Showing papers by "University of Mannheim published in 2008"

Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences

Abstract: This paper examines the economic consequences of mandatory International Financial Reporting Standards (IFRS) reporting around the world. We analyze the effects on market liquidity, cost of capital, and Tobin's q in 26 countries using a large sample of firms that are mandated to adopt IFRS. We find that, on average, market liquidity increases around the time of the introduction of IFRS. We also document a decrease in firms' cost of capital and an increase in equity valuations, but only if we account for the possibility that the effects occur prior to the official adoption date. Partitioning our sample, we find that the capital-market benefits occur only in countries where firms have incentives to be transparent and where legal enforcement is strong, underscoring the central importance of firms' reporting incentives and countries' enforcement regimes for the quality of financial reporting. Comparing mandatory and voluntary adopters, we find that the capital market effects are most pronounced for firms that voluntarily switch to IFRS, both in the year when they switch and again later, when IFRS become mandatory. While the former result is likely due to self-selection, the latter result cautions us to attribute the capital-market effects for mandatory adopters solely or even primarily to the IFRS mandate. Many adopting countries make concurrent efforts to improve enforcement and governance regimes, which likely play into our findings. Consistent with this interpretation, the estimated liquidity improvements are smaller in magnitude when we analyze them on a monthly basis, which is more likely to isolate IFRS reporting effects.

Web Surveys versus other Survey Modes: A Meta-Analysis Comparing Response Rates:

Abstract: One question that arises when discussing the usefulness of web-based surveys is whether they gain the same response rates compared to other modes of collecting survey data. A common perception exists that, in general, web survey response rates are considerably lower. However, such unsystematic anecdotal evidence could be misleading and does not provide any useful quantitative estimate. Metaanalytic procedures synthesising controlled experimental mode comparisons could give accurate answers but, to the best of the authors' knowledge, such research syntheses have so far not been conducted. To overcome this gap, the authors have conducted a meta-analysis of 45 published and unpublished experimental comparisons between web and other survey modes. On average, web surveys yield an 11% lower response rate compared to other modes (the 95% confidence interval is confined by 15% and 6% to the disadvantage of the web mode). This response rate difference to the disadvantage of the web mode is systematically influenced by the sample recruitment base (a smaller difference for panel members as compared to one-time respondents), the solicitation mode chosen for web surveys (a greater difference for postal mail solicitation compared to email) and the number of contacts (the more contacts, the larger the difference in response rates between modes). No significant influence on response rate differences can be revealed for the type of mode web surveys are compared to, the type of target population, the type of sponsorship, whether or not incentives were offered, and the year the studies were conducted. Practical implications are discussed.

Learning and Classification of Malware Behavior

Abstract: Malicious software in form of Internet worms, computer viruses, and Trojan horses poses a major threat to the security of networked systems. The diversity and amount of its variants severely undermine the effectiveness of classical signature-based detection. Yet variants of malware families share typical behavioral patternsreflecting its origin and purpose. We aim to exploit these shared patterns for classification of malware and propose a method for learning and discrimination of malware behavior. Our method proceeds in three stages: (a) behavior of collected malware is monitored in a sandbox environment, (b) based on a corpus of malware labeled by an anti-virus scanner a malware behavior classifieris trained using learning techniques and (c) discriminative features of the behavior models are ranked for explanation of classification decisions. Experiments with different heterogeneous test data collected over several months using honeypots demonstrate the effectiveness of our method, especially in detecting novelinstances of malware families previously not recognized by commercial anti-virus software.

Explaining variations in client extra costs between software projects offshored to india

Abstract: Gaining economic benefits from substantially lower labor costs has been reported as a major reason for offshoring labor-intensive information systems services to low-wage countries. However, if wage differences are so high, why is there such a high level of variation in the economic success between offshored IS projects? This study argues that offshore outsourcing involves a number of extra costs for the client organization that account for the economic failure of offshore projects. The objective is to disaggregate these extra costs into their constituent parts and to explain why they differ between offshored software projects. The focus is on software development and maintenance projects that are offshored to Indian vendors. A theoretical framework is developed a priori based on transaction cost economics (TCE) and the knowledge-based view of the firm, complemented by factors that acknowledge the specific offshore context. The framework is empirically explored using a multiple case study design including six offshored software projects in a large German financial service institution. The results of our analysis indicate that the client incurs post- contractual extra costs for four types of activities: (1) requirements specification and design, (2) knowledge transfer, (3) control, and (4) coordination. In projects that require a high level of client-specific knowledge about idiosyncratic business processes and software systems, these extra costs were found to be substantially higher than in projects where more general knowledge was needed. Notably, these costs most often arose independently from the threat of opportunistic behavior, challenging the predominant TCE logic of market failure. Rather, the client extra costs were particularly high in client-specific projects because the effort for managing the consequences of the knowledge asymmetries between client and vendor was particularly high in these projects. Prior experiences of the vendor with related client projects were found to reduce the level of extra costs but could not fully offset the increase in extra costs in highly client-specific projects. Moreover, cultural and geographic distance between client and vendor as well as personnel turnover were found to increase client extra costs. Slight evidence was found, however, that the cost-increasing impact of these factors was also leveraged in projects with a high level of required client-specific knowledge (moderator effect).

Measurements and mitigation of peer-to-peer-based botnets: a case study on storm worm

Abstract: Botnets, i.e., networks of compromised machines under a common control infrastructure, are commonly controlled by an attacker with the help of a central server: all compromised machines connect to the central server and wait for commands. However, the first botnets that use peer-to-peer (P2P) networks for remote control of the compromised machines appeared in the wild recently. In this paper, we introduce a methodology to analyze and mitigate P2P botnets. In a case study, we examine in detail the Storm Worm botnet, the most wide-spread P2P botnet currently propagating in the wild. We were able to infiltrate and analyze in-depth the botnet, which allows us to estimate the total number of compromised machines. Furthermore, we present two different ways to disrupt the communication channel between controller and compromised machines in order to mitigate the botnet and evaluate the effectiveness of these mechanisms.

Measuring and Detecting Fast-Flux Service Networks

Abstract: We present the first empirical study of fast-flux service networks (FFSNs), a newly emerging and still not widelyknown phenomenon in the Internet. FFSNs employ DNS to establish a proxy network on compromised machines through which illegal online services can be hosted with very high availability. Through our measurements we show that the threat which FFSNs pose is significant: FFSNs occur on a worldwide scale and already host a substantial percentage of online scams. Based on analysis of the principles of FFSNs, we develop a metric with which FFSNs can be effectively detected. Considering our detection technique we also discuss possible mitigation strategies.

The Volatility of Realized Volatility

Abstract: In recent years, with the availability of high-frequency financial market data modeling realized volatility has become a new and innovative research direction. The construction of “observable” or realized volatility series from intra-day transaction data and the use of standard time-series techniques has lead to promising strategies for modeling and predicting (daily) volatility. In this article, we show that the residuals of commonly used time-series models for realized volatility and logarithmic realized variance exhibit non-Gaussianity and volatility clustering. We propose extensions to explicitly account for these properties and assess their relevance for modeling and forecasting realized volatility. In an empirical application for S&P 500 index futures we show that allowing for time-varying volatility of realized volatility and logarithmic realized variance substantially improves the fit as well as predictive performance. Furthermore, the distributional assumption for residuals plays a crucial role i...

Mandatory IFRS Reporting Around the World: Early Evidence on the Economic Consequences

Abstract: This paper examines the economic consequences of mandatory IFRS reporting around the world. We analyze the effects on market liquidity, cost of capital and Tobin’s q in 26 countries using a large sample of firms that are mandated to adopt IFRS. We find that, on average, market liquidity increases around the time of the introduction of IFRS. We also document a decrease in firms’ cost of capital and an increase in equity valuations, but only if we account for the possibility that the effects occur prior to the official adoption date. Partitioning our sample, we find that the capital-market benefits occur only in countries where firms have incentives to be transparent and where legal enforcement is strong, underscoring the central importance of firms’ reporting incentives and countries’ enforcement regimes for the quality of financial reporting. Comparing mandatory and voluntary adopters, we find that the capital market effects are most pronounced for firms that voluntarily switch to IFRS, both in the year when they switch and again later, when IFRS become mandatory. While the former result is likely due to self-selection, the latter result cautions us to attribute the capital-market effects for mandatory adopters solely or even primarily to the IFRS mandate. Many adopting countries have made concurrent efforts to improve enforcement and governance regimes, which likely play into our findings. Consistent with this interpretation, the estimated liquidity improvements are smaller in magnitude when we analyze them on a monthly basis, which is more likely to isolate IFRS reporting effects. JEL classification: G14, G15, G30, K22, M41, M42

Flow and Regulatory Compatibility: An Experimental Approach to the Flow Model of Intrinsic Motivation

Abstract: The authors propose that the experience of flow (Csikszentmihalyi, 2000) as reflected in the deep involvement in an activity perceived as intrinsically rewarding represents a regulatory compatibility experience. The research addresses the notion that the compatibility of critical person (e.g., skills) and environmental factors (e.g., demands) involved in a given activity elicits subjective experiences that render the respective activity rewarding. Two studies are reported that investigate the consequences of compatibility of skills and task demands during task engagement. Departing from correlational research, the present studies employ a newly developed experimental paradigm to document the causal impact of such a skills/demands compatibility on the emergence of flow. Experiment 2 revealed that individuals characterized by a strong habitual action-orientation were most sensitive to the manipulation of the skills-demands compatibility.

Customer Prioritization: Does It Pay Off, and How Should It Be Implemented?

Abstract: It seems to be common sense that to increase profits, firms should prioritize customers (i.e., focus their efforts on the most important customers). However, such a strategy might have substantial negative effects on firms' relationships with customers treated at a low priority level. Prior research does not indicate satisfactorily whether and how customer prioritization pays off. Moreover, although customer prioritization may be strongly present in firms' marketing strategies, firms frequently fail to implement such a strategy. Therefore, it is also important to investigate empirically by which means firms can facilitate implementation. The authors address both issues and conduct a cross-industry study with 310 firms from business-to-consumer and business-to-business contexts together with two independent validation samples. The results show that customer prioritization ultimately leads to higher average customer profitability and a higher return on sales because it (1) affects relationships wit...

Democracy and State Capacity: Exploring a J-shaped Relationship

Abstract: In this article we probe the effect of democratization on the state's administrative capacity. Using time-series cross-section data, we find a curvilinear (J-shaped) relationship between the two traits. The effect of democracy on state capacity is negative at low values of democracy, nonexistent at median values, and strongly positive at high democracy levels. This is confirmed under demanding statistical tests. The curvilinear relationship is due, we argue, to the combined effect of two forms of steering and control; one exercised from above, the other from below. In strongly authoritarian states, a satisfactory measure of control from above can at times be accomplished. Control from below is best achieved when democratic institutions are fully installed and are accompanied by a broad array of societal resources. Looking at two resource measures, press circulation and electoral participation, we find that these, combined with democracy, enhance state administrative capacity.

Glyoxalase-1 prevents mitochondrial protein modification and enhances lifespan in Caenorhabditis elegans.

Abstract: Studies of mutations affecting lifespan in Caenorhabditis elegans show that mitochondrial generation of reactive oxygen species (ROS) plays a major causative role in organismal aging. Here, we describe a novel mechanism for regulating mitochondrial ROS production and lifespan in C. elegans: progressive mitochondrial protein modification by the glycolysis-derived dicarbonyl metabolite methylglyoxal (MG). We demonstrate that the activity of glyoxalase-1, an enzyme detoxifying MG, is markedly reduced with age despite unchanged levels of glyoxalase-1 mRNA. The decrease in enzymatic activity promotes accumulation of MG-derived adducts and oxidative stress markers, which cause further inhibition of glyoxalase-1 expression. Over-expression of the C. elegans glyoxalase-1 orthologue CeGly decreases MG modifications of mitochondrial proteins and mitochondrial ROS production, and prolongs C. elegans lifespan. In contrast, knock-down of CeGly increases MG modifications of mitochondrial proteins and mitochondrial ROS production, and decreases C. elegans lifespan.

Values and Support for Immigration : A Cross-Country Comparison

Abstract: In this article, we estimate and compare the effects of two value dimensions taken from the theory of basic human values-namely, self-transcendence and conservation-on attitudes toward immigration in 19 countries. Data from the first wave (2002-03) of the European Social Survey (ESS) is utilized for the analyses. This cross-national survey measures basic human values with a new 21-item instrument. Attitudes toward immigration are operationalized using two dimensions: willingness to allow immigrants into the country and rejection of conditions to allow them. Effects of the value dimensions on immigration attitudes are compared across 19 nations using multiple-group multiple-indicators structural equation modelling (MGSEM). We hypothesize that these effects are equal across countries. The critical statistical legitimacy for comparing these effects across countries is discussed in detail, and partial measurement invariance is evidenced. The MGSEM provides strong support for our hypotheses in 17 countries: self-transcendence displays a positive effect on support for immigration, and conservation a negative effect. This result is robust also after accounting for several individual and contextual variables. Effects are found to differ a little across countries. It is shown that clusters of countries with equal effect sizes can be distinguished, and possible explanations for effect size differences are discussed.

Configurations of Marketing and Sales: A Taxonomy

Abstract: Little is known about the interface between separate marketing units and sales units. This article develops a multidimensional model of the marketing and sales interface. The model integrates a broad range of conceptual domains, including information sharing, structural linkages, power, orientations, and knowledge of marketing and sales. The authors empirically explore the conceptual model through a cross-industry study of 337 European Union–based companies. They identify five empirical archetypes of the marketing and sales interface. The taxonomy shows that the role and characteristics of marketing and sales vary a great deal. This finding challenges existing stereotypes about marketing and sales. Finally, the article explores organizational outcomes of the five configurations. The findings suggest that the most successful configurations are characterized by strong structural linkages between marketing and sales and a high extent of market knowledge in marketing.

Stock Market Volatility and Learning

Abstract: Introducing bounded rationality into a standard consumption based asset pricing model with a representative agent and time separable preferences strongly improves empirical performance. Learning causes momentum and mean reversion of returns and thereby excess volatility, persistence of price-dividend ratios, long-horizon return predictability and a risk premium, as in the habit model of Campbell and Cochrane (1999), but for lower risk aversion. This is obtained, even though we restrict consideration to learning schemes that imply only small deviations from full rationality. The findings are robust to the particular learning rule used and the value chosen for the single free parameter introduced by learning, provided agents forecast future stock prices using past information on prices.

Reducing Accidental Complexity in Domain Models

Abstract: A fundamental principle in engineering, including software engineering, is to minimize the amount of accidental complexity which is introduced into engineering solutions due to mismatches between a problem and the technology used to represent the problem. As model-driven development moves to the center stage of software engineering, it is particularly important that this principle be applied to the technologies used to create and manipulate models, especially models that are intended to be free of solution decisions. At present, however, there is a significant mismatch between the “two level” modeling paradigm used to construct mainstream domain models and the conceptual information such models are required to represent—a mismatch that makes such models more complex than they need be. In this paper, we identify the precise nature of the mismatch, discuss a number of more or less satisfactory workarounds, and show how it can be avoided.

As the net churns: Fast-flux botnet observations

Abstract: While botnets themselves provide a rich platform for financial gain for the botnet master, the use of the infected hosts as webservers can provide an additional botnet use. Botnet herders often use fast-flux DNS techniques to host unwanted or illegal content within a botnet. These techniques change the mapping of the domain name to different bots within the botnet with constant shifting, while the bots simply relay content back to a central server. This can give the attackers additional stepping stones to thwart takedown and can obscure their true origins. Evidence suggests that more attackers are adopting fast-flux techniques, but very little data has been gathered to discover what these botnets are being used for. To address this gap in understanding, we have been mining live traffic to discover new fast-flux domains and then tracking those botnets with active measurements for several months. We identified over 900 fast-flux domain names from early to mid 2008 and monitored their use across the Internet to discern fast-flux botnet behaviors. We found that the active lifetimes of fast-flux botnets vary from less than one day to months, domains that are used in fast-flux operations are often registered but dormant for months prior to activation, that these botnets are associated with a broad range of online fraud and crime activities, and that we can identify distinct botnets across multiple domain names. We support our findings through an in-depth examination of an Internet-scale data continuously collected for hundreds of domain names over several months.

The impact of cultural differences in offshore outsourcing--Case study results from German---Indian application development projects

Abstract: Offshore outsourcing to vendors in foreign countries causes unique challenges which need to be understood and managed effectively. This paper explores cultural differences in IS offshoring arrangements involving German client organizations that outsource application development activities to Indian vendors. For this purpose, a research framework is developed based on both theoretical considerations and specific empirical observations from multiple case studies. The goal is to (1) explore the nature of cultural differences in offshore outsourcing arrangements in depth and to (2) analyze the relationship between those cultural differences and offshore outsourcing success. Based on the case findings, implications and practices for the management of offshore development projects are outlined. The results indicate that cultural differences in terms of power distance, IS designer values, and an active versus passive working attitude critically affect several dimensions of relationship quality, thereby influencing offshore outsourcing success. A clear definition of roles and mechanisms, strong leadership, and an active management of culture by adapting to either the client's or the vendor's national culture appeared to be effective ways to manage cultural differences.

How Does Liquidity Affect Government Bond Yields

Abstract: The paper explores the determinants of yield differentials between sovereign bonds, using Euro area data. There is a common trend in yield differentials, which is correlated with a measure of aggregate risk. In contrast, liquidity differentials display sizeable heterogeneity and no common factor. We propose a simple model with endogenous liquidity demand, where a bond's liquidity premium depends both on its transaction cost and on investment opportunities. The model predicts that yield differentials should increase in both liquidity and risk, with an interaction term of the opposite sign. Testing these predictions on daily data, we find that the aggregate risk factor is consistently priced, liquidity differentials are priced for a subset of countries, and their interaction with the risk factor is in line with the model's prediction and crucial to detect their effect.

Code Conjurer: Pulling Reusable Software out of Thin Air

Abstract: For many years, the IT industry has sought to accelerate the software development process by assembling new applications from existing software assets. However, true component-based reuse of the form Douglas Mcllroy envisaged in the 1960s is still the exception rather than the rule, and most of the systematic software reuse practiced today uses heavyweight approaches such as product-line engineering or domain-specific frameworks. By component, we mean any cohesive and compact unit of software functionality with a well-defined interface - from simple programming language classes to more complex artifacts such as Web services and Enterprise JavaBeans.

A cross-country and cross-time comparison of the human values measurements with the second round of the European Social Survey

Abstract: The study reported in this paper assesses the fit of a 21-item instrument measuring values in the second round of the European Social Survey (ESS) to the theory of 10 basic values on which it was based (Schwartz 1992). In particular, the measurement invariance of this instrument for studying value priorities across nations and over time was investigated. In the first part of the study, using multi-group confirmatory factor analysis (MGCFA) of data from the second ESS round, configural, metric, and scalar invariance of the values are assessed across 25 countries. Metric invariance is a necessary condition to insure equivalence of the meaning of factors and a precondition for comparing values’ correlates. Scalar invariance is a precondition for comparing value means. The MGCFA did not support configural and metric invariance across 25 countries. After reducing the number of countries to 14, the MGCFA supported metric invariance of a model with seven distinct values, the same values identified with data from the first ESS round. These value measurements may now be used by researchers to study relationships among values, attitudes, behavior, and sociodemographic characteristics across the 14 nations. Comparing national value means may be possible only across a smaller set of countries where scalar invariance holds. In the second part of the study, metric and scalar invariance were established between the first and the second rounds of the ESS in each of 19 countries separately. Value means may be compared for each of the countries between the first and second ESS rounds (2002-2003 and 2004-2005, respectively).

Sticks or Carrots? Optimal CEO Compensation when Managers are Loss-Averse

Abstract: This paper analyzes optimal executive compensation contracts when managers are loss averse. We calibrate a stylized principal-agent model to the observed contracts of 595 CEOs and show that this model can explain observed option holdings and high base salaries remarkably well for a range of parametrizations. We also derive and calibrate the general shape of the optimal contract that is increasing and convex for medium and high outcomes and drops discontinuously to the lowest possible payout for low outcomes. We identify the critical features of the loss-aversion model that render optimal contracts convex.

System Dynamics as a Structural Theory in Operations Management

Abstract: The purpose of the paper is to demonstrate the usefulness of (1) system dynamics as a structural theory for operations management and (2) system dynamics models as content theories in operations management. The key findings are that, although feedback loops, accumulation processes, and delays exist and are widespread in operations management, often these phenomena are ignored completely or not considered appropriately. Hence, it is reasoned why system dynamics is well suited as an approach for many operations management studies, and it is shown how system dynamics theory can be used to explain, analyze, and understand such phenomena in operations management. The discussion is based on a literature review and on conceptual considerations, with examples of operations management studies based on system dynamics. Implications of using this theory include the necessary re-framing of some operations management issues and the extension of empirical studies by dynamic modeling and simulation. The value of the paper lies in the conceptualization of the link between system dynamics and operations management, which is discussed on the level of theory.

Do IMF and IBRD cause moral hazard and political business cycles? Evidence from panel data

Abstract: Using panel data for 94 countries in 1975–97, we estimate OLS, 2SLS and GMM regressions to explain IMF and IBRD lending as well as monetary and fiscal policies in the recipient countries. With respect to moral hazard, we find that a country's government budget deficit and its rate of monetary expansion are higher the larger its borrowing potential in the Fund. New net lending of the Bank (relative to GDP) raises monetary expansion but lowers budget deficits of the recipient countries while new net credit from the Fund is associated with less expansionary policies. As for political business cycles, our evidence indicates that new net credits from the IMF are significantly larger prior to elections and that borrowing from the IBRD is significantly smaller after elections.