The measurement of fair values, particularly in the absence of quoted prices in active markets, is complex and difficult to verify. This paper examines whether banks use fair value estimates based on unobservable inputs (i.e., Level 3) to manage earnings during the 2008 financial crisis. Using a sample of 291 U.S. bank holding companies, we find that banks use discretionary Level 3 gains or losses to smooth earnings. We benchmark our findings against loan loss provisions (LLP), but we do not find consistent evidence that banks use LLP to smooth earnings, mainly because better corporate governance mechanisms effectively reduce discretion. However, better corporate governance does not reduce measurement discretion in Level 3. This finding suggests that monitoring mechanisms prevent excessive discretion for loans—which are measured at amortized cost—but have yet to develop to prevent similar discretion for investments that are measured at fair value.
Using Swiss Labor Force Survey data from 1996 to 2009, the authors estimate the earning losses of workers experiencing an involuntary job loss. Two empirical strategies are followed: the standard approach of the earning losses literature and a new method that allows to consider the full set of involuntary separations, also those individuals with zero earnings because of unemployment. Using the first approach the authors estimate an immediate loss of 11%, and a long-term loss of about 9%. Using the second method the authors estimate an earning loss of 50% in the year of separation and a long-term loss of about 19%. With respect to other reasons for separation, the earning loss pattern is unique for involuntary separations. Analyzing the determinants of an involuntary job loss, the authors find out that education plays a major role against the risk of an involuntary separation and this element has a unique pattern with reference to the other reasons for separation.
Prior research has produced ambiguous support for theories on the nature and construction of Human Resource Management (HRM) systems. This ambiguity may be a function of the inherent limitations of the methodologies used in previous studies. We resume efforts by using a configurational methodology to analyze high performing HRM systems of 374 UK based firms. We reveal the multi-dimensional nature of successful and unsuccessful HRM systems. By providing a typology for comparing the interdependencies among vital and peripheral functions, we are able to describe and explain competitive advantages that rest in the orchestrating themes and integrative mechanisms of HRM systems.
This paper explores the effect of dual-class shares on firm performance using a unique law change in Switzerland as a source of exogenous variation. Unlike most of the related literature we do not adopt a one-size-fits-all approach but allow the effect to vary depending on a firm’s need for external finance. Based on nine years panel data of both firms affected and unaffected by the law change, we find that dual-class shares neither harm nor benefit firm performance on average. However, dual-class shares increase firm performance if the firm requires external finance and dual-class shares decrease firm performance if the firm does not require external finance.
The increasing complexity of the modern world creates both higher risks and new interdependencies in the socioeconomic environment. To cope with these challenges powerful new tools must be applied to find sustainable solutions. System dynamics is a field that offers potential assistance in dealing with complex issues. However, managers and politicians often lack the knowledge and necessary skills to apply quantitative methods in their decision-making process. In contrast, qualitative approaches are easily understood and handled but have limited capacities for analysis. To address this gap, we have developed a bundle of tools tailored for managers and politicians facing complex problems. These tools enable executives to recognize effective levers and assess potential consequences of specific interventions in a highly interconnected system. The approach detailed here equips decision makers with a powerful method to develop, test, and communicate strategies to find long-term sustainable solutions for complex issues in business and society.
Terrorism is a complex problem and therefore simple solutions focusing just on one aspect are destined to fail. We have to capture terrorism in its entirety and system dynamics offers various tools to support us. We developed a semi-quantitative system dynamics approach aiming to characterize relationships between different variables and their impact on the system as a whole. The authors established a network to model terrorism consisting of 16 variables and performed different analysis to gain a better understanding of the mechanisms behind terrorism. We showed how to determine which variables are suited for intervention and described in detail their effects on the influence of the terrorist organization. The paper gives also an insight how to elicit elements that destabilize and ultimately break down the terror network. Because we clarify our approach using fictitious numbers, the relevance of this work is not so much in specific policy recommendations that it proposes as in the framework for reasoning that it provides.
