Reciprocity as a foundation of financial economics

This paper argues that the subsistence of the fundamental theorem of contemporary financial mathematics is the ethical concept ‘reciprocity’. The argument is based on identifying an equivalence between the contemporary, and ostensibly ‘value neutral’, Fundamental Theory of Asset Pricing with theories of mathematical probability that emerged in the seventeenth century in the context of the ethical assessment of commercial contracts in a framework of Aristotelian ethics. This observation, the main claim of the paper, is justified on the basis of results from the Ultimatum Game and is analysed within a framework of Pragmatic philosophy. The analysis leads to the explanatory hypothesis that markets are centres of communicative action with reciprocity as a rule of discourse. The purpose of the paper is to reorientate financial economics to emphasise the objectives of cooperation and social cohesion and to this end, we offer specific policy advice

Globalization and Environmental Sustainability: An Analysis of the Impact of Globalization Using the Natural Step Framework

Globalization is becoming an increasingly controversial topic as shown by recent protests around the world. To date, however, U.S. business scholars have seldom questioned the basic assumptions of globalization, opting instead to describe the phenomena and focus on best practices. The purpose of this literature review is to broaden the boundaries of the debate on globalization and increase our understanding of its impact beyond the economic sphere into the realm of environmental sustainability. The Natural Step framework is used to organize an analysis of the existing empirical research. It describes four basic system conditions required for sustainability: 1) substances from the earth’s crust must not systematically increase in the ecosphere; 2) substances produced by society must not systematically increase in the ecosphere; 3) the physical basis for productivity and diversity of nature must not be systematically diminished; and 4) for the three previous conditions to be met, there must be fair and efficient use of resources with respect to meeting human needs. This objective review of the literature, which appears to be the first of its kind, revealed contradictory findings in some areas as well as evidence that globalization is an uneven process, which has had both positive and negative effects on the system conditions. The Natural Step framework is a good tool for capturing the benefits and liabilities of globalization from a systemic perspective that includes the major areas in the globalization debate: environmental sustainability, inequality, labor conditions and rights, national sovereignty, and cultural and community impact

Misleading Disclosure of Pro Forma Earnings: An Empirical Examination

The Sarbanes–Oxley (SOX) Act was passed in 2002 in response to various instances of corporate malfeasance. The Act, designed to protect investors, led to wide-ranging regulation over various actions of managers, auditors and investment analysts. Part of SOX, and the focus of this study, targeted the disclosure by firms of “pro formaâ€\x9D earnings, an alternate (from GAAP earnings), flexible and unaudited measure of firm performance. Specifically, SOX directed the Securities and Exchange Commission (SEC) to craft regulation which would reduce – and preferably eliminate – any pro forma earnings disclosure which might be “misleadingâ€\x9D. Examining earnings press releases over a 3-year period, this study addresses three questions. Were firms disclosing pro forma in a potentially misleading manner, what was the nature of this potentially misleading disclosure, and did SOX affect the disclosure practices? We find the following. In 2001 (prior to SOX), 53 firms – over 10% of all U.S. S&P 500 firms – were disclosing pro forma earnings in a potentially misleading manner. This was being done most commonly by using traditional GAAP terminology (e.g., “net incomeâ€\x9D) in the press release headline to describe what was later in the press release revealed to be a pro forma amount (i.e., “net income excluding special itemsâ€\x9D). By 2003 (subsequent to the SEC regulation), potentially misleading disclosure practices were seen in less than 1% of the earnings press releases of S&P 500 firms. This significant reduction suggests that managers, prior to the regulation, were either careless in their pro forma reporting practice, or were intentionally – and unethically – attempting to mislead investors. Either way, we conclude that the SEC regulation was both necessary and effective. Copyright Springer Science+Business Media, Inc. 2006pro forma earnings, disclosure management, misleading, regulation,