Fiscal Stimulus and Consumer Debt Demyanyk, Yuliya; Loutskina, Elena; Murphy, Daniel
The review of economics and statistics,
10/2019, Volume:
101, Issue:
4
Journal Article
Peer reviewed
Open access
In the aftermath of the consumer debt–induced recession, policymakers have questioned whether fiscal stimulus is effective during periods of high consumer indebtedness. This study empirically ...investigates this question. Using detailed data on Department of Defense spending for the 2007–2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer debt. The results suggest that in the short term (2007–2009), fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to show that both heterogeneous marginal propensities to consume and slack-driven economic mechanisms contribute to the debt-dependent multiplier.
We examine whether public disclosures of tax reserves recently made available through Financial Interpretation No. 48 (FIN 48) reflect corporate tax shelter activities. Understanding this relation is ...important to corporate stakeholders and researchers keen to infer the aggressive nature of a firm's tax positions from its tax reserve accrual. Our study links public disclosures of tax reserves with mandatory private disclosures of tax shelter participation as made to the Internal Revenue Service's Office of Tax Shelter Analysis. We find strong, robust evidence that the tax reserve is positively associated with tax shelters, while other commonly used measures of tax avoidance are not. Based on out-of-sample tests, we also show that the reserve is a suitable summary measure for predicting tax shelters. The tax benefits of tax shelters are economically significant, accounting for up to 48% of the aggregate FIN 48 tax reserves in our sample.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NMLJ, NUK, OILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK
We study how an improvement in market transparency affects seller exit and continuing sellers’ behavior in a market setting that involves informational asymmetries. The improvement was achieved by ...reducing strategic bias in buyer ratings. It led to a significant increase in buyer satisfaction with seller performance, but not to an increase in seller exit. When sellers had the choice between exiting—a reduction in adverse selection—and staying but improving behavior—a reduction in moral hazard—they preferred the latter. Increasing market transparency led to better market outcomes.
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BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
How audit teams are structured and function plays a crucial role in determining the level of audit service quality. Despite this claim, little empirical research has been conducted on this effect. ...Using private data from two of the Big 4 audit firms, we fill this gap and document how diversity of audit teams influences audit quality. By combining the existing work in psychology and sociology with that in auditing, we develop our model by arguing that teams are composed not simply of single auditors but of sub-teams of individuals whose various combinations affect team performance. Starting from this premise, we study how the diversity of audit teams in terms of the different mix of work assigned to staff, seniors, managers, and partners influences audit quality and how this effect varies depending upon years of tenure. We also show that the proportion of leading auditors characterized by a common educational background and the percentage of female leading auditors affect audit quality. As an additional analysis, we examine how team diversity affects audit efficiency. The same elements found relevant for audit quality also affect audit efficiency.
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BFBNIB, IZUM, KILJ, NUK, PILJ, SAZU, UL, UM, UPUK
I take advantage of regulatory and pricing dynamics in Medicare Part D to explore interactions among adverse selection, inertia, and regulation. I first document novel evidence of adverse selection ...and switching frictions within Part D using detailed administrative data. I then estimate a contract choice and pricing model that quantifies the importance of inertia for risk sorting. I find that in Part D switching costs help sustain an adversely-selected equilibrium. I also estimate that active decision making in the existing policy environment could lead to a substantial gain in annual consumer surplus of on average $400–$600 per capita—20 percent to 30 percent of average annual spending.
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BFBNIB, CEKLJ, NMLJ, NUK, ODKLJ, PNG, UL, UM, UPUK
This paper assesses university efficiency from a multidimensional perspective. First, the study scrutinizes universities using an efficiency measure that incorporates knowledge transfer outputs in ...the objective function. Second, a cluster analysis complements the efficiency model giving a more comprehensive image of universities' performance. The empirical application considers the Spanish higher education system during 2006–2009. The results point to the presence of heterogeneous orientations among Spanish universities and that universities integrate knowledge transfer in their operations at different intensities. The findings reveal that regional factors related to technological development and entrepreneurial culture strongly influence universities' efficiency and their involvement in knowledge transfer activities. As regards knowledge transfer across Spanish universities, results tend to give ammunition to the argument that effective support policies should have the capacity to be customized to fit the profile of the targeted universities and regions.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
We identify the causal impact of quarantining welfare payments on Aboriginal children's school attendance by exploiting exogenous variation in its rollout across communities. We find that income ...quarantining reduced attendance by 4.7 percent on average in the first five months. Attendance eventually returned to its initial level, but never improved. The attendance penalty does not operate through changes in student enrollments, geographic mobility, or other policy initiatives. Instead, we demonstrate that financial disruption may be responsible for the temporary reduction in school attendance. Supplemental analysis suggests that the policy rollout may have increased family discord.
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CEKLJ, IZUM, KILJ, NUK, PILJ, SAZU, UL, UM, UPUK
Purpose
– The purpose of this paper is to examine corporate social responsibility (CSR) disclosures over a period of time when the business environment, particularly the Malaysian environment, ...experienced several significant changes including the recent financial crises and regulatory changes. The paper also examines factors influencing the CSR disclosures before and after the aforementioned changes.
Design/methodology/approach
– A self-constructed CSR checklist was used to measure the extent and quality of CSR disclosures in the annual reports of 85 companies listed on Bursa Malaysia for the years 2006 and 2009. A number of statistical techniques were employed to assess the CSR disclosures over time, as well as factors influencing the CSR disclosures.
Findings
– Results revealed a significant overall increase in both the extent and quality of CSR disclosures between the two years covered in the study. In terms of factors influencing the CSR disclosures, director ownership, government ownership and company size were found to be significant in explaining both the extent and quality of CSR disclosures in the year 2006. Board size was found to have a significant relationship with only the extent of CSR disclosures in 2006. However, the results in the year 2009, a period following the policy changes, revealed an improved significant association between board size and CSR disclosures.
Research limitations/implications
– The results, which showed a significant increasing trend in CSR disclosures following changes in the market place of an emerging economy, lend some support to legitimacy theory's conjecture that CSR disclosures are used to reduce exposure arising from the public. Hence, this study suggests corporate legitimation practices, which were previously renowned in the economically developed countries, also exist in the emerging economies. The empirical observations asserted in this study, however, were only drawn from the Malaysian context. Therefore, future research involving several emerging countries is needed to ascertain the existence of corporate legitimation exercises in the developing countries.
Practical implications
– In terms of practical implications, the dominance of narrative CSR disclosures in the annual reports as opposed to verifiable information, even after the CSR mandatory requirement, could be due to the absence of a detailed CSR framework for Malaysian public listed companies. Policy makers in Malaysia may therefore want to devise detailed and specific CSR disclosure requirements, rather the current general mandatory requirement, to enhance the quality of CSR disclosures.
Originality/value
– This study can be considered one of limited empirical studies to have assessed CSR disclosures following changes in the market place.
Firms routinely justify CEO compensation by benchmarking against companies with highly paid CEOs. We examine whether the 2006 regulatory requirement of disclosing compensation peers mitigated firms' ...opportunistic peer selection activities. We find that strategic peer benchmarking did not disappear after enhanced disclosure. In fact, it intensified at firms with low institutional ownership, low director ownership, low CEO ownership, busy boards, large boards, and non-intensive monitoring boards, and at firms with shareholders complaining about compensation practices. The effect is also stronger at firms with new CEOs. These findings call into question whether disclosure regulation can remedy potential problems in compensation practices.
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BFBNIB, INZLJ, NMLJ, NUK, PNG, SAZU, UL, UM, UPUK, ZRSKP
This paper explores the adoption choice of electronic medical records by U.S. hospitals, which could exhibit strategic complements or substitutes. I find complementarities in adoption through a ...reduced-form analysis with instruments for unobserved market characteristics. I further develop a dynamic oligopoly model to allow for strategic timing incentives that are missing in the static model. Adopting a dominant local vendor could increase per period profits from adoption by 9.2% over choosing a marginal vendor. A counterfactual analysis suggests that an incentive program rewarding coordination, not just adoption, is more effective in achieving interoperability, especially before the widespread adoption of the technology.
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