Accounting Commons^™

Are Us Family Firms Subject To Agency Problems? Evidence From Ceo Turnover And Firm Valuation, Xia Chen, Zhonglan Dai

Research Collection School Of Accountancy

This paper investigates the impact of the founding family's presence in US public firms on the extent of agency problems related to CEO turnover decisions and on firm valuations after poor performance. In particular, we focus on three types of US public firms: family CEO firms, professional CEO family firms (family firms managed by a hired CEO outside the founding family), and non-family firms. We hypothesize that, the agency problem arising from the expropriation of small shareholders by large shareholders in family CEO firms and the agency problem arising from the separation of ownership and control in non-family firms, lead …

Auditor Locality, Audit Quality And Audit Pricing, Jong-Hag Choi, Jeong-Bon Kim, Aini Qiu, Yoonseok Zang

Research Collection School Of Accountancy

No abstract provided.

Exploring The Role That Forecast Surprise And Forecast Error Play In Determining Management Forecast Precision, Jong-Hag Choi, Linda Myers, Yoonseok Zang, David Ziebart

Research Collection School Of Accountancy

No abstract provided.

Systematic Share Price Fluctuations After Bankruptcy Filings And The Investors Who Drive Them, Mark C. Dawkins, Nilabhra Bhattacharya, Linda Smith Bamber

Research Collection School Of Accountancy

Beginning in the 1990s, firms often continue to trade on the major national exchanges after Chapter 11 bankruptcy filings. For bankruptcies filed from 1993-2003, we find that the more negative the filing period price reaction, the more favorable the immediate post- filing returns, on average. This reversal is not attributable to bid-ask bounce, it holds after controlling for other factors associated with post-filing returns, and it appears more attributable to the activities of large traders than to small traders. Supplementary tests reveal that the pattern of post-filing returns differs significantly for bankruptcies filed in bull versus bear markets. Bankruptcies filed …

Bonding To The Improved Disclosure Environment In The Us: Firms Listing Choices And Their Capital Market Consequences, Ole-Kristian Hope, Tony Kang, Yoonseok Zang

Research Collection School Of Accountancy

This paper examines whether the current reporting and disclosure requirements for foreign registrants in the United States affect foreign firms' decisions to list on a U.S. exchange. We find that while firms from a weak disclosure environment are more likely to cross-list and either trade over-the-counter or be placed privately among institutional investors, they are less likely to list on an exchange in which firms are required to comply with U.S. GAAP. This is consistent with the idea that the decrease in the potential private control benefits accruing to managers discourages them from listing on an organized exchange. We further …

Who Trades On Pro Forma Earnings Information?, Nilabhra Bhattacharya, Erv Black, Ted Christensen, Rick Mergenthaler

Research Collection School Of Accountancy

In recent years, many companies have emphasized adjusted‐GAAP earnings numbers in their quarterly press releases. While managers use different names to describe these nonstandard earnings metrics, the financial press frequently refers to them as “pro forma” earnings. Managers and other advocates of pro forma reporting argue that these disclosures provide a clearer picture of companies' core earnings. On the other hand, regulators, policymakers, and the financial press often allege that managers' pro forma earnings disclosures are opportunistic attempts to mislead investors. Recent evidence suggests that while many pro forma earnings disclosures are altruistically motivated, some may represent managers' attempts to …

Comprehensive Income, Future Earnings, And Market Mispricing, Jong-Hag Choi, Somnath Das, Yoonseok Zang

Research Collection School Of Accountancy

No abstract provided.

Strengthening The Foundations Of The Accountability Profession, Sridhar Ramamoorti, Sam M. Mccall, Relmond P. Van Daniker

Accounting Faculty Publications

Article discusses the conceptual foundations of the accountability profession in government. The role of the Academy for Government Accountability in strengthening the accountability profession and advancing research and education initiatives in government financial management is described. The author suggests that government accountability needs to be about stewardship, transparency, accountability and citizen-centric government.

Insider Trading And Voluntary Disclosures, Qiang Cheng, Kin Lo

Research Collection School Of Accountancy

We hypothesize that insiders strategically choose disclosure policies and the timing of their equity trades to maximize trading profits, subject to the litigation costs associated with disclosure and insider trading. Accounting for endogeneity between disclosures and trading, we find that when managers plan to purchase shares, they increase the number of bad news forecasts to reduce the purchase price. In addition, this relation is stronger for trades initiated by chief executive officers than for those initiated by other executives. Confirming this strategic behavior, we find that managers successfully time their trades around bad news forecasts, buying fewer shares beforehand and …

Institutional Holdings And Analysts’ Stock Recommendations, Qiang Cheng, Xia Chen

Research Collection School Of Accountancy

Prior studies document that institutional investors outperform the mar- ket. We investigate whether this superior performance is partly derived from institutional investors use of sell-side analysts stock recommenda- tions. First, we find that the quarterly change in institutional ownership is positively correlated with consensus recommendations. After control- ling for other determinants of institutional holdings, the quarterly change in institutional ownership is on average 0.90 percent higher for firms with favorable recommendations than for those with unfavorable recommendations. Second, using large trades to proxy for institutional trading, we find that there are more buyer-initiated than seller-initiated large trades around favorable recommendations …

Six Levels Of Financial Knowledge, George E. Manners Jr.

Faculty Articles

With the appropriate framework to shape financial knowledge, the management accounting function should become an organization's principal decision-support platform. The framework consists of six levels of financial knowledge, and the word "financial" is most operative here. The Level 1 knowledge base connects a business to the outside world. When you have output volume and variable cost per output unit, you have the basis for Level 2 vocabulary. When a business transitions to Level 3, it has learned that return on assets must be employed as the enterprise's guiding profitability gauge. There is a very distinct increment in knowledge when moving …

The Association Between Audit Quality And Abnormal Audit Fees, Jong-Hag Choi, Jeong-Bon Kim, Yoonseok Zang

Research Collection School Of Accountancy

Using a sample of 9,820 firm-year observations over the 2000-2003 period, this paper examines whether, and how, audit quality proxied by unsigned discretionary accruals is associated with abnormal audit fees, i.e., actual audit fees in excess of expected, normal audit fees. The results of various regressions reveal that the association between the two is insignificant for the full sample, significantly positive for the subsample of clients with positive abnormal fees, and insignificantly negative for the subsample of clients with negative abnormal fees. The above results suggest that auditors’ incentives to compromise audit quality differ systematically for more profitable clients (with …

How To Use The Changing Components Of The Corporate Annual Report, Deborah S. Archambeault, John G. Fulmer Jr., Richard A. Turpin

Accounting Faculty Publications

The amount of information required in a corporate annual report continues to increase. Most recently, additional reporting requirements brought about by the Sarbanes-Oxley Act of 2002 (SOA), the Public Company Accounting Oversight Board (PCAOB) and the Securities and Exchange Commission (SEC) increase the number of component reports that must be included in the annual report package. Lenders need to be familiar with the additional information that these new components provide. Therefore, this article summarizes the required component reports, discusses the information conveyed in each report and gives some examples of the types of significant new information that can be obtained.

Anheuser-Busch And The Eu, Keith Tolbert

Undergraduate Theses and Capstone Projects

The following paper provides analysis of Anheuser-Busch, its current position within the European Union (EU), and its opportunities/threats that exist in the EU. Included is background information about Anheuser-Busch containing its products, financial condition, and major competitors within the EU. I have provided extensive analysis o f the areas of concern for Anheuser-Busch in the EU as well as recommendations for the company to consider. The major market for opportunity covered is Germany. Anheuser-Busch is not a current competitor in Germany, however, possible expansion opportunities into the country is addressed. Additionally, a realistic outlook of Anheuser-Busch’s future other EU countries …

A Note On The Instability Of The Unprojected Individual Level Premium Cost Method, Pierre Devolder, Valerie Goffin

Journal of Actuarial Practice (1993–2006)

We compare the unit credit and the unprojected individual level premium cost methods in a continuous time environment and show that the latter may produce unstable contribution rates in a dynamic environment. Specifically, assuming there are no unfunded liabilities, we prove that the unprojected individual premium cost method may produce non-bounded contributions if benefits change too close to the normal retirement age.

Journal Of Actuarial Practice - Volume 13 (2006) - Contents And Masthead

Journal of Actuarial Practice (1993–2006)

Contents

Editorial Policy: Topics suitable for this journal include AIDS, annuity products, asset-liability matching, cash-flow testing, casualty rate making, credibility theory, credit insurance, disability insurance, expense analysis, experience studies, FASB issues, financial reporting, group insurance, health insurance, individual risk taking, insurance regulations, international issues, investments, liability insurance, loss reserves, marketing, pensions, pricing issues, product development, reinsurance, reserving issues, risk-based capital, risk theory, social insurance, solvency issues, taxation, valuation issues, and workers' compensation

Review Process

Editor - Colin Ramsay, University of Nebraska

Associate Editors: Robert Brown, University of Waterloo ○ Cecil Bykerk, Mutual of Omaha ○ Ruy Cardoso, Actuarial Frameworks ○ …

Estimation Of Large Insurance Losses: A Case Study, Tine Buch-Kromann

Journal of Actuarial Practice (1993–2006)

This paper demonstrates an approach to analyzing liability data recently developed by a Danish insurance company. The approach is based on a Champernowne distribution, which is corrected with a non-parametric estimator. The correction estimator is obtained by transforming the data set with the estimated modified Champernowne cdf and then estimating the density of the transformed data set by using the classical kernel density estimator. Our approach is illustrated by applying it to an actual data set.

Solvency Of Life Insurance Companies: Methodological Issues, Rosa Cocozza, Emilia Di Lorenzo

Journal of Actuarial Practice (1993–2006)

The paper deals with solvency assessment for life insurance business; some methodological issues concerning the solvency of life insurance companies, particularly connected to the investment risk, are suggested. Considerations about the technical equilibrium of an insurance portfolio and the financial regulation lead to a dynamic system involving risk measure and solvency assessment. The formal model is applied to a life annuity cohort in a stochastic context in order to exemplify the potential of the model, especially referred to the need to frame solvency assessment in a dynamic perspective.

On Some Risk-Adjusted Tail-Based Premium Calculation Principles, Edward Furman, Zinoviy Landsman

Journal of Actuarial Practice (1993–2006)

This paper explores two tail-based premium calculation principles, the tail standard deviation (TSD) premium and the tail conditional expectation (TCE) premium, in their risk-adjusted and unadjusted forms. They are risk-adjusted using so-called distortion functions. We prove that the proportional hazard (PH) risk-adjusted TCE premium is larger than the unadjusted TCE premium. Additionally, given a risk distribution with location and scale parameters, we prove that the PH risk-adjusted TCE premium reduces to the unadjusted TSD premium.

Bayesian Analysis Of A Health Insurance Model, Helio S. Migon, Edison M.O. Penna

Journal of Actuarial Practice (1993–2006)

We consider the problem of determining health insurance premiums based on past information on size of loss, number of losses, and size of population at risk. The size of loss and the number of losses are treated as mutually independent random variables. The number of losses is assumed to follow a Poisson process, and the loss sizes are independent and identically distributed non-negative random variables, and the population at risk is assumed to follow a non-linear growth model. An expression for the premium is obtained through maximization of the insurer's expected utility under a Bayesian model. The parameter estimation process …

Analysis Of An Insurance Risk Model With Thinning Dependence And Common Shock, Lai Mei Wan, Kam Chuen Yuen, Wai Keung Li

Journal of Actuarial Practice (1993–2006)

We consider a continuous-time insurance risk model with m dependent classes of business with dependent claim number processes due to thinning dependence and a common shock. The impact of the dependence is studied via the adjustment coefficient. The case m = 2 is investigated analytically for exponential claim distributions and via simulation for non-exponential claim distributions.

Pricing Insurance Policies With A Distribution-Free Financial Pricing Model, Min-Ming Wen

Journal of Actuarial Practice (1993–2006)

The highly skewed and heavy tailed distributions used to model insurance losses (claims) raise a concern about the validity of the applications of the capital asset pricing model (CAPM) to insurance pricing when market risks are essential. This paper provides an alternative pricing model, called the Rubinstein-Leland model, which can be used to price insurance contracts. The Rubinstein-Leland model has a distribution-free feature that can fully capture the asymmetry embedded in insurance losses. Thus, this model is better able to derive fair prices for insurance policies than is the CAPM.

Bivariate Archimedean Copula Models For Censored Data In Non-Life Insurance, Michel Denuit, Oana Purcaru, Ingrid Van Keilegom

Journal of Actuarial Practice (1993–2006)

We describe a methodology based on Archimedean copulas for analyzing nonlife insurance data with censoring present. Specifically, we propose a graphical selection procedure for the nonparametric estimation of the generator. An actual loss-ALAE data set is used for the numerical illustrations and for comparisons of our approach to a few others.

Consistent Assumptions For Modeling Credit Loss Correlations, Jan Dhaene, Marc J. Goovaerts, Robert Koch, Ruben Olieslagers, Olivier Romijn, Steven Vanduffel

Journal of Actuarial Practice (1993–2006)

We consider a single period portfolio of n dependent credit risks that are subject to default during the period. We show that using stochastic loss given default random variables in conjunction with default correlations can give rise to an inconsistent set of assumptions for estimating the variance of the portfolio loss. Two sets of consistent assumptions are provided, which it turns out, also provide bounds on the variance of the portfolio's loss. An example of an inconsistent set of assumptions is given.

Bayesian Analysis Of Insurance Losses Using The Buhlmann-Straub Credibility Model, Abraham J. Van Der Merwe, Kobus N. Bekker

Journal of Actuarial Practice (1993–2006)

We propose a Bayesian analysis to develop credibility estimates of the well known Biihlmann-Straub model. We describe simple numerical methods to obtain exact posterior distributions and predictive densities under this model. These distributions are obtained through Monte Carlo simulations that generate independent samples from the joint posterior distribution. Our methods are therefore preferable to methods such as Gibbs sampling, which generates dependent samples from the joint distribution. The methods discussed also can be extended to more complicated credibility models.

Spatial Distribution Of Frequency And Severity Of Water Claims In California, Gurbhag Singh, Max Tang, Don Mcneill, Lyn Hunstad

Journal of Actuarial Practice (1993–2006)

We examine the frequency and severity of water loss claims for homeowners insurance across the state of California for the experience years 2000, 2001, and 2002. The spatial distribution patterns of frequencies and severities are mapped and analyzed at the zip code level. The maps reveal the pockets of high frequencies and severities. The information provided in this paper will assist actuaries and policy makers in their quest to set accurate rates for homeowners insurance.

Journal Of Actuarial Practice, Volume 13, 2006, Colin Ramsay , Editor

Journal of Actuarial Practice (1993–2006)

ARTICLES

Bivariate Archimedean Copula Models for Censored Data in Non-Life Insurance • Michel Denuit, Dana Purcaru, and Ingrid Van Keilegom 5

Bayesian Analysis of Insurance Losses Using the Biihlmann-Straub Credibility Model • Abraham J. van der Merwe and Kobus N Bekker . 33

Bayesian Analysis of a Health Insurance Model • Helio S. Migon and Edison M. O. Penna 61

Solvency of Life Insurance Companies: Methodological Issues • Rosa Cocozza and Emilia Di Lorenzo . 81

Pricing Insurance Policies with a Distribution-Free Financial Pricing Model • Min-Ming Wen . 103

A Note on the Instability of the Unprojected Individual Level …

Impact Of Gender And Ethnic Composition Of South African Boards Of Directors On Intellectual Capital Performance, Jean-Luc Wolfgang Mitchell Van Der Zahn

Research Collection School Of Accountancy

This study examines the association between the gender and ethnic composition of boards of directors and firm performance in a transitional nation. In contrast to prior research that largely focuses on firm performance within a financial context, this study concentrates on intellectual capital performance. Using data collected from 84 South African, empirical results indicate a positive association between the percentage of female and non-white directors on the board and a firm’s intellectual capital performance. Additional analysis shows the designation of female directors as an insider has a negative effect of intellectual capital performance. Designation of female and non-white directors as …

Accounting Restatements: Are They Always Bad News For Investors?, Dan Segal, Jeffrey L. Callen, Joshua Livnat

Research Collection School Of Accountancy

This study investigates a large sample of financial statement restatements over the period 1986-2001, and compares restatements caused by changes in accounting principles to those caused by errors. Typically, investors perceive restatements as negative signals due to three potential reasons: (a) the restatement indicates problems with the accounting system that may be manifestations of broader operational (and managerial) problems, (b) the restatement causes downward revisions in future cash flows expectations, and (c) the restatement indicates managerial attempts to cover up income decline through “cooking the books.” We provide evidence that market reactions to restatements due to errors are generally negative. …

Accounting Conservatism And Managerial Incentives, Young Koan Kwon

Research Collection School Of Accountancy

There are two sources of agency costs under moral hazard: (1) distortions in incentive contracts and (2) implementation of suboptimal decisions. In the accounting literature, the relation between conservative accounting and agency costs of type (1) has received considerable attention (cf. Watts 2002). However, little appears to be known about the effects of accounting conservatism on agency costs of type (2) or trade-offs between agency costs of types (1) and (2). The purpose of this study is to examine this void. In a principal-agent setting in which the principal motivates the agent to expend effort using accounting earnings, this study …