicted work turnover intentions, job search behaviors, and physical symptoms of stress at work. These findings suggest that the intention to leave one’s community, and ultimately one’s workplace, is influenced by community experiences and the community’s perceived diversity climate.
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nue Gains from MultiTier Ticket Pricing: Evidence from Pop Music Concerts

E. Woodrow Eckard and Marlene A. Smith
Managerial and Decision Economics, Vol 33, Issue 7-8, Oct 2012, pages 463–473

We provide empirical estimates of the revenue benefits of multi-tier pricing at a major US pop music venue. Our unique sample includes data on the number of tickets sold at every price. Mean revenue gain from multi-tier pricing is estimated to be about $20,000 per show, a 4.2% increase over uniform pricing, although the gains were as high as 21.2% for one performer. We also provide evidence that customer segmentation by income is a likely motive of multi-tier pricing and, for the first time, that the standard assumption of zero marginal cost of additional venue attendees is valid.

Leaders’ conceptions of followers: Implications for naturally occurring Pygmalion effects

Paul Whiteley, Thomas Sy, Stefanie K. Johnson
The Leadership Quarterly, Vol 23, Issue 5, Oct 2012, Pages 822–834

We investigated the relationships between leaders’ implicit followership theories (LIFTs) (conceptions of followers) and naturally occurring Pygmalion effects (leaders’ high performance expectations that improve follower performance). Results based on 151 workplace leader–follower dyads supported a model of naturally occurring Pygmalion effects. Positive LIFTs led to higher performance expectations, liking, and relationship quality from leaders, which impacted follower performance. Supervisory experience moderated the relationship between positive LIFTs and leaders’ performance expectations for their followers, such that the performance expectations of leaders with less supervisory experience were more strongly influenced by their conceptions of followers. Implications of the findings for improving follower performance are discussed. Suggestions for future research are offered: antecedents of LIFTs, negative LIFTs, Golem effects, and role reversed Pygmalion effects, among others.

The Two Faces of Voluntary Disclosure: Quality Improvement and Organizational Learning from Selfreported Problems

Vinit M. Desai
British Journal of Management, Vol 23, Issue 3, Sept 2012, pages 344–360

Research suggests the promise of voluntary self-reporting, given that organizational quality can be difficult to monitor. However, I explore opposing theoretical arguments regarding its impact. On one hand, self-reported problems may motivate intensive investigation, resulting in subsequent improvement. However, self-reports may instead represent relatively superficial impression management efforts, and their value to organizational performance may be more dubious. Associated hypotheses are tested on a longitudinal panel of nursing homes. Findings suggest that self-reports generally detract from performance except when they are reinforced by other, complementary forms of experience. Contributions to organizational learning theory, institutional theory and regulatory policy are discussed.

State uncertainty in stock markets: How big is the impact on the cost of equity?

Yufeng Han
Journal of Banking & Finance, Vol 36, Issue 9, Sept 2012, Pages 2575–2592

We propose a novel Bayesian framework to incorporate uncertainty about the state of the market. Among others, one advantage of the framework is the ability to model a large collection of time-varying parameters simultaneously. When we apply the framework to estimate the cost of equity we find economically significant effects of state uncertainty. A state-independent pricing model overestimates the cost of equity by about 4% per annum for a utility firm and by as much as 3% for industries. We also observe that the expected return, volatility, risk loading, and pricing error all display state-dependent dynamics that coincide with the business cycle. More interestingly, the forecasted market and Fama–French factor risk premiums can predict the future real GDP growth rate even though the model does not use any macroeconomic variables, which suggests that the proposed Bayesian framework captures the state-dependent dynamics well.

The best laid plans: Examining the conditions under which a planning intervention improves learning and reduces attrition.

Sitzmann, Traci; Johnson, Stefanie K.
Journal of Applied Psychology, Vol 97 Issue 5, Sep 2012, 967-981

Planning plays an instrumental role in prominent self-regulation theories (e.g., action regulation, control, goal setting), yet as a scientific community we know little about how people carry out their learning plans. Using an experimental field study, we implemented a repeated-measures intervention requiring trainees to create a plan for when, where, and how much time they intended to devote to training before each of 4 online modules and examined the conditions under which the planning intervention improved learning and reduced attrition. Trainees benefited from the planning intervention when it was paired with another intervention—prompting self-regulation—targeting self-regulatory processes that occur subsequent to planning (e.g., monitoring, concentration, learning strategies). Trainees’ learning performance was highest and attrition lowest when they received both interventions. The planning intervention was also advantageous for enhancing learning and reducing attrition when trainees followed through on the amount of time that they planned to devote to training. Finally, the relationship between planned study time, time on task, and learning performance was cyclical. Planned study time had a positive effect on time on task, which, in turn, had a positive effect on learning performance. However, trainees planned to devote less time to training following higher rather than lower learning performance. The current study contributes to our theoretical understanding of self-regulated learning by researching one of the most overlooked components of the process—planning—and examining the conditions under which establishing a learning plan enhances training outcomes.

Go for the goal(s): Relationship between goal setting and transfer of training following leadership development

Stefanie Johnson, Lauren Garrison, Gina Hernez-Broome, John Fleenor and Judith Steed
Learning & Education, Vol. 11, No. 4

This paper examines the relationship between goal setting and transfer of training as measured on a 360-degree survey collected 3 months after a five-day leadership development program. Leaders set personal goals for behavior change during the program. For two of the three competencies measured (developing others, building and maintaining relationships), leaders who set a goal for change on a competency were perceived as having improved more on that competency than those who did not. Moreover, those who set more than one goal were perceived as having improved more across competencies than those who set only one goal.

Sparse Matrix Graphical Models

Chenlei Leng and Cheng Yong Tang
Journal of the American Statistical Association
. 107 1187-1200.

Matrix-variate observations are frequently encountered in many contemporary statistical problems due to a rising need to organize and analyze data with structured information. In this article, we propose a novel sparse matrix graphical model for these types of statistical problems. By penalizing, respectively, two precision matrices corresponding to the rows and columns, our method yields a sparse matrix graphical model that synthetically characterizes the underlying conditional independence structure. Our model is more parsimonious and is practically more interpretable than the conventional sparse vector-variate graphical models. Asymptotic analysis shows that our penalized likelihood estimates enjoy better convergent rates than that of the vector-variate graphical model. The finite sample performance of the proposed method is illustrated via extensive simulation studies and several real datasets analysis

An efficient empirical likelihood approach for estimating equations with missing data

Cheng Yong Tang and Yongsong Qin
Biometrika (2012), pp. 1–7

We explore the use of estimating equations for efficient statistical inference in case of missing data. We propose a semi-parametric efficient empirical likelihood approach, and show that the empirical likelihood ratio statistic and its profile counterpart asymptotically follow central chi-square distributions when evaluated at the true parameter. The theoretical properties and practical performance of our approach are demonstrated through numerical simulations and data analysis.

U.S. Monetary Policy Surprises and Mortgage Rates

Xu, Tracy, Han, Yufeng and Jiang, Yang
Real Estate Economics, Vol. 40 Issue 3, September 2012, pp.
461-507

This paper examines how the U.S. monetary policy surprises impact the mortgage rates in the nation and across five regions from 1990 to 2008. Regression analysis based on bootstrapping shows that surprises in the target federal funds rate (the target factor) have a significantly positive impact on the 1-year adjustable-rate mortgage (ARM) rate within the week of the FOMC announcements and the positive impact lasts up to one week after the announcements. Surprises in the future direction of the Federal Reserve monetary policy (the path factor) have significantly positive impacts on both the 1-year ARM rate and the 30-year fixed mortgage rates in the first week after the announcement. Furthermore, the responses of mortgage rates are asymmetric and affected by the size of monetary policy surprises, the stage of the business cycle and whether the monetary policy is tightening or loosening. There also exists heterogeneity in the mortgage rate pass-through process across regions and monetary policy surprises have differential impacts on the regional mortgage rates. The cross-region variations are mainly correlated with the regional housing market conditions, such as home vacancy and rental vacancy rates.

US Monetary policy surprises and mortgage rates

Pisun Xu, Yufeng Han, Jian Yang
Real Estate Economics,Vol. 40, Issue 3, Pages: 461-507.

This article examines how the US monetary policy surprises impact the mortgage rates in the nation and across five regions from 1990 to 2008. Regression analysis based on bootstrapping shows that surprises in the target federal funds rate (the target factor) have a significantly positive impact on the 1-year adjustable-rate mortgage (ARM) rate within the week of the Federal Open Market Committee announcements and the positive impact lasts up to 1 week after the announcements. Surprises in the future direction of the Federal …
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Asymmetric Correlation and Volatility Dynamics among Stock, Bond, and Securitized Real Estate Markets

Jian Yang, Yinggang Zhou and Wai Kin Leung
The Journal of Real Estate Finance and Economics, Vol. 45, Issue 2, pp 491–521
We apply a multivariate asymmetric generalized dynamic conditional correlation GARCH model to daily index returns of S&P500, US corporate bonds, and their real estate counterparts (REITs and CMBS) from 1999 to 2008. We document, for the first time, evidence for asymmetric volatilities and correlations in CMBS and REITs. Due to their high levels of leverage, REIT returns exhibit stronger asymmetric volatilities. Also, both REIT and stock returns show strong evidence of asymmetries in their conditional correlation, suggesting reduced hedging potential of REITs against the stock market downturn during the sample period. There is also evidence that corporate bonds and CMBS may provide diversification benefits for stocks and REITs. Furthermore, we demonstrate that default spread and stock market volatility play a significant role in driving dynamics of these conditional correlations and that there is a significant structural break in the correlations caused by the recent financial crisis.

Extreme correlation of stock and bond futures: International Evidence

Chin Man Chui and Jian Yang
The Financial Review, Vol. 47 Issue 3, August 2012, pp. 565-587

This study explores time-varying extreme correlation of stock-bond futures markets in three major developed countries. In the U.S. and the UK, there is evidence of positive extreme stock-bond correlation when both futures markets are extremely bullish or markets are extremely bearish. In German, stock-bond futures extreme correlation is negative, suggesting the most diversification potentials of bond futures when German stock when German stock index futures market plunges. Macroeconomic News,The Business cycle and the stock market uncertainty all significantly median stock bond futures correlation. However, only the stock market uncertainty still significantly affects the extreme stock-bond futures correlation when the stock market is extremely bearish.

Extreme correlation of stock and bond futures markets: international evidence

Chin Man Chui, Jian Yang
Financial Review,Vol. 47, Issue 3, Pages: 565-587.

This study explores time-varying extreme correlation of stock-bond futures markets in three major developed countries. In the United States and the United Kingdom, there is evidence of positive extreme stock-bond correlation when both futures markets are extremely bullish or bearish. In Germany, stock-bond futures extreme correlation is negative, suggesting the most diversification potentials of bond futures when German stock index futures market plunges. Macroeconomic news, the business cycle, and the stock …
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“National” identity, perceived fairness, and organizational commitment in a Hong Kong context: A test of mediation effects

Kyle Ehrhardt , Margaret Shaffer , Warren C.K. Chiu and Dora M. Luk
International Journal of Human Resource Management,Vol. 23, Issue 19, Pages 4166-4191

This paper builds on research exploring antecedents of organizational commitment in non-Western contexts. Using identity theory as a foundation, we develop a model which posits that the relationship between the strength of one’s ‘national’ identity and affective and normative commitment is mediated by justice perceptions. Using a sample of indigenous Hong Kong employees, we found that perceptions of distributive, procedural and interactional justice mediated the relationship between the strength of one’s Hong Kong ‘national’ identity and normative commitment; while perceptions of distributive and interactional justice mediated the relationship between the strength of one’s Hong Kong ‘national’ identity and affective commitment.
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Should pcaob disciplinary proceedings be made public? evidence from sanctions against a big 4 auditor

Carol Callaway Dee, Ayalew Lulseged, Tianming Zhang
Current Issues in Auditing,Vol. 6, Issue 2, Pages: P18-P24.

SUMMARY: In our paper “Client Stock Market Reaction to PCAOB Sanctions against a Big 4 Auditor”(Dee et al. 2011), we examine stock price effects for clients of a Big 4 audit firm when news of sanctions imposed by the PCAOB against the audit firm was made public. These PCAOB penalties were the first against a Big 4 auditor, and they revealed information about quality-control problems at the audit firm that were not publicly known until the sanctions were announced. Our analysis of stock prices suggests that investors in clients of the …
[Full Text]