This paper is about the economic theory of biodiversity preservation. A cost-effectiveness methodology is constructed, which results in a ranking criterion sufficiently operational to be useful in suggesting what to look at when determining actual conservation priorities. The formula is firmly rooted in a mathematically rigorous optimization framework, so that its theoretical underpinnings are clear. The underlying model, called the 'Noah's Ark Problem, ' is intended to be a kind of canonical form that hones down to its analytical essence the problem of best preserving diversity under a limited budget constraint.

The least-absolute-deviations (LAD) estimator for a median-regression model does not satisfy the standard conditions for obtaining asymptotic refinements through use of the bootstrap because the LAD objective function is not smooth. This paper overcomes this problem by smoothing the objective function. The smoothed estimator is asymptotically equivalent to the standard LAD estimator. With bootstrap critical values, the rejection probabilities of symmetrical t and X 2 tests based on the smoothed estimator are correct through O(n -γ ) under the null hypothesis, where γ<1 but can be arbitrarily close to 1. In contrast, first-order asymptotic approximations make errors of size O(n -γ ). These results also hold for symmetrical t and X 2 tests for censored median regression models.

A model of earnings, cash flows and accruals is developed assuming a random walk sales process, variable and fixed costs, and that the only accruals are accounts receivable and payable, and inventory. The model implies earnings better predict future operating cash flows than current operating cash flows and the difference varies with the operating cash cycle. Also, the model is used to predict serial and cross-correlations of each firm's series. The implications and predictions are tested on a 1337 firm sample over 1963–1992. Both earnings and cash flow forecast implications and correlation predictions are generally consistent with the data.

This study examines the relation between audit quality and earnings management. Consistent with prior research, we treat audit quality as a dichotomous variable and assume that Big Six auditors are of higher quality than non‐Big Six auditors. Earnings management is captured by discretionary accruals that are estimated using a cross‐sectional version of the Jones 1991 model. Prior literature suggests that auditors are more likely to object to management's accounting choices that increase earnings (as opposed to decrease earnings) and that auditors are more likely to be sued when they are associated with financial statements that overstate earnings (as compared to understate earnings). Therefore, we hypothesize that clients of non‐Big Six auditors report discretionary accruals that increase income relatively more than the discretionary accruals reported by clients of Big Six auditors. This hypothesis is supported by evidence from a sample of 10,379 Big Six and 2,179 non‐Big Six firm years. Specifically, clients of non‐Big Six auditors report discretionary accruals that are, on average, 1.5‐2.1 percent of total assets higher than the discretionary accruals reported by clients of Big Six auditors. Also, consistent with earnings management, we find that the mean and median of the absolute value of discretionary accruals are greater for firms with non‐Big Six auditors. This result also indicates that lower audit quality is associated with more “accounting flexibility”.

Data on selling by venture capitalists during the IPOs of their portfolio companies are used to examine the relation between insider selling decisions and reputation. We hypothesize that, in deciding whether to sell, venture capitalists balance the costs of continued managerial/monitoring involvement against the adverse reaction to selling. Further, they facilitate unwinding of investment positions by developing reputations for not selling overpriced shares. Evidence on the timing of IPOs and selling decisions of venture capitalists confirms the importance of reputation as a determinant of the organization of the venture capital market and as a factor affecting insider selling decisions.

In a sample of auditor change firms we find that discretionary accruals are income decreasing during the last year with the predecessor auditor and generally insignificant during the first year with the successor. In addition, the income decreasing discretionary accruals are concentrated among firms expected to have greater litigation risk. These findings are consistent with litigation risk concerns providing incentives for auditors to prefer conservative accounting choices, and with managers dismissing incumbent auditors in the hope of finding a more reasonable successor. However, we cannot rule out financial distress as a potential alternative explanation for our results.

When shareholders have different plans to sell their shares, they will, in general, have different preferences concerning the firm's decision to pay out cash using dividends or share repurchase. We illustrate these different preferences and explore a model of payout policy that highlights the adverse selection costs of repurchases when managers have superior information about the value of the firm. We show that, in the absence of fixed costs to repurchasing shares, there is a separating equilibrium in which managers use taxable dividends to signal the quality of the firm, with better firms paying lower dividends, using repurchases for the remainder of the payout. With fixed costs to repurchasing, small payouts are made via dividend and large payouts are divided between repurchases and dividends, as in the no-fixed cost case. In both cases, the percentage of shares repurchased increases with the size of the payout and larger repurchases are better news.

Rank transformation of observations has been shown to be useful in linear modeling because the models so constructed are less sensitive to outliers and/or non‐normal distributions than are models constructed using standard methods. In the present study, we apply rank transformations to financial ratios to improve the predictive usefulness of standard failure prediction models. Kane, Richardson, and Graybeal (1996) have shown that failure prediction can be improved by conditioning accounting‐based statistical models on the occurrence of recession. Our results suggest that rank‐ transformed data models show additional improvement in prediction without the added cost of having to predict recession for the companies undergoing testing for potential failure.

We examine the 49 Standard & Poor's (S&P) 500 firms that voluntarily disclosed in their 1993 proxy statements, the composition of the comparison group used by each board's compensation committee to set executive compensation policies. We hypothesize that the net benefits of this disclosure are largest when (1) there is a high degree of stakeholder concern about compensation, (2) compensation policies are defensible, and (3) corporate governance is strong. Consistent with our stakeholder concern prediction, disclosing firms have higher compensation levels and are more apt to have received prior shareholder proposals about executive compensation. Contrary to this prediction, we find a negative association between financial press coverage of compensation policies and the probability of disclosure. Additionally, the disclosure decision is unrelated to the defensibility of compensation policies and the firm's corporate governance profile. Industry‐adjusted firm performance, managerial entrenchment, CEO tenure, institutional holdings, and compensation committee independence variables are insignificant. We also compare the financial performance and compensation practices of compensation peers to two yardsticks — performance and pay practices at the sample firms and the corresponding S&P industry index firms. The compensation levels of compensation peers exceed those of the firms in the corresponding S&P industry indexes. Because (1) compensation levels and performance sensitivities at sample firms are more similar to those at compensation peers than to those at S&P industry index firms, and (2) the superior financial performance and higher performance sensitivities of disclosing firms justify high pay, this evidence suggests that the compensation peers of disclosing firms are an appropriate comparison group.

This paper develops methods for constructing asymptotically valid confidence intervals for the date of a single break in multivariate time series, including I(0), I(1), and deterministically trending regressors. Although the width of the asymptotic confidence interval does not decrease as the sample size increases, it is inversely related to the number of series which have a common break date, so there are substantial gains to multivariate inference about break dates. These methods are applied to two empirical examples: the mean growth rate of output in three European countries, and the mean growth rate of U.S. consumption, investment, and output.