Yearly Archives: 2010

Finance

Financial distress and idiosyncratic volatility: An empirical investigation

Jing Chen, Lorn Chollete, Rina Ray
Journal of Financial Markets,Vol. 13, Issue 2, Pages: 249-267.

We investigate the link between distress and idiosyncratic volatility. Specifically, we examine the twin puzzles of anomalously low returns for high idiosyncratic volatility stocks and high distress risk stocks, documented by Ang et al.(2006) and Campbell et al.(2008), respectively. We document that these puzzles are empirically connected, and can be explained by a simple, theoretical, single-beta CAPM model.
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Accounting

Return of the Tallahassee BeanCounters: A case in forensic accounting

Carol Callaway Dee, Cindy Durtschi
Issues in Accounting Education,Vol. 25, Issue 2, Pages: 279-321.

Your firm has been engaged to conduct a forensic investigation of the Tallahassee BeanCounters (TBC), a privately owned minor league baseball team in Tallahassee, Florida. Team owner Franklin Kennedy has told employees that the audit is related to the mortgage TBC obtained for the recently constructed training facility. However, Mr. Kennedy tells you privately that the investigation is not due to loan requirements; rather, it is due to his concerns arising from an anonymous tip he received in the mail. The …
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Finance

Rationalizing Trading Frequency and Returns

Yosef Bonaparte, Russell Cooper
National Bureau of Economic Research,Issue w16022,

Barber and Odean (2000) study the relationship between trading frequency andreturns. They find that households who trade more frequently have a lower net return than other households. But all households have about the same gross return. They argue that these results cannot emerge from a model with rational traders and instead attribute these findings to overconfidence. Using a dynamic optimization approach, we find that neither a model with rational agents facing adjustment costs nor various models of …
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Information Systems

Designing for Collective Intelligence

Gregg, Dawn
Communications of the ACM Vol. 53, Issue 4, 5 pages

Collective intelligence is a fundamentally different way of viewing how applications can support human interaction and decision making. Most pre-Web 2.0 applications have focused in improving the productivity or decision making of the individual user. The emphasis has been on providing the tools and data necessary to fulfill a specific job function. Under the collective intelligence paradigm, the focus is on harnessing the intelligence of groups of people to enable greater productivity and better decisions than are possible by individuals working in isolation. The processes involved in designing and implementing specialized collective intelligence applications are discussed in the context of DDtrac, a web-based application that allows for the easy collection and summary of special education data.

Accounting

Independence, impartiality, and advocacy in client conflicts

Michael Roberts
Research in Accounting Regulation, Volume 22, Issue 1, Pages 29-39

Prior research indicates auditors’ financial reporting judgments are conservative when client preference is unknown, but auditors are less conservative (though not client-supportive) when clients’ preferred accounting methods for favorable financial reporting are explicitly communicated. This paper reports, for the first time, a situation in which experienced auditors exhibit client-supportive behavior. Professional judgments in an audit setting in which there is an explicit client preference for a material, income-increasing reporting classification and the relevant GAAP standard is principle-based are compared to a similar judgment in a tax setting. This research design contrasts the auditor’s ethical duty to exercise “judicial impartiality” toward the client with Certified Public Accountants’ ethical duty to be a client advocate in tax contexts. The results suggest experienced CPAs’ are as client-supportive in audit settings as they are in tax settings when exercising their professional judgment, and ethical standards mandating impartiality in auditing are not uniformly being followed.

Entrepreneurship, Information Systems

The Relationship Between Website Quality, Trust and Price Premiums at Online Auctions

Gregg, Dawn G. and Walczak, Steven
Electronic Commerce Research, Vol. 10 Issue 1, p. 1-25

This study measures the value of website quality in terms of its impact on trust, intention to transact and price premiums. Prior research on online auctions has focused on the use of reputation systems for building trust in online auction vendors and subsequently to generate price premiums. This study examines the extent to which trust can be induced by improving the quality of online auction listings for both new and existing auction ventures. A survey of 701 eBay users is conducted which compares the price premiums of two nearly identical online auction businesses, one that has online auction listings with a perceived high quality and the other that has substantially lower perceived quality. Results of this study indicate that website quality can explain 49 % of the variation in the trust for eBay sellers. In fact, it shows that sellers with good website quality are all perceived to be equally trustworthy regardless of their eBay reputation; whereas sellers with poor website quality are not perceived to be trustworthy even if they have a high eBay reputation score. The results also show that the trust resulting from increased website quality increases intention to transact and results in price premiums of 12% (on average) for sellers with higher quality listings. Theories from marketing, economics, and social psychology are used to explain why website quality induces trust in unknown vendors without providing any concrete evidence regarding the vendor’s past history.

Health Management

Andragogy-the missing gap in osteoporosis patient education

Miller, P. M.
Journal of Clinical Densitometry, Vol. 13 Issue 1, March 2010,  pp. 127.

Over 50 articles were reviewed for the paper that covered the general topic of patient compliance in all chronic conditions, issues and current practices of patient education, in-depth reviews of osteoporosis compliance, and the socio-economic outcome of osteoporosis compliance issues.  Research with strong efforts to affect patient outcomes has been conducted and published in the literature.  The literature suggested minimal positive outcomes from those efforts which included physicians, nurses, pharmacists, and others as the educational conduit for treatment success.  Other literature reviews conclude that up to 50% of osteoporosis patients did not take their medications as directed.  Inundating healthcare providers with educational materials and responsibility for educating patients has produced few significant improvements.  The purpose of the abstract was to draw attention to the concept of treating the patient of chronic diseases as adult learners.

Finance

Broad-based employee stock ownership incentives and contracting efficient

John P. Daley
International Journal of Accounting, Banking and Finance, Volume 2, Issue 1, Pp. 45-69

Neoclassical price theory implies that the incentive effects produced by broad-based employee stock ownership compensation plans will be overwhelmed by the problem of free riding. Yet the use of such plans is relatively common. This paper seeks to explain this apparent dichotomy. Using the theories of the firm of Alchian and Demsetz (1972) and Demsetz (1983) and the analytical structure of Jensen and Meckling (1976), I develop a microeconomic rationale for the use of broad-based stock incentives in the presence of a central monitor. I show that the ability of stock to align owner and employee interests is a function of marginal monitoring costs. At the margin, when monitoring costs are large relative to their benefits, the value of shirking to employees is minute. Hence, the small gain promised by stock ownership is sufficient to motivate reduced shirking. The theory rigorously unifies much of the common litany of explanations for the efficacy of such plans: monitoring and information costs, employee self-selection, the small cost of changing behavior, and alignment of employee with employer interests. Two pairs of refutable implications are derived. First, the optimal level of individual employee ownership is negatively related to firm size and positively related to marginal monitoring costs. Second, the change in firm value attributable to employee stock ownership is positively related to both the level of individual employee ownership and marginal monitoring costs.

Finance

Nonlinearity and intraday efficiency tests on energy futures markets

Tao Wang and Jian Yang
Energy Economics, Vol. 32, Issue 2, pp. 496-503

Using high frequency data, this paper first time comprehensively examines the intraday efficiency of four major energy (crude oil, heating oil, gasoline, natural gas) futures markets. In contrast to earlier studies which focus on in-sample evidence and assume linearity, the paper employs various nonlinear models and several model evaluation criteria to examine market efficiency in an out-of-sample forecasting context. Overall, there is evidence for intraday market inefficiency of two of the four energy future markets (heating oil and natural gas), which exists particularly during the bull market condition but not during the bear market condition. The evidence is also robust against the data-snooping bias and the model overfitting problem, and its economic significance can be very substantial.

Management

Acting As If We Were New

C. Marlena Fiol
Journal of Management Inquiry, Vol 19, Issue 1,  pp. 85–88.

Lest you think that I’m writing only to (or about) those of us who are old(er) in the field of organization studies, let me assure you that I am not. Yes, much of the research of us older folks is not fresh and new, but neither is that of much of the younger generation either. I recently had the opportunity to read numerous dissertation proposals, most of which cited elders in our field after every fourth or fifth word, and they contained very little content beyond spinning together old and often severely flawed theories. These young folks, who are diligently following our conventions of displaying knowledge of and building on existing theory, would benefit from learning to act as if they were new, as would many of us who are old.

Finance

Director tenure and the compensation of bank CEOs

John Byrd, Elizabeth S. Cooperman, Glenn A. Wolfe|
Managerial Finance, Vol. 36 Issue 2, pp. 86 – 102

Purpose – The purpose of this paper is to examine how board tenure affects the compensation of CEOs using a sample of 93 publicly traded US banks.

Design/methodology/approach – The paper proposes a CEO allegiance hypothesis whereby long-term relationships with executives and other directors will shift allegiance from shareholders to executives vs a more traditional expertise hypothesis that predicts superior monitoring of executives by directors with longer tenure. A generalized least squares regression methodology is used to examine the relationship between CEO compensation and outside director tenure.

Findings – For the full sample, board tenure variables were found to be insignificant. However, when examining a subsample of firms with CEO tenure of greater than six years or more, the relationship between CEO pay and the median tenure of outside directors becomes positive, supporting a CEO allegiance hypothesis.

Research limitations/implications – On a caveat, since this study relies on data for large bank holding companies over a short period of time, further research is needed to determine if the results carry over to a broader sample of firms and across time.

Practical implications – The results suggest that the independence of outside directors may be compromised when they serve for longer tenure periods together with the same CEO; an important consideration for better corporate governance.

Originality/value – The study provides a unique examination of outside director independence from the perspective of board tenure and the long-term relationships with executives and other directors that may result in allegiance shifts away from shareholders and towards managers.

Health Management

Separately Together

O’Connor, Edward J. and Fiol, C. Marlena
Healthcare Executive,  Vol. 25 Issue 1, pp. 72-75

The article discusses the ways to treat intractable physician-administrator conflicts in the U.S. It mentions that intractable physician-administrator conflicts poses a major problem to attaining the improved quality and financial outcomes needed in healthcare environment. It presents steps in helping disentangle physicians and administrators which includes identifying common ground such as shared commitments to quality care and transparency.

Economics

NCAA Athlete Graduation Rates: Less Than Meets the Eye

Eckard, F. Woodrow
Journal of Sport Management, Vol. 24, Issue 1: p. 45-59.

The standard evaluations of NCAA student-athlete graduation rates involve comparisons with rates for the general student body. The latter rates as actually calculated, however, include a significant number of part-time students at many schools. This is problematic because athletes must be full-time, and should be compared to other full-time students. The downward “part-timer bias” in the student body rate distorts the comparison, making the relative graduation rates for athletes appear more favorable. Example calculations demonstrate that relative rates for major college football and men’s basketball players are substantially worse when the bias is removed.

Information Systems

UNMET PUBLIC EXPECTATIONS, PAY IT NOW OR PAY IT LATER – LESSONS LEARNED FROM THE COLORADO BENEFITS MANAGEMENT SYSTEM (CBMS)

Bruce Neumann, James Gerlach, Hyo-Jeong Kim
International Journal of Public Information Systems, vol 2010 Issue 1, Pages: 83-109

When a government entity outsources IT projects, consideration must be given early in the project to potential disputes and/or litigation with other parties, particularly thirdparty
vendors, the public-at-large, and other parts of the supply chain. In this case, the State contracted for the Colorado Benefits Management System (CBMS) and the counties throughout the state were expected to deliver client services using the new system. The public expected transparency of government reporting while the State focused on accountability measures of the CBMS project. We use Agency Theory to help explain why certain public expectations were not initially met by CBMS and how some of these “disconnects” could have been avoided. Since the State, IT vendors, the public, and counties have different goals, risk preferences, and information needs, they used different measures to evaluate any government IT project. These mismatched measurements help explain the cause of any unmet expectations that can lead to disputes and/or litigation. We found that the State and IT vendors evaluated this IT project using more process-based accountability measures while the public and counties evaluated the project more with outcome-based measures. Therefore, we recommend that the State and IT vendors should emphasize both outcome-based and process-based measures in order
to be more transparent when designing and implementing IT projects. The Colorado Benefits Management System (CBMS) provides an interesting case study showing how Agency Theory can be applied to a governmental IT project and how different measurements used by the State, IT vendors, the public, and counties contributed to the
tension and turmoil experienced while implementing CBMS.

Finance

On the Economic Value of Return Predictability

Yufeng Han
ANNALS OF ECONOMICS AND FINANCE Vol. 11 Issue 1, Pages: 1–33

Recent studies provide strong statistical evidence challenging the existence of out-of-sample return predictability. The economic significance of return
predictability is also controversial. In this paper, we find significant economic gains for dynamic trading strategies based on return predictability when ap-
propriate portfolio constraints are imposed. We findthat imposingappropriate portfolio constraints is critical for obtaining economic profits, which seems to
explain the contradictory findings about economic significance in the literature. We also compare the performance of several predictive models including
the VAR, the VAR-GARCH, and the (semi)nonparametric models and find that the simple VAR model performs similarly to other more complex models.

Business Analytics

Theorems Supporting r-flip search for Pseudo-boolean optimization

Bahram Alidaee, Gary Kochenberger, and Haibo Wang
International Journal of Applied Metaheuristic Computing, Vol. 1 Issue 1, Pages 93-109

Modern metaheuristic methodologies rely on well defined neighborhood structures and efficient means for evaluating potential moves within these structures. Move mechanisms range in complexity from simple 1-flip procedures where binary variables are “flipped” one at a time, to more expensive, but more powerful, r-flip approaches where “r” variables are simultaneously flipped. These multi-exchange neighborhood search strategies have proven to be effective approaches for solving a variety of combinatorial optimization problems. In this article, we present a series of theorems based on partial derivatives that can be readily adopted to form the essential part of r-flip heuristic search methods for Pseudo-Boolean optimization. To illustrate the use of these results, we present preliminary results obtained from four simple heuristics designed to solve a set of Max 3-SAT problems.

Accounting

An efficient method for acquiring auditing procedural knowledge

Jane Dillard-Eggers and Michael L. Roberts
Advances in Accounting Behavioral Research, Vol 13, pp.89-111

In light of advances in the theory of cognition (Anderson, 1996, 2000; Anderson & Fincham, 1994; Anderson & Lebiere, 1998) and research on learning from worked examples (Atkinson et al., 2000; Cooper & Sweller, 1987; Sweller & Cooper, 1985), this study extends earlier research findings that auditors need practice and certain kinds of feedback to acquire procedural knowledge to identify causes of variations between expected and actual financial ratios. We test an alternative form of instruction: worked examples. As predicted by Anderson’s ACT-R 4.0 theory, the results indicate individuals’ pre-test declarative knowledge interacts significantly with learning method (with or without examples) on procedural knowledge acquisition. In contrast to prior findings, this study shows that improvements in auditing procedural knowledge can be achieved by passive instruction in worked examples, a potentially more efficient (cost-effective) method than practice and feedback for auditor training.

Management

Sometimes You Need a Reminder: The Effects of Prompting Self-Regulation on Regulatory Processes, Learning, and Attrition

Traci Sitzmann and Katherine Ely
Journal of Applied Psychology, Vol. 95, Issue 1, pp. 132-144

Prompting self-regulation involves asking trainees reflective questions to stimulate self-regulatory engagement. Research has found positive effects for prompting self-regulation on learning, but a scarcity of evidence exists regarding whether self-regulatory processes mediate the effect of prompting self-regulation, whether the intervention reduces attrition, and the optimal timing of implementing the intervention. Using a longitudinal design, we found that prompting self-regulation throughout training increased learning and reduced attrition, relative to the control condition. Moreover, the effect on learning was fully mediated by time on task. The intervention also moderated the effect of learning on subsequent self-regulatory activity and attrition. Learning performance had less of a positive effect on subsequent self-regulatory activity and less of a negative effect on subsequent attrition when trainees were prompted to self-regulate. These results highlight the importance of adopting a longitudinal design to examine how self-regulatory interventions affect the cyclical relationships among self-regulatory processes, learning, and attrition.

Accounting, Finance

The Shareholder Wealth Effects of an Executive Joining Another Company’s Board

John Byrd, L. Ann Martin, and Subhrendu Rath
International Journal of Managerial Finance, Volume 6 Issue 1, pp. 48-57

Purpose – The purpose of this paper is to examine the impact of high‐level‐executives joining the Board of another US company on the shareholder wealth of the firms in which these executives work.
Design/methodology/approach – The “event‐study” methodology is used first to estimate the shareholder effects and then, through multivariate regression analysis, establish a relationship of these effects with executive characteristics.
Findings – The paper documents that the abnormal return becomes more positive the closer the executive is to retirement and more negative as the number of other corporate Boards the executive already sits on increases. Unlike previous research, it is not found that prior performance of the employing company helps explain the cross‐sectional variation in the announcement day abnormal returns.
Research limitations/implications – The result supports the concerns of shareholder activists that key executives joining the Boards of other companies do their home shareholders a disservice by being spread too thin. It supports the hypothesis that investors interpret a CEO joining the Board of another firm as value decreasing.
Originality/value -The paper provides a link between managerial labor and shareholder wealth. Important and high‐level‐executives, while attempting to enhance their own personal benefits by joining other Boards, can destroy shareholder value of the company for which they work.