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Article
Publication date: 17 April 2019

Ana Isabel Lopes and Laura Reis

This paper aims to examine pricing differences regarding contingencies presented in statements of financial position or notes, which are considered an area for creative accounting.

Abstract

Purpose

This paper aims to examine pricing differences regarding contingencies presented in statements of financial position or notes, which are considered an area for creative accounting.

Design/methodology/approach

The authors have chosen two countries with different cultural environments to test the exploratory study. The sample includes companies using the International Accounting Standard (IAS) 37, which requires recognition of provisions while contingent liabilities are only disclosed, implying different impacts from underlying judgement related with contingencies. The authors apply a regression model based on the Ohlson equity-valuation framework.

Findings

The most important conclusion is that market participants in both countries follow different patterns when incorporating information about provisions and contingent liabilities. More precisely, the results suggest that provisions are value-relevant, but incrementally less negative in Portugal. Contingent liabilities seem to have no value relevance. However, an exception exists for Portuguese companies having a risk committee board, in which case a significant market valuation of contingent liabilities is found and discounted in share prices. The existence of a risk committee corroborates the value relevance of this board, which is positively valued by market participants in both national cultures.

Practical implications

The findings may make a contribution to the IASB research project on the IAS 37 and possible amendments to it (suspended until the revisions to the conceptual framework are finalized) and to the IASB prioritization of communication effectiveness of financial statements to all users.

Originality/value

Value relevance of contingencies differentiating countries from two different national cultures and firms with a risk committee on the board of directors.

Details

Meditari Accountancy Research, vol. 27 no. 2
Type: Research Article
ISSN: 2049-372X

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Article
Publication date: 1 February 2001

Yuichiro Kawaguchi and Kazuhiro Tsubokawa

This paper proposes a discrete time real options model with time‐dependent and serial correlated return process for a real estate development problem with waiting options…

Abstract

This paper proposes a discrete time real options model with time‐dependent and serial correlated return process for a real estate development problem with waiting options. Based on a Martingale condition, the paper claims to be able to relax many unrealistic assumptions made in the typical real option pricing methodology. Our real option model is a new one without assuming the return process as “Ito Process”, specifically, without assuming a geometric Brownian motion. We apply the model to the condominium market in Tokyo metropolitan area in the period 1971‐1997 and estimate the value of waiting to invest in 1998‐2007. The results partly provide realistic estimates of the parameters and show the applicability of our model.

Details

Journal of Property Investment & Finance, vol. 19 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 21 September 2012

Ryan Garvey and Fei Wu

The purpose of this paper is to examine US equity traders’ use of market orders versus price contingent orders with respect to information content.

Abstract

Purpose

The purpose of this paper is to examine US equity traders’ use of market orders versus price contingent orders with respect to information content.

Design/methodology/approach

Price changes following market and price contingent order submissions are analysed.

Findings

It is found that prices rise (decline) after the submission of market buy (sell) orders; whereas, prices decline (rise) after the submission of price contingent buy (sell) orders. Aggressively priced limit orders (i.e. marketable limit orders) convey information, but they are not more informative than market orders. Traders who transact in smaller quantities, engage in more short‐selling, and frequently achieve better performance are more likely to use market orders.

Originality/value

In contrast to prior studies, the paper's findings suggest that, when executing orders, informed traders have a preference for bearing a price rather than an execution risk.

Details

International Journal of Managerial Finance, vol. 8 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 7 September 2015

Xiaohuan Wang, Zhi-Ping Fan, Yiming Wang and Manning Li

The purpose of this paper is to put forward a multi-period dynamic pricing strategy for perishable food considering consumers’ price fairness perception. The impacts of…

Abstract

Purpose

The purpose of this paper is to put forward a multi-period dynamic pricing strategy for perishable food considering consumers’ price fairness perception. The impacts of the multi-period retail price, food freshness and inventory shortage risk on consumers’ heterogeneous willingness to pay (WTP) and their strategic purchasing behaviours are studied.

Design/methodology/approach

The authors present a price optimization model for perishable food, and conduct a laboratory experiment to justify the theoretical model. The data collected are analysed by correlation analysis and nonparametric test.

Findings

The results obtained reveal, first, food freshness and inventory shortage risk have effect on consumers’ heterogeneous WTP. Second, different retail prices lead to consumers’ strategically purchasing behaviours. Finally, consumers’ intertemporal price fairness perception and the food retailer’s long-term utility maximization can be achieved by developing multi-period dynamic pricing strategy.

Practical implications

This study suggests the perishable food retailer to apply a step-by-step price markdown strategy. It aims at eliminating price unfairness perceptions caused by loss of freshness and high shortage risk of the perishable food in the subsequent selling periods within the shelf life. Some valuable managerial insights towards perishable pricing for food retailers are discussed.

Originality/value

This study serves as the first step to utilize a laboratory experiment to dig out consumers’ intertemporal WTP towards perishable food. It also presents a novel way for describing consumers’ intertemporal price fairness perception by equalizing consumers’ average utilities considering consumer surplus, food freshness and shortage risk at different selling periods. The line of research on dynamic pricing concerning consumers’ price fairness perception is quite new in academic research, and has arisen due to its importance for food retailers of maximizing their long-term revenues and also of constructing mutual benefit and lasting connections with the consumers.

Details

British Food Journal, vol. 117 no. 9
Type: Research Article
ISSN: 0007-070X

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Article
Publication date: 14 November 2016

John Kevin Ashton

The study examines influence of behavioural economic theories of add-on goods and contingent charges on the regulation of two touchstone markets in the UK. These markets…

Abstract

Purpose

The study examines influence of behavioural economic theories of add-on goods and contingent charges on the regulation of two touchstone markets in the UK. These markets, the payment protection insurance (PPI) market and the market for overdrafts can both be characterised as add-on goods, have displayed excessive levels of profitability and been the focus of continuing and substantial public mis-trust. Despite these similarities, the regulatory treatment of these two markets has been very different. The purpose of this paper is to explore the context of these cases and examine why these differences in regulatory reporting have developed.

Design/methodology/approach

The research questions are examined through a detailed review of the regulatory reporting in the UK PPI and overdraft market. This review of over 20 regulatory reports, numerous enforcement actions, associated legal proceedings and related international evidence is employed to determine commonalities and differences in the regulatory actions proposed, motives adopted and success of these regulatory processes.

Findings

It is reported the dynamic and fragmented regulatory structure, multiple policy agendas and a successful legal intervention have all influenced how these financial services markets have been regulated and behavioural economic concepts applied. In particular aspects of overdraft markets remain challenging to address as it is still possible to exclude competition within aftermarkets. The regulatory intervention into PPI markets by contrast addressed concerns raised by add-on good theory and amended the form of distribution underlying this market more directly and successfully.

Originality/value

There have been numerous excellent reviews of behavioural economics and finance published on a diversity of topics. Despite such a wide coverage, a relatively under-researched aspect of this literature remains the application of these relatively new theoretical insights within markets and how these have influenced regulatory practice. This review of regulatory reporting addresses this gap in the literature through considering two of the most problematic financial services markets of the last decade in the UK.

Details

Review of Behavioral Finance, vol. 8 no. 2
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 7 September 2015

Apurba Shee, Calum G. Turvey and Joshua Woodard

The purpose of this paper is to assess the feasibility of risk-contingent credit (RCC) by presenting an experimental and participatory game designed to explain the concept…

Abstract

Purpose

The purpose of this paper is to assess the feasibility of risk-contingent credit (RCC) by presenting an experimental and participatory game designed to explain the concept of RCC to Kenyan pastoralists and dairy farmers. The paper investigates the uptake potential of RCC through qualitative assessment of field experiments and focus groups.

Design/methodology/approach

The paper presents a method of community engagement through a participatory game played in a series of Focus Group Discussions (FGDs). The paper also presents theoretical justification of RCC in credit market structure.

Findings

The game effectively explains the concept and mechanism of RCC by reflecting local situation and production potential. Participatory exercises within focus group discussions indicate that there exists a strong interest and support for RCC.

Research limitations/implications

The methodology described in this paper can be used in extension programs for promoting innovative rural microcredit in developing countries but should be modified according to the local production and associated weather and market risks.

Originality/value

Micro-insurance and credit program delivery can be improved by the innovative approach of community engagement for explaining financial products.

Details

Agricultural Finance Review, vol. 75 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

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Book part
Publication date: 27 June 2014

Andrew H. Chen, James A. Conover and John W. Kensinger

Analysis of Information Options offers new tools for evaluating investments in research, mineral exploration, logistics, energy transmission, and other information…

Abstract

Analysis of Information Options offers new tools for evaluating investments in research, mineral exploration, logistics, energy transmission, and other information operations. With Information Options, the underlying assets are information assets and the rules governing exercise are based on the realities of the information realm (infosphere). Information Options can be modeled as options to “purchase” information assets by paying the cost of the information operations involved. Information Options arise at several stages of value creation. The initial stage involves observation of physical phenomena with accompanying data capture. The next refinement is to organize the data into structured databases. Then bits of information are selected from storage and synthesized into an information product (such as a management report). Next, the information product is presented to the user via an efficient interface that does not require the user to be a field expert. Information Options are similar in concept to real options but substantially different in their details, since real options have physical objects as the underlying assets and the rules governing exercise are based on the realities of the physical world. Also, while exercising a financial option typically kills the option, Information Options may include multiple exercises. Information Options may involve high volatility or jump processes as well, further enhancing their value. This chapter extends several important real option applications into the information realm, including jump process models and models for valuing options to synthesize any of n information items into any of m output assets.

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Article
Publication date: 6 November 2017

Minghua Ye, Rongming Wang, Guozhu Tuo and Tongjiang Wang

The purpose of this paper is to demonstrate how crop price insurance premium can be calculated using an option pricing model and how insurers can transfer underwriting…

Abstract

Purpose

The purpose of this paper is to demonstrate how crop price insurance premium can be calculated using an option pricing model and how insurers can transfer underwriting risks in the futures market.

Design/methodology/approach

Based on data from spot and futures market in China, this paper develops an improved B-S model for the calculation of crop price insurance premium and tests the possibility of hedging underwriting risks by insurance firms in the futures market.

Findings

The authors find that spot price of crops in China can be estimated with agricultural commodity futures prices, and can be taken as the insured price for crop price insurance. The authors also find that improved B-S model yields better estimation of crop price insurance premium than traditional B-S model when spot price does not follow geometric Brownian motion. Finally, the authors find that hedging can be one good alternative for insurance firms to manage underwriting risks.

Originality/value

This paper develops an improved B-S model that is data-driven in nature. Insured price of the crop price insurance, or the exercise price used in the B-S model, is estimated from a co-integration model built on spot and futures market price series. Meanwhile, distributional patterns of spot price series, one important factor determining the applicability of B-S model, is factored into the improved B-S model so that the latter is more robust and friendly to data with varied distributions. This paper also verifies the possibility of hedging of underwriting risks by insurance firms in the futures market.

Details

China Agricultural Economic Review, vol. 9 no. 4
Type: Research Article
ISSN: 1756-137X

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Article
Publication date: 28 January 2013

Harald Biong

Buyers assessing bids from suppliers of experience services face both an adverse selection and a potential moral hazard problem. The purpose of this study is to examine…

Abstract

Purpose

Buyers assessing bids from suppliers of experience services face both an adverse selection and a potential moral hazard problem. The purpose of this study is to examine the relative importance of various signals of supplier reputation conveying information about unobserved supplier quality, which is important for identifying the best tender; and whether price is contingent on supplier reputation and on buyer's quality sensitiveness in a competitive bidding situation.

Design/methodology/approach

This study builds on a conjoint experiment where 19 contractors consider alternative scenarios representing tenders from subcontractors of plumbing services. In the scenarios the subcontractors differ on their reputation and price variables, while the contractors differ in their quality sensitiveness. Multiple regressions analyzes the contingent price effects.

Findings

Although low price is generally important for subcontractor selection, quality-sensitive buyers are willing to pay subcontractors a price premium to prevent quality debasement. On the other hand, despite the combined significance of supplier reputation on choice, buyers are not willing to pay price premiums to suppliers with a quality reputation.

Research limitations/implications

Conjoint studies produce multiple cases but the underlying sample is limited. Therefore, this study should be regarded as preliminary and a basis for further validation on larger samples.

Practical implications

In competitive bidding situations, suppliers with strong quality reputations may benefit most by low price offers. Thus, suppliers with a strong reputation should achieve profitability through a volume premium rather than a price premium effect. Suppliers opting for price premiums should target the quality sensitive segment of the market.

Originality/value

In contrast to previous findings in B2B brand equity studies, but in line with findings in information economics, this study suggests that suppliers with a reputation for quality will not receive price premiums. The results indicate that in bidding contexts in B2B markets, the reputation variables may enhance rather than reduce buyers' price sensitivity, because supplier reputation increases low price credibility.

Details

Journal of Business & Industrial Marketing, vol. 28 no. 1
Type: Research Article
ISSN: 0885-8624

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Article
Publication date: 27 September 2011

Roger Gay

The purpose of this paper is to examine use of the Black‐Scholes (BS) risky asset model to determine choice of optimal investment term in a reinvestment chain model.

Abstract

Purpose

The purpose of this paper is to examine use of the Black‐Scholes (BS) risky asset model to determine choice of optimal investment term in a reinvestment chain model.

Design/methodology/approach

An extension of Tobin's separation theorem is used to establish a mean‐variance efficient strategy for lump sum conversion to an income stream over any fixed term; two criteria involving the BS model are then applied to determine optimal investment term in a perpetual chain of reinvestment. The first criterion selects the term to maximize the value of a call option on excess of a market portfolio accumulation over the indexed value of the original lump sum. The second criterion selects term to maximize the expected present value of this excess without the no‐arbitrage assumption.

Findings

It is found that both criteria lead to useful but different income stream funding strategies. Annual returns data for the All Ordinaries Accumulation Index for years 1900‐2009 are used for an empirical assessment of the relative usefulness of the two criteria. Empirical evidence favours use of the criterion without the no‐arbitrage assumption.

Originality/value

Mean‐variance efficiency of the lump sum conversion strategy has been described elsewhere, but it has not previously been recognized as an extension of the Tobin theorem. Determination of optimal reinvestment term in this context is new and crucial to practical application of the model. One application of universal significance is for retirees emerging from defined contribution pension schemes with lump sums to provide for retirement in the face of longevity risk.

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