The usefulness of fair values in improving the predictive ability of earnings: Evidence from international banks

One of the objectives of general-purpose financial reporting is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. The current focus on potentially increased relevance of fair value accounting weighed against issues of reliability has failed to consider the potential impact on the predictive ability of accounting. Based on a sample of international (non-U.S.) banks from 24 countries during 2009-2012, we test the usefulness of fair values in improving the predictive ability of earnings. First, we find that the increasing use of fair values on balance-sheet financial instruments enhances the ability of current earnings to predict future earnings and cash flows. Second, we provide evidence that the fair value hierarchy classification choices affect the ability of earnings to predict future cash flows and future earnings. More precisely, we find that the non-discretionary fair value component (Level 1 assets) improves the predictability of current earnings whereas the discretionary fair value components (Level 2 and Level 3 assets) weaken the predictive power of earnings. Third, we find a consistent and strong association between factors reflecting country-wide institutional structures and predictive power of fair values based on discretionary measurement inputs (Level 2 and Level 3 assets and liabilities). Our study is timely and relevant. The findings have important implications for standard setters and contribute to the debate on the use of fair value accounting.

Comparative study of some constitutive equations characterising non-Newtonian fluids

This paper compares, in a general way, the predictions of the constitutive equations given by Rivlin and Ericksen, Oldroyd, and Walters. Whether we consider the rotational problems in cylindrical co-ordinates or in spherical polar co-ordinates, the effect of the non-Newtonicity on the secondary flows is collected in a single parameterα which can be explicitly expressed in terms of the non-Newtonian parameters that occur in each of the above-mentioned constitutive equations. Thus, for a given value ofα, all the three fluids will have identical secondary flows. It is only through the study of appropriate normal stresses that a Rivlin-Ericksen fluid can be distinguished from the other two fluids which are indistinguishable as long as this non-Newtonian parameter has the same value.

From environmental concerns towards sustainable food provisioning. : Material flow and food consumption scenario studies on sustainability of agri-food systems

Agriculture is an economic activity that heavily relies on the availability of natural resources. Through its role in food production agriculture is a major factor affecting public welfare and health, and its indirect contribution to gross domestic product and employment is significant. Agriculture also contributes to numerous ecosystem services through management of rural areas. However, the environmental impact of agriculture is considerable and reaches far beyond the agroecosystems. The questions related to farming for food production are, thus, manifold and of great public concern. Improving environmental performance of agriculture and sustainability of food production, sustainabilizing food production, calls for application of wide range of expertise knowledge. This study falls within the field of agro-ecology, with interphases to food systems and sustainability research and exploits the methods typical of industrial ecology. The research in these fields extends from multidisciplinary to interdisciplinary and transdisciplinary, a holistic approach being the key tenet. The methods of industrial ecology have been applied extensively to explore the interaction between human economic activity and resource use. Specifically, the material flow approach (MFA) has established its position through application of systematic environmental and economic accounting statistics. However, very few studies have applied MFA specifically to agriculture. The MFA approach was used in this thesis in such a context in Finland. The focus of this study is the ecological sustainability of primary production. The aim was to explore the possibilities of assessing ecological sustainability of agriculture by using two different approaches. In the first approach the MFA-methods from industrial ecology were applied to agriculture, whereas the other is based on the food consumption scenarios. The two approaches were used in order to capture some of the impacts of dietary changes and of changes in production mode on the environment. The methods were applied at levels ranging from national to sector and local levels. Through the supply-demand approach, the viewpoint changed between that of food production to that of food consumption. The main data sources were official statistics complemented with published research results and expertise appraisals. MFA approach was used to define the system boundaries, to quantify the material flows and to construct eco-efficiency indicators for agriculture. The results were further elaborated for an input-output model that was used to analyse the food flux in Finland and to determine its relationship to the economy-wide physical and monetary flows. The methods based on food consumption scenarios were applied at regional and local level for assessing feasibility and environmental impacts of relocalising food production. The approach was also used for quantification and source allocation of greenhouse gas (GHG) emissions of primary production. GHG assessment provided, thus, a means of crosschecking the results obtained by using the two different approaches. MFA data as such or expressed as eco-efficiency indicators, are useful in describing the overall development. However, the data are not sufficiently detailed for identifying the hot spots of environmental sustainability. Eco-efficiency indicators should not be bluntly used in environmental assessment: the carrying capacity of the nature, the potential exhaustion of non-renewable natural resources and the possible rebound effect need also to be accounted for when striving towards improved eco-efficiency. The input-output model is suitable for nationwide economy analyses and it shows the distribution of monetary and material flows among the various sectors. Environmental impact can be captured only at a very general level in terms of total material requirement, gaseous emissions, energy consumption and agricultural land use. Improving environmental performance of food production requires more detailed and more local information. The approach based on food consumption scenarios can be applied at regional or local scales. Based on various diet options the method accounts for the feasibility of re-localising food production and environmental impacts of such re-localisation in terms of nutrient balances, gaseous emissions, agricultural energy consumption, agricultural land use and diversity of crop cultivation. The approach is applicable anywhere, but the calculation parameters need to be adjusted so as to comply with the specific circumstances. The food consumption scenario approach, thus, pays attention to the variability of production circumstances, and may provide some environmental information that is locally relevant. The approaches based on the input-output model and on food consumption scenarios represent small steps towards more holistic systemic thinking. However, neither one alone nor the two together provide sufficient information for sustainabilizing food production. Environmental performance of food production should be assessed together with the other criteria of sustainable food provisioning. This requires evaluation and integration of research results from many different disciplines in the context of a specified geographic area. Foodshed area that comprises both the rural hinterlands of food production and the population centres of food consumption is suggested to represent a suitable areal extent for such research. Finding a balance between the various aspects of sustainability is a matter of optimal trade-off. The balance cannot be universally determined, but the assessment methods and the actual measures depend on what the bottlenecks of sustainability are in the area concerned. These have to be agreed upon among the actors of the area

Flow of an electrically conducting non-newtonian fluid between two rotating coaxial cones in the presence of external magnetic field due to an axial current

Bhatnagar and Rathna (Quar. Journ. Mech. Appl. Maths., 1963,16, 329) investigated the flows of Newtonian, Reiner-Rivlin and Rivlin-Ericksen fluids between two rotating coaxial cones. In case of the last two types of fluids, they predicted the breaking of secondary flow field in any meridian plane. We find that such breaking is avoided by the application of a sufficiently strong azimuthal magnetic field arising from a line current along the axis of the cones.

Instability of the self-similar flow into a cavity

In this paper we have investigated the instability of the self-similar flow behind the boundary of a collapsing cavity. The similarity solutions for the flow into a cavity in a fluid obeying a gas law p = Kργ, K = constant and 7 ≥ γ > 1 has been solved by Hunter, who finds that for the same value of γ there are two self-similar flows, one with accelerating cavity boundary and other with constant velocity cavity boundary. We find here that the first of these two flows is unstable. We arrive at this result only by studying the propagation of disturbances in the neighbourhood of the singular point.

Flow of a maxwell liquid fluid between two rotating coaxial cones having the same vertex

We consider the secondary flows arising in the motion of a Maxwell fluid between two rotating coaxial cones having the same vertex. We find that in any meridian plane passing through the common axis of the cones, the flow field is divided into two regions. Such a division of flow field was first reported by Bhatnagar and Rathna.

Heat transfer in rarefied couette flow on the basis of discrete ordinate method

The method of discrete ordinates, in conjunction with the modified "half-range" quadrature, is applied to the study of heat transfer in rarefied gas flows. Analytic expressions for the reduced distribution function, the macroscopic temperature profile and the heat flux are obtained in the general n-th approximation. The results for temperature profile and heat flux are in sufficiently good accord both with the results of the previous investigators and with the experimental data.

Strong shock with radiation near the surface of a star

The propagation of a shock wave, originating in a stellar interior, is considered when it approaches the surface of the star and assumes a self-similar character, "forgetting" its initial conditions. The flow behind the shock is assumed to be spatially isothermal rather than adiabatic to simulate the conditions of large radiative transfer near the stellar surface. The adiabatic and isothermal flows behind such a shock are compared. The exact shock-propagation laws, obtained by solving the equations in similarity variables, for different values of the parameter δ in the undisturbed density law, ρ0 ∝ xδ, and γ, the ratio of specific heats, are compared with the approximate values calculated by Whitham's characteristic rule and the two show a generally good agreement.

Transient MHD stagnation flow of a non-Newtonian fluid due to impulsive motion from rest

The transient boundary layer flow and heat transfer of a viscous incompressible electrically conducting non-Newtonian power-law fluid in a stagnation region of a two-dimensional body in the presence of an applied magnetic field have been studied when the motion is induced impulsively from rest. The nonlinear partial differential equations governing the flow and heat transfer have been solved by the homotopy analysis method and by an implicit finite-difference scheme. For some cases, analytical or approximate solutions have also been obtained. The special interest are the effects of the power-law index, magnetic parameter and the generalized Prandtl number on the surface shear stress and heat transfer rate. In all cases, there is a smooth transition from the transient state to steady state. The shear stress and heat transfer rate at the surface are found to be significantly influenced by the power-law index N except for large time and they show opposite behaviour for steady and unsteady flows. The magnetic field strongly affects the surface shear stress, but its effect on the surface heat transfer rate is comparatively weak except for large time. On the other hand, the generalized Prandtl number exerts strong influence on the surface heat transfer. The skin friction coefficient and the Nusselt number decrease rapidly in a small interval 0 < t* < 1 and reach the steady-state values for t* >= 4. (C) 2010 Published by Elsevier Ltd.

Parametric Analysis Of Turbulent Wall Jets

The concept of a fully-developed flow based on the hypothesis of selective memory is here applied to general wall-jet type flows. In the presence of a (constant) external stream, the free-stream velocity and the jet momentum flux are taken to be the chief quantities governing the development of the wall jet: two additional nondimensional parameters, representing a momentum flux Reynolds number and the relative momentum defect in the initial boundary layer, are shown to have only a secondary effect on the fully-developed flow. The standard correlations so determined are also found to predict quite well the flow development in Gartshore and Newman's experiments on wall jets in adverse pressure gradients; possible reasons for this somewhat surprising result are discussed. Finally it is shown, by application to the still-air case, that the parameters discovered in incompressible flow are, with appropriate but straightforward modification, successful in describing compressible wall jets also.

Essays on Corporate Governance and the Quality of Disclosed Earnings: Across Transitional Europe

A growing body of empirical research examines the structure and effectiveness of corporate governance systems around the world. An important insight from this literature is that corporate governance mechanisms address the excessive use of managerial discretionary powers to get private benefits by expropriating the value of shareholders. One possible way of expropriation is to reduce the quality of disclosed earnings by manipulating the financial statements. This lower quality of earnings should then be reflected by the stock price of firm according to value relevance theorem. Hence, instead of testing the direct effect of corporate governance on the firm’s market value, it is important to understand the causes of the lower quality of accounting earnings. This thesis contributes to the literature by increasing knowledge about the extent of the earnings management – measured as the extent of discretionary accruals in total disclosed earnings - and its determinants across the Transitional European countries. The thesis comprises of three essays of empirical analysis of which first two utilize the data of Russian listed firms whereas the third essay uses data from 10 European economies. More specifically, the first essay adds to existing research connecting earnings management to corporate governance. It testifies the impact of the Russian corporate governance reforms of 2002 on the quality of disclosed earnings in all publicly listed firms. This essay provides empirical evidence of the fact that the desired impact of reforms is not fully substantiated in Russia without proper enforcement. Instead, firm-level factors such as long-term capital investments and compliance with International financial reporting standards (IFRS) determine the quality of the earnings. The result presented in the essay support the notion proposed by Leuz et al. (2003) that the reforms aimed to bring transparency do not correspond to desired results in economies where investor protection is lower and legal enforcement is weak. The second essay focuses on the relationship between the internal-control mechanism such as the types and levels of ownership and the quality of disclosed earnings in Russia. The empirical analysis shows that the controlling shareholders in Russia use their powers to manipulate the reported performance in order to get private benefits of control. Comparatively, firms owned by the State have significantly better quality of disclosed earnings than other controllers such as oligarchs and foreign corporations. Interestingly, market performance of firms controlled by either State or oligarchs is better than widely held firms. The third essay provides useful evidence on the fact that both ownership structures and economic characteristics are important factors in determining the quality of disclosed earnings in three groups of countries in Europe. Evidence suggests that ownership structure is a more important determinant in developed and transparent countries, while economic determinants are important determinants in developing and transitional countries.

Short-term Price Behavior and the Effect of Foreign Investors in Finnish Equity Markets (summary section only)

As globalization and capital free movement has increased, so has interest in the effects of that global money flow, especially during financial crises. The concern has been that large global money flows will affect the pricing of small local markets by causing, in particular, overreaction. The purpose of this thesis is to contribute to the body of work concerning short-term under- and overreaction and the short-term effects of foreign investment flow in the small Finnish equity markets. This thesis also compares foreign execution return to domestic execution return. This study’s results indicate that short-term under- and overreaction occurs in domestic-buy portfolios (domestic net buying) rather than in foreign-buy portfolios. This under- and overreaction, however, is not economically meaningful after controlling for the bid-ask bounce effect. Based on this finding, one can conclude that foreign investors do not have a destabilizing effect in the short-term in the Finnish markets. Foreign activity affects short-term returns. When foreign investors are net buyers (sellers) there are positive (negative) market adjusted returns. Literature related to nationality and institutional effect leads us to expect these kind of results. These foreign flows are persistent at a 5 % to 21 % level and the persistence of foreign buy flow is higher than the foreign sell flow. Foreign daily trading execution is worse than domestic execution. Literature which quantifies foreign investors as liquidity demanders and literature related to front-running leads us to expect poorer foreign execution than domestic execution.

When sharing becomes a liability: An intellectual capital approach to describing the dichotomy of knowledge protection versus sharing in intra- and interorganizational relationships

The tension created when companies are collaborating with competitors – sometimes termed co-opetition - has been subject of research within the network approach. As companies are collaborating with competitors, they need to simultaneously share and protect knowledge. The opportunistic behavior and learning intent of the partner may be underestimated, and collaboration may involve significant risks of loss of competitive edge. Contrastingly, the central tenet within the Intellectual Capital approach is that knowledge grows as it flows. The person sharing does not lose the knowledge and therefore knowledge has doubled from a company’s point of view. Value is created through the interplay of knowledge flows between and within three forms of intellectual capital: human, structural and relational capital. These are the points of departure for the research conducted in this thesis. The thesis investigates the tension between collaboration and competition through an Intellectual Capital lens, by identifying the actions taken to share and protect knowledge in interorganizational collaborative relationships. More specifically, it explores the tension in knowledge flows aimed at protecting and sharing knowledge, and their effect on the value creation of a company. It is assumed, that as two companies work closely together, the collaborative relationship becomes intertwined between the two partners and the intellectual capital flows of both companies are affected. The research finds that companies commonly protect knowledge also in close and long-term collaborative relationships. The knowledge flows identified are both collaborative and protective, with the result that they sometimes are counteracting and neutralize each other. The thesis contributes to the intellectual capital approach by expanding the understanding of knowledge protection in interorganizational relationships in three ways. First, departing from the research on co-opetition it shifts the focus from the internal view of the company as a repository of intellectual capital onto the collaborative relationships between competing companies. Second, instead of the traditional collaborative and sharing point of departure, it takes a competitive and protective perspective. Third, it identifies the intellectual capital flows as assets or liabilities depending on their effect on the value creation of the company. The actions taken to protect knowledge in an interorganizational relationship may decrease the value created in the company, which would make them liabilities.

Generators contribution towards loads and line flows - A case study

n many parts of the world, the goal of electricity supply industries is always the introduction of competition and a lowering of the average consumer price. Because of this it has become much more important to be able to determine which generators are supplying a particular load, how much use each generator is making of a transmission line and what is generator's contribution to the system losses. In this paper a case study on generator contributions towards loads and transmission flows are illustrated with an equivalent 11-bus system, a part of Indian Southern Grid, based on the concepts of circuit flow directions, for normal and network contingency conditions.

Surface freshwater from Bay of Bengal runoff and Indonesian Throughflow in the Tropical Indian Ocean

According to recent estimates, the annual total continental runoff into the Bay of Bengal (BoB) is about 2950 km 3, which is more than half that into the entire tropical Indian Ocean (IO). Here we use climatological observations to trace the seasonal pathways of near surface freshwater from BoB runoff and Indonesian Throughflow (ITF) by removing the net contribution from precipitation minus evaporation. North of 20 degrees S, the amount of freshwater from BoB runoff and ITF changes with season in a manner consistent with surface currents from drifters. BoB runoff reaches remote regions of the Arabian Sea; it also crosses the equator in the east to join the ITF. This freshwater subsequently flows west across the southern tropical IO in the South Equatorial Current.