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We examine the interactive effect of justification and ambiguity on the tendency to distort operating decisions in an incentivized experiment. Managers decide whether to drop or keep a project on behalf of the owners. Although dropping the project always leads to higher payoffs for managers, keeping the project leads to higher payoffs to the owners for projects with good future outcomes. Dropping a project with good future prospects is akin to real earnings management (REM), such as cutting R&D to meet bonus targets. We find that justification increases REM when project outcomes are ambiguous but has no effect when the distribution of project outcomes is known. Ambiguity gives flexibility for managers to craft a plausible justification for dropping the project that appears accountable to the owners. The opportunity for impression management makes selfish actions more attractive to managers because it helps to promote a positive social image. [ABSTRACT FROM AUTHOR]

EXECUTIVE SUMMARY Real earnings management (REM) has become a much more common method of manipulating financial results. It is important for financial professionals to understand what REM research is telling [...]

This article reports the results of a set of experiments designed to examine whether a taste for fairness affects people's preferred tax structure. Using the Fehr and Schmidt model we devise a simple test for the presence of social preferences in voting for alternative tax structures. The experimental results show that individuals demonstrate concern for their own payoff and inequality aversion in choosing between alternative tax structures. However, concern for redistribution decreases as the deadweight loss from progressive taxation increases. Our findings have important implications for tax policy design. (JEL C92, D63, H21, H23), I. INTRODUCTION This article examines whether a taste for fairness influences people's preferences among alternative tax structures. Using an experimental approach, we devise a simple test for social preferences in [...]

Byline: Lucy F. Ackert (1), Bryan K. Church (2), James Tompkins (1), Ping Zhang (3) Abstract: A fundamental unresolved issue is whether information asymmetries underlie investors' predisposition to invest close to home (i.e., domestically or locally). We conduct experiments in the United States and Canada to investigate agents' portfolio allocation decisions, controlling for the availability of information. Providing participants with information about a firm's home base, without disclosing its specific identity, is not sufficient to change investment behavior. Rather, participants need to know a firm's name and home base. Additional evidence indicates that participants have a greater perceived familiarity with local and domestic securities and, in turn, invest more in such securities. Author Affiliation: (1) Michael J. Coles College of Business, Kennesaw State University, USA (2) College of Management, Georgia Tech, USA (3) Rotman School of Management, University of Toronto, Canada Article History: Registration Date: 24/05/2005 Article note: The authors thank Ann Gillette, Josef Zechner (the editor), and two anonymous referees for helpful comments and acknowledge the financial support of the Federal Reserve Bank of Atlanta, Georgia Tech, and Social Sciences and Humanities Research Council of Canada. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.

The authors find that age affects portfolio decisions.

Twenty-seven markets are examined in three countries. The authors find no cultural difference, although better information is exhibited in market prices.

The relationship between analysts' overoptimism and uncertainty as proxied by the standard deviation of earnings forecasts was analyzed. Results revealed a positive relation between overoptimism and uncertainty. However, analysts are not overoptimistic to firms with low uncertainty. Furthermore, analysts have fewer reputational concerns when they issue optimistic forecasts when the uncertainty surrounding the firm is high.

An analysis of the value of imperfect information on prices reveals that market prices are consistent with the Bayesian rule in 7 out of 12 cases and that the information is at least partly disseminated. Furthermore, the study reveals that imperfect information is given value by traders but to a lesser degree than the upper bound of information value thus providing evidence that the value of information is kept at reasonable price.

Our study uses an experimental method to provide insight into the flow of information across two asset markets that are fully segmented. In our asset markets, two separate sets of participants trade an identical asset in different markets. We then introduce a shock to fundamentals in one market to examine the response of traders in the second market. Because there is no fundamental shock in the second market, we can separate information‐based reactions from responses due to changes in underlying fundamental values. With the separation across markets, we observe whether information relating to a fundamental shock that only affects the shocked market is transmitted to the non‐shocked market. Our evidence suggests that traders in one market are observing behavior in the other contemporaneous market. After an information shock, price efficiency declines but improves by the end of trading. [ABSTRACT FROM AUTHOR]

A study was conducted to determine if parameter uncertainty could sufficiently account for the volatility of stock prices observed by previous empirical research. Variance bound test methods were used and actual stock price innovations where compared to those predicted by Bayesian models. Results revealed that stock prices were to volatile to be predicted based on fundamentals and that investors behaved capriciously despite the presence of parameter uncertainty. No explanation was found for the observed overreaction to changes in fundamentals.