This paper examines how economic conditions impact a firm's corporate social responsibility performance and influence the relationship between financial performance and corporate social responsibility. One theory suggests that in a good economy, firms engage in more corporate social responsibility to reap the marginal benefits of increased consumer purchasing power. Another theory suggests that during a bad economy, firms engage in more corporate social responsibility to chase reduced market share and manage reputation. The expected impact of the economy on corporate social responsibility performance, therefore, depends on which theory dominates. Using data from 2005–2010, we found that firms' corporate social responsibility performance changed significantly during the financial crisis, relative to both the pre- and post-crisis periods. Further, the relationship between financial performance and corporate social responsibility varied based on economic conditions. These results indicate that the motivations for conducting corporate social responsibility hinge on both economic conditions and firms' profitability.

This article examines the hedge fund and hedge fund manager characteristics that lead certain hedge fund managers to select quality auditors. Specifically, using a unique measure of audit quality, the author tests whether hedge fund managers with long histories choose lower-quality auditors, given that the effects of initially selecting a quality auditor lessen over time. Consistent with prior research, the author finds a negative relationship between manager tenure and the choice of a quality auditor. Further, under the theory that agency costs increase as hedge fund size increases, the author tests whether hedge funds with higher agency costs choose higher-quality auditors. Again consistent with prior research, the author’s findings indicate that increased agency costs are positively associated with the selection of higher-quality auditors. TOPICS:Real assets/alternative investments/private equity, legal/regulatory/public policy

This is the first study to examine the presence of calendar anomalies in American Depository Receipts (ADR) returns. Existing literature has documented several calendar anomalies in US and foreign markets. ADRs, however, represent a unique class of securities because they represent the ownership of stock of a foreign firm, but they are traded on US markets. We use the Standard & Poor's (S&P) ADR index returns for the period 1998–2004 to look for the presence of four important anomalies: the January effect, the day-of-the-week effect, the Turn-Of-The-Month (TOTM) effect and the holiday effect. For comparison, we do the same analysis on S&P 500 index returns. While we do not find evidence of any anomalies for S&P 500 index returns, we do find evidence to support the TOTM anomaly in the S&P ADR index returns. These results suggest that the market for ADRs may not be as efficient as the broader US stock market.

When low interest rates combined with a declining stock market in the early 2000s, many pension funds developed funding gaps. It was often argued that accounting rules helped shroud the magnitude of these gaps by keeping several pension liabilities 'off balance sheet.' Under pressure to improve the transparency of pension reporting in firm financial statements, FASB implemented FAS 158 in December 2006. The purpose of this paper is to determine if FAS 158 improved the usefulness of financial statements. We defined 'usefulness' as the ability to explain changes in the market value of equity. Our analyses show that FAS 158 did not make financial statements more useful.

The author first observes that, in recent years, hedge funds have enjoyed a significant increase in capital investment. This fact, along with the considerable media attention paid to certain high-profile transactions involving hedge funds and the perception that the compensation paid to hedge fund managers enjoys particularly favorable tax treatment, has led Congress to address many issues that affect hedge funds. The purpose of this article is to highlight some of these issues with an emphasis on how recent and proposed tax changes will affect U.S. individual investors as well as hedge fund managers. In particular, it discusses pending legislation that will increase the tax burden of hedge funds organized as publicly traded partnerships and examine how new Internal Revenue Code sections and proposed legislation will increase the tax burden imposed on hedge fund manager compensation and investor profits. TOPICS:Real assets/alternative investments/private equity, legal/regulatory/public policy

In December 2004, the Securities and Exchange Commission, (SEC), by a vote of 3-2, promulgated regulations 203(b)(3)-2, an amendment to the Investment Advisers Act of 1940 (Advisers Act), that required many hedge fund managers to register with the SEC for the first time. In discussing the regulation, the majority wrote that this regulation was necessary because the regulatory program for hedge funds and hedge fund managers in place at the time were inadequate and recent growth in the hedge fund industry had led to several cases of fraud and retailization. On June 23, 2006, the United States Court of Appeals for the District of Columbia overturned this regulation. The purpose of this article is to present the arguments that precipitated the regulation and to discuss the grounds on which the regulation was ultimately overturned. TOPICS: Real assets/alternative investments/private equity, legal/regulatory/public policy

Private placement life insurance (PPLI) policies are custom-written life insurance or annuity contracts that receive the preferential tax treatment afforded most life insurance products. This tax-free status, as well as the owner's ability to designate an investment manager, has made PPLIs an attractive way to invest in traditionally tax-inefficient assets such as hedge funds. The Internal Revenue Service, however, disapproves when variable annuity or life insurance contracts are used primarily as investment vehicles and has shown its displeasure in the form of lawsuits and rule revisions that attempt to end the practice. In 2005, the IRS struck down a key provision of the internal revenue code that allowed investors to gain exposure to hedge funds through PPLIs. This raised the question of whether PPLIs are still a viable way for investors to gain tax-preferred exposure to hedge funds. The article explores this question and concludes that PPLIs can, with limitations, still be used to gain tax-preferred exposure to hedge funds.

In the financial press, hedge funds are often maligned for being tax inefficient. In this article, the author reviews various legal and tax regulations that impact hedge fund and mutual fund after-tax returns. She demonstrates that it is possible to employ current tax regulations in such a way as to make hedge funds more tax efficient than mutual funds with similar return patterns. This article demonstrates that the organizational form of the hedge fund and thus the partial netting and “in-kind” distributions available to them can be implemented in such a manner as to outweigh the tax detriments endured by hedge funds in the form of higher tax rates bestowed on them due to short-term capital gain distributions, the section 1256 rules, and unqualified dividend distributions. Various volatility/return combinations were tested. Results show that for the majority of positive return patterns, mutual fund taxes were greater than hedge fund taxes. There was a stark difference, however, when returns were negative. When returns were negative, at all levels of volatility tested, hedge fund taxes were higher than mutual fund taxes. The reason for this contrast is a subject for future research.