US Macroeconomics - 646 Words

US macroeconomics The American economy is currently the largest economy of the globe the second, when the European Union is considered, yet this is a union of several countries, all generating gross domestic products. The US economy is an open economy, engaging in trade operations with countries across the entire globe. The economic context is mostly a private one, with the intervention of the government in economy being restricted; in other words, the economy is ruled based on the principles of demand and supply. The government makes its purchases within the private sector. The companies in the private sector then represent the engine of economic growth in the United States. They are highly strengthened by technologies and they have a relatively increased flexibility in managing capitals and staffs. These features make the US firms more competitive then the firms in other countries. Despite its impressive size, the strength of the US economy is currently shaking as a result of the economic crisis co mmenced in 2007. Whereas the country only entered recession in 2008, the economic crisis has in fact revealed some problems that already existed within the country, such as unstable and insufficient financial policies, dangerous lending practices or insufficient fiscal regulations. 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Continued Silence EP by Imagine Dragons free essay sample

The booming, detonating lead track, â€Å"Radioactive,† comes to represent everything from Imagine Dragons’ Continued Silence EP. Released in 2012 after a string of earlier works, the EP carves into the soul with a heavy rock attitude, and like the cover art, breathes life into the fictional, twilighting ruins of the future. Each song feels all-encompassing, whole, and never fails to hit the right note, filled with as much action as soul. While grand, the music also forges a deeply personal connection. â€Å"On Top of the World,† the rousing, feel-good anthem for the masses, breathes like a ray of sun, while the more complex â€Å"Round and Round† spins around a hollow core. A mix of milky, electric/acoustic guitar and pounding drums, it moves in the same direction as its story. From neverending joy to grief, there’s something very human about the energy that pours from the EP, as if the music celebrates more than individual thoughts and dreams: instead, what it means to be young and hopeful. We will write a custom essay sample on Continued Silence EP by Imagine Dragons or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page That doesn’t mean the EP doesn’t have its fill of sadness. In fact, loneliness is in the middle of the centrifuge, fueling the apocalyptic breakdown of â€Å"Radioactive,† a sci-fi era tribute to dystopia and devastation, where amid the explosions, the lonely sits untouched. The other EP’s heavyweight, â€Å"Demons,† is only wiser, sadder, and as grippingly honest. A startlingly beautiful ballad, the song is illuminated with twinkling lights, and vocals layered in divinity. Every word matters, where the song pulls away the grief, the guilt, leaving you born anew. Lead singer Dan Reynolds’ sharp, hotblooded lyrics guide each song, and at the heart of everything, an insistent, active rock beat. The knee-slapping, hand-clapping, folksy sweet â€Å"It’s Time† features Reynolds’ ernest voice, as it feels like things are changing, forming something greater and new. While on the other hand, the final track â€Å"My Fault† begins underwater. A knocking sound is first heard like a child at the door; as the song progresses, every trouble is left with open arms, and all things come full circle. It’s a cycle, a journey, that brings dawn to the dusk. The silence has been broken.

Positive Accounting Theory Essay Example

Positive Accounting Theory Essay We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [emailprotected] org. American Accounting Association is collaborating with JSTOR to digitize, preserve and extend access to The Accounting Review. http://www. jstor. org THE ACCOUNTING REVIEW Vol. 65, No. 1 January 1990 pp. 131-156 Positive A Accounting Year Theory: Ten Perspective Ross L. Watts and Jerold L. Zimmerman University of Rochester ABSTRACT: This paper reviews and critiques the positive accounting literature following publication of Watts and Zimmerman (1978, 1979). The 1978 paper helped generate the positive accounting literature which offers an explanation of accounting practice, suggests the importance of contracting costs, and has led to the discovery of some previously unknown empirical regularities. The 1979 paper produced a methodological debate that has not been very productive. This paper attempts to remove some common misconceptions about methodology that surfaced in the debate. It also suggests ways to improve positive research in accounting choice. The most important of these improvements is tighter links between the theory and the empirical tests. A second suggested improvement is the development of models that recognize the endogeneity among the variables in the regressions. A third improvement is reduction in measurement errors in both the dependent and independent variables in the regressions. T is more than a decade since our two papers, Towards a Positive Theory of the Determination of Accounting Standards and The Demand for and Supply of Accounting Theories: The Market for Excuses were published in The Accounting Review. We will write a custom essay sample on Positive Accounting Theory specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Positive Accounting Theory specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Positive Accounting Theory specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The intervening time allows us to look back on these papers and the ensuing literature with some perspective. The two papers were controversial ten years ago and remain so today. The papers (primarily Watts and Zimmerman 1978) contributed to a literature that has uncovered empirical regularities in accounting practice (Christie forthcom ing; Holthausen and Leftwich 1983; Leftwich forthcoming; Watts and Zimmer man 1986). The empirical regularities have been replicated in different settings I Financial support was provided by the John M. Olin Foundation and the Bradley Policy Research Center at the University of Rochester. The comments of Ray Ball, James Brickley, Andrew Christie, Linda DeAngelo, Robert Hagerman, S. P. Kothari, Richard Leftwich, Tom Lys, Clifford Smith, Jerold Warner, and Greg Whittred are gratefully acknowledged. We thank William Kinney for encouraging us to pursue this project. An earlier version of this paper was presented at the Accounting Association of Australia and New Zealand, July 4, 1989, Melbourne, Australia. Manuscript received May 1989. Revision received September 1989. Accepted September 1989. 131 132 The Accounting Review, January 1990 (Christie forthcoming) and it is clear there is a relation between firms accounting choice and other firm variables, such as leverage and size and the signs of the relations are mostly consistent across studies. Positive accounting research guided the search for the empirical regularities and provided explanations for them. To date, there are no systematic alternative sets of explanations for those regularities articulated and tested in the literature. Further, the literature has moved beyond the first simple exposition of the theory in the 1978 paper. The explanation for accounting choice is now richer and more sophisticated. Our first objective in this paper is to convey our perspective on the evolution and current state of positive accounting theory and to summarize the evidence on systematic empirical regularities in accounting (Section I). The second objective is to evaluate the research methods and the methodology used to document the empirical regularities. We discuss criticisms of the original papers and of the subsequent positive accounting literature in Section II. While the positive accounting literature has explained some accounting practice, much remains unexplained. Our third objective is to provide our views about future directions for positive accounting literature (Section III). I. Evolution and State of Positive Evolution Accounting Theory Modern positive accounting research began flourishing in the 1960s when Ball and Brown (1968), Beaver (1968), and others introduced empirical finance methods to financial accounting. The subsequent literature adopted the assumption that accounting numbers supply information for security market investment decisions and used this information perspective to investigate the relation between accounting numbers and stock prices. The information perspective has taught us much about the markets use of accounting numbers. But, except for the choice of inventory methods, the information perspective has not provided hypotheses to predict and explain accounting choices. The information perspective has not provided hypotheses to explain why entire industries switch from accelerated to straight-line depreciation without changing their tax depreciation methods. An important reason that the information perspective failed to generate hypotheses explaining and predicting accounting choice is that in the finance theory underlying the empirical studies, accounting choice per se could not affect firm value. Information is costless and there are no transaction costs in the Modigliani and Miller (1958) and capital asset pricing model frameworks. Hence, The information perspective views accounting data (usually earnings, dividends, and cash flows) as providing information on inputs to valuation models (e. g. , discounted cash flows) and tests for associations between accounting disclosures and stock prices or returns. In the contracting approach adopted in the literature and discussed in this paper, accounting methods are primarily determined by the use of accounting numbers in contracts between parties to the firm. Under this approach accounting disclosures directly affect parties (including stockholders) contractual claims and, hence, the values of those claims (including stock prices). To the extent accounting disclosures are correlated with attributes investors use in valuing securities, these disclosures contain information and affect stock prices. Thus, under both an information perspective and a contracting perspective, accounting disclosures have the potential to alter securities prices (Holthausen forthcoming). Watts and Zimmerman-Positive Accounting Theory 33 if accounting methods do not affect taxes they do not affect firm value. In that situation there is no basis for predicting and explaining accounting choice. Accounting is irrelevant. To predict and explain accounting choice accounting researchers had to introduce information and/or transactions costs. The initial empirical studies in conaccounting choice used positive agency costs of debt and compensation tracts and positive info rmation and lobbying costs in the political process to generate value effects for and, hence, hypotheses about accounting choice. Finance researchers had introduced costs of debt that increase with the debt/equity ratio (Jensen and Meckling 1976) to explain (in combination with differential taxes) how optimal capital structures could vary across industries. The debt costs first introduced were bankruptcy and agency costs. The agency costs were of particular interest to accountants because accounting appeared to play a role in minimizing them. Debt contracts apparently aimed at reducing dysfunctional behavior use accounting numbers (Smith and Warner 1979; Leftwich 1983). Accounting researchers recognized the implications for accounting choice and began using the accounting numbers in debt contracts to generate hypotheses about accounting choice (Watts 1977). 2 contracts Accounting numbers also are used in managers compensation and it is hypothesized that such use again minimizes agency costs (Smith and Watts 1982). This use of accounting numbers in bonus plans suggested the possibility that accounting choice could affect wealth and so accounting researchers began employing that use to explain accounting choice. Watts and Zimmerman (1978) is an early example of this approach. Borrowing from the industrial organization literature in economics (Stigler 1971; Peltzman 1976) which assumes positive information costs and lobbying costs, accounting researchers postulated that the political process generated costs for firms. These political costs are a function of reported profits. Thus, incentives are created to manage reported accounting numbers. Information and lobbying costs are part of the costs of contracting in the political process. The extent and form of the wealth transfers created by the political process (such as the tax code) are affected by these contracting costs. While the early literature concentrated on using debt and compensation contracts and the political process to explain and predict accounting choice, the theory underlying the empirical work was more general and had its foundation in an economic literature on the theory of the firm. Since the 1970s, economists have strived to develop a theory of the firm by attempting to explain the organizational structure of the firm (e. g. , choice of corporate form, structure of The centralization-decentralization). ompensation, contracts, management underlying notion (Alchian 1950) is that competition among different forms of institutions leads to the survival of those forms most cost-effective in supplying goods and services. Productive activity can occur via the marketplace or by the inclusion of several activities within a firm (Coase 1937; Alchian and Demsetz 1972). In the marketplace, direction of productive activity and cooperation is by 2 Prior to that time other studies investigate accoun ting choice without explicit recognition of contracting effects (e. g. , Gordon 1964; Gordon et al. 1966; Sorter et al. 1966; Gagnon 1967). 34 The AccountingReview,January 1990 market prices; within the firm alternative mechanisms such as standard costs are used (Ball 1989). Which productive activities are carried out by markets and which by firms depends on which arrangement is cost effective. 3 In competition among firms, those that organize themselves to minimize contracting costs are more likely to survive (Fama and Jensen 1983a, 1983b). It was a short step to suggest that accounting methods affect the firms organizational costs and so the accounting methods that survive are the result of a similar economic equilibrium (Watts 1974, 1977). Accounting researchers have recently returned to using that notion of an efficient set of accounting methods to explain accounting choice (Zimmer 1986). As noted above, the agency costs associated with debt and management contracts and the agen cy, information, and other contracting compensation costs associated with the political process provided the hypotheses tested in the early empirical accounting choice studies (bonus plan, debt/equity, and political cost hypotheses). However, the more general approach suggested agency and other costs associated with other contracts (e. g. , sales contracts) could lso affect accounting choice. 5 This potential for many contracts to play a role in explaining organizational choice (including accounting choice) and the fact that agency costs used to explain the contracts often arise in contractual scenarios that differ from those of the standard agency problem led researchers to start to use the term contracting costs instead of agency costs (Klein 1983; Smith 1980). The concept of contracting costs and the notion of accounting methods as part of efficient organizational technology play key roles in contemporaneous positive accounting theory. Contemporaneous Positive Accounting Theory Contracting costs arise in (1) market transactions (e. g. , selling new debt or equity requires legal fees and underwriting costs), (2) transactions internal to the firm (e. g. , a cost-based transfer price scheme is costly to maintain and can produce dysfunctional decisions), and (3) transactions in the political process (e. g. , securing government contracts or avoiding government regulation requires lobbying costs). Contracting costs consist of transaction costs (e. g. , brokerage I Coase (1937) suggests that economies of scale in long-term contracting are what cause activity to be organized in firms. Alchian and Demsetz (1972) point out that those economies are not sufficient since market arrangements could achieve the same economies (e. g. , contracting consultants). What is necessary is some unique advantage of firm organization over market arrangements. Alchian and Demsetz suggest it is the advantage firms have in metering inputs to team production that generates firms. Monitors meter individual inputs and the monitors incentive problem is solved by giving them the residual claim to the firm (hence, the firm structure). Klein et al. (1978) suggest firms emerge to solve post contractual opportunism associated with specialized assets. Meckling and Jensen (1986) suggest that firms have an advantage in generating information by aggregating data and using that information. Difficulties in capturing the informations benefits in the market result in the firm being the optimal form of organization. 4Watts adopted such a view in Accounting Objectives which he presented to the Annual Congress of the N. S. W. branch of the Institute of Chartered Accountants in Australia in 1974. The paper was later substantially revised given Jensen and Meckling (1 976) andjoint work with Zimmerman and published in Watts (1977). The influence of sales contracts on accounting choice is considered by Watts and Zimmerman (1986, 207) and by Zimmer (1986) and joint venture contracts by Zimmer (1986). Further, Ball (1989) suggests intrafirm transactions affect internal accounting choice (e. g. , the basis for transfer prices). Watts and Zimmerman-Positive Accounting Theory 135 fees), agency costs (e. g. , monitoring costs, bonding costs, and the residual loss from dysfunctional decisions), information costs (e. g. , the costs of becoming informed), renegotiation costs (e. g. the costs of rewriting existing contracts because the extant contract is made obsolete by some unforeseen event), and bankruptcy costs (e. g. , the legal costs of bankruptcy and the costs of dysfunctional decisions). Throughout this paper, we use the term contracting costs to incorporate this wide variety of costs. The term contracting parties is meant to include all parties to the firm including internal employees and managers and external parties, such as suppliers, claim holders, and customers. 6 The existence of contracting costs is crucial to models of both the organization of the firm and accounting choice. Meckling and Jensen (1986) suggest that within the firm the lack of a market price is replaced by systems for allocating decisions among managers, and measuring, rewarding, and punishing managerial performance. Accounting plays a role in these systems and so appears to be part of the firms efficient contracting technology. Trying to predict and explain the organization of the firm with zero contracting costs is pointless (Coase 1937; Ball 1989). How the firm is organized, its financial policy, and its accounting methods, are as much a part of the technology used to produce the firms product as are its production methods. Hence, modelling accounting choice while assuming zero contracting costs is not productive. The extent to which accounting choice affects the contracting parties wealth depends on the relative magnitudes of the contracting costs. For example, assume accounting-based debt agreements have higher renegotiation costs than bonus plans. Then, mandatory changes in accounting proceaccounting-based dures by the FASB impose greater relative costs on firms with debt agreements than on firms with bonus plans, ceteris paribus. And, firms with debt agreements will conduct more lobbying and undertake more (costly) accounting, financing, and production changes to undo the effects of the mandatory change than firms with only bonus plans. Thus, developing a positive theory of accounting choice requires an understanding of the relative magnitudes of the various types of contracting costs. Contracts that use accounting numbers are not effective in aligning managers and contracting parties interests if managers have complete discretion over the reported accounting numbers. If managers know (or can determine) which accounting methods best motivate subordinates, then the contracting parties want managers to have some discretion over the accounting numbers. Hence, we expect some restrictions on managers discretion over accounting numbers, but some discretion will remain. When managers exercise this discretion it can be because (1) the exercised discretion increases the wealth of all contracting parties, or (2) the exercised discretion makes the manager better off at the expense of some other contracting party or parties. If managers elect to exercise discretion to their advantage ex post, and the discretion has wealth redistributive effects among the contracting parties, then we say the managers acted opportunistically. 6 See Watts (1974) for an earlier and Ball (1989) for a later discussion than capital suppliers and managers. of contracting parties other 136 The Accounting Review, January 1990 Ex ante, the set of accounting choices restricted by the contracting parties is determined by efficiency reasons (to maximize firm value). One cost of allowing managers more rather than less discretion is the ncreased likelihood of some ex post managerial opportunism (i. e. , wealth transfers to managers) via accounting procedures. However, ex ante the contracting parties expect some redistributive effects and reduce the price they pay for their claims. Ex post, wealth is redistributed by managerial opportunism, but ex ante some redistribution was expected and the parties price protected themselves. Price pr otection does not eliminate the incentive to act opportunistically nor does price protection eliminate the dead weight costs of managers taking opportunistic actions. The extent to which contracts can be written ex ante to preclude such ex post behavior that causes dead weight costs increases the chance the firm will survive in a competitive environment (Klein 1983, fn. 2). The set of accounting procedures within which managers have discretion is called the accepted set. It is voluntarily determined by the contracting parties. Managerial discretion over accounting method choice (i. e. , the accepted set ) is predicted to vary across firms with the variation in the costs and benefits of restrictions. These restrictions produce the best or accepted accounting principles even without mandated accounting standards by government. The restrictions are enforced by external auditors. Reacting to the incentive of managers to the accepted set includes discretion opportunistically, exercise accounting conservative (e. g. , lower of cost or market) and objective (e. g. , verifiable) accounting procedures (Watts and Zimmerman 1986, 205-206). Figure 1 represents the concept of the accepted set of accounting methods as a Venn diagram. A l denotes the accepted set of methods for firm 1. Ex ante, the accepted set is determined jointly by the contracting parties to maximize the value of the firm (e. g. , set A 1 vs. A 2 in Fig. 1). Managers have discretion to choose any method within the accepted set (e. g. , Xl). Also, managers in firm 2 are constrained ex ante to the set A2 and choose X2 ex post. For example, within the accepted set of procedures used for bonus plans managers might select the method that maximizes their utility, even if it comes at another contracting partys expense. Managers ex post choice can either increase the wealth of all contracting parties or redistribute wealth among the parties. Empirically, it is difficult to separate ex ante from ex post. Contracts are continually being written. , rewritten, and revised. Variations across sets of accepted accounting procedures (e. g. , Al and A2 in Fig. 1) explain some cross-sectional variation in accounting choice (e. g. , managers in firm 2 cannot choose method Xl). For example, Zimmer (1986) argues Australian real estate development firms are restricted by accepted practice from capitalizing interest except for cost plus contracts that allow interest as a cost. His evidence is consistent with that hypothesis. choice studies assume managers choose accounting Most accounting methods to transfer wealth to themselves at the expense of another party to the firm because they can take the firms observed contracts as given and then determine managers incentives for accounting choice. Some research studies assume accounting methods are chosen for efficiency reasons (i. e. , they increase the pie available being shared among all parties to the firm (Watts 1974, 1977; Leftwich Watts and Zimmerman-Positive Accounting Theory 137 Figure 1 Relation Between the Accepted Set of Accounting Methods and the Choice of Method from within the Accepted Set All Feasible Accounting Methods Al X2~~~~ Al A2 X1 X2 denotes denotes denotes denotes the the the the set of accepted methods for firm l set of accepted methods for firm 2 choice of method from within the accepted set by firm 1 choice of method from within the accepted set by firm 2 et al. 1981; Zimmer 1986; Whittred 1987; Ball 1989; Malmquist forthcoming; Mian and Smith forthcoming). However, no study to date has explained both the ex ante choice of the accepted set and the ex post choice of accounting method from within the accepted set. Most studies that assume opportunistic choice of accounting methods do not control for the fact that managers in different firms likely are choosing accounting methods from different constrained accepted sets. The accepted set of accounting methods is one part of the firms implicit and explicit contracts including the firms capital structure, compensation plans, and ownership structure. All the contracting provisions (including the accounting policies) are endogenous. Capital structure choice is related to compensation policy and to accounting policy. But, the relation is not necessarily causal. Capital structure changes do not cause changes in the accepted set of accounting methods. Rather, some exogenous event, such as a new invention or government deregulation occurs and this causes changes in the contracting variables including accounting methods (Ball 1972; Smith and Watts 1986). 138 Evidence on the Theory The AccountingReview,January 1990 Two types of tests of the theory have been conducted: stock price tests and accounting choice tests. The stock price tests have been reviewed extensively elsewhere (Foster 1980; Ricks 1982; Holthausen and Leftwich 1983; Lev and Ohlson 1982; Watts and Zimmerman 1986; Bernard 1989). Stock price tests of the theory reveal some price reactions to mandatory accounting changes, especially involving oil and gas accounting (Lys 1984). 7 Stock price studies are probably relatively weak tests of the theory (Watts and Zimmerman 1986). The more promising ones are accounting choice studies. Most accounting choice studies attempt to explain the choice of a single accounting method (e. g. the choice of depreciation) instead of the choice of combinations of accounting methods. Focusing on a single accounting method reduces the power of the tests since managers are concerned with how the combination of methods affects earnings instead of the effect on just one particular accounting method (Zmijewski and Hagerman 1981). Some studies seek to explain accounting accruals (the difference between operatin g cash flows and earnings). Accounting accruals aggregate into a single measure the net effect of all accounting choices (Healy 1985; DeAngelo 1986, 1988a; Liberty and Zimmerman 1986). But use of accruals as a summary measure of accounting choice suffers from a lack of control of what accruals would be without managerial accounting discretion. Most accounting choice studies use combinations of three sets of variables: variables representing the managers incentives to choose accounting methods under bonus plans, debt contracts, and the political process. Bonus plan and debt contract variables are used because theyre observable. The three particular hypotheses most frequently tested are the bonus plan hypothesis, the debt/ equity hypothesis, and the political cost hypothesis. The literature has tended to The state each of these hypotheses as managers behaving opportunistically. are more likely bonus plan hypothesis is that managers of firms with bonus plans to use accounting methods that increase current period reported income. Such selection will presumably increase the present value of bonuses if the compensation committee of the board of directors does not adjust for the method chosen. The choice studies to date find results generally consistent with the bonus plan hypothesis (Watts and Zimmerman 1986, chap. 11; Christie forthcoming). Using Lys own calculations, Frost and Bernard (1989, 20) and Bernard (1989, 14) conclude Lys evidence is inconsistent with a link between stock price reactions to mandated oil and gas accounting and the violation of debt covenants. However, that conclusion is unwarranted. Lys estimates the average cost of violations as 2. 5 percent of the stock value, the same order of magnitude as the stock price reactions observed. Fros t and Bernard argue that given an average cost of violation of 2. 5 percent, the average stock price reaction should be much less since according to Foster (1980) very few firms have a debt covenant violation as result of the mandated accounting change. There are at least three problems with the Frost and Bernard argument. First, the Lys point estimates are likely to have large standard errors. Second, to obtain an estimate of the stock price reaction, the estimated cost of a violation has to be weighted not by the relative frequency of violation but by the change in the likelihood of violation. While few firms violated covenants, many firms probability of violation likely increased substantially. Third, Malmquist (forthcoming) suggests Fosters description of oil and gas firms covenants is incorrect. Frost and Bernard (1989) also use their own empirical studys results to argue that there is no link between the stock price reaction and debt covenants. Because of selection biases, however, their study provides little evidence on the issue (Begley forthcoming). Watts and Zimmerman-Positive Accounting Theory 139 The early tests of the bonus hypothesis are not very powerful tests of the theory because they rely on simplifications of the theory that are not appropriate in many cases. For example, a bonus plan does not always give managers incentives to increase earnings. If, in the absence of accounting changes, earnings are below the minimum level required for payment of a bonus, managers have incentive to reduce earnings this year because no bonuses are likely paid. Taking such an earnings bath increases expected profits and bonuses in future years. By using bonus plan details to identify situations where managers are expected to reduce earnings, Healys (1985) tests encompass more kinds of manipulation. His results are consistent with managers manipulating net accruals to affect their bonuses. The debt/equity hypothesis predicts the higher the firms debt/equity ratio, the more likely managers use accounting methods that increase income. The higher the debt/equity ratio, the closer (i. e. , tighter) the firm is to the constraints in the debt covenants (Kalay 1982). The tighter the covenant constraint, the greater the probability of a covenant violation and of incurring costs from technical default. Managers exercising discretion by choosing income increasing accounting methods relax debt constraints and reduce the costs of technical default. The evidence is generally consistent with the debt/equity hypothesis. The higher firms debt/equity ratios, the more likely managers choose income increasing methods. Press and Weintrop (forthcoming) and Duke and Hunt (forthcoming) find that debt/equity ratios are correlated with closeness to bond covenants as assumed in the debt/equity hypothesis. 9 Some studies, however, have avoided using the debt/equity ratio as a proxy variable for closeness to the covenant constraint by using more direct tests. For example, Bowen et al. (1981) examine whether accounting choice varies with tightness of the dividend constraint as specified in the debt covenant and measured by unrestricted retained earnings. The association between leverage and accounting method choice is an empirical regularity unknown prior to the positive accounting studies. The political cost hypothesis predicts that large firms rather than small firms are more likely to use accounting choices that reduce reported profits. Size is a proxy variable for political attention. Underlying this hypothesis is the assumption that it is costly for individuals to become informed about whether accounting profits really represent monopoly profits and to contract with others in the political process to enact laws and regulations that enhance their welfare. Thus, rational individuals are less than fully informed. The political process is no different from the market process in that respect. Given the cost of information and monitoring, managers have incentive to exercise discretion over accounting profits and the parties in the political process settle for a rational amount of ex post opportunism. of no association between 8 Holthausen (1981) and Healy (1985) fail to reject the null hypothesis leverage and accounting method choice (see Christie forthcoming, table 1). etween how close the firm is to a given covenant con9 Researchers are beginning to distinguish straint versus the existence of the covenant. For example, Press and Weintrop (forthcoming) find the existence of a covenant has additional explanatory power in a model predicting accounting choice after including a leverage variable. 140 The Accounting Review, January 1990 The evidence is consistent with the political cost hypothesis. However, the result only appears to hold for the largest firms (Zmijewski and Hagerman 1981) and is driven by the oil and gas industry (Zimmerman 1983). Difficulties with using firm size to proxy for political costs, including the likelihood that it can proxy for many other effects, such as industry membership, are discussed in Ball and Foster (1982). The interesting finding is the consistency of the sign of the relation between size and accounting choice across a variety of studies. The largest firms tend to use income decreasing accounting methods. Presently, there is no alternative theory for the empirical regularity between firm size and accounting choice other than the political cost hypothesis. Bonus plan, debt contract, and political process variables other than bonus plan existence, leverage, and size have also been found to be associated with accounting choice. Christie (forthcoming) aggregates test statistics across the various studies and concludes . . . six variables common to more than one study have explanatory power. These variables are managerial compensation, leverage, size, risk, and interest coverage and dividend constraints. Another conclusion is that the posterior probability that the theory taken as a whole has explanatory power is close to one. While bonus, debt, and political process variables tend to be statistically significant (p-values smaller than . 10), in many studies the explanatory power (RI ) of the models is low. In Zmijewski and Hagerman (1981), the model of crosssectional choice of accounting methods is not significantly better than picking although Press and Weintrop (forthcoming) the most common combination, achieve slightly improved explana tory power. The alternative predictive model is that each firm uses the most common combination of accounting methods, a model with little explanatory appeal. The alternative model begs the question of what determines the majority accounting choice. Many accounting teachers would be uncomfortable with the explanation that managers choose their accounting procedures based on what most other firms are doing. The real issue is the lack of an alternative model with grea

How does Homer portray war in the Iliad Essays

How does Homer portray war in the Iliad Essays How does Homer portray war in the Iliad Paper How does Homer portray war in the Iliad Paper Essay Topic: Iliad Homer starts the Iliad by describing the result of Achilles anger; the anger of Peleus son Achilles and its devastation, which puts pains thousandfold upon the Achaians, hurled in their multitudes to the house of Hades. Homer is describing all the pain felt by the Achaians and the deaths, of thousands of men in the war. Homer appears to be portraying the war negatively (even if it is a result of Achilles anger), mentioning the pain and men going to the house of Hades in their thousands, which is all negative imagery. Homer then goes on to mention that these men gave their bodies to the delicate feasting of dogs, of all birds. This is a very negative portrayal of war, as Homer is saying in laymans terms, that when these men were killed, dogs and birds ate their corpses. This is not a glorious burial, which would usually be a more positive aspect of war (a glorious death and burial), and so paints a very morbid and perverse image of war. In book nine, we hear of the prizes Achilles will receive from Agamemnon should he return to fight for the Greeks. Prizes seem to be described as one of the main motivations for the warriors fighting (behind glory, even though the prizes represent their glory). Agamemnon promises Achilles he can choose for himself twenty of the Trojan women, who are the loveliest of all, after Helen of Argos in book nine for example. Homer is describing war in a positive aspect here; in effect he is saying if you are successful in war, you will be rewarded (be it with women or other materialistic possessions). Homer mentions prizes throughout the Iliad, another example is when you kill a warrior you obtain his armour. Throughout the Iliad we see how the Gods influence the war: For example in book one, we hear Zeus agree to Thetiss request that the Greeks should suffer in the absence of Achilles. So the gods control the war, not the men, which, although Homer doesnt explicitly allude to, is a negative portrayal of the war, as the men are fighting, and the gods are just playing with the men like toys to get back at one another, as if the war was just a game. So the outcome of the war is at the discretion of the gods, whether men live or die. For example during the aristeia of Diomedes (book 5 of the Iliad), when Diomedes encounters Ares, Pallas Athene rides beside Diomedes on a chariot she seized from Sthenelos. Ares hurls his bronze spear towards Diomedes, but Athene interferes, catches the spear and pushes it away from the car. Then Diomedes, with the assistance of Athene drives his bronze spear deep into the belly of Ares, who is consequently saved by Zeus. In book six, Homer describes Hectors farewell to his wife Andromache and his child; Achilles later kills Hector. This shows the war to be negative as it brings a sense of reality back to the Iliad. It reminds you of the families these men being slaughtered are leaving behind; it is demonstrating the negative result of war upon everybody. In book two, Homer describes the backgrounds of many of the warriors, which aid Homer in making the war appear more real Some more examples of Homer describing the dark nature of war are: In book seven a truce is called so both sides can bury their dead. In book ten, Dolon, a Trojan spy is deceived by Odysseus and Diomedes and killed without mercy. Throughout the Iliad Homer mentions and describes these things to remind you of the brutalities of war, amongst all the glory you could receive. He explicitly describes the deaths of people; the bronze spearpoint fixed in his forehead and drove inward through the bone; and a mist of darkness clouded both his eyes and he fell. (as people die darkness clouds their vision-darkness being negative) and injuries of people (Ares, book five) to achieve the same affect. There are a lot of positive things that Homer alludes to, such as the glory of an aristeia (Diomedes and Agamemnons), defeating a prestigious opponent and the prizes for succeeding at war (be it at the discretion of the Gods). But interspersed into the glorified battle are reminders of the true horrors war brings upon people: bodies being eaten by dogs, leaving families behind when killed and the brutal nature in which people were killed. Overall I feel that Homer portrays war in both a positive and negative fashion, highlighting the glories of battle, but also presenting the morbidity of war.

Political Leadership Research Paper Example | Topics and Well Written Essays - 2500 words

Political Leadership - Research Paper Example Shapiro (2007) has also pointed out that administration is a mere part of leadership because relying on administration solely makes a leadership style repetitive, predictable and vulnerable to macro environmental changes. To understand political leadership, one has to understand the multi-causal social processes which create the drive for leadership. Greenstein (2006) has defined political leadership as the subtype of human social leadership. An individual cannot define political leadership or grasp the normative prescriptions of political leadership without enquiring about values, power relations attitudes and action of leaders in cultural-institutional and historical context (Peele, 2005). In the political leadership, both leaders and followers pass through the casual but circular sequence of power exchange and motivation building (Walzer, 2007). However, Peele (2005) has argued that political leadership is a widely experienced phenomenon but understanding about the phenomenon is p retty much tacit in nature. For example, phenomenon such as war between countries, central human rights controversies, Olympic rivalries etc might act as situations which deal with political leadership. One thing is clear from the argument of research scholars that it is very difficult to create a standardized definition of political leadership due to involvement of both institutional and historical contexts. Ruscio (2004) has rightly stated that no political leadership concept is complete without the understanding its role on democratic government. For example, throughout the history of mankind, societies have asked for certain rules and procedures in order to create a practical framework which can represent the interest of democratic society.... This paper stresses that Readers of this research paper might question that why the researcher has not yet provided a concrete definition of political leadership? Well, the fact is that definition of political leadership changes from country to country. For example, a political leader with a sentimental and compassionate is ideal choice in Indian context but the same leader would be viewed as failure in Russian cultural context. According to Vigoda, Elgie and Peele, a political must have characteristics such as, 1- a strong ethical character and personality which can synchronize with ethical-cultural character of subordinates, 2- a constructive agenda for solving a particular problem, 3- interpretive judgment to define a situation to followers and 4- the material or intangible technique to mobilize the support of followers. However, there is no doubt that political leadership has direct connection with military, law authority or ideological leadership hence it will not be wrong to as sume that political leadership is modified version of social leadership. This report makes a conclusion that it is evident from the above discussion that responsibility of a political leader differs along with the political environment of a country. For example, behavior of a democratic political leader significantly differs from an autocratic leader. The researcher is begging pardon of the readers for emphasizing more on democratic aspects of leadership in contrast to other aspects. But, it was a matter of personal choice for the researcher and the researcher believes that democratic political leadership is flexible enough to fit into modern business environment.

Consultancy Skill and Organisational Change Essay

Consultancy Skill and Organisational Change - Essay Example The vitally of change is evident in the adjustments made by organisations in their goals. There are several elements that contribute to this observation. External and internal changes are usually the classification maintained by organisations. Categorising change according to impact allows firms to use appropriate measures and techniques. There are important considerations specified by firms in implementing policies for change. Most of these programmes are studied and deliberated before infused in an organisation. It is imperative for companies to assess the strategy before making adjustments. This will prevent the entities involved from acting differently. The versatility of firms is also a critical aspect when dealing with change. In most instances, organisations that are open to change succeed in the industry. Moreover, the preparation of contingency strategies is also needed when dealing with changes. Firms that resist change have experienced difficulties in dealing with problems and opportunities. It is important for organisations to understand that change is both inevitable and intrusive. There will come a period in a business cycle when a company has to make radical changes. Change also affects the manner in which the general policies of organisations are made. Success in the current global setup is dependent on how firms manage change. The succeeding discussions will tackle organisational changes that have transpired in British Airways. The Company is viewed as a classic case where culture was changed because of demand both within the organisation and outside market forces. II. Organisational Change The stages of change, as derived from the study of Booth-Butterfield (1996) start with pre-contemplation. In this stage the supposed change has yet to gain the awareness of involved entities. Contemplation is a stage shows that the employees are aware of the change. But the focus of the personnel is on different concerns. Then, the employees are prepared for the implementation of changes. In addition, the employees are tasked to perform the modification and provided with maintenance programmes. Prochaska, et al (2001) devised a process that prepares involved entities to change. The cycle starts with the raising of consciousness among the employees. In addition, employees are given with proper tools to handle the change . This is more than just compliments but actual benefits in the growth of the personnel. Moreover, employees are given opportunities to let go of their emotional contentions. This is usually done when the change starts to take effect within an organisation. The employees are then subjected to further evaluation. This is more of a comparison of behaviour before and after the change. Since the problems are identified, the management needs to eliminate stressful components of change. It means that negative stimuli stalling good behaviour will be removed. The company also needs to emphasise on the commitment of the employees to change. This is like a renewed assurance to accept change. The last phase of the process involves finding the proper behaviour for expected changes. This also includes the elimination of bad behaviours that were observed. Schein (1999) created a model that describes change. This method was called cognitive definition. The first stage involved motivation to change . This process is more of a self-evaluation that employees need to determine. The stage includes acceptance that previous actions failed. The second part of the model asserts changes in needed areas. Most firms are concerned about the extensive resources which will be devoted for the activity. But the benefits of this initiative will alter the cost. It is critical for

Recommendations to the Wallace Group Essay Example for Free

Recommendations to the Wallace Group Essay Mr. Wallace, I have concluded my interviews with your team and have a list of recommendations based on priorities. The recommendations are unbiased and not intended to be personal attacks on the current management; they are based on the sound management principles and intended to maximize your company’s potential. a. Realign the corporate structure. Begin by recruiting a new board of directors using outside directors, â€Å"executives of other firms but are not employees of the board’s corporation†1, in addition to a limited number of management directors from inside the company. This combination of three companies working as independent entities is not working, they must be integrated and a different management organizational structure must be implemented. This group will be able to accomplish the next recommendation. b. Develop a mission statement and goals. The company must embark upon strategic management planning. This will include: †¢Clearer sense of strategic vision for the firm †¢Sharper focus on what is strategically important Improved understanding of a rapidly changing environment1 The Wallace group lacks vision and goals for its divisions and this leads to a lack of direction for the management team. A mission statement â€Å"defines the fundamental, unique purpose that sets a company apart from other firms of its type and identifies the scope of the company’s operations in terms of products offered and markets served†1. This business must develop a corporate wide strategic management plan to set a direction for the company and its shareholders. A part of this management planning would consist of SWOT analysis, strategy formulation, implementation and evaluation. This process is often referred to as Plan – Do – Act – Check or PDAC and is a continuous process. Making a profit today is not enough; there has to be an evaluation of where the company is now, where will it be in 2, 5, 10 years and how the company will attain those goals. c. Change the organizational chart: There needs to be an in-depth evaluation of the personnel currently in place. The current chart is one of vertical structure and should be revamped to be more horizontal. This accomplishes the goals of empowerment and coordination between the divisions. A glaring problem is the VP of the chemical division, J. Luskics, as he was the former owner that guided the company into foreclosure and appears to not be running the division efficiently now. The chemical division is not even internally competitive for the plastics or electronics divisions. Mr. Luskics should either be bought out of the company or reassigned to a position that he might be successful. There also is a redundancy among positions in the company, for example there are three directors of industrial relations, these positions should either be combined or incentivized to cooperate in the best interest of the company. d. Personnel development. There is no apparent leadership development in place and the company has relied on promoting technical staff to management positions which many are not equipped to handle. There needs to be a leadership development series initiated, leadership retreats to communicate and encourage relations amongst the teams, and perhaps some Management Assessment of Proficiency (MAP) testing to asses the current management team. Management development and succession planning must be implemented to ensure long term success. Job responsibilities need to be developed and implemented for all positions but specifically for the management team; including specific goals, budgeting, forecasting (long range planning), training, and staff satisfaction. . Communication. The lack of clear strategies, long term plans, goals and objectives has led to the recent revolt at the stockholders meeting. This is a clear indication of the frustration felt from the staff level up and the new direction of the company must be clearly communicated to all staff. Enthusiasm is contagious and the presentation of a new course for the company will be very exciting for staff. Employee surveys, sugges tion boxes and an engaging of the front line staff will do much to improve morale and spark improvements. I would like to commend you sir for creating a successful company but I do believe there are concrete steps that you can take to improve the future of this company. Mr. Wallace I believe the development of a vision will produce great results, with this vision you will attract personnel that want to be a part of a great company and profits for all involved will naturally follow. Remember â€Å"Visionary companies make some of their best moves by experimentation, trial and error, opportunism, and – quite literally – accident†2. I estimate that this plan of action will initially cost $1. 5 million but there will be cost savings realized in personnel reassignments, recruitment and retention, productivity, and a renewed sense of commitment that will be reflected in profits far surpassing the costs.