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Journal Article
Allocating publicly owned assets: the case of personal communications services
An examination of the rationale for the recent use of government auctions to allocate radio spectrum. Auctions are a more equitable allocation method than either comparative hearings or lotteries, will help put a dent in the federal debt, and will be fair to small firms that face capital constraints.
AUTHORS: Gale, Ian
DATE: 1995

Journal Article
Expensing stock options
Many market commentators argue that companies should expense the stock options they give their employees. Will expensing give investors better information about what companies earn and spend?
AUTHORS: Haubrich, Joseph G.
DATE: 2003

Journal Article
Corporations called on to help solve accounting problems
AUTHORS: anonymous
DATE: 2002

Working Paper
Uncertain litigation cost and seller behavior: Evidence from an auditing game
This paper reports the results of two experiments, each consisting of six sessions, designed to investigate difficulties that arise in estimating expected litigation costs in an auditing game. In each experimental session, the game consists of a series of periods in which sellers submit sealed offers to computerized buyers and, if hired, choose an effort level (low or high). The effort level affects the certain (direct) and uncertain (litigation) costs of performing the engagement. Across the two experiments, we vary the uncertainty surrounding the determination of the expected litigation cost. Our results strongly suggest that cognitive limitations hinder sellers' abilities to estimate total expected litigation costs. Across both experiments we observe a nontrivial number of suboptimal effort choices. Moreover, as the uncertainty of determining the expected litigation cost increases, the frequency of observed fee offers below the total expected cost of an engagement increases markedly.
AUTHORS: Zhang, Ping; Church, Bryan K.; Ackert, Lucy F.
DATE: 1998

Journal Article
Bank loan-loss accounting: a review of theoretical and empirical evidence
The philosophy underlying a bank's accounting for loan losses might have a material effect on the net income the firm reports to investors, which is a concern for securities regulators. A bank's loan-loss accounting philosophy might also significantly affect its ability to absorb unexpected future losses, which is a concern for bank supervisors. For example, a bank that follows a conservative loan-loss philosophy (maintains a higher loan-loss allowance) may be better able to absorb unexpected losses but also may have more freedom to manage reported earnings. This article focuses on the extent to which securities regulators and bank supervisors should be concerned about banks' accounting. ; The authors' conclusion is that neither the bank supervisors' nor the securities regulators' concern is as serious as it may seem at first glance. Using currently available data, investors can and do form estimates of the "economically true" amount of banks' loan-loss allowances, provisions, net income, and equity capital. Strict adherence to Securities and Exchange Commission guidelines may improve the quality of the data, but the guidelines may not eliminate the benefit or reduce the cost of investors' making their own estimates. However, bank supervisors have the authority to require banks to hold additional equity capital if the bank's loan-loss allowance is judged inadequate to absorb future losses.
AUTHORS: Koch, Timothy W.; Wall, Larry D.
DATE: 2000

Journal Article
How should banks account for loan losses?
The agencies that regulate banks are involved in an ongoing debate about the appropriate way for banks and other lenders to account for default risk on loans. Accounting authorities are concerned with whether the accounting method meets the needs of general-purpose users of financial statements, particularly investors. In contrast, bank supervisors are concerned about banks being inadequately capitalized and possibly failing. ; To shed light on this debate, this article reviews the generally accepted accounting principles (GAAP) currently used, which are based on historic-cost values for assets and liabilities. It then analyzes economic-value, or fair-value, accounting, which is being discussed as a substitute. ; The analysis suggests that the reported GAAP value is likely to understate the economic value of most banks? portfolios most of the time. The economic values of loans would be more valuable if they were reliable. However, the authors argue, the fair value of credit losses must be estimated by management and hence may be biased by managerial attempts to attain earnings and capital targets. ; The authors conclude that using the lower of historic cost or economic value for valuing the credit risk of loans would provide the most relevant adequately reliable measure of loan value and would thus be the most appropriate procedure.
AUTHORS: Benston, George J.; Wall, Larry D.
DATE: 2005

Journal Article
Assessing the condition of Japanese banks: how informative are accounting earnings?
This article examines the accounting and stock market performance of banks from 1991 to 1997. Overall, the results indicate that the accounting, disclosure, and regulatory practices of Japanese banks have drive a wedge between their accounting and stock market returns in recent years and, furthermore, that regulatory forbearance might have become a more important source of value to shareholders than the value of assets in place.
AUTHORS: Genay, Hesna
DATE: 1998

Working Paper
Hidden cost reductions in bank mergers: accounting for more productive banks
Over the past decade, the banking industry has undergone rapid consolidation; indeed, on average, for the past three years there were more than two bank mergers every business day. Before the 1990s, most bank mergers involved banks with less than $1 billion in assets; more recently, even the very largest banks have merged with other banks and with nonbank financial firms. ; Globalization, technological advances, and regulatory retreat are often cited as factors that have stimulated and allowed more banks to merge. Mergers may reduce costs if they enable banks to close redundant branches or consolidate back-office functions. Mergers may make banks more productive if they increase the range of products that banks can profitably offer. Mergers may also diversify further bank portfolios and thereby reduce the probability of insolvency. Increased diversification then may reduce banks total costs by reducing desired capital-asset ratios. Increased diversification and size may also raise revenues if they increase banks attractiveness to customers who will deal only with very safe institutions. Though banks loan rates or noninterest revenues might rise or their deposit rates or capital requirements might fall as a result of mergers, we do not focus on those aspects of mergers here. Rather, we focus on the effects of merging on banks noninterest expenses.
AUTHORS: Wilcox, James A.; Kwan, Simon H.
DATE: 1999

Journal Article
Pooling or purchase: a merger mystery
AUTHORS: Walter, John R.
DATE: 1999

Working Paper
Beyond the numbers: an analysis of optimistic and pessimistic language in earnings press releases
In this paper, we examine whether managers use optimistic and pessimistic language in earnings press releases to provide information about expected future firm performance to the market, and whether the market responds to optimistic and pessimistic language usage in earnings press releases after controlling for the earnings surprise and other factors likely to influence the market*s response to the earnings announcement. We use textual-analysis software to measure levels of optimistic and pessimistic language for a sample of approximately 24,000 earnings press releases issued between 1998 and 2003. We find a positive (negative) association between optimistic (pessimistic) language usage and future firm performance and a significant incremental market response to optimistic and pessimistic language usage in earnings press releases. Results suggest managers use optimistic and pessimistic language to provide credible information about expected future firm performance to the market, and that the market responds to managers' language usage.
AUTHORS: Davis, Angela K.; Piger, Jeremy M.; Sedor, Lisa M.
DATE: 2006

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