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The purpose of this paper is to investigate the applicability of Shewhart methodology and other quality management principles to gain a deeper understanding of the observed volatility in stock returns and its impact on market performance.

The validity of quality management philosophy in the context of financial market behaviour is discussed. The technique of rational subgrouping is used to identify the observable variations in stock returns as either common or special cause variation. The usefulness of the proposed methodology is investigated through empirical data. The risk/return and skewness/kurtosis trade-offs of S&P 500 stocks are examined. The consistency of this approach is reviewed by relating the separated variability to “efficient market” and “behavioural finance” theories.

Significant positive and negative risk/return trade-offs were found after partitioning the returns series into common and special cause periods, respectively, while total data did not exhibit a significant risk/return trade-off at all. A highly negative skewness/kurtosis trade-off was found in total and special cause periods as compared to the common cause periods. These results are broadly consistent with the theoretical concepts of finance and other empirical findings.

The quality management principles-based approach to analysing financial data avoids the complexities commonly found in stochastic-volatility forecasting models.

The results provide new insights into the impact of volatility in stock returns. They should have direct implications for financial market participants.

The authors explore the relevance of Shewhart methodology in analysing variability in stock returns through reviewing financial market behaviour.

This study aims to examine style-deviation practices in the socially responsible mutual funds (SMRF) industry i.e. how mutual funds game their stated financial objectives to earn a higher relative performance ranking. In addition, the consequences of such practices on sustainable scores and money flows are studied.

A sample of 454 US equity SRMFs is studied. This paper uses panel regressions controlling for time and style fixed-effects.

This study finds that 17.60% of SRMF managers in the sample are engaged in style deviation practices. These practices positively impact the sustainable performance of SRMFs and negatively impact their financial performance. One effect offsets the other and they consequently do not affect money flows. Another finding is that only investors with lower portfolio sustainability scores do show return-chaser behaviour.

This paper reveals that SRMF managers deviating from their stated financial style face a dilemma that is non-existent for their conventional peers that is style deviation practices affect financial and sustainable performance in opposing ways, whereas SRMF investor utility depends positively on both dimensions. The findings are not conclusive about the effectiveness of style deviation practices in attracting SRMF money flows.

SRMF industry has experienced tremendous growth in the past decade. The increased competition in this industry has led managers to strive to attract investors, sometimes by relying on irregular practices that enhance their portfolio results. Regulators should consider how to avoid such perverse behaviour with a view to improving mutual funds transparency.

This is the first research that analyses style deviation practices and their consequences for the SRMF industry.

A probabilistic non-dominated sorting genetic algorithm (P-NSGA) for multi-objective optimization under uncertainty is presented. The purpose of this algorithm is to create a tight coupling between the optimization and uncertainty procedures, use all of the possible probabilistic information to drive the optimizer, and leverage high-performance parallel computing.

This algorithm is a generalization of a classical genetic algorithm for multi-objective optimization (NSGA-II) by Deb et al. The proposed algorithm relies on the use of all possible information in the probabilistic domain summarized by the cumulative distribution functions (CDFs) of the objective functions. Several analytic test functions are used to benchmark this algorithm, but only the results of the Fonseca-Fleming test function are shown. An industrial application is presented to show that P-NSGA can be used for multi-objective shape optimization of a Formula 1 tire brake duct, taking into account the geometrical uncertainties associated with the rotating rubber tire and uncertain inflow conditions.

This algorithm is shown to have deterministic consistency (i.e. it turns back to the original NSGA-II) when the objective functions are deterministic. When the quality of the CDF is increased (either using more points or higher fidelity resolution), the convergence behavior improves. Since all the information regarding uncertainty quantification is preserved, all the different types of Pareto fronts that exist in the probabilistic framework (e.g. mean value Pareto, mean value penalty Pareto, etc.) are shown to be generated a posteriori. An adaptive sampling approach and parallel computing (in both the uncertainty and optimization algorithms) are shown to have several fold speed-up in selecting optimal solutions under uncertainty.

There are no existing algorithms that use the full probabilistic distribution to guide the optimizer. The method presented herein bases its sorting on real function evaluations, not merely measures (i.e. mean of the probabilistic distribution) that potentially do not exist.

The purpose of this study is to elucidate the determinants of economic resilience at various levels of analysis. While the economic benefits of regional clustering are well-documented, the impact of external shocks on regional clusters has only recently gained attention. This study explores the antecedents of economic resilience, defined as sustained employment growth, prior to and during the global financial crisis within the German biotechnology industry.

This study combines multilevel linear regression analysis with egocentric network analysis. This allows us to distinguish micro- and context-level effects in the analysis of economic resilience.

The findings of this study indicate that while specialization at the network and context-level is conducive to firm growth prior to the crisis, these configurations seem to be particularly susceptible to external shocks. Conversely, diversity (diversified regional agglomerations and diverse networks) seems to be associated with economic resilience during the crisis. Moreover, we find that economic resilience is connected to adaptive capability at the micro-level, that is, the ability to expand and diversify a firms’ portfolio of network ties in the face of an external shock. Finally, we show that these adaptive processes are facilitated by geographical proximity among collaborating organizations.

This study contributes to the existing literature by showing that the antecedents of economic resilience are located at multiple levels of analysis. An important implication of this study is that the examination of the resilience of regional clusters may thus be significantly enhanced by disentangling effects at the firm, network and regional (i.e. context) level.

The purpose of this paper is to examine the many factors that affect the leverage decisions of publicly traded Australian companies, and tests to see whether these factors are reliably important. The relationship between these factors and the leverage decision is examined.

This study uses a multiple linear panel regressions to study the relationship between the factors and leverage.

The authors find a set of eight factors which are reliably important for capital structure decision making. These factors include: profitability, log of assets, median industry leverage, industry growth, market to book ratio, tangibility, capital expenditure, and investment tax credits. The empirical evidence indicates weakening support for the pecking order hypothesis and increasing support for the trade-off theory in Australia.

This paper examines the determinants of capital structure using Australian firms and provides a comprehensive empirical support for the capital structure theories.

There has been a call for additional managerial accounting research that examines the effect of non-pecuniary preferences (such as those for honesty and fairness) on managerial reporting decisions.

Drawing from trait theory, agency theory, and psychological contracts theory, Kidder (2005) suggests that personality traits and perceived unfairness in the workplace both help predict detrimental workplace behaviors, with perceived fairness affecting the honesty in reporting of some individuals but not others. We test Kidder’s (2005) theory in an experimental setting where participants have opportunity and incentive to report dishonestly.

Participants’ honesty preferences and ethical values (idealism and relativism) were measured, and the fairness of the participants’ employment contracts was manipulated. As predicted, higher preferences for honesty are significantly associated with honesty in reporting, suggesting that participants make trade-offs between increasing their own wealth and acting honestly. Additionally, the perceived fairness of compensation interacted with honesty preferences and relativism to affect honesty in reporting.

The implication for practice is that while a small number of employees are likely to consistently behave in honest or self-interested ways, firms may be able to positively influence the behavior of the majority of employees by enacting policies and procedures that contribute to perceptions that compensation is fair.

These findings contribute to our understanding of non-pecuniary preferences on managerial reporting decisions.

The chapter investigates: (1) Do married parents efficiently allocate time to children’s health care? (2) Are parents willing to sacrifice consumption for health improvements at an equal rate for all family members? (3) How does family structure affect health trade-offs parents make? (4) Are parental choices consistent with maximization of a single utility function?

A model is specified focusing on how parents allocate resources between consumption and goods that relieve acute illnesses for family members. Equivalent surplus functions measuring parental willingness to pay to relieve acute illnesses are estimated using data from a stated-preference survey.

Results provide limited support for the prediction that married parents allocate time to child health care according to comparative advantage. Valuations of avoided illness vary between family members and are inconsistent with the hypothesis that fathers’ and mothers’ choices reflect a common utility function.

Prior research on children’s health valuation has relied on a unitary framework that is rejected here. Valuation researchers have focused on allocation of resources between parents and children while ignoring allocation of resources among children, whereas results suggest significant heterogeneity in valuation of health of different types of children and of children in different types of households.

Results may provide a justification on efficiency grounds for policies to provide special protection for children’s health and suggest that benefit–cost analyses of policies affecting health should include separate estimates of the benefits of health improvements for children and adults.

The purpose of this paper is to examine the relationships among time pressure (TP), task complexity (TC), and audit effectiveness (AE). It is motivated by the conflicting results reported in prior TP studies.

The research hypotheses are developed using McGrath's interactional model of the Yerkes‐Dodson Law. Data are collected using a two‐treatment field experiment involving 63 public accountants.

The results show a negative, interactional relationship among TP, TC, and AE.

The first limitation concerns the non‐random procedure used to recruit public accounting firms and auditors. Second, there is the less than perfect operationalization of the TC construct.

First, the findings suggest that public accounting firms may need to resist the urge to reduce the time allowed for performing compliance tests, and provide training to improve the detection rate for all type of compliance deviations. Second, the fact that the rate of change in AE, in response to changes in TP, is different for the two audit tasks studied, suggests that it may not be appropriate for audit planners to assume a uniform TP effect across the various tasks involved in an audit. This insight has implication for the trade‐offs between the lower direct audit costs associated with tighter time budgets, and possible increases in audit risk associated with lower AE.

Two unique aspects of this paper are the operationalization of TP as a continuous random variable and the use of z‐scores to standardize the AE measure.

Going back into previously exited markets is a significant management risk. But, how are re-entry risks managed? By adding strategic reference point (SRP) rationales to the risk management literature, this chapter examines re-entry after initial entry and divestment on a sample of 654 multinational enterprise (MNE) re-entrants. The authors move away from narrow risk management lenses according to which risks happen in isolation and theorize that MNEs simultaneously manage international risk by exploiting the trade-offs among external and internal sources of risk. The authors explain that, for re-entrants, exit may become the SRP for evaluating future strategic choices. The results suggest that re-entrants tend to manage re-entry risk by choosing partner-based modes that enable them to maintain strategic flexibility at re-entry. Surprisingly perhaps, market-specific experience acquired during the initial market foray does not provide strategic flexibility, in that highly experienced firms still experience risk trade-offs.

In the early 1990s growing numbers of investing institutions in the UK financial community crossed a threshold of awareness about the opportunities offered by the emerging stock markets of developing countries (ESMs); the returns per unit of risk, formerly considered by most fund managers to be unacceptably low because of the high risk factor, were frequently reappraised and judged to fall within the parameters of acceptability. Investment funds were set up which either invested solely in emerging markets or adopted a policy of investing a fixed percentage of their funds in these markets (Clark, 1991; Bailey and Lim, 1992). Well‐advertised instances of spectacular returns achieved by equities in emerging markets2 apparently persuaded fund managers to overcome their misgivings and to invest in these markets despite the continuing risks associated with such investment.