Accounting

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    Friday timing plus social media multipliers may mean Paris attacks have more impacts on markets

Friday timing plus social media multipliers may mean Paris attacks have more impacts on markets

Until recently, the lamentations (right, wrong or simply irrational) of the world’s discontent were only a nuisance to the status-quo. The proliferation of social media, however, has facilitated the dissemination of irrational ideas. A notion which required generations to gain traction is now instantaneously impressed on the minds of numerous, ready and willing subjects throughout distant lands. As a […]

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    With manager performance metrics, the tricky question is how to reward long-term thinking

With manager performance metrics, the tricky question is how to reward long-term thinking

Some time ago I was asked to comment on a study that found that the use of accounting return measures and non-financial measures in bonus plans was associated with managers’ long-term focus. This suggests that proper performance measurement systems can affect managers’ horizon and alleviate myopia.
Myopia is indeed a pervasive issue in business, as the Kay Review suggests (amongst countless others). The blame is often squarely […]

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    Business groups manage credit risk by reshuffling resources amongst units

Business groups manage credit risk by reshuffling resources amongst units

Business groups constitute a common way for ultimate owners to exercise control over a large number of companies while containing their risk exposure to different parts of the business through limited liability. In countries with underdeveloped financial infrastructures, these groups overcome difficulties in accessing external finance by reshuffling funds within the corporate structure.

Group bankruptcies tend to be large (e.g., Global […]

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    Large EU banks have remained undercapitalised for long stretches of time

Large EU banks have remained undercapitalised for long stretches of time

The Basel Committee on Banking Supervision (BCBS) has designed complex rules for defining sufficient capital at internationally active financial institutions. Pillar II of the Basel Accord requires national supervisors to assure continuous compliance with capital standards, which require a minimum ratio of the book value of equity capital to a bank’s risky assets. An adequate Tier 1 capital ratio […]

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    Managers with a history of good results get more flexible performance targets

Managers with a history of good results get more flexible performance targets

Here is one diehard maxim of business: don’t overshoot your performance target this year, because before you know it the one for next year will be tougher yet. This is target ratcheting at work: when you do better than the established goal, your next objective will be even higher; but the converse is not true. If you do worse, the company will […]

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    Hollywood studios appear to plan sequels before they produce the original movie

Hollywood studios appear to plan sequels before they produce the original movie

The recent box office success of Jurassic World, the latest Jurassic Park sequel, reminded me of my study about the use of real options in the motion picture industry*, which examined the application of this accounting tool to movie sequels.

A real option is the right, but not the obligation, to undertake a business decision. More importantly, a real-options approach to […]