The present historical moment may seem a particularly inopportune time to review Bowling Alone, Robert Putnam's latest exploration of civic decline in America. After all, the outpouring of volunteerism, solidarity, patriotism, and self-sacrifice displayed by Americans in the wake of the September 11 terrorist attacks appears to fly in the face of Putnam's central argument: that \"social capital\" -defined as \"social networks and the norms of reciprocity and trustworthiness that arise from them\" (p. 19)'has declined to dangerously low levels in America over the last three decades. However, Putnam is not fazed in the least by the recent effusion of solidarity. Quite the contrary, he sees in it the potential to \"reverse what has been a 30to 40-year steady decline in most measures of connectedness or community.\"' As an example of how the current \"war on terrorism\" could generate a durable civic renewal, Putnam points to the burst in civic practices that occurred during and after World War II, which he says \"permanently marked\" the generation that lived through it and had a \"terrific effect on American public life over the last half-century.\" 3 If Americans can follow this example and channel their current civic

Bowling alone: The collapse and revival of American community

Instrumental variable (IV) methods are commonly used in accounting research (e.g., earnings management, corporate governance, executive compensation, and disclosure research) when the regressor variables are endogenous. While IV estimation is the standard textbook solution to mitigating endogeneity problems, the appropriateness of IV methods in typical accounting research settings is not obvious. Drawing on recent advances in statistics and econometrics, we identify conditions under which IV methods are preferred to OLS estimates and propose a series of tests for research studies employing IV methods. We illustrate these ideas by examining the relation between corporate disclosure and the cost of capital.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1505074_code113360.pdf?abstractid=694824&rulid=9740146&mirid=4

On the Use of Instrumental Variables in Accounting Research

On the use of instrumental variables in accounting research

Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns

ADRs, Analysts, and Accuracy: Does Cross Listing in the United States Improve a Firm's Information Environment and Increase Market Value?

In January 2005 the Canadian Accounting Standards Board (AcSB) issued three new accounting standards that require Canadian firms to mark-to-market certain financial assets and liabilities and recognize the holding gains and losses related to these items as other comprehensive income or as part of net income. The Board's objectives for issuing the new standards are (i) to harmonize Canadian GAAP with US and International GAAP, (ii) to enhance the transparency and usefulness of financial statements, and (iii) to keep pace with changes in accounting standards in other countries that are moving towards fair value accounting. This paper investigates empirically whether requiring Canadian companies to report comprehensive income and its components provides the securities market with incremental value-relevant information over the traditional historical-cost earnings approach. Previous empirical studies provide mixed evidence on the value-relevance of other comprehensive income and its components. This mixed evidence may be attributed partially to the use of as if methodology to construct an ex-ante measure of other comprehensive income prior to the implementation of SFAS 130, which introduces measurement error. In contrast, this study uses actual data on other comprehensive income for a sample of Canadian firms cross-listed in the US in the period 1998 to 2003. We find evidence that available-for-sale and cash flow hedges components are significantly associated with price and market returns. We also find that aggregate comprehensive income is more strongly associated (in terms of explanatory power) with both stock price and returns compared to net income. However, we find that net income is a better predictor of future net income relative to comprehensive income. Our findings suggest that mandating all Canadian firms to adopt the new accounting standards is expected to enhance the usefulness of financial statements. Our findings, therefore, should be of interest to Canadian accounting policy makers as they provide ex-ante evidence on the potential usefulness of mandating firms to report comprehensive income and the components of other comprehensive income in their financial statements.

Usefulness of Comprehensive Income Reporting in Canada

http://users.metu.edu.tr/mugan/Kanageretnam%20%202009%20et%20al%20usefulnes%20of%20comp%20inc%20in%20canada.pdf

Usefulness of comprehensive income reporting in Canada

We examine alternative underlying motives of bank managers in using loan loss provisions (LLP) to smooth reported income Based on the analytical results of Fudenberg and Tirole (1995), we predict that for banks with good (poor) current performance and expected poor (good) future performance, managers will save income for (borrow income from) the future by reducing (increasing) current income through LLP We also analyze three additional variables that could explain cross-sectional differences in the level of income smoothing Our empirical analysis provides support for our predictions The difference in LLP between the two groups of banks is positive as hypothesized, indicating that bank managers do save earnings through LLP in good times and borrow earnings using LLP in bad times Similar results are obtained for analysis using discretionary LLP When bank managers are saving earnings for the future, we provide evidence that the need to obtain external financing is an important additional variable in explaining cross-sectional differences in the extent of income smoothing Furthermore, whether or not a bank is well capitalized is also weakly significant in explaining cross-sectional differences in income smoothing

Managerial Incentives for Income Smoothing Through Bank Loan Loss Provisions

Prior research demonstrates that share prices reflect a risk premium that is associated with earnings variability. This suggests that managers can reduce the cost of capital and increase share prices by reducing earnings variability. In this study, we investigate bank managers' use of discretion in estimating loan loss provisions (LLP) to reduce earnings variability. We find that banks with relatively high pre‐managed earnings have positive discretionary LLP and banks with relatively low pre‐managed earnings have negative discretionary LLP, results that are consistent with the hypothesis of earnings management to reduce earnings variability. In addition, we find that bank managers' decisions to reduce earnings variability are related to the need for external financing and to gains and losses on the sale of securities which serve as substitutes for accomplishing their objective of earnings variability reduction.

Earnings Management to Reduce Earnings Variability: Evidence from Bank Loan Loss Provisions

The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 was designed, among other things, to introduce risk-based deposit insurance, increase capital requirements, and improve banks’ internal controls. Of particular interest in this study are the requirements for annual audit and reporting of management’s and auditor’s assessment of the effectiveness of internal control for banks with $500 million or more in total assets (raised to $1 billion in 2005) for bank risk taking prior to the recent financial crisis and its consequent implications for bank failure and financial trouble during the crisis period. Using a sample of 1,138 banks, we provide evidence that banks required to comply with the FDICIA internal control requirements have lower risk taking in the pre-crisis period. Specifically, the volatility of net interest margin, the volatility of earnings, and Z score show less risk-taking behavior. Furthermore, these banks are less likely to experience failure and financial trouble during the crisis period.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2320282_code257078.pdf?abstractid=2320282&mirid=4

Robert Mathieu

Papers

Usefulness of Comprehensive Income Reporting in Canada

Usefulness of comprehensive income reporting in Canada

Managerial Incentives for Income Smoothing Through Bank Loan Loss Provisions

Earnings Management to Reduce Earnings Variability: Evidence from Bank Loan Loss Provisions

Impact of FDICIA Internal Controls on Bank Risk Taking