Global warming and its importance are controversial. While a variety of estimates exists of the likelihood of global warming and its economic cost, financial market information can provide an objective assessment of expected losses due to global warming. We consider a Merton-type asset pricing model in which asset prices are affected by the changes in investment opportunities caused by global warming. In this setting, global warming would imply a negative risk premium, with most assets loading negatively on the global warming factor, and financial assets in sectors that are more sensitive to global warming exhibiting stronger negative loadings. Utilizing a variant of Campbell and Diebold’s (2005) weather forecasting model in conjunction with Lamont’s (2001) and Vassalou’s (2003) approach for extracting financial market “news”, we empirically uncover the global warming factor. We find that the risk premium is indeed significantly negative and becoming more so over time, that loadings for most assets are negative, and that asset portfolios in industries considered to be more vulnerable to global warming (see IPCC, 2007, and Quiggin and Horowitz, 2003) have significantly stronger negative loadings on the global warming factor. We estimate that required returns on average are 0.11 percentage points higher due to the global warming factor, translating to a present value loss of 4.18 percent of wealth. The industry loadings appear to be unrelated to potential vulnerability to emissions regulation. Rather, the loss in wealth represents a general cost from increased systematic risk due to uncertainty in the extent and impact of warming and the increased incidence of extreme weather events, thus complementing existing estimates of the cost of global warming.

09-13 October 2009

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Considerable advancements in the structural modeling of annual cash flow prediction models have been accomplished in recent years [Dechow et al. (1998) and Barth et al. (2001), among others].Yet, the modeling of quarterly cash flow data has not been as forthcoming due to: (1) the unavailability of sufficiently long time-series data bases of quarterly cash flows reported in accordance with SFAS No. 95 and (2) the presence of seasonality. We provide new empirical findings supportive of the Brown-Rozeff ARIMA model as a candidate statistically-based expectation model for multi-period ahead projections of quarterly cash flows. The Brown-Rozeff ARIMA model provides one-thru-twenty step-ahead projections of quarterly cash flows that are significantly more accurate than those generated by a quarterly time-series, disaggregated-accrual regression model originally popularized by Lorek and Willinger (1996). Although both quarterly earnings and quarterly cash flow from operations are modeled by the same ARIMA structure, we find that the autoregressive and seasonal moving-average parameters of the quarterly earnings model are significantly larger than those of the cash-flow prediction model. This finding is consistent with Beaver (1970) who argues that short-term and long-term accruals induce incremental amounts of serial correlation in the quarterly earnings time series vis-à-vis the time series of quarterly cash flows. These findings are of interest to standard-setting bodies seeking to understand the linkages between accruals and cash flows, analysts who wish to derive multi-step ahead cash flow predictions, and accounting researchers attempting to adopt a statistical proxy for the market’s expectation of quarterly cash flows.

Keywords: ARIMA models, Multivariate time-series regression models, SFAS No. 95, cash-flow forecasts.

Data Availability: All data are available from public sources.

09-12 September 2009

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This study focuses on the boundary conditions of the relationship between abusive supervision and organizational citizenship behaviors (OCBs). Previous research has shown that employees reciprocate for abusive supervision by withholding discretionary OCBs (for a full review, see Tepper, 2007). This work contributes to the abusive supervision research by adding two important moderating variables, namely dyadic duration and satisfaction with pay. Results indicate that the negative relationship between abusive supervision and OCBs is more pronounced when employees have been supervised by a particular manager for a longer period of time and when employees are less satisfied with their compensation.

09-11 August 2009

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Anika, a new manager, is confronted by a dysfunctional organizational culture characterized by employee disrespect, insubordination, and low performance. Her charge is to “to turn the place around”. The case takes place in a service organization, a testing range run by the US Department of Defense. The staff is a combination of federal and contract employees who test clients’ high-tech systems in a sometimes dangerous, desert environment.

In addition, there are three vignettes that give a portrait of dysfunctional individual behaviors. Frequently, the response students want to make is “I’d just fire the guy.” Unfortunately, it is not so simple.

Keywords: Organizational culture; Organizational culture change; Managing difficult employees; Contract employees; Federal government employees; Leadership; New manager

09-10 July 2009

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