[Oil and gas firms using the full cost method during 1985-1986 faced a choice between taking a write-down in oil and gas properties or changing to the successful efforts method. In a time-series analysis, the executive bonuses of firms switching to the successful efforts method are found to be associated with accounting income, suggesting the effects of bonus plans on the switch decision. We also show that the firms choosing write-down reported more losses before the write-down during the decision year, and that the bonuses of these firms' executives are not affected by the write-down.]

[Positive theory hypothesizes that accounting-based debt covenants are important factors in accounting choices. According to Watts and Zimmerman's (1990) survey, this hypothesis has generally been supported by earlier studies. That is, the closer the firm is to violating accounting covenants, the more likely managers would choose income-increasing methods. Recently, research attention has shifted to the event of covenant violation itself. For example, Beneish and Press (1993) estimate debtors' costs of violations. Further, DeFond and Jiambalvo (1991) and Sweeney (1992) examine debtors' manipulative behavior before covenant violations. These latter studies find that violations of accounting covenants are costly to debtors, who generally try to manipulate accounting numbers to avoid or defer technical defaults. The present study also focuses on the event of violation, but from the perspective of creditors. It explains two aspects of creditors' decision process following covenant violations. First, we find that creditors react to actual violations in two distinct ways: they could either waive the violations or could demand certain conditions such as early payment, increase of interest rate, reduction of borrowing base, and so forth. Second, we also model creditors' decisions either to waive or to call the debt using the option-pricing framework. We hypothesize that the determinants of waiver decisions include the firm's bankruptcy probability and leverage ratio. Moreover, maturity, size, and security of the debt issue involved should also be important factors in the waiver decisions. Empirically, we find that creditors are more likely to grant a waiver to the firm with a lower estimated probability of bankruptcy and a lower leverage ratio. Further, debt issues that are secured or smaller in size are more likely to have violations waived than unsecured or larger issues. The maturity variable, however, is not found a significant determinant of the waiver decisions. Using the factors identified in this study, managers can assess the probability of receiving a waiver and prepare necessary strategies to ensure the firm's survival. Auditors also can use those factors to assess the possibility of the client's receiving a waiver of covenant violation as part of their evaluation of the firm's ability to continue as a going concern. Moreover, since debtors prefer waivers to nonwaivers, the prospect of receiving a waiver is likely to influence managerial behavior, including the choice of accounting alternatives. Managers expecting a nonwaiver from creditors would have more incentive to select accounting methods to avoid covenant violations.]

We examine an oligopoly model where some consumers engage in costly non-sequential search to discover prices. There are three distinct price-dispersed equilibria characterized by low, moderate and high search intensity. The effects of an increase in the number of firms on search behaviour, expected prices, price dispersion and welfare are sensitive (i) to the equilibrium consumers' search intensity, and (ii) to the status quo number of firms. For instance, when consumers search with low intensity, an increase in the number of firms reduces search, does not affect expected price, leads to greater price dispersion and reduces welfare. In contrast, when consumers search with high intensity, increased competition results in more search and lower prices when the number of competitors in the market is low to begin with, but in less search and higher prices when the number of competitors is large. Duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms.

We examine an oligopoly model where some consumers engage in costly non-sequential search to discover prices. There are three distinct price-dispersed equilibria characterized by low, moderate and high search intensity. The effects of an increase in the number of firms on search behaviour, expected prices, price dispersion and welfare are sensitive (i) to the equilibrium consumers' search intensity, and (ii) to the status quo number of firms. For instance, when consumers search with low intensity, an increase in the number of firms reduces search, does not affect expected price, leads to greater price dispersion and reduces welfare. In contrast, when consumers search with high intensity, increased competition results in more search and lower prices when the number of competitors in the market is low to begin with, but in less search and higher prices when the number of competitors is large. Duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms.

International Financial Reporting Standards ( IFRS ) allow firms to record adjustments (gains or losses) from the revaluation of investment properties in their income statements. After Hong Kong adopted IFRS in 2005, property companies were required to move their revaluation gains and losses ( RGL ) from equity to income. We find RGL to be a significant determinant of executive compensation in these firms after 2005, but not before. We further find evidence that the RGL ‐compensation association is driven by firms with relative weak corporate governance structure, such as firms in which the controlling shareholders own a relatively small percentage of shares, firms in which the controlling shareholders have control rights that exceed ownership rights, and firms that are no longer run by their founders.

The relationship between co-integration and error correction models, first suggested in Granger (1981), is here extended and used to develop estimation procedures, tests, and empirical examples. If each element of a vector of time series x first achieves stationarity after differencing, but a linear combination a'x is already stationary, the time series x are said to be co-integrated with co-integrating vector a. There may be several such co-integrating vectors so that a becomes a matrix. Interpreting a'x,= 0 as a long run equilibrium, co-integration implies that deviations from equilibrium are stationary, with finite variance, even though the series themselves are nonstationary and have infinite variance. The paper presents a representation theorem based on Granger (1983), which connects the moving average, autoregressive, and error correction representations for co-integrated systems. A vector autoregression in differenced variables is incompatible with these representations. Estimation of these models is discussed and a simple but asymptotically efficient two-step estimator is proposed. Testing for co-integration combines the problems of unit root tests and tests with parameters unidentified under the null. Seven statistics are formulated and analyzed. The critical values of these statistics are calculated based on a Monte Carlo simulation. Using these critical values, the power properties of the tests are examined and one test procedure is recommended for application. In a series of examples it is found that consumption and income are co-integrated, wages and prices are not, short and long interest rates are, and nominal GNP is co-integrated with M2, but not M1, M3, or aggregate liquid assets.

Current literature stresses that efficient funds do not exist when asset returns are continuously distributed. This paper shows that the existence of efficient funds can be restored if security returns are generated by a linear factor model.

The authors test the hypothesis that, when their compensation is linked to relative performance, managers of investment portfolios likely to end up as 'losers' will manipulate fund risk differently than those managing portfolios likely to be 'winners.' An empirical investigation of the performance of 334 growth-oriented mutual funds during 1976 to 1991 demonstrates that mid-year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid-year winners. Furthermore, the authors show that this effect became stronger as industry growth and investor awareness of fund performance increased over time.