Ian Zimmer

A Lens Study Of The Prediction Of Corporate Failure By Bank Loan Officers

Libby [1975] evaluated the predictive ability of American bank loan officers by having a sample of loan officers predict failure/nonfailure for each of sixty real but disguised firms, half of which had experienced bankruptcy. He found loan officers to be reasonably accurate predictors of corporate failure, who exhibited a high degree of consensus in their responses to corporate financial profiles. He also found a consensus judge to be more accurate than most individuals. This paper extends Libbys study by considering the predictions of loan officers in a more representative task, which involved loan officers making annual predictions of failure of corporations based on a time series of ratios (Backer [1970, chap. 3] and Clemens and Dyer [1979, chap. 19]). The usefulness of students as surrogates for loan officers in experiments of this nature was also investigated. Since first writing this paper, I became aware of a similar study by Casey [1980], which is reported on pages 603-13 of this Journal. Casey provides some results which are inconsistent with Libbys and mine. In particular, he found that the majority of loan officers could not predict bankruptcy at a rate better than chance and that a consensus judge was outperformed by the majority of loan officers. Comparisons between the results of all three studies are discussed below. My study examined several issues relating to the failure/nonfailure predictions of loan officers. (a) The usefulness of accounting information

Accounting for interest by real estate developers

This paper investigates accounting for interest by Australian real estate developers. It argues that managements choice of accounting technique is the result of ex ante contracting to prevent management opportunistic behavior, rather than a manifestation of opportunistic behavior per se. The argument provides a richer description of accounting choice and explains why, in Australia, leverage and the accounting method choice are correlated in the absence of bond covenants. The argument also explains why, inconsistent with political cost arguments, larger firms are more likely to capitalize than expense interest.

The Nature of the Small Firm: Understanding the Motivations of Growth and Non-Growth Oriented Owners

The small business sector is of primary interest to government policy (see Beddall 1990). This has been observed through a number of initiatives, including the creation of “free” or subsidised advisory services. The existence of such advisory services has at least two rationales. First, assistance to persons intending to start their own business (particularly for the first time) is accepted as a community service obligation and involves maximising the likelihood of success of small business initiatives, while at the same time protecting potential owners, and the parties they might contract with, from the costs of financial distress. This in turn presumes that such problems cannot be satisfactorily resolved through the market for business advice. Second, free advisory services to established businesses are justified on the premise that they increase the efficiency of the sector (again in a manner or extent not available through market processes) so as to increase the wealth of the economy in general and contribute to employment, in particular. To achieve this latter objective, government advisory services need to identify the attributes of businesses which are more likely to have growth prospects. But an operational framework that distinguishes growth from nongrowth small businesses does not exist. This paper represents an attempt to develop such a framework. We initially discuss the nature of small business, review prior attempts to define the sector and propose a definition that links the literature to financial economics. We then review the literature to consider the different attributes of small business that are likely to be indicative of growth potential. Finally, we report the results of a set of structured interviews with small business owners and develop a set of propositions concerning the fundamental characteristics of growth compared to non-growth firms.

Contracting cost determinants of GAAP for joint ventures in an unregulated environment

Abstract As in other countries, Australian accounting for unincorporated joint ventures varies systematically between firms in different phases in the extractive industries (explorer vs. producer). We argue that these differences in accounting method can be explained by differences in the type of assets and the manner in which they are owned and financed. We hypothesize that when unincorporated joint ventures are financed on a with-recourse basis they will be proportionately consolidated; when they are financed on a non-recourse basis one-line reporting is expected. Empirical results are consistent with this hypothesis and appear to generalize to the real estate industry.

The Assessment of Payroll Internal Control Systems and Auditors' Experience, Tolerance of Ambiguity, and Dogmatism

Professional judgments, such as an auditors assessment of an internal control system, require the exercise of discretion which is likely to reflect individual differences across auditors. Here significant effects are reported for dogmatism and tolerance of ambiguity in auditors assessments of payroll internal control systems, and, supporting Joyces early result (Joyce, 1976), a weak negative effect of experience on inter-auditor consensus. In contrast, existing research reports null findings for the effect of personality differences on financial judgments (Savich, 1977; McGhee, Shields, and Birnberg, 1978; Weber, 1978) and a weak positive effect for experience (Ashton and Kramer, 1980). The previous null findings with respect to personality differences are explained as a subject/task interaction. The subjects were 23 auditors who each assessed 32 internal control checklists.

Group Size and Performance: Prediction of Failure by Loan Officers

This paper begins by replicating the Libby and Blashfield (1978) experiment for the business failure task. The investigation is then extended to consider a non–unit weighted decision scheme modelling differential task expertise among group members. In this case, the results of the study suggest that the use of groups with more than three members can be justified.

Franchising Dental Practices: A Case Study in Financial Contracting

Previous literature has attempted to explain the existence and for M of franchising agreements by proposing agency related hypotheses. In this paper we illustrate the complexity of putting such a structure in place by using a case study of the franchising of dental practices in Australia. We use this to develop a number of hypotheses about the impact of various regulations on the development of these contractual structures.