A conceptual framework of accounting policy choice under SSAP 20

Purpose - To provide a framework of accounting policy choice associated with the timing of adoption of the UK Statement of Standard Accounting Practice (SSAP) No. 20, "Foreign Currency Translation". The conceptual framework describes the accounting policy choices that firms face in a setting that is influenced by: their financial characteristics; the flexible foreign exchange rates; and the stock market response to accounting decisions. Design/methodology/approach - Following the positive accounting theory context, this paper puts into a framework the motives and choices of UK firms with regard to the adoption or deferment of the adoption of SSAP 20. The paper utilises the theoretical and empirical findings of previous studies to form and substantiate the conceptual framework. Given the UK foreign exchange setting, the framework identifies the initial stage: lack of regulation and flexibility in financial reporting; the intermediate stage: accounting policy choice; and the final stage: accounting choice and policy review. Findings - There are situations where accounting regulation contrasts with the needs and business objectives of firms and vice-versa. Thus, firms may delay the adoption up to the point where the increase in political costs can just be tolerated. Overall, the study infers that firms might have chosen to defer the adoption of SSAP 20 until they reach a certain corporate goal, or the adverse impact (if any) of the accounting change on firms' financial numbers is minimal. Thus, the determination of the timing of the adoption is a matter which is subject to the objectives of the managers in association with the market and economic conditions. The paper suggests that the flexibility in financial reporting, which may enhance the scope for income-smoothing, can be mitigated by the appropriate standardisation of accounting practice. Research limitations/implications - First, the study encompassed a period when firms and investors were less sophisticated users of financial information. Second, it is difficult to ascertain the decisions that firms would have taken, had the pound appreciated over the period of adoption and had the firms incurred translation losses rather than translation gains. Originality/value - This paper is useful to accounting standards setters, professional accountants, academics and investors. The study can give the accounting standard-setting bodies useful information when they prepare a change in the accounting regulation or set an appropriate date for the implementation of an accounting standard. The paper provides significant insight about the behaviour of firms and the associated impacts of financial markets and regulation on the decision-making process of firms. The framework aims to assist the market and other authorities to reduce information asymmetry and to reinforce the efficiency of the market. © Emerald Group Publishing Limited.

Measuring and assessing the effects and extent of international bond market integration

We review briefly the literature on international financial integration, especially as it pertains to bond market integration. This contextualizes the review we than provide of a number of papers contained in a special issue of this Journal. © 2005 Elsevier B.V. All rights reserved.

Exchange rate forecasting using a combined parametric and nonparametric self-organising modelling approach

Financial prediction has attracted a lot of interest due to the financial implications that the accurate prediction of financial markets can have. A variety of data driven modellingapproaches have been applied but their performance has produced mixed results. In this study we apply both parametric (neural networks with active neurons) and nonparametric (analog complexing) self-organisingmodelling methods for the daily prediction of the exchangerate market. We also propose acombinedapproach where the parametric and nonparametricself-organising methods are combined sequentially, exploiting the advantages of the individual methods with the aim of improving their performance. The combined method is found to produce promising results and to outperform the individual methods when tested with two exchangerates: the American Dollar and the Deutche Mark against the British Pound.

Purchasing power parity and structural instability in the US/UK exchange rate

The aim of this study is to determine if nonlinearities have affected purchasing power parity (PPP) since 1885. Also using recent advances in the econometrics of structural change we segment the sample space according to the identified breaks and look at whether the PPP condition holds in each sub-sample and whether this involves linear or non-linear adjustment. Our results suggest that during some sub-periods, PPP holds, although whether it holds or not and whether the adjustment is linear or non-linear, depends primarily on the type of exchange rate regime in operation at any point in time.

Institutional work taken literally: How logics shift as banking lawyers 'get the deal done'

The role of interest and agency in the creation and transformation of institutions, in particular the “paradox of embedded agency” (Seo & Creed, 2002) have long puzzled institutional scholars. Most recently, Lawrence and Suddaby (2006) coined the term “institutional work” to describe various strategies for creating, maintaining and disrupting institutions. This label, while useful to integrate existing research, highlights institutionalists’ lack of attention to work as actors’ everyday occupational tasks and activities. Thus, the objective of this study is to take institutional work literally and ask: How does practical work come to constitute institutional work? Drawing on concepts of “situated change” (Orlikowski, 1996) I supplement existing macro-level perspectives of change with a microscopic, practice-based alternative. I examine the everyday work of English and German banking lawyers in a global law firm. Located at the intersection of local laws, international financial markets, commercial logics and professional norms, banking lawyers’ work regularly bridges different normative settings. Hence, they must constructively negotiate contradictory meanings, practices and logics to develop shared routines that resonate with different normative frameworks and facilitate task accomplishment. Based on observation and interview data, the paper distils a process model of banking transac-tions that highlights the critical interfaces forcing English and German banking lawyers into cross-border sensemaking. It distinguishes two accounts of cross-border sensemaking: the “old story” in which contradictory practices and norms collide and the “new story” of a synthetic set of practices for collaboratively “editing” (Sahlin-Andersson, 1996) legal documentation. Data show how new practices gain shape and legitimacy over a series of dialectic contests unfolding at work and how, in turn, these contests shift institutional logics as lawyers ‘get the deal done’. These micro-mechanisms suggest that as practical and institutional work blend, everyday work-ing practices come to constitute a form of institutional agency that is situated, emergent, dialectic and, therefore, embedded.

Selectivity and timing performance of UK investment trusts

This study examines the selectivity and timing performance of 218 UK investment trusts over the period July 1981 to June 2009. We estimate the Treynor and Mazuy (1966) and Henriksson and Merton (1981) models augmented with the size, value, and momentum factors, either under the OLS method adjusted with the Newey-West procedure or under the GARCH(1,1)-in-mean method following the specification of Glosten et al. (1993; hereafter GJR-GARCH-M). We find that the OLS method provides little evidence in favour of the selectivity and timing ability, consistent with previous studies. Interestingly, the GJR-GARCH-M method reverses this result, showing some relatively strong evidence on favourable selectivity ability, particularly for international funds, as well as favourable timing ability, particularly for domestic funds. We conclude that the GJR-GARCH-M method performs better in evaluating fund performance compared with the OLS method and the non-parametric approach, as it essentially accounts for the time-varying characteristics of factor loadings and hence obtains more reliable results, in particular, when the high frequency data, such as the daily returns, are used in the analysis. Our results are robust to various in-sample and out-of-sample tests and have valuable implications for practitioners in making their asset allocation decisions across different fund styles. © 2012 Elsevier B.V.

Price synchronicity:the closing call auction and the London Stock Market

In this paper, we consider the impact of the introduction of a closing call auction on market quality of the London Stock Exchange. We employ the market model, RDD and MEC metrics of market quality. These signify substantial improvements to market quality at both the close and open for migrating stocks.We note that these improvements are larger at the open than the close. An important contribution of our paper is that we show that changes to market quality are stronger in those securities that have the lowest liquidity in the pre-call period. In contrast, market quality changes following the introduction of a closing call auction are approximately neutral for high-liquidity securities. We conclude that the implementation of a closing call auction, for high-liquidity securities may not enhance market quality.

Efficiency and the trading system:The case of SETSmm

This paper studies the impact that a change from a dealer system to a market-maker supported auction system has on market quality. We study the impact that the introduction of SETSmm at the London Stock Exchange had on firm value, price efficiency and liquidity. We discover a small SETSmm return premium associated with the announcement that securities are to migrate to the new trading system. Moreover, securities that migrate to SETSmm are characterized by improvements to liquidity and pricing efficiency. We find that these changes are related to the return premium.

Project financing 8th edition

The eighth edition is a fundamental and essential update to the seventh edition published in 2000. This new edition examines a comprehensive range of existing and newer topics that are relevant to project financing in 2012 and explores current trends in the project finance and leasing industries. Contributors are experienced academics and practitioners. Since the first edition was published, the financial markets have undergone tremendous upheavals and many new structures and instruments have been created to meet the financing needs of business. This edition considers the wider world of project finance, applicable to such diverse situations as venture capital and leveraged buyouts, and using new approaches such as Islamic finance techniques. The eighth edition is an essential and over-due update to the previous edition published in 2000. The eighth edition updates a comprehensive review of financial and related topics which are relevant to project financing in 2012 and explores current trends in financial modelling of a project, risk management and the private finance initiatives. This is a comprehensive and practical book full of advice and tips for successful project financing, including leasing, offering a clear, easy to understand guide to a complex area with examples. The topic coverage is well organized and complete moving from the fundamentals to the more complex issues. There is an extensive glossary to support readers. Finally the use of 12 practitioner case studies brings many of these complex issues to life. This is the new edition of the clear, easy-to-understand industry-standard text on project financing. With a good overview of a broad area and using principles of project financing to explain complex structures, this book includes lots of examples and case studies (including Eurotunnel, Dabhol, multiple Paiton deals and other recent deals along with subsequent developments) to show the concepts in use, examine outcomes and to ensure you understand important issues such as effective project structuring and financing, financial modelling for project valuation, and risk management. Substantially updated and expanded to provide the latest developments in all aspects of project financing. An important manual reference, this book is a must-have for every project financier's desk. The text unites the domain of project financing with a wealth of project management techniques, supported by diagrams and charts and other pictorial features, where appropriate. All these supporting features facilitate a better understanding of the accompanying text for the reader. In many chapters there are diagrams to clarify the specific transaction structure discussed in the accompanying text. These diagrams enable the reader to get a very clear idea of the transaction structure, which is particularly useful where it is complex or unusual. There are also a number of checklists to assist stakeholders in the project and resource management of complex project financings. The new financial modelling chapters allow exploration of some of the pitfalls project models encounter, challenging the accurate replication of the project cash flows for stakeholders to evaluate. In the later new risk management chapters, worked examples are included to illustrate the techniques in practice. The new public private partnership/private finance initiatives chapter introduces readers to this new approach to public projects. References are made to useful websites throughout the text. Cases are included at the end of the main text to encourage examination of real-life examples of project financing in practice and also highlight specific issues of current interest. The book will be helpful to project finance sponsors, lawyers, host governments, bankers and providers of capital

Portfolio size, non-trading frequency and portfolio return autocorrelation

In this paper we re-examine the relationship between non-trading frequency and portfolio return autocorrelation. We show that in portfolios where security specific effects have not been completely diversified, portfolio autocorrelation will not increase monotonically with increasing non-trading, as indicated in Lo and MacKinlay (1990). We show that at high levels of non-trading, portfolio autocorrelation will become a decreasing function of non-trading probability and may take negative values. We find that heterogeneity among the means, variances and betas of the component securities in a portfolio can act to increase the induced autocorrelation, particularly in portfolios containing fewer stocks. Security specific effects remain even when the number of securities in the portfolio is far in excess of that considered necessary to diversify security risk. © 2014 Elsevier B.V.

Market risk reporting by the world's top banks:evidence on the diversity of reporting practice and the implications for international accounting harmonisation

The increasing adoption of international accounting standards and global convergence of accounting regulations is frequently heralded as serving to reduce diversity in financial reporting practice. In a process said to be driven in large part by the interests of international business and global financial markets, one might expect the greatest degree of convergence to be found amongst the world’s largest multinational financial corporations. This paper challenges such claims and presumptions. Its content analysis of longitudinal data for the period 2000-2006 reveals substantial, on going diversity in the market risk disclosure practices, both numerical and narrative, of the world’s top-25 banks. The significance of such findings is reinforced by the sheer scale of the banking sector’s risk exposures that have been subsequently revealed in the current global financial crisis. The variations in disclosure practices documented in the paper apply both across and within national boundaries, leading to a firm conclusion that, at least in terms of market risk reporting, progress towards international harmonisation remains rather more apparent than real.

Short-horizon excess returns and exchange rate and interest rate effects

stocks. We examine the effects of foreign exchange (FX) and interest rate changes on the excess returns of U.S. stocks, for short-horizons of 1-40 days. Our new evidence shows a tendency for the volatility of both excess returns and FX rate changes to be negatively related with FX rate and interest rate effects. Both the number of firms with significant FX rate and interest rate effects and the magnitude of their exposures increase with the length of the return horizon. Our finding seems inconsistent with the view that firms hedge effectively at short-return horizons.

Stock price and volume effects associated with changes in the composition of the FTSE Bursa Malaysian KLCI

We examine the stock price and volume effects associated with changes in the composition of the FTSE Bursa Malaysia Kuala Lumpur Composite Index (KLCI), over the time period of 2005–2012. We find evidence to support the price pressure hypothesis for both additions to and deletions from the KLCI. This is because significant stock price and trading volume effects in the pre index revision period are entirely reversed after the announcement of the news. Our empirical findings can be explained by the market microstructure literature. Significant changes in liquidity cause trading volume and stock prices to reverse back to their original level before the index revisions took place.