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Existing research has theoretically modeled conditional correlations between the long-term interest rates as a function of macroeconomic variable. In line with it, the purpose of this paper is to explore whether conditional correlations can be a new signal to predict recessions. Furthermore, this paper also tries to investigate among the four factors – the time difference of the beginning and the end of recessions, financial integration (FI), and trade integration (TI) – which factors drive the direction of change in conditional correlations. Finally, this paper is to explain the implication for Korea trade.

This study uses a probit regression model for 33 country during the period from 1972 to 2015. To measure the time-varying interest rates conditional correlations, a VAR(1)-DBEKK-GARCH(1,1) model is adopted due to its statistical advantages. Furthermore, the authors also construct the four measures – time difference of the beginning of recessions (BEG), time difference of the end of recessions (END), FI, and TI. The authors first study the predictive power of correlations in both in and out-samples test, and study which factors determine the different behavior of interest rate co-movements using the four measures.

The empirical results show that the conditional correlations between the long-term interest rates of the USA and individual countries contain information about recessions a few quarters ahead which term spreads of neither individual countries nor the USA conveyed in. However, there is a heterogeneity of the significance and direction of interest rate correlations. A further research reveals that especially the heterogeneous degree of TI leads to the different overlapped recession period of individual countries with the USA, resulting in heterogeneous behavior of interest rates among countries.

As a limitation of this paper, the forecasting power of interest rate correlations is not always significant in all countries. Despite this, the study has a profound implication that for those countries where the US accounts for the high proportion of trade, increase in conditional correlations can be a signal for future recessions. Especially, given a considerable portion of trade in GDP and the more sensitive trade activity of Korea to a contagious recession than a domestic recession, the conditional correlation measure is particularly useful for Korean policy makers.

Although many papers model interest rate co-movement as a function of macroeconomic condition, this paper provides the first evidence to show interest rate co-movement precede the macro shocks empirically. Furthermore, this paper determines the precise channel through which TI affects the time-varying behavior of interest rate co-movements before recessions.

Although there has been a great deal of interest in the idea of accounting for human resources and considerable theoretical discussion of the problems of measuring human resource value and cost, there has been virtually no empirical research on the validity of proposed methods and models. This paper reports some preliminary evidence on the validity of selected surrogates of a person's value to an organization. It describes a field study conducted to determine the convergent and discriminant validity of three possible surrogates of a person's value to an organization: replacement cost, compensation, and a performance measure.

The purpose of this paper is to investigate whether the convergence of IFRS in ASEAN countries resulted in an improvement in financial-reporting quality, and in particular with regards the degree of conditional conservatism of financial reporting. Then, the authors investigate whether the convergence to IFRS and the degree of conditional conservatism is influenced by corruption as a proxy for the strength of ASEAN jurisdiction legal and enforcement systems.

The sample of this study is based on 22,085 firm-year observations from three ASEAN countries, namely, Malaysia, Thailand and Singapore from 2008 to 2014. This study employs a panel least square regression to test the effect of IFRS on two measures of conservatism which are asymmetric timeliness and accrual-based loss recognition. The conservatism data are extracted from ORBIS, while data for corruptions are extracted from Corruption Perception Index (CPI) that was released by Transparency International.

This study finds Convergence of IFRS enhance conditional conservatism. The findings are robust for two measures of conservatism which are asymmetric timeliness and accrual-based loss recognition. The result on unconditional conservatism finds that IFRS reduce unconditional conservatism, which supports that the code-law structures of the ASEAN countries as characterized by unconditional conservatism is reduced after IFRS convergence. A further test indicates that corruption reduces conditional conservatism in more corrupt countries.

This study focused on three ASEAN countries only, as they have consistent convergence dates to the IFRS. Therefore the result may not be generalized to other ASEAN countries.

The study provides implications to the regulators that IFRS enhance financial-reporting quality and reduce the randomness of decisions that are based on financial information as has been introduced by unconditional conservatism. Therefore it is important for the regulators to incorporate IFRS compliance into laws and regulations. Currently, IFRS compliance is not incorporated into laws and regulations for ASEAN countries, except for Malaysia. In Malaysia, Section 7 of the Financial Reporting Act 1997 (FRA) empowers the Malaysian Accounting Standards Board (MASB) to issue approved accounting standards for application in Malaysia. Under section 26D of the FRA, financial statements that are prepared or lodged with the Central Bank, Securities Commission or Registrar of Companies must comply with the standards issued by the MASB.

This paper extends the literature on the effect of IFRS on conservatism as it provides robust effect of IFRS on both conditional and unconditional conservatism. In addition, this study extends the literatures on the effect of corruptions in the relationship between IFRS and conditional conservatism.

Glode provides theoretical and empirical evidence that, in aggregate, funds underperform during economic expansions and outperform during contractions. The authors find that this result is not robust to the more appropriate conditional CAPM and to alternative methods for estimating market states. The purpose of this paper is therefore to thoroughly analyze mutual fund performance across the business cycle by disaggregating funds into different investment objectives to determine which funds possess this cyclical performance and which do not.

In this paper, the authors employ a conditional asset pricing model that better captures the variations in the pricing kernel in different economic states. The empirical model adjusts for time‐variation in both risk (beta) and performance (alpha). The authors specify economic states using an ex‐ante measure, the expected market risk premium. This measure is continuous and better captures changing economic circumstances than the ex‐post, binary NBER cycle dates that are common in the mutual fund literature.

In this conditional framework, the authors find that recession protection is only offered by certain types of equity mutual funds. Managers of small‐cap and mid‐cap growth equity funds are able to deliver such state‐dependent performance but managers of value funds do not. In a comparison of active mutual funds with passive counterparts, it is found that both the stocks held by the small‐cap managers as well as their stewardship of the portfolio contribute to that performance.

Drawing from the recent asset pricing literature, the authors are the first to adapt an integrated conditional CAPM framework to examine the state‐dependent performance of mutual funds. Rather than report aggregate equity mutual fund performance, the authors provide an analysis for subsets of mutual funds separated by investment styles. Both managers of and investors in these funds will benefit from an understanding of how portfolio performance is impacted by changing economic conditions.

The purpose of this paper is to examine whether managers of bankrupt firms are more or less conditionally conservative in their financial reporting relative to non-bankrupt firms. The study further examines the cross-sectional differences in conditional conservatism among bankrupt and non-bankrupt firms.

The study employs a sample of US firms to investigate conditional conservatism in firms that experience financial distress and go bankrupt relative to non-stressed non-bankrupt firms. The study also uses switching regression models to identify the drivers of the cross-sectional difference in conditional conservatism among bankrupt and non-bankrupt firms.

Empirical results show that bankrupt firms are timelier in recognizing bad news than good news when compared to non-bankrupt firms. The higher level of conditional conservatism in bankrupt firms is mainly driven by their higher levels of leverage and tax-reduction incentives. The cross-sectional analyses show that these results largely hold for more leveraged firms and firms with higher tax costs. Taken together, these results suggest that the conservative tendency of managers of bankrupt firms can stem from the agency problem between lenders and managers and from tax-decreasing motivations.

The novelty of the authors’ research stands in studying the drivers of the cross-sectional differences in conditional conservatism between bankrupt and non-bankrupt firms and specifically, the demonstration that taxation also induces conditional conservatism in the setting of ex post bankrupt firms.

The purpose of this paper is to perform a relative assessment of performance benchmarks based on alternative asset pricing models to evaluate performance of mutual funds and suggest the best approach in Indian context.

Sample of 237 open-ended Indian equity (growth) schemes from April 2003 to March 2013 is used. Both unconditional and conditional versions of eight performance models are employed, namely, Jensen (1968) measure, three-moment asset pricing model, four-moment asset pricing model, Fama and French (1993) three-factor model, Carhart (1997) four-factor model, Elton et al. (1999) five-index model, Fama and French (2015) five-factor model and firm quality five-factor model.

Conditional version of Carhart (1997) model is found to be the most appropriate performance benchmark in the Indian context. Success of conditional models over unconditional models highlights that fund managers dynamically manage their portfolios.

A significant α generated over and above the return estimated using Carhart’s (1997) model reflects true stock-picking skills of fund managers and it is, therefore, worth paying an active management fee. Stock exchanges and credit rating agencies in India should construct indices incorporating size, value and momentum factors to be used for purpose of benchmarking.

The study adds new evidence as to applicability of established asset pricing models as performance benchmarks in emerging market India. It examines role of higher order moments in explaining mutual fund returns which is an under researched area.

The purpose of this paper is to examine the relationship between accounting conservatism and pledging of shares by controlling shareholders of a firm to obtain a loan. The pledging of shares by the controlling shareholders of a firm results in alterations to the payoff and risk structure for these shareholders. Since accounting numbers have valuation implications, pledging of shares by a controlling shareholder has an impact on accounting policy choices made by the firm. The purpose of this paper is to examine the impact of controlling shareholder share pledging to obtain a loan on a specific accounting policy choice, namely, conservatism.

The paper uses a large data set from India comprising 14,786 firm years consisting of 1,570 firms belonging to 58 industries for a period of 11 years (2009–2019). The authors use ordinary least square regression with robust standard errors. The authors conduct robustness checks and the results are consistent across alternative statistical methodologies and alternative measures of the primary dependent and independent variables.

The primary results show that pledging of shares by the controlling shareholders results in higher conditional conservatism and lower unconditional conservatism. Further analysis reveals that the relationship is stronger when the controlling shareholder holds a majority ownership in the firm. Additionally, the results show that for business group affiliated firms, which are unique to developing countries, both the conditional and the unconditional conservatism are incrementally lower when the controlling shareholder pledges the shares. For family firms with a family member as CEO, the conditional conservatism is incrementally higher and the unconditional conservatism is incrementally lower. Finally, the authors show that the results hold when the pledge intensity variable is measured with a one-year lag and finally, the authors show that conditional conservatism is incrementally higher in the year of the increase in the pledge and the year after, but there is no such incremental impact on unconditional conservatism.

The research is limited to the listed firms in India. Since majority of the listed firms are controlled by families and the family firms around the world are heterogeneous the findings of the research may not be applicable to other countries.

The study has implications for policy-making and monitoring of the pledging by the controlling shareholders. It also helps the investors in making investment decisions with respect to family firms in India.

The study is unique as it focuses on the relationship between pledging of shares by the controlling shareholders and its impact on accounting conservatism. To the best of the authors’ knowledge, this is the first research integrating these two aspects.

This study tests the hypothesis of market integration between the securitised and the unsecuritised real estate market by examining the information contents of their respective ex‐post conditional volatility measures. The two markets are said to be integrated if the conditional volatility terms of one market do not contain incremental information for the ex‐post conditional volatility of another market. Our empirical results showed no evidence of the ex‐post returns of the direct real estate (PPI) market incorporating the market volatility of the securitized real estate asset. The ex‐post conditional volatility of the PPI market, which contains only information on the past shock and the past conditional volatility, is sufficient to statistically explain the variation in the log‐PPI price variations. However, there was significant evidence of incremental information flowing from conditional volatility of the unsecuritized property market to the securitized property market. Therefore, the securtized and unsecuritized real estate markets are integrated, but the integration is only uni‐directional. Some degree of segmentation is still observed as the information of property market (PPI) still has significant impacts on the returns of the property stock market.

We evaluate the performance of fixed income mutual funds using stochastic discount factors motivated by continuous-time term structure models. Time-aggregation of these models for discrete returns generates new empirical “factors,” and these factors contribute significant explanatory power to the models. We provide a conditional performance evaluation for US fixed income mutual funds, conditioning on a variety of discrete ex-ante characterizations of the states of the economy. During 1985–1999 we find that fixed income funds return less on average than passive benchmarks that do not pay expenses, but not in all economic states. Fixed income funds typically do poorly when short-term interest rates or industrial capacity utilization rates are high, and offer higher returns when quality-related credit spreads are high. We find more heterogeneity across fund styles than across characteristics-based fund groups. Mortgage funds underperform a GNMA index in all economic states. These excess returns are reduced, and typically become insignificant, when we adjust for risk using the models.

This chapter provides evidence that legislation affecting litigation risk has an influence on the financial reporting behavior of corporate management, we address the following research questions: (1) Do firms react to changes in litigation risk that result from the passage of new legislation at the federal level by adjusting their level of conservatism with regard to reporting earnings? (2) How do firms’ levels of conservatism react to changes in litigation risk over time? We analyze the level and trend in conditional conservatism to evaluate the efficacy of legislation in altering managerial reporting choice. Our examination takes place in the context of two distinct pieces of legislation intended to alter the legal environment faced by corporate managers: (1) the PSLRA (1995), and (2) Sarbanes–Oxley Act of 2002. Our findings indicate that the passage of legislation that increases litigation risk is associated with increased timeliness (conservatism) in financial reporting by managers. The increased timeliness, however, begins to subside shortly after the initial effect. While the initial effect of a reduction in litigation risk is negligible, subsequent periods exhibit declining timeliness (conservatism) in financial reporting. Our results indicate that legislative actions can be successful in altering management reporting choice through changes in legal regime. However, our results also demonstrate that the desired influence of these legislative policies may be transient.