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Dean’s Update, August 14, 2012

CBA Faculty Members Hitting Top Journals

Accountancy faculty member Rod Smith had the lead article, “An Examination of the Cost of Capital Implications of FIN 46,” in the July 2012 issue of the Accounting Review, the top journal in Accounting. Rod and co-authors Carolyn M. Callahan (University of Memphis) and Angela Wheeler Spencer (Oklahoma State University) examined whether the 2003 adoption of FASB Interpretation No. 46/R (FIN 46), Consolidation of Variable Interest Entities – An Interpretation of ARB No. 51, changed the cost of capital for affected firms. Using comparative analysis on a broad sample of 11,719 firm-quarter observations for 1,389 firms during the period 1998 through 2005, they found that FIN 46 significantly increased the cost of equity capital for firms with affected variable interest entities (VIEs), an increase of approximately 50 basis points relative to firms reporting no material effect from the standard. Firms consolidating these formerly off-balance sheet structures experienced the largest increase. These results suggest that FIN 46 reduced the opportunity for firms to use off-balance sheet structures to artificially reduce their cost of capital, a matter of regulatory concern.

Finance faculty members Chanwit Phengpis and Wikrom Prombutr, along with Ying Zhang (Fairfield University), have a paper forthcoming in the high-quality Journal of Banking and Finance entitled "What explains the investment growth anomaly?"  The paper is already available online and will be published in the September 2012 issue of JBF. They investigate the investment growth anomaly/phenomenon that stocks of firms with lower growth in capital expenditures tend to provide higher returns. They find that such a phenomenon is not really an anomaly once the relevant risk is accounted for. The higher returns are compensation for additional risk based on a risk-adjusted model with time-varying factor loadings that are linked to firm-level characteristics and the business cycle.

Marketing faculty members Ingrid Martin and Sayantani Mukherjee have two forthcoming papers based on their work at the June 2011 Transformative Consumer Research Workshop that focused on understanding the process of addiction.  “On the Road to Addiction: The Facilitative and Preventive Role of Marketing Cues” is forthcoming in the high-quality Journal of Business Research and examines the role of marketing cues in the “pre-addiction” phase of the consumption continuum. The focus is the environmental triggers that influence such pre-addiction consumption behaviors and how marketing cues facilitate and prevent the progression from non-use to addiction. “From Use to Abuse: When Everyday Consumption Behaviors Morph into Addictive Consumptive Behaviors” is forthcoming in the Journal of Research in Consumption and develops a framework that can help researchers better understand how consumers become addicted to various types of everyday benign consumption behaviors (e.g., texting, shopping, plastic surgery, and other types of normally acceptable behaviors).