Business Commons^™

Finding Auditors Liable For Fraud: What The Jury Heard In The Phar Mor Case, David M. Cottrell, Steven M. Glover

Faculty Publications

The Phar Mor case involved a massive collusive fraud by management. Although there were no claims the auditors participated in the fraud, plaintiffs' attorneys were able to convince the jury that the firm was liable for fraud on the grounds it made representations recklessly with regard to GAAS and GAAP.

Employment Separation And Health Insurance Coverage, Jonathan Gruber, Brigitte C. Madrian

Faculty Publications

We study the interrelationship between employment separation and insurance coverage. We first document that employment separation is associated with large reductions in insurance coverage, even conditioning on underlying tastes for insurance.We then show that reducing the cost of insurance through state laws mandating continued access to employerprovided health insurance for the non-employed increases the likelihood of having insurance after separating from a job by 6.7%. These mandates also increase the number of individuals who separate and the total amount of time spent jobless. Finally, at least some of this increased non-employment appears to be spent in productive job search as …

The Influence Of Decision Aids On User Behavior: Implications For Knowledge Acquisition And Inappropriate Reliance, Steven M. Glover, Douglas F. Prawitt, Brian C. Spilker

Faculty Publications

Structured decision aids are widely used in many organizational settings, and their influence on judgment consistency and accuracy have received considerable attention in the literature. While two benefits commonly associated with decision aid use are improved judgment and enhanced expertise development, relatively little attention has been directed toward the potential influence of decision aids on decision maker behavior. In particular, we argue that the use of structured aids may influence relatively inexperienced decision makers to approach aided tasks mechanistically, without becoming actively involved in the task or judgment. Such passive decision behavior may, in some situations, threaten gains in performance …

Pitfalls In Tests For Changes In Correlations, Brian H. Boyer, Michael S. Gibson, Mico Loretan

Faculty Publications

Correlations are crucial for pricing and hedging derivatives whose payoff depends on more than one asset. Typically, correlations computed separately for ordinary and stressful market conditions differ considerably, a pattern widely termed "correlation breakdown." As a result, risk managers worry that their hedges will be useless when they are most needed, namely during "stressful" market situations. We show that such worries may not be justified since "correlation breakdowns" can easily be generated by data whose distribution is stationary and, in particular, whose correlation coefficient is constant. We make this point analytically, by way of several numerical examples, and via an …

Two Paradigms For The Market Value Of Liabilities, Robert R. Reitano, Craig B. Merrill

Faculty Publications

Financial valuation models can be applied to insurance- related claims. In particular, these models are being employed to calculate the market value of insurance liabilities. The goal of this paper is to introduce the various approaches to valuation that are used in the finance literature and show how the valuation of insurance liabilities fits into the financial valuation framework. The theory suggests that securitization of insurance liabilities may lead to better market value calculations.

The Delisting Bias In Crsp Data, Tyler Shumway

Faculty Publications

I document a delisting bias in the stock return data base maintained by the Center for Research in Security Prices (CRSP). I find that delists for bankruptcy and other negative reasons are generally surprises and that correct delisting returns are not available for most of the stocks that have been delisted for negative reasons since 1962. Using over-the-counter price data, I show that the omitted delisting returns are large. Implications of the bias are discussed.

Evaluating Forecasts Of Correlation Using Option Pricing, Michael S. Gibson, Brian H. Boyer

Faculty Publications

A forecast of the correlation between two asset prices is required to price or hedge an option whose payoff depends on both asset prices or to measure the risk of a portfolio whose return depends on both asset prices. However, a number of factors make it difficult to evaluate forecasts of correlation. We develop a forecast evaluation methodology based on option pricing, extending a technique that Engle et al (1993) introduced to evaluate volatility forecasts. A forecast of the variance-covariance matrix of joint asset returns is used to generate a trading strategy for a package of simulated options. The most …

A Marketing Research Project: San Francisco Pier 49 Sourdough Pizza, Jason Bennett, John Brasher, Kristina Davis, Greg Gordon

Student Works

Pier 49 San Francisco Sourdough Pizza Company is a gourmet pizza franchiser whose stores are located in Utah, Idaho, California, Hawaii, and Canada. Pier 49 has experienced problems with the Hillside store located in Sandy, Utah. Due to these problems, Pier 49 management contracted Arrow Research to research the following objectives: What are consumers' perceptions of Pier 49? What is the potential appeal of offering additional menu items? What types of restaurant services are preferred? What is the favorite brand of Pizza eaten by Hillside residents and what is their profile of "the ideal pizza restaurant"? Arrow Research comprised of …

Empirical Findings On The Aces Decision-Making Technique, Larry E. Pate, Troy R. Nielson

Faculty Publications

Over the past two years, we have conducted a series of empirical studies on the ACES Decision-making Technique, a normative procedure (Pate, 1987) based upon the Janis and Mann (1977) assertion that decision makers who fail to engage in sufficient information search often find themselves in defensive avoidance and are, thus, unable to be vigilant, resulting in problems of procrastination, shifting responsibility, and rationalization of decisions. ACES represents a mechanism for achieving greater information search through a structured process that involves (1) identifying and challenging Assumptions, (2) clarifying and establishing more accurate Criteria weights, (3) expanding the Evoked set of …

A Note On Internet Resources For The Entrepreneur: A Small Firm Finance Perspective, James C. Brau

Faculty Publications

This article concentrates on internet resources that are available to those interested in entrepreneurial and small firm finance. Specifically, I present web pages that focus on general entrepreneurial issues and different avenues for acquiring capital. The three main areas of external financing that I include are venture capital, going public, and loans. Additionally, the advantages of using electronic mail, distribution lists, and personal web page applications are discussed and several examples presented.

Health Insurance And Early Retirement: Evidence From The Availability Of Continuation Coverage, Jonathan Gruber, Brigitte C. Madrian

Faculty Publications

The dramatic postwar decline in the labor force participation of older men in the United States has motivated a sizable body of literature on retirement behavior. Three factors, in particular, have been studied extensively: the growth of the Social Security program (see, for example, Burtless 1986; Burtless and Moffitt 1984; Diamond and Hausman 1984; Hausman and Wise 1985; Sueyoshi 1989), the increased availability and generosity of private pensions (Stock and Wise 1990a, 1990b), and the expansion of federal disability insurance (Bound and Waidmann 1992). One potentially important factor that until recently has not received much attention is the availability of …

An Adaptive Learning Model Which Accommodates Asymmetric Error Costs And Choice-Based Samples, James V. Hansen, James B. Mcdonald, Rayman D. Meservy

Faculty Publications

This paper introduces an adaptive-learning model, EGB2, which optimizes over a parameter space to fit data to a family of models based on maximum-likelihood criteria. We also show how EGB2 can be modified to handle asymmetric costs of Type I and Type II errors, thereby minimizing misclassification costs. It has been shown that standard methods of computing maximum-likelihood estimators of qualitative-response models are generally inconsistent when applied to sample data with different proportions than found in the universe from which the sample is drawn. We investigate how a choice estimator, based on weighting each observation's contribution to the log-likelihood function, …

Case-Based Reasoning: Application Techniques For Decision Support, James V. Hansen, Rayman D. Meservy, Larry E. Wood

Faculty Publications

Decision-support systems can be improved by enabling them to use past decisions to assist in making present ones. Reasoning from relevant past cases is appealing because it corresponds to some of the processes an expert uses to solve problems quickly and accurately. All this depends on an effective method of organizing cases for retrieval. This paper investigates the use of inductive networks as a means for case organization and outlines an approach to determining the desired number of cases-or assessing the reliability of a given number. Our method is demonstrated by application to decision making on corporate tax audits.

Organizing Tax Instruction: Evidence Regarding The Way Students Organize Tax Knowledge, Stephen T. Limberg, Michael S. Schadewald, Brian C. Spilker

Faculty Publications

An important part of accounting curriculum reform is a movement away from traditional methods of organizing accounting courses toward improved organization schemes. Two basic approaches to organizing the content of tax courses are a transaction-based scheme and an entity-based scheme. This paper reports the results of an experiment that investigates which scheme is more consistent with how incoming masters in tax students organize tax knowledge and how different schemes affect the manner in which graduating students organize tax knowledge. Ninety students drawn from two full-time masters in taxation programs participated in the study. Subjects individually completed three separate tasks that …

Building A Sustainable World Through Tourism, Deirdre Gibbons, Brian Hill, Steve Illum, Turgut Var

Faculty Publications

The theme of trees and Peace Parks was common to this second global conference on Building a Sustainable World Through Tourism held in Montreal, Canada, in September 1994. The opening ceremony included a tree planting ceremony on top of Montreal's Mont Royal.

The objectives of the conference were to seek participation from over 80 countries; present 200 international success stories related to how tourism contributed to sustainable development; share ideas leading to a specific proposal for action, especially in regards to a millennium project; form International Institute for Peace Through Tourism (IIPT) as a membership organization; and reunite and celebrate …

Default Risk And The Effective Duration Of Bonds, David F. Babbel, Craig B. Merrill, William Panning

Faculty Publications

Basis risk is the risk attributable to uncertain movements in the spread between yields associated with a particular financial instrument or class of instruments, and a reference interest rate over time. There are seven types of basis risk: Yields on

• Long-term versus short-term financial instruments.
• Domestic currency versus foreign currencies.
• Liquid versus illiquid investments.
• Bonds with higher or lower sensitivity to changes in interest rate volatility.
• Taxable versus tax-free instruments.
• Spot versus futures contracts.
• Default-free versus non-default-free securities.

Basis risk makes it difficult for the fixed-income portfolio manager to measure the portfolio's exposure to interest rate risk, heightens the anxiety …

Basic Marketing Concepts For Forest And Conservation Nurseries, Brian J. Hill

Faculty Publications

Basic marketing concepts can be useful for forest and conservation nurseries especially as they transition into self-sustaining financial situations. These basic marketing concepts include marketing orientation, marketing plan development, market research, target marketing, SWOT analysis, marketing mix, promotional mix, and advertising mix. These concepts are explained and applied to forest and conservation nurseries.

Health Insurance Availability And The Retirement Decision, Jonathan Gruber, Brigitte C. Madrian

Faculty Publications

Because individuals aged 55-64 face large and uncertain medical expenditures without the guarantee of public insurance coverage provided by Medicare, the availability of post-retirement health insurance could be an important detenninant in the retirement decisions of this group. We investigate the effect of health insurance on retirement by focusing on state and federal "continuation of coverage" mandates which grant the retiree the right to continue purchasing health insurance through a previous employer for a specified number of months after leaving the firm. We exploit variation in the timing and generosity of these laws to identify the effect of the availability …

Marriott School Of Management: Study Of Alumni Perceptions On Various School Of Management Functions, Brent Powell, Ken Ozawa, Don Tweet, Todd Hendricks

Student Works

The Marriott School of Management (MSM) has interest in finding out how alumni and supporters perceive the MSM, and the effectiveness of their communication. The MSM's primary communication with the alumni is Exchange magazine. Larry MacFarlane, editor of Exchange (under the direction of K. Fred Skouson, Dean of the Marriott School of Management), has requested Image Marketing to find out how the alumni perceive the MSM and Exchange magazine. This research will help in directing their strategic plan to students, alumni, and recruiters. Image Marketing is comprised of Brent Powell, Ken Ozawa, Don Tweet, Todd Hendricks and Thomas Jones.

The Effect Of Health Insurance On Retirement, Brigitte C. Madrian

Faculty Publications

FOR DECADES health insurance in the United States has been provided to most nonelderly Americans through their own or a family member's employment. This system of employment-based health insurance has evolved largely because of the substantial cost advantages that employers enjoy in supplying health insurance. By pooling large numbers of individuals, employers face significantly lower administrative expenses than do individuals. In addition, employer expenditures on health insurance are tax deductible, but individual expenditures are generally not.¹

Despite these cost advantages, there is widespread dissatisfaction with this system of employment-based health insurance. Many people are excluded because not all employers …

The Functions Of The Executive And The Republic: Exploring The Platonic Roots Of Chester Barnard, Paul C. Godfrey

Faculty Publications

This essay examines the similarities between Plato's Republic and Barnard's Functions of the Executive. The essay argues that comparisons between Barnard and Plato are not overstated in form or substance. Three major areas of each work are compared: the ethical foundations, the political foundations, and the role of education in achieving those political means. Implications arising from the comparison are discussed and the essay concludes by linking the Barnard- Plato dialogue with current issues in management theory and practice.

Employment-Based Health Insurance And Job Mobility: Is There Evidence Of Job-Lock?, Brigitte C. Madrian

Faculty Publications

This paper assesses the impact of employer-provided health insurance on job mobility by exploring the extent to which workers are "locked' into their jobs because preexisting conditions exclusions make it expensive for individuals with medical problems to relinquish their current health insurance. I estimate the degree of job-lock by comparing the difference in the turnover rates of those with high and low medical expenses for those with and without employer-provided health insurance. Using data from the 1987 National Medical Expenditure Survey, I estimate that job-lock reduces the voluntary turnover rate of those with employer-provided health insurance by 25 percent, from …

Accounting Tutor: Intelligent Computer-Aided Instruction, Rayman D. Meservy

Faculty Publications

This study investigates several development of intelligent issues central to tutoring systems: the ( 1) representing domain knowledge, (2) representing instructional knowledge, (3) modeling student learning, and (4) developing userfriendly interfaces. The focus of domain learning tasks includes accounting basics, often covered in the first few chapters of an accounting principles course.

Discovering The Unique Synergy Potential Of Undergraduate Research And Tourism Service Needs, Deirdre Gibbons, Brian J. Hill

Faculty Publications

This paper explores the needs and benefits for using undergraduates as a resource at tourism University Centers. The purpose of undergraduate tourism programs varies, but programs strive to combine theory with application, and research plays a role in this process. Undergraduates stand to benefit from the managerial and decision-making skills they can learn through research. The number of university tourism research centers has increased worldwide. These centers often function on small budgets and have limited research centers, yet their services and clientele · base are increasing. This paper explores how some universities have involved undergraduates in university tourism research, focusing …

Optimal Response To Periodic Shortage: Engineering/Economic Analysis For A Large Urban Water District, Anthony Fisher, David Fullerton, Nile Hatch, Peter Reinelt

Faculty Publications

The problem addressed by this study is how a large urban water district can best respond to a drought or the prospect of a drought. Specifically, what is the least cost combination of alternatives to meet periodic shortages? A solution to this problem may involve structural approaches (such as developing new local storage capacity), a mix of structural and nonstructural (such as conjunctive use combined with water exchanges or sales), or purely nonstructural approaches (such as changes in water pricing). The application is to the East Bay Municipal Utility District (EBMUD), which includes portions of Alameda and Contra Costa counties …

Learn Audit Selection Rules From Data: A Genetic Algorithms Approach, David P. Greene, Rayman D. Meservy, Stephen F. Smith

Faculty Publications

The construction of expert systems typically require the availability of expertise that can be modeled. However, there are many important problems where no expertise exists, yet there is a wealth of data indicating results in different situations. Machine learning algorithms attempt to discover rules which capture the regularities that exists in such data.

Case-Based Reasoning And Risk Assessment In Audit Judgment, Eric L. Denna, James V. Hansen, Rayman D. Meservy, Larry E. Wood

Faculty Publications

The purpose of this paper is to describe the results of an effort to utilize Case Based Reasoning (CBR) to model a specific audit judgment task. To date most efforts to develop computational models of audit judgment have used strictly rule-based representation methods. Some researchers have recently adopted more robust structures to model the auditor domain knowledge. Although these recent efforts to extend the representation methods appear to be more accurate descriptions of auditor reasoning and memory, they still lack a comprehensive. theory to guide the development of the model. A commonly encountered phenomenon in audit judgment is for an …

Development And , Application Of Expert Systems In Audit Services, Eric L. Denna, James V. Hansen, Rayman D. Meservy

Faculty Publications

Professional auditing has become much more complex over the past decade. This development has engendered a need for leveraging auditor expertise. In an attempt to meet this need, public accounting firms have been actively involved in supporting the development and application of artificial intelligence methods in audit services, which forms the foundation of their business. Much of the development and application of artificial intelligence in auditing has taken the form of expert systems. This paper examines the current state of the art and provides a framework for analysis of present work, as well as a guide to future efforts.

Accounting Tutor Platform, Rayman D. Meservy

Faculty Publications

Many educational researchers consider computers to be the most important technological development for education since the invention of the printing press or writing itself. They believe that computers will one day transform education, leaving their mark on education as writing and books have done. Even though computer aided instruction (CAI} has been used for many years, results at the college level have been mixed, although generally moderately positive, sometimes reducing instructional time while increasing learning effectiveness. [Kulik, 1990]

Resort Motivations For Different Family Life Cycle Stages, Brian J. Hill, Cary Mcdonald, Muzaffer Uysal

Faculty Publications

Motivational differences for resort vacation travel among family life cycle stages have not been addressed in travel research. However, from a marketing standpoint, segmenting the resort market into family life cycle groups can be reasonably important. Linking an identified group of motivat􀁄ons with these stages is the purpose of this article. Descriptive analysis, factor analysis, and analysis of variance are used to evaluate the data. Twenty motivations are . reduced into five motivation factors that coincide with established travel motivations or needs. The importance of family relationship, health and social, and fun and entertainment motivations does differ among respondents single …