This paper examines the performance of auditors in generating hypotheses in an analytical review case both prior to and after review. It partitions two possible sources of gain from the review process, namely the discussion effect and the rank effect. The discussion effect compares review groups with and without discussion. The rank effect compares seniors and audit managers. The study found that the review process results in more plausible hypotheses being generated. Discussion within the review process between reviewer and reviewee was found to be one source of gain from the review process. While there was no difference in the performance of the senior and manager reviewers, managers completed the task in less time.

We investigate the interaction of mandatory disclosure and the gathering of decision‐relevant information in a setting in which a competitor may enter the market. Gathering detailed information allows for an efficient allocation of resources, but eventually attracts competition by revealing beneficial information to competitors. In contrast, refraining from generating detailed information implies inefficient decisions, but eventually prevents competitors from entering the market. Our results show that an incentive not to generate internal information arises for two reasons: If the incumbent's cost advantage is sufficiently large, disclosing aggregated information can be an instrument to avoid competition by reducing the likelihood of market entry. If the incumbent's cost advantage is small, disclosing aggregated information attracts competition by increasing the likelihood of market entry. In this case, imprecise cost information serves as a commitment device to reduce the intensity of competition by forcing the competitor to take into account his efficiency disadvantage in making his production decision.

From in-depth interviews with public accounting personnel, Dirsmith & Covaleski [Accounting, Organizations and Society (1985) pp. 149–169] concluded that mentoring exists in large public accounting firms and benefits the mentor, protégé and the firm. Based on a national survey of public accounting employees, the current study uses quantitative data analysis to identify public accounting mentoring functions, their effect on employee turnover intentions, and their association with specific organizational variables (protégé organizational level, protégé gender, mentor's position, and audit firm structure). The study found that public accounting mentoring consists of three separate functions: social support, career development, and role modeling. Path analysis indicated that employees with lower turnover intentions received more career development support from their mentor and had a partner as a mentor. The level of social support provided by partner mentors tended to be less than that provided by manager mentors. Female protégés, who tended to have managers as mentors, received more social support when their mentor was also female. The role modeling function did not differ across organizational variables. The results of the study indicate that while social support is a key factor in defining the mentoring process for public accounting employees, the career development function is associated with lower protégé turnover intentions.

We study a model in which corporate social responsibility arises in response to inefficient regulation. In our model, firms, governments, and workers interact. Firms create negative spillovers that can be attenuated through government regulation, which is set endogenously and may not be socially optimal. Companies can hire socially responsible employees who enjoy correcting spillovers. Because firms can capture rents created by allowing this, they sometimes find it optimal to lobby for inefficient rules and then encourage socially responsible behavior in their midst. Thus, social responsibility can either increase or decrease social welfare, depending on the costs of political capture.

Fund managers' bias toward geographically proximate securities is a well-researched phenomenon, yet the origins of managers' location choices have received little empirical scrutiny. This paper traces the employment and geographic heritage of 358 entrepreneurial fund managers and analyzes the determinants of where they locate their firms and stock selections. The evidence suggests that start-ups tend to be based close to the origins of their founders and in regions with more investment management firms, banking establishments, and large institutional money managers. New money managers show a strong local bias in their equity holdings, three times the levels previously documented for mutual funds. The propensity to invest closer to home correlates strongly with the presence of sub-advisory opportunities from institutional investors in the vicinity. While home bias levels between managers who relocate with their start-ups and the rest of the entrepreneurs are similar, preferences for stocks that were formally local persist.

We document strong weekly lead-lag return predictability across stocks from different industries with no customer-supplier linkages (economically unrelated stocks). Between 1980 and 2010, the industry-neutral long-short hedge portfolio earns an average of over 19 basis points per week. This predictability is related to common institutional ownership and is distinct from previously documented lead-lag effects. Common institutional ownership is a complementary rather than a substitute explanation for return predictability. Information linkages are enough to induce return predictability among stocks in the same industry, but economically unrelated stocks exhibit return predictability only when they have common institutional owners. Our findings suggest that institutional portfolio reallocations can induce return predictability among otherwise unrelated stocks.

The paper analyzes bank performance in the context of the integrated European Union market and its member countries. First, the paper investigates the technical efficiency of banks in each country sample using a Data Envelopment Analysis (DEA) model incorporating only banking variables. Then, a second DEA model is defined incorporating environmental factors together with banking variables in order to standardize the country-specific environmental conditions. Based on these models, the paper systematically analyzes the efficiency position for each of the European banking industry if average banks decide to operate in any other country. The results indicate that adverse (advantageous) environmental conditions are a positive (negative) factor for the home banking industry and being technically efficient appears to be a significant deterrence to foreign competition.

Many people assume that the most significant risk in the housing market is that homeowners are exposed to fluctuations in house values. However, homeownership also provides a hedge against fluctuations in future rent payments. This paper finds that, even though house price risk endogenously increases with rent risk, the latter empirically dominates for most households -so housing market risk actually increases homeownership rates and house prices.

We examine the role of cash flow from operations (CFO) in chief executive officer (CEO) cash compensation. We predict that CFO is contract‐relevant in the presence of earnings, and more so when (1) the quality of earnings relative to the quality of CFO as a measure of performance is low and (2) the need for CFO as a financing source is high. Our analysis is motivated principally by normative arguments and anecdotes from financial disclosures linking CFO to managerial effort and contracts, notwithstanding the traditional role of earnings in performance measurement. We find that the weight of CFO in the compensation model is positive and significant in the presence of earnings and stock returns. We also find that the relative quality of CFO compared with that of earnings has a positive (negative) impact on the weight of CFO (earnings). We further find that the relative weight of CFO is enhanced substantially when enterprise activities crucially depend on internally generated cash flow. These findings are unaltered when we include CEO age, firm size, and risk in the model and allow the coefficients to vary across industries.