In this paper we provide an economic and econometric justification for using a log-linear form to estimate stock value based on accounting information. A log-linear form stands in contrast to the more traditional linear form. We state conditions under which log linear regression provides minimum variance unbiased estimates of log value as well as the appropriate transformation that yields the minimum variance unbiased estimate of value. Specification tests are suggested to infer conformity of the data to model assumptions and these are applied to a recent sample of public companies.
{"title":"Log-Linear Stock Valuation Based on Accounting Information","authors":"Rex Thompson, Randolph P. Beatty, Susan Riffe","doi":"10.2139/ssrn.311079","DOIUrl":"https://doi.org/10.2139/ssrn.311079","url":null,"abstract":"In this paper we provide an economic and econometric justification for using a log-linear form to estimate stock value based on accounting information. A log-linear form stands in contrast to the more traditional linear form. We state conditions under which log linear regression provides minimum variance unbiased estimates of log value as well as the appropriate transformation that yields the minimum variance unbiased estimate of value. Specification tests are suggested to infer conformity of the data to model assumptions and these are applied to a recent sample of public companies.","PeriodicalId":332226,"journal":{"name":"USC Marshall School of Business Research Paper Series","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128007493","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we reexamine the question "Why doesn't capital flow from rich to poor countries?" posed by Lucas (1990). Our findings suggest that even if capital flows freely it will flow to middle income countries rather than to poor countries. We start with the stylized fact that poorer countries have high intermediation costs, and develop a simple disaggregation of the neoclassical production function based on a model of costly intermediation of funds between safe and risky projects when there is ex ante heterogeneity of project potential. When intermediation costs are ignored, the model behaves much like the neoclassical model in terms of capital returns. However, when intermediation costs are considered, the return for a given amount of capital can be non-monotonic in costs. Therefore, the combination of capital and cost differences across countries gives rise to a rich variation of returns, one that suggests a tendency for capital to flow to middle income countries, as seen in data. Indeed, when we embed the static return function in a two-country dynamic model, there is capital outflow from a poor country that removes capital controls and becomes open. We find that even though the closed economy dominates in terms of capital employed in production, it is the open economy that dominates in terms of income, consumption and welfare.
{"title":"Capital Flows","authors":"Ayse Imrohoroglu, Krishna B. Kumar","doi":"10.2139/ssrn.290956","DOIUrl":"https://doi.org/10.2139/ssrn.290956","url":null,"abstract":"In this paper, we reexamine the question \"Why doesn't capital flow from rich to poor countries?\" posed by Lucas (1990). Our findings suggest that even if capital flows freely it will flow to middle income countries rather than to poor countries. We start with the stylized fact that poorer countries have high intermediation costs, and develop a simple disaggregation of the neoclassical production function based on a model of costly intermediation of funds between safe and risky projects when there is ex ante heterogeneity of project potential. When intermediation costs are ignored, the model behaves much like the neoclassical model in terms of capital returns. However, when intermediation costs are considered, the return for a given amount of capital can be non-monotonic in costs. Therefore, the combination of capital and cost differences across countries gives rise to a rich variation of returns, one that suggests a tendency for capital to flow to middle income countries, as seen in data. Indeed, when we embed the static return function in a two-country dynamic model, there is capital outflow from a poor country that removes capital controls and becomes open. We find that even though the closed economy dominates in terms of capital employed in production, it is the open economy that dominates in terms of income, consumption and welfare.","PeriodicalId":332226,"journal":{"name":"USC Marshall School of Business Research Paper Series","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124378908","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Executive compensation packages are often valued in an inconsistent manner: while employee stock options (ESOs) are typically valued ex-ante, cash bonuses are valued ex-post. This renders the existing valuation models of employee compensation packages theoretically unsatisfactory and, potentially, empirically distortive. In this paper, we propose an option-based framework for ex-ante valuation of cash bonus contracts. After obtaining closed-form expressions for ex-ante values of several frequently used types of bonus contracts, we utilize them to explore the e¤ects that the shape of a bonus contract has on the executive’s attitude toward risk-taking. We, also, study pay-performance sensitivity of such contracts. We show that the terms of a bonus contract can dramatically impact both risk-taking behavior as well as pay-performance incentives. Several testable predictions are made, and venues of future research outlined.
{"title":"On the Valuation and Incentive Effects of Executive Cash Bonus Contracts","authors":"L. Martellini, B. Urosevic","doi":"10.2139/ssrn.259283","DOIUrl":"https://doi.org/10.2139/ssrn.259283","url":null,"abstract":"Executive compensation packages are often valued in an inconsistent manner: while employee stock options (ESOs) are typically valued ex-ante, cash bonuses are valued ex-post. This renders the existing valuation models of employee compensation packages theoretically unsatisfactory and, potentially, empirically distortive. In this paper, we propose an option-based framework for ex-ante valuation of cash bonus contracts. After obtaining closed-form expressions for ex-ante values of several frequently used types of bonus contracts, we utilize them to explore the e¤ects that the shape of a bonus contract has on the executive’s attitude toward risk-taking. We, also, study pay-performance sensitivity of such contracts. We show that the terms of a bonus contract can dramatically impact both risk-taking behavior as well as pay-performance incentives. Several testable predictions are made, and venues of future research outlined.","PeriodicalId":332226,"journal":{"name":"USC Marshall School of Business Research Paper Series","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132295698","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In an attempt to increase credibility in its capital markets, China recently adopted new auditing standards. Consistent with increased auditor independence, we "nd that the frequency of modi"ed opinions increases nine-fold subsequent to the adoption of the new standards. However, the increase in modi"ed reports is followed by a decline in audit market share among large auditors } those with the greatest propensity to issue modi"ed reports. We conjecture that this &#ight from audit quality’ results from lack of incentives to demand independent auditors. Our "ndings suggest that government regulation alone is insu$cient to create "nancial markets that foster auditor independence. ( 2000 Elsevier Science B.V. All rights reserved. JEL classixcation: G38; L15; L84; M4; O16; O53; P23
{"title":"The Impact of Improved Auditor Independence on Audit Market Concentration in China","authors":"Mark L. Defond, T. Wong, Shuhua Li","doi":"10.2139/ssrn.184068","DOIUrl":"https://doi.org/10.2139/ssrn.184068","url":null,"abstract":"In an attempt to increase credibility in its capital markets, China recently adopted new auditing standards. Consistent with increased auditor independence, we \"nd that the frequency of modi\"ed opinions increases nine-fold subsequent to the adoption of the new standards. However, the increase in modi\"ed reports is followed by a decline in audit market share among large auditors } those with the greatest propensity to issue modi\"ed reports. We conjecture that this &#ight from audit quality’ results from lack of incentives to demand independent auditors. Our \"ndings suggest that government regulation alone is insu$cient to create \"nancial markets that foster auditor independence. ( 2000 Elsevier Science B.V. All rights reserved. JEL classixcation: G38; L15; L84; M4; O16; O53; P23","PeriodicalId":332226,"journal":{"name":"USC Marshall School of Business Research Paper Series","volume":"67 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1999-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121591923","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The appraisal remedy affords corporate shareholders the option to redeem their shares for cash in the event of certain transactions, including mergers. Access to appraisal for publicly traded shares, however, differs from state to state. We present the first large-sample empirical study of the effect of appraisal rights on target shareholder gains from acquisitions. We examine 1,350 mergers involving publicly held firms. We find some evidence that appraisal reduces average shareholder gains in transactions involving self-interested managers. For the entire sample, however, we find no evidence that appraisal has any effect, positive or negative, on target shareholder gains from takeovers. Copyright 1999 by Oxford University Press.
{"title":"The Appraisal Remedy and Merger Premiums","authors":"P. Mahoney, Mark I. Weinstein","doi":"10.2139/ssrn.151488","DOIUrl":"https://doi.org/10.2139/ssrn.151488","url":null,"abstract":"The appraisal remedy affords corporate shareholders the option to redeem their shares for cash in the event of certain transactions, including mergers. Access to appraisal for publicly traded shares, however, differs from state to state. We present the first large-sample empirical study of the effect of appraisal rights on target shareholder gains from acquisitions. We examine 1,350 mergers involving publicly held firms. We find some evidence that appraisal reduces average shareholder gains in transactions involving self-interested managers. For the entire sample, however, we find no evidence that appraisal has any effect, positive or negative, on target shareholder gains from takeovers. Copyright 1999 by Oxford University Press.","PeriodicalId":332226,"journal":{"name":"USC Marshall School of Business Research Paper Series","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1999-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124742033","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
G. Krishnamoorthy, Theodore J. Mock, Mary T. Washington
External auditors typically gather audit evidence in a sequential fashion and revise their estimates of likelihood of material misstatements based on the evidence collected. Optimal utilization of audit evidence can help control audit risk and improve audit efficiency and effectiveness. This paper first shows how a typical audit risk assessment and belief revision task can be modeled using four theoretical models of belief revision. Then the descriptive properties of these models are evaluated based on the actual judgments of experienced auditors who assessed the likelihood of error in a task involving inventory valuation. A realistic audit case was administered to 101 experienced auditors. Models based on the following theories were evaluated: a version of Bayesian inference labeled Cascaded Inference Theory (Schum 1987; Schum and DuCharme 1971), two versions of the Belief Adjustment Model (Hogarth and Einhorn 1992), and a version of the Dempster‐Shafer Theory of Belief Functions (Srivastava and Shafer 1...
外部审计师通常以顺序的方式收集审计证据，并根据收集到的证据修改他们对重大错报可能性的估计。优化利用审计证据有助于控制审计风险，提高审计效率和效果。本文首先利用信念修正的四种理论模型对典型的审计风险评估和信念修正任务进行建模。然后根据经验丰富的审计员的实际判断来评估这些模型的描述性属性，这些审计员评估了涉及库存评估的任务中的错误可能性。对101名经验丰富的审计员进行了实际审计。基于以下理论的模型被评估:一个版本的贝叶斯推理标记级联推理理论(Schum 1987;Schum and DuCharme 1971)，两个版本的信念调整模型(Hogarth and Einhorn 1992)，以及一个版本的Dempster - Shafer信念函数理论(Srivastava and Shafer 1…
{"title":"A Comparative Evaluation of Belief Revision Models in Auditing","authors":"G. Krishnamoorthy, Theodore J. Mock, Mary T. Washington","doi":"10.2139/ssrn.164791","DOIUrl":"https://doi.org/10.2139/ssrn.164791","url":null,"abstract":"External auditors typically gather audit evidence in a sequential fashion and revise their estimates of likelihood of material misstatements based on the evidence collected. Optimal utilization of audit evidence can help control audit risk and improve audit efficiency and effectiveness. This paper first shows how a typical audit risk assessment and belief revision task can be modeled using four theoretical models of belief revision. Then the descriptive properties of these models are evaluated based on the actual judgments of experienced auditors who assessed the likelihood of error in a task involving inventory valuation. A realistic audit case was administered to 101 experienced auditors. Models based on the following theories were evaluated: a version of Bayesian inference labeled Cascaded Inference Theory (Schum 1987; Schum and DuCharme 1971), two versions of the Belief Adjustment Model (Hogarth and Einhorn 1992), and a version of the Dempster‐Shafer Theory of Belief Functions (Srivastava and Shafer 1...","PeriodicalId":332226,"journal":{"name":"USC Marshall School of Business Research Paper Series","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1999-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121264431","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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