Robert G. Luther

The Investment Performance of UK “Ethical” Unit Trusts

Examines the impact on investment returns of stated non‐financial criteria by utilizing information on UK “ethical” unit trusts. Over a limited period of observation there was weak evidence of some overperformance on a risk‐adjusted basis by “ethical” unit trusts. Suggests arguments that might intuitively explain overperformance or underperformance. There is clear evidence that the “ethical” trusts have UK investment portfolios more skewed towards companies with low market capitalization than the market as a whole. Associated with this, they tend to be invested in low dividend yield companies. The degree of international diversification varies and a suitable international benchmark may be needed to separate out any “ethical” effect.

Anticipating the Impact of IFRS on the Management of German Manufacturing Companies: Some Observations from a British Perspective

Abstract The introduction of International Financial Reporting Standards (IFRS) in 2005 marked a significant departure from Germanys traditional financial accounting practices. This paper questions whether this change may have consequential effects on the distinctive traditional management accounting practices in the field of Controlling. We examine the possible impact on manufacturing companies drawing upon perceptions and expectations of managers in three Bavarian companies and two management consultancy firms. We consider whether financial accounting will assume an increased importance within firms, and whether this may lead to abandonment of some traditional management accounting practices and the adoption of different techniques in internal reporting compatible with the new IFRS regime for external reporting. This prompts consideration of whether such changes would lead to financial accounting domination of management accounting in Germany analogous to that argued by Johnson and Kaplan in 1987 in their ‘Relevance Lost’ thesis. We conclude that, at this juncture in the development of their information systems, German managers face an important choice between integrating external and internal reporting in ways that might fundamentally change established Controlling practices, or of continuing to operate dual accounting systems in much the same way as in the past so that adoption of IFRS is restricted to external reporting.

The development of accounting regulation in the extractive industries: An international review

In view of the economic significance of extractive industries, the special accounting issues raised, the wide range of accounting figures that can be obtained, and the numerous calls over many years for standardization, there has been less regulation of their accounting than might have been expected. The development of accounting regulations and practices in the extractive industries in five countries is reviewed and salient issues are explored. The continuing international diversity is the result of the vested interests of large companies, technical accounting complications, and a view that, given the limitations of historical cost accounting, the cost of regulation and standardization would not be justified. As a result of the conceptual framework programmes, rising commodity prices and increased environmental accountability extractive industry accounting has recently returned to various agenda. This review shows that the debate is likely to be more related to politics than accounting and may not be altogether rational or conclusive.

Contingency factors influencing the availability of internal intellectual capital information

Purpose – The purpose of this paper is to explore several contingency variables, namely environmental uncertainty, business strategy, technological advancement, market to book ratio, size, profitability and industry type in the context of management accounting and the availability of internal intellectual capital (IC) information.Design/methodology/approach – A questionnaire was developed and posted to the managers of Malaysian companies. A multiple regression statistical technique was employed to analyse the data.Findings – It is found that business strategy and technological advancement of customer service relate positively to the availability of internal IC information in Malaysian companies.Research limitations/implications – The relatively small response of usable replies to the questionnaire survey is a limitation of this paper. The finding implies that companies with more internal IC information are more likely to be those of product differentiators and those who have undergone technological advanc...

Human capital disclosures in developing countries: figureheads and value creators

Purpose - – The purpose of this paper is to explore if any disparity exists between human capital information desired by financial analysts and fund managers and actual disclosure of such information in company annual reports, in the context of developing countries. Design/methodology/approach - – Financial analysts and fund managers were interviewed to obtain opinions on the importance attributed to human capital information and whether their desired information is disclosed in the annual reports. Content analysis was then used to assess the extent and nature of human capital information actually provided in the annual reports of 100 listed companies in Malaysia. Findings - – Interviewees seek information on company management and key corporate decision makers who could provide a firm with competitive advantage. However, the human capital information provided is limited, and tends to focus on directors, many of whom may be figureheads with little impact on the way companies are run and in creating value for the firm. Accordingly, analysts rely on alternative sources to get their desired information – a costly process for private shareholders. Originality/value - – The paper contributes to the literature on the demand for, and disclosure of, human capital information in the context of developing countries. It identifies the inadequacy of current human capital disclosure practices in company annual reports. The authors theorise that in developing countries, resource dependence, legitimacy-seeking and “culture” cause companies to pay relatively more attention to figureheads than value creators.

IFAC's Conception of the Evolution of Management Accounting: A Research Note

IFACs Management Accounting Practice Statement Number 1, revised in 1998, is concerned with management accounting practices. This research note describes an operationalization of its conception of the evolution of management accounting. The paper is informed by experience in developing and applying an IFAC-based model to survey the stage of evolution of the management accounting practices in a United Kingdom industry sector. The model is intrinsically interesting and has the potential for replication in other contexts and in comparative cross-national, inter-industry or longitudinal studies.

Managerial practices of quality costing: An evidence-based framework

Purpose – This paper aims to use empirical data to classify and contextualize the various practices of quality costing.Design/methodology/approach – The paper uses 23 “best practices” of quality costing extracted from the literature to survey quality managers of 88 publicly listed Jordanian manufacturing firms. Exploratory factor analysis is then used to create an empirical taxonomic framework.Findings – Factor analysis of the data identifies a six‐factor structure of the practices of quality costing (PQC). Inspection of the component items shows the factors to be conceptually meaningful with none of them containing conflicting items. All factors are reliable and valid and have statistically sound structures.Research limitations/implications – The classification provided can help managers to better visualize, understand and implement the concept of quality costing. It provides a framework within which practices can be structured and evaluated; managers can identify areas in their firms that are missing an...

Separation – integration – and now …? A historical perspective on the relationship between German management accounting and financial accounting:

German accounting has traditionally followed a dual ledger approach with strictly separated internal cost accounting, as the basis for management information, and external financial accounting focusing on creditor protection and based on the commercial law. However, the increased adoption of integrated accounting systems implies a significant change in the relationship between financial and management accounting systems. We use Hegelian dialectic to trace the historical development of German accounting from separated systems and antithetical propositions of full integration, to the emergence of partial integration as the synthesis of this transformation process. The foundation of our paper is a comprehensive analysis of the literature on the relationship between financial and management accounting in Germany. On this basis, we elaborate how financial accounting in Germany has been shaped by its economic context and legislation, and how financial accounting – accompanied by institutional pressures – in turn influenced management accounting. We argue that the changing relationship between management and financial accounting in the German context illustrates how current accounting practice is shaped not only by its environment, but also by its historical path. Based on this reasoning, we discuss several avenues for future research.

The Use of Tax Regulations as Covert Political Policy Variables: A Case Study of Tax Expenditures During the Thatcher Years

INTRODUCTION This paper explores the relationship between politicians and taxation by reference to the use of income tax expenditures by the UK Conservative governments under Margaret Thatcher. We consider the extent to which their use was coherent in terms of tax principles, and economic and political motivations and effects. The period is chosen for four reasons. * First, the Thatcher governments covered a time during which there were significant changes in taxation 1 and it might be expected that tax expenditures would feature in these changes. * Secondly, the Conservatives over this period were noted for advocating tax neutrality, reduced intervention and freeing markets from distortionary effects. * Thirdly, the Thatcher era spanned eleven years, sufficiently long to observe changes in tax expenditures and their success or failure as policy instruments. * Finally, the commencement of the first Thatcher government coincided with the publication of the 1979/80 White Paper that tabled for the first time details of tax allowances and reliefs and their cost. The transparency of this information to government, Parliament and the public might be expected to lead to a more focused approach to the use of tax expenditures. After a brief outline of the nature and inherent problems of tax expenditures and a review of the economic policy context and institutional framework in which they were applied, we examine their use in three specific policy areas to assess how they were employed to change patterns of social behaviour.

Retrievability bias in explaining the hurdle rate premium puzzle

Purpose - Making rational and undistorted corporate investment decisions is critically important to organisations. “Scientific” investment appraisal can play a central role, particularly setting the hurdle rate. Empirical research reveals that actual rates generally exceed organisations’ cost of capital – the so-called hurdle rate premium (HRP) puzzle. Allowing for bounded rationality of corporate decision-makers, the purpose of this paper is to mobilise the retrievability cognitive bias as one explanation of this paradox. Design/methodology/approach - A systematic structuring and investigation of the legacy of eight scenarios, representing “correct” and “incorrect” decisions on “good” and “bad” proposals, is used to explain the inconsistency between normative capital investment theory and actual practice. Findings - Decision makers’ cognitive processes based on informal perceptions, strengthened by the scope of formal post-audit routines, provide a plausible explanation why investment decision makers tend to systematically set hurdle rates too high. Research limitations/implications - The findings have still to be explored in more depth by fieldwork and experimental research. Practical implications - The policy implications of this study are that corporate success could be enhanced by making executives aware of the HRP phenomenon and of its behavioural causes; also by including significant rejected investment proposals in the post-audit programme and communicating the opportunity cost of “false negative” decisions on proposals not adopted. Originality/value - The paper provides a new explanation for a recognised phenomenon: Allowing for bounded rationality of corporate decision-makers, the paper applies research on a cognitive bias to the setting of the hurdle rate in investment appraisal.