Balance-sheet data offer a potentially large number of candidate predictors of corporate financial failure. In this paper we provide a novel predictor selection procedure based on non-parametric regression and classification tree method (CART) and test its performance within a standard logit model. We show that a simple logit model with dummy variables created in accordance with the nodes of estimated classification tree outperforms both standard logit model with step-wise-selected financial ratios, and CART itself. On a population of Slovenian companies our method achieves remarkable rates of precision in out-of-sample bankruptcy prediction. Our selection method thus represents an efficient way of introducing non-linear effects of predictor variables on the default probability in standard single-index models like logit. These findings are robust to choice-based sampling of estimation samples.
We study market timing and pecking order in a sample of debt and equity issues and share repurchases of Canadian firms from 1998 to 2007. We find that only when firms are not financially constrained is there evidence that firms issue (repurchase) equity when their shares are overvalued (undervalued) and evidence that overvalued issuers earn lower postannouncement long-run returns. Similarly, we find that only when firms are not overvalued do they prefer debt to equity financing. These findings highlight an interaction between market timing and pecking order effects.
The purpose of this paper is to investigate the effectiveness of different configurational archetypes of strategy and strategic management accounting and to appraise how management accounting's horizontal and vertical alignment with strategy can facilitate performance. The study deploys a holistic configurational approach to examine the relationship between strategy, strategic management accounting, and performance. Configurations are derived empirically, using an inductive approach, from a sample of 109 manufacturing companies. The observed configurations (i.e. “analytics”, “blue-chips”, “first movers”, “domestic protectors”, “laggards and socialism relics”) constitute varying levels of performance and varying degrees of fit. Support is provided for the equifinality proposition that different strategic and structural alternatives are associated with similar performance levels. Equivocal support is provided for the configurational proposition that internally consistent configurations are associated with higher performance. The authors raise the notion of how key variables can interact to create an effective organization. The paper breaks new ground by showing that multiple designs of strategy and strategic management accounting may be equally effective in a particular context.
This paper investigates the relationship between performance evaluation procedures and managerial perceptions of procedural justice. We examine two metric and two process characteristics. Metric characteristics are the diversity of metrics used by superiors and their reliance on outcome vs. effort metrics. Regarding process characteristics, we analyse the amount of subordinate's voice in the performance evaluation process, and the extent of formalization of the process. Using uncertainty management theory, we argue that justice effects of performance evaluation procedures may not be direct but are instead conditional on the amount of task uncertainty managers face in the their job context as well as on managers’ tolerance for ambiguity. Using a sample of 178 managers from the banking industry, we find that all four performance evaluation characteristics are related to justice perceptions, yet their effect depends on the level of task uncertainty and tolerance for ambiguity. These findings explain some inconsistencies in extant studies on fairness of performance evaluation procedures.
This book shows that a special bank bankruptcy regime is desirable for the efficient restructuring and/or liquidation of distressed banks. It explores in detail both the principal features of corporate bankruptcy law and the specific characteristics of banks including the importance of public confidence, negative externalities of bank failures, fragmented regulatory framework, bank opaqueness, and the related asset-substitution problem and liquidity provision. These features distinguish banks from other corporations and are largely neglected in corporate bankruptcy law. The authors propose changes in both prudential regulation and reorganization policies that should allow regulators and banking authorities to better mitigate disruptions in the financial system and minimize the social costs of bank failures. Their recommendations are complemented by a discussion of bank failures from the 2007–2009 financial crisis.