This paper examines the degree to which managerial discretion over accruals relating to loan losses in the Canadian banking industry during 1977–87 may have been utilized to manage regulatory capital, taxable income, and reported earnings. These years reflect a unique period in which accounting and regulatory practices differed significantly from the post‐1987 period. These prior practices created different types of incentives and highlighted different policy issues such as the role of tax benefits in loan loss accrual decisions. We model a three‐equation, simultaneous system around three annual discretionary choices: the amount of loan loss experience accrued (based on specific provisions), the size of reserve transfers to the Appropriation for Contingencies (based on general provisions), and the extent of external regulatory capital raised. Results indicate strong support for the capital maintenance predictions and weaker, but significant, support for the tax management predictions. Results do not support the predictions of the earnings management hypothesis. Résumé. Les auteurs examinent la mesure dans laquelle la discrétion dont jouissait la direction dans la présentation des montants cumulatifs des pertes sur prêts, dans le secteur bancaire canadien entre 1977 et 1987, pourrait avoir été mise à profit dans la gestion du capital réglementaire, du revenu imposable et des bénéfices publiés. Cette décennie est unique puisqu'elle se caractérise par le fait que les méthodes comptables et réglementaires présentaient des différences significatives par rapport à celles de la période postérieure à 1987. Les méthodes initiales ont donné naissance à différents types d'incitatifs et mis en relief des questions différentes relatives aux politiques, telles que le rôle des avantages fiscaux dans les décisions touchant les pertes sur prêts cumulatives. Les auteurs créent un modèle à partir d'un système de trois équations concomitantes, autour de trois choix annuels discrétionnaires: le montant cumulatif des pertes sur prêts qui sont subies (basé sur des dispositions précises), l'importance des transferts de réserves aux provisions pour éventualités (basée sur des dispositions générales), et l'importance du capital réglementaire externe recueilli. Les résultats confirment éloquemment les prédictions relatives au maintien du capital et de façon plus tempérée, mais néanmoins significative, les prédictions relatives à la gestion fiscale. Ils ne confirment cependant pas les prédictions relatives à la gestion des bénéfices.

[Any admissible portfolio performance measure should satisfy four minimal conditions: it assigns zero performance to each reference portfolio and it is linear, continuous, and nontrivial. Such an admissible measure exists if and only if the securities market obeys the law of one price. A positive admissible measure exists if and only if there is no arbitrage. This article characterizes the (infinite) set of admissible performance measures. It is shown that performance evaluation is generally quite arbitrary. A mutual fund data set is also used to demonstrate how the measurement method developed here can be applied.]

[This article offers a tractable monetary asset pricing model. In monetary economies, the price level, inflation, asset prices, and the real and nominal interest rates have to be determined simultaneously and in relation to each other. This link allows us to relate in closed form each of the dependent entities to the underlying real and monetary variables. Among other features of such economies, inflation can be partially nonmonetary and the real and nominal term structures can depend on fundamentally different risk factors. In one extreme, the process followed by the real term structure is independent of that followed by its nominal counterpart.]

In existing theory, wealth is no more valuable than its implied consumption rewards. In reality investors acquire wealth not just for its implied consumption, but for the resulting social status. Max M. Weber refers to this desire for wealth as the spirit of capitalism. We examine, both analytically and empirically, implications of Weber's hypothesis for consumption, savings, and stock prices. When investors care about relative social status, propensity to consume and risk-taking behavior will depend on social standards, and stock prices will be volatile. The spirit of capitalism seems to be a driving force behind stock-market volatility and economic growth.

[This study investigates the association between going concern opinions and the market's reaction to bankruptcy filings. The results of prior studies indicate that going concern opinions are useful in predicting bankruptcy and provide some explanatory power in predicting bankruptcy resolution. As such, going concern opinions may reduce the surprise associated with bankruptcy. Our results are consistent with this assertion. Firms receiving going concern opinions experience less negative excess returns in the period surrounding bankruptcy filings than those receiving unqualified opinions. These results hold after controlling for the probability of bankruptcy, the market's reaction to news announcements occurring prior to bankruptcy, and changes in stock price prior to the issuance of the auditor's report. Overall, our results are consistent with going concern opinions having information value.]

Any admissible portfolio performance measure should satisfy four minimal conditions: it assigns zero performance to each reference portfolio and it is linear, continuous, and nontrivial. Such an admissible measure exists if and only if the securities market obeys the law of one price. A positive admissible measure exists if and only if there is no arbitrage. This article characterizes the (infinite) set of admissible performance measures. It is shown that performance evaluation is generally quite arbitrary. A mutual fund data set is also used to demonstrate how the measurement method developed here can be applied.

This article offers a tractable monetary asset pricing model. In monetary economies, the price level, inflation, asset prices, and the real and nominal interest rates have to be determined simultaneously and in relation to each other. This link allows us to relate in closed form each of the dependent entities to the underlying real and monetary variables. Among other features of such economies, inflation can be partially nonmonetary and the real and nominal term structures can depend on fundamentally different risk factors. In one extreme, the process followed by the real term structure is independent of that followed by its nominal counterpart.

In existing theory, wealth is no more valuable than its implied consumption rewards. In reality investors acquire wealth not just for its implied consumption, but for the resulting social status. Max M. Weber refers to this desire for wealth as the spirit of capitalism. We examine, both analytically and empirically, implications of Weber's hypothesis for consumption, savings, and stock prices. When investors care about relative social status, propensity to consume and risk-taking behavior will depend on social standards, and stock prices will be volatile. The spirit of capitalism seems to be a driving force behind stock-market volatility and economic growth.

This study investigates the association between going concern opinions and the market's reaction to bankruptcy filings. The results of prior studies indicate that going concern opinions are useful in predicting bankruptcy and provide some explanatory power in predicting bankruptcy resolution. As such, going concern opinions may reduce the surprise associated with bankruptcy. Our results are consistent with this assertion. Firms receiving going concern opinions experience less negative excess returns in the period surrounding bankruptcy filings than those receiving unqualified opinions. These results hold after controlling for the probability of bankruptcy, the market's reaction to news announcements occurring prior to bankruptcy, and changes in stock price prior to the issuance of the auditor's report. Overall, our results are consistent with going concern opinions having information value.