ABSTRACT: Auditors are required to understand dynamic business environments as part of the performance of analytical procedures. Prior evidence, though, suggests that auditors have difficulty understanding such environments. This study reports an experimental investigation of techniques that help auditors to identify incorrect management representations by developing expectations that are both accurate and adaptive to changing business conditions. My predictions suggest that analyzing a dynamic client environment through a systems perspective enhances information-processing ability, which then improves both evidence discrimination and the assimilation of new audit evidence. Results reveal that participants taking a holistic systems-based view of a client environment develop more coherently organized mental models that increase their likelihood of identifying management representations that are inconsistent with industry evidence. Furthermore, these participants more efficiently use their information-processing ability, thereby improving assimilation of newly learned evidence to understand how changing business conditions affect their initial expectations.

[We examine how experience affects the decisions of individual investors and institutions in IPO auctions to bid in subsequent auctions, and their bidding returns. We track bidding histories for all 31,476 individual investors and 1,232 institutional investors across all 84 IPO auctions during the period from 1995 to 2000 in Taiwan. For individual bidders, (1) high returns in previous IPO auctions increase the likelihood of participating in future auctions; (2) bidders' returns decrease as they participate in more auctions; (3) auction selection ability deteriorates with experience; and (4) those with greater experience bid more aggressively. These findings are consistent with naïve reinforcement learning wherein individuals become unduly optimistic after receiving good returns. In sharp contrast, there is little sign that institutional investors exhibit such behavior.]

Empirical support for the hypothesis that closed-end fund discounts are related to overhanging tax liabilities has been mixed. We introduce a new approach to testing this hypothesis by examining changes in discount levels following distributions of dividends and capital gains. Since distributions reduce future shareholder tax liabilities, the tax liability hypothesis implies that closed-end fund discounts should decline following distributions. Focusing on changes in discounts isolates this tax effect by eliminating the impact of other fund-specific factors on discount levels. Our results support the tax liability hypothesis, showing that short-run fluctuations in discounts are directly affected by taxable distributions.

In view of the non-identification of the first-price auction model with risk-averse bidders, this paper proposes some parametric identifying restrictions and a semiparametric estimator for the risk aversion parameter(s) and the latent distribution of private values. Specifically, we exploit heterogeneity across auctioned objects to establish semiparametric identification under a conditional quantile restriction of the bidders' private value distribution and a parameterization of the bidders' utility function. We develop a multistep semiparametric method and we show that our semiparametric estimator of the utility function parameter(s) converges at the optimal rate, which is slower than the parametric one but independent of the dimension of the exogenous variables thereby avoiding the curse of dimensionality. We then consider various extensions including a binding reserve price, affiliation among private values, and asymmetric bidders. The method is illustrated on U.S. Forest Service timber sales, and bidders' risk neutrality is rejected.

This paper shows the relation between CEO ownership and firm valuation hinges critically on the strength of external governance (EG). The relation is hump-shaped when EG is weak, but is insignificant when EG is strong. The results imply that CEO ownership and EG are substitutes for mitigating agency problems when ownership is low. However, very high levels of share ownership can reduce firm value by entrenching the CEO and discouraging him from taking risk, unless mitigated by strong EG. We identify channels through which CEO ownership affects firm value by examining R&D, which is discretionary and risky. We find CEO ownership similarly exhibits a hump-shaped relation with R&D when EG is weak, but no relation when EG is strong. Our results are robust to endogeneity issues concerning CEO ownership and EG.

We estimate the impact of coups and top-secret coup authorizations on asset prices of partially nationalized multinational companies that stood to benefit from U.S.-backed coups. Stock returns of highly exposed firms reacted to coup authorizations classified as top-secret. The average cumulative abnormal return to a coup authorization was 9% over 4 days for a fully nationalized company, rising to more than 13% over 16 days. Precoup authorizations accounted for a larger share of stock price increases than the actual coup events themselves. There is no effect in the case of the widely publicized, poorly executed Cuban operations, consistent with abnormal returns to coup authorizations reflecting credible private information. We also introduce two new intuitive and easy to implement nonparametric tests that do not rely on asymptotic justifications.

Nous nous intéressons à l'estimation non paramétrique d'une fonction de régression instrumentale ϕ .Cette fonction est définie à l'aide de conditions de moment provenant d'un modèle économétrique structurel de la forme ( )des variables endogènes et les W des instruments.La fonction ϕ est alors la solution d'un problème inverse mal posé, et nous proposons une procédure d'estimation utilisant la régularisation de Tikhonov.Le papier analyse l'identification et la suridentification du modèle et donne les propriétés asymptotiques de l'estimateur de la régression instrumentale non paramétrique.