ANDREY IGOREVICH ARTEMENKOV, The Russian Society of Appraisers, State University of Management
Email: artemenkov@rambler.ru

This 50-page survey of methodological history in the area of Professional Valuation aims to deliver a historic analysis of the methodological material and context which lay behind the foundation of the Professional Valuation - first institutionalized in the United States by the Appraisal Institute during the period of The Great Depression.

We come to the conclusion that during this period the Professional Valuation methodology (back then mostly focused on the appraisal of real estate) can be broadly characterized as possessing a non-positivist slant. This means that, in the perception of the first methodologists of the Profession, appraisal values were not supposed to be in the likeness of prevailing market prices other than by accident, viz. they have been conceived as broad anticyclical metrics of sustainable values in the framework of long-term 'normal prices' from the Marshallian price analysis. Conditions of the Great Depression were favorable to the dissemination of this non-positivist view of professional appraisal functions, according to which the Profession tended to regard itself as an explicit public interest profession consciously combating the destruction of values amidst the extreme seizure of the capital markets.

After the World War II and the settling of capital market activities into the growth mode accompanied by the generally increasing public affluence, there had occurred a gradual shift toward a more positivist view of the appraisal functions. The profession began to trust market prices and the new winds among valuers caused them to believe that their functions should include nothing more than reflecting prevailing market prices and certifying them as 'values' in their reports. By 1960th the valuers had become mere passive scorekeepers/reflectors of the market and abandoned all the aspiration of them ever possessing some pricing influence to serve public interest. The conscious annunciation of this new significantly desiccated ideology occurred during a so-called ‘positivist revolution in valuation methodology’ pioneered by such writers as Wendt, Ratcliff, Kinnard etc. Their views were paralleled and reinforced by dogmas of the so-called new classical economics that included the proponents of efficient markets theories. Since their time, the mechanistic, purely positivist functions of the valuation profession have been taken for granted and still dominate its worldview. Beyond them the profession ventures not.

Our analysis, by building on the ‘liquidity pricing scientific research program’ pioneered in the modern day by such researchers as Plantin, Sapra, Shin, Carletti et al, attempts to bring to light what we contend are substantive merits of the non-positivist valuation doctrine of the Depression Era methodologists (such as Babcock, Schmutz & MacKomrick, Hyder etc.). The revival of such a doctrine will help to impregnate with new vision and scope currently ongoing disputes about public benefits of the fair value accounting etc. As for professional valuers themselves, by reading this paper they will benefit from understanding the historic and general economic context of the development of the three-approaches-to-value doctrine, and also gain an insight into interpreting the Market value basis convention and how it evolved overtime. The hidden conceptual facets of the Elwood approach to valuation, not discussed elsewhere, are also highlighted in this paper, as are some distinctions of emphasis between the American and British schools of valuation thought.

Most importantly, in doing research this paper treats valuation profession as an institution which has important macroeconomic role to play in guiding the pricing processes on the capital markets. Because of this, there is a clear-cut case to regulate the methodology of this profession on the national level and having regard to explicit macroeconomic and public interest, not merely to private interests of the entirety of consumers of valuation services or the valuation industry itself. In all this, some strands of the non-positivist valuation methodology highlighted in this paper emerge that can serve as arrows in the quiver of regulators to encourage the empowerment of Professional Valuation with its newly-found macroeconomic & public interest authority and related duties.

Therefore, this survey is not intended as another survey of mere technical tools of valuation or their development, but as a broad survey of evolving socio-economic vision and forces underlying the methodology that created those techniques and tools.

SALMA IBRAHIM, Morgan State University - Department of Accounting and Finance
Email: sibrahim@jewel.morgan.edu

Prior research has shown the prevalence of measurement error in models used to estimate aggregate discretionary accruals. In these models, the incremental information content of the various components of accruals is ignored. Limited prior research and data gathered from firms under Securities and Exchange Commission (SEC) litigation indicate that managers use either one or more than one component of accruals simultaneously, in a consistent way to manipulate bottom-line earnings in a given direction. I propose two measures that capture the consistency between the discretionary components of accruals and test their significance in earnings management (EM) detection in firms that have artificially added accrual manipulation and firms that were targeted by the SEC for accrual manipulation. There is evidence that this information is incrementally useful in detecting EM. This finding paves the way for improvements in the discretionary accruals measure by including consistency information from the components of aggregate accruals.

M. MARTIN BOYER, HEC Montreal - Department of Finance, Center for Interuniversity Research and Analysis on Organization (CIRANO), University of Montreal - HEC Montréal
Email: martin.boyer@hec.ca
HANON AMANDINE, Procter and Gamble
Email: amandine.hanon@hec.ca

A lingering topic in corporate governance is whether corporate directors should be protected against shareholder lawsuits and whether such protection reduces the incentives of directors to monitor appropriately the behaviour of corporate officers. To achieve this goal, we examine whether corporations whose corporate managers’ wealth is protected under a directors’ and officers’ liability insurance policy (D&O insurance hereafter) are more to report accounting results aggressively. Using discretionary accruals as our measure of accounting aggressiveness, the results in our paper suggest that the magnitude of discretionary accruals has no real impact on the demand for D&O insurance, be it on the decision to purchase insurance or on the amount of limit chosen. The positivity of discretionary accruals appears, however, to have an impact on the decision to purchase insurance. Surprisingly, although these insurance policies protect directors and officers in the event they make a “mistake� in their role as representatives of the company, directors do not seem to see this as an invitation to be a little less careful when overseeing the firm’s accounting practices.

ROBERT COMMENT, Johns Hopkins University - Carey Business School
Email: bobcomment@msn.com

Business valuations are a common subject of dispute in tax and divorce litigation, with the valuation consequences of private-company status of a closely held (often family) business being especially contentious. The valuation discount for illiquidity is traditionally referred to as the “liquidity discount� and more recently as the “discount for lack of marketability� or DLOM. It is not well known that core valuation methodologies such as DCF analysis have the effect of discounting the future cash flows of small businesses substantially, generally by 40% to 60%, for lack of size alone. Because there is a strong empirical relation between size and liquidity, there is a great likelihood that any incremental discounting for illiquidity or private-company status will be redundant and entail double discounting. Accordingly, the large liquidity discounts or DLOMs that are accepted practice and that have been embraced by many judges presumptively violate the Daubert requirement for reliability.

JOSÉ G. VARGAS-HERN�NDEZ, University Center for Economic and Managerial Sciences, University of Guadalajara
Email: jgvh0811@yahoo.com

This paper is aimed to analyze the multiple forms and faces of corruption, its typology and levels. The analysis begins reviewing a tipology categorizing political corruption, economic corruption and public administration corruption and showing some examples of tipologies, stablishing the levels of corruption and indicating where can be encountered. It is concluded that corruption is just as multifaceted concept as there are societies and economic and political systems, embracing from the broad concept of corruption to the narrow legal concept of bribery. However, it is difficult to assess the overall levels of corruption phenomena based on empirical or perceived data which do not reflects the realities of corruption world.