cover of 2018 issue of Lubin Business Review with image of group of business people talking

Lubin Business Review Spring 2018 Issue

Inaugural Issue

Spring 2018 Issue No. 1

Table of Contents

In the Journals

On the Bookshelf

Editors' Introduction (PDF)
Drs. Eric Kessler and Ping Wang

Welcome to the inaugural issue of the Lubin Business Review (LBR). The mission of LBR is to translate cutting-edge research for practical use by today's business professionals. This is a primary objective of AACSB International, the premier accrediting organization for business schools in the world (of which Lubin is one of fewer than 3% of institutions worldwide to earn dual accreditations in business and accounting). It is also intended to bridge the increasingly widespread, and continually frustrating gap between business theories and business practice.

In the Journals

The Relative and Incremental Valuation Effects of Embedded Value Disclosure by Life Insurers: Evidence from Cross-Listed Firms in the U.S. (PDF)
Drs. Samir El-Gazzar and Rudolph Jacob

Over a decade ago, due to concerns with traditional local accounting standards, European life insurers began disclosing embedded value (EV) information, which is an estimate of the present value of future net cash flows from in-force life insurance business. Moreover, since EV reporting recognizes the value of new business and any unexpected change of in-force business in the year it occurs, it is considered to be a leading indicator of future changes in accounting earnings. However, U.S.-based life insurers have yet to adopt this disclosure, despite several surveys and empirical studies suggesting that EV disclosure provides valuable information in assessing life insurers' performance. This paper examines the incremental valuation effects of EV disclosure in the presence of U.S. Generally Accepted Accounting Principles (GAAP).

Assessing Financial Reporting Quality of Family Firms: The Auditors' Perspective (PDF)
Dr. Charles Tang

Family firms account for 85% of all companies in the U.S., employ 80% of the U.S. workforce and produce more than half the GNP. Although they are valued more by investors on the stock market and have attracted much interest from researchers, few papers have examined family firm financial reporting quality. Differences in financial reporting quality can reveal variations in firm information risk and thereby explain the source of the family firm premium—the differential valuation of family and non-family firms.

Earnings Warnings and CEO Welfare (PDF)
Dr. Ping Wang

Timely disclosure of news is important to investors, especially when firms expect to fall short of market expectations. Issuing warnings ahead of actual earnings announcements brings some benefits to firms in this position, such as reducing the potential class period in the case of litigation. However, a surprisingly small number of companies issue these warnings, suggesting that the decision on whether or not to issue warnings may not be as straightforward as one might think. In this paper, we examine the potential consequences to CEOs who have to decide whether or not to issue these warnings.

Going to Haven? Corporate Social Responsibility and Tax Avoidance (PDF)
Dr. Burcin Col

Corporate social responsibility (CSR) is broadly defined as the continuing commitment by businesses to behave ethically while improving the quality of life of the workforce, local community, and society at large. Tax avoidance seldom features as a part of CSR activity despite the fact that these practices accrue significant costs to society. In this paper, we study the relation between CSR and tax avoidance by looking at a major form of tax avoidance—firms opening up offshore entities in tax havens.

Credit Default Swaps and the Market for Sovereign Debt (PDF)
Dr. Iuliana Ismailescu

Research focused on the impact of credit default swap (CDS) trading on the sovereign bond market is relatively sparse, and it is mostly devoted to price discovery in the CDS and underlying sovereign debt markets. In this paper we examine the associated effect of CDS trading initiation on price efficiency and borrowing costs: two characteristics of the sovereign debt market not previously considered. Our findings should be of interest to global financial market regulators contemplating the use of bans in the sovereign CDS market. Constraints on CDS trading may reverse the benefits we document and reduce the overall quality of the sovereign debt market.

The Long (V. Commissioner) and Short of the Substitute for Ordinary Income Doctrine (PDF)
Dr. Philip Cohen

Capital gain characterization can result in a significant tax benefit to individuals. The substitute for ordinary income doctrine often serves as an additional judicially formulated limitation beyond the explicit statutory exceptions set forth in Internal Revenue Code section 1221 to capital asset status. It is therefore an impediment on what has been colorfully described as "the golden road to capital gain treatment." The substitute for ordinary income doctrine essentially provides that in certain, but not all, cases the "right to receive payments that would be ordinary income if received in due course is taxed on the substitute payment as ordinary income rather than as capital gain." It is important for tax planners, the IRS, and the courts to correctly determine under what circumstances the doctrine should apply.

Motivational Cues and Angel Investing: Interactions Among Enthusiasm, Preparedness, and Commitment (PDF)
Dr. Melissa Cardon

While some angel investors claim to be completely objective in making investment decisions, entrepreneurs are often coached to demonstrate passion and enthusiasm in their pitches, since such qualities are believed to increase investment potential. Indeed, angel investors often make investment decisions based on motivational cues communicated by entrepreneurs during pitches, including emotional enthusiasm, cognitive preparedness, and behavioral commitment to see it through. We examine how these different factors independently and together influence angel investment evaluations of entrepreneurial pitches.

Corporate Reputation's Invisible Hand: Bribery, Rational Choice, and Market Penalties (PDF)
Dr. Noushi Rahman

How do accusations of corporate bribery and subsequent investigations shape market reactions? We draw upon rational choice and investor attention theories to advance our arguments. We reveal that systematic examination of firm-level misconduct that spans multiple markets is complex and influences managers' rational choice calculations and investors' reactions to wrongdoings. Moreover, investors' reactions to wrongdoings fluctuate due to their focal attention on them. This research is important because it clearly demonstrates that the true cost of corporate misconduct is much larger than the visible penalties that a firm may face.

How Do Digital Natives and Digital Immigrants Respond Differently to Interactivity Online? (PDF)
Drs. Larry Chiagouris and Vishal Lala

The advertising industry has devoted substantial managerial focus on digital information and entertainment. Scholarly attention, however, has lagged in examining important differences between younger and older consumers concerning interactive content. The current study examines the effects of perceived interactivity on attitude and intention to use a new product (adoption intention) in the context of digital information. In particular, we investigate differences in response between younger "digital natives," who were exposed to the Internet in childhood, and older "digital immigrants" exposed to digital content later in life.

Intergenerational Influence in Consumer Deal Proneness (PDF)
Dr. Vishal Lala

Price discounts and other forms of promotional deals are remarkably powerful in spurring consumers to buy. Of course, not all shoppers are drawn to coupons and buy-one-get-one free offers with the same intensity. Although there has been ample research on the correlates of consumer deal proneness, there has been little research on how deal proneness develops.

On the Bookshelf

Shadow Banking: Rise, Risks, and Rewards of Non-Banking Financial Services (PDF)
Dr. Roy Girasa

The issue studied here is whether and to what extent, nonbanks (shadow banks) should be regulated. Traditional banking, commencing in the Great Depression, has been subject to a panoply of regulations emanating mainly from the Federal Reserve Board and at least ten other government agencies. Nonbank financial intermediaries, such as hedge funds, had previously escaped from onerous regulatory oversight. Currently, nonbank entities account for over $80 trillion, or one-quarter, of the total global financial assets thus begging the issue presented; particularly after the 2007 et seq. global financial crisis.

Derivatives Essentials: An Introduction to Forwards, Futures, Options and Swaps (PDF)
Dr. Aron Gottesman

This book provides an in-depth introduction to derivative securities. A derivative security is an agreement between two counterparties whose payoff depends on the value of an underlying asset. The derivative securities that are explored in Derivatives Essentials include forward contracts, futures contracts, call options, put options, interest rate swaps, and credit default swaps. Derivatives Essentials is based on a popular course that Aron Gottesman teaches at Lubin.

Being a True VIP: Managing Importance in Yourself and Others (PDF)
Dr. Eric Kessler

The desire to be a Very Important Person (VIP) runs deep in our society and is growing - whether it is through our careers, home life, or engagement with popular culture and social media. But does it actually matter that we feel 'important' and, if so, then how can we harness that feeling to bring out the best in ourselves, our employees, and the people around us?

Exorbitant Burden: The Impact of the U.S. Dollar's Reserve and Global Currency Status on the US Twin-Deficits (PDF)
Dr. Robert Vambery

Recognizing that the dollar continues to be the premiere reserve currency, opposition was inspired by a concern that the U.S. derives exorbitant privileges from the economic influence it can exert through the dollar. This research project focuses on the opposite end of the exorbitant privilege spectrum: the huge burden that is the cost the dollar's reserve status impacts on the U.S. economy through the twin deficits.