An essay about the effect of vague accounting standards on the decision making process of auditors

Vague words and expressions are present throughout the standards that comprise the accounting and auditing professions. Vagueness is considered to be a significant source of inexactness in many accounting decision problems and many authors have argued that the neglect of this issue may cause accounting information to be less useful. On the other hand, we can assume that the use of vague terms in accounting standards is inherent to principle based standards (different from rule based standards) and that to avoid vague terms, standard setters would have to incur excessive transaction costs. Auditors are required to exercise their own professional judgment throughout the audit process and it has been argued that the inherent vagueness in accounting standards may influence their decision making processes. The main objective of this paper is to analyze the decision making process of auditors and to investigate whether vague accounting standards create a problem for the decision making process of auditors, or lead to a better outcome. This paper makes the argument that vague standards prompt the use of System 2 type processing by auditors, allowing more comprehensive analytical thinking; therefore, reducing the biases associated with System 1 heuristic processing. If our argument is valid, the repercussions of vague accounting standards are not as negative as presented in previous literature, instead they are positive.

Decision making process: a comparison between the public and private sector

The problem of decision making, its mechanisms and consequences is the very core of management, it is virtually impossible to separate the act of manage from this knowledge area. As defined by Herbert Simon – "decision making" as though it were synonymous with "managing". A decision is a selection made by an individual regarding a choice of a conclusion about a situation. This represents a course of behavior pertaining to what must be done or what must not be done. A decision is the point at which plans, policies and objectives are translated into concrete actions. Our behavior during decisive moments is closely linked with our brain dominance profile. Over the years, our decision-making processes develop a consistent pattern, which can be described as a decision-making style. Our style is grounded in our preferences, which arise from our brain dominance characteristics […]. The importance of understanding the impact of our thinking preferences and how to improve the effectiveness as a leader of organizations are the main justifications for this thesis; the main problem addressed is the behavioral profile diversity in a selective Master’s cohort formed by students from several different countries. The research methodology approach has been quantitative, through questionnaire administration using the HBDI (Herrmann Brain Dominance Instrument), a validated framework developed by William "Ned" Herrmann when he was the leader of General Electric's Crotonville facility. This questionnaire has been administered in hundreds of thousands professional, enabling the possibility to establish correlations between a certain group and several historical databases. The selected group of analysis is the first cohort (23 students) from the CIM (Corporate International Master's), a joint program between Georgetown University (USA), ESADE (Spain) and FGV (Brazil). Besides decision preferences, the obtained profile enables the discussion on leadership style, heuristic's pitfalls and a base to compare with future cohorts. The fundamental research question is: how diverse is the dominant decision-making profile for the CIM students?

Winning in Brazil: how institutional voids affect the entry decision making process of foreign venture capital firms coming to Brazil

The master thesis for the achievement of the academic status master of science in international management (MPGI) will aim to solve the research question of how institutional voids affect the entry decision-making process of foreign venture capital firms coming to Brazil. This is a timely matter since in the past years there has been a sudden eruption of foreign VC involvement in Brazil. Based on the actionable framework by Khanna and Palpeu (2010) we conducted quantitative as well as qualitative research with two sets of interview partners in a two-phase analysis. We interviewed experts from VC firms, foreign VC firms based in Brazil and perspective VC firms that are looking to come to Brazil. We started with the former, derived lessons learned and analyzed how they affect the latter in reaching a decision. As we expected we found that depending on the industry that ventures are in, institutional voids can either pose an opportunity or a threat and hence attract or push away potential VC firms entering Brazil. Opportunities exist especially when exploiting institutional voids, for example through ventures in the marketplace efficiency. Threats are posed by investments in for instance hard infrastructure, where the economic, political and judicial systems as well as corruption and bureaucracy play demanding roles.

Retenção de clientes na renegociação de créditos inadimplentes: um estudo em uma grande instituição financeira brasileira

Este trabalho analisa, sob uma perspectiva quantitativa, a retenção de clientes durante o processo de renegociação de créditos inadimplentes. O foco principal é entender quais são as variáveis que explicam a retenção destes clientes e, portanto, aprimorar o processo de cobrança de uma instituição financeira no Brasil. O tema se torna relevante à medida em que vários fatores tornam a competitividade mais difícil no ambiente de crédito no país: a concentração bancária vivida na última década, o aumento da oferta de crédito nos últimos anos, a redução dos spreads bancários, e por fim a crise econômica global que afeta em especial o setor financeiro. A pesquisa procura investigar quais variáveis melhor explicam o fenômeno da retenção. Para tanto, foram segregados clientes projetados como rentáveis pela cadeia de Markov. Em seguida, testou-se a aderência de variáveis cadastrais e contratuais à variável-resposta retenção, por duas metodologias: o algoritmo CHAID da árvore de decisão e o método stepwise da regressão logística. Os resultados indicam que o método CHAID selecionou 7 e o stepwise 8 variáveis, sendo algumas de natureza cadastral e outras que vêm do próprio contrato de renegociação. Dado que as condições do contrato influenciam a retenção e portanto o valor do cliente, sugere-se que o processo de oferta incorpore operacionalmente a noção de retenção na atividade da cobrança.

Testing the Markov property with ultra high frequency financial data

This paper develops a framework to test whether discrete-valued irregularly-spaced financial transactions data follow a subordinated Markov process. For that purpose, we consider a specific optional sampling in which a continuous-time Markov process is observed only when it crosses some discrete level. This framework is convenient for it accommodates not only the irregular spacing of transactions data, but also price discreteness. Further, it turns out that, under such an observation rule, the current price duration is independent of previous price durations given the current price realization. A simple nonparametric test then follows by examining whether this conditional independence property holds. Finally, we investigate whether or not bid-ask spreads follow Markov processes using transactions data from the New York Stock Exchange. The motivation lies on the fact that asymmetric information models of market microstructures predict that the Markov property does not hold for the bid-ask spread. The results are mixed in the sense that the Markov assumption is rejected for three out of the five stocks we have analyzed.

Detecting patterns of the spinoff decision of companies and accessing the determination of the abnormal returns

This paper examines value created through spinoffs over a period from 2002-2010. The net debt to average share price ratio and the debt to asset ratio of a company impacts the decision for this restructuring process statistically significant. The announcement of a spinoff yields abnormal returns (AR) for the stockholders of the parent. The relative size of the spin and the financial leverage correlated with the AR positively, whereas the net debt per share and the return on asset negatively. Therefore, no direct wealth transfer from the debt holders of a company to the equity holders can be derived from these results.

Joint dynamic probabilistic constraints with projected linear decision rules

We consider multistage stochastic linear optimization problems combining joint dynamic probabilistic constraints with hard constraints. We develop a method for projecting decision rules onto hard constraints of wait-and-see type. We establish the relation between the original (in nite dimensional) problem and approximating problems working with projections from di erent subclasses of decision policies. Considering the subclass of linear decision rules and a generalized linear model for the underlying stochastic process with noises that are Gaussian or truncated Gaussian, we show that the value and gradient of the objective and constraint functions of the approximating problems can be computed analytically.