Aggregate book-to-market (B/M) ratio reflects market-wide assessments of growth opportunities and productivity. In this paper, I find that aggregate B/M innovations predict time-series variations in the U.S. economy. More importantly, the predictive content of the innovations is incremental (or even superior in a long-horizon forecast) to that of the Survey of Professional Forecasters (SPF). A real-time dating algorithm that is based on the innovations accurately identifies the business cycle turning points for the last 40 years. Decomposing aggregate B/M into components of accounting conservatism and delayed recognition of growth reveals different implications for the macroeconomic information content of aggregate B/M.

Although a considerable number of studies have investigated the determinants and consequences of audit fees, studies examining how and why key audit matters, workload pressure, and audit quality might influence its audit firm pricing strategies are rare. Thus, this study examines the impact of key audit matters, workload pressure and audit quality on audit fees. Consequently, we further explore whether audit quality might moderate workload pressure-audit fees relationship. Using a large sample of UK firms for a recent time period (2010–2016) in which there were substantial structural changes in the audit market regulation; our results are three-fold. First, our findings show that workload pressure has a significant and positive pressure on audit fees. Furthermore, we find that the impact of workload pressure differs between high-quality and low-quality audit firms. When clients enjoy greater audit quality, auditors in busy seasons are likely to pass on the scale economy and efficiency benefits to their audit clients and charge them less. Finally, our results indicate that audit fees are high in corporations with high key audit matters. These results are consistent with current economic and behavioral theory and previous research suggesting that workload pressures and key audit matters have pressure effects on the audit fees. Our results have significant implications for audit firms, audit committees, and policy makers.

Prior literature has found that CEO narcissism affects firms’ strategic and accounting-related outcomes and choices, with a common end of portraying the firm, and by extension the CEO, in a favorable manner. We extend this research to the non-GAAP earnings setting, which is lightly regulated, provides room for discretion, and creates an opportunity to influence others’ opinions. These characteristics make the non-GAAP earnings setting ripe for exploitation by narcissistic CEOs, whose incessant desire for self-enhancement impels them to toward bold and aggressive behavior in order to manipulate situations in their favor. We find that narcissistic CEOs are more likely to use non-GAAP earnings and do so with a greater magnitude of non-GAAP exclusions. We also find that non-GAAP exclusions are more persistent (i.e., of lower quality) with more narcissistic CEOs. Our results shed further light on why firms choose to disclose non-GAAP earnings and contributes to prior CEO narcissism research by highlighting how narcissistic CEOs take advantage of discretion in financial reporting disclosures to fuel their need for achievement and enhance their own image.

Accounting serves multiple purposes. As a rhetorical device, accounting techniques and knowledge are used by experts to persuade and manipulate others. However, as a device of parrhesia accounting has the potential to achieve greater heights by enabling truth-telling discourse to take place between subjects and their principals. This study examines how accounting is used when governing UK national museums and art galleries (MAGs), by drawing on Foucault’s (2001) conceptions of rhetoric and parrhesia to provide theoretical insights into the role of accounting. It is based on data collected from interviews with senior government officials and from published sources. The findings suggest that the government primarily used account giving mechanisms as a rhetorical device to control subjects at a distance. Accounting had institutional effects because of its social legitimacy and endorsement by the government. Accounting controls included the use of funding agreement and regulatory framework to make MAGs accountable. Subjects from MAGs sought emancipation from the government’s control by appealing to discourse of parrhesia, and contemplating strategies to mitigate the dominant influence of government. This study thus contributes towards understanding how accounting governs subjects and (re)produces practice, and how subjects respond to accounting controls, in the context of art organisations.

This paper investigates the effects of segment disclosures quantity and quality on analysts’ earnings forecasts dispersion in the largest European Union firms. This study also addresses the moderating impact of IFRS 8 and country level enforcement on the relationship between segment disclosures and analysts’ earnings forecasts dispersion. I find that segment disclosures quality and quantity are associated with more dispersed analysts’ earnings forecasts. However, when our test introduces the country level of enforcement, the impact of segment disclosures is reported in countries with weak enforcement only. Moreover, the findings indicate that the quality and quantity of segment disclosures are associated with more dispersed analysts’ earnings forecasts in pre-IFRS8.Thus, the introduction of IFRS8 decreases the explanatory power of segment information that harms analysts’ forecast environment.

This study examines how clients’ proximity to political power affects auditors’ perceptions of risk, which is reflected in the audit fees charged. We use a new concept, Political Alignment Index (PAI), as a measure of proximity to political power. Our empirical results show a positive association between PAI and audit fees. Furthermore, we also find that the positive effect of proximity to political power on audit fees is less pronounced among firms with higher managerial ability, and among firms with better corporate governance and social performance. Collectively, our findings suggest that auditors perceive firms whose headquarters are located in more politically aligned states to be riskier, and hence, are charged higher audit fees while more able managers, together with corporate governance and corporate social performance act as effective mitigating strategies.

The study proposes that bank business unit managers use the accrual of loan loss impairments, reflected in the branch’s Profit and Loss (P&L) statements, to smooth income and thus achieve better performance of their units. The paper uses a unique micro data set and examines, for the first time, the specific discretionary behavior at lower organizational levels of a representative commercial Greek bank, classified as a systemic financial institution by the ECB. The study explores income smoothing generally and during the business cycle, contrasting the expansion (1st quarter of 2006 - 3rd quarter of 2008) with the early recession period (4th quarter of 2008 - 2nd quarter of 2010) and subsequently the early recession period with the deep recession period (3rd quarter of 2008 – 4th quarter of 2012). The results generally provide evidence for income smoothing practices that reveal a reverse U-shaped form over the business cycle. Moreover, they exhibit that unsecured loans are not associated with income smoothing, although there are certain deep recession effects that change loan composition. Furthermore, they show that the geographic differentiation of loan portfolio doesn’t affect income smoothing regardless of the stage of the business cycle. The paper has considerable implications for auditors, bank managers and policy makers due to the importance of income manipulation in the performance of loan portfolio and bank profitability in general.

The analysis of accounting frauds has been often based on a theoretical framework derived by the traditional principal-agent model (Jensen and Meckling 1976). Despite the large effort spent in the last decades, empirical researches reveal that the fundamental problem of the agency relationship is far from being solved. Criticisms focused on four major issues: 1) in the same relation an actor can be an agent and (not only or) a principal; 2) the characterization of information asymmetries is crucial to define the role (principal and/or agent) of an actor; 3) market hypotheses lead to a misdescription of real situations; 4) the role of mutual monitoring in order to prevent moral-hazard phenomena. The aim of this paper is to question the implications and limits of this theoretical model through a micro-historical analysis. In particular, it examines accounting practices, institutions’ role and the possible ways of defining accounting fraud in pre-modern historical context through the study of a Venetian case. The three investigated fraudulent financial statements refer to the years 1781, 1782, and 1783, and regard Geminiano Cozzi’s porcelain factory. Their preparation was required by a government official (the Inquisitorato alle Arti). The present paper proposes a reconstruction of the events leading to such result, showing that an inverted relationship between principal and agent was at the origin of the accounting fraud.

Abstract This study examines the relationship of firm-level corporate governance mechanisms, such as; compliance with a prescribed code of governance, CEO characteristics and board committees, with the survival of firms during a crisis scenario. The results of our univariate analysis show significant differences in terms of firm-level corporate governance mechanisms between firms which survived and those which failed during the 2007–2009 financial crisis. In particular, most of the firms which survived during the crisis period had insider CEOs, had a higher number of board committees, and had established risk committees in their settings. Interestingly, most of the firms that failed during the financial crisis had a higher level of compliance with the UK Corporate Governance Code. The results of our probit regression analysis suggest that during the crisis period, the existence of an insider CEO and more board committees increase a firm’s chances of survival, whereas, a higher level of compliance is found to be negatively associated with the survival of firms. These findings imply that the principles-based system of ‘comply or explain’ is working well in the UK, and that moving towards mandatory compliance may not necessarily be beneficial for companies in the long-term.

I examine whether Accounting and Auditing Enforcement Releases (AAERs) constitute a reliable database for accounting fraud, despite their partial coverage of misreporting cases and the resource constraints of the SEC. By comparing the characteristics of AAERs with those of securities class action lawsuits and restatements, I find that AAERs cover cases that are more likely to represent material accounting irregularities, which are characterized by aggressive adoption of accruals, strong financing needs, and significant market impact of misreporting cases. Further analyses indicate that the characteristics of AAERs can be explained by the SEC’s methods in utilizing constrained resources, in addition to AAERs’ inherently egregious nature in that they involve accountants’ collusion or serious defects in the financial auditing process. I specifically find that high-risk and systematically important firms are associated with a higher propensity for detection by the SEC, and states with higher firm population tend to have SEC regional offices. Through this optimization, the SEC may mitigate inefficiencies inherent in accounting fraud investigation processes and address the potential geographic bias, which suggests that 11 regional offices are not sufficient to regulate all U.S. firms. Overall, my findings support the relative reliability of AAERs as an accounting fraud database, and should be of interest to researchers who use AAERs to proxy for financial misreporting.

Cost allocation is essential, in the sense that it provides information for management decisions (information perspective) and creates incentives for divisional managers to control costs (motivation perspective). In some circumstances, firms “distort” cost, so that the allocated cost is deviated from the optimal level, which a division expects that they are accountable for. Cost distortion can be either a result of the utilization of an aggregated, simplistic costing method or a result of ex-post discretionary adjustments that can mitigate the incompleteness of objective allocation bases, prevent divisional manipulation or trigger divisional dissatisfaction for its arbitrariness. We investigate the impact of cost distortion on divisional performance and firm performance by using Compustat-Segments database from 2008 to 2015. We find that over-allocation discourages divisional managers to improve their subsequent performance and that cost distortion negatively affects an overall firm performance. Our findings suggest that in order to motivate managers and facilitate their decisions, overhead costs should be allocated at an anticipated level.

The aim of this study is to shed light on the black box of stock based incentives for managers (in form of employee stock ownership plans (ESOPs)) and their effect on individual performance. Whereas prior research focused on the impact of stock based incentives for top executives on firm outcomes, the underlying mechanism of how these incentives work for managers remains open. When stock based compensation motivates managers by providing financial incentives that link to overall firm outcomes, I expect that the ESOP participation of managers increase their individual effort. Using a sample of 3,262 managers from a large European industrial firm, my findings confirm the expected positive effect of manager ESOP participation on individual performance. Moreover, I find confirmation for an enhancing effect of contextual factors showing that stock based incentives can be an especially powerful instrument to incentivize managers, who are of particular importance for firms because of (1) their influential decision-making role regarding firm outcomes, and (2) their key role in managing critical situations.

This paper borrows the concept of organisational mind from high-reliability organisations (HRO) research in order to develop some general insights into key dimensions of effective enterprise risk management (ERM) practices. Based on extant ERM field research we posit that those key dimensions should focus on sensemaking processes within organisations and their ability to link their thinking about risk to activities that seek to address those risks. Our research analysed testimonies of US investment bankers before US government investigation committees into the causes of the 2007/8 global financial crisis, subpoenaed emails and documents published by those committees, and some newspaper articles. Our findings suggest that organisational mind can facilitate effective ERM and that its absence can make ERM ineffective. For organisations that use ERM we modify the notion of organisational mind from the one that emerged from the HRO research.

In this study, we explore a topic of primary concern to small audit firms – attracting new clientele. A potential avenue available to small audit firms to enhance their visibility and legitimacy among potential audit clients is to join an affiliation of accounting firms known as an accounting association. We examine whether small audit firms with accounting association membership have greater client growth than their peer audit firms without association membership. We separately explore growth in private and public clients. Using hand-collected data, we find that small audit firms with accounting association membership gain approximately 38 percent (5 percent) more private (public) clients over a two-year period than those without association membership. We find that this growth is due to both gaining new entrants into the audit market and winning over clients from competitors. Further, we find that the reputation of an association positively affects the client growth seen by member firms.

Abstract Research optimism by financial analysts has been extensively investigated in relation to their earning’s forecasts and recommendation. In this paper, we extend prior research on analysts’ bias by examining the difference in tone and readability of analysts’ reports issued by analysts employed by investment banks and independent research firms. We find that though the recommendations suggest higher optimism level for investment banking analysts, there was no significant difference in the tone of reports issued by both types of analysts following the same firm. Moreover, we find that the level of readability varied with the level of good news only for reports issued by investment banking analysts. Precisely, readability is lower when the reports are less optimistic, indicating a tendency to obfuscate bad news through more complex reporting. Overall the findings are consistent with an impression management perspective and provide support for the need to extend analysts’ research to the narratives which accompany their earnings’ forecasts and recommendations.

Research purpose- This study considers data for listed companies in Bahrain Bourse to determine if companies practice earnings management (EM). Further, the effect of a set of corporate governance characteristics on EM practices is examined. Design/methodology/approach- The EM level was measured using discretionary accruals )DA( calculated using the Modified Jones (1995) Model. The study sample consisted of 20 companies listed during the period 2011–2015. Ordinary least squares (OLS) was used with panel data to test the study hypotheses and achieve the study aims. Findings- EM is negatively correlated with board size, confirming that a larger board is associated with a lower level of EM practices. Further, board independence is positively correlated with EM, suggesting that the larger the number of independent directors, the higher the level of EM practices. In addition, internal ownership is positively related to EM, confirming that the higher level of internal ownership increases EM practices. CEO duality does not appear to have any effect on EM in Bahrain Bourse. More interestingly, the findings reveal that companies practice EM through income-increasing DA. Research limitations/implications- Financial data and data related to other corporate governance characteristics are lacking. Practical implications- The results of this study provide empirical support for the development of new regulations and amendments and necessary corrective decisions regarding the effectiveness of applying corporate governance code in Bahrain Bourse. More specifically, this study reveals an urgent need for new amendments to restrict EM practices in Bahrain Bourse. Originality/value- This study enriches the EM literature by covering Bahrain as an Asian country, which has not been sufficiently examined in relation to this topic. Further, this study provides a clear picture of the level of EM practices in Bahrain Bourse to multiple parties.

Using a single country setting of Swiss firms, this paper investigates whether accounting quality improves for firms voluntarily adopting IFRS. Prior research finds mixed evidence on accounting quality improvements around the voluntary IFRS adoption. The Swiss setting allows to isolate the effect of the change from accounting standards from the effect of changes in reporting enforcements. Furthermore, I exploit the fact that many firms, early adopted IFRS long time ago (hereafter, "benchmark firms"), although IFRS is not mandatory in Switzerland. I examine whether firms adopting IFRS have better accounting quality metrics in the post-adoption period. I find that voluntary adopters exhibit significant improvement in accounting quality metrics in the post-adoption period. Additionally, I examine whether firms that "seriously" adopt IFRS exhibit higher accounting quality improvements. Classifying the adopters in non-serious or serious adopters based on their actual reporting changes around the adoption, I find that the non-serious adopters do not face accounting quality improvements in the post-adoption period. Overall, the evidence points towards the explanation that accounting quality is mainly shaped by reporting incentives.

This paper mobilizes an institutional logics perspective to analyze the dynamics and changes Romania experienced when adopting the European Union’s financial reporting enforcement system. The Romanian context is characterized by the juxtaposition of market-based principles imported with the aim of achieving the economic prosperity of developed countries in the Western world and a state logic inherited from the communist past. This longitudinal case study builds on a content analysis of publicly available documents and proceedings in the realm of financial and capital market regulation in Romania, and data gathered through semi-structured interviews. An intended radical change in logics, accompanied by slow assimilation processes in an unstructured institutional field, allows for competing logics to co-exist. Material change in practices relies on the support of the institutional infrastructure, such that intermediaries play an important role in offering, elaborating on and interpreting frames in line with the new logic. However, the old logic is not replaced; rather, the new logic’s practices are slowly altered and adapted to the local context, or blended with existing practices. This is reflective of gradual and incremental developments. The slow process of change echoes the general notion of reforming processes in emerging economies and their unstructured fields.

We adopt an institutional work lens, and the regulatory space concept, to analyze how the Romanian State responds to the significant expansion of transnational and other local actors’ roles in accounting regulation, and how it engaged in institutional work to maintain a dominant role. Our case provides evidence of the State mixing various types of institutional work, that are usually performed by different actors, to maintain its strong position in the regulatory field. We find that the State accepts international standards and advice, overtly, without frictions or resistance, yet covertly maintaining power through its regulatory process, including the use of timing and meaning of regulations, the education work around them, and the limited consultation process. The regulatory process in Romania allows for the continuance of local practices and thinking under the label of international standards, as a result of the theorizing, educating, policing and deterring work of the State. Our study informs the international literature about the forces for regulatory change or inertia, an issue of interest to understanding how various types of regulatory regimes work in local contexts.

Agency costs exist due to the conflict of interests between shareholders and debtholders. Corporate managers may act on behalf of shareholders that result in taking certain actions detrimental to the welfare of the debtholders. The agency theory of covenants (ATC) suggests that the agency cost of the debt can be mitigated by restricting managerial opportunistic behavior with covenants written into the debt contracts to better align manager’s interests with those of the debtholders. This paper examines whether firms with more covenant intensity in their private debt contracts exhibit timelier recognition of economics losses. Additionally, we examine whether conservatism plays a role in the design of the covenants in private debt agreements. We find a negative relation between covenant intensity and the degree of timely loss recognition. This finding is consistent with Nikolaev’s (2010) finding that the presence of private debt and covenants attenuate the relationship between conservative financial reporting and the use of public debt covenants in contract We also find a firm’s degree of conservatism prior to debt issue influences the debt covenant design of the lending agreements.

The paper explores how relations between performance budgeting (PB) and accountability are formed in practice over time. This is a qualitative case study of one municipality within Russia as it begins to use performance information in budgeting under central government pressures. With triangulation of 25 interviews, document analysis and field observations, institutional work theory was employed to guide the study. The paper demonstrates the dynamic properties of relations between PB and accountability via the 'creative distraction' metaphor. Specifically, it was observed that PB was a 'distraction' mechanism, which, on the one hand, strengthened vertical managerial accountability and 'vertical power' between municipal and upper-level authorities, while, on the other hand, distracting the municipality from real municipal needs (public and political accountabilities), by separating municipal departments into independent units. Nevertheless, this 'distraction' was at the same time 'creative', as it produced creative effects on accountability within PB development over time (e.g. redirecting the irrelevant constraints of performance information in budgeting into necessary manipulations, including balancing managerial and political accountabilities for municipal survival). The demonstrated 'creative distraction' of PB in changing accountability from vertical ('distraction') to horizontal ('creative') is explained by actors' institutional work progression over time.

Using a large hand-collected sample of business combination disclosures provided by non-financial US acquirers, we investigate whether fair-value adjustments (FVAs) of targets’ assets allow acquirers to increase their debt capacity. We find that the average corporate acquirer reports an economically significant increase of 183 percent in the value of the target’s total non-cash assets. We also document that FVAs are associated with a substantial increase in the debt issuance of the combined entity during the three-year period after the acquisition. This additional debt is issued at lower interest rates, has longer maturities, and is more likely to be secured. The increase in new debt issuance during the post-acquisition period is associated with FVAs on tangible assets and positive FVAs, suggesting that the reporting of previously unrecognized asset values increases the value of the collateral on acquirers’ balance sheet. Our results indicate that asset fair value measurement increases debt capacity and improves credit terms, consistent with lenders fixating on balance sheet values when establishing borrowers’ collateralizable asset base.

The study examines whether partner special competencies, such as industry expertise, public company expertise and client-specific expertise, are associated with a fee premium. It further investigates whether the association between partner competencies and audit fees is dependent on gender. Using a sample of 225 public Swedish companies audited from 2006-2015 (1461 firm-years) by 182 partners affiliated to Big 4 audit firms, partner industry expertise and client-specific expertise are found to be associated with higher audit fees. A further finding is that partners with special competencies are dominantly men. However, male public company specialists receive significantly lower audit fees than their female counterparts. This finding suggests that female auditors who are public company experts may have exceptional track records, which can strengthen their powers when negotiating audit price. Taken together, the results indicate that partner special competence is valued by clients.

The majority of U.S. public firms are held by institutional blockholders that simultaneously block hold other firms in the same industry, a phenomenon referred to as institutional cross-ownership. We examine the effect of institutional cross-ownership on corporate voluntary disclosure. We argue that institutions play a coordination role to reduce competition among the peer firms they cross-hold, in order to increase their portfolio value. Such coordination reduces the proprietary costs of disclosure and promotes information sharing among peer firms through public disclosure to facilitate tacit collusion. Consistent with this argument, we find that firms with greater institutional cross-ownership provide more management earnings forecasts. Cross-sectional analyses provide further support to the above explanation. We find that the above result is driven by dedicated institutions and quasi-indexers, and not by transient institutions. Also, the result is more pronounced when the cross-holding institutions cross-hold more same-industry firms. Our main finding is robust to a difference-in-difference analysis using a quasi-natural experiment of financial institution mergers, as well as to alternative measures of voluntary disclosure.

This paper investigates the influences of governance structures for Islamic (IBs) and Conventional (CBs) banks on their financial flexibility positions. By employing a sample of 28 IBs and 37 CBs in 11 MENA countries covering the period from 2009–2015, we conclude that while larger board size effectively improves the financial flexibility of CBs, it reduces the IBs’ financial flexibility. Such different board size effects can be explained by three main characteristics of IBs: Shari’ah compliance risk, lack of protection for stakeholders’ rights, and lower complexity level. Furthermore, we find that the more effective the SSB, the better the IBs’ financial flexibility as the SSB members with higher multi-directorship may bring accumulated knowledge and expertise to improve the monitoring quality on Shari’ah compliance. Our findings can offer valuable insights for both policymakers and regulators in the banking sector.

Alles, Kogan and Vasarhelyi (2008) and O’Leary (2008) proposed frameworks designed to help AIS academics undertake research that would be more likely to add value to the wider AIS constituency and be more in sync with the maturity cycle of the underlying technology being investigated. A decade later, I examine how well these frameworks fit the subsequent evolution of AIS research. I do so by analyzing the population of published research into the mature technology of cloud computing and then leveraging that analysis to examine the likely path of future AIS research into the emerging technology of blockchain. The conclusion I reach is that while the cloud computing research has developed in ways that are inconsistent with Alles, Kogan and Vasarhelyi (2008) and O’Leary (2008), that literature does validate the reasons those frameworks were proposed in the first place. The AIS research into cloud computing lacks any great insights and fails to add much value either to the fields of AIS or of cloud computing. A more systematic approach is necessary if the forthcoming AIS research into blockchain is to avoid the same outcome. The reality is that most technologies will advance regardless of what AIS researchers do or do not do. It is, rather, the relevance and impact of AIS research that suffers when AIS researchers act opportunistically and in isolation from the wider technological ecosystem.

The corporate governance literature indicates efforts to investigate the relationship between internal Corporate Governance Mechanisms (CGMs) and Audit Quality (AQ). However, empirical findings prior to this study are inconclusive and not comprehensive enough to address all CGMs in terms of its effect on AQ; hence, this study extends the scope of previous empirical evidence by investigating the impact of internal audit factors, audit committee and board of director as the main CGMs on AQ. Mainly, this study aims to investigate and understand the point view of the Jordanian external auditors concerning the impact of internal CGMs on AQ. As a result, this research contributes to the existing literature both in theoretical and practical fronts by developing a theoretical and conceptual framework that aimed to establish a relationship between internal CGMs and AQ characteristics. Professional standards and previous empirical results highlighted that the client’s internal governance mechanisms can contribute to the external audit service in different ways either direct or indirect way. This research used questionnaire survey to understand the perceptions of external auditors as the importance specified by them to several internal CGMs. As a descriptive, correlation and regression findings illustrate that the work performance of internal audit and audit committee performance are the most important factor that effect on AQ.

The international financial crisis plunged the Spanish economy in a downturn spiral from 2008 to 2010, with seven consecutives recession periods. During this period Spanish companies faced growth and liquidity problems and credit constrains, which increased their business risk. The international literature emphasizes that there is a relationship between business risk and audit fees. This study considers if there is a relationship between time (the three years period when Spanish recession was higher and the following three years period) and audit fees. Consequently we analyzed the financial statements and the audit fees charged by auditors in the Spanish manufacturing industries from 2008 to 2013. The results obtained, despite positive and negative correlations between audit fees and other variables of our model, are not totally conclusive, nor are they consistent, pointing to a tenuous relationship between time and audit fees, and partially corroborates the American reality, but not the facts occurred in Australia, China and Sweden, by providing a mixed analysis.

We argue that life cycle has implications on audit fees. In particular, we predict that auditor price clients driven by the inherent audit risks represented on each life cycle. Our sample consists of U.S. public firms from 1996 to 2016 from Thomson Reuters Eikon. Our findings show that firms in introduction and decline stages pay lower audit fees and, independently of the life cycle stage, all firms pay higher fees to Big Four audit companies. In addition, we find evidence that Big Four auditors avoid non-audit services to decline firms as a way to reduce litigation and reputation risks. Our results are robust also using an international sample.

This paper examines the effect of repatriation taxes on the investment decisions made by foreign subsidiaries of multinational corporations (MNCs). Using a global sample of MNCs, we provide evidence that a foreign subsidiary’s investments are less aligned with local growth opportunities when its parent faces repatriation taxes on its earnings. This negative effect of repatriation taxes on investment efficiency is weaker when the parent monitors the subsidiary more closely and when the parent has a stronger need for the subsidiary’s earnings to be repatriated. We interpret these results as evidence that agency conflicts between a firm’s central management and the foreign subsidiary’s local management drive the observed inefficiency. We confirm our results and establish a causal relationship using natural experiments in the U.K. and Japan, which both eliminated repatriation taxes from their international tax systems in 2009. Our results suggest that repatriation taxes reinforce agency conflicts within MNCs, leading to economically less efficient investment decisions at the subsidiary level.

We investigate the role of U.S. analysts in facilitating home market information transmission for firms from 40 countries cross-listed in the U.S.. Recommendation revisions by U.S. analysts lead to significantly higher (lower) abnormal returns (volumes) in the home market compared to those by local analysts. This U.S.-location premium to information production cannot be explained by a bonding or certification role of U.S. analysts or differences in broker or analyst characteristics. Our results suggest that U.S. analysts facilitate U.S. investors’ access to foreign firms’ home markets and improve the information environment particularly in countries where the local analyst advantage is smaller.

Abstract Ongoing advancements in technology have changed dramatically the disclosure media that companies adopt. Such disclosure media have evolved from the traditional paper-based ones, to the internet as the new platform to disclose information via companies’ designated websites, currently however, the new media for disclosures are the social media. Among the important disclosures that companies make are corporate social responsibility (CSR) disclosures, which are deemed indispensable nowadays, given the growing social awareness among societies. The aim of this paper is to investigate corporate social media accounts for CSR disclosure, as well as, identify its determinants. The sample of the study is comprised of 168,785 tweets posted on the Twitter accounts belonging to the FTSE 350 constituents during the period 2008-2016. Topic modeling is applied to identify CSR disclosure tweets and logistic regression is run to identify the determinants of CSR disclosure on Twitter. Results show that companies use Twitter to make corporate disclosures including CSR, and some board characteristics are found to significantly affect such CSR disclosures.

We examine the association between accounting conservatism, expressed in the form of asymmetric timeliness of recognition of economic gains and losses, and Corporate Social Responsibility (CSR). Our aim is to assess whether financial responsibility towards capital providers, as manifested through a conservative stance in financial reporting, is associated with a social responsibility orientation. Our evidence overall suggests that higher levels of conservatism are negatively associated with a CSR orientation by firms. Managers, hence, appear to prioritize responsibility in financial reporting, and relevant costs incurred, over costs for promoting CSR-related investments, arguably considered beneficial for a larger number of stakeholders. We find this negative association to be more prominent in the post-2008-09 crisis period; we interpret this as an indication that the prevailing economic conditions can impact on managerial choices over CSR and financial responsibility, with the latter being a priority in an adverse economic environment.

This paper examines the amount of information reported by Spanish enterprises owned by the central State as well as by local and regional governments (all categorized under the term SOEs) according to compliance with legal requirements of the Spanish Law 19/2013 on Transparency and Good Governance. Likewise, this paper also analyses how different variables can affect the amount information reported by such SOEs. To accomplish this task, we will conduct a web-content analysis of web pages of all Spanish enterprises owned by the central State as well as we will examine the content of web pages of a sample of Spanish enterprises owned by regional and local governments. The results show that, in spite of the obligations of information disclosure for public sector entities indicated in the Spanish Law 19/2013 on Transparency and Good Governance, the amount of information reported by Spanish SOEs is quite reduced and limited. The most influential factor for explaining the extent of information reported is the nature public of ownership.

We examine how the presence of women involved in the financial reporting process of public companies, and especially the interactions between them (i.e. the simultaneous presence of a woman CFO, women sitting on the audit committee, and women auditors), impacts financial reporting quality. For our sample of large French companies, we find that women do not affect financial reporting quality when interactions are not considered. However, the interactions between women involved in the financial reporting are associated with lower discretionary accruals and higher C-scores (our measure of conservatism), as expected because women are generally more risk averse and have greater ethical sensitivity. Furthermore, our result holds only for non-family firms, which is also expected because there is a greater demand for earnings quality in such firms. In addition, it appears that woman CFOs play a key role in these interactions. Overall, our results support the idea that women affect positively financial reporting quality only if several women are involved at various stages of the financial reporting process and only in specific contexts (i.e. non-family firms). These new results should be of great interest for researchers, investors and regulators.

This paper examines whether the reporting of significant goodwill impairment by a firm (impairment firm, hereafter) affects the corporate investment behavior of other firms in the same industry (peer firms, hereafter). I contend that peer firms learn from the impairment firm’s admissions of failure to extract value from past investments and improve the quality of their corporate acquisitions. Employing a difference-in-differences design on a sample of European acquirers over the period 2003-2016, I find that in the three-year window after the impairment firm’s reporting, acquirers’ cumulative abnormal returns surrounding acquisition announcements are higher if they are peer firms. In addition, when I distinguish between the reasons that led to goodwill impairments loss recognition by the impairment firms, I find that the learning effect on peers’ subsequent investment decisions exists only when the impairment firms provide an external reason for goodwill impairment, as opposed to an internal reason. Further, I find that after the impairment firm’s announcement, peer firms adjust their over-investments to the level predicted by their growth opportunities. In the wake of standard setters’ plans to revise the rules for goodwill and goodwill impairment, these results provide important empirical insights into how goodwill impairment signals valuable information that extends beyond the boundaries of the firm.

This paper examines the association between audit team members’ audit quality threatening behaviours (AQTBs) and three types of team distances: objective distance as the geographical distance measured in kilometres, subjective distance as the perception of proximity, and communication distance as the extent of communication via technology. The occurrence of AQTB has been well documented and evidence shows that AQTBs adversely affect audit quality. To the best of our knowledge, this study is the first to investigate how the three types of team distances are related to team members’ AQTBs, which could shed some new insights on the “black box” of audit teams (Francis 2011). Using survey data supported by partners in a Big 4 firm in Sweden, we find that team members with greater subjective and communication distances have more AQTBs, while objective distance is not significantly associated with AQTBs. Supplementary analysis shows that the positive association between subjective distance and AQTBs mainly occur among team members that are based in the main offices, while the positive association between communication distance and AQTBs is mainly driven by team members not located in the main offices.

Agency Theory predicts the compensation can be a way of main control the actions of the agent. In this study, we evaluated the influence of the practices of earnings quality on executive compensation as a way to propose indicators to support the policies of executive compensation for performance. The sample is composed of 393 companies that disclosed the information on executive compensation in the period from 2007 to 2016, countries that comprise the European Union. The statistical technique applied was panel data that, after the validation testing of the model chosen by random effects. The results allow us to affirm that executive compensation packages are linked to the persistence of profits in larger companies. It was also found that the use of accruals reflect negatively on executive compensation, such that the practice of smoothing result, and the timely recognition of losses, even with weak relationship, presented a positive signal in relation to the compensation. The findings of the survey allowed to understand the influence of the practices of earnings quality on executive compensation in the member countries of the European Union and has contributed to the understanding of the market in general and for the academy, to expand the research on executive compensation and measures the performance of companies and analyze performance measurements distinct from those used until then.

Cognitive biases have been frequently found in social sciences. Most of the experimental studies have adopted a user’s perspective, investigating whether and how users are subjected to biases when analyzing financial and non-financial information. Less experimental studies, on the other hand, have adopted a preparer’s perspective, although conjecturing the influence of biases on preparers’ choices. The aim of this experimental paper is to investigate whether preparers of corporate reporting are affected by omission bias when deciding the most suitable representation (both in financial and moral terms) of the company’s performance. Omission bias is the human being’s tendency to evaluate a wrongful omission (e.g. an omission of negative information) less harshly than a wrongful commission (e.g. a distracting information that obfuscates a result). The paper adopts a between-subjects design and focuses on specific formats frequently adopted to portray financial and non-financial trends: graphs. Public scrutiny is used as a moderating variable, to represent the pressure to report transparently that preparers face. The study contributes to the impression management literature, by investigating whether and how preparers are subjected to omission bias and whether pressure for true and fair disclosure affects their reporting decisions. The research also provides useful insights to preparers and users, by showing the reasons and expected consequences of biased and unbiased disclosure.

This paper highlights how debtholders value political connections. Specifically, it investigates whether lenders favor transactional connection as opposed to repeated relational connection. Tracing firms in a politically volatile emerging democracy, the paper confirms that firms with transactional political connection strategy experience a relatively lower cost of debt than those with relational strategy. Results are more pronounced for firms with high risk of financial distress.

Abstract We examine incremental information content of disaggregation of other comprehensive income (OCI). OCI has been reported in the income statement under IFRS since 1 July 2009 amid a debate about whether all OCI items should be reclassified (recycled) into income subsequent to recognition in OCI. Current US and IFRS standards differ in that IAS 1 (but not US GAAP) requires OCI items that will be reclassified to be reported separately in the statement of OCI. We investigate whether disaggregated (realised and unrealised) components of OCI have differential predictive ability. The results suggest that the disaggregated components of cash flow hedge, available for sale financial assets, and foreign currency reserve gains and losses all have differential predictive ability. These gains and losses have predictive ability for firm operating performance measured using both operating income and cash flows from operating activities. Additionally, asset revaluation gains and losses were found to be significantly positively associated with future firm performance. There is no association between defined benefit gains and losses and future firm performance. The inferences are robust to a number of sensitivity tests. The results have relevance to regulators and managers reporting under US GAAP.

This study is the first that attempts to gather and examine case studies within the academic field of auditing. Our review comprises all journals ranked in the ‘Accounting’ category in the 2015 ABS Journal Guide. The paper identifies areas for improvement regarding the methodological rigor of case studies; moreover, it identifies voids in the auditing literature and hence potential topics for future case study research. The study provides guidance to authors and reviewers for the development of rigorous case studies, offering means for reviewers, editors and readers of case studies to assess their quality. Many of the analysed and reviewed case studies lacked satisfactory methodological details concerning research design, data collection and analysis.

We measure annual report commentary articulating an entity’s strategy and business model, and then examine the capital market impact of enhancing such disclosure. Our empirical disclosure proxy is based on n-grams drawn from popular strategy textbooks and the academic strategy literature. Validation tests confirm that our measure: (a) correlates with manual classifications of strategy reporting quality produced by domain experts; (b) covaries predictably with firm-level drivers of strategy-focused disclosures identified by prior research; and (c) captures the structural break in reporting practice reflecting the regulatory mandate for a subset of London Stock Exchange firms to explain their strategy and business model. Using a difference-in-differences design that exploits this exogenous and measurable increase in strategy-focused disclosure, we show that enhanced commentary on strategy and business model reduces investor uncertainty and increases the speed at which annual report information is incorporated into stock price.

Prior literature has mainly looked into the impacts of global and industrial diversification on the firm value and shareholders’ beliefs. However, I am willing to investigate the auditor’s belief of a diversified firm and if auditor views a globally or industrially diversified firm as a client with high business risk. I hypothesize that in auditor’s opinion, a globally/industrially diversified firm is a more risky client compare to a focused firm and this riskiness is not only due to the operational complexity, which has been widely discussed in the prior literature, but also due the large information asymmetry gap between managers and outsiders. In fact, the indirect effect of information asymmetry on the audit fee and global/industrial diversification is larger than the operational complexity. Moreover, I hypothesize that a strong internal corporate governance negatively moderates this relationship and auditor charges a globally/industrially diversified firm with a stronger internal corporate governance for a lower audit fee.

The question of the benefits of joint audit on audit quality and audit market competition is subject of heated debates among standard setters (European Commission 2010) and professional bodies (Ratzinger-Sakel et al. 2012). To achieve the goal of maintaining the highest audit quality standards, joint audits arrangements should enable the effective involvement of the two independent auditors (Bennecib 2004; Deng et al. 2014). This raises questions about how auditors share the audit work and about the necessity to regulate the balance of power between joint auditors. We use the French joint audit setting to study the determinants of imbalanced joint audits. We find audit complexity (foreign operations) to be a key driver of joint audit imbalances, specifically in the presence of a mixed joint audit college (i.e., a Big 4 paired with a non-Big 4). We also find a significant decrease in joint audits imbalances before and after the French auditing standard requiring a balanced repartition of the audit work (NEP 100.07). Finally, we observe that the frequency of collaborations between the two co-auditors is positively associated with the joint audit imbalance. This effect is stronger for mixed joint audits, and can thus be interpreted as a ‘dominance’ effect exerted by Big 4 auditors on smaller ones. This study is among the first to enlighten the role played by supply-side effects (differences in auditors’ production functions) in the (presumed) effectiveness of joint audits.

We propose a novel method to forecast corporate earnings, which combines the accuracy of analysts' forecasts with the unbiasedness of a mechanical model. We build on recent insights from the earnings forecasts literature to select variables that have predictive power with respect to earnings. Our model outperforms the most popular methods from the literature in terms of forecast accuracy, bias, and earnings response coefficient. Furthermore, using our estimates in the implied cost of capital calculation leads to a substantially stronger correlation with realized returns compared to extant mechanical earnings estimates.

In this paper, we shed new light on macroeconomic forecasters’ strategic behaviors by examining the characteristics of their forecasts as a function of US Presidential elections. In line with strategic behaviors’ theoretical models, we document significant differences in macroeconomic forecasts depending on US Presidential election cycle and analysts’ access to private information, as proxied by political donations to Presidential Party. Empirical evidence shows that forecasters are more accurate and far away from the consensus in the period leading up to the Presidential election when the greater uncertainty leads them to pay more effort in their forecasting activity. Once the President is elected and the uncertainty is partially reduced, analysts rely more on the common consensus so that more inaccuracy is observed. We also find that forecasters with access to private information tend to be more accurate under normal circumstances while this is not the case in the periods surrounding the Presidential election as the possession of private information triggers them to take more risks to stand out of the crowd as the best forecaster. Lastly, results suggest that the strategic behavior of individual forecasters dampens the predictive ability of the consensus forecast with respect to corporate profits.

This paper presents empirical evidence on whether compliance with the Sarbanes-Oxley Act of 2002 (SOX) affects the quality of financial reporting for publicly traded companies in the European Union that are cross-listed in the United States. Focusing on Sections 302 and 404 in the SOX on financial reporting quality (FRQ) and using a novel approach to operationalization of the SOX, the empirical research integrated in this paper advances understanding of corporate governance, in particular, FRQ for both practitioners and policymakers. Specifically, this study shows a significant and direct effect on FRQ of both Sections 302 and 404 of the SOX. In addition, the relationship between the SOX provisions and FRQ is robust at the component levels. Overall, our evidence shows that greater compliance with the SOX provisions increases the quality of corporate governance as whole. However, we find that the number of EU firms cross-listed in US markets has dropped significantly since the SOX passed.

The purpose of this paper is to study the evolution of the management control strategy of Michelin Company with respect to corporate social responsibility. Since the founding of Michelin in 1889, the Managing Directors have focused on controlling the company in a manner that aims at being responsible to its customers, its employees and to the local community. After the transformation of the Company into a global enterprise, as well as the listing on international stock exchanges, the Managing Directors decided on a change in the management control strategy of the Company in the direction of becoming a more environmentally and socially responsible enterprise. This paper traces and discusses this strategic management decision and suggests how long established companies can make the transition to social and environmental sustainability.

There is little doubt that carbon emissions from human activities is the primary cause of anthropogenic global warming. Equity investment is a major stimulant of economic activity and therefore carbon emissions, but it is also a potential enabler in transitioning to a sustainable economy. This study aims to quantitatively determine the carbon and employment footprint of selected Australian equity investments using Environmentally Extended Input-Output Analysis and evaluate the potential impacts of socially responsible investment and divestment. We examine three superannuation funds managed by Australian Super and obtained the equity holdings and representative facilitated industry output of these investments. We then attributed a carbon footprint proportional to the carbon emissions of that industry over the 2014-15 Australian financial year. The analysis similarly calculates the representative employment footprint of these investments to observe the wider impacts of a transition to a low-carbon economy. The results of this study indicate that SRI criteria can significantly reduce the carbon footprint of an equity portfolio. Specifically, this study finds a 29% difference in carbon footprint per dollar invested between SRI and non-SRI funds. Furthermore, the employment generated per dollar invested was not affected by the SRI criteria. Divestment scenarios revealed that the carbon or employment footprint of a portfolio can be significantly reduced or increased.

We explore the relation of CSR activities with SG&A cost stickiness and asymmetric sales response by using a data sample of 7.464 firm-year observations of European firms for the period 2009-2015. Our empirical findings indicate that SG&A expenses exhibit cost stickiness (anti-stickiness) in the case of firms with high (low) intensity of CSR activities. It seems that the sales revenues exhibit asymmetric responses towards changes on SG&A expenses. A possible explanation is that firms with high intensity of CSR activities tend to adopt a prospector’s strategy and they are characterised with high intensity of intangible investments.

This theoretical essay aims to explore how the controller participates in the strategy formation process, from the perspective of strategy as a practice. In this sense, we propose a new approach for management accounting studies by bringing together two fields of knowledge – accountability and strategy – under a constructivist perspective that investigates the role of the controller as a business partner and a strategy practitioner. To achieve this goal, we developed a bibliographic review on the main issues related to the role of the controller in organizations and a general explanation of the theoretical model of strategy as a practice proposed by Jarzabkowski and Spee (2009). From the intersection between the two themes, three general propositions were developed relating the elements of strategy as practice (practice, praxis and practitioners) to the role of the controller, which serve as a basis for the development of future research. The implications of this theoretical essay limit itself by the theoretical and empirical aspect, but it opens the way for future avenues of research and theoretical or empirical studies that contribute to the advances of research on management accounting.

This paper examines the equivocality in corporate ‘accountability’ arising from the pursuit of corporate sustainability, which invokes competing objectives of profitable growth and minimal environmental impact. We focus on the role of accounting in enabling the ‘sensemaking’ process of corporate sustainability managers in reconciling the conflict that they face (Weick, 1995; Weick, 2001). We focus on ‘carbon accounting’, an accounting practice that fosters the reconciliation of the competing objectives of profitability and minimal environmental impact, in contrast to the traditional financial accounting or other sustainability accounting practices that are focused on serving one objective or the other. Drawing on semi-structured interviews with sustainability managers from 30 large UK-based companies, we find a sensemaking pattern related to carbon-intensity and occupational background. In addition, we find carbon accounting ‘guiding’ the sensemaking by reducing equivocality around the issue of climate change. Building on Weber & Glynn (2006), we argue that carbon accounting enabled the sustainability managers to reconcile the two competing objectives by simultaneously (1) triggering sensemaking through the external demand for accounting, (2) providing carbon accounting categories for reducing the equivocality of the issue, and (3) by providing carbon accounting metaphors for reducing the ambiguity of their role.

The research reported here has as its central question of how do Australian accounting academics perceive the preparedness of students to study accounting at university. The research looks at how well prepared new cohorts of accountancy students are to engage. The research found that accounting academics identified four success factors required for students to study accounting at first year university level, identifying those needing to be addressed prior to beginning study, and others within the course of study itself. These four success factors included the ability to participate in the course with an apropos level of English language proficiency, to commence with a certain level of assumed knowledge which is then further extended, to develop and utilise higher order thinking skills, and finally to effectively communicate thoughts and ideas through written and verbal means. The findings, of the study reported here, provide insight into what students need as preparation to study accounting at university, using the Success Factor Timeline (SFT). The SFT bring together disparate concepts into one framework for consideration of student selection procedures and course design. It also provides appropriate scaffolding for first year students to better enable them for success, based on attributes they need to possess before commencing university studies, and attributes they can learn whilst at university.

We explore the extent to which companies in the UK food retail and production industries are disclosing information on weather-related risk, especially in relation to climate change-induced weather risk, in their annual/integrated reports, their sustainability reports and on their corporate websites. We also consider the impact of climate change in other countries which affect the companies under study, due to their inclusion in the supply chain, as well as disclosures relating to non-food areas of their businesses. More specifically, the paper also seeks to assess the quality and consistency of these disclosures, from a critical perspective and draws conclusions as to whether these weather disclosures are discharging adequate accountability to stakeholders in terms of their information content, depth of discussion and detail. For example, we consider whether the information sources used for corporate weather forecasting and subsequent decision-making are being disclosed to stakeholders? Do companies disclose detailed information regarding their weather risk mitigation strategies? Further, do companies provide information concerning any weather derivatives they use in their reports and accounts and if so, how much detail do they provide? We also consider whether companies disclose opportunities arising from climate change-induced weather variability as well as the associated risk.

Corporate tax departments represent the average firm’s most direct and substantial investment in tax compliance and planning, and they likely play an important role in determining the firm’s tax outcomes. However, despite the ubiquity and perceived importance of tax departments, we know very little about them because of a lack of available data. We overcome this problem by collecting data on tax department employees of large, publicly traded U.S. corporations from a professional networking website. Our objectives are threefold. First, we provide descriptive evidence on the individuals that work in corporate tax departments and on the characteristics of those departments. Second, we examine which characteristics of tax departments are associated with firm tax outcomes. We find that average employee experience, rather than department size, is associated with greater tax avoidance. Third, we examine employee movements between tax departments of sample firms, and whether certain movements are associated with changes in firm tax planning outcomes. We find that firms experience increases in tax avoidance upon hiring employees from more tax aggressive firms. Our findings indicate that there is substantial heterogeneity across corporate tax departments, and suggest that the human capital in tax departments plays an important role in the tax outcomes of firms.

A recent research stream has emphasized that management control systems (MCS) do not have the negative effect that has been associated with control in the traditional literature. In this change, Simons’ framework has played a preponderant role, in which the nature of the relationship between each lever and innovation is explored. However, an important aspect of the framework that has been somehow neglected from the literature is the need for balance within the four levers and the dynamic tensions that arise from their uses. In response, this study resorts to a case study approach in an innovative company to shed some light on how organizations attempt to balance their MCS packages within the four Simons’ levers concerning the innovative effort and how the dynamic tensions they create contributes to it. In the case company, interactive systems present the most visible lever use, but notwithstanding, the other three levers are also present creating tensions within them. Diagnostic and boundary systems complement each other to create dynamic tension with the combined use of interactive and belief systems. With these dynamic tensions, managers can do more than balance innovation and the achievement of financial goals, ensuring that new developments take place in fields that are profitable. On one hand, diagnostic and boundary systems reduce the uncertainty associated with these developments and, on the other hand, interactive and belief systems create the favourable environment.

The question we address is whether firms manage stock prices prior to share issuances. Prior literature largely interprets negative returns following share issuances as evidence of market timing. Other studies interpret similar evidence as firms managing investor expectations. Although these are not mutually exclusive explanations, establishing expectations management as an explanation for the returns requires that issuance timing is fixed. Warrant exercise can result in share issuances and warrant expiration dates are fixed years in advance. Thus, we use return patterns before and after warrant expiration dates to determine whether firms manage investor expectations, and thus stock prices, prior to share issuances. We find evidence consistent with firms managing stock prices to induce (prevent) warrant exercise when issuing the new shares is anti-dilutive (dilutive) to existing shareholders. Our findings reveal that firms engage in stock price management around equity issuance in a setting where market timing cannot explain the results.

The impasse of European Public Sector Accounting harmonization represents a critical point on the European agenda. By issuing Directive n. 85 in 2011, the European Commission has assumed an active role in the promotion of an international program of Public Sector Accounting harmonization. This paper aims to investigate the dynamics of the “European Public Sector Accounting Standards” (EPSAS) program, run by the Task Force of Eurostat with the goal of setting up and implementing one accounting system to be used by all the European Member States. Through the theoretical lens of institutional entrepreneurship, this study investigates the role, actions and skills of the “change actors” involved in the accounting harmonization process at the intersection between the international and national levels by focusing on the Italian case. The findings reveal the importance of the actions undertaken by the identified institutional entrepreneurs and suggest that a synchronization of strategies is necessary to mobilize national contexts towards the goal of European Public Sector Accounting harmonization.

We investigate the impact of mayors’ corruption on the size and structure of Spanish municipal budgets. The theory posits that total expenditure is higher in corrupt governments: we find it €77.08 higher per capita in our sample. Moreover, the literature predicts that mayors, as agents, will spend more on those items directly connected with corruption and bribes, rather than those items demanded by the citizens (principals). Thus, we show that total expenditure, capital, trash collection and police are higher when corruption exists. Literature predicts that corrupt mayors spend less on items that provide fewer opportunities to collect bribes: we conclude that spending on health is not higher with corrupt mayors, thus our data show that mayors are not manipulating this expenditure. Corrupt mayors spend on average 1.46 years on duty after being charged. This indicates that in Spain, sadly, resigning the mayoralty is not automatic when facing criminal charges for corruption.

This paper uses a contingency-based, case study methodology to investigate how CA measures are used to support a customer focused strategy in a global courier company and a European bank. The global courier company uses activity-based costing to measure historical customer profitability analysis (CPA), and this CPA discloses significant differences in profitability between two customer segments. However, there is only a need for CPA at the individual customer level within the strategic customer segment, due to the heterogeneity of these customers. Customers are never actually ‘fired’ on the basis of CPA, but persistently unprofitable customers may be ‘discouraged’ by notice of significant price rises. In contrast, the European bank will not measure CPA, at either segment or individual customer level, because such information will likely drive inappropriate behaviour. All staff are trained to give equally excellent service to all customers in order to support the bank’s exceptionally customer-focused brand image. Of interest is that both companies extensively use measures of customer satisfaction and net promoter score to help drive their customer-focused strategies. Staff categorise these as non-financial CA measures, and hence this paper provides evidence that, contrary to most prior definitions of CA in the literature, CA usage in practice includes non-financial customer related measures. This paper provides a revised and more inclusive definition of customer accounting.

Budgeting has been defined as Traditional or alternative. The literature has shown both methods as being competitive methods. The aim of this paper is a first attempt to look at budgeting as a framework and interconnect the different elements of budgeting together.

In this paper, we investigate determinants of leniency bias in subjective performance evaluations in a multi performance measure context as well as the cognitive processing mechanisms underlying this bias by conducting a laboratory experiment with 220 student participants in six conditions. First, based on psychological theories, we provide experimental evidence that individuating information leads to inflated, i.e., more lenient, evaluations. While evaluations of dislikeable subordinates are less inflated, we do not find evidence that leniency is fostered by ambiguity. Second, by integrating the Mouselab software in our experimental design, we show that even though aberrant performance measures receive more attention, this does not affect leniency bias. Furthermore, by empirically obtaining participants’ weighting schemes, we can also exclude adapted weighting as the mechanism underlying leniency bias. Thus, our contribution is twofold: First, we provide evidence that leniency already emerges through individuating information and only its extent is dependent on the direction of affect induced. Second, we extend accounting literature on leniency bias by showing that this bias is not driven by the cognitive processing mechanisms of attention or weighting, thus narrowing the field for potential debiasing instruments in performance evaluation.

We analyze whether tough tax enforcement generates a positive externality by lowering information asymmetry stemming from managers’ bad news hoarding activities evident in stock price crash risk. Supporting this prediction, we find a negative relation between the threat of an IRS audit and stock price crash risk. Our strong, robust evidence is consistent with recent theory that outside investors learn more about firms when corporate tax enforcement is stricter. In results consistent with another prediction, we find that the role that IRS audit rates play in constraining crash risk intensifies when firms experience worse agency conflicts arising from CEO characteristics. Collectively, our research implies that external monitoring by tax authorities protects shareholders against managers suppressing negative firm-specific information that engenders stock price crash risk, particularly when CEOs have a wider scope and stronger incentives to hoard bad news.

Teams working on collaborative tasks are a critical aspect of how organizations function, and increases in the complexity of team structures might undermine the performance of some team members. In this study, we experimentally examine whether and how psychological ownership improves judgments and communication of individual team members. We find that increasing team members’ psychological ownership improves their performance on a complex task by causing deeper information processing that improves judgments. Further, psychological ownership increases team members’ urgent communication but only when it is warranted, suggesting that psychological ownership prompts team members to communicate more effectively about the “right” issues rather than increasing communication indiscriminately. This study suggests that team structures, task framing, and other interventions designed to promote psychological ownership hold promise for improving performance and communication in teams with increasingly complex structures that might otherwise undermine the performance of certain team members.

The study explores the prediction accuracy of a P/Sales multiple - derived from the regression of transaction values on value drivers identified consistently with prior studies - in the highly standardized and homogenous context of the transfer of Small Accounting Practices. We find that the regressed P/Sales multiple significantly outperforms other multiples - often adopted as rule of thumb valuation metrics in the industry - such as simple industry harmonic-averaged P/Sales or P/EBITDA. The median absolute error is 4.70% for the regressed multiple vs 11.30% for the best alternative metric (P/Sales harmonic mean). Moreover, we observe that non-financial information specific to the context of Small Accounting Practices, namely the location in big cities, is value relevant and complements financial and deal characteristics information.

We investigate whether the dispersion of analysts’ earnings forecasts affects the extent to which firms manage earnings at year-end. Using effective tax rate (ETR) manipulation in the fourth quarter as a unique setting to examine this question, we find that firms manage earnings to a greater extent when the consensus analyst forecast is more precise (i.e., less disperse). In addition, we find that as analyst forecasts become less disperse late in the year, firms are more likely to decrease fourth quarter ETR to meet or beat the earnings benchmark. We also report that a greater proportion of firms that would have missed expectations without ETR manipulation actually meet or beat the earnings benchmark when dispersion is low. Overall, this study contributes to the earnings management literature by identifying the dispersion of analyst forecasts as an important but previously unexplored determinant of firms’ year-end earnings management activity.

The purpose of this article is to explore the production and the effects of social performance measures. We study how two organizations measure psychosocial risks. Facing a complex and uncertain phenomenon, these two organizations tried to make it more comprehensible and less anxiety-provoking by reifying it through measurement indicators. We observe the performative and counterperformative effects of these indicators, at the organizational and individual level. In the cases we observed, we show that psychosocial risk indicators facilitate the ignorance of tensions, organizational responsibility and suffering of individuals.

When the SEC started considering the potential use of IFRS for its domestic registrants in 2007, it initiated a five-year controversial debate on the desirability of an institutional change of the U.S. financial reporting system. Finally, the SEC did not decide to adopt IFRS. To make sense of U.S. actors’ strategies to enable or prevent an institutional change, we adopt an institutional theory perspective and investigate U.S. actors’ use of different forms of institutional work that followed and supported different institutional logics and either aimed at changing or maintaining the U.S. accounting system. Our findings build on a content analysis of U.S. actors’ feedback that the SEC received in the period 2007-2011. Our analysis documents a decline in the support for institutional change over time which was accompanied by a change in the prevalence of a local community logic at the expense of a global community logic. We find that institutional challengers first successfully mobilized a mixture of institutional change and maintenance strategies. Yet, institutional incumbents finally succeeded in hamstringing the change movement by establishing an ever increasing number of hardly surmountable barriers. In this context, the financial crisis – as well as shifts in the broader societal order – seemed to have affected the dynamics of the institutional change movement as well as the appeal of the two contrary community logics.

In this study we examine the practical meaning and employment of the notion of research quality in the academe. This study is inspired by a worry that the difficult-to-define notion of quality in research is potentially getting too simplistically determined by its measurable proxies, and whether academics, especially manager-academics, realise this risk, and how they deal with it. While previous studies provide relatively good visibility to the landscape of performance measurement in the university sector, we know little about how performance measurement systems (PMS) are mobilized locally, especially as to how one of the fundamental virtues of scientific work, that of quality, is perceived and managed. To examine these matters empirically, we conducted a comparative case study of two university faculties in a European country. Despite differences in the local PMS, manager-academics are found to share similar understandings of the meaning of quality in research. However, there were variations in the willingness and perceived need to exert their agency regarding how quality is operationalised. This is partly a function of how restrictive the local PMS is in terms of what constitutes desired academic performance, and the degree to which the PMS is relied upon to make judgemental evaluations of research quality. We conclude by commenting on how forces both outside and within universities are driving a more narrow understanding of what quality in research means in practice.

Recently, there has been a debate about disclosure regulation emphasising the principles-based judgement and estimation uncertainty disclosures, as required by IAS 1, and related disclosure quality that companies provide. Concerns include that companies only provide boilerplate discourses on judgements and estimation uncertainties lacking company specific information or content as well as background. Because IAS 1 (revised 2007) provides only little guidance on where and in what format to disclose information on judgements and estimation uncertainties it is at the discretion of the reporting entity whether to provide a more extensive disclosure strategy or to reduce the disclosure level to its minimum but considered as regulatory appropriate. This paper investigates the quality and determinants of judgement and estimation uncertainty disclosures in Germany. Results show that disclosure quality has significantly improved over time. Companies provided lower levels and rather box-ticking judgement and estimation uncertainty disclosures shortly after the latest amendments to IAS 1 than in the subsequent years. Further, findings suggest that the disclosure level is dependent on industry characteristics, entry barriers and group pressure. Also, results indicate that financial needs, leverage, profitability and listing status, are related to the decision to provide higher disclosure quality.

Addressing the heavily increased attention on the topic of internal auditing in the post-SOX era, the research conducted aims to ascertain the impact of internal auditing on research and the different scientific sub-areas that define it. The work seeks to extent the existing scant body of literature reviews that has focused on the topic by pursuing an empirical approach. In this context, co-citation analysis is used in combination with social network analysis in order to empirically investigate different existing research fields of internal auditing and to discover the core work that has been done in this area. The scientific landscape of internal auditing can be characterized as profoundly fragmented and deeply rooted into different areas of adjacent accounting research fields. Identified subcategories from which research on internal audit is derived can be summarized as Corporate Governance, Au- ditor Independence, Auditing Professionalization, Audit Committee Effectiveness, Reliance on Internal Auditing, Internal Control over Financial Reporting, and finally the Regulatory Framework. Additionally, results show that there exists a pivotal nucleus of research which comprises various topics that focus solely on the internal audit function. The study is limited to the analysis of major accounting journals namely The Accounting Review, Contemporary Accounting Research, Journal of Accounting Research, Journal of Accounting Economics and Accounting, Organizations and Society.

While a substantial number of studies have explored the influence of foreign ownership on business performance, little research has focused on the impact of international shareholders on the performance of firms operating as social enterprises. By using data from the global microfinance industry, this study examines the influence of international ownership on the financial and social performance of social enterprises. We use secondary data provided by third party rating agencies on 181 microfinance institutions operating in 62 countries across the globe. Our results reveal that international investors are associated with higher social performance and improved loan portfolio quality. On the other hand, MFIs with international ownership appears to have lower financial performance than their local counterparts.

The issue of the manner of disclosing information on the business model (BM) is currently one of the most important issues in modern reporting. The development of IIRC guidelines for integrated reporting indicated the key importance of such disclosures. As a result of the emergence of integrated reporting, there was a problem of disclosure of information on the BM, in particular on what to disclose and how to do it. Companies have addressed this issue in different ways, which in practice has resulted in a wide variety of forms of disclosing this type of information. Therefore, the authors have attempted to analyze how to disclose information on the BM. Firstly, it was examined whether companies disclose this type of information at all and, if so, in what form. In particular, whether the company has separated an independent chapter or sub-chapter on the description of the BM within the integrated report. Further, the method of disclosing this type of information was analyzed, taking into account the tone of the expression (positive, negative or neutral) and the type of disclosed information, whether quantifiable or non-quantifiable, forward-looking or concerning current or past events and elements of the BM according to the IIRC guidelines. For this purpose, a method of content analysis and comparative analysis was used. The article also deals with the problem of the lack of uniformity in the business model nomenclature among Polish enterprises.

This paper examines the association between corporate social responsibility (CSR) and textual attributes of financial disclosures. We rely on readability and tone ambiguity as proxies for linguistic complexity of 10K filings. We find that firms with high CSR orientation provide more readable disclosures and use less ambiguous tone in their annual reports. These findings are consistent with the notion that managers in CSR firms adhere to high ethical standards and commit to improving the transparency of their firms’ financial disclosures. Our results are robust to different measures of readability and to accounting for potential endogeneity.

The purpose of this paper is twofold. First, it aims to assess the efficiency in drinking water supply of the Spanish municipalities over 5,000 inhabitants. Second, it examines the hypothesis that this efficiency is conditioned by a group of environmental variables. In contrast with moni-toring reports based on descriptive methods, this paper uses the Double Data Envelopment Analysis (DEA) bootstrap procedure to investigate efficiency determinants. Our results show that there is a positive effect of population density on the level of efficiency in the public service covered by our study. Moreover, we find that the most tourist municipalities are more efficient at managing water supply service. Our findings also suggest that when the provision of drinking water is managed directly by the local government the level of efficiency is higher. Finally, we do not find a significant impact of the citizens’ income level, ideology and political strength on the level of efficiency in drinking water supply.

This study analyses the impact of the regulation related to the civil liability of auditors in Europe and its impact on the level of fees paid by European firms. The originality of this study is that it focuses on the regulatory aspects, which are generally ignored by previous research. The diversity of regulations that govern statutory audits in 14 European countries provides us with the opportunity to analyse how auditors’ liability regulation affects audit fees. For a sample of 4,293 European firms, our main results show that, in addition to classical determinants of audit fees (auditor reputation, investor protection, firm size, leverage, audit risk…), the auditors’ liability regulation impact audit fees significantly. Fees are higher when the auditor’s liability is based on tort law, and unlimited.

While the implementation and diffusion of Value-Based Management (VBM) has sufficiently been examined in management accounting research, little is known about the abandonment of this management accounting system (MAS). Hence, our study investigate the factors influencing the (de-) institutionalization and abandonment of VBM. Organizational characteristics and their impact on the abandonment process are considered by analyzing, if they lead to a change of internal focus promoting the de-institutionalization and abandonment of a value-based management approach. Our research is empirically analyzed by using data of 1,855 firm-year observations from a European sample between 2000 and 2016. After controlling for various possible confounding effects, our results indicate that diversification and capital-intensity reduce the probability of VBM abandonment, whereas the increasing amount of mergers and acquisitions as well as top management team turnovers having a significant impact on the abandonment. We additionally find that financial expertise on board of directors strengthen the institutionalization of VBM and hence lessen the probability of an abandonment.

Say on Pay (SOP) gives shareholders the right to vote on executive ompensation. Unlike in a number of other countries, SOP is not prescribed by regulation in Canada, although more and more firms are now adopting this practice voluntarily. The benefits for firms that voluntarily implement SOP have been little documented from an empirical perspective. This study addresses this issue. Results suggest that the voluntary adoption of Say on Pay is positively related to higher long-term executive compensation and that SOP vote results appear negatively related to the rise of executive compensation.

The purpose of this study is to explore the patterns of BM reporting in Swedish companies over time and to analyze the role of in the development of these patterns. Motivation for the focus on BM is its alleged key role in integrated reports and its ability to reflect organizations entire value creation process. The study discusses BM, as framed by and a wider research perspective, by using Maas et al.’s (2016) framework that is connecting the internal performance improvement perspective (PIP) with external accounts of this value creation, the transparency perspective (TP). The paper rests on a disclosure study with a mostly quantitative approach in combination with minor qualitative elements. To examine patterns and trends, we investigate the seven years period 2010-2016 where we focus on 300 annual-, sustainability-, combined- and integrated reports from the largest companies listed on the Swedish Stock Exchange. The findings reveal three patterns of BM reporting, non-coupling, loose-coupling and strong-coupling the internal (PIP) and external (TP) perspective. Most companies providing integrated reports appear to have started a development of communication practices that have their roots in the IR framework (IIRC, 2013). The patterns of BM reporting in the reports overall demonstrate that the fulfilment of integrated reporting requirements, in the future, might experience the above articulated stages. Results might differ depending on industry domain.

This paper investigates whether firms with aggressive tax planning strategies have less readable financial reports, in an attempt to confuse outsiders about the underlying tax risk. In theory, tax-planning increases firm value through tax savings but can lead to a discount if applied too aggressively. Therefore, managers have an incentive to obfuscate their aggressive tax planning activities. One means of doing so is to make financial statements less readable and thus make risky tax planning activities more difficult to interpret for outsiders. Consistent with the information-based agency problem perspective of complex financial statements, we find a robust positive relation between financial statement readability and various proxies for tax aggressiveness. We further show that the association between financial statement readability and tax aggressiveness is weaker after the installation of Schedule M-3, a regulatory requirement for a detailed reconciliation of book income to tax income intended to make firms' aggressive tax planning activities more apparent to the Internal Revenue Service (IRS). Collectively, this evidence suggests that managers apply complex financial reporting strategies when the benefits of hiding tax aggressive policies exceed the costs, but rely less on obfuscation through such complexity when the benefits of obfuscation attempts are small.

We examine the economic consequences of the presence of organized crime in the private sector. Using a novel and original database of Italian firms, we develop and test two competing hypotheses about the relation between organized crime and firm financial policy, i.e., money laundering hypothesis and liquidity hypothesis. We find that firms with at least one director, whose criminal record displays potential involvement with criminal organizations (i.e., tainted firms), are used for money laundering purposes, thereby showing lower levels of cash holdings. We further explore the economic consequences for tainted firms, and we find that they are more likely to file for bankruptcy, show higher levels of cost of capital, and are more tax aggressive than non-tainted firms. Results from this study are informative to regulators, policy makers and politicians, interested in preventing the pollution of criminal organizations in the legal economy.

We examine whether readability and tone of corporate annual reports are associated with audit pricing decisions. A unique dataset drawn from annual reports of non-financial firms listed on the Australian Stock Exchange for the period from 2002 to 2014 is generated using textual analysis. We find that annual report readability—where longer reports are regarded as less readable—is inversely associated with audit fees, and annual reports with a more optimistic tone are associated with reduced audit fees. The effect of negative tone on audit fees tends to increase as readability of the annual report decreases, suggesting that both attributes of the annual report influence auditor’s risk assessment. Overall, the findings suggest that linguistic attributes of annual reports matter to the auditor.

In this paper, we compare the financial reporting quality of co-operative firms and private stock corporations in Germany. Both types of firm typically have a relatively large number of owners, but profit maximisation is not a primary goal of co-operatives. Co-operative firms must be run by their owners; in contrast, ownership and control may be separated in stock corporations. Owners of co-operative firms are generally held liable for the firm’s liabilities with their private assets; this is not the case for shareholders of corporations. We therefore expect agency problems of equity and debt to be less severe in the case of co-operatives. As a result, we expect – and find – that co-operative firms generally exhibit lower financial reporting quality (FRQ) than corporations, as measured by timely loss recognition, income smoothing and the propensity to avoid reporting small losses. However, high levels of debt may urge stock corporations, more so than co-operatives, to additionally target information needs of creditors and to meet debt covenant requirements. Consequently, in the case of highly leveraged firms, stock corporations and co-operatives differ less as regards FRQ.

The private equity market in large economies has outperformed other key asset classes. In this study, we investigate the role of segment data in selecting target companies by private equity investors. The aim of the study is to examine a matched sample of targeted and non-targeted Australian listed companies and identify whether segment accounting data is value relevant to private equity bidders when they decide to select target acquisitions. In this study we use the extended Ohlson model to capture the market impact of the segment data. We find that segment data is value relevant for all firms in our sample. When we disaggregate our sample into targeted versus non-targeted firms we find that the explanatory power of the model for targeted firms has higher explanatory power and the segment variables are highly value relevant for the targeted firms. Our study contributes to the scant literature on disclosure issues surrounding targeted companies and also the segment disclosure literature. The research is timely as standard setters have recently issued an exposure draft on segment reporting to improve presentation and disclosure (IASB, 2017).

Several studies have noted that public sector accounting harmonization through IPSAS or accrual-basis accounting enhances the information quality and citizens’ participation. Accordingly, we expect that more and better information improves the decision-making process, which affects the government effectiveness, namely governance. This study aims to investigate how public sector accounting harmonization affects the quality of governance by using a sample of 33 OECD countries in 2010–2014. Our findings highlight the relevance of IPSAS implementation to enhance good governance.

Prior literature on the effects of financial reporting regulation show that outcomes vary predictably with legal institutions. However, evidence on how relatively minor differences in legal rules translate into major economic outcomes remains scarce. This paper examines the association between inputs and outputs of institutional enforcement design and heterogeneity in the intensity of financial reporting enforcement in the European Union (EU). We find that enforcer incentives are incrementally important to legal institutions in explaining enforcer intensity, suggesting that enforcer incentives are an important mechanism for regulatory effects. Countries where individual country institutional design choices provide enforcers with relatively high discretion are more likely to the use a deterrence enforcement strategy. We infer the importance for regulation of the manner in which legal institutions are used, rather than the law per se, by showing incremental effects of enforcer incentives to the rule of law for both enforcement strategy and enforcement outcomes as measured by compliance cost. We interpret these findings that consistent implementation of legal institution -in addition to strenght of legal institutions- determines the effect of financial reporting regulation. Our results illustrate how accounting harmonization under disparate prior conditions can lead to divergence of financial reporting outcomes through enforcement intensity.

This study focuses on knowledge management and entrepreneurs’ perceptions in terms of knowledge sharing, the use of financial statement information and how these impact on their strategic business judgments and decision choices in innovative SME firms. Using a strategic decision making process model we test our assumptions regarding entrepreneurs´ knowledge routines implemented by non-Gazelle companies in strategic business decision. Combining survey data and financial data from a unique archival database we test our propositions on Swedish SMEs. The results of the structural equation analysis implied that non-Gazelle companies are propelled primarily by non-financial information captured by the expertise of managers and investors. Traditional financial information does not include entrepreneurs´ decision making however, the results indicate that entrepreneurs risk awareness is reported as a part of the frame why entrepreneurs´ make decisions.

We use Latent Dirichlet Allocation (LDA) topic modeling algorithm to analyze Codes of Conduct of S&P 500 firms in order to introduce a novel measure of Chief Executive Officer (CEO) fraud aversion. This measure reflects the CEO’s personal belief on the importance of anti-fraud communication within the firm. The presented method allows us to estimate CEO fraud aversion index without directly observing it. We find a negative association between the CEO fraud aversion index and the firm fraud tolerance level based on subsidiaries locations.

We compare the earnings quality of private and public firms. Prior evidence is mixed and inconclusive as to which is greater. The research question is important, because it examines whether market demand for high quality reporting or managerial opportunism dominates in determining public firms’ quality. We focus on organizational structure, because stakeholder demand for earnings quality and tax related incentives for earnings management differs between business groups and stand-alone firms, and public companies are structured as business groups, whereas private firms are business groups or stand-alone entities. Based on a comprehensive sample of 11 European Union countries from 2004–2014, we find that public firms have higher earnings quality than private firms overall, but when we compare public and private business groups, private firms are higher. Our results imply that opportunism trumps demand in determining public firms’ earnings quality and reconcile the inconclusive results in the literature, which are driven by not separating stand-alone from business groups in the analysis.

This paper examines the effect of disclosure regulation on the market for corporate control. We exploit the implementation of the Transparency Directive of 2004, which imposed on European public firms tighter disclosure requirements in periodic financial reports and major shareholdings notifications. We find a substantial drop in the number of control acquisitions after the introduction of the regulation, a decrease that is concentrated in countries with lower pre-levels of acquisition costs. We also find that takeover premiums are higher and acquirers’ stock returns at the acquisition announcement are lower under the new disclosure regime. Additional analyses show that the documented patterns appear to be driven by the tightening of the disclosure requirements for major shareholdings. Overall, our evidence suggests that tighter disclosure requirements can impose significant acquisition costs on bidders and thus slow down the market for corporate control.

Since 2015, Italian public universities have been obliged to adopt accrual accounting with accrual financial reporting documents, including the Management Commentary (MC). Contents for MC are not defined by law in details, so, apart from a minimum set of information, universities can decide what to disclose. From the assumption that the adoption of a new accounting system represents a change of language –a different way to ‘construct reality’– and not a mere technical issue, this paper aims to investigate the contents of the MC at public universities; first, by comparing them with the year-end narrative documents based on traditional public accounting, and then by verifying whether contents vary according to certain variables. The results of the content analysis highlights that the attention paid to financial resources has decreased during the transition from traditional public accounting to accrual accounting and that there are positive correlations between forward-looking information and size, debt sustainability, and central government funds of universities.

On one hand, Brazil’s universities and national development agencies (CNPq and Capes), among others, have encouraged the internationalization of scientific production in English. On the other, the English language has come to be considered the lingua franca of science by the hard sciences and increasingly by the area of accounting as well. This study aims to the objective to identify and analyze the characteristics of English publications made by Brazilian graduate professors in Accounting. We have investigated the publications of 346 professors in 26 Brazilian Graduate Programs in Accounting over a period of 17 years. The results show that the publishing of papers in the English language has grown over the years. However, the focus of these Journals has been broad, diverse and of low impact. There has typically been a lack of papers by Brazilian researchers in top journals and/or journals which are specifically dedicated to the area of accounting.

This study uses an experimental context to compare the results obtained from two well accepted scales that have been designed to measure stable personality traits - the Hurtt Professional Skepticism Scale (HPSS) and the Rotter Interpersonal Trust Scale (RITS). Our findings indicate that HPSS and RITS measures of skepticism and trust, respectively, vary by case presented and order of measurement. Both scales may have components that are sensitive to states rather than being pure measures of traits. Also, HPSS and RITS do not appear to be substitutes for one another, as the RITS does not behave as the inverse of the HPSS across cases and orders of administration. Lack of trust (the inverse of RITS) does not appear to be synonymous with skepticism as measured by the HPSS.

Abstract This study aims at exploring whether internal audit (IA) is connected with the firm of the selected auditor (Big4 and Non-Big4). It includes a research analysis in order to determine the choice of auditor firm through internal audit disclosure. For this reason we use of text mining techniques as a tool to exploit a large amount of accounting information in annual reports. The results show that there is a strong relationship between internal audit disclosure (terms, N-Grams), as they are presented in the annual reports, and the choice of auditor’s firm. It also highlights the role of internal audit and its relation with external audit. The results extend prior research and deepen our understanding of the determinants of the auditor firm selection. Practitioners and Regulators may find this information useful in an effort to “persuade” governments and officials to revise their laws. At the same time, accounting firms will be motivated to re-examine their procedures so that a high-quality audit work is ensured. Keywords: internal audit disclosure, text mining, auditor selection, big4 accounting firms, auditing companies, internal audit.

Using a sample of European listed companies, we examine the relation between corporate environmental disclosure and analyst forecast accuracy. To measure the quality and magnitude of environmental corporate disclosure we construct a disclosure index based on both the Global Reporting Initiative (GRI) guidelines and the environmental key performance indicators defined by the European Federation of Financial Analysts (EFFAS). Our evidence shows that forecast accuracy increases with the extent of environmental disclosure. However, when making a distinction between hard and soft disclosure, we find that soft disclosures are more effective in enhancing forecast accuracy. Additional tests provide evidence that environmental disclosures are especially useful to analysts when the firm is structurally opaque or environmentally sensitive, and when shareholding is widely dispersed.

This study posits that, in the absence of extensive mandatory regulation, board strength and stakeholder engagement play significant roles in explaining variations in sustainability reporting quality (SRQ) and the underlying corporate sustainability performance (CSP). In addition to these direct effects, we also explore the potential indirect effects of these corporate governance (CG) mechanisms on SRQ via CSP because SRQ and CSP are interrelated constructs. Using a panel data set of Dutch firms, our results show that the CG mechanisms positively affect SRQ, while CSP is negatively related to SRQ. The latter finding provides support for legitimacy theory, suggesting that inferior sustainability performers adjust their reporting behavior by adhering to more reporting standards, rather than by directly improving their CSP. The results also indicate that stakeholder engagement is positively related to SRQ via CSP in the longer term, suggesting that active stakeholders, over time, may drive companies toward more sustainable business conduct.

In this paper, we explore the encroachment and entrenchment of accounting logics and technologies in social work through a case study of three English local government children’s services departments. Our paper bridges the gap between two important strands in the literature. The first strand highlights the way in which New Public Management (NPM) ideas, principally represented by the ascendancy of accounting notions of efficiency and control, is becoming more widely adopted by many advanced country governments around the world faced with financial and political pressures to be more vigilant with the public purse (Olson, Humphrey, and Guthrie 1998; Guthrie et al. 2005). Such pressures have been exacerbated by the 2008-09 financial crisis as government borrowing has greatly increased to fund deficits. The second strand draws attention to the frictions generated when calculative logics intersect with the caring ethos of professions such as health and social work. Our study thus aims to illuminate, in the under-explored area of social services, the interactions between accountants, accounting technologies and the social work managers and front line workers as they adapt to an economic climate with increasingly scarce resources. In particular, we seek to understand how ideas and instruments of accounting are being used in this managing process and its subsequent implications/consequences on the system of social care for children and on professional social workers.

This study is motivated by the International Accounting Standards Board’s (IASB) staff findings on practice issues related to IAS 12. These issues include a fundamental re-think of the balance sheet method under IAS 12 and a question over the usefulness of IAS 12 disclosures. IAS 12 states that the recognition of deferred tax should be related to future tax payments. We therefore examine the ability of alternative deferred tax methods to predict future tax payments. We use the adoption of International Financial Reporting Standards in New Zealand to examine the income statement method (pre-IFRS) and the balance sheet method (post-IFRS adoption) of deferred tax allocation. The results show that taxes payable (or the flow through) method results in the lowest prediction errors regardless of the tax allocation method. Furthermore, the disclosure of the components of temporary differences, as required by IAS 12, has no predictive power. The paper discusses policy implications of these findings.

The process of having supervisors discuss, compare, justify, and potentially adjust their subordinates’ performance ratings in a meeting with their peers is referred to as peer-level calibration. Calibration committees are widely used, and promoted as a “best-practice” by many consulting firms. Other professionals, however, are less positive about the calibration, which has led to an ongoing debate. We inform this debate by examining the effectiveness of peer-level calibration. Specifically, we examine the main proposed benefits of peer-level calibration: 1) increased amount of information used to determine ratings, 2) increased consistency in applied rating criteria, and 3) elimination of rating bias. As predicted, our results indicate that calibration increases the amount of information used and the consistency in applied rating criteria. Our inferences related to bias are less straightforward. Although through calibration the performance ratings meet the organization’s desired distribution, which arguably suggests that calibration limits supervisors’ ability to be lenient, we find evidence that specific supervisors are still able to provide their subordinates with higher, more lenient ratings. That is, we find evidence of supervisor specific incentive-driven bias. Thus, our results indicate that calibration has clear benefits but that it does not solve all problems inherent to subjective performance evaluation.

This study examines enterprise risk management (ERM) implementation in non-financial firms and focuses on different risk management practices that are deployed in an ERM program. As non-financial firms have different risk management requirements as compared to highly regulated financial firms, certain types of organizations may find their equilibrium at lower levels of ERM implementation and with a different set of risk management practices. Using cluster analysis to classify firms based on their formal risk management practices, I identify four configurations (packages) of ERM components. These configurations allow profiling the companies based on firm-specific, industry-specific, and environmental characteristics that are derived from considerations about costs and benefits from ERM implementation, firm heterogeneity, governance regimes, and regulatory requirements. This study contributes to ERM literature by addressing the question about what types of organizations implement ERM, and shedding more light on the internal structure and patterns of ERM practices in non-financial firms dependent on their context. The research is based on survey data obtained from 121 non-financial companies.

We empirically analyze the benefits associated with the costs of accounting-related services in 18 European countries. We use the revenues earned from accounting-related services as an estimate of compliance costs and explore whether the cross-country and temporal variation of these costs is associated with benefits for firms (e.g., in the form of lower corporate tax burdens) and/or the public (e.g., through increased earnings quality). Prior studies focused on audit and non-audit (e.g., tax advisory) fees paid by listed companies. Our dataset also includes SMEs and individuals. Empirical results indicate increased spending on accounting-related services is related to decreasing earnings quality, as measured by accrual-based earnings management and real activities management. However, we find no evidence that companies use discretionary spending to decrease their effective tax rates indicating that accounting services are primarily used to comply with tax laws. Country-level governance mechanisms partially mitigate this relation. Differences in the quality of financial reporting and tax regulation do not alter the benefits from accounting-related services. We attribute these results to an increased demand in accounting advisory services to identify avenues for earnings management and tax planning. Additionally, either the advisory effect of accounting regulation supersedes the effect of audits, which should restrict earnings management, or companies demand accounting services to smooth earnings for tax purposes.

The main objective of this paper is to analyse the association between female representation in the audit committee (AC) and the quality of the voluntary information disclosed by Spanish firms. Moreover, this paper examines whether the role of women is moderated by the busyness of the AC and the intensity of its activity. A theoretical approach based on the agency theory and economic sociology theories is employed to justify why women in the AC may lead to better disclosure practices. Our sample is composed of Spanish listed firms in the Madrid Stock Exchange for the period 2012-2015. Our results highlight that there is a positive association between gender diversity in the AC and the quality of the voluntary information disclosed by firms, which results in greater transparency and relevance. In addition, the busyness of the AC negatively moderates the influence of female AC members. These findings extend the academic debate on the benefits obtained from having women serving on the AC. Given the importance of voluntary disclosure in capital markets, and its potential benefits for firms, understanding the relationships between gender diversity in the AC and the quality of information disclosure would help regulators and owners to implement adequate corporate governance mechanisms. Our evidence also contributes to the ongoing debate concerning the need to also take into consideration the context in which women work in order to better understand their influence.

It is an open question whether auditors have credible incentives to exercise professional skepticism. We focus on costly skepticism (i.e., skepticism that is appropriate and generates incremental costs, but does not identify a misstatement), which is essential in high-pressure settings but typically unrewarded by audit supervisors. We theorize and find that rewarding costly skepticism may backfire and decrease skepticism on subsequent audit tasks where evidential red flags are present. We reason that auditors interpret the reward as a non-credible, better-than-expected outcome, leading auditors to view subsequent tasks from a risk-averse gain frame. As a result, auditors self-interestedly seek to avoid the risks and effort of exercising additional skepticism. This effect decreases auditors’ sensitivity to red flags and auditors’ willingness to inform their manager about severe red flags, compromising audit quality. Encouragingly, auditors who have experienced a history of rewards for costly skepticism are more motivated to exercise skepticism. A survey finds that audit supervisors are likely to reward costly skepticism when their own supervisors encourage the behavior and promote consultation within the team. Overall, our results suggest firms may benefit from a culture shift emphasizing credible rewards for costly skepticism, but that firms currently may not “get what they reward.”

This paper examines whether short-sellers have a preference to engage in transactions with target firms that indicate a higher operational complexity than non-targeted firms. Having access to information on short-selling transactions with information on the short-sellers’ identity and the targeted firms on a transaction based level, it is possible to differentiate between different groups of short-sellers (e.g. hedge funds, banks). Moreover, one can divide the short-sellers into groups of investors with different geographical locations. The analyses indicate a preference for complex target firms in the sample. The paper further investigates whether this preference only exists for certain investor groups. Using a binary choice model, I find that targets are generally selected upon profitability, the existence of institutional ownership and a high complexity score. Complex targets are also more likely to be targeted by hedge funds. After accounting for the frequency of transactions across investor groups, complexity remains a significant firm characteristic in the sample. Results indicate that different groups of short-sellers seem to prefer different firm characteristics, implying potential differences in these different investors types’ information needs with regards to the target firms.

I investigate the impact of mandatory reporting and auditing of firms’ financial statements on industry-wide resource allocation. Using size-based reporting and auditing requirements for limited liability firms in 26 European countries, I document reporting regulation, mandating a greater share of firms in an industry to disclose a full set of financial statements, fosters a competitive and dispersed type of resource allocation in product and capital markets, but does not unambiguously improve the efficiency of resource allocation. By contrast, I find auditing regulation, mandating a greater share of firms to obtain a financial-statement audit, imposes a net fixed cost of operating on firms, deterring entry of smaller firms. I do not find any other effects of auditing regulation on industry-wide resource allocation in my setting. My findings suggest reporting regulation substitutes a transactional type of resource allocation based on public information for a relational one based on private information. This substitution, however, fails to spur economic growth. With respect to firms’ auditing, my findings suggest it lacks significant industry-wide externalities compensating for firms’ costs of mandatory auditing.

This paper examines the value to stakeholders of integrated reporting. Integrated reporting (<IR>) has attracted attention as a new form of corporate reporting since the International Integrated Reporting Council (IIRC) was formed in 2010. There have been calls for research in how the principles of <IR> have been applied by organisations (de Villiers, Venter, & Hsiao, 2016, Humphrey, O’Dwyer, & Unerman, 2016). This paper analyses documentary evidence from integrated reports and interviews with stakeholders from one organisation, and applies legitimacy theory to understand their different experiences. The results indicate that the adoption of <IR> was seen by internal stakeholders as an example of pragmatic legitimacy at a time of organisational uncertainty. Subsequently, they saw the potential of <IR> and integrated thinking to provide benefits to the organisation although the benefits were yet to be realised. The external stakeholders also viewed the adoption of <IR> as evidence of pragmatic legitimacy and they were interested in the change in reporting structure, but this had little effect on their view of the organisation. Further, they considered improvements in comparability were required. The results from this paper contribute to the growing evidence on the adoption of <IR> by organisations globally. The results can assist the IIRC as they engage in developing <IR> and other organisations considering adopting the framework.

Regulations and major stock exchanges require public firms to disclose their adoption of a code of ethics that includes formal whistleblowing procedures. Formal whistleblowing policies guide employees through the ethical decision-making process and promote reporting unethical behaviors. However, there has been limited guidance on the design of whistleblowing policies, and prior research calls for investigations of the design and implementation of effective internal whistleblowing policies. Through a whistleblowing procedures framework, we performed a content analysis of 50 whistleblowing policies to analyze the content characteristics and linguistic characteristics of public firms’ whistleblowing policies. Results of this study identify trends and patterns within whistleblowing policies. Key findings include that firms prefer employees to report to their supervisor, however there is little discussion of supervisors’ responsibilities after receiving reports. In addition, the use of uncertainty words is highest when companies describe disciplinary actions in response to wrongdoing. Further, readability analysis suggests that companies’ whistleblowing policies are difficult to read and sections relating to investigation procedures, wrongdoer disciplinary actions, and anti-retaliation policies are relatively more difficult to read than the rest of the policy content. We discuss implications for firms with the aim of improving the effectiveness of stated whistleblowing procedures.

The paper explores how commercialization of audit firms relates to individual well-being of auditors. Drawing on conservation of resources and social identity theories, we predicted that commercialization of audit firms would enhance auditors’ subjective well-being in its overall happiness and job-related dimensions. We further argue that this relation will be contingent on whether auditors are employed in Big 4 or non-Big 4 audit firms. We tested our hypotheses-based data from a survey of 166 Swedish auditors. The results suggested that auditors feel best at the workplace characterized by increasing commercialization. We also found that the positive relationship between commercialization and subjective well-being is stronger for auditors working for one of the Big 4. These findings provide support to the notion of normalization of commercial orientation within the audit profession in general while highlighting the differences between Big 4 and non-Big 4 firm auditors in their experience of commercialization.

We examine the value of investor relations (IR) in a cross-country setting. We posit that the marginal benefit of investment in IR is greater in civil law countries relative to common law countries, where capital market institutions are generally more developed and tailored to a more diffuse ownership structure. Using a large panel of survey-based annual IR rankings of German and U.K. companies, we find that IR quality exhibits a stronger positive (negative) association with Tobin’s Q, cost of capital, information asymmetry and uncertainty in Germany. The results are robust to a difference-in-difference design around the implementation of stronger transparency and governance standards in Germany (BilMoG). Overall, the evidence suggests that in a common law country like the U.K., IR is a more competitive environment with lower marginal benefits relative to a civil law country like Germany.

Do multinational groups exploit their capital structure in order to obtain tax benefits that stand alone domestic firms cannot obtain? I test theoretical predictions about the effects of corporate taxes and the multinational group structure using a new dataset mapping the entire corporate group structure of a large sample of European multinationals. I identify three distinct effects. First is the local income effect, corresponding to the standard trade-off theory. Second is the substitution effect, predicting that an increase in foreign tax rates leads to a decrease in domestic leverage. Third is the global income effect: in multinational groups the holding companies can provide capital and extend guarantees to firms lower in the hierarchical structure, reducing the probability and cost of bankruptcy, therefore allowing higher leverage. The three effects have conflicting signs, and I show under which circumstances each effect dominates in response to changes in foreign and domestic corporate tax rates. I also discuss the policy implications of these results.

I suggest improvements to existing accrual prediction models. Prior literature uses models designed to explain how working capital accruals map cash flows from operations into earnings and how this mapping reflects accounting conservatism. However, with the exception of fixed asset depreciation, accruals associated with noncurrent balance sheet accounts are typically not modeled, leading to a large proportion of these accruals that is deemed abnormal. I show that these unmodeled accruals have grown in importance over time and that a significant portion of them can be predicted by utilizing a fundamental property of accrual accounting : most noncurrent assets and liabilities will eventually be expensed as accruals, especially during bad times. I propose an augmented model that has significant incremental explanatory power.

Target ratcheting involves deriving target levels for the next period by adjusting current performance data. The practice of target ratcheting can evoke dysfunctional behavior, such as the ratchet effect, the phenomenon of employees strategically withholding effort in anticipation of future upward revisions of their targets. Prior research has mainly considered the existence of the ratchet effect and explored how it affects firm performance. We extend this stream of research and investigate determinants that could enhance or mitigate the ratchet effect. Using a unique dataset from a survey among bank employees, we observe that risk aversion, intra-organizational competition, and job insecurity are positively associated with the ratchet effect. Furthermore, we predict and find that target participation and career ambitions are negatively associated with the ratchet effect. Collectively, our findings suggest that firms should be aware that the ratchet effect can differ systematically.

Our study’s objective is to shed light on the `black box' of corporate tax risk handling. We argue that the driving forces behind a firm's tax risk handling style are key determinants of the eventual tax risk a firm faces and of potential accompanying consequences, which may arise from corporate tax risk exposure. Thus, understanding what drives corporate tax risk handling style is crucial, but requires knowledge of within-firm dynamics, which prior archival studies on tax risk have not been able to gather. Drawing from semi-structured interviews with 42 tax risk experts (e.g., tax directors and executive board members of German DAX and M-DAX firms, tax consultants, regulatory body representatives), we aim to fill this gap by developing a theoretical model that explains the emergence of different tax risk handling styles among firms. Our results suggest that most of the tax department's tax risk handling efforts are concerned with setting up a `shield' that protects the executive board from impinging external pressures. We find that the executive board is directly exposed to three types of external pressure: public, peer, and regulatory pressure. Our theoretical model indicates that varying external pressure strength, management focus, and the occurrence of short-term corporate frictions during the implementation of the protective shield can lead to variation in corporate tax risk handling styles.

The purpose of this paper is to feed the debate as regard to investor reactions to auditor opinions containing a Going Concern Opinion (GCO’s). The topic is reinforced taking into account that other financial reporting events close to GCOs releases could affect stock market returns as well. According to the prevalent literature we individuated in the Yearly Earnings Announcements (EA) the more important co-founding event. Using the event study methodology (ES), focusing on short event windows, we detect whether there is an immediate market reaction to these two events, as might be expected assuming efficient stock markets. For the robustness of findings we used two different tests known in the ES literature. The results achieved shedding a light on the negative impact of both GCOs and EA on stock market returns. To isolate the weight of each effect per se, we propose two additional event studies dividing the total sample between firms/observations when the EA follow the GCOs from those firms/observations where the EA are released before. We found that negative effects on stock returns are mainly due to EA. Notwithstanding the two tests used, to better isolate the effects it would be appropriate specifying a different market model and relaxing the assumption of constant volatility of Abnormal Returns (AR) implied in all considered tests. This study, have a multilateral usefulness for auditors, investors, regulators and academics.

In its relaunched proposal for a Common Consolidated Corporate Tax Base (CCCTB), on October 25th 2016, the European Commission (EC) introduced the idea to give taxpayers an allowance for growth and investment (AGI) according to which increases in their equity result in a notional interest deduction. Obtaining real tax return data from the Belgian Government we are able to simulate the AGI system into the Belgian corporate tax system in tax year 2013. Moreover, as Belgium applies a traditional allowance for corporate equity (ACE) system, this unique research setting enables to analyse the differences between a traditional and incremental approach. On the aggregate level, our simulation results show that introducing the AGI system result in a revenue gain of 75.37% compared to a traditional ACE system. To be budget neutral, the corporate tax rate of 33.99% applicable in tax year 2013 can be lowered to 19.35%. At the firm level, our analysis shows the heterogeneous distribution of the impact across the sample. We find that replacing the notional interest deduction (NID) by the AGI system especially harms very large firms. Furthermore, profitability, (the change in) the equity ratio and firm age seems to be important determinants of the difference in the effective tax burden between the AGI system and the Belgian corporate tax system in tax year 2013.

We examine whether the social norms that institutional investors are exposed to in their home locality affect their willingness to support corporate social responsibility (CSR) activism in other parts of the US. We find that the shareholdings of non-local institutional investors from localities with strong CSR norms are positively related to the likelihood that a firm is targeted by a CSR-related shareholder proposal, the percentage of votes cast in favor of that proposal, and the likelihood that the proposal is ultimately successful. Our results are robust to a variety of alternative specifications. Further, we find that these relations are stronger if the target firm is located in an area with weak CSR norms. Thus, our results suggest that non-local institutional investors are influenced by the social attitudes they face at home, and these local norms can affect their support for CSR activism aimed at investees outside their home region. In particular, institutional investors from areas with strong CSR norms can act as a conduit for promoting better CSR practices, especially for investees located in areas with weak CSR norms.

This paper investigates the impact of voluntary International Financial Reporting Standards (IFRS) adoption on financial reporting quality (measured by earnings quality: EQ) of unlisted companies. Using a large international sample (3,284 unique entities and 25,984 firm-year observations) of EU companies and a methodology that takes into careful consideration selection bias, we find a positive relationship between EQ and IFRS adoption, affected by the level of investor protection of countries and firms’ reporting incentives. More precisely, we observe that IFRS have a positive impact on EQ in countries with a weaker investor protection but no effect in institutional settings with stronger institutions. We also find that EQ improves only among companies that are not subsidiaries of EU listed entities, which can simplify the group consolidation process by imposing the use of the same GAAP to all of the companies belonging to the group. Finally, additional analyses highlight EQ enhancement only a few years after IFRS adoption.

The purpose of this paper is to design and propose a new measurement methodology for social services transparency in municipalities. The methodology includes an empirical study in the municipalities of Spain. The need for a transparency culture in concrete areas of the municipalities is explored. Based on the information published in the 38 Spanish municipalities’ websites, the paper performs an experimental quantitative study using a multivariant analysis. The municipalities chosen for the research were those that contained the most population, disclosed a higher quantity of information on and easier access to their website. The paper’s conceptual framework is organized by combining both the Spanish legal context and the bibliography review, based on the latest transparency models. The research proposes a new methodology to measure transparency in municipalities (TAYSS), taking into account the social services information published on the websites that the citizens have access to. Factors considered include the degree of ease and time consumed by citizens when accessing the website. This research leads to interesting conclusions, both for public sector researchers and practitioners in Spain and Europe. Some conclusions indicate that transparency continues to be difficult to reach, information is not as accessible for the citizen as expected, and that differences appear among the municipalities – something that can be explained through the legal changes implemented over the last years.

The practice of offshoring audit work to lower wage locations has become increasingly prevalent among Big 4 professional services firms and represents a significant shift in financial audit practice. Yet, we have limited knowledge of how offshoring has been legitimized as a new way of undertaking audit work, particularly how key actors effect the institutionalisation of offshoring within these firms. This study, which draws on an in-depth case study with audit practitioners in a Big 4 professional services firm, investigates how offshoring became institutionalised within the firm. We mobilise the concept of institutional work to theorise this process. Our study offers evidence of both a failed and a successful attempt at embedding offshoring in audit. It highlights the fluctuating influence of different forms of boundary creation work in these attempts and how boundary creation and boundary spanning work interacted as the change process unfolded. The paper enhances our understanding of how integration between local and offshore audit teams evolves to safeguard audit quality. We uncover a willingness to accept certain levels of inadequacy in the offshoring process in the expectation that the overall quality of audit work will eventually improve. Finally, the paper unveils discrepancies in the claimed changes in audit assistants’ roles and calls for more research focusing on these role changes as offshoring becomes further embedded in audit practice.

There has been a significant worldwide movement to adopt International Financial Reporting Standards (IFRS) which are more principles-based compared to many of the more rules-based national accounting standards which they replaced. There has been limited research on how auditors respond to this type of change in the reporting environment. Specifically, we develop an experiment to test the joint effects of principles-based versus rules-based accounting standards and the strength of the financial regulatory regime on auditors’ evidence demands. We manipulate the type of accounting standards (principles-based, rules-based) and the strength of the financial regulatory regime (stronger, weaker) in a between-subjects experiment using Chinese auditors. We find that auditors are likely to have more evidence demands and more diagnostic evidence demands under principles-based accounting standards. This influence is more pronounced under the stronger financial regulatory regime. The US has not adopted IFRS standards, so conducting this research in a major country where IFRS standards are being used does provide important evidence on the reaction of auditors in this type of environment. The fact that auditors are collecting more and higher quality evidence where there are principles-based standards and strong regulation shows that auditors are playing their part in ensuring quality financial reporting outcomes as IFRS standards are implemented around the world.

This study investigates peer firms’ responses to SEC’s explicit accusations of compensation issues in the Accounting and Auditing Enforcement Releases (AAERs). Examination of Fortune 500 firms subject to AAERs between 1992 and 2013 reveals that peer firms redesign their CEO compensation following such releases, manifested in significant decreases in CEO discretionary pay-for-performance sensitivity and sensitivity from CEO newly-granted equity holdings relative to control firms. Compensation redesigns are concentrated in peer firms with excessive pre-enforcement CEO equity incentives. I also find that fraud firms named in a compensation-mentioning release (CMR) are 633 percent more likely to be dropped from the compensation peer group than those named in a compensation-not-mentioning release (non-CMR). The findings suggest that peer firms use information from AAERs in their compensation design, indicating a potential channel for the deterrence effects of SEC enforcement actions.

We examine whether physical attractiveness of sell-side financial analysts affects their information acquisition and job performance. Based on ratings of photos of 2,328 Chinese financial analysts, we find that physical attractiveness is positively associated with the accuracy of analysts’ earnings forecast and the informativeness of their stock recommendations. The superior performance of attractive analysts is likely attributable to their information advantage; More attractive analysts are more likely to update stock recommendations prior to the announcement of significant corporate news, and their corporate site visits are more informative to investors. We argue that the information advantage of attractive analysts is likely due to the physical attractiveness stereotype, in which firm managers perceive attractive analysts as having more desired qualities even though this may not be the case. Consistent with theories of stereotypes, we find that increased reliance of managers on financial analysts, strong monitoring by institutional investors, and familiarity with analysts all help reduce managers’ stereotype and hence the superior forecast performance of attractive analysts.

Using a sample of 20,583 US firm-year observations that represents more than 3,000 individual firms over the period of 1995 to 2015, we investigate the link between employee treatment and labor investment efficiency. We argue that firms reduce information asymmetry by signaling its ability to honor implicit claims via employee-friendly treatment policies and predict that firms with better employee treatment performance have higher level of labor investment efficiency. Our empirical results confirms our prediction. We find strong and robust evidence that firms with more employee-friendly practices have lower level of abnormal net hiring. Moreover, we find employee treatment concerns distort normal labor hiring and specifically lead to underinvestment in labor, thus lowering firms’ labor investment efficiency. Finally, we find employee-friendly treatment facilitates higher labor productivity and profitability whereas abnormal net hiring reduces labor productivity and profitability. Taken together, our findings high- light the important role of employee treatment in contributing to firms’ investment behavior and value creation.

This paper explores how fiscal pressures induced by an economic crisis shape the role and interactions with management control practices. Drawing upon case study evidence, the study demonstrates that the volume, detail and frequency of budget information being collated intensified, the significance of operational information declined and the focus of the activity information altered. In addition, the findings reveal how management at different hierarchical levels adopted defensive mechanisms in order to cope with the fiscal crisis, signifying the absence of a contagion effect. The study suggests that the strategies adopted, while initially successful in eliminating organisational slack, may also have induced harmful side effects. The provision of disaggregated budget information aligned with internal structures would have permitted budget information to be used in a more flexible manner and allowed individuals to consider the implications of their decisions. This study provides value to practitioners and researchers in that it offers valuable insights about management control outcomes in a hospital context.

This study addresses the question of how accounting reliability is constructed and justified in practice. By paying attention to the translations and trials of strength (Latour, 1987) of the accounting numbers, three movements that takes the numbers through obligatory points of passage are identified and described. The three centres of calculations identified in this way betray three different, and yet all empirically important aspects of accounting reliability. Interestingly, these aspects are different from the aspects identified in other empirical accounts, where other types of accounting numbers are analysed (and empirically important). This underlines how accounting reliability is not a singular (or set of) predefined qualitative criteria inherent in well prepared accounting numbers. Instead, accounting reliability, suggests the results of this investigation, are best understood as statements about the different movements of the process of translation that leads to the construction of accounting facts.

Strategic change in public sector organizations – especially in the form of increasing infiltration of ideas and practices emanating from the private sector – has been well documented. This paper argues that accounting and other calculative practices have only been accorded limited roles in extant accounts of public sector strategic change initiatives. This paper suggests that public management research would benefit from a greater appreciation of how calculative practices are deeply imbricated and constitutive of organizational life. In turn, the paper argues that the field of interdisciplinary accounting has much to learn from public administration, especially in terms of leadership. The overarching argument is that understanding strategic change in public organizations can be enhanced by bringing together insights from the academic fields of Public Administration and Interdisciplinary Accounting. This is particularly the case where an accounting innovation is central to a strategic change programme. We illustrate this thesis through a case study of strategic change in the world’s largest public service broadcaster – The British Broadcasting Corporation (BBC). It is shown how, during the tenure of one organizational leader – John Birt, accounting technologies increasingly territorialized spaces, subjectivized individuals, was used to mediate between the organization and the State, and permitted adjudication on what was efficient and value for money within the organization and what was not.

We exploit the staggered introduction of CPA Mobility provisions in the U.S. to study the effects of spatial licensing requirements on the labor market for accounting professionals. Specifically, we examine whether removing licensing-induced geographic barriers affects CPA wages, employment levels, and the quality of the professional services provided. We find that, subsequent to the adoption of CPA Mobility provisions, wages of accounting professionals decrease by 1.1% on average. The documented effect on wages is more pronounced for states with lower supply of CPAs, for early-adopting states, and for CPAs holding senior positions. Moreover, we assess whether increased wage pressure is associated with deteriorating service quality and find no supporting evidence. Overall, our evidence is consistent with the idea that the removal of occupational licensing barriers increases the elasticity of labor supply. Our findings inform the current regulatory debate on occupational licensing.

This paper reviews social and environmental disclosures (SED) carried out by the 100 companies included in the Corporate Reputation Business Monitor, MERCO Business for 2016, during the period 2014-2016. The research objective was to analyse these disclosures both from the point of view of the quantity of information disclosed and the references about their quality, which constitutes a novelty with respect to previous literature. For the above reason, the methodological design included the construction of a weighted index based on two unweighted indexes related to the quantity revealed and the quality detected. Our results show that the quantity-quality SED index stands at an average value of 66.3 pages, a value that comes from the combination of the average SED quality index, 55.4%, and the average SED quantity index, 119.5 pages. While SED are considerable from a quantitative point of view, that is, there are many being carried out, they do not reach very high levels of quality, which is good to counteract the final value of the quantity-quality index that we propose. Likewise, there is a negligible reduction in the indices calculated during the period studied. This study involves an important advance in the identification of the relative quality of SED, opening a new line of research that will be key to comparing this type of disclosures in a more homogeneous way among specific studies in this topic. Likewise, these results will be of interest for future actions aimed at regulating the improvement of the quality of social reporting in the hands of managers, investors and regulators.

In 2010, the Securities and Exchange Commission (SEC) issued an interpretive guidance regarding material climate change risk disclosures. However, managers still enjoy a significant discretion to decide on the level of compliance with the guidance due to lack of enforcement by the SEC and the absence of consensus on the materiality of climate-related risks. This paper investigates the drivers that motivate firms to comply (or not) as well as the specificity of their disclosures about material risks related to climate change under a mandatory reporting regime. Our empirical analysis is based on a sample of S&P 500 firms over the period 2013–2016 and 10K textual climate-related disclosures from the CERES Sustainability Disclosure Tool. We find that firms disclose information about their material climate change risks in response to legitimacy threats except for specific climate change risks as these disclosures may supply relevant information to investors on firms’ risk exposure. While the SEC guidance has enhanced corporate compliance with climate-related risk disclosure requirements, the quality of such disclosures remains limited.

This paper reports from a study of four pension reforms in Sweden over the last century. The paper tests the dominant idea that pension systems as well as accounting technologies are a part of the neoliberal influenced financialization of the private sphere. Although corroborating the proposition about financialization, the paper suggests that programs such as financialization is temporal because they are challenged by obligatory points of controversy. These obligatory points of controversy recur over time as issues that pension systems need to handle with decisions and calculations. The study finds that the obligatory points of controversy, however, are never solved because they interact and are in flux. In Sweden, the three controversies that are repeated are the discussion of demography, finance and ideology. These three issues forces the decisionmaker to answer such issues as “what is it to be Swedish?”, “can we afford this?” and “what is our idea of involvement between of the state/the private sector?”

We investigate the effects of credit default swap (CDS) trading on customers on management forecasts by the supplier firms. We find that firms which derive a greater proportion of their revenue from CDS-referenced customers tend to lower forecast issuance, suggesting that enhanced information revelation in customers’ CDS market decreases suppliers’ disclosure benefits, creating a disincentive for managers to issue forecasts. We further find that this effect manifests for good news forecasts, but not for bad news forecasts, because of the litigation risk associated with withholding bad news. Our results are robust to a variety of sensitivity tests that control for potential self-selection in CDS-referenced customers, and our results strengthen when we focus on supplier firms which themselves are not referenced by CDSs. Our findings add to the literature examining the externality effects of CDSs on corporate decisions of entities outside of those directly referenced by CDSs.

Globalization, changes in business structures and the economic environment entail changes in management compensation packages and challenge the widely used corporate income taxation (CIT) system of Separate Taxation (ST). For instance, within the framework of CCCTB, Formula Apportionment (FA) is proposed as an alternative to ST within the EU. Further, changes in management compensation packages demonstrate an increasing trend for work-related perks as incentivization tools. This study aims at analyzing how these trends in management compensation and CIT affect the optimal composition of compensation packages in multijurisdictional entities (MJEs), which have remained disregarded in international taxation. For this purpose a standard principal-agent setting is used. The outcomes of the model show that, under ST, the optimal composition of compensation packages depends on the tax deductibility of perks and CIT rates, which has a proportional decreasing effect on the principal’s total surplus. In contrast, the outcomes show that under FA the optimal packages depend additionally on the factors used for tax base allocation as well as on the impact of a perk on these factors. This means CIT under FA does not only impact the amount of the variable payment and perk provided, but also the kind of perk offered as well as the manner it is financed. So, FA, esp. with payroll as the sole allocation factor, provides an important tax planning tool for the principal or MJEs.

In this paper, we analyze the most relevant relationships between budgetary stability, the Municipal Financing System (SFM) and social expenditure policies, as fundamental pieces to define the level of Corporate Social Responsibility (CSR) that can be assigned to Spanish municipalities. We have started from the budgets of the 9,500 municipalities and other local Spanish entities, presented to the Spanish Court of Auditors in 2014, and available on the website of the Ministry of Finance. Based on this information, we developed a database (more than 1,500,000 records, big data, treated by data mining techniques) to perform an exploratory analysis of the most significant factors explaining the relationship between budgetary stability, financial sufficiency and sustainability of welfare policies. Based on the above and the level of budgetary expenditures in the Basic Public Services programs (EA1) and the Social Promotion Protection Actions program (EA2), we propose two indicators to measure the level of CSR attributable to each municipality. The main findings of our research are summarized in three conclusions: that municipalities with budget deficits prioritize the reduction of their debt with financial institutions while delaying payment to their suppliers; that the relationships between the income and expenditure policies of each municipality have a direct impact on their level of CSR; and that, using a logit probability model, the hypothesis according to which the CSR of the municipalities can be explained by the size of their population and the way in which they are financed, is confirmed.

We investigate the extent to which quantitative adjustments made by credit rating agencies (CRAs) are incrementally useful in explaining credit ratings and whether the extent of this incremental usefulness varies across countries. We find that financial ratios that incorporate CRA’s analytical adjustments (adjusted ratios), on average, have a greater explanatory power for credit ratings decisions than unadjusted ratios (reported numbers from financial statements). However, the incremental usefulness of analytical adjustments varies across countries and with different institutional factors. Specifically, we observe that this incremental usefulness is greater in countries with higher corporate disclosure transparency and lower value relevance of accounting information. In further analyses, we find that legal origins and IFRS adoption do not exert an influence on the usefulness of adjustments. Overall, these findings provide insight into how quantitative accounting adjustments affect credit rating decisions in an international setting.

New requirements for the reporting of KAMs is one of the most significant changes to audit reports in the last four decades. This study examines the effects of client pressure and client’s financial condition on auditors’ judgements to report KAMs. The results indicate that, when presented with a mix of equally significant positive and negative KAMs, there is a tendency to report more negative than positive matters in the auditor’s report. There is also a tendency to report negative before positive KAMs. Furthermore, the study finds that client pressure not to report negative KAMs has a significant effect on auditor judgement. Specifically, auditors who face high client pressure present fewer negative KAMs compared with auditors who face no client pressure. Finally, the study suggests that, due to auditor concerns with litigation risk, the findings indicate that auditors with clients in poor financial condition would report more negative KAMs than auditors with healthy financial condition clients. The findings are significant to national and international auditing standard-setters, accounting firms, and those who rely on audit reports.

Recent reforms in auditor reporting standards motivate examining the relationship between audit partner tenure and the nature and quality of disclosures of Critical or Key Audit Matters (KAMs). This study reports Taiwanese data (n = 1,378 companies) that results from recently expanded auditor reporting requirements related to publicly held companies. Results indicate that audit partners with longer tenure disclose more risk information (measured by the quantity and the length of KAMs). In addition, we find that client complexity affects risk disclosure readability and that audit partners’ client-specific experience does not improve report readability. Our study contributes to the auditing literature by examining audit firm reports resulting from new Taiwanese reporting regulation regime in Taiwan. Specifically, the results suggest that client complexity and audit partner tenure influence auditor reporting. These findings, which suggest that regulatory changes may lead to unexpected implementation effects, are of interest to audit firms, regulators, investors, and academics.

This paper analyzes the impact of labor unionization on monitoring costs. Our findings show that monitoring costs are significantly higher in unionized firms. We demonstrate that the more complex industrial relations structures which characterize unionized firms increase monitoring risks and corporate costs. We further show that monitoring agents consider political ideology supportive to labor unions as enhancing relevant costs. Additionally, we demonstrate that monitoring costs are lower in the presence of employee share ownership. We conclude that labor unionization increases the costs of monitoring agents; a burden which is amplified or mitigated based on the structure of industrial relations.

This study examines whether key subordinate executives have the incentive and ability to constrain CEOs’ earnings management behavior during their tenure as CEO. In contrast with the mainstream U.S. results in the literature concerning the potential for using discretionary accruals and real activities manipulation jointly to manage earnings, our results suggest that discretionary accruals and real activities manipulation are partial complements for earnings management, and that their magnitudes are determined simultaneously. We also document that that CEOs have incentive to increase earnings in the early years and the final year of their service, presumably to favorably influence the market's perception of their ability as well as protect their reputation. Using the number of years to retirement and their compensation relative to the CEO’s to capture subordinate executives’ incentives and influence within the firm, respectively, we find that CEOs are less likely to use accrual-based earnings management and real activities manipulation to increase reported income in the early years and the final year of their service in firms with stronger internal monitoring. These results are robust to different sample specifications.

This study investigates how company secretaries influence board practices and financial reporting. The company secretary traditionally is a sub-board role, with administrative responsibility over firms’ records and reporting. More recently, this position is operationalized inn combination with other executive functions, such as Chief Financial Officer (CFO) or legal counsel. We propose that joint company secretary/CFOs place more emphasis on financial reporting quality, joint company secretary/legal counsels place more emphasis on financial reporting compliance and company secretaries of multiple companies schedule fewer meetings. Using 4,997 firm-year observations of listed companies during 2004-2013, we find that joint company secretary/CFOs hold more audit committee meetings and are associated with less earnings management and a greater likelihood of a clean audit opinion. Companies with joint company secretary/legal counsels are more timely filers and company secretaries of multiple companies schedule fewer committee meetings. These results indicate that company secretaries have a significant influence on board practices and financial reporting, with the type of influence dependent on the role and busyness of the company secretary.

Using a unique hand collected sample of 1509 short-run trading tips, we examine the information content of this new analysts’ product and its association with long-term research output. We document that analysts prefer to provide short-run trading tips for firms with better performance and greater investor interest. Short-run trading tips are incrementally informative, conditional on existing stock recommendations. We also find that favorable (unfavorable) short-run research is associated with more favorable (unfavorable) stock recommendations in the long-run, also resulting in greater market reaction to upcoming recommendation changes. Results are consistent with short-run price estimates being associated with more informative recommendations’ changes.

This study uses a more direct measure of corruption and quasi-natural experiments to investigate the impact of government’s fight against corruption on accounting information quality of listed firms in China. We focus on municipal-level top government officials that are corrupt (corrupt officials) and their affiliated firms, i.e., listed firms operating in the jurisdiction of corrupt officials. As the arrests of corrupt officials occur as shocks to the public, we treat these events as quasi-natural experiments. We argue that listed firms affiliated with corrupt officials that have top positions in the municipalities have low incentives to provide high quality accounting information before the investigation of these officials, and supply higher quality of accounting after the event. Using a difference-in-difference method and a propensity score matching approach for the control firms, we show that accounting quality of affiliated firms is higher after the arrest of corrupt officials than before the event, compared to control firms. The increase in accounting quality is greater when corrupt officials have more power and affiliated firms have stronger political connections. Finally, we examine the channels affiliated firms use to improve accounting quality and find that they switch to higher quality auditors, have better internal control, and issue more management forecasts.

Under SFAS 159, U.S. firms have the option to measure debt liabilities at fair value, which results in unrealized gains and losses from debt valuation adjustments (DVA) when a firm’s own credit risk changes. Critics have raised concerns on the counterintuitive net income consequence of DVA, namely, when a firm’s credit risk increases (i.e., bad news), debt values decrease and resulting DVA gains increase the firm’s income (i.e., good news). Prior research posits that the counterintuitive income effect of DVA is attributable to incomplete fair value accounting for the asset side of the balance sheet. Specifically, DVA gains or losses are not properly offset by opposite fair value adjustments of unrecognized intangible assets (UIA) in income. In this paper, we examine market valuation reactions to DVA gains and losses, conditioning on the level of UIA. We first develop a model to demonstrate the mitigating effect of UIA on the relation between equity returns and DVA. Using a sample of U.S. bank holding companies during 2007–2013, we show that while the association between equity returns and DVA is positive when the level of UIA is low, the association decreases and turns from positive to negative with increased levels of UIA. Our findings suggest that the market appears to understand the offsetting relation between DVA and changes in UIA fair values resulting from a firm’s own credit risk change.

We regard accounting regulation as a politico-economic institution and analyze its evolution in a dynamic voting model. We show that, as long as the society sufficiently cares about the future, accounting regimes are intrinsically persistent with self-regenerating interest groups. While a high-disclosure regime is immediately stable, a low-disclosure regime also settles into a steady state after some rounds of adjustment. Further, we show that a high-disclosure regime is robust to deviation, as no interest group has incentives to change. In a low-disclosure regime, however, the regulator can induce a transition by committing to a future high disclosure quality. This commitment will gain the support of even unsuccessful businesses, whose control of the economy resulted in the status quo in the first place. These results are consistent with the observed development of accounting regulation. Perhaps most importantly, we show that accounting policy tends to evolve in the direction of higher efficiency.

We examine whether managerial ability affects the accuracy of environmental capital expenditure projections of the environmentally sensitive industries (ESI). Prior studies examined and found that firms in the ESI manipulated their projected environmental capital expenditures as a tool to achieve corporate legitimation. Some studies in that stream of literature also indicate that human interactions are needed to understand how some firms decide to disclose environmental financial information. However, the considerable difficulty of accessing key individuals to these firms prevent researchers from examining how human ability impacts the disclosure differences. In order to bridge this gap, we draw on the literature of managerial ability as proxy to study the latent human element behind firms’ different disclosure practices in the ESI. Also, following Chen, Chen, and Patten (2014), we examine the impact of a significant accounting event of SOX on managerial ability to study whether SOX had a positive impact on managerial ability and, in turn, improved firms’ projection accuracy. Finally, based on Baik, Farber, and Lee (2011), we investigate whether firms with complex operations and financial reporting affect their projection errors. We find, overall, that managerial ability is negatively correlated with firm’s projection errors. It appears that the higher the managerial ability the less projection errors were made in the annual 10-Ks. Furthermore, results appear to suggest that SOX has a positive effect to improve managerial ability and, in turn, less projection errors. Finally, firms with complex operations and financial reporting appear to make less projection errors than their counterparts with less complex operations and financial reporting procedures. These results suggest that higher managerial ability has a positive impact to reduce a firm’s overall environmental capital expenditure projection errors.

A stream of literature examined and found that firms in the environmentally sensitive industries (ESI) manipulated their projected environmental capital expenditures as a tool to achieve corporate legitimation. Results in these studies indicate that human factors such as managerial heterogeneity may affect the quality and accuracy of how environmental financial information is disclosed. However, whether managerial heterogeneity is a determinant in different corporate environmental financial disclosures has largely been assumed, yet not investigated. Due to the inconclusive results of prior literature examining the impact of managerial heterogeneity on corporate financial disclosure and reporting quality, This study postulate three possible outcomes that managerial heterogeneity may have (1) no, (2) a negative, and (3) a positive effect on corporate environmental financial reporting quality. Managerial ability defined in prior literature is used to proxy for the managerial heterogeneity to test its effect on corporate environmental financial disclosure and reporting quality in the ESI. Results indicate that firms with higher managerial ability have higher environmental financial disclosure and reporting quality. The results showed that human factors are a determinant of corporate environmental financial disclosure and reporting quality as prior studies suggested indicating a positive correlation between managerial ability and the quality of corporate financial reporting.

There has been a growing trend in accelerated share repurchases (ASRs) in the last decade. In an ASR, a firm commits itself to repurchasing a specified dollar amount of shares through an investment bank during a pre-agreed period, with a substantial number of shares instantly delivered on the ASR inception date. I predict that firms have incentives to maximize ASRs’ benefits of immediacy and enhanced credibility and minimize their opportunity costs by using press release management to deflate stock prices prior to ASRs. I find that firms increase the coverage of their negative press releases during the pre-inception period. Moreover, I find that firms use press release management prior to ASRs in a manner that best aligns with their ex ante motivations for ASRs. Press release management prior to ASRs appears to be successful in deflating pre-ASR stock prices, and the market does not appear to see through the earlier press release management at ASR announcements.

Prior literature suggests that insider trading profitability increases with the extent of information asymmetry between insiders and outsiders. Corporate governance mechanisms can be used to mitigate the information asymmetry between shareholders and managers. Using 28,587 sample observations from year 2001 to year 2014, we find that firms with an audit committee that possesses accounting and finance expertise have a lower degree of insider trading profitability than firms without a financial expert on the audit committee. Because the corporate information environment plays an important role in mitigating governance-related agency conflicts among managers, outside directors, and shareholders, we also incorporate a measure of information cost. We find that as the cost of acquiring information increases, the negative relation of audit committee financial expertise with insider trading profitability is moderated.

In 2011 when Basel III was released, the Chinese Banking Regulatory Committee (CBRC) issued a corresponding regulation (Chinese Basel III). It provides new rules for capital adequacy and loan loss provision ratios, and thus may have an impact on the earnings quality (and earnings management incentives) of Chinese banks. This study examines this issue. We also test whether different types of banks experience divergent impacts from Chinese Basel III. As far as we are aware this is the first study to include regional banks in any analysis of earnings quality (earnings management). This study is based on a sample of 682 bank-years from 2008 to 2015. Evidence is found that earnings smoothing exists in Chinese banks and Chinese Basel III reduces this incentive. There is no difference between national and regional banks. The results support the capital management hypothesis and Chinese Basel III encourages this. In addition, the new regulation has divergent effects on national and regional banks. The study indicates that Chinese banks shift their incentives in “earnings management” since they implemented Chinese Basel III. There is no difference between city and rural banks, at least in terms of the metrics used in this study. That conclusion challenges the popular belief that small rural banks engage in this behaviour in a more pervasive manner than the large city banks that are subject to more attention.

The announcement of share repurchases has been interpreted as a positive signal from managers. However, several studies find that managers intentionally mimic signaling to mislead investors. Since managerial mindset is invisible to investors, this study proposes using earnings quality as an indicator of managerial mindset. The results show that compared with low-quality firms, high-quality firms are more likely and frequent to announce share repurchases and conduct block share repurchases during the buyback period. Moreover, high-quality firms result in better operating and stock performance over two-year period following the repurchase announcement. The results support that earnings quality connects to managers’ motivation behind share repurchases. For high-quality firms, the announcement of share repurchases acts as a positive signal because it indicates managers’ favorable outlook on future performance.

This study examines the idiosyncratic risk effect on corporate credit risk from the perspective of the coexistence of strength and concern in corporate social responsibility (CSR) activities by employing American bond observations from the years 2003 to 2013. Empirical results of this study show that the coexistence of strength and concern in CSR activities (CoSC_CSR) significantly and negatively relates to corporate bond yield spread when controlling for CSR performance and other variables of firm characteristics and bond features. In addition, the CoSC_CSR effect on bond yield spread is mainly through the channels of a firm’s incomplete information, asset volatility, and profitability, which constitute the core components of structural credit models. Moreover, the empirical results also show that the CoSC_CSR effect becomes weaker when a firm has higher CSR performance or higher market share. Finally, our results remain hold when considering endogeneity issues.

We investigate whether rating teams have specific effects on credit ratings. Our study is motivated by the fact that credit risk analysis of credit rating agencies begins with assigning rating analysts to an analytical team, which normally comprises of two individual analysts. Using a sample of credit ratings issued by Moody’s Investor Services from 2001 to 2012, we find that team matters and that team fixed effects are incrementally greater than individual analyst fixed effects in explaining credit rating decisions. We further show that team fixed effects are associated with several of analyst’s demographic characteristics, including gender, the length of rating history with clients, industry expertise, firm coverage, and job title. Additionally, our analyses report that team fixed effects are greater when rating teams are faced with higher information uncertainty. Finally, our results indicate that team characteristics are associated with rating bias. Specifically, a rating team with more industry experts is negatively associated with optimistic and pessimistic credit ratings while a team with two analysts having longer rating history with clients is positively related to rating optimism. Overall, our findings suggest that team assignment of analysts is not trivial because a rating team with a balance of analysts’ interests and backgrounds produces higher quality of credit ratings.

This study investigates the effect of managerial sentiment on corporate disclosure decisions. Using terrorist attacks in the United States as adverse shocks to managerial sentiment, we find that firms located in the attacked metropolitan areas issue more negatively biased earnings forecasts. The effect is stronger when 1) firms face high operating risks, 2) firms have inexperienced and less confident CEOs, and 3) explosive weapons are used in the attacks. In addition, affected firms shorten forecast horizons as pessimistic sentiment induces the appraisal of uncertainty. Finally, firms in the attacked areas exhibit a more pessimistic tone in their 10-K/10-Q filings. Our main findings are robust to the exclusion of 9/11 attacks and a battery of robustness tests.

This paper investigates the effect of employee stock options (ESO) on the behaviour of labour unions, specifically their decision to initiate strikes. By exploiting the unique setting of union elections in US firms, we employ a triple-difference specification and find that firms offering high levels of equity incentives to their employees are exposed to significantly lower likelihood of union strikes. We interpret this moderating effect of ESO on the post-unionisation strike risk as evidence consistent with ESO playing an important role in realigning the interests of organised labour with those of their employers following the unionisation event. Consistent with the interest realignment conjecture, additional tests using both difference-in-difference (DID) and regression discontinuity design (RDD) present strong and robust evidence that firms strategically grant significantly more option incentives to employees in response to the increased strike risk due to unionisation. The increase in option incentives is more pronounced in non-right-to-work states, where labour unions enjoy stronger bargaining power than those in right-to-work states.

This study empirically examines the relation between the difficulty level of CEOs’ internal performance targets and corporate risk taking. We predict a U-shaped relation between target difficulty and corporate risk taking such that firms exhibit higher risk taking when performance targets are very easy or very difficult and lower risk taking when target difficulty is medium. Using recently available data on performance targets in CEOs’ annual bonus plans in 2,477 firm-year observations, we find results consistent with our hypothesis. Our results are robust to alternative measures of target difficulty, alternative measures of risk taking, and alternative research specifications. Cross-sectional analyses reveal that the U-shaped relation between target difficulty and risk taking is more pronounced when CEOs have less equity incentives and are less powerful. We contribute to the target setting literature by providing the first archival evidence on the relation between target difficulty and corporate risk taking. The prior literature on executive compensation and corporate risk taking has focused exclusively on executives’ equity incentives. We complement this literature by providing evidence on the impact of performance targets in annual bonus plans on risk taking.

We investigate whether firms’ foreign country exposures to legal and institutional, political, and cultural factors, which are known to affect firms’ operations, investing decisions, and financial performance, are associated with the properties of analysts’ forecasts. Using a sample of U.S.-based internationally diversified firms, we find that firms’ exposures to country-specific factors including weak enforcement environment and high political risk in host countries are associated with large consensus forecast errors and dispersion. There is also weak evidence suggesting that firms’ exposures to large culture difference in the dimension of power distance between home and host countries are positively associated with forecast errors. This research suggests that investors should exercise their vigilance while using analysts’ earnings forecasts for firms that have higher dependencies for revenues from foreign countries with weak enforcement environment and high political risk.

This study explores the impacts of incentive contracts on the creative process and the resulting creativity of a design job. Using an eye-tracking device to track the designers’ eye movements during an artwork design task, we found that designers working under a piece-rate plus competitive bonus plan allocated more effort to the idea generating process than designers under a piece-rate minus penalty for defectives plan. We also found that the effort allocated to idea generating and the intensity of the effort devoted to design improvement are critical for producing creative designs. In contrast, the effort allocated to the design evaluating process contributes to product quantity, but cripples design output creativity. The findings of this study suggest that properly-designed incentive contracts can increase employees’ creativity by directing their efforts towards the idea-generating process in a creative task.

we adopt a new measure of investor divergence of opinion derived from analysts’ conditional forecasts revisions and analyze the relation between divergence of opinion and M&A related target characteristics. We find the new measure of divergence of opinion is negatively associated with takeover likelihood, positively associated with takeover completion likelihood and negatively associated with cumulative target abnormal announcement returns. Our evidence also suggests that the new measure is superior to traditional measures of divergence of opinion. Finally, we argue that cumulative target abnormal announcement return contains a value-creating component and a takeover premium component and the former dominates the latter.

Integrating transactional stress theory (Lazarus and Folkman, 1984) with attributional process (Weiner, 1985), this study investigated the role of a manager’s controllability attributions on the relationship between top-down(TD)/bottom-up (BU) rolling budgeting and job performance. The controllability attributions refer to whether a cause is under the volitional control of an individual. We argue that relative to BU approaches, TD rolling-budget approaches in the issuance of guidelines, the development of the budget proposals, and the negotiation of final budgets all are more positively associated with managers’ controllability attribution, which are in turn positively associated with higher levels of job performance. Field-based survey data from 102 managers in solar industry in Taiwan provides support for our prediction that controllability attribution mediates the relationship between rolling-budget approaches and job performance.

This study examines whether a country’s electoral system and culture are associated with earnings management (EM). Consistent with the ideas developed by Pagano and Volpin (2001, 2005) that countries with proportional electoral systems (PES) have lower investor protection than countries with majoritarian electoral systems (MES), we find that countries with PES are associated with higher EM, proxied by signed abnormal accruals after controlling for macro-economic factors. Similarly, consistent with Hofstede’s (1980) model of national culture and findings of prior studies we document that individualism is positively associated with EM while uncertainty avoidance is negatively associated with EM. However, in additional tests we show that both culture and electoral systems jointly affect EM; the higher EM in individualistic countries is exacerbated (weaker) in PES (MES) countries, while the negative association between earnings management and uncertainty avoidance is weaker (stronger) in PES (MES) countries.

The purpose of this study is to examine the effect of family succession on cost of bank loan and nonprice contractual terms. Using a unique dataset from China, we find that lending banks are more likely to charge higher interest rate and tighter contractual terms, such as maturity of loans and collateral requirement for second-generation family firms. This indicates that information risk and default risk may arise after subsequent family succession. However, we find that second-generation family firms can reduce their cost of bank loan through engaging in top-tier auditors or connecting politician relationship to enhance credibility of financial reporting or possible future bailout from Chinese government.

Team members often have private information about each other's input and output. A team manager can elicit information from team members to accurately assess their performance and to fairly reward them. This study experimentally investigates whether stipulating the type of information to be communicated (i.e., individual input or output) affects the motivation of team members to expend efforts and whether such effect depends on the timing when team members are informed about the type of information to communicate (i.e., ex ante vs. ex post, relative to team members'effort decisions). We predict and find that eliciting input information relative to output information increase team members'effort when team members are informed about this policy ex ante. Contrary to our expectation, results show that eliciting input information relative to output information reduces effort when team members are informed about this policy ex post. Our results suggest that if employees know about the type of information to communicate ex ante,managers can improve the effectiveness of information communication in teams by eliciting input information rather than output information.

This study aims to analyze the consequences of R&D capitalization in customer-supplier relationships. Specifically, we examine the effect of firms’ R&D capitalization on customer-supplier relationships from two perspectives: trade credit and relationship continuity. Using a sample of U.S. software firms from 2001 to 2012, we document a negative relationship between a firm’s R&D capitalization and trade credit. We also use duration analysis to investigate the association between R&D capitalization and customer-supplier relationship continuity, and find that an increase in capitalized R&D is associated with longer relationships. These results suggest that firms that capitalize R&D costs are perceived by customers as having future advantages, which thus induces customers to settle accounts payable more quickly and are more willing to continue the business relationship.

Prior research examines several reasons why managers voluntarily disclose information, but provides relatively little evidence as to whether day-to-day operational decisions influence a manager’s disclosure choice. In this study, we examine whether a particular operational activity – risk management through the use of derivatives – affects whether a manager decides to issue earnings forecasts. Using a large hand-collected sample of derivatives users and non-users, we find that derivatives users are more likely to issue earnings forecasts relative to non-users. We then find that this result is stronger when the use of derivatives makes it less costly for managers to issue forecasts and to meet or beat those forecasted earnings. Interestingly, however, we find no evidence that managers provide these forecasts when investors are more likely to demand them. Overall, our results suggest that operational decisions can influence management forecast policy, but only when these decisions make it easier for the managers to predict future earnings. This study thus provides evidence that voluntary disclosure has a role, but with limitation, in helping investors understand the complexity of derivatives.

We examine the impact of managerial ability on overinvestment. We find that a firm hires a manager with superior ability significantly mitigates overinvestment problem because of excess free cash flow. Furthermore, overinvestment is not necessary to bring negative effect to firm value, and it should depend on managerial ability. A manager with higher ability may over invest some objectives which are still profitable.

In recent years, corporate social responsibility has become an increasingly important topic for academic research and been formally adopted by organizations as a key function. Some companies in Taiwan have been recognized for demonstrating such positive outcomes; however some negative examples seem to increase over the time, such as environmental safety and food safety issues. The purpose of this study is to investigate how the positive and negative disclosure activity of corporate social responsibility affects the relation between future earnings and current stocks return. Employing future earnings response coefficient methodology, we find that positive CSR disclosure activity improve the informativeness of stock returns on future earnings whereas negative CSR is associated with stock prices that are less informative about future earnings. This research provides some corporate social responsibility assessment for capital markets, and also serves as a reference to policy makers or management when making decisions about corporate social responsibility.

This study is to examine the effect of audit support systems on audit quality. Audit firms can ensure compliance with auditing standards and their firms’ audit methodology, enhance risk management, and facilitate knowledge sharing among audit personnel within firms using audit support systems. On the other hand, adopting audit support systems may be associated with threats of inappropriate use such as overreliance on systems, mechanistic behavior, working backward and working around systems. We are uncertain whether adopting audit support systems actually improves audit quality. To address the empirical issue, we conduct a study of the audit support system used at one Big 4 audit firm in Taiwan. We document that audit quality is higher when audit support systems are adopted. We also find that firm-level non-specialists or novice audit partners benefit more from adopting audit support systems in improving audit quality. However, there is no evidence that the association between adopting audit support systems and audit quality is moderated by auditor tenure.

Using a hand-collected sample of U.S. multinational firms’ foreign and domestic cash holdings, we evaluate the association between changes in foreign and domestic cash and one-period ahead future earnings. Because the changes in the cash holdings are components of cash flows which itself is a component of current period earnings, a higher coefficient on the change in cash components is interpreted as higher earnings persistence. In contrast to the common belief that accumulating cash in foreign subsidiaries is suboptimal, we find that changes in foreign cash are as persistent for future earnings as changes in domestic cash. We further document that foreign cash changes are more persistent when foreign operations offer better growth opportunities and when repatriation taxes are lower. Next, we investigate whether investors efficiently price the earnings persistence implications of changes in foreign and domestic cash. Our results suggest that investors under-react to positive changes in foreign cash. Further, we find that investors’ under-reaction to positive foreign cash changes is more pronounced when foreign growth is higher and repatriation taxes are lower. Overall, our evidence suggests that retaining cash in foreign subsidiaries, on average, does not lead to lower future earnings. Our finding that investors under-estimate the persistence of positive changes in foreign cash is consistent with calls for more transparent disclosure on foreign cash and foreign operations.

This study investigates the change in the relation between corporate credit ratings and R&D expenses. Using U.S. firms with a credit rating from 1987 to 2013, the empirical analysis shows that the negative relation between credit ratings and R&D expenditures has become weaker over time. We also provide empirical evidence that the positive relation between R&D expenditures and earnings volatility for sample firms has become weaker. Thus, rating agencies seem to understand the change in the association between R&D expenditures and uncertainty and have modified their rating standards related with R&D expenditures accordingly. Additional results suggest that the weaker negative relation between credit rating and R&D expenditures in later years is unlikely to be attributable to the change in sample composition, the recognition of intangible assets and the change in the profitability of R&D expenditures.

Taking the inability of shareholders to observe managerial actions as a given, agency theory suggests that tying CEO pay to firm performance mitigates agency problems. Using the adoption of SFAS 131 as improvement in corporate transparency, we examine how a change in the observability of managerial actions affects a pay-performance relation in CEO compensation designs. SFAS 131 requires firms to define segments as internally viewed by managers, rendering managerial actions in internal capital allocation more observable to external shareholders. We find that the sensitivity of CEO pay to stock performance is significantly reduced after the adoption of SFAS 131 for firms affected by the standard. Also, we find that such a reduction is more pronounced for (1) firms with lower CEO ownership where inherent agency costs due to the separation of ownership and control are higher and (2) firms with higher operating uncertainties where CEOs bear greater risks by linking pay to stock performance. Overall, findings in our study suggest that corporate transparency substitutes for incentive contracts as an alternative monitoring mechanism.

This paper investigates when and why CEOs rely on peers’ information in their investment decision. Labor market evaluates CEO’s ability based on similarity among CEOs’ behaviors because it indicates that CEOs are receiving correlated informative signals. Thus, CEOs who are subject to greater concern on their reputation in the labor market will rely more on peers’ information in their investment decision to show that they are receiving similar signals with others. Based on this argument, we test whether CEOs are more likely to rely on peer’s information in their investment decision when their reputational concern is high (e.g., early years or final year of CEO tenure). Using data from S&P 1500 firms, we find that investment sensitivity to peers’ information is higher when CEOs are in their early years of tenure. In addition, CEOs who plan to move to another firm are more likely to rely on peers’ information in their final year of tenure. We further show that these findings are stronger when CEO is far from retirement, CEO is hired from outside of the firm, CEO is a less able manager, there are more replaceable CEOs in the labor market and peers’ stock prices are more informative. These results help us understand the effect of CEO’s reputational concern on a firm’s investment decision.

This study examines managers’ use of discretion in determining goodwill impairment losses and the differential value relevance of goodwill and goodwill impairment losses depending on management discretions driven by underlying incentives in the Korean context. We find that only the incidence of goodwill for discretionary group is associated with managerial incentives such as big-bath, income smoothing, recent CEO change or loss avoidance, while that of normal group is rather associated with firms’ performance and economic conditions. Such a finding is consistent with investors perceiving losses differently depending on management discretions. Further, we confirm that market investors have different valuation of goodwill impairment loss between groups, where they perceive normal impairment loss as a reliable reduction in goodwill value and discretionary impairment loss as a positive signal about future earnings. Finally, we re-estimate the value relevance of goodwill and goodwill impairment loss using each of impairer and non-impairer group between normal versus discretionary observations. We find the evidence of bubbled goodwill for discretionary impairers that leads to the adverse value relevance of goodwill and goodwill impairment compared to normal impairers. The results also show improved information content of basic accounting metrics by accelerating write-off of the bubbled goodwill. We also find that discretionary non-impairers diminish the value relevance.

Using audit hours as well as fees, we find that auditor industry expertise is both a firm-level and partner-level phenomenon, which suggests that industry expertise captured by accounting firms is dispersed among engagement partners through knowledge sharing and transfers within audit firms. We also find that the higher audit fees by expert auditors are due to more hours and not higher rates. While spending more hours allows expert auditors to extract higher fees in total, the finding that expert firms/partners exert greater effort does not support the suggestion that expert auditors are in general more efficient in audit production. However, we find weak evidence that audit hours for expert auditors are lower in industries and companies with homogenous operations and comparable accounting than in other industries and companies. This finding suggests that knowledge transfers more likely take place in homogeneous and comparable industries, leading to production efficiency that moderates the increase in audit hours charged by experts.

This study examines the effects of performance measurement system (PMS), types of motivation and proactive behaviour on employees’ creativity. PMS consists of both nonfinancial measures and financial measures. We rely on an online survey approach to collect data. Our respondents consisted of U.S. senior managers employed in the research and development function of the manufacturing industries. Our results indicate that the reliance of nonfinancial measures for employees’ performance evaluation is positive and significantly related to intrinsic motivation, which in turn, positively affecting employees’ creativity. Our results further reveal that there is positive and significant interaction between intrinsic motivation and employees’ creativity. The use of nonfinancial measures also has a positive and significant direct effect on employees’ creativity. In addition, our results indicate that the reliance of financial measures for employees’ performance evaluation is negative and significantly related to autonomous extrinsic motivation and intrinsic motivation. These findings suggest that financial measures reduce employees’ motivation. Despite our results reveal that financial measures are related to controlled extrinsic motivation, but controlled extrinsic motivation in turn has no significant impact on employees’ creativity. The use of financial measures does not promote employees’ creativity.

This paper examines whether macro informational advantages of firms, conceptualized as a notion of excess centrality by Anjos and Fracassi (2015), are predictive of future macroeconomic conditions. We compare investing and financing decisions between high and low centrality conglomerates, captured by their periodic financial reporting measures, in order to extract managers’ anticipation of sector and macro level shocks. Using a sample of conglomerates, we document that cross-sectional differences in aggregate investing and equity financing decisions are incrementally predictive of future real GDP growth. Additional evidence suggests that internal equity financing possesses stronger predictive power than external equity financing and that professional macro forecasters fail to fully incorporate the information derived from these cross-sectional variations associated with industry centrality.

The study is the first to gather data and analyse voluntary disclosures about modern slavery practices of Australian listed companies. A review of literature leads to development of a set of modern slavery search terms. Content analysis using these terms is then applied to annual, sustainability, corporate social responsibility and online reports of the top 100 companies by capitalization listed on the Australian Stock Exchange. Evidence gathered about modern slavery reveals the main source of disclosure is company websites. About one third of the sample publish a separate modern slavery statement online, largely following UK practice. A wide range of themes on modern slavery are disclosed with bribery and corruption and human rights issues dominant. This contrasts with the focus on global supply chain issues which are to the fore in the literature. The study provides a baseline of understanding for future research into the practices of Australian companies in accounting for modern slavery prior to the signalled introduction of future legislation which will mandate reporting for modern slavery in global supply chains.

This study examines the effect of labor union on the extent of real earnings management using 3,375 firm-year observations of listed Korean firms over 2002–2008. The empirical results suggest that labor unionization rate is positively associated with real earnings management and the absolute value of each real earnings management proxy. Further, these empirical results are more pronounced in non-chaebol firms. The additional robustness tests using union existence as a supplementary proxy of labor union strength and 2SLS regression supports above findings. Thus, we conclude that labor unions push managers to increase real earnings management to create a favorable negotiation environment for wage maximization and hired managers collude with labor union to receive cash-based bonus incentive.

The UK government adopted International Financial Reporting Standards (IFRS) in 2009/10. Compared with the UK GAAP, most of the accounting changes under IFRS related to Project Finance (PF). In this paper we examine the economic consequences of IFRS adoption in the UK public sector, specifically on the cost of PF financing and on earnings management by public sector grantors. We present evidence to show that the majority of public sector grantors experience a lower PF debt spread after the IFRS adoption. Our evidence further indicates earnings management because grantors possessing high-value PF related depreciable assets are more likely to impair these assets after IFRS adoption. The results are robust across several model specifications and sensitivity tests. Collectively, these results provide timely insights on the benefits and costs of IFRS adoption by governments and should therefore be of interest to both regulators and policymakers. Implications of this study extend to the effects of adopting International Public Sector Accounting Standards by governments.

The first line of defense in firm supervision is stock exchange regulatory enforcement. This study investigates the association between stock exchange self-regulatory enforcement and firms’ financial reporting quality by using credit record files, which records the exchange’s sanction of firms in the Shenzhen Stock Exchange of China. Our results find that low reporting quality in the previous year affects the likelihood that firms would be sanctioned by stock exchange. In addition, sanctions firms will improve the accruals quality of corporate financial reports in a subsequent year.

Despite a focus on ethics, professional accountants’ actions continue to play a central role in unethical business decisions and actions. While many studies show that college ethics courses can help develop students’ ethical awareness, few studies have explored how to effectively extend ethics education to practicing professional accountants. While ethics requirements in the U.S. are common, ethics education programs often focus on rules and regulations, rather than on providing tools to solve ethical dilemmas. To improve accountants’ ethical awareness and behavior, CPE providers should discuss business as a moral activity, emphasizing its effects on the community and human relationships. We suggest that effective ethics education and training should be based on the concepts of interpersonal relationships, evidenced in major Western religions (e.g. the Golden Rule) and integrity, evidenced by a consistent positive approach in all aspects of one’s life. We propose a three-stage model, which provides a context for ethical reasoning. Moral understanding at the top level satisfies the lower levels, encompassing codes of conduct and rules and regulations. CPE providers can use such an approach to create ethics courses that resonate with professionals and build lifelong ethical awareness.

The aim of this paper is to investigate the implications of hybridity on organizational forms and practices, management accounting expertise and tools. Findings rely on two cases of co-management and co-production , as relevant examples of hybrid organizational forms. Findings, informed by the Pragmatic Costructivism approach, show the existence of the instrumental value of hybridity surrounding organizational forms, modes of governing, and management accounting tools and professions. The value of hybridity consists in the integration of different disciplines (such as sociology, psychology and healthcare). Specifically, our research shows that in hybrid organizations, management accounting tools and the accounting professions have been hybridised by the influence of other disciplines such as sociology, psychology and healthcare that prevail over financial and accounting disciplines. In turn, it seems that hybrid accountants and tools are particularly appreciated to support decision making in these contexts, while traditional tools are less appreciated. Findings suggests that in case of hybrid organizations, hybrid management accounting tools and hybrid roles are recommended to enable hybrid organizations and their success and support the management of costs and performance.

We examine the forecast bias, forecast accuracy and explainability of linear accounting-based equity valuation models (Ohlson, 1995; Feltham and Ohlson, 1995, 1996) and non-linear accounting-based equity valuation models with real options (Hwang and Sohn, 2010; Ashton et al. 2003; Zhang, 2000) using all historical data in the UK. Empirical results show that non-linear equity valuation models with real options reveal lower forecast bias, higher forecast accuracy and stronger explainability than linear equity valuation models. More specifically, we utilize the Hwang and Sohn (2010) real option adjustment in Ohlson and Feltham Framework and find the adjusted models perform better than their original linear versions. We also empirically estimate the valuation models in Ashton et al. (2003) and Zhang (2000). Further subsample tests demonstrate that the superior performances of the non-linear equity valuation models with real options are owing to their option characteristics. Our empirical research provides large-sample evidence in UK which compares the performance of both linear models with linear information dynamics and non-linear models with real options. It answers the call for more empirical work which focuses on the actual impact of real options in accounting-based equity valuation (Burgstahler and Dichev, 1997; Zhang, 2014; Ataullah et al. 2006, 2009).

A firm’s decision on whether to choose the same auditor as a close competitor reflects a trade-off between exercising caution to protect its proprietary information and pursuing the benefits of auditor expertise. Using a pairwise similarity measure based on descriptions from regulatory filings, we find that peer firms are more likely to engage the same auditor when their product offerings are more similar. Importantly, we find this relation is greater when the focal firm experiences more litigation risk, but is moderated when the focal firm operates in a highly competitive or innovative industry, is a market leader, or has a “cozy” relationship with its auditor. We extend prior research on auditor choice by analyzing whether firms perceive that the upside stemming from auditor expertise dominates the downside of greater vulnerability to proprietary information leakage to competitors, as well as the role that auditor and client characteristics play in this decision.

This paper analyzes firms’ commitment to CSR-related disclosure using a rare regulatory shift from mandatory to voluntary social disclosure in the UK, which leaves out the requirement for firms to disclose their corporate charitable donations on their annual reports. I examine firms’ responses along a number of different dimensions including disclosure levels and corporate charitable spending. My analysis use hand-collected data from firms’ disclosures of corporate charitable activities on their annual reports. I develop a disclosure index to measure disclosure levels of corporate charitable donations. Using pre-post tests on 150 UK firms, I find that following the mandatory-to-voluntary disclosure shift, firms disclose less information on their corporate charitable donations and decrease their charitable donations. My results demonstrate the lack of firms’ commitment in their social disclosure as long as it is not legally required. However, the decline in disclosure and charitable giving levels is less pronounced for firms with good corporate governance mechanisms. Overall, the shift from mandatory disclosure to voluntary results in the existence of negative externalities.

Today the auditor’s moral orientation and capacity is debated. This morality is presumably influenced at the audit firm, but could be grounded at the university. University influence their graduates through selection, the self-selection of student’s entry and exit, and through education, the teaching and the socialization through interaction. We surveyed 296 Swedish student’s moral orientation at one university with three different business programs. We found a university effect, both selection and education, where students at the accounting and auditing program increased significantly more in Idealism compared to the other business students. We believe this indicate that the university contributes to more auditor fit moral standards.

This paper draws on public documents and interviews to examine the valuation process used by credit rating agencies (CRAs) to construct sovereign credit ratings. It underscores the interaction of rating analysts’ professional judgement with sovereign rating methodologies to produce these ratings by focusing on three specific processes: converting uncertainty into calculable risk (encoding), constructing abstract categorization tables, and producing official ratings (commensuration). The paper shows that professional judgment is pervasive throughout these three valuation processes and that sovereign ratings are not the outcome of an individual decision-making process, but are constructed through the collective contribution of numerous professionals in CRAs. The paper also reflects on the dilemma faced by CRAs in wanting to jealously protect professional judgement while simultaneously avoiding creating an impression that the credit ratings they produce are subjective given the pressure from regulators and users to demonstrate that credit ratings are an objective product of robust statistical modelling.

This study identifies drivers of corporate income tax (CIT) installment behavior using a sample of Belgian private firms for the period 2003 till 2015. CIT collection occurs several months after the period in which the corresponding taxable net gains are realized. This delay creates difficulties concerning timely government policy evaluations and government budget calculation. Therefore, governments aim to match CIT collection to the period that the taxable net gains are realized, through an installment system. However, not all firms pay adequately in advance as demonstrated by rising insufficient installment rates in Belgium. We employ multinomial logit regression to assess whether installment behavior is driven by 1) a late payment interest and 2) firm characteristics. Our results are in favor of the Belgian government combatting rising insufficient installment rates through adjusting the late payment interest upwards. Our findings also suggest that a firm’s financial situation influences their CIT installment behavior.

Higher Education Institutions (HEIs) are becoming more aware of the role they might play for the sustainable development and social value creation of societies and countries. The so-called third mission translates in actions the dialogue between universities and societies, and universities and stakeholders. In Italy, recent normative changes towards accrual account-ing have asked universities to measure and disclose their cultural heritage assets. The switch from “pure” financial accounting requirements cash-based to a more mature accrual accounting system posed the challenge of the intellectual capital valorization. The cultural heritage comprises “uni-versity collections, museums, archives, libraries, botanical gardens, astro-nomical observatories, monuments of significance”. The current lack of accounting principles to be used in preparing such disclosures have re-quired universities to revaluate or impair their heritage book values. The study comments the role of accounting in shaping the reality within the context of Italian Public Universities.

The Papal States represent a unique and long period in Italian government and in the government of the Roman Catholic Church prior to Italy’s unification in 1870. The 40-year period prior to unification was a particularly tumultuous period when the Papal States struggled for survival, faced military and popular challenges and became increasingly indebted. Accounting, influenced by other European powers, was perceived to be an important tool that could assist in enhancing the Papal States’ sustainability. Thus, the period studied is ideal for analysing the interplay of accountants and governmental officials as these latter attempted to utilise accounting budgets and financial statements for state control. This period also examines and extends the concept of a sacred-secular divide to a state government beset by resource constraints and challenged to fulfil its theological aims.

This paper aims to study the factors determining the quality of sustainability reporting in Latin American business groups, departing from a gap found in the literature and from the interest in the particular characteristics of this type of organizations. Based on Legitimacy Theory and Stakeholders Theory and applying a logistic regression model, this study is pioneer in establishing how some distinct corporate variables of business groups and their Board of Directors influence disclosure quality of CSR practices in these groups in emerging economies. The results show a negative relationship between control concentration in the groups and the quality of sustainability reporting; while foreign ownership, the age of the business group and the size of the Board of Directors showed a positive incidence on reporting best practices. These results form the basis to conduct further studies on voluntary disclosure in business groups and their subsidiaries, identifying new drivers that explain this relationship.

This paper contributes to the research field of Corporate Environmental Responsibility (CER) and specifically Environmental Accounting by studying differences in the use and implementation of Environmental Performance Measurement Systems (EPMS). Therefore, we developed a framework to assess the extent of EPMS implementation. Based on a hand-collected dataset that compromises 3,157 firm-year observations from 16 European countries between 2005 and 2014, we analyze the effect of potential ecological costs on the extent of EPMS implementation. Furthermore, we shed light on environmental expertise provided by board members, institutional investors and political stakeholders. After controlling for various cofounding effects, we identified that the potential ecological costs encourage more extensive EPMS implementation. Moreover, we find a positive moderation of environmental expertise provided by board members, institutional investors and political stakeholders on this relation. Moreover, we find that the extent of EPMS implementation leads to improved firm performance when firms are prone to ecological costs.

Accounting researchers have challenged the notion whether reporting OCI as a performance metric has predictive value. Regardless of how OCI is reported, the accounting for OCI is as a direct adjustment to equity which bypasses earnings. The research design of most studies on OCI is such that they cannot address whether requiring OCI be reported as performance has predictive value incrementally to that attributable to the accumulation of OCI in equity. Using a sample of IFRS adopting countries within the European Union, we find that including OCI as a performance metric in our model provides a modest incremental improvement in predictiveness, relative to the significant improvement attributable to the accumulation of OCI in equity, and only when OCI is decomposed into components. We do not find aggregated OCI improves predictiveness, but do find individual OCI components have predictive value which vary in magnitude and sign, suggesting that aggregation obfuscates the predictive usefulness of specific OCI components. Together, our findings that the reporting of individual OCI components has predictive value, but the aggregation of these components does not, suggests that the shift towards reporting OCI as performance would more likely improve predictive usefulness under the two-statement approach for reporting CI, than under the single-statement approach that presents CI as the bottom-line summary statistic.

One of the major sources of inefficiencies in M&A transactions is the asymmetry of information between the bidder and the target. Several disclosure strategies are used by bidders to convince target shareholders to tender their shares but also to convince their own shareholders about the value of the proposed deal. Target managers also try to communicate to their shareholders their appreciation of the offer. To these aims, experts are often called to express an independent opinion on the offer price, in a document called the Fairness Opinion (FO). While FOs have been found to have no effect on deal efficiency in the US, this study re-examines the issue by considering the actual content of the document, in terms of the valuation process that leads to the expert opinion, in the context of Italian M&As where FOs often provide detailed information about this process. The results show that even in a setting where weak enforcement of disclosure regulations allows bidders and targets to choose the level and detail of disclosure, the quality of the content of FO have only weak association with the success of the deal, both in terms of bidder announcement returns and of post-deal market and operating performance.

This study examines the impact of financial statement comparability, as captured by the comparability measures developed in De Franco, Kothari, and Verdi (2011), on the provision of audit services. Prior research documents that financial statement comparability is associated with improved user decision making and better governance. We provide evidence that these informational benefits from comparability also extend to the external audit. Specifically, higher levels of comparability improve the quality of the information produced by the firm, lower audit risk levels, and increase external audit efficiency. Consequently, comparability reduces the overall audit fee.

This study analyses the relationship between privatization and corruption in Europe over the period 1995 to 2013, taking into account the problems surrounding the issue of causality. There have been researches into the role of privatization in reducing corruption, but decisions about privatization itself are made by politicians, so corruption could affect also decision-making about privatizations. The empirical findings suggest that perceived corruption decreases as the number of privatization transactions increases, but the effect is contrary when privatizations are a more important in terms of annual revenues. Furthermore, our results indicate that overall, privatizations carried out since the early 1980s have not been effective in reducing corruption in Europe. Indeed, privatizations reforms are more carried out in the less corrupt countries.

We investigate the association between the reported performance of local government officials and their continuation in office. We examine both the council board (elected by the public) and the general manager (elected by the council board). Our study is motivated by the State government’s desire to increase local government accountability, by reporting more performance metrics to the public, as well as the different institutional setting of not-for-profit entities compared to the private sector. Greater transparency should lead to increased predictability of electoral outcomes and manager retention. However, voter apathy, and the lack of contesting candidates, may weaken the link between performance and continuation. Examining the 2012 NSW local government elections and general manager turnover between 2007 to 2015, we find limited evidence of local government performance affecting electoral outcomes or manager retention. Overall, our study emphasises that greater transparency is not a panacea for holding management accountable if stakeholders are apathetic.

Driven by a dearth of literature on carbon emission assurance providers globally, this study investigates corporate incentives for the choice of assurance provider being accounting firms versus non-accounting firms. This study examines 3469 firm-year observations across 44 countries in the Carbon Disclosure Project (CDP) from 2010-2014. We hypothesize that firms under higher legitimacy threat are more likely to choose accounting firms, while companies desiring to improve carbon management mechanisms tend to choose technical consultation firms. Accounting firms are perceived as more independent assurers with higher ethical standards and auditing experience, but technical consultation firms are believed to have climate change expertise hence they are more competent to deal with technical problems of carbon control. Results indicate that firms with higher carbon emissions in countries with stringent national climate protection and stakeholder-orientation are more likely to choose accounting firms. On the other hand, firms with better carbon governance mechanism are more likely to choose technical consultation firms rather than accounting firms. In particular, companies with Corporate Social Responsibility (CSR)/environmental committee, carbon reduction incentives, and higher carbon disclosure scores that had adopted carbon reduction initiatives are more likely to choose technical consultation firms as their carbon assurer. The results of this study are consistent with the legitimacy, signal and institutional theoretical framework.

Recent research shows that investors react to the tone of qualitative disclosure and that firms strategically manipulate tone to bias investors’ perceptions (i.e., they engage in “tone management”). We investigate whether accounting conservatism, which has been found to be effective in constraining management opportunism in other settings, mitigates upward tone management (UTM) in the MD&A. We hypothesize that timelier recognition (higher verification) of losses (profits) in the income statement makes it harder for managers to opportunistically downplay bad news (magnify good news) when discussing current performance. Consistent with this hypothesis, we find that abnormal tone is negatively associated with several accounting conservatism proxies. Additionally, we hypothesize and find that this association is stronger among firms that have higher incentives to manipulate tone (i.e., firms that are older, more accrual intensive and under stronger pressure to manipulate reported performance). These results are robust to several sensitivity tests that employ alternative measurements and models. In supplemental analyses, we find no evidence that conservatism encourages downward manipulation and that conservatism constrains UTM most strongly in backward looking information.

A major question for public managers is whether municipal services should be rendered in-house or contracted out. In view of the negative perceptions often aroused by contracting out, this paper analize the political decision through a modeling of the relationship between political cycles and the factors that explain the processes of contracting out. According to this modeling, the probability of municipal services being contracted out is greater in the postelectoral years; moreover, during this period the decision is taken more quickly. In this theoretical model, not all political, economic and fiscal factors have an equal impact on the contracting-out decision during each year of the electoral cycle. The model was applied to a sample of 2,274 Spanish municipalities, with respect to a broad time horizon (2002-2014), and the results obtained confirm our hypotheses regarding dynamic-opportunistic behaviour in the contracting out of local public services.

This study investigates the professionalization process of accounting in Vietnam through the lens of professional accounting bodies’ membership. In particular it analyses accounting students’ intentions to affiliate with a professional accounting body in Vietnam as well as factors affecting foundation candidates of a particular professional body’s decision to remain or cease affiliation with this body (N=312). The study of the accounting profession through potential members of professional associations in Vietnam serves to depart from the traditional Anglo professionalization model and contribute to the literature on the development of accounting in emerging economies. Additionally, Vietnam offers a model of professionalization with complex dependencies including imperatives of the State and the ‘professions’ and thus provides a rich tapestry of comparison with other State-controlled transitional economies.

This paper aims to unveil the accounting practice adopted during the Second World War (WWII), by focusing the attention on the specific role of the Italian Royal Air Force (RAF). The paper aims to contribute to the literature on military accounting because few studies analyze the Italian accounting practice during the war and no study considers the WWII in this country. This paper seeks to verify the adaption degree of accounting procedures and the spending allocation criteria, according to the extraordinary demands of resources and the strong political and social changes fostered by the war. The analysis of the archival documentation in the period 1936-1943 shows how the budgetary system was a strong tool of political power. Organizational instability within military ministries, the inefficient allocation criteria of resources, an inadequate control of expenditure, the lack of reporting transparency and the strong power of war industry may thus explain the Italian defeat in the WWII. The organizational structure of Air Force Ministry, the accounting instructions, and the budgetary system, during the period, have been analyzed together with the debates in the Parliament during the XXIX and the XXX Legislatures, concerning the military budget, the temporary expenses, and the supply procedures during the war.

This study contributes to auditing research by providing rare insights on auditors’ actual audit practice and how they interact with auditees. Using proprietary, working paper data from a non-Big 4 firm, it examines whether the business risk auditing (BRA) approach, in heightening the auditor’s awareness of auditee business risk (ABR), is associated with higher quality and more efficient audits. A model of auditee (chief executive officer or similar) perceived audit quality is estimated including variables measuring auditor assessed ABR directly associated with the BRA approach and audit production efficiency. The proprietary data consists of 60 large audit engagements of a major public sector audit provider when its implementation of the BRA approach was in its infancy. Results reveal that high ABR audit engagements are positively associated with auditee perceived audit quality, corresponding with greater audit fees and hours, and a richer mix of audit resources. However, implementation of the BRA approach also results in an unexpected trade-off between perceived audit quality and audit production efficiency.

Investors are often exposed to significant sustainability risk when contracting with other firms. In this study, we examine how the time horizon of the realization of sustainability targets affects firms’ effort to reduce sustainability risk as well as investors’ willingness to invest. We presume that firms’ sustainability effort and investors’ investments will be lower when the outcomes of sustainability targets realize over a longer time period than when they realize over a short period. To test our hypotheses, we use a multi-period investment game with a 2x2 between-subjects design in which an investor can invest in a firm. Whether the investor can retrieve the return on his investment depends on whether the firm stays below a sustainability target. We manipulate whether the realization of sustainability targets has a short time horizon (outcomes realize within one period) or a long time horizon (outcomes realize over three periods), and whether sustainability incentives are provided within the firm or not. Results show an effect reversal of time horizon on firms’ effort in the absence compared to in the presence of sustainability incentives, indicating that in the absence of incentives less effort is spent on targets that realize over a long time period, but that the effect strongly reverses when incentives are present. We also find that in the absence of sustainability incentives, investors shun away investments more when outcome realizations have a longer time horizon.

I exploit changes in employment protection legislation across OECD countries to examine how labor laws affect tax avoidance. Over the 1996-2013 period, I find that labor reforms strengthening employment protection lead firms to increase tax avoidance by 1.3 percentage points. Furthermore, I show that increases in tax avoidance are larger for low capital-intensive firms, as well as for firms operating in industries and countries with higher dismissal costs or weak enforcement. Because firms substitute labor with capital, their pre-tax margins are higher, which increases tax avoidance benefits. Overall, these results point to the institutional complementarities between labor laws and taxes.

Institutional change unfolds only under the right conditions and when actors use appropriate strategies. This paper studies an attempt at such change by a unique vehicle in the Dutch accounting profession – the Young Profs – which enables young professionals’ participation in professional debates. Based on observations of the group's meetings and events, as well as interview data, we analyze the ways in which the Young Profs’ attempt to influence existing institutional arrangements. Employing a contingency model of institutional entrepreneurship, we find that the group’s impact on the profession is limited and that they are unlikely to enact major change. This is primarily due to the group’s position at the periphery of the field, where they do not apply appropriate tactics to initiate change. They are also missing out on a clear and appropriate framing of change that mobilizes allies to join their efforts. The study adds to recent research on the impact of early-career professionals on their firms and the profession more widely.

Abstract We investigate the effect of fair value accounting on the usefulness of earnings in executive compensation contracts. Our analysis uses a shock-based difference-in-differences research design that exploits the 2005 worldwide mandatory adoption of IFRS, and employs a firm-level measure of the fair value treatment effect. We find that earnings pay-performance sensitivity (PPS) declines among the IFRS adopters that are most affected by IFRS’s fair value provisions relative to the IFRS adopters that are least affected by its fair value provision. Our findings are consistent with the notion that IFRS, on average, improves the usefulness of earnings in executive compensation contracts, but that its fair value provisions offset this improvement. These results are robust for industrial firms but hold only weakly for financial firms. We further find that the results are primarily driven by firms in countries with strong enforcement, and that increased earnings management, rather than increased earnings volatility, is the most likely channel through which fair value accounting impairs earnings PPS. Our findings contribute to the literature on the contracting usefulness of fair value accounting by presenting evidence that suggests fair value accounting impairs the usefulness of earnings in compensation contracts.

This study is a further development of the induced model of the management accounting change process proposed by Innes and Mitchell (1990), augmented by Cobb et al (1995) and Kasurinen (2002) and critiqued by Llewellyn (1993). It is based on a longitudinal case study and it employs force field analysis (Lewin 1943) as a means of presenting and interpreting the empirical dynamics of the change situation. Two new aspects are introduced to the existing change model. First, there is the development and use of an organisational mechanism to sensitise actors to motivator and catalyst forces and also to ensure that the necessary facilitators were in place to circumvent change barriers and so effect management accounting change. Second, a new behavioural sub-process, that became evident as change was tracked over time, was added. It comprised three stages: change experience; change evaluation; and change revision.

Within Voluntary Disclosure, Intellectual Capital information represents the internal value of the company, composed of three variables: the human capital, the relational capital, and the organizational capital. In particular, the effect of Intellectual Capital Disclosure on the assessment of Audit Risk and Audit Fees charged to audited companies has been confirmed by the Literature. Nowadays, in fact, the definition of the risk is no more based only on financial information, but it encompasses the whole analysis of the company. This encourage firms to be more transparent and, therefore, to increase their voluntary disclosure in order to reduce their Audit Risk. By pertaining to the relationship between IC disclosure and Audit Fees, many authors affirmed that the variation of the Audit Fees is determined by the variation in the auditor’s effort. In order to test the significance of Intellectual Capital Disclosure on the assessment of Audit Risk and Audit Fees, an empirical analysis has been done. In particular, the period of the Global Financial Crisis has been investigated in order to test whether the different economic conditions affect the relevance of Intellectual Capital Disclosure. This analysis aims at contributing to the Literature related to the Intellectual Capital Disclosure and its role in Auditing.

Drawing upon accounting theory and the empirical evidence that supports the existence of a strong positive association between the price-to-book (P/B) and the return on equity (ROE), HSBC’s financial analysts construct an intuitive and readily understandable fundamentals-based investment criterion, called Rating to Economic Profit (REP). REP involves comparing a stock’s enterprise value to invested capital multiple (EV/IC) with the ratio of its return on invested capital (ROIC) to its weighted average cost of capital (WACC). A fairly priced stock has a REP value of one. While variations of this model are used in practice by financial analysts, the academic community has mostly ignored REP. In this study, we provide a theoretical analysis of this valuation method based on the dividend discount and residual income valuation models. We justify its use as an investment appraisal technique, provide some extensions of the basic REP formula, and discuss practical implementation issues. We also offer some illustrative examples from equity research reports, which may serve as insightful teaching cases facilitating the work of accounting educators.

This paper uses the introduction of the Single Supervisory Mechanism (SSM) in the euro-banking area in 2014 to investigate the effect of strict and homogenous banking regulation on banks’ financial reporting quality and financial reporting credibility. Using a difference-in-differences design I exploit that the change in supervision affected only some but not all banks in the euro-area. Using timely recognition of loan loss provision (LLP) as a first proxy to account for financial reporting quality, early analyzes reveal that banks, exposed to stricter banking supervision do not increase however significantly decrease the timely recognition of loan loss provision, thus, according to previous literature would reflect a decrease in financial reporting quality. However, this result might be explained by the disciplining effect of the new regulatory body on banks’ risk behavior, to ensure a safe financial system and to make banks more resilient, which is also supported by additional analyses that shows that SSM-banks significantly increase their net-loan charge offs after the SSM took over its role as banking supervisor.

Extant literature documents that managers have an incentive to hoard bad news due to political concerns. In this paper, we test the proposition that short selling has an attenuating effect on the politically motivated suppression of bad news. We examine the stock price behavior of Chinese public firms around two highly visible political events - meetings of the National Congress of the Chinese Communist Party and Two Sessions (The National People’s Congress Conference and The Chinese People’s Political Consultative Conference) from 2002-2016, and find that political bad news hoarding has been reduced after short selling becomes available. We establish causality by employing a difference-in-differences approach based on a controlled experiment of short selling regulation changes in China. We also find this reduction in bad news hoarding to be more pronounced in firms with stronger political connection (higher state ownership, larger size, and more politically sensitive) and higher accounting opacity, which further confirms our finding. This study sheds new light on the real effects of short sellers on political impact on capital market.

ABSTRACT Understanding the conceptual framework (CF) assists in understanding the issues in its construction. Existing characterisations of the CF as a theory of accounting and as the outcome of a political process are examined and found to be capable of different interpretations. Recent work on the CF is used to establish what is wanted in its construction and to identify the issues that arise in realising it. Various attempts to deal with these issues by those who construct CFs are examined. They are re-described in the light of a better understanding of the nature of a CF by showing them as attempts to resolve these issues. The paper concludes that progress in constructing a future CF will only be made if the nature of the CF is grasped and issues that need to be dealt with given the new characterisation are confronted head-on.

Based upon a case study of MetroHealth Medical Center this paper develops and documents the implementation of an intervention to change physician practice patterns (clinical routines). Its goal is the reduction of unwarranted variation in cost per patient, while preserving medical treatment quality. Large differences in hospital care costs per treatment persist within hospitals. Illness severity, patient preference and to a degree organizational infrastructure explain part of that variation. But everyday clinical practice is also characterized by variation that is clinically unwarranted with adverse effects on quality and productivity. Reducing unwarranted variation is one effective avenue to manage costs without compromising quality. A large part of this unwarranted variation is caused by physician decisions. Identification and management of differing practice patterns is hence a good avenue for change. Collectively, these clinical practice patterns are, however, difficult to change as they are rooted in a complex control problem of competing professional logics within the institution. This paper develops an intervention to change physician practice patterns. The intervention aims to answer the following two research questions following research question: (1) What attributes legitimize productivity information to change organizational routines? (2) How does legitimized productivity information bridge the gap between a system of dual hierarchies?

This study examines the association between earnings attributes as proxies of information risk and credit default swap (CDS) spreads around compliance with the Sarbanes-Oxley Act of 2002 (SOX). I find a strong association between CDS spreads and earnings attributes. In particular, I find that information risk proxies of accounting-based and market-based earnings attributes matter to the CDS markets before compliance with SOX. This is consistent with the CDS market gathering information from all possible sources before SOX. However, after SOX, the CDS markets find accounting-based attributes to be relatively more important than market-based attributes. In terms of economic significance, a one percentage decrease in the accrual quality leads to an increase in CDS spreads by 13 basis points. This association between CDS spreads and information risk is stronger for foreign private issuers (FPIs) than for U.S. firms. This may be due to the switch for FPIs from prior reporting exemptions to the higher disclosure requirements of SOX. Overall, this study establishes that CDS markets use earnings attributes as proxies for information risk.

This paper examines how professional service firms manage the linguistic tensions between global Englishization and local multilingualism. It achieves this by analysing the work of Big Four audit firms in Luxembourg, where three official languages co-exist: Luxembourgish, French, and German. In addition, expatriates bring with them their native languages in a corporate environment that uses English as its lingua franca. The paper combines the institutionalist sociology of the professions with theoretical concepts from sociolinguistics to study the multifaceted role of language in professional service firms. Empirically, the paper draws from 25 interviews with current and former audit professionals. The client orientation of the Big Four segments each firm into language teams based on the client’s language. It is thus the client languages, rather than English as the corporate language, that mediate, define, and structure intra- and inter-organizational relationships. While the firms emphasize the benefits of their linguistic adaptability, the paper reveals tensions along language lines, which undermines the firms’ homogeneity. This paper connects research on global professional service firms with that on the role of language in multinational organizations. In light of the increasingly global workforce of the Big Four, it draws attention to the linguistic divisions within the firms that question the existence of a singular corporate culture.

Recent literature suggests that CFOs’ responsibilities go beyond corporate accounting and involve increasingly strategic areas such as corporate investment decisions. However, CFOs may not directly oversee these investment decisions, but contribute indirectly by advising and guiding the CEOs. Based on this, we analyze the interaction between CFOs and CEOs to better understand their influence on corporate investment decisions. We draw on regulatory focus theory to derive hypotheses on their interaction. We predict that a CEO’s promotion focus (i.e., striving for gains and desiring advancement and growth) is positively associated with excessive investment spending and expect that this tendency can be mitigated by a CFO’s prevention focus (i.e., avoiding losses and desiring stability and security). We test these predictions empirically on a large longitudinal sample of 3,738 firm-years between 2005 and 2014. Our results document a positive impact of a CEO’s promotion focus on overinvestment and the proposed negative moderation of a CFO’s prevention focus on this relationship. Moreover, additional tests indicate a positive impact of a CEO’s promotion focus on firm performance that is amplified by a CFO’s prevention focus.

Are performance measurement systems (PMSs) a way to strengthen organizational legitimacy? This question is explored in the banking sector and more specifically in a cooperative bank. This hybrid organization faces two different logics that seem to be contradictory, that is, a solidarity logic (common good) and a competitive logic (profit). We use Stark’s (2009) notion of organizing dissonance to study how PMSs are implemented in these organizations to maintain internal legitimacy. We examine how PMSs can be used to reinforce (or not) organizational legitimacy in a context of multiple evaluative principles. Our findings show that PMSs are used to promote organizational legitimacy vis-à-vis internal stakeholders. More particularly, their effectiveness in doing so is linked to the fact that they are coupled to other management processes (e.g. organizational socialization).

This study examines whether and when peers identified using analyst-adjusted earnings more accurately forecast a target firm’s future valuation ratios compared to peers identified based on GAAP numbers. Using a sample of U.S. listed firms over a 2003-2014 time horizon, we find that analyst numbers lead to a fundamentally different set of selected peers (zero or one peer in common) for 22% of target firm observations. These target firms tend to be more complex, more innovative, or more strongly involved in M&A’s and restructuring activities. These may be settings in which analysts’ superior skills can better assess the informativeness of reported firm fundamentals. Additionally, the different peer selection is found to have a stronger predictive power towards future target firm performance, effectively constituting an effective unsophisticated method of evaluating potential investments. The predictive power of analyst number-based peers increases in settings where firms reporting a negative profit margin following GAAP numbers, which turns into a positive profit margin after analyst adjustments. Given the additional information content included in analyst numbers, we show that analyst based peer selection and multiple calculation substantially outperforms GAAP-based multiple valuation. Towards investors, our findings provide a relatively easy way to improve investment strategies, with identifying circumstances in which analysts indeed generate added value.

The phenomenon of intra-group interlocks (IgI) has not received adequate attention from scholars. Even more limited are studies on interlocking directorship among listed companies that belong to the same business group. The prevailing theory that scholars use to explain the IgI is undoubtedly the resource dependency theory that sees that phenomenon as beneficial for the group performance. However, the empirical results on the effect of IgI on business group performance are controversial. This study wants to contribute to the understanding on why board members of listed parent companies sit (or do not sit) in the listed subsidiary boards, suggesting how to interpret the strength of IgI. The results show that for listed groups the agency theory better explains the determinants of IgI phenomenon, having several implications for regulators, scholars and practitioners.

We test through a partial least square structural equation model the associations among the use of on-line quizzes for learning activities in an introductory course of accounting, the use of different electronic devices to solve on-line quizzes, on-line quiz performance, and learning performance, and find that the on-line quizzes factor positively affects students’ learning performance, but not students’ quiz performance, probably because some students used quizzes, which had unlimited attempts until a satisfactory grade was achieved, to study the content of the course, rather than to self-assess their knowledge. We also find that computers and tablet PCs for learning activities do not affect students’ learning performance, while mobile phones negatively affect students’ learning performance with respect to their peers, probably because the users of mobile phones for learning activities are also intensively engaged in other activities. Finally, the use of any of the electronic devices does not affect students’ quiz performance.

We examine whether firms’ social capital reduces shareholders’ demand for corporate governance changes. Using corporate social responsibility (CSR) performance as a proxy for social capital, we find a negative relation between CSR performance and the likelihood of shareholder governance proposals at annual meetings. We also find a negative relation between CSR and the percentage of votes in support for these proposals. When CSR performance is better, governance proposals that pass increases firm value by a greater amount and are more likely to be implemented. Collectively, our results demonstrate that social capital builds shareholder trust, which leads to better governance outcomes.

We study whether a board learns from its CEO’s performance as an outside director in other firms. We use the outside directorship firm’s stock return as a proxy for the CEO-director’s performance and find that the CEO’s forced turnover at the home firm is associated with her directorship firm’s stock returns. The effect is stronger when the home firm’s internal signal credibility (reflected in the presence of internal control weaknesses and occurrence of financial fraud) is weaker, when the home firm’s information environment is less transparent and when the directorship firm is smaller or has a more stable information environment. The effect is also stronger when the directorship firm and the home firm belong to the same industry. We also find some evidence that financial fraud at the directorship firm would reduce the home board’s reliance on accounting information when setting the CEO’s compensation contracts. Overall, our evidence suggests a benefit of CEO’s external directorships to the home firm that is not explored before.

The aim of this paper is to make a contribution to the existing management literature from the perspective of the developing economies of Central and East Europe by exploring the perception of Management Accounting Systems among managers employed in businesses in Poland and Romania. This aims to shed a light on the perception of the Management Accounting Systems by managers through the application of Social Perception Theory and the DeLone and McLean Model. The study hopes to add to a better understanding of the importance and usefulness of the information received as well as the satisfaction of its users. The research data was collected through an empirical study in the form of an online survey sent to selected companies operating in Poland and Romania. In order to analyse the data obtained from the study, cluster analysis was applied. The findings prove that there are differences in managers’ perception and evaluation of the selected types of information provided by Management Accounting Systems. The differences refer to the perception of non-financial information, information for strategic tasks and the quality and content of information included in the reports. The results confirm the findings of studies conducted in developed countries.

Few prior studies have addressed adjustments of reported financial performance (i.e. earnings management) in jurisdictions were municipalities use accrual accounting systems. Although financial reporting in municipalities is prepared in a highly political environment, the majority of previous studies have neglected political explanatory factors. This study examine whether political competition is a driver of financial performance adjustments in Swedish municipalities. The results indicate that political competition motivates preparers to engage in making adjustments of reported financial performance, as long as governing parties have a majority of the seats in council.

We examine asset sales as a method of real earnings management around the benchmarks of loss avoidance and last year’s earnings. Evidence is reported of asset sales to boost or reduce earnings near the benchmark of last year’s earnings. For the benchmark of zero earnings our results are moderated by the opening balance of accruals: only firms with high levels of accruals use asset sales to boost earnings to avoid a loss and only firms with low levels of accruals use asset sales as part of a big bath. We suggest that firms with high accrual balances find it difficult to use additional income increasing accruals but find it more convenient to write off accruals rather than sell assets to artificially reduce earnings. IFRS is associated with reduced use of asset sales for gains and especially with reduced asset sales for losses. We ascribe this to IFRS introducing additional scope for judgement and estimation in relation to the valuation of long-lived assets.

The main purpose of the audit committee is to oversee the audit function and approve the selection of the auditor. Prior literature examines the effectiveness of the audit committee’s approval of the auditor selection process and mainly concludes that management has the power to select the firm’s auditor with little rebuttal from the audit committee. This study examines whether the audit committee approves the selection of the audit engagement partner and whether this approval influences the audit quality (discretionary accruals, accruals quality, and restatements) provided. Using a hand-collected sample to identify audit committee’s approval of the selection of the audit partner, the findings suggest that audit quality is greater during periods when the audit committee approves the partner selection compared to periods when they do not. This finding contrasts prior literature by providing a setting where the audit committee exhibits an important layer of corporate governance. The findings are relevant to understanding the approval process of the audit partner during the partner rotation process.

This paper explores the notion of evaluating costs alongside outcomes. This is performed through the application of Time-Driven Activity-Based Costing (TDABC) to patient costing alongside collection of data on patient outcomes. A chronic condition, type 2 diabetes, was chosen as the empirical context. Through the lens of TDABC the care pathways for the medical condition were documented. The costs of care for five patient profiles were derived from the process maps. Analysis of patient costs and qualitative interviews with health care professionals suggest that the current fragmented care is sub-optimal, resulting in undiagnosed complications, leading to increased severity of disease with high costs and burden of care at the acute hospital level, with a consequent national economic burden. We conclude that while there were many challenges collecting this costing and outcome data using the TDABC methodology, with the aid of electronic patient records this method offers a framework for designing a new reimbursement method, one-year bundled payments, which in turn has the potential to act as a key enabler of value-based health care.

We examine the innovativeness in stock recommendations made by female analysts compared with male analysts. Male analysts issue more innovative recommendations than female analysts. Further, market does not discount the innovative recommendations issued by male analysts. Consistent with existing evidences for gender difference in overconfidence, our findings suggests that compared to female analysts, male analysts exhibit relative but not unduly overconfidence when issuing stock recommendations.

This paper links a corporate control regulation to spillovers in mortgage markets. Our identification strategy relies on changes within a common mortgage market to detect regulatory spillovers. Banks directly targeted by the Sarbanes-Oxley(SOX)Act to rectify their internal control weaknesses experience an 11% reduction in mortgage lending. This spills over to neighbour banks untargeted by SOX, incentivizing them to increase lending to capture the market share of targeted banks. Consequently, counties with larger spillovereffects experience higher house prices and home foreclosures. Our paper cautions against evaluating regulatory effectiveness based solely on the behavior of targeted firms.

Due to quick development of proprietary methodologies, systems or technologies biopharmaceutical industry requires a variety of IPR protection mechanisms. Going forward, the complex R&D projects and their long-term character impose a necessity of transparency with regard to IPR protection. Stakeholders should not be provided with a misleading impression about the protection breadth, the likelihood of patent grant or the ability of the company to enforce its patent rights. This paper explores and analyses critical IPR protection concerns revealed by European biopharmaceutical companies in the narrative parts of their annual reports. These critical issues refer to disclosure of IPR protection strategy, IPR risk and mitigation policies, R&D regulatory framework, patent portfolio, IPR infringements, litigations and exclusive rights. The review of the disclosure practices observed in the examined sam-ple proved that IPR risk and exclusive rights were the most frequently reported areas. 2/5 of the analyzed companies disclosed the number of patents‘ granted whereas IPR protection strategy, R&D regulatory framework, IPR risk mitigation as well as patent infringements/litigations were discussed only by 1/3 of the examined entities. The study evidenced that a considerable share of companies maintained poor standards of IPR protection disclosure (37%), a half of the sample represented a moderate level whereas the rest of entities prevailed in terms of disclosure quality.

The paper explores Internet disclosures of Polish public benefit organisations (PBOs), applying a comprehensive assessment methodology of information provided by PBOs on their website and in the social media. The study was conducted between October 2015 and February 2017 and included a sample of 250 randomly selected PBOs. Beside determining a share of Polish PBOs which were sustainably active on the web, a combined analytical approach using a scoring system and a cluster analysis enabled to define three strategies related to Internet disclosures, including: ‘a contact page’, ‘a promotion website’ and ‘a stakeholder relationship portal’. Differences between the said approaches, together which factors influencing disclosure intensity and quality, including an Internet platform, financial status of an organisation and their activity domains, were identified, as well. The paper is concluded with an analysis of stakeholders’ opinions on contents of websites, where text-mining software was used. It was evidenced that the three aforementioned strategies correspond well with stakeholders’ expectations on what and how PBOs should communicate via the Internet.

Understanding how to use data to formulate and solve business problems provides an opportunity for the accounting professional to become a forward thinking strategic partner in the organization. The challenge for accounting academic departments is determining the data analytic topics and skills that are relevant to the accounting profession and how to incorporate those topics into an already full curriculum. This is especially true for accounting programs that have separate AACSB accreditation, given that Accreditation Standard A7 requires universities with separate accounting accreditation to include content and learning objectives associated with data analytics and technology skills. This paper provides the results of a broad exploratory survey of accounting faculty about data analytic instruction. Our survey is based on four research questions developed from a review of practice and academic literature. We find that faculty consider developing students’ mindset as the most important data analytics topic to include in the accounting curriculum. In addition, faculty support the use of Excel to develop data analytic skills in addition to emerging technologies. Faculty indicate that case-studies and hands-on projects are most appropriately used as methods to develop students’ data analytic skills in upper-level or graduate accounting coursework. We conclude the paper by offering two suggested implementation methods: the Integrative Approach or the Focused Approach.

This is a methodical note. We aim to develop a technique to estimate joint frequencies from marginal frequencies in a contingency table of interactions between two parties. We apply this technique to the practical setting of the OECD statistics on mutual agreement procedures between countries where only marginal frequencies, i.e. the total number of mutual agreement procedures per country, are made publicly available. Contrary to this data availability, tax researchers are interested in using joint frequencies, i.e. the number of mutual agreement procedures per country pair. Such an empirical construct would be useful in any archival research that relies specifically on the bilateral relationship between countries rather than on the consolidated measurement. We argue that the empirical construct would capture a variety of theoretical constructs which, given the early status of the project, are yet not fully investigated and which we summarize for now under the term bilateral tax controversy.

There is the prevalence of complex narratives in accounting disclosures to the extent that this is being normalised as an inherent characteristic of financial reporting. On the other hand, International Financial Reporting Standards (IFRS) was introduced to enhance reporting efficiencies and improve communication in financial reporting. This study examines if IFRS adoption had an impact on narrative disclosure complexity by investigating whether IFRS adoption in 2005 is associated with the pervasiveness of word complexity in annual report disclosures. The study decomposes word complexity into two components of information (common complexity) and obfuscation (uncommon complexity) by applying theoretical assumptions from the Incomplete Revelation hypothesis and the term weighting concept from the information retrieval literature. The results find evidence of a significant increase in the complexity of narratives reported in annual reports with the mandatory regulatory adoption of IFRS in 2005 and this increase appears to be associated with common complexity. The findings are an indication that the application of IFRS increases disclosure complexity informativeness and that an active engagement with the management of disclosure narrative complexity has benefits for information extraction cost.

An important research question is whether and how auditor incentives and competencies affect the trade-offs between various earnings management tools. Classification shifting (CS) and core accruals management (CAM) are used to manage core earnings. This study investigates how three common audit quality related variables; audit firm size, industry-specialization, and auditor-provided non-audit services (NAS), associate with CS before large equity issues and acquisitions, taking CAM into consideration. For a sample of Norwegian public companies 2000-2015, we find that Big 4 as well as industry-specialized audit firms tolerate (constrain) CS when CAM is constrained (tolerated), indicating that CS and CAM are substitutes. In contrast, non-Big 4 and non-specialized firms either tolerate both CS and CAM or constrain both, indicating that CS complements CAM. For non-specialized Big 4 firms tolerating CAM, CS is less constrained when NAS are large, consistent with impaired independence. Non-specialized non-Big 4 firms behave diametrically opposite. Overall, the findings show that firms’ interactions with the balance between CS and CAM align with auditor incentives and competencies. Auditor incentives, however, may be distorted towards tolerating CS. Given that financial analysts and investors tend to fixate on core earnings, this raises the question of the suitability of the scope of the current accounting and auditing standards to classify line items in the financial statements.

The article addresses the legitimacy of global accounting regulation. In line with other approaches, we relate the legitimacy of standard setting by the IASB to the process of standard development. We argue that the provision of procedural elements in the standard setting process that assure responsiveness vis-á-vis constituents is the key to legitimacy. While this perception is still in line with other, particularly economic, approaches we further elaborate a clearer conception of what is meant by responsiveness. We therefore utilize a sociological framework that analyses standard setting processes as social systems and is based on the work of Luhmann (1983). Against this backdrop, we analyse the current due process of the IASB as well as the endorsement process for IFRS within the EU. We further discuss whether market approaches to standard setting as suggested in academic literature offer process alternatives that comply with our theoretical framework. Each of the market approaches offers different procedural elements to assure responsiveness. However, we will show that a distinguishing element of stable regulation processes in this regard is missing in most of the analysed procedures. Since this element requires to tie norm development to the political process, we carefully draw sceptical conclusions for the future of global accounting regulation.

In this paper, we move beyond previous accounting research of profit (earnings management, accrual accounting, and the like) and instead study profit in the setting of risk with the aim to contribute to accounting literature in a novel way. We seek the answer to how profit is produced in what approach to risk the relevant actors draws on and what order[s] of worth (Boltanski & Thévenot, 2006; Stark, 2009) these approaches correspond to. We undertook a case study of a European based large listed construction company, and identify three distinct approaches to risk: a compliance approach, a prudence approach and a control approach. Our analysis of how these approaches constitute the production of profit illustrates the possibility of uncertainty and the ambiguity from which profit can be made (Stark, 2009), not only with regards to “which order or convention is operative in a given situation” (ibid. p. 15) but also as to the nature (ontology) of that order or convention.

This paper investigates the effect of IFRS mandatory adoption on information asymmetry using a unique approach. Specifically, it investigates the change in the irrational sentiment effect on stock markets’ returns after the mandatory adoption of IFRS in 18 European countries over the period 2000 to 2010. Using predictive regressions and rolling window estimation, we find that sentiment has a negative impact on future stock market returns prior to IFRS adoption in 11 out of 18 countries. Moreover, our results show that the impact of irrational sentiment is reduced after the mandatory adoption of IFRS for a majority of countries in our sample. The results are robust to various sensitivity tests applied, indicating that information asymmetry has decreased in the post-IFRS period. Compared to previous studies, this paper provides clearer evidence that improved accounting quality transfers into direct benefits for investors who are the major user of financial reports. Furthermore, this paper presents direct evidence for policy makers on the favorable consequences of the IFRS adoption.

Using a unique private firm dataset from 13 European countries, we investigate Big 4’s own tax planning relative to that of their closest peers. We provide evidence that Big 4 affiliated firms engage in higher levels of non-conforming tax avoidance and shift more income out of high tax rate affiliates compared to peer firms. The Big 4 shift more income out of high tax rate affiliates only in those high tax rate countries with stricter institutional environments, higher levels of tax enforcement, and higher book-tax conformity levels where the Big 4 have strong incentives to engage in tax avoidance but are more likely to be scrutinized from regulators. The Big 4 avoid more taxes in low tax rate countries, which are more likely to serve as inbound income shifting locations. We further show that the positive relation between Big 4 affiliation and non-conforming tax avoidance (income shifting) is stronger for Big 4 affiliated firms that are audited by another Big 4 auditor. Our study contributes to the literature by documenting how political and reputational costs interact with tax expertise to define Big 4’s own tax planning rather than merely that of their clients.

Purpose – This study aims to examine the relationship between earnings quality and analysts’ information environment measured by analysts following, analysts' forecasts dispersion and analysts' forecasts accuracy using a sample of EU listed firms. Design/methodology/approach – Secondary data was used, that covers all non-financial firms in 15-member states of the EU during the period of 2000 to 2014, to test the relationship between CoD and AQ. Findings – We find evidence that firms with high earnings quality have more analysts following, less analysts' forecasts dispersion and higher analysts' forecast accuracy. Moreover, we find that the innate component of earnings quality dominates the effect on analysts following, analysts’ forecasts dispersion and analysts’ forecasts accuracy, while the discretionary component is likely to have a negligible impact. Moreover, we report a link between the magnitude of this relationship and national characteristics and provide evidence of the significant effects of national characteristics and market forces on analysts’ information environment. These findings shed light on the important role of earnings quality in helping analysts and investors to make better financial investment decisions.

This paper contributes to accounting literature through investigating the association between CSR and tax avoidance as well as the moderating effect of corporate governance and cultural values on this link in a unique setting. Based on panel data of 973 observations for the period 2010-2016, the findings of this study generally show a positive association between CSR and tax avoidance, with a latter evidence shows that the result is driven by the sub-sample of less responsible firms. The findings also show a positive moderating effect of corporate governance on this association. Further, there is some evidence that country level characteristics seem to affect CSR-tax avoidance link. Our findings are robust across different statistical techniques and alternative measurements. These findings support the theoretical framework of legitimacy and stakeholder theories. This study has implications for regulators, governments, and key players in tourism sector.

In this study, we examine whether CEOs’ stock-based compensation has any relationship with disclosure of high proprietary information. While prior studies suggest that stock-based compensation provides managers with an incentive to enhance their voluntary disclosures in general, we argue that it may not be case when the proprietary cost is high. By using novel measures capturing the disclosure cost of high proprietary information and focusing on a bio-tech industry, we find that, on average, managers’ stock-based compensation is not significantly related with their disclosure of high proprietary cost information. More importantly, we find that a larger amount of stock-based compensation motivates managers to reveal less high proprietary cost information when they have a stronger need to protect their proprietary information; specifically:(i) when the stage of product development is earlier, (ii) when the corporate board mainly consists of directors with lack of sufficient knowledge on technology, and (iii) when firms are a leader in an industry. Overall, our study contributes to the literature by documenting that the role of stock-based compensation on managers’ disclosures can differ depending on the level of proprietary cost of information.

Using a theoretical framework that combines elements from the management fashion theory with the so-called “virus metaphor” (Røvik, 2011), we analyze the case of integrated reporting (IR) in Germany, a management idea mainly applied by multinational corporations to combine financial and non-financial reporting practices. Building on qualitative data from the German IR and non-financial disclosure landscape gathered over a two-year timeframe, we examine why IR – despite its strong initial popularity in academia and business practice – remains in a dormant stage: The idea of IR is neither moving towards full adoption nor becoming a fad and being abandoned. Our data sheds light on the field level conditions that might explain this continuous dormant stage where key actors in the field approach IR with a “wait-and-see” perspective. We find that dormancy is facilitated by low demand of reporting organizations due to lack of tangible benefits and low reputational gains, a more supply- than demand-driven market environment for IR, and maintained by subliminal regulatory threat. These findings theoretically expand the “virus” perspective on the organizational handling of management ideas by putting the roles of different field-level actors that can influence the dormancy of management ideas into a common conceptual framework.

We examine how mandatory disclosure of greenhouse gas (GHG) emissions influences companies’ emission levels. We identify the effect of full transparency by exploiting a mandate requiring UK-incorporated listed companies to disclose information on their GHG emissions in their annual reports. Comparing the emissions of installations owned by listed companies and installations owned by firms not subject to the mandate, we document that disclosing GHG emissions in annual reports reduces emission levels by up to 16.5%. Emission reductions occur across all industries, but are largest for installations from the energy supply industry. Our results are robust to various specifications and document the incremental effect of disclosing emission data in annual reports, as firms had to report emission data to a central register already before the disclosure mandate.

The Internal Audit Function (IAF) has become a main pillar of good corporate governance in recent years. To better understand drivers that influence the investment into the IAF, this study examines possible factors associated with the organizational investment into internal auditing. Based on proprietary survey data from Chief Audit Executives (CAEs) gathered in Austria, Germany and Switzerland, we were able to identify different measures of corporate complexity as key drivers of the investment level. Based on data from 415 organizations, our results show significant effects of different complexity indicators, such as internationalization, industry type or company size, on IAF investment. We use nine different variables as proxies for corporate complexity and the number of internal auditors as our main dependent variable of interest. This study contributes to the internal audit literature through an unique research approach to identify key drivers of an IAF investment. Furthermore, the results are a potential benchmark for practitioners and the profession to evaluate the necessary investment into the IAF.

Based on recent research on the importance of board informal hierarchy in firm performance, and the significance of innovation for firm survival and growth, this study examines whether board informal hierarchy is associated with innovation, measured as the productivity of R&D (RQ). Board informal hierarchy is measured as the Gini coefficient to capture the level of inequality that exists among the board members based on their board memberships in other firms. For a large sample of US firms for the period 2000-2015, we show that informal hierarchy is positively associated with innovativeness (RQ).

This paper investigates the economic consequences of firms connected to organized crime (criminal firms) and shows that when a criminal firm is eliminated from an industry, the performance of non-criminal competitors significantly increases. We also show that the positive effect on the performance of the non-criminal competitors includes improved efficiency reached after the elimination of the criminal competitor. Overall we provide evidence that criminal firms play a crucial role in hampering competition and shows that the economic costs imposed by organized crime are not exclusively linked to a deterioration of the institutional environment.

This is a study of companies’ and industries’ use of environmental reporting in connection with environmental disasters and crises. Exxon Valdez is an example of such an event. The study is a review of current literature on this issue, and concerns both how such events affect corporate reporting and how reporting, before and after the event, affects the consequences of the events for companies and industries. The study shows how environmental reporting may be used as an accountability and a strategic legitimation tool. Extreme cases are of interest because environmental risks are more likely to be significant, and, hence, relevant for companies. Such events represent a boundary condition for environmental reporting.

Considering the public dissatisfaction with corporate scandals and the resultant investor and consumer mistrust with European companies, the European Union Parliament has introduced Directive 2014/95/EU on non-financial reporting and disclosure. We investigate its potential effective based on its scope. Level of guidance and methods, lack of audit and the absence of meaningful sanctions. As a result, we cannot see any evidence that the Directive will have a major impact on European companies and argue that a toothless tiger has been born.

Within their day-to-day decision-making, managers face various trade-off situations when engaging in CSR-related activities that might result in a gap of executed behavior that is not in line with corporate strategic objectives. This paper examines (top level) managers’ intentions to engage in CSR-related activities as they determine the extent of such potential management control problems that can be addressed through an appropriately designed management control system (MCS). According to the theory of planned behavior, intention is determined by three psychological constructs, namely attitude, subjective norm, and perceived behavioral control. We conduct two vignette studies to examine the effect of the theory’s constructs on corporate CSR-related activities among German firms. (Top level) managers participated in our study by completing an online questionnaire. Our results show that attitude towards CSR-related activities has a strong impact on intentions to engage in certain activities. Furthermore, perceived behavioral control influences (top level) managers’ intentions to engage in CSR-related activities. However, the influence of subjective norm is not supported. Our findings are relevant for the design of effective MCSs that set an important basis for long-term behavior, which is in line with corporate CSR-related goals. Furthermore, our findings are relevant to governmental agencies, which seek to support the CSR integration into corporate (core business) activities.

While it has been generally established that affect can play a role in capital budgeting decision-making, the impact of positive and negative affect is not the same (Kida et al. 2001, Monero et al. 2002, Farrell et al. 2014). The current study explores the role of process accountability in mitigating the role of affect on capital budgeting decisions. We conducted an experiment with highly experienced and qualified accountants. Our study reveals the effectiveness of process accountably in mitigating the role of positive dispositional affect on choosing the most financially preferred project. In contrast, and as expected, we demonstrate that project reviewers were less likely to select a financially preferred project proposed by a manager with negative dispositional affect and this tendency was not mitigated by process accountability. Therefore, we indicate that the pervasiveness of negative affect is stronger than positive affect and renders process accountability ineffective.

We consider how auditor industry specialization impacts the quality of voluntary non-GAAP earnings disclosures. Our results show that non-GAAP exclusions tend to have the less predictive ability for future operating earnings in firms audited by industry-specialist auditors, suggesting a higher degree of non-GAAP earnings quality. These findings reveal that industry-specialist auditors can improve the overall disclosure quality beyond the accounting standards. We also predict that industry-specialist auditors are less important in industries where the non-GAAP disclosures are prevalent, since the non-GAAP quality is already high in prevalent industries. Consistent with our prediction, we document a positive association between industry-specialist auditors and the quality of non-GAAP disclosures in firms from industries where non-GAAP disclosures are less prevalent, but not in prevalent industries. These results extend our understanding of the impacts of industry-specialist auditors on the voluntary disclosure behavior of firms.

Both conservatism and the inclusion of covenants in debt contracts have been identified as factors promoting contracting efficiency. We argue that demand for conservatism increases in the presence of relatively more balance sheet-based vs. income statement-based covenants in public debt contracts. We examine, for public debt contracts issued by North American firms during 1980-2016, the association between covenant mix and accounting conservatism, upon considering that demand for conservatism may also depend on debt maturity when debt contracts incorporate covenants. Our findings first indicate that debt maturity positively associates with a covenant mix more intensive in balance sheet-based covenants. Our evidence further shows that demand for conservatism increases with debt maturity, and with a covenant mix more intensive in balance-sheet vs. income statement-based covenants, as debt maturity increases. We interpret this evidence as consistent with conservatism enhancing the ex-ante shareholder/debtholder alignment of interests role performed by balance sheet-based covenants, when conservatism may facilitate or adversely affect the ex-post credit risk deterioration signaling function of income statement-based covenants, particularly in the multi-period context. Our findings suggest that the type of covenants included in public debt contracts significantly associates with demand for accounting conservatism, under the scope of improving debt contracting efficiency.

The purpose of this paper is twofold. First, we aim to extend the conversation started by Michelon et al. (2015). They conducted a study of sustainability information submitted by companies in the UK for the period 2005-2007, when IR was not yet proposed. They found that, companies that prepare stand-alone reports do not provide a higher quality of information about sustainability than companies reporting within the annual reports. They conclude that CSR reporting practices are symbolic rather than substantive; however, their sample includes only companies in the United Kingdom, a shareholder oriented country. We analyze if the quality of sustainability reports in a stakeholder oriented country, is affected by the type of instrument used for disclosure. Second, we aim to assess the quality of the sustainability information issued following the two most common reporting practices: stand-alone report (addressed to stakeholders) and integrated report (addressed to shareholders). In order to achieve these objectives we perform a content analysis of the sustainability information disclosed by Spanish listed companies during the years 2013 to 2015. Our findings indicate that companies issuing stand-alone or integrated reports provide higher quality information than companies including their sustainability information within the annual report. We also find that stand-alone reports are issued with higher quality than integrated reports.

The ongoing controversy around goodwill accounting prompted this paper, aimed at empirically exploring chief financial officers’ perceptions about goodwill impairment versus its amortization. The study is based on a global survey of CFOs, extrapolating their perceptions about the adoption of IAS 36 and SFAS 142. More than half of the responding CFOs argue that alternative accounting treatments of goodwill might better accomplish the objective of rendering useful information than impairment testing. However, almost two thirds of the respondents still prefer impairment testing to the amortization process. The results are topical, considering the interest in the issue by standard setters, practitioners, and academics. The responses indicate the antecedents of the preference of goodwill impairment testing to the amortization process. From a theoretical viewpoint, the study indicates whether the practice converges (or diverges) from the speculative motivations underlying the preference of impairment to amortization. The study identifies several areas where regulators and standard setters can intervene, contributing to the ongoing debate on possibly reintroducing goodwill amortization. While there is copious literature that debates and explores earnings management through the income effects of goodwill write-offs, it has not studied CFO perspectives about the flexibility of goodwill estimates.

This study develops direct tests of the reliability and relevance of fair values reported by listed private equity firms (LPEs), where the unit of account for fair value measurement attribute (FVM) is an investment stake in an individual investee company, FVMs are observable for multiple investment stakes, fair values are economically important, and granular data on the economic fundamentals that should underpin fair values are available in public disclosures. We find that LPE fund managers determine valuations based on accounting-based fundamentals that are in line with those investors derive for listed companies. Additionally, our findings suggest that LPE fund managers apply a lower valuation weight to the investee’s equity book value if direct market inputs are unobservable during investment value estimation. We interpret these findings as evidence that LPE fund managers do not appear to mechanically apply valuation weights the market uses for their publicly traded investees when determining valuations for their non-listed investees. We also document that the judgments that LPE fund managers apply when determining investee valuations appear to be perceived as reliable by their investors.

The paper aims at understanding the reliability, comparability and relevance of information reported on the monetary value of cultural, heritage and scientific collections as assets in the general purpose financial statements of Australian Museums. It analyses the financial statements of 16 major Australian museums for each year during the period 1996-2015 focusing on: (a) institution total assets; (b) carrying value of the collection; (c) basis of carrying value per year; (d) depreciation policies. Findings show that the total monetary value of collections across all 16 institutions has increased by 20 times from 1996 to 2015, namely from $806 million to $16 billion. In 1996, collections represented 51.8% of the total assets of all museums. This percentage rose to 85% twenty years later. Overall, this trend reflects changes in the valuation practices rather than variations in the nature of the collections via additions or deaccession. It remains questionable to what extent the financial valuation of collections is useful for improving the accountability of those who manage not-for-profit public arts institutions having non-commercial goals.

This paper analyses and identifies the main determinants of cash VAT regime, in particular through the perception of Portuguese Chartered Accountants. This tax regime was introduced in Portugal recently and its study is particularly important for two reasons. Firstly, the cash VAT regime is applied to Small and Medium-sized Enterprises (SMEs) and the Portuguese business structure, like in many other countries, is mainly built of SMEs. Moreover, since this new regime is designed to benefit these enterprises, particularly their cash flow levels, it is important to assess whether SMEs had used it or not. Secondly, this regime is an optional regime, whose decision incur to Chartered Accountants. Thus, we believe it is relevant to analyze their perception related to the regime adoption, in order to identify the main determinants of cash VAT tax regime.

This study analyzes the influence of the personality traits of the Dark Triad on the career interests of accounting students. For this purpose we obtained responses from a sample of 1,404 accounting majors at Brazilian universities. The data were analyzed by calculating descriptive statistics and applying structural equation modeling (SEM). The results indicated greatest career preference for auditing, followed by private accounting. Besides this, the Dark Triad traits influenced, to a greater or lesser degree, all the career interests (remuneration, social prestige, hierarchical position, vocation, professional satisfaction, history of success among family members or friends and availability of jobs). However, the strongest influence was on career choices that reflect attitudes of individuals with Dark Triad traits, such as manipulation, superiority, exhibitionism, power and strategies. These results make a theoretical contribution by expanding knowledge of the roles played by personality and career interests in accounting education, presenting a theme often considered undesirable. In practical terms, it provides information to recruiters in the accounting area, audit firms and businesses. The results also call attention of educators to the need to address ethical dilemmas of the accounting profession and professional responsibility to society. Identification of students with undesirable personality traits can be used to guide them toward extracurricular activities that emphasize the need for ethical postures both in the academic and professional settings.

This paper examines, theoretically and empirically, the impact of institutions on the associations between corporate social responsibility and earnings management. Using a sample of firms from 30 European countries spanning seven years, we construct a large data set with external and internal corporate governance, political, financial, and cultural factors. We find that the political control of corruption, followed by the financial and the cultural system are the most important categories of institutions that influence the relationship between corporate social responsibility and earnings management. Interestingly, the board of directors efficiency and the existence of board committees appear to have a relatively less significant impact.

Measuring earnings management is an empirical challenge for many academic papers in accounting. The objective of this study is to review and critically assess the quality of the most frequently used models for detecting earnings management. Earnings management models are based on a modelling of the accruals process. This paper is based on the simple assumption that an earning management model can be qualified of “good” if estimates are consistent with the underlying economic assumptions. We compare five earnings management models (three derived from the Jones (1991) and two from the Dechow and Dichev (2002) models) with three estimation methods (grouping by country, year and industry: by industry and year; by country, year and size) for short-term and total accruals. We test the models with all observations with sufficient data from Eikon Thomson Financial on the 2005-2014 periods. We find that models explaining total accruals outperform short-term accruals models. Our data also reveals that estimation of the various models by year and industry (ignoring the country of incorporation) is more likely to generate reliable estimates than any other estimation method. We also find that Dechow and Dichev (2002) models outperform Jones (1991) ones in explaining the accruals process.

We examine the effects of a continued myopic use of the inverse elasticity rule in pricing. By myopic, we mean ignoring that elasticity and marginal cost both may depend on price. It has been shown that myopic use will typically lead to price changes which are too large relative to the optimal price change (Fjell, 2003). We find that repeated myopic use will lead to price divergence unless demand is sufficiently convex. However, the divergence problem may be mitigated by adopting a simple heuristic of only changing price by half of the increment proposed by myopic use of the inverse elasticity rule.

We examine the disclosure of GAAP effective tax rate (ETR) information in firms’ financial statements. Applying the theoretical underpinnings of Wagenhofer (1990) to a tax setting, we argue that firms face a tradeoff in their GAAP ETR disclosure decision. On the one hand, firms have incentives to increase GAAP ETR disclosure if the ratio has a condition that is favorable from an investor’s perspective, expecting positive capital market reactions. On the other hand, the disclosure might draw tax auditors’ and public attention to the GAAP ETR and result in proprietary costs in terms of additional tax payments or reputational damages. We empirically test the disclosure behavior by examining the relation between disclosure intensity and five different measures of favorable GAAP ETR conditions. First, we provide evidence that the annual report section in which most of the firms disclose GAAP ETR information is the management report, indicating that firms assign considerable relevance to the ratio. Second, we find a higher disclosure intensity if the GAAP ETR has a favorable condition, i.e. is decreasing or near the average ratio of firms in the same industry or size group. We do not find a significant relation to the disclosure level for smooth GAAP ETRs. Our findings indicate that firms assess the benefits of providing the favorable GAAP ETR information to be higher than the related costs.

This study exploits a special feature of the UK information environment which allows UK firms to disclose non-GAAP earnings on the face of the income statement to examine two interrelated questions. First, we ask whether the decision to disclose non-GAAP earnings on the face of the income statement is related to the firm’s financial performance and corporate governance characteristics and second, we investigate the effect of this disclosure decision on market liquidity. Using a dataset of 1,241 hand-collected firm-year observations during the period 2006-2013, we show that better governed firms and firms with weaker financial performance are more likely to disclose non-GAAP earnings. Our evidence also suggests that this disclosure is associated with increased levels of market liquidity and the results hold after controlling for self-selection bias. We conclude that firms’ decision to disclose non-GAAP earnings on the face of the income statement is driven by the incentive to provide more information rather than to mislead the market.

'Impression management' comes from the sociologist Erving Goffman (1959) who described each individual as an actor in a theatre whose scope is to 'impress' the viewers. In the literature often, the preparers of financial or social and environmental reporting (SER) are depicted as the actors who want to impress the readers. In the same vein accounting scholars have examined how visual images, like graphs, can be distorted in order to obtain information as much favourable as possible for the company. Previous studies found high level of graphs' distortion and linked this distortion with impression management techniques or with legitimacy intents. Nevertheless, there is a lack of studies devoted to analyse the real power of influencing the investors’ decision making process attributed to such types of voluntary disclosure instruments used by managers. This study aims to fill the existing gap on the readers' reaction to the use of impression management tools focusing on value relevance effects. More concretely this study seeks to detect if visual devices and SER have effects on investors' decisions and thereby on market value. This study presents preliminary results on a sample of Italian listed companies. The results open the door for a deeper reflection on the managerial intents and on the investors ability of detecting possible tools merely aimed at impressing them and influencing their decision making process.

We investigate the potential for a client to use a same-firm office switch as a mechanism for audit opinion shopping, relying on the framework developed by Lennox (2000). Opinion shopping in this context could either be informationally motivated (Dye 1991) or driven by managerial opportunism. Using U.S. data from 2000-2015, we find that client companies successfully avoid going concern audit opinions through audit office-switch decisions. The empirical finding is stronger when opinion shopping involves larger audit offices, industry specialist offices, and offices in the same metropolitan statistical areas. More importantly, we find that successful opinion-shopping companies tend to choose audit offices with low Type I errors, and they exhibit higher earnings quality than non-successful counterparts. Overall, the evidence suggests that same-firm audit office switching is not opportunistic, but is informationally motivated and improves audit quality.

The aim of this study is to understand the association between the elements of Socioemotional Wealth (SEW), Greiner (1997) framework about the firm’s stages of development, and the adoption of management control artifacts. The relevance of the research is linked to the fact that the adoption of artifacts and their use in family businesses is preceded by socioemotional aspects and aspects of organizational evolution, which can stimulate, impede, or postpone the demand for them in relation to stages of development. This phenomenon is particularly relevant for family businesses, where the regulatory environment is weaker and pressure to formalize due to the presence of shareholders is less present. From the management control perspective, it is important to understand how the profile of the family business in terms of socioemotional elements affects the demand for management artifacts via the stages of evolution. The data were analyzed using the structural equation modeling technique in SmartPLS. Unlike in most of the studies developed, the sample was composed of organizations that do not have shares on the stock exchange, which improves the focus on family-controlled companies. The results partially prove the thesis involving the association between SEW and the stages of evolution (Greiner, 1997) of the organization, and also the association between these stages and the adoption of management artifacts. Consequently, the findings suggest that socioemotional wealth is positively associated, to a greater or lesser degree, with the stages of organizational development. In turn, the adoption of artifacts in organizations can be understood as a practice that passes through the phases of their evolution; that is, the stage experienced by the family business has a distinctive character in terms of the adoption of management artifacts.

Big news events can influence market returns, liquidity, trading, and reactions to earnings announcements. Using the Pew Center’s News Coverage Index, we build daily indices capturing the importance of newsworthy events related to business and economics (BE), government, and other events. We find that absolute market returns, price impact, price protection, and trading volume are higher on days with bigger BE news. Market reactions to earnings announced on high BE news days tend to be larger and followed by less post-earnings announcement drift, even though there is less trading around these earnings announcements, consistent with differential attention effects on sophisticated and unsophisticated investors.

Whereas extant accounting studies consider stress an outcome of performance evaluation, suggesting a direct positive association between evaluation frequency and stress, we expect an indirect negative association when focusing on chronic stress. Drawing on the neurobiological literature on chronic stress, we argue that such a negative association is explained by accountability duration, which is the time between evaluations during which one anticipates the threat of justifying periodic performance. We measure chronic stress with resting levels of the neurohormone thyrotropin, which is a classic marker of chronic biological stress and predictor of burnout. In a one-year field experiment, we found that participants assigned to a 12-week accountability duration cycle, compared to those remaining in a 6-week accountability duration cycle, had higher resting thyrotropin levels after 6 and 12 months. We conclude that accountability duration is positively associated to chronic stress, suggesting that performance evaluation has a beneficial role in mitigating chronic stress by disrupting the accountability duration. We find no effects of accountability duration on self-reported mental fatigue scores, attesting to the need of using neurobiological measures in research on accounting behavior.

In family firms, risks of minority’s wealth expropriation arise. Board of director should mitigate risks of expropriation for minority shareholders. However, family owners may weaken the effectiveness of board monitoring, by entrenching family members or not truly independent directors in the board. This study investigates the effect of board composition on the CEO turnover-performance sensitivity in family firms. Moving from agency theory, we hypothesize and find that the CEO turnover-performance sensitivity is lower as the level of family entrenchment increases, but it is higher in firms with independent boards.

The aim of this paper is to explore what implications disaggregated performance measures have for interdependent relationship among managers who share collectivistic values. Drawing on the cross-cultural psychological literature, this paper adopts independent and interdependent construals of the self as a theoretical framework. Based on the framework, this paper explore how disaggregated performance measures implicate managers' roles and goals in the relationship. To address this question, this paper builds upon a qualitative case study in the Japanese manufacturing site of a Japanese company. We find that managers show empathetic attitudes to other managers. The other managers also have the feeling of indebtedness to the managers. These empathetic relation development can facilitate cross-functional cooperation. Our findings also show that managers recognize the progress toward other managers' goals as one of their own goals and then take on socially expected wider roles for the others. This role orientation involves a self-improving process in which senior managers offer role-driven capability development for young managers.

This study explores the relationship between organizational (i.e., management accounting) capabilities and organizational performance in terms of effective contemporary performance measurement system (CPMS) use. Data collected from our mail-based questionnaires reveal that absorptive capacity and experiential learning capability in CPMS use, one of the organizational capabilities of management accounting, play important roles in organizational performance improvement. Our results also show that absorptive capacity and experiential learning capability have opposite effects that are conditioned by the specific situation.

We examine whether signing audit partners in China experience reputational harm following regulatory sanctions against their clients even when regulators hold the signing partners (and the audit firm) to be non-culpable for the client’s misconduct. We find that non-culpable signing partners of sanctioned clients suffer reputation loss over a three-year period following the sanction announcement as measured by a decline in the likelihood of client gain, an increase in the likelihood of client loss, and a decline in audit fees earned from continuing clients. Further, we find the losses for non-culpable signing partners to be more severe for accounting-related vis-à-vis non-accounting-related misconduct by the client. Collectively, our findings indicate that non-culpable signing partners are subject to undeserved reputational harm for being associated with a tainted client, i.e., personal reputations are damaged for reasons unrelated to the signing partner’s audit responsibilities or performance. Our findings suggest a disquieting prospect for engagement partners in the US and are of potential interest to the PCAOB.

Inspired by the promotion of gender balance in governing bodies of listed companies in Europe, this study seeks to understand if the presence of women on the board of directors with different levels of responsibilities is associated with the disclosure of gender policies in corporate social responsibility reports. We investigate the gender balance in governing bodies through the lens of two theories: social identity theory to learn about the women role in a group and gender self-schema to learn about the individual role of women. Using data of Italian companies listed on the Milan Stock Exchange from 2010 to 2015, we find that the percentage of women on the board of directors is positively associated with the implementation and disclosure of gender policies. Consistently with the social identity theory, we show that having more women as members of the same group influences the decision-making process. We also find that the presence of women in the role of Chairperson is positively associated with gender policies. Consistently with gender self-schema, women believe in their values, ethic and attention to conflict management when they are in the position of Chairperson, promoting gender policies. We contribute to social identity theory showing its application also in the group of boards of directors and with the minority of women. We contribute to self-schema showing that the gender self-schema has a significant impact in the position of Chairperson.

This study extends and integrates research on complex disclosure, in general, and strategy disclosure, in particular, by looking at the distributional wealth effects of strategy disclosure, an inherently complex type of disclosure, between individual and institutional investors. Using proprietary market microstructure data of the Milan Stock Exchange and strategic plan presentations of Italian firms as disclosure events, we show that strategy disclosure triggers an abnormal trading activity around the disclosure date and that institutional investors trade in the direction of the price change around the disclosure date, whereas individual investors trade in the opposite direction. We also document that institutional investors’ trading around the disclosure date generate on average positive two-month abnormal returns of 5.9%, while individual investors’ trading generate negative two-month abnormal returns of 5.3%. Collectively, these results suggest that strategy disclosure “unlevels the playing field” between individual and institutional investors, causing a wealth distribution from individual to institutional investors around its release.

We study how institutional ownership influences the lenders’ monitoring demand. Using the sample of syndicated loan contracts for U.S. firms from 1996–2012, we show that, when institutional ownership of a borrower is higher, the debt contract is more likely to include a covenant-monitoring mechanism called the auditor certificate of covenant compliance (CC). Consistent with the debt-equity conflict hypothesis, this result is driven by transient and index-tracking institutions. We establish the causal relationship using exogenous variations in institutional ownership created by annual reconstitutions of the Russell index memberships. Overall, our evidence suggests that the pressure for firms to cater to institutional investors causes the incentive to engage in creative accounting practice and consequently, a higher demand for the contracting mechanism that restores the workings of financial covenants.

The trend towards higher ownership by institutional investors led to increasing discussions about the role that they should play as owners of the equity of large European listed companies. Coherently, several national and transnational institutions around the world issued several codes and guidelines on institutional investors’ responsibilities in order to increase the institutional investor activism and their engagement with investee companies. Among them, the first stewardship code was issued in the UK in 2010 (revised 2012). This study investigates the effectiveness of the UK Stewardship code in encouraging an active role of the largest institutional investors, via shareholder dissent, in the corporate governance of European listed companies. Our findings show a greater shareholder dissent in those institutional settings characterized by a greater risk of expropriation. Moreover, we find that the adopters of the UK stewardship code tend to express a greater dissent compared to non-adopter and, in particular, in companies listed in civil law countries, where investors suffer the most the risk of wealth expropriation. These findings support the view that institutional investors adopt the UK stewardship code because of the gains in efficiency that followed its adoption, rather than for legitimacy reasons. First, our study contributes to a better understanding of shareholder dissent in Europe. It also shed some lights on the effectiveness of the use of the UK Stewardship Code.

Environmental issues have become increasingly important for companies and society in general, and information about them is of concern, to the extent that many companies have been criticized for their negative impact on the environment, rather than for their technological and economic performance. This paper attempts to go a step further by developing an index of environmental issues from the Thomson Reuters Eikon database using statistical techniques to analyze the type of environmental information that companies report internationally. An index of 71 environmental variables was constructed and a dependency model was set up to be able to determine the explanatory variables that may influence this index of environmental disclosure, innovation, economic development and geographical areas being some of the variables used and which have been less tested in previous studies.

Governments have increasingly pushed for greater tax enforcement as a means to improve revenues and reduce the tax gap. We examine whether tax enforcement efforts have unintended externalities on the banking sector. Using the district structure employed by the IRS between 1992 and 2000, we find that corporate tax audit probabilities are positively associated with bank performance. We find similar evidence when exploiting the IRS reorganization in 2000 as an exogenous change to tax enforcement. Going beyond overall performance measures, we find that greater audit probabilities are associated with lower non-performing loans and more informative loan loss provisions. Further tests suggest that that these findings are primarily driven by its effect on existing and potential borrowers, consistent with prior research that documents that greater tax enforcement leads to improved corporate performance and information environments. Overall, our findings show that the tax authority’s mandate has important externalities on the banking sector via improved bank lending decisions, and suggest that the benefits to tax enforcement go beyond simply improving tax collections.

We study loan contract disclosures as a setting where equity market participants (e.g., analysts) can learn the information produced in the private loan market. Our findings reveal that analysts use the information in covenants with an earnings-related component to guide their earnings forecasts, which helps them improve forecast accuracy. We also study firm-level stock market outcomes. Results show that borrowers’ stock liquidity improves following disclosures of loan contracts and this effect is stronger when the disclosures are more informative. These results indicate that equity market participants learn useful information about borrowers’ future performance from loan contracts. More generally, our results have implications for understanding how information produced in the loan market affects the information available to equity market participants and potentially the well-functioning of the market.

This study analyzes the impact of auditors’ and clients’ characteristics on the number and type of key audit matters disclosed in the audit report. A recently introduced audit-reporting standard requires auditors to reveal the client’s main risks identified and how they address them during the audit. The results show that Deloitte, EY and KPMG tend to report a lower number of entity-level risks. However, KMPG is the only significant one related to accounting-level risks. Companies paying higher fees tend to have more entity-level key audit matters and less account-level key audit matters. Bigger and more profitable companies are significant with the number of entity-level risk. Industry is also related to the number of account-level risk KAM included in the audit report. This study is timely because it introduces new data about the analysis of the type of key audit matters disclosure by auditors and their consequences.

We hypothesize that socially responsible culture improves the risk profile of borrowing firms and makes debtholders less concerned about the security of their claims and thus demand less accounting conservatism. Consistent with our hypothesis, we find a negative relation between socially responsible culture and conservatism and several analyses indicate that less debtholder demand contributes to this negative relation. First, the negative relation is more pronounced when shareholder-debtholder conflicts are more severe. Second, more direct evidence in relation to debt contracting indicates that debtholders employ fewer covenants on loans to firms with socially responsible orientation, and that these firms are less likely to violate covenants. Third, lead-lag tests of the direction of causality suggest that the negative relation does not result from corporate greenwash (reverse causality). We also document differential effects of cultural values and norms and demonstrate that cultural values need to be coupled with norms to influence debtholders' decisions.

Starting from the observation that accounting for goodwill changes more rapidly in some countries than in others, the purpose of this research is to highlight the institutional groundings of the resilience to, or tendency for regulatory changes. In this regard, historical paths of the U.S. and France are opposite despite both countries currently prescribe permanent retention of goodwill. In this research, I argue that the French accounting concept of goodwill has remained relatively stable in time due to the strong relationship between accounting standards and legal institutions. In the frame of institutional complementarity (Aoki, 2001), I analyze why the original concepts derived from the Commercial Law remain a major factor that hinders changes regarding goodwill accounting. Far from seeking to explain some kind of “exception francaise”, this paper shows some institutional features that can be found in many code law countries including Germany and Japan; therefore, it may contribute to further debates in accounting standard-setting regarding goodwill.

We study plausible biases in textual analysis studies of 10-K documents. The study of financial narratives using automated procedures is a relatively novel development in accounting and finance. Therefore, standardized methods to collect and systematically analyse these data are yet to be developed. We provide detailed step-by-step guidance on how to download and prepare these files for analyses, and study the biases introduced by a number of decisions regarding sample construction, data preparation, and variable choice. In particular, we focus on two widely studied properties of financial narratives: their tone and readability. We document that a number of these choices introduce significant biases into the samples studied, as well as induce differences in average observed tone and readability. Our results also indicate that a non-trivial proportion of the EDGAR population is missing from the textual analyses being conducted.

This paper analyses the influence of the 2008 financial crisis on the level of CSR reporting, by considering the degree of the impact at which each firm was particularly affected by the crisis. Firms should assess the costs and benefits of disclosing CSR information when deciding whether or not to publish a CSR report. The financial crisis might have affected the relevance of both factors in this analysis. On the one hand, firms may not be willing to assume the costs of producing a CSR report due to the scarcity of resources during the crisis. On the other hand, CSR reporting might be beneficial in times of economic turmoil because it enhances the reputation and legitimation of the firm. Using a sample of Spanish listed companies in two post-crisis years (2009 and 2011), our results support the second assumption. The companies that felt more intensely the adverse effects of the crisis provided CSR reporting of higher level than the other firms. Particularly, we found that this relationship was significant in 2009, when the crisis was at its peak. This paper allows us to get more insight into how the financial crisis influenced CSR reporting. Additionally, it reinforces the idea that, despite its costs, CSR reporting may be considered an adding-value practice that companies should embrace.

This study investigates whether adoption of one-dollar salary for the CEOs is a credible signal of benevolent act in the interest of the firms’ shareholders, analysed by assessing accrual-based earnings management (EM) and corporate tax avoidance (CTA) activities. We find that one-dollar salary CEO firms are more likely to have higher income-increasing EM and engage relatively more in CTA activities relative to other firms. Since all one-dollar salary CEOs have equity ownerships or stock options in their firms, acceptance of one-dollar salary could be interpreted as exchanging of their smaller amount of current compensation in the form of salary for a larger amount of long-run future equity compensation through the usage of EM and CTA activities. Therefore, adoption of one-dollar salary may not be a true signal of benevolent act. Additionally, we investigate the moderating effects of managerial ability on one-dollar salary CEO firms’ EM and CTA, and find that the positive effect of one-dollar salary CEO on the levels of EM and CTA is weaker in firms with more able managers. We also find that one-dollar salary CEO firms with more analysts coverage engage in less EM and CTA activities, highlighting the importance of good external monitoring in curtailing such behaviour.

In this article, we conceptualize auditors’ identity work in the Big audit firms. While the literature shows that auditors’ identity consists of a form of standardized social identity, the hierarchy of the Big firms also requires individuals to stand out from one another. Auditors’ identity work rests on a still little explored paradox where auditors must be like the others and stand out simultaneously. Through a qualitative study we conceptualize auditors as individuals who endeavour to divide their subjectivity into a set of preferences and qualities in order to stand out through their uniqueness and usefulness. We highlight three sets of practices and discourses through which auditors become unique and useful: they redefine their professionalism with regard to their personal qualities, turn the latter into human capital capable of making them move up the ranks, and fully commit to competing against others and against themselves. By drawing on this notion, we suggest that identity work can be seen today as a post-disciplinary form of power.

This paper investigates how cost asymmetry resulting from decisions of individual CEOs may be associated with shareholder value. We focus on the asymmetric behavior of costs because although it has captured the attention of researchers in the past years , little to no attention was given to what the economic consequences of asymmetric cost behavior might be or how the decisions of individual CEOs may directly impact the level of asymmetry in selling, general and administrative (SG&A) costs. This study attempts to close these literature gaps by first identifying the contribution of CEOs to the level of SG&A cost asymmetry at the firm level using CEO-fixed effects as proxies, and then analyzing whether and how the CEO-related excess SG&A cost asymmetry is associated with shareholder value. The results confirm the existence of significant CEO influence on the level of SG&A cost asymmetry at the firm level and provide strong evidence that the identified CEO-related SG&A cost asymmetry is associated with lower shareholder value. In addition, our empirical analysis provides the first comprehensive evidence of cost asymmetry also consisting of a part which is harmful to the firm and its shareholders, namely the CEO-related excess SG&A cost asymmetry.

We examine the relationship between firm’s valuation shocks and the disclosure of nonfinancial information using web-scrapped CSR news for publicly traded non-financial US firms between 2000 and 2015. We measure valuation shock by the value-to-price ratio based on the residual income model. To correct for potential endogeneity, we use institutional price pressure, more precisely mutual fund outflow, to instrument for firm’s valuation shock. Our results suggest that firms facing negative valuation shocks are more likely to release CSR information compared with their peer firms who operate in the same industry and have similar characteristics. This relationship is robust to alternative measures of valuation shocks, various benchmarking approach, and different estimation models. Furthermore, we provide evidence that information asymmetry (i.e., low CSR engagement, low stock price informativeness, and low analyst forecast coverage) is likely the underlying channel through which undervalued firms increase their nonfinancial information disclosure. Our findings have important implications for academics and practitioners in understanding firm’s incentive to release CSR information.

This paper examines the competing accountability pressures individual frontline employees can face in hybrid public sector organisations, and how they respond to them. Drawing on a case study of an English business school, it shows that the co-existence of professional and commercial logics exerted competing accountability pressures on lecturers. It moreover shows that, sometimes deliberately and purposefully, sometimes ad-hoc or even coincidentally, lecturers drew on a wide range of responses to these conflicting pressures, including compliance, defiance, combination and compartmentalisation. The paper sheds light on individual level responses to competing institutional logics and associated accountability pressures. It also highlights the drawbacks of user, customer or citizen accountability mechanisms, showing that a strong emphasis on them in knowledge-intensive public organisations can have severe dysfunctional effects.

Prior research generally attributes portfolio concentration to an information advantage that arises from private information acquisition. We investigate whether sophisticated investors’ concentration in the auto industry is associated with their use of industry-specific information in customer complaint data from the National Highway Traffic Safety Administration (NHTSA). We find that the extent to which mutual funds incorporate the complaint information into their trading decisions is positively associated with their industry concentration. While our findings are consistent with the information advantage explanation, we provide direct evidence that information advantage can also arise from superior information processing rather than access to private information. Furthermore, unlike mutual funds, we find that pension funds, regardless of their level of industry concentration, do not use the customer complaint information to inform their trading decisions. Our findings suggest that pension funds appear to hold concentrated portfolios for reasons other than the information advantage explanation for portfolio concentration.

The aim of this paper is twofold: firstly, we want to know the economic and financial situation of all the Sheltered Employment Centres (CEEs) in Spain, showing which variables explain their viability, and, secondly, we want to test the impact of the economic crisis on their profitability. Using the available data of all the Spanish Sheltered Employment Centres for the period 2004-2016, a descriptive analysis and a linear regression have been carried out. Additionally, the obtained results are compared with non-parametric methods (artificial intelligence) in order to check them. This study helps to shed light on the future viability of this kind of firms as well as its social visibility.

This paper examines the processes by which a group of social workers in a social enterprise came to adhere to the claimed benefits of quantitative templates in framing the social problems of individuals and ways of addressing them. We also reflect on consequences ensuing from this important shift in social work expertise. We build our insights from an ethnographic study conducted in a social enterprise, where the management had recently been taken over by social entrepreneurs. The latter were concerned in rendering their organization’s social workers more focused on strengthening the employability of beneficiaries, particularly through the compulsory use of quantified grids of evaluation. Our analysis brings to light the strategic initiatives and main conditions of possibility that collectively played a role in strengthening social worker receptivity towards quantification and in modifying the nature of their expertise. Specifically, we found that the core of social work expertise was altered in three main ways: strengthening of emotional boundaries between expert and beneficiary; downplaying the victimhood (of beneficiaries) as a key referent; and development of a breach in the claim of exclusivity in the relationship between social worker and beneficiary. This shift in expertise has deep consequences on the kind of person social work aims to produce; the emphasis is now on the development of individuals capable of being employed in the labor market.

This study takes the work of Bedford & Malmi (2015) regarding configurations of control as starting point. We explore measurement-related and structure-related management control (MC) practices and contextual factors in small and medium-sized enterprises (SMEs). We derive three hypotheses regarding the interdependence of MC practices and four hypotheses regarding the interaction between MC practices and contextual factors and their association with performance. We test our hypotheses based on matched archival and survey data for 406 companies from Denmark, Finland and Norway. We find support for three hypotheses. This study contributes to complementarity theory and extends prior research regarding MC practices, contextual factors and performance for SMEs. Findings further imply country and industry differences.

This paper examines the impact of banks’ non-financial disclosure and its quality of assurance on financial reporting quality. We use corporate social responsibility (CSR) disclosure to proxy for non-financial information and earnings quality measured by discretionary loan loss provisions (DLLPs) to proxy for financial reporting quality. Using a hand-collected dataset of European banks’ CSR disclosure and assurance practices, our empirical analyses show that banks’ CSR disclosure is negatively related with DLLPs, indicating that CSR disclosure mitigates bank managers’ incentive to manage earnings. Moreover, we find that the level and scope of assurance on CSR disclosure significantly influences financial reporting quality. We posit these findings to the bank managers’ moral imperative participated by the information collection, processing and presentation of CSR disclosure. As such, low-quality assurance can indicate less socially responsible bank managers that engage only in CSR disclosure assurance for enhancing the bank’s reputation. In this case, CSR disclosure assurance is not likely to constrain earnings management using DLLPs. Overall, our results suggest that the quantity and quality of CSR disclosure impacts the financial reporting quality of banks.

This study investigates the level of disclosure of environmental information, and influences upon this, for 180 firms listed on the stock exchanges of nine Arab MENA countries. The sample of this multi-country study denotes two defined groups of sectors for a five-year period from 2010 to 2014. Our findings indicate increased trends of, but substantial variability in, CED practices amongst MENA firms. Although firm-specific characteristics are positively and significantly related to CED, the influence of country-level governance is heterogeneous in that they may have enhanced or reduced CED levels in annual reports across the nine MENA countries. Additionally, CED reflects the different region-specific pressures (i.e., business cultures and business environment). By using institutional theory, the study argues that country-level institutional factors, representative of the social context of a company’s operational environment may either encourage or discourage the adoption of CED in the countries across the MENA region. Given the paucity of research into CED within the region, our study’s findings reiterate the crucial need for a more concerted effort to integrate economic, environmental and political policies to ensure sustainability within the area.

Industry is a topic in the management accounting literature that is widely acknowledged, but hardly discussed in depth. Studies with statistical analyses include a dummy variable for industry effects or use industry classification to describe the sample. We extend this approach by introducing an approach to consider industry effects in statistical analyses based on established measures of perceptions of organizations’ environment. To do so, we find in ANOVAS that perceptions are not completely idiosyncratic to particular organizations and are homogeneous within industries. Building on these results, we used hierarchical regression analysis to test how the industry-specific perceptions are associated with the importance of financial and non-financial measures. Hierarchical regression analysis accounts for the nested structure of data, i.e. organizations’ affiliation to an industry. The results indicate that the importance of financial measures differs across industries. With this study, we contribute to management accounting literature by introducing a measurement instrument to account for industry in statistical analyses.

This study investigates whether board co-option is associated with merger and acquisition (M&A) outcomes for bidding firms. Using a sample of 1,381 M&As initiated by U.S. public firms, it is documented that co-opted boards are more likely to engage in acquisitions. Board co-option is also associated with higher takeover premiums, a lower market reaction around the M&A announcement and a higher likelihood of M&A completion. The evidence presented is robust to a variety of variable definition and sample specifications.

We investigate earnings management around large labour dismissals. We look at firms listed in 18 European stock exchanges in the period 1997-2015. We first find that firms manage downwards their earnings in the year before dismissals. We document that firms have stronger incentives to manage their earnings around dismissals in the presence of with high political costs, i.e., strong labour unions, and low labour flexibility. We then use labour reforms as an exogenous shock to the political costs. Using a difference-in-difference design, we document that earnings management before large labour dismissals co-move with the direction of labour protections. Finally, we document that firms’ commitment to ethics plays a moderator role in the relationship between earnings management and large labour dismissals. Firms less committed to ethics are more likely to manage their earnings before large labour dismissals. These results support the conjecture that firms alter their financial performance to justify their decisions in the search to mitigate political costs associated to labour-related decisions. In addition, stronger firms’ commitment to ethics leads to less opportunistic financial reporting, even around stressful business decisions, i.e., large labour dismissals. This study extends the literature relating earnings management to political costs and to ethical decisions.

Professional code of ethics for accountants can play a critical role in helping the accounting profession meet its public interest challenge and strengthen public trust on its credibility. However, there is hardly any research attempting to assess professional accountants’ understanding of their professional code of ethics. Moreover, the literature ignores professional management accountants working in business, particularly in emerging economies. This paper seeks to fill these gaps by conducting a survey research in Indian context. The overall holistic score of the respondents turned out to be a dismal 56% on an average. Further analysis of the scores reflected that the professionals were better in ‘case-based application’ and ‘ability to resolve dilemma’ than ‘theoretical understanding’. They understood ‘threats to compliance’ better than the ‘fundamental principles’. The results of multivariate and probit regressions reveal that some of the factors in the professionals’ individual characteristics, job attributes and organizational features, could explain the differences in their scores. These findings can provide useful insights to the accounting profession, the standard setting bodies, and the accounting educators, which can guide them devise the right kind of intervention. This can be expected to make the professionals more effective in their ethical behavior and therefore, would be deemed valuable by those engaged in encouragement of ethical behavior in society.

This paper investigates to what extent multinational enterprises (MNEs) strategically choose subsidiary managers in order to alleviate application of tax planning strategies. Using a cross-section data set taken from the AMADEUS database, we show that headoffice managers have a significantly higher probability for taking co-positions in foreign high-tax subsidiaries. We find that subsidiaries with very high or very low tax rates also have more frequently managers in charge with co-positions in other subsidiaries. We argue that these subsidiaries are particularly relevant for the application of tax planning strategies and that engaging headoffice managers or managers with co-positions in other group companies may avoid a conflict of interest between the MNE’s and the manager’s priorities. Applying a second research design, we can also show that groups employing these management structures show significantly lower effective tax rates.

This study experimentally investigates how a principal uses outcome information in her subjective evaluation of an agent who chooses between alternatives of differing risks, and how outcome bias in the evaluation is related to the agent’s risk taking decision. We consider both a situation of information symmetry, where the principal can observe the agent’s decision, and a situation of information asymmetry, where the agent’s decision is hidden. Within both situations, we compare a condition where the principal receives peer comparison information with a condition where such information is unavailable. We hypothesize and find that principals’ evaluations are subject to an outcome bias, and that the bias is stronger when peer comparison is present. We further hypothesize and find that with peer comparison being present, agents’ decisions become increasingly misaligned with principals’ preferences. Our findings contribute to understanding outcome biases in subjective evaluations of risk taking decisions, and how these biases may contribute to explaining excessive risk taking by agents.

We investigate whether firms use order backlog to avoid reporting revenue declines and instead report revenue increases. We find that, in almost 30 percent of firm-years where the firm would have otherwise reported a revenue decline, a reduction in order backlog resulted in reporting a revenue increase. After controlling for non-opportunistic factors influencing order backlog, we find order backlog is abnormally low for firms reporting small revenue increases. Results are robust to alternative models of normal order backlog, propensity score matched samples, and counterfactual analyses. We find similar results using analysts’ revenue forecasts as the benchmark. While prior research suggests managers manage revenue, it provides little evidence about how managers manage revenues, especially without violating GAAP. Our study suggests that, by the strategic use of order backlog, managers relatively frequently manage reported revenues.

IFRS 16 has been recently adopted by the European Commission, hence in 2019 European firms will have to follow the new standard to record lease transactions. The accounting literature has provided as-if studies where operating lease contracts have been included in the balance sheet in order to estimate the impact of the change. Despite its potential usefulness, simulation methods are not common in accounting research (Labro, 2015), and this is the methodological approach we follow in this research. More precisely, we simulate the impact of IFRS 16 using the Monte Carlo method, which allows considering complex but reasonably assumptions and generate predictions. Thus, by incorporating uncertainty about the future values of some variables, this methodology allows to deal with research questions when there is no data available, as it happens with the question in-hand: which will be the impact of IFRS 16? Based on the Stoxx All Europe 100, we provide new as-if results that allow to estimate the financial position and performance of the European firms affected by the change in a five-year horizon after implementing IFRS 16. In consistency with prior as-if studies, ours confirms that in 2019 leverage, debt quality and liquidity will decrease; as for profitability ratios return on assets will decrease while return on equity will increase, but figures do not change so much after that date. Our results are consistent to several likely scenarios about the future.

This paper provides the first partner tenure and rotation analysis for a large cross-section of U.S. publicly listed firms over an extended period. We analyze the effects on audit quality as well as economic tradeoffs related to partner tenure and rotation with respect to audit hours and fees. On average, we find no evidence for audit quality declines over the tenure cycle and little support for fresh-look benefits after rotations. Nevertheless, partner rotations have significant economic consequences. We find increases in audit fees and decreases in audit hours over the tenure cycle, which differ by partner experience, client size, and competitiveness of the local audit market. More generally, our findings are consistent with efforts by the audit firms to minimize disruptions and audit failures around mandatory rotations. We also analyze special circumstances, such as audit firm switches and early partner rotations, and show that they are more disruptive than mandatory rotations, and also more likely to exhibit audit quality effects.

In his seminal paper titled “The margins of accounting”, Miller observed that “by looking at the margins of accounting, we can understand how this influential body of expertise is formed and transformed” (Miller, 1998:618). Drawing on this analogy, the boundaries of reporting and the ways these are defined and re-defined, as a consequence of the relationships organisations form with other entities from time to time, and their substantive nature provide insights about the business and its business model. Accordingly, an examination of reporting boundaries helps to better understand and appreciate the objective of an organisation, the logic that underlies its business model and how that is ‘reflected’ and communicated through the reporting entity’s financial statements – which may or may not align with the boundaries of the ‘organisation’. Despite the relevance of reporting boundaries as a critical aspect of the accounting discipline, it remains a relatively unexplored area in the literature. Accordingly, the aim of this work is to offer an initial overview on how the boundaries of reporting have (not) changed in response to the broadening scope of reporting to address both financial and ‘non-financial’ information (e.g. sustainability, governance and intangibles) and attempts to promote greater integration between both sets of information (IIRC, 2013).

We examine how dark market share changes at earnings announcements and find a statistically significant increase in dark market share during the week of and the week following the earnings announcement. The increase in dark market share is larger for firms with a relatively high quality of information environment, consistent with informed (uninformed) traders facing lower execution (adverse selection) risk in dark venues for high quality firms. The increase in dark market share is also higher for firms without Credit Default Swaps (CDSs), consistent with some informed traders trading in the CDS market instead of dark venues around earnings releases.

An automated identification of fraudulent financial statements based on publically available data allows allocating audit resources more effectively and improve market efficiency considerably. This paper examines how quantitative data and corporate narratives (MD&A) can be used to identify accounting fraud. Accounting fraud is determined based on SEC’s AAERs. Narratives are analysed using multi-word phrases, including an extensive language standardization that allows reflecting linguistic peculiarities more precisely and partly address context. We use conventional Naïve Bayes and k-nearest neighbour classifiers, support vector machines and artificial neural networks. The last two outperform the less sophisticated approaches in classification validity. Altogether, the (partly optimized) models can classify up to 79 % of the fraudulent cases correctly (AUC approaching 0.8). We compare realistic holdout samples where probabilities for accounting fraud are determined for financial statements of subsequent years, and matched samples, both. Asymmetric costs of misclassification improve detection rates. Our results suggest that textual features are superior predictors compared to financial ratios. We found text based classifiers to vary over time considerably and it is vital for fraud detection systems to update predictors frequently. Altogether, automated fraud detection systems may help regulators and policy makers to allocate resources on in-depth audits of high-risk statements.

We study the consequences of the CEO's power over the board of directors in the context of a standard agency model. First, we find that the optimal compensation level is not an increasing function of the CEO's power. A friendly board generally raises CEO pay for low performance levels but reduces it for high performance levels. Second, the pay-performance sensitivity (PPS) is not constant but an increasing function of the firm's performance. Third, we identify conditions for which the optimal contract proposed by a friendly board exhibits a higher PPS than the contract that maximizes the utility of shareholders. For the special case of a quadratic contract, we find that a more friendly board always proposes a contract with a higher salary, more stocks and the same number of options. We also examine how a friendly board affects the optimal use and the rules for aggregating multiple performance measures into a single performance index. While both decisions are generally not affected by the friendliness of the board, we identify conditions under which the sensitivity of CEO pay to peer performance is increasing in the CEO's power over the board. Our results suggest that pay levels and the sensitivities of the CEO's pay to firm and peer performance cannot be taken as indicators of the soundness of firms' compensation practices without considering the realized values of the underlying performance measures.

Prior research argues that firms facing greater internal financing constraints engage in tax planning activities to generate cash. However, these studies face identification challenges, and the empirical evidence on this relation is mixed. We use the Pension Protection Act of 2006 (PPA 2006) as an exogenous shock to firms’ financing constraints. The PPA 2006 requires firms to fund 100 percent of their pension obligation within seven years. Previously, firms were required to fund 90 percent of their pension obligation within 30 years. Thus, firms with pension plans face greater cash constraints after the PPA 2006 while firms without pension plans have no such constraint. Using a difference-in-difference design, we find that pension firms experience larger decreases in cash effective tax rates after the PPA 2006 than firms without such plans. This result suggests that an exogenous shock to a firm’s cash outflows leads that firm to engage in higher levels of tax planning. Additional analyses suggest that our results are stronger when firms need cash the most: when the PPA 2006 has a greater effect on their cash outflows, when they have greater investment opportunities, and when they have lower cash balances. Finally, while prior research documents that exogenous cash outflows increase firms’ cost of capital, we find that this increase is muted for firms that engage in greater tax planning activities to mitigate the effects of the cash outflow.

We examine the links between management accounting and control systems (MACS) and real and accruals earnings management. MACS are used diagnostically to monitor and detect deviations from earnings targets. We argue that when the diagnostic lever detects deviations, managers resort to accruals earnings management to correct them. However, if the diagnostic use warns that earnings largely deviate from target, managers are expected to use MACS interactively to focus the attention of the whole organization in designing and implementing action plans to bridge the gap between current and target earnings. These actions aim to push earnings towards their pre-established critical values, i.e., they constitute real earnings management practices. The research model is empirically tested with survey and archival data from member managers of the main professional body for practice managers in Spain. The results support the theoretical model.

This study analyses the association between sovereign debt and Earnings Management in Eurozone countries with a sample of 766 listed firms and, consequently, if troika interventions are associated with firms´ Earnings Management, from 2007 to 2015. The Jones model (1991), adjusted by Kothari et al. (2005), is used to measure Earnings Management. The study finds an association between countries with higher sovereign debt and firms´ Earnings Management. The study also allows us to verify that countries under intervention do not have incentives to Management Earnings. In addition, firms from countries with higher unemployment rates and a low GDP do not manage earnings significantly. Furthermore, countries with higher interest rates (more rigid markets) have fewer firms managing results downward. Contrarily, countries with higher levels of Foreign Direct Investment (FDI) have firms Managing Earnings upward, while countries with higher tax burdens tend to have firms doing Managing Earnings downward. Further analysis allows us to conclude that firms make less Earnings Management during the period of the Sovereign Debt Crisis than in the period before that. It also allows us to verify that the relation between Earnings Management and the macroeconomic cycle is not linear and monotonic.

We provide prima facie evidence that central banks care about their profits by documenting that they are significantly more likely to report slightly positive profits than slightly negative profits. The discontinuity in the profit distribution is more pronounced amid greater political or public pressure, the public’s receptiveness to more extreme political views, and agency frictions arising from governor career concerns, but absent when no such factors are present. Moreover, the propensity to report small profits over small losses is correlated with more lenient monetary policy inputs and greater inflation. These findings indicate that profitability concerns, while absent from standard theoretical models of central banking, are both present and effective in practice, which informs a theoretical debate about monetary stability and the effectiveness of non-traditional central banking.

A key function of management control systems (MCS) is to bring the organisation around a set of shared key goals, a function that gains added complexity in the social enterprise (SE) context. This is due to the fact that SEs pursue both social and economic imperatives, which coexist in dynamic tension. Compared with organisations that primarily pursue economic goals or social goals, the MCS of SEs are subject to added pressure due to this tension, and the need to attain some form of ‘balance’ between both imperatives as the SE ‘walks the tightrope’. Such tension is dynamic and changes as the SE grows. This study examines the MCS of a SE based in China over its early stages of development. The analysis of the case organisation, from the inception stage to the growth stage enables us to illustrate how the MCS took shape over a period of six years. The study finds that intensive use of informal controls and the interactive use of formal controls facilitated the ‘dynamic balance’ of social and economic purposes at the birth stage of a SE. Yet, this ‘dynamic balance’ was disturbed as the SE proceeded into the growth stage, the point at which when a significant array of formal controls replaced informal controls to address financial stability concerns and work efficiency requirements. This was a process that brought into question the central mission of the organisation, with the MCS contributing to an increased polarisation of purposes rather than a convergence of goals.

To shed light on whether and how firms changed compensation practices in response to a shift in the environment in which they operated, we examine whether there is contagion effect of executive compensation regulation on state-owned enterprises (SOEs) in the emerging market of China. Specifically, we investigate whether firms not directly affected by the changing regulatory environment nonetheless changed executive compensation in response to the actions of the directly affected firms, which is called contagion effect. We further discern the specific contagion mechanisms and examine the economic consequences of regulation on compensation. The results show that the regulation has a significant effect on compensation gap in central SOEs and a contagion effect on local SOEs but not for non SOEs. Within SOEs, there is an inter-industryand regional contagion effect of compensation regulation.In addition, compensation regulation positively affects firm performance of central SOEs but negatively affect those of local SOEs.

We examine the association between directors’ international work experience and the tax avoidance of U.S. firms. Prior studies suggest that cultural factors help explain variation in corporate tax outcomes worldwide. We posit that individuals are shaped by the cultures where they work and thus international work experiences could affect directors’ advising and monitoring activities. For a sample of U.S. firms from 2004-2013, we find evidence consistent with this hypothesis for work experiences in tax havens and countries with higher levels of corruption. In further tests, we confirm that director’s international work experiences, rather than their nationalities, are responsible for our results. The findings contribute to the literatures on the effects of directors on reporting outcomes and the effects of international experiences on firm outcomes.

We investigate the impact on strategic alliance value when auditors have greater knowledge and experience in auditing contractual strategic alliances. Although common and economically significant, contractual alliances often fail due to uncertainty, lack of trust, and poor culture matches between alliance partners. We hypothesize that auditors with more extensive alliance expertise can help partner firms reduce information uncertainty and hold-up problems endemic to alliance relationships. Our measures of auditor expertise include general alliance, alliance type (e.g. technology alliances), and deal-specific (both alliance partners share the same auditor) expertise. Primary findings document that announcement date abnormal returns are higher among alliance partner firms served by an alliance expert auditor, after controlling for Big N and auditor industry expertise. Effects are more pronounced among alliances where information uncertainty, trust, and hold-up problems are more severe, and when alliance partners have mismatched cultures. Additional analysis suggests that information uncertainty is less severe, accruals quality is generally higher, and alliance contract duration longer, among alliance partner firms served by alliance expert auditors. Overall, our evidence suggests that auditors with alliance expertise help firms increase value in strategic alliance arrangements.

This paper identifies that actors mobilize different types of temporal work to render forecast numbers persuasive towards their superiors in face-to-face discussions. Our case study reveals a forecast’s persuasiveness as reposing on a superior’s evaluation that it reflects the future as reliable while mirroring a “reasonable” (future) operational performance. While the former rests upon a number’s coherence and plausibility, the latter draws on a number’s acceptability. We show that actors link their interpretations of the past, present, and future to build a number’s coherence, plausibility, and acceptability, and to restore criteria when a number is challenged against the prior-outlined two principles of evaluation. We theorize this interactional alignment as temporal work and exhibit its pivotal role in creating a forecast number’s persuasiveness. In detail, we show that actors deploy three distinct types of temporal work to negotiate and possibly legitimize forecast numbers. While discussions to “only” create a common information level work as temporal convergence, forecasters rather turn to temporal reframing and temporal expansion after doubts were voiced. Overall, we add to the literature on planning by outlining the importance of the social and organizational context and “accounting talk” for perceptions of persuasiveness beyond technical accuracy. Findings of the paper also deepen our understanding of persuasiveness of numbers as a situated accomplishment.

Using a novel dataset that records the comprehensiveness and implementation of code of ethics of S&P500 firms between the period of 2004 and 2012, we provide evidence that firms with higher quality code of ethics enjoy lower cost of equity capital. Our empirical findings support Bicchieri’s (2006) model of social norm activation and Davidson and Stevens (2012) assertion that a code of ethics can activate social norms that help control opportunistic behaviors of managers. Our empirical results about possible impact channels suggest that firms with higher quality code of ethics have lower cost of capital because they tend to attract more institutional holders.

This paper investigates the impact of labor unionization on IPO underpricing. Our findings indicate that unionized IPOs are associated with less underpricing, downward offer price revisions and less aftermarket volatility. We demonstrate that information asymmetry and salient agency costs, which characterize unionized firms, discourage investors’ participation and compromise their demand for the issue. We further show that the effect of unions on first day returns is more prominent in areas with incremental union power, using Right to Work laws as an exogenous variation in the strength of labor unions. We conclude that labor unionization is an important factor of IPO pricing and first day return, a finding which could be of importance for managers, labor unionists and market participants.

The objective of this paper is to evaluate the nature of tax avoidance in the superannuation industry in the light of changing trends within the industry. The motivation for this study stems from anecdotal evidence of superannuation funds conducting investing activities in offshore financial centres and amendments made to superannuation industry that require trustees of superannuation funds to consider the taxation consequences of their investment strategy. This paper utilizing a sample of 96 fund-year observations between 2014 and 2016, this study is the first to evaluate the tax avoidance of superannuation funds in Australia. The study finds evidence that on average for both measures of Tax Aggressiveness that superannuation funds in the sample on average pay significantly less than the statutory 15% tax on earnings accumulated within the fund. The average percentage of tax paid in the sample is ETR2 2.7% and ETR3 3.5%. Further, there is evidence of a relationship between tax avoidance and the various phases when controlling for the accumulation and transition phase.

This paper follows the case of two medical students who were found guilty of market manipulation after recommending shares through social media, i.e. blog posts and chat forum discussions. Using rare and detailed material from the court case, the paper addresses two aims, a) to explore social media in equity markets, and b) to analyze how seemingly illegitimate advisors work to influence investors. By drawing on social studies of finance and Knorr Cetina’s (2010, 2011) theory of equity advice as an ‘affective science’, this paper shows how the students influenced the market through iterative moves of rationalization (calculation and argumentation) and incentivization (emotions and gambling). The paper finds that social media seems to have taken over the role of traditional advisors (i.e. sell-side analysts) in firms with poor accounting quality and low analyst coverage, highlighting the importance of further research and possibly regulation. Furthermore, the paper argues that previous research has dominantly emphasized advisors’ rationalizing activities, but the current case shows that also incentivization is important. Such activity aims to boost investors’ confidence and hopes, increase the gambling aspects of investments and allude to others’ ‘structures of wanting’. Whereas previous research has mainly explored how advisors work to reduce uncertainty, this study shows how advisors also incite others to act despite existing uncertainties involved in equity investments.

Increasingly researchers are beginning to unpick the effects of managers on behavior within firms. Our interest is in exploring the manager effect on both the goal setting process and the goal-performance relation. There is an established body of literature demonstrating that specific goals are associated with improved performance outcomes but little is known about how goals are set. We explore whether managers’ own preferences influence how their subordinates set their own goals. We then examine whether managers’ expertise affects the employees’ goal-performance relation. Using archival data from a professional services firm, the results support prior literature that goal specificity leads to increased performance. We also find that managerial preferences, as expressed in managers’ own goals, directly influence the specificity of their subordinates’ goals. Given our setting we expected that the challenge for professional services firms is how managers can support subordinates where goals cannot be easily specified. We thus focus on whether manager with high levels of expertise moderate their subordinates’ goal-performance relation. We find that this is the case. When goals are less specific, managers with high levels of expertise are better able to support the goal-performance relation. This study highlights the influence of managers in the performance evaluation process and extends current research on manager fixed effects and goal setting.

Environmental disclosure studies make typically use of sociopolitical theories. In doing so, they leave out the theory that is applied to describe voluntary (financial) reporting: voluntary disclosure theory. Current empirical studies provide evidence that the underlying mechanisms of disclosure theory can also be applied in environmental disclosure contexts because investors are interested in e.g. Greenhouse Gas information. Therefore, my study aims at transferring the main ideas of disclosure theory to a GHG disclosure setting and contrast the partially contradicting predictions of the sociopolitical theories and disclosure theory. To figure out which of those theories explain GHG disclosure decisions in the absence of capital market incentives, I analyze a sample of German private firms. I find that, in accordance with all three theories, publicly held firms reach significantly higher GHG disclosure levels. The analysis of private firms only suggests that if the decision to disclose GHG information is divided in two sub steps, first the decision whether to disclose or not, and second the decision on the extent of the disclosed information, these two steps could be assigned to two different underlying theories: The initial disclosure decision seems to be driven by legitimacy issues while the decision on the extent of disclosure is driven by attempts to reduce information asymmetries between owners and managers and, thus, follows the idea of voluntary disclosure theory.

The aim of this paper is to explore whether emerging practices of accounting for stakeholders, in our case Integrated Reporting (IR), can be articulated in a way that foster enablement of processes of stakeholder management and value creation, beyond the mere representation of facts. More specifically, we respond to recent calls for in-depth field studies on accounting for stakeholders to explore through which mechanisms IR can be interpreted as a 'successful' management and accounting innovation that offers a pragmatic solution for dealing with the search, measurement, and communication of sustainable value. We build on the emerging literature on performativity of accounting, and in particular on the notion of rhetorical machine, as well as on the insights offered by the case study of a medium-sized fashion firm, to explore the way in which IR emerged and developed in practice well before the establishment of the International Integrated Reporting Council. We suggest that the 'successful' development of IR is not derived from its supposed ability to represent and reconcile the multiple and differing views of an organization's stakeholders. Instead, we add to the existing literature by arguing that IR offers a space for purposefully engaging participants and their different concerns in a continuous process of mediation that relies on heterogeneity and difference, in which accounting and reporting contribute to the ongoing construction of what counts as sustainable value.

The aim of this paper is to examine how strategic and financial rationales are produced in capital investments. Informed by literature on capital investments, strategic fit and intuitive expertise the present study examines how firms produce strategic and financial rationales and how they are related. This is done by conducting a detailed case study of how these concepts were described in decision documents and how the documents were produced by practitioners. The setting is an acquisition by a large and successful serial acquirer in the manufacturing industry. The analysis reveals how capital investment processes consist of two parts. The first part is the production of strategic and financial rationales. It is based on judgments of a myriad of factors and data using rough estimates. This process lacks a visible analytical reasoning. We argue that these judgments are made through an intuitive process based on expertise. The second part is how the strategic and financial rationales are presented in approval documents. These rationales are logical, can be explained by analytical reasoning and have an exactness in the description of numbers and values. Whereas capital investment research has brought important insights and knowledge to the latter part, the finding of how judgments based on intuitive expertise affect the production of strategic and financial rationales is an addition to our knowledge in capital investment research as well as acquisition research.

The two main changes in the prudential financial regulation applied by the Spanish banks are: the statistical or dynamic provision implemented in 2000; and the agreement signed by the Basel Committee on Banking Supervision 2004. We investigated the effects of these changes on stability and asset quality for a total of 48 Spanish banks over the simple period of 1995-2015. The key findings are the change in financial regulation and its direct application by the Spanish banking sector and its managers had a negative effect on the financial stability, as well as the quality of their asset-based financial information.

A career in the audit profession seems to get less and less attractive. Especially high staff turnover rates and less experienced staff in audit firms are of concern for the audit profession. Consequently, within the last years, the average time, which young professionals work for audit companies has significantly decreased from five to three years (Accountancy Europe 2017). The prior education of these young professionals is often organised by Universities and other tertiary education institutions. Hence, Higher Education Institutions have the opportunity and duty to provide attractive and job-adequate education and therefore to deliver the relevant technical and soft skills (Boyce et al. 2001). Therefore, within this paper we illustrate and analyse the application of a new teaching concept, developed for an auditing class. Using an embedded single case-study approach enables in-depth analyses. We found that the audit teaching concept (1) focuses on the development of problem-solving, discussion and critical evaluation skills, (2) follows the relevant didactical guidelines for valid teaching concept and (3) is positively assessed by three groups of students. Based on our findings one can state that the audit case developed throughout the ILPA project can be considered as an appropriate, useful and relevant teaching activity.

Due to the unstandardized setting of voluntary assurance services by third parties for integrated reporting (IR), it appears crucial to investigate the effectiveness of this credibility-enhancing mechanism. We perform a content analysis of both the 110 voluntary assurance statements included in all 169 integrated reports of Forbes Global 2000 firms disclosed in the years 2013 and 2014 and the integrated reports themselves. The assurance statement reflects the assurance process and, thus, the assurance quality as a measure of the decrease in assurance risk. We explore whether assurance quality is able to increase credibility and, thereby, to decrease information asymmetry for investors as the target audience of integrated reports. Our results provide evidence that voluntary assurance statements for integrated reports are not per se able to decrease information asymmetry. Rather, investors emphasize assurance quality. In particular, addressing an external party, stating a moderate assurance level, describing an assurance of internal documents, and an assurance based on interactive work steps appear able to decrease information asymmetry. Big 4 assurers seem to benefit from their reputation because they do not need to describe their work steps. Additional analyses of the interaction between IR quality and assurance quality show that credibility concerns cannot be counterweighted solely by IR quality but assurance quality is required.

Prior research has examined how auditors’ decision-making is negatively affected by heuristics and biases, including base rate and sample size neglect. The purpose of this paper is to introduce the traditional Monty Hall problem in an audit setting. We further present some preliminary findings. We use the Monty Hall problem (MHP), a well-known decision-making problem, as an accessible illustration. We then survey 200 accounting students who are entering the profession. Students are presented with three alternative audit scenarios of equal to unequal probabilities, and multiple explanations beyond the Monty Hall three alternative problem. When applying the MPH theory to the audit simulations, we find that students entering the profession demonstrate a very high level of auditor over-confidence in accepted management explanations.

This study examines how the historic choices made in regard to Level 3 fair valuation of assets affect managers’ decisions to sell those assets. In a 2x2 between-participants experiment, accounting managers with fair value accounting experience made selling decisions regarding Level 3 fair value assets. We manipulate the stated conservatism of the fair value estimate (fair value assumptions described as more or less conservative while holding the dollar value constant) and the volatility of the historically recognized fair value (low or high volatility). The results indicate that conservatism in fair value estimation and volatility affect managers’ selling price. Further, managers’ willingness to accept a selling price below the most recently recognized fair value decreases when the fair value estimate is described as more conservative. The results indicate that historic assumptions in fair valuation can have unintended consequences on experienced managers’ current decisions in the disposition of assets.

Using eye-tracking technology, we examine whether information processing patterns of nonprofessional investors with a directional investment preference are affected by performance information presented based on either stakeholder categories (stakeholder focus) or strategic themes (strategy focus). We find that a stakeholder focus presentation causes investors in a long position to focus more information processing effort to negative financial information and less to positive nonfinancial information compared to those in a short position. However, investment position makes no difference when the same information is presented with a strategy focus. Further, when facing negative financial information, investors exert more effort towards integrating information when they hold a long (versus short) position or when they receive information with a stakeholder (rather than strategy) focus. Despite this, investors’ directional preference has a dominant effect on how they weight different information when making performance forecasts. Our results have implications for external report preparers, standard setters and analysts.

In this paper, we adopt an agency based theoretical framework to investigate the role of auditors in mitigating management bias in public sector financial reporting. There is a substantial body of literature which finds that both public and not-for-profit managers manage accruals to report small surpluses close to zero, that is, accruals are income increasing(decreasing) for entities with a pre-managed deficit(surplus). An auditor acting in the interests of the principal would tend to reverse this bias. We exploit privileged access to pre-audit financial statements in the setting of the English National Health Service to investigate the impact of audit adjustments on the pre-audit financial statements of English NHS Foundation Trusts over the period 2009-10 to 2014-15. We find evidence that auditors act to reverse management bias in the case of Trusts with a pre-managed deficit, but find no evidence that this is the case for Trusts with a pre-managed surplus. These findings are consistent with auditors’ interests being aligned with principals’ (the public, Parliament etc) in the case of Trusts in deficit but with those of management in the case of Trusts in surplus. Our findings suggest that measures to better align auditor incentives with the interests of principals would be beneficial to the quality of public sector financial reporting.

The paper investigates the quality of accounting information of bribe-paying firms and their competitors. We analyze a hand-collected sample of 241 enforced bribery cases under the US Foreign Corruption Practices Act (FCPA) during 1978-2015. Exploiting the disclosure of anti-bribery law enforcements, we document a positive effect on the quality of accounting information of bribe-paying firms’ competitors, but not the bribe-paying firms. Additional tests document that this positive effect is stronger for cases revealed in or after 2006 and for cases resolved using vehicles other than NPA/DPAs. Our results suggest a positive impact of anti-bribery law that incentivizes other firms to enhance their accounting information once they acknowledge a bribing behavior of a peer.

When firms release annual 10-K filings it is well known that analysts rapidly react to hard financials’ by updating consensus forecasts. However, 10-Ks also include soft non-financial disclosures which are more difficult for analysts to process and interpret. This research uses a novel method to assess textual polar- ity to identify the tone of the soft information disclosed in the MD&A section of 10-K filings. Using a hazard modelling framework, we find supporting evidence for the hypothesis that analysts are more likely to rapidly revise forecasts when the magnitude of the polarity is higher. In addition, we find that these effects arise when polarity is positive.

This paper examines the association between banks' regulatory capital and value relevance of their accounting earning and book equity. The results show that the Tier 1 capital ratio of US banks is positively related to the value relevance of bank accounting that includes both book equity and earnings. Recognizing that the Tier 1 ratio can be decomposed into (i) the difference between book equity and Tier 1 capital; (ii) a leverage element and (iii) a measure of the riskiness of the asset portfolio, the evidence reported in this study indicates that banks with higher spread between their book equity and Tier 1 capital, higher leverage and riskier asset portfolios are more likely to render their earnings being more value-relevant. In addition, after controlling all the components of Tier 1 capital ratio, the result show that the Tier 1 capital ratio itself can still have some explanatory power to the changes of value-relevance on book equity and earnings.

This study investigates whether and how adoption of eXtensible Business Reporting Language (XBRL) impacts investor expectations of future crash risk. Using the steepness of the volatility smirk as a proxy for ex ante expectation of crash risk, we find that expected crash risk decreases after adoption of XBRL. Moreover, we document that the impact of XBRL adoption on expected crash risk is more pronounced for firms with higher financial opacity, more volatile earnings, and greater analyst forecast dispersion. Further, our analysis generates evidence that the use of customized extension XBRL elements attenuates the effect of XBRL reporting on reducing expected crash risk. Our empirical results are robust to a variety of sensitivity checks. Overall, our findings indicate that XBRL reduces information processing costs and strengthens information transparency of capital markets, which in turn, reduces investor expectations of future crash risk.

Economic theory explains how prices are set at a level that equates marginal cost and marginal revenue. On the other hand, marketing theory explains how prices should be set having value as a basis. The issue at stake is that some scholars argue that none of these two theories actually explains pricing practices, because empirical studies have concluded that most companies set prices having cost as a basis. However, empirical studies also have not examined if cost-plus formulas represent the pricing approach or essence, yet. This paper addresses the factors explaining a cost-based pricing essence in industrial companies located in Brazil. The results show that, in price-makers, cost-based pricing essence is positively associated with 4 factors (2 obstacles to deploy value-based pricing, company size, and differentiation), but it is negatively related to 1 factor (premium pricing strategy). In price-takers, cost-based pricing essence is positively associated with 4 factors (2 obstacles to deploy value-based pricing, coercive isomorphism, and use of full costs), but it is negatively related to 5 factors (1 obstacle to deploy value-based pricing, company size, competitors’ ability to copy, normative isomorphism, and experience).

This paper evaluates tax mimicking in Spanish municipalities. To this aim, we consider the largest sample of Spanish municipalities used so far: 2,431 municipalities for 2002-2013. We find significant evidence of tax mimicking, both on property tax and car tax. Further analyses reject both yardstick competition hypothesis and tax competition (Tiebout hypothesis) as sources of this tax interaction. Therefore, our results point to expenditure spillovers as the explanation for this tax mimicking. Municipalities seek to have the same services and infrastructures of their neighbors, which makes the former set similar levels of taxes and expenditures than the latter. Regarding policy implications of our findings, legislation should be aimed to direct municipal governments’ decisions towards the real needs of their constituencies, rather than mimicking neighboring municipalities’ tax and spending policies. In this respect, participative budgets should be used as a way to empower tax payers about spending priorities of their municipality.

We bridge the debt based compensation discourse with stakeholder agency literature to explore the consequences of debt relative to equity based pay for multiple stakeholders, including employees, community, customer, debtholders and shareholders. We argue contractual mechanisms that create long-term debt obligations to the CEO result in better outcomes for multiple stakeholders. Our empirically supported theory suggests that the long-term debt obligations are more likely than equity to incentivize broad based stakeholder management through engaging in socially responsible activities, while also tending to the needs of both shareholders and creditors. This suggests that inside debt deserves more attention from governance scholars and boards who are attempting to incentivize a longer-term multi-stakeholder orientation. We also offer insight into why previous research that has not included inside debt has often provided mixed findings.

Drawing on the theory that facial width to height ratios (facial masculinity) are measures of testosterone levels, this study examines whether the facial masculinity of male CEOs is associated with audit fees. Prior research suggests that facial masculinity is associated with masculine behaviors such as aggression, risk seeking, and financial misreporting. We use a sample of U.S. firms for the period 2000 to 2014 and show that CEOs with higher facial width-to-height ratio on average are associated with higher audit fees. We also find that the relationship is stronger for firms with longer tenured CEOs and more powerful CEOs. Collectively, our findings are consistent with the notion that firms with CEOs who have masculine faces are likely to make more aggressive accounting choices, which results in higher audit risks, especially if they have longer tenure and are more powerful.

This study contributes to the literature by providing fresh empirical evidence on the association between the level of greenhouse gas (GHG) emissions and market valuation. Using financial and CSR data for a sample of U.S. public companies (S&P 500) from 2009 to 2015, we find, consistently with prior studies, that corporate level of GHG emissions, measured in million metric tons, is negatively associated with firm value. Further, our results suggest that type of GHG emissions matter, as direct emissions (scope 1) show a significant negative association with the firm value, whereas indirect emissions (scope 2) are positively associated with firm value, although the result is not significant (p-value 0.13). In addition, our results indicate that CSR assurance is positively associated with firm value.

A variety of empirical studies have investigated the relationship between management control systems (MCS) and the financial and non-financial performance of for-profit firms, but there is a dearth of research on MCS in the higher education (HE) sector. Our study contributes to MCS research by investigating the mediating role of MCS in the relationship between structural autonomy and both research and teaching performance in HE institutions and by comparing the perceptions of employees at two different hierarchical levels: heads of administration and professional academics. Based on professionalism theory, we use survey data of two paired sub-groups with 104 heads of administration and 104 academics and perform a multi-group analysis with structural equation modeling. We find significant differences between heads of administration and academics concerning the relationship between autonomy and MCS and that between MCS and teaching and research performance for the diagnostic and interactive use of controls. For heads of administration, we find that only strategic boundaries and strategic beliefs are significantly associated with teaching performance, whereas for academics, more autonomy is associated with more emphasis on most management controls. Furthermore, for academics, more emphasis on diagnostic use, but less on interactive use, is associated with higher research performance.

Pay dispersion in organizations is rising and has received increasing attention in recent years. Although prior research has documented several negative consequences of high pay dispersion, we document one of its potential benefits, that is, to reduce collusion between employees. We conduct an experiment to examine the effect of pay dispersion on employee collusion. In our experimental setting, two subordinates compete in a tournament and a superior and the firm benefit from their effort contributions. The two subordinates can collude by both providing a low level of effort, which increases their own payoffs at the cost of the superior and the firm. We manipulate horizontal pay dispersion (i.e., the ex-ante fixed wage gap between the subordinates) and vertical pay dispersion (i.e., the ex-ante fixed wage gap between the subordinates and their superior). Economic theory predicts that ex-ante fixed wage differences should not affect rational subordinates’ interest in collusion. However, based on behavioral theory, we predict and find that both horizontal and vertical pay dispersion each individually reduce collusion by increasing defection among subordinates. Additional data suggest that reduced cohesion and trust between subordinates as well as their elevated desire to reduce pay disparity underlie these results. We also find that when one type of dispersion is present, the effect of the other type of dispersion weakens, possibly due to the switch of pay referent from superior to subordinate or vice versa.

Chinese authorities privatized SOEs by having certain subsidiaries or groups listed on stock exchanges. While the financial reports of listed SOEs controlled by the central governments are mandated to be audited by independent auditors, they are also subject to periodic government audits conducted by China National Audit Office (NAO). This creates a unique setting to investigate the incremental effects of government audits on earnings quality of listed central SOEs. Based on government audit reports issued by the NAO from 2010 to 2017, we find that the SOEs tend to have lower ex ante earnings quality if more severe problems are discovered by the NAO. After government audits, the central SOEs have significantly lower discretionary accruals and higher accounting conservatism, indicating that government audits improve the quality of financial reports that have been audited by independent audit firms. We also find that the effects of government audits on earnings quality are more significant in central SOEs audited by non-Big 10 audit firms, indicating higher demand for government audits when the independent audit quality is low. Further analysis supports the “knowledge spillover effects” of government audits, i.e., the independent auditors with at least one client audited by the NAO also improve the quality of audits provided to other central SOEs not audited by the NAO. Our study proves the effectiveness of government audits in improving earnings quality of SOE firms.

In this study, we examine what impact, if any, the COSO 2013 Control Framework implementation (COSO 2013) has on the information environment of the firms in U.S. capital markets. Prior to the passage of the Sarbanes-Oxley Act of 2002, disclosures of whether a public company’s system of internal controls over financial reporting is effective were virtually non-existent. Section 404 of the Sarbanes-Oxley Act of 2002 mandated such disclosures from both the management and external auditors of the public companies in the U.S. No research study, to-date, examines the impact of the underlying control framework or internal control standard on the quality and reliability of such assessments and resultant disclosures. Lack of this empirical validation of the underlying control framework that is so ubiquitously used by all public companies leaves a gaping hole in the internal control literature. We use information asymmetry proxies (i.e., bid-ask spread, trading volume, and price volatility) to evaluate the impact of the COSO 2013 on the information environment of a sample of public companies. As expected, we find that bid-ask spreads decrease and trading volume increase for our sample firms after the adoption of the COSO 2013. This clearly suggests that the information environment does improve because market perceives the COSO 2013 to result in higher quality internal control assessments and opinions. However, the results are contrary to our expectations with regard to the volatility.

This paper considers the early practice of reserve formation from pre-distribution profits at the end of the 14th century. It reveals the two-fold purpose of this reserve, the entries made, including those when the reserve was utilized and the unexpired element written-back to be distributed to the owners in the following period. The research method used in this study was logical-analytical modeling of archival accounting material belonging to Francesco Datini's company in Pisa during 1392–1399. It finds that the reserve was equivalent to a modern-day allowance for doubtful debts in that it was an estimate, but of costs that had been incurred but not billed, rather than of account receivables; and that the same account was used as a suspense account to balance the ledger when errors in the double entries could not be identified.

Purpose – This paper explores one aspect of sustainable development disclosures – the greenhouse gas emission (GHG) disclosures made to CDP by megacities – and compares those disclosures with the expectations of their users and the public. Design/Methodology/approach – The initial examination of each megacity’s disclosures relied on content analysis. The comparisons between the information disclosed by megacities and the user expectations of those disclosures were drawn through the ‘expectation gap’ framework. Findings – GHG information at the megacity level is outdated, incomplete, inconsistent, inaccurate and uncomparable and, therefore, may not be useful to decision makers or meet user expectations; there is room for improvement. Research Implications – The findings have implications for policymakers in designing guidelines to facilitate the flow of GHG information relating to cities; for stakeholders in understanding GHG emissions performance at city level; and for managers in measuring, disclosing and mitigating GHG emissions. Originality/Value – Prior studies focus on GHG disclosures made to CDP by corporations, whereas this paper examines CDP disclosure relating to GHGs at the megacity level – a novel regional approach.

Building on the recent literature that timely recognition of expected loan losses, otherwise known as conservatism, reduces managerial risk taking through enhanced market discipline, this study examines the effect of conservatism on bank’s own monitoring effort reflected in their loan portfolio quality. The study documents that in a sample of publicly traded bank holding companies in the United States over the period 1994–2014, bank's conservatism strengthens the banks’ monitoring effort in loan portfolios after controlling for a large set of bank-level and macro-level variables. Consistent with conservatism enhancing monitoring over lending practices by reducing information asymmetry, these results are stronger for low and high lending growth cycles when information asymmetry over loan quality is greater.

Research question/Issue: Efficient corporate governance requires precise and reliable financial information. It is argued that International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA) are considered to be an important tool developing global business language. Historically, each jurisdiction has developed and pursued its own accounting and auditing standards; however, as financial markets grow into a global market, there is a need for a common set of accounting and auditing standards. As a result, there is a movement towards harmonization of IFRS and ISA all over the world. This study seeks to explain why some countries have adopted IFRS and ISA standards while others just partially adopted them. Moreover, previous studies have not examined adoption of IFRS and ISA and country-specific factors at the same time. Research Findings/Results: This study suggests that Voice and Accountability, Import Penetration, Regulatory Quality, Control of Corruption achieved within a national economy are all predictive of the degree to which IFRS and ISA are adopted across 105 jurisdictions. Theoretical/Academic Implications: This study suggests that country-specific factors are positively and significantly associated with global business language adoption. Practitioner/Policy Implications: For policy makers, findings of this study suggest that the institutional pressure and good governance within an economy are the key drivers of IFRS and ISA adoption For investors and global market players, results provide insights that can help to explain and forecast future universal business language adoption within economies. When adopting IFRS and ISA standards, economies are making the financial information more transparent and reliable for global investors.

While many studies have focused on the role of credit rating agents in the debt market, I focus on the potential benefits that credit ratings may confer to firms raising equity through an Initial Public Offering (IPO). Credit ratings could play an important role in this market because asymmetric information is at the root of the two main problems investors face in the IPO market: underpricing at the IPO stage and subsequent stock market underperformance. Interestingly, there is no consensus on whether underperformance is mainly caused by earnings management or by the market timing ability of firms and underwriters. I find that IPOs that are credit rated when they go public exhibit a 70.4\% less underpricing compared to non-rated ones. I also find evidence of IPO underperformance two years after the IPO. However, credit rated IPOs have no influence in the subsequent stock-return performance suggesting that firms or underwriters base their decision on going public on market timing. Analysis on earnings management show no evidence of earnings manipulation for my sample period. Robustness checks further reinforce the argument as IPOs that belong to the hot period market underperform statistically significant more IPOs that belong to the cold period market. What is more, hot period IPOs exhibit higher underpricing.

This study investigates the auditors’ perception of task complexity in the light of their individual risk preference and capabilities under different liability regimes. A within-subject case-based experiment with 134 auditing students was conducted. The results show that individuals with a higher risk aversion assess the task complexity higher than participants with a lower risk aversion or risk neutrality. Regarding the liability regime, the analyses show that in a high liability scenario the complexity is assessed higher than in a low liability scenario. Further the results show that the participants’ knowledge and experience dampen the effect of risk preference onto the task complexity assessment. This study offers an insight to the impact of individuals’ characteristics as well as regulatory conditions on the assessed audit complexity.

Amalgamations have been pointed out as one solution to increase efficiency, technical capability and regulatory capacity of local governments (LG) (Steen et al 2017). Theoretical and empirical literature so far has mainly concentrated on the impact of municipal amalgamations on municipal performance and financial sustainability. The aim of this paper is to study more deeply the use of performance information (PI) for management decisions in the context of the administrative-territorial reform e.g. amalgamation in the LG-s on an example of Estonian LG-s. The study is contributing to the debate on the importance and usefulness of different types of PI for different user types in the light of LG reform in Estonia as in a CEE country. The results show that although the main aim of the amalgamation as stated by the Administrative Reform Act is to improve the quality of public services and the outcomes of LG policy, the focus of actual formal analysis in the amalgamation process has been on financial information (investment capacity).

We investigate whether audit committee accounting expertise limits external auditors’ ability to extract rents from their clients. We posit that greater accounting expertise among audit committee members should reduce information asymmetries between the auditor and the client that arise from accounting and auditing complexities. Our tests use two natural experiments in which audit effort necessary to obtain reasonable assurance likely was reduced as a result of changes in professional standards. First, ASU 2011-08 significantly simplified how companies test goodwill for impairment purposes. We find that companies with goodwill that was not likely to be impaired paid significantly lower fees after ASU 2011-08 when they had accounting experts on their audit committees. Second, Auditing Standard No. 5 (AS5) eliminated the requirement that auditors issue an opinion on management’s assessment of internal controls and permitted the scaling of audits for smaller clients. We find that smaller companies and clients of non-Big 4 auditors paid significantly lower fees in the transition to AS5 when they had accounting experts on their audit committees. Our results in both of these settings highlight an important and previously undocumented benefit of audit committee accounting expertise – a reduction in auditors’ ability to extract rents.

This paper examines whether and how culture affects the forecasting behavior of sell-side financial analysts. Based on a large sample of financial analysts with diverse cultural backgrounds in the U.S., we find that analysts from individualistic cultures issue bolder and timelier earnings forecasts and stock recommendations compared with analysts from collectivistic cultures. In addition, individualistic (collectivistic) analysts are more likely to overweigh (underweigh) their private information in producing forecasts, consistent with the greater emphasis on individual (collective) contribution in individualistic (collectivistic) cultures. In addition, we find that the market’s reaction is stronger to bold forecasts by collectivistic analysts than to bold forecasts by individualistic analysts, suggesting that the market views bold forecasts by collectivistic analysts as more credible. Finally, using the closures and mergers of brokerages as exogenous shocks to firms’ information environment, we find that individualistic analysts induce greater incorporation of firm-specific information into stock price than collectivistic analysts do, although the two types of analysts do not differ in their impacts on firms’ overall information environment.

This study examines how board gender diversity is associated with corporate biodiversity initiatives, and whether gender diversity reinforces the effects of the Global Reporting Initiatives (GRI) and the EU biodiversity strategic plan on corporate biodiversity. Using an integrated theoretical framework of institutional theory and resource dependence theory, our study is based on 4,013 firm-year observations form European listed firms covering a period from 2002 to 2016. We use panel regressions with country, time and industry fixed effects to analyse biodiversity management performance (BMP) and logit regressions to explain biodiversity impact assessment (KPI). We find that board gender diversity has a positive relationship with BMP and KPI of a firm. Moreover, the GRI framework and the EU Strategic plan show positive relationship with BMP, rather than KPI, even though gender diversity positively moderates their relationships with both biodiversity indicators. Overall, our evidence suggests that a board with increased female representation is more responsive to the concerns of institutions and societal stakeholders, and respond to those concerns by influencing biodiversity initiatives of a firm. In addition, the GRI framework and the EU 2020 strategy appear to enhance management performance on biodiversity without influencing firms to assess their impacts on biodiversity.

Purpose – The research objective is threefold: (1) it investigated the possible discrepancies between the employee-related disclosures (a type of corporate accounts) from the electronic manufacturing services (EMS) providers domiciled in Taiwan and inspection results (a type of shadow/counter accounts) from the labour-practice-oriented non-governmental organizations (NGOs); (2) it examined the effectiveness of CSR assurance services in addressing the possible discrepancies; (3) it looked into the effectiveness of mandatory reporting rules in addressing them. Design/methodology/approach – Corporate accounts (the employee-related disclosures) and shadow/counter accounts (inspection reports from NGOs, news, sociological work and supplier reports from the client of EMS providers) are investigated. The study deeply examined two cases, two dominant Taiwanese providers in the global market, by documentary analysis. The sample period is 2010, 2012, 2014 and 2015. Findings – The study found that the discrepancies in the employee-related disclosures existed in years surveyed. Moreover, the use of CSR assurance services and introduction of mandatory CSR reporting rules did not correct the discrepancies. According to organizational hypocrisy, the study interpreted that the discrepancies found are due to a dual role of the Taiwanese EMS providers as both action and political organizations. Originality/value – The study introduced organizational hypocrisy into the CSR literature It contributed to the research on employee-related disclosure in Asia (especially Taiwan), to that on CSR assurance services and to that on mandatory reporting. It generated practical impacts on policy making in relation to mandatory CSR reporting.It contributed to the research on employee-related disclosure in Asia (especially Taiwan), to that on CSR assurance services and to that on mandatory reporting. It generated practical impacts on policy making in relation to mandatory CSR reporting. It contributed to the research on employee-related disclosure in Asia (especially Taiwan), to that on CSR assurance services and to that on mandatory reporting. It generated practical impacts on policy making in relation to mandatory CSR reporting. It contributed to the research on employee-related disclosure in Asia (especially Taiwan), to that on CSR assurance services and to that on mandatory reporting. It generated practical impacts on policy making in relation to mandatory CSR reporting.

While the asymmetric timeliness (AT) measure of Basu (1997) underpins a large body of empirical research on conditional conservatism (CC), prior studies have demonstrated that the AT construct is biased and that such bias is likely to lead to Type 1 error. To assess how this could affect inferences from prior literature, we replicate previous CC studies that apply the AT measure, and compare the outcomes against those based on the asymmetric conditional variance (ACV) measure of Dutta & Patatoukas (2017) confirmed to be less influenced by similar bias. We draw two main conclusions. First, the AT and ACV measures yield similar inferences in interrupted time-series settings that examine the impact of exogenous accounting policy changes on CC. Second, the inferences drawn from applying the AT measure are not supported by the ACV measure in seminal studies that model the determinants of CC in cross-sectional settings. Our findings have implications for both past and future empirical studies of CC.

We investigate the extent to which E-commerce facilitates tax avoidance by multinational corporations’ shifting income into dot-sized foreign tax havens. E-commerce exacerbating such tax avoidance has long been a widespread concern. Recent OECD position papers extensively discuss this problem and provide a series of recommendations for addressing it. However, there are few empirical research papers on E-commerce and tax avoidance, and the specific effect of E-commerce on income shifting is unexamined. We find evidence firms utilize dot-sized-tax-haven foreign operations to shift income out of U.S. and that the digital economy strongly increases this effect, consistent with OECD concerns. Similarly, the effect of E-commerce on such income shifting is exacerbated by greater profitability intangible asset investment. Though we document our results with U.S. firms’ data, there is every reason to believe that what we find is not unique to the U.S., but general to all jurisdictions. Consistent with income shifting being a zero-sum transaction, we find similar U.S (negative) and foreign (positive) effects. Our paper contributes to the literature by identifying this effect and measuring the magnitude of it on U.S. multinational firms’ U.S. and foreign reported incomes. We also contribute to the literature by utilizing a new, less ambiguous measure of firms’ abilities and tax incentives to shift income based on the numbers of tax haven subsidiaries they incorporate.

This paper examines the effects of IFRS adoption on litigation risk using Directors' and Officers' (D&O) liability insurance in Canada. IFRS is typically viewed as a more principles-based accounting standard than Canadian GAAP which, while considered a principles-based standard, is relatively more rules-based than IFRS. A common perception is that principles-based accounting standards allow for more managerial discretion over financial reporting, which suggests that IFRS adoption may alter the litigation risk exposure of companies and their directors and officers. We find that D&O liability insurance coverage increased while premiums and the cost per unit of coverage decreased following the adoption of IFRS in Canada. We separately study a sample of Canadian firms cross-listed in the US, which is considered more litigious than Canada. We find that for Canadian firms cross-listed in the US, D&O liability insurance coverage was unchanged following the adoption of IFRS; nonetheless, premiums and the cost per unit of coverage decreased. We also conduct a difference-in-difference analysis using a sample of US firms. We find that relative to US firms, the D&O liability insurance premiums paid by Canadian firms cross-listed in the US, decreased following IFRS adoption. These results are consistent with the expectation that more principles-based accounting standards reduce litigation risk, and provide evidence for a real benefit of adopting more principles-based accounting standards.

We investigate the impact of informal social attributes on cost behavior. More specifically, we examine the effect of generalized trust (trust in others) and civic morality (self-reported trustworthiness) on cost stickiness. Using a large international sample of firm-year observations across 56 countries, we find that generalized trust significantly increases cost stickiness, while civic morality is not statistically associated with cost behavior. This study makes a significant contribution in understanding cost asymmetry differences across the globe. Our results further complement prior research which has found to the contrary that trust and cost stickiness are negatively associated at the local level. Hence, our study corroborates the importance of distinguishing between local social capital and global generalized trust concerning their effect on economic outcomes.

This study investigates and reflects upon how our understanding of sustainability shapes and is shaped by the ways in which we teach accounting, focussing on the following questions: how do we understand sustainability, and how can we describe, assess, and improve the ways in which we embed the sustainability agenda into the curriculum? To shed light on these questions I interviewed teachers and program leaders at the accounting section of the School of Business Economics and Law at the University of Gothenburg as well as the environmental coordinator responsible for sustainability work at the school. The analysis utilizes a semiotic square to deconstruct the predominant boundaries we draw between integrating sustainability in accounting education as a natural part of what we teach and a separation of sustainability as an “add-on” to established tools and techniques in accounting education. The study finds that there are several teaching approaches and strategies prevalent in the accounting section, grounded in different academic and ideological backgrounds. The study further shows a tension between the aim to please current job markets (pull-strategy) and to change the world for the better (push-strategy). Business schools need to balance this tension and I propose a way of combining these different approaches to move towards a more holistic approach while at the same time taking individual specialisations into account.

We overview and assess the English language literature on accounting in the Arab world. We begin by highlighting the increased global significance of the region and the need to understand accounting in this specific context. We then offer a critical appreciation of the relevant literature in terms of its contributions as well as its limitations. We argue that despite the important and interesting insights this literature has offered many studies evidence a neglect of context and a narrow view of accounting. We thus make suggestions for further research to redress this imbalance.

Corruption is a social evil and a widely spread unethical practice in many countries, to a different extent, around the world. Although the literature on corruption at the country level is rich, relatively fewer studies have focused on the impact of corruption at firm level due to data limitations. This study contributes to the literature by providing empirical evidence on the impact of country-level corruption and firms’ self-reported policies for combating bribery on the number of analysts following a firm. It employs a panel data analysis on a sample of S&P Global 1200 companies for the years 2010 to 2015. The results show that companies that operate in clean countries, i.e. countries with low level of corruption, attract high analyst coverage. The results also show that companies that adopt policies to tackle corruption at firm level stimulate high analyst coverage. However, firms’ efforts to tackle corruption cannot mitigate the negative impact of high corruption at country level on analyst coverage. These results send a warning message to decision makers that country-level corruption is damaging the economic performance of firms in terms of low analyst coverage.

Using machine learning, we develop and use Naïve Bayes algorithms to classify the audit experience, finance experience and accounting education of 3,816 chief financial officers (CFOs) of S&P 1500 companies for the period 2006 – 2014. A logistic regression tests the associations between the likelihood of restating annual financial statements and CFO experience/education categories. We find that companies with CFOs with audit experience have a lower likelihood of restatement relative to companies with CFOs without audit experience. For entities with higher analyst following, finance experience is associated with a higher likelihood of restatement, whereas audit experience is associated with a lower likelihood of restatement. This difference is exacerbated by weaker corporate governance and the presence of restructuring. This study both indicates that further research into CFO characteristics is warranted and provides an automated, labor-saving, transparent, replicable, and scalable text analytics approach based on machine learning that can be used in such future research.

For increasing the accountability in CSR reports, listed companies meet certain criteria were required to compose and publish company CSR reports starting in 2015. With respect to the mandate for CSR reports prepared by the food-related industry to have an auditor’s assurance opinion, the assurance of CSR reports has become an important non-audit service for audit firms. Accordingly, this study aims to explore the effects of engaging auditors to provide assurance services for their audit clients on audit quality. The empirical results reveals that companies whose CSR reports are assured by the auditor that provide audit service for its financial statement possess significantly lower absolute discretionary accruals. In addition, the results suggest that while the effects of audit firms are not significant, the impact of engaging audit partner to provide CSR report assurance service is significant for improving audit quality in most situations. For the consideration of auditors’ industrial specialization, the results reveal that the association between providing CSR report assurance service and audit quality is significant only for companies that are audited by non-industrial specialist auditors. For the reason that non-specialist auditors process fewer client or industrial specific knowledge, the advantages of knowledge spill-over from CSR assurance work are more significant as a result. For the additional test for companies issued CSR reports, we find that when the CSR report

We review 110 carbon accounting papers published in 34 high quality accounting journals in the period from 2005 to 2017. We find that carbon accounting research is evolving quickly, indicating that climate-change issues are attracting more and more attention of accounting scholars. In particular, we develop a framework for systematically evaluating corporate carbon accounting research in terms of four major subject matters, namely carbon disclosure, carbon assurance, carbon management and carbon performance. While predominate studies focus and explore carbon disclosure, carbon assurance, carbon management and carbon performance have also been witnessed their momentum. The paper summarises the main findings of each of these four subject matters and identifies their respective gaps. Finally, we urge more research on carbon investment, the dynamic decisions of other capital market participants such as banks and analysts, developing countries and sector-specific carbon issues.

Purpose This paper assesses the job of scrutiny and oversight in public services by examining the role of the Internal Auditor (IA) and External Auditor (EA) and their relationship with the Audit committee (AC) in two distinct English public sector settings during a time of change. The diversity and wider and more complex accountability relationships and intricacies found in public sector organisations increases the significance of such research. Design/methodology/approach The research uses an exploratory qualitative case study approach based on semi-structured interviews, AC meeting observations and documentation reviews. Findings The research provides evidence of good triangulation between the work of the IA, EA and AC. Nevertheless, some of the findings in terms of having a close interaction between EAs and ACs and a crossing over in terms of responsibilities may lead to a conflict of interest and raises serious doubts about the independence and objectivity of the EA. Research implications The study highlights that the additional complexities of public sector organisations means that agency theory in itself is insufficient to offer good explanations of scrutiny and oversight arrangements. The research provides evidence on the existence of elements of loosely coupled Corporate Governance structures in the roles of the EA and IA and their relationship with the AC, indicating that some analysis from an Institutional Theory perspective can be helpful. Originality/Value: This paper gives an exploration of the IA, EA roles and their relationship with the AC in a public sector context. It adds to the very limited literature on such topic in a different organizational and institutional setting other than the private sector.

The international audit firms’ networks play an important role in managing the auditing and other type of services worldwide. The current research assesses the relationship between the members of an international audit network and its management in the provision of an international referral providing insights into the complex interactions among members given their differences, in policies, management and environments. A case study approach is undertaken to respond to a few research questions related to the extent of how members firms within the network cooperate in providing their services without sacrificing their autonomy and independent status. Also, the extent to which senior management of the network may influence members firms’ decisions associated with the provision of their services. The study analyzed and assessed an actual referral engagement of one of the top 10 international auditing networks showing the interactions and decisions of the members and management of the network. The results show that members firms disagree and miscommunicate when they cooperate for their international referrals and some members can lose the engagement if they insisted on maintaining their autonomous decisions. Threats and pressure to terminate the engagement and not collect the agreed upon fees are used from both the lead partner and senior management of the network to force other member to perform the services according to the wishes and management style of the leading member firm.

This study investigates the effectiveness of Key Audit Matters (KAMs) as mandated by the revised ISA 700 and the new ISA 701 auditor’s report in reducing the audit expectation gap. German auditors and students participated in an experiment where they received a summary of a company’s financial statements and an auditor’s report which was manipulated as being the ‘complete auditor’s report’ with KAMs and a ‘responsibilities-only’ version without KAMs. We examined the perceptions of financial statement users compared to auditors regarding ascribed auditor’s responsibilities, management’s responsibilities, and financial statement reliability. We find strong evidence for a persistent expectation gap regarding the auditor’s and management’s responsibilities. In contrast, the expectations regarding the financial statement reliability just differ marginally between auditors and financial statement users. Most remarkably, we observe that the disclosure of KAMs does not result in significant different expectations of financial statement users indicating that KAMs may not serve as an instrument to reduce the audit expectation gap. Overall, our results suggest that the disclosure of KAMs is ineffective in closing the audit expectation gap.

Abstract The environment of accountants in different jurisdictions and in a diverse range of settings may mean that local practices vary across the globe in their own particular niches. However, the convergence of accounting through the adoption of International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board (IASB), the adoption of the International Audit and Assurance Board’s International Standards on Auditing and the publication of International Education Standards (IES) by the International Accounting Education Standards Board (IAESB) may mean that global influences now dominate. This tension between the global and the local is examined in this paper using Italy as a vehicle to establish whether the global or local institutional setting prevails and why. We find that the global ideological approach to professional accounting education impacts on Italian niches, and that although local professionals arbitrage between global, national and local conceptions of the profession in a linked ecologies framework, in Italy accountants are located in their own professional niches that are unhinged from any sense of a linked ecology.

Despite the internal control (IC) explosion in recent years, the research on the concept remains limited and there is confusion about effective ICs in practice. One reason for such confusion is that the literature on IC remains currently highly fragmented with an unclear definition of the concept. To address this lack of research, the paper aims at systematically structuring the literature in the field of IC by investigating what we know from previous studies about the practice of IC and how it is institutionalized on the individual level. Therefore, the paper uses the theoretical lens of institutional work, which represents a recent development of institutional theory and is useful to investigate how the practice of IC is institutionalized through the work of individuals who have different roles and responsibilities related to IC. The paper presents one of the first attempts to synthesize the knowledge from different research streams in the field of IC through the analytical lens of institutional work. It contributes, therefore, substantially to the growing body of literature that analyzes aspects of corporate governance through more diversified theoretical frameworks than agency theory. In addition to that, the paper presents an aggregated understanding of the term IC and can therefore significantly supplement the efforts of regulators to implement IC procedures that add value for the corporate governance of organizations.

While the public has noticed the need for the detection of potential tax loopholes and demand further improvement in the taxation of banks, there is scarce empirical evidence of whether banks are pursuing tax aggressive strategies. We try to close this gap by investigating U.S. banks’ tax avoidance behavior for a sample period from 2004 to 2015. To anchor banks’ tax avoidance, we use annual and long-run Cash ETRs and compare them against the tax avoidance behavior of non-banks. As banks’ and non-banks’ are probably heterogeneous, we control for differences in size, profitability, multinationality and leverage. Banks, however, have a different business model than non-banks. In additional analyses, we therefore try to shed more light on what are bank-specific drivers (like non-interest income or loan loss provisions) of tax avoidance. Descriptive evidence shows that banks, over the whole sample period, engage in less tax avoidance than non-banks.

This study investigates the investor perception of abnormal tone on the manager-level under consideration of manager-specific context factors. We estimate a manager-specific abnormal tone that is unrelated to firm fundamentals and manager fixed effects. We find that positive manager-specific abnormal tone in earnings conference calls has an increasing effect on the market reaction, but not on future firm performance. This indicates that investors expect abnormal tone to convey incremental information about future performance, yet managers use it to mislead investors. We also find that manager-specific linguistic context factors such as past use of language (tone level and tone deviation) and current use of language (complexity and assertiveness) reduce the effect of abnormal tone on the market reaction, so the investor perception varies with the manager. We also find some evidence that managers with a generally optimistic tone level and managers being very assertive use abnormal tone particularly when they try to mask poor future firm performance. Overall, the evidence is consistent with investors perceiving abnormal tone positively, yet the inclusion of manager-specific linguistic context factors aids investors in adjusting their reaction.

The concept of value reporting (VR) is an existing corporate reporting way to provide investors and other stakeholders with a holistic picture of the value generation activities of a company. Thus, it addresses information asymmetry and limitations to extant corporate reporting approaches, which is certainly criticized for being unclear in its benefits. This paper examines the impact of VR on firm value (FV). Using a sample of listed firms in Switzerland, we examine the relationship between cross-sectional variation in VR disclosures and FV in the period after the financial crisis. We find that FV is positively associated with the quality of VR disclosures. This result suggests that on average, the benefits of VR exceed its costs. Moreover, we find that the positive relation between FV and VR is stronger in the firms with higher organizational complexity, suggesting that VR improves the information environment in complex firms such as firms with high intangible assets, firms with multiple business segments and large firms. Furthermore, we find that in firms with higher external financing needs, the sub-sample of firms with higher VR quality have higher FV, suggesting that VR mitigates the information asymmetry between corporate insiders and external suppliers of capital.

In this study, we perform textual analysis on more than 180,000 annual reports on Form 10 K filed with the SEC between 1993 and 2016. We find that negative textual sentiment in annual reports is associated with lower subsequent stock returns. Furthermore, we pro-vide evidence that textual sentiment in certain report sections (“MD&A,” “Business ,” “Shareholder Matters”) is more important to investors than textual sentiment in the entire report. In particular, we show that investors’ reaction to textual sentiment in several Form 10-K subsections is much stronger and timelier than their reaction to textual characteristics in the overall filing. We also find suggestive evidence that capital market participants react to textual sentiment in the additional non-core documents (“Exhibits”) as part of the an-nual report submission. Finally, besides connecting textual sentiment to other important fu-ture firm fundamentals (return on assets, dividend yield, payout ratio), we show that man-agement obfuscation in financial statements (“Footnotes”), as argued in the literature, is either not present or has failed.

The aim of this paper is to understand how organizations comply with governance regulation. More specifically, it seeks to interpret the processes by which organizations implement and coordinate mechanisms to ensure they achieve such compliance. Based on semi-structured interviews with governance actors at three large organizations, data are interpreted from an organizational learning perspective. Results suggest that compliance with governance regulation can help organizations enhance business strategy with better risk management, control, and accountability, thereby benefitting board members, top managers, and internal auditors. Results are particularly relevant for newly listed firms dealing with governance regulation for the first time, and for cross-listed firms, which are required to conform to a considerable number of regulations. This study contributes to the governance literature by providing insights into the benefits that can result from compliance with governance regulations. It also extends the organizational learning literature as it relates to regulatory compliance.

We examine the effect of peer investment on a firm’s operating leverage. Our results suggest that peer firms play an important role in determining operating leverage. Firms cost structure decisions are positively associated with firm’s peer investment as corporate investments reveal expectations about growth opportunities. We propose peer learning as potential explanation for this finding. Important determinants of learning are macroeconomic uncertainty, restricted financial resources and peer size. We exploit a setting with granular costs disclosures and detailed information on product market overlap. In sum, the results are consistent with our theoretical considerations that peer investment informs the decision-making firm about its own growth perspectives which leads to an adjustment in the cost structure.

The purpose of this research is to construct a method for conducting accounting ethics education using an online cloud experimental system which has not been done conventionally. A prisoner's dilemma game and a public goods game were conducted, which is an important theme in accounting ethics. There are two core findings of this experiment. First, there are no differences in decision-making of high school, college, and university students in the prisoner’s dilemma game, which indicates that the online cloud experimental system is applicable to various subjects. Second, those who contribute significantly toward public goods receive relatively low benefits as compared to those who contribute less. This result indicates the presence of free riders. It further suggests that individuals do not focus on maximizing self-benefit only, but also contributes toward public goods to derive at overall gain. This research makes three contributions. First, it applies a completely new educational technology in the form of an online cloud experimental system to accounting education for the first time. Second, it contributes toward accounting ethics education by providing a new method of teaching using experiments. Third, it contributes toward important themes of accounting education research such as cooperativeness, team work, and active learning. It is a future research opportunity to conduct simultaneous on-line experiments connecting multiple countries and universities.

Prior to the Finnish auditing act of 2007, smaller firms could use non-certified auditors to audit their annual financial statements. For firms that had used a non-certified auditor prior to the auditing act of 2007, a transition period until the end of 2011 was specified. After 2011, the firms that had used a non-certified auditor up to that point had to switch to a certified auditor. The purpose of this study is to examine the effects of the mandatory auditor upgrade on earnings quality. The results indicate that the mandatory auditor upgrade has a positive effect on earnings quality. Furthermore, the results show that the level of the auditor or the auditor being a Big 4 auditor has no significant impact on the post upgrade earnings quality. Finally, the results also show that firms that upgrade their auditors although they are eligible for an audit exemption improve their earnings quality one year prior to upgrading their auditors.

We study the effect of asymmetric cost behavior on the cross-section of stock option returns. Our results imply that investors overestimate future volatility if costs are symmetric and underestimate it if costs are asymmetric. Based on this, we identify a zero cost trading strategy requiring a long position in a portfolio with high sticky cost behavior and a short position in a portfolio with low sticky cost behavior. This strategy yields an abnormal significant monthly average return of 3.89%. Further, we find a significantly positive cross-sectional relation between sticky cost behavior and straddle options. For anti-sticky cost behavior, we obtain similar results but an even higher abnormal monthly average return of 5.64%. The findings are robust to changes in the estimations methods and the returns cannot be explained by common risk factors. However, as expected the monthly average portfolio return turns negative and insignificant if we include transaction costs.

This paper develops a new two-stage decision model to explain the choices of financial reporting regimes (e.g. IFRS or UK GAAP) and techniques (e.g. valuing intangibles, by cost, income or market methods) for UK companies. The theoretical framework is based on the choice theory of orderings (Lex and CoLex), and is expressed in decision trees which capture firms’ actions, based on calibrated benefits and costs. The decision-making processes are examined through three UK empirical case studies (one private and two public firms), that expound their decision trees, and explain their decisions. We probe the rationale of their decisions using field-work investigation methods, through which we develop a ‘stated preference’ metric of choice, which allows us to interpret how decisions are made, and how they differ: over time (notably when regime changes are being implemented e.g. the emergence of New UK GAAP post-2015); and across firms (where factors like ease of execution and the quality and quantity of information needed for decisions, are shown to play a large part).

We investigate the association between anti-corruption and corporate tax avoidance via Difference-in-Difference approach, by exploiting an exogenous event: Xi Jinping’s anti-corruption campaign since the end of year 2012. By exploiting China listed firm data during the period from 2008 to 2015, we find that anti-corruption could restrict corporate tax avoiding behavior after controlling various factors at firm level and region level. The restrictive effect is more significant for listed firms located in high-corrupted regions with state owned property, political identity managers and directors, or more governmental subsidy. The result indicates that anti-corruption could restrict corporate tax avoiding behavior, by weakening the positive relation between government-enterprise relationship and tax avoidance. This paper provides an empirical evidence by showing a causal effect of institutional anti-corruption on corporate tax avoidance, and expanding a flow of research on official corruption and corporate tax decision making.

We track the employment histories of over 3,000 chief executive officers (CEOs) and study how their past litigation experiences affect corporate disclosure decisions. We define the litigation experience to be any securities class action experienced in a CEO's early career in other firms and in non-CEO positions. We find that firms managed by these litigation experienced CEOs provide more guidance than firms not managed by such CEOs. However, we also find that they provide less precise non-earnings guidance and that market response to their EPS related disclosure is lower. Collectively, this evidence is consistent with the perspective that past litigation experience leads CEOs to increase the frequency with which they provide voluntary disclosure, but the surprise content (as measured by market reaction) of such disclosure falls. Such behavior is consistent with these managers seeking to avoid large price change events, as such events are argued to attract litigation.

This paper examines the effect of credit rating of immediate controlling shareholder on the cost of debt. Using a sample of corporate bonds publicly traded on China’s stock exchange over 2008-2014, we find that the bond spread is reduced when the credit rating of immediate controlling shareholder is higher than the firm’s. We also find that the effect of credit rating of immediate controlling shareholder on bondholders is stronger for the firm with a poorer credit rating and worse profitability, higher sales ratio and larger ownership concentration. Our results suggest that the impact of controlling shareholders on investors depends on the credit rating of immediate controlling shareholder.

In this paper, we examine the determinants of loan financing cost in the M&As, using a sample of 330 manually collected US M&As that were funded by loans. After controlling for characteristics of the acquiring firms and loan packages and potential simultaneity and self-selection issues, we document robust evidence in terms of positive association between relative size of the target to the acquiring firm and all-in-drawn spread (AIDS), which suggests that presence of the higher information asymmetry between the bidder and the target increases the loan financing cost. Furthermore, consistent with the risk-sharing effect of paying by stock, higher proportion of stock in the consideration is negatively associated with AIDS. Our findings complement the M&A literature by offering empirical evidence for the financing cost in the M&As. This paper also suggests that the specific purposes of loans could affect the loan financing cost.

Banks are required to hold capital as a buffer against future losses and as a market impediment to discourage excessive risk taking. We examine whether the introduction of capital specific to operational risk under the Basel II framework resulted in a reduction in operational losses. To isolate this effect, we take advantage of the staggered implementation of Basel II in the US compared with other countries. Employing an entropy-balanced sample of 1,140 bank-year observations across 25 countries, we show that the introduction of operational risk capital under Basel II leads to a significant reduction in operational losses in treated banks. Findings indicate that Basel II implementation has been effective in reducing bank operational losses, especially in the presence of strong regulatory and supervisory practices.

The study provides new evidence on how political corruption affects firm performance. We uncover strong evidence that the corrupt environment imposes costs for firms to access public capital market by increasing underpricing, which is consistent with the notion that political corruption causes business uncertainty and high information asymmetry on the market. This translates into a $12.2 million potential loss for an average issuer. Our evidence indicates that the effect applies only for small-sized issuers, and also increases along with the higher percentage of operations concentrated in headquarter locations. We demonstrate that underwriters play an vital role to promote IPOs in the corrupt environment by increasing offer price revisions and reducing underpricing. The study reveals that political corruption does not diminish the likelihood of pre-IPO shareholder’s managing positive wealth gains. Results continue to hold after addressing endogeneity concern and conducting a variety of robustness tests.

The SEC intensified its review of firms’ contingency disclosures in October 2010, looking to address investor concerns regarding the lack of information available to value the firms’ risk with respect to contingent issues. This paper investigates the effect of litigation loss contingency disclosure on market uncertainty in the post-SEC increased monitoring period. Using implied volatilities from different option maturities, we find that the initial disclosure of a lawsuit in the footnotes to the financial statements is positively related to stock market volatility, implying that stock market investors revise their views on the future value of the stock when responding to this unexpected information. We further test and, after controlling for the attributable effects of earnings surprise, find that market uncertainty regarding firm value decreases as managers initially disclose the recognition of a loss or the estimation of a loss in the legal loss contingency disclosure. These results imply that information provided in the litigation loss contingency disclosure helps to resolve market uncertainty because market participants are highly uncertain of the firm’s value before it is disclosed. Overall, our study provides evidence that while the initial disclosure of a lawsuit increases market uncertainty, the disclosure of recognition of legal loss contingency helps to resolve investor uncertainty about the underlying firm value.

Using a sample of 12.8 million tweets from S&P 1500 firms with active Twitter accounts from 2012 to 2016, we show that firms selectively disclose corporate events on Twitter and choose to post financial disclosures on Twitter more frequently around earnings announcements, accounting filings, and firm-specific news events. Financial disclosures on Twitter are more likely to contain media (image or video) and links around these events. Consistent with predictions from disclosure theory, both effects are strong when the sign of the news is clearly negative or positive. The above patterns of timing and usage of media and links are robust in intraday analysis. We also find that firms with lower institutional ownership are more likely to exercise discretion and the feedback of Twitter users affects firm disclosure in the future. These findings suggest that firms make discretionary disclosure on Twitter and the feedback mechanism on Twitter affects the disclosure patterns in a dynamic manner.

We examine how firms’ cash holdings change as a result of shocks to the firms’ information environment. The information shocks we examine are changes in two country-level regulations: the initial enforcement of insider trading laws (ITLs) around the world and the mandatory adoption of International Financial Reporting Standards (IFRS) in European Union (EU) countries. Using a difference-in-differences approach, we document that, after the initial enforcement of ITLs and mandatory IFRS adoption, firms decrease their cash holdings significantly. Furthermore, we find that country-level enforcement quality affects firms’ cash holdings. We provide evidence that the decrease in cash holdings is more significant in firms with higher precautionary savings demand and with more agency problems. Additional tests show that after these two informational events, firms save less cash from their operating cash flow, increase external financing, and mitigate the underinvestment problem. Our findings provide evidence that information environment improvements have real decision effects.

This paper investigates analysts’ comments on earnings quality as a potential channel through which financial analysts monitor firms and deter earnings management. I find that these earnings quality comments convey information to investors beyond that in the earnings forecasts, stock ratings, price targets, and other qualitative text in analyst reports. Further analyses suggest that the market’s reaction to these comments is primarily driven by comments written with certainty. In addition, controlling for accruals reversals, I find that firms significantly reduce the level of discretionary accruals after receiving negative comments. Finally, I find that the increase in discretionary accruals following an exogenous decrease in analyst coverage is more pronounced when the analysts dropping the coverage have a record of making comments on earnings quality.

The notion of performativity has enjoyed significant attention in the social sciences in the past decades because it has helped dispelling the myth of language being a mirror of reality. Rather, different utterances, economic models or accounting tools among them, change the world they seek to represent. In economic sociology, the performativity of economic models has so far been the focus of study. This paper teases out the specificities of the performativity of accounting. It does so in two steps. First, the differences between the performativity of accounting and economics is discussed. Second, based on a literature review, five types of accounting performativity are proposed. The basic contention is that accounting performativity differs from the performativity of economics because accounting draws on a less homogeneous body of knowledge and creates more flowing and instable worlds to accommodate multiple forms of decision-making. The study offers avenues for a more fine-grained understanding of accounting performativity in conceptual and empirical research.

This paper examines profit shifting activities of German multinational enterprises, namely the DAX 30 firms. Multinational enterprises are expected to take advantage of tax-rate differentials and shift income into low-tax jurisdictions. Past research focuses on the US albeit German firms, in contrast to American firms, can repatriate dividends virtually tax-free. Therefore the incentive for German firms is actually higher than for US firms. This paper tries to fill this research gap. Using pooled OLS regression and a fixed effects model, the analysis shows that there is a negative but weak relationship between the return on equity and the tax rate of a country on the subsidiary level of DAX 30 companies. In addition to that, a recently developed measure of the tax environment of a country, the Tax Attractiveness Index, is employed as an alternative tax variable. The examination shows that the extent of profit shifting of DAX 30 firms is, on average, smaller than for prior research relating to US- and European firms. The reason might not only be strict tax laws but recent research suggests that the corporate governance culture is different from the US. Moreover, the focus of the firms’ tax departments lies rather on compliance and risk minimization than on elaborate tax avoidance strategies.

We develop a model to predict bankruptcies, exploiting that a firm’s over-indebtedness (negative book equity) is a state of immediate financial distress. Accordingly, our key predictor of bankruptcy is the probability that future losses deplete the book equity. To calculate this probability, we use earnings forecasts and their standard deviations that we obtain from cross-sectional models. However, not all over-indebted firms finally turn bankrupt. Thus, in an expanded model, we add accounting variables that we find to discriminate between bankrupt and non-bankrupt firms. As these models solely require accounting data, we can provide bankruptcy predictions for a wide range of firms, including firms that have no access to capital markets. In strictly out-of-sample tests we show that our accounting model performs substantially better than alternatives of corporate failure risk that solely use accounting information. If we allow for stock market information, we significantly outperform all leading alternatives, including those that require market data.

This study investigates the valuation method choices of sell-side analysts, an area largely overlooked by the prior literature. Specifically, we focus on the choice of valuation models that analysts use to derive a target price. The research was conducted as a case study by drawing on interviews of sell-side analysts and their valuation reports on a major energy sector firm. In addition to corroborating the existence of various drivers of valuation method choice identified in prior empirical and theoretical research, we found previously unrecognised drivers. Based on these findings, we suggest a tentative framework that categorises valuation methods in four groups: 1) firm-specific drivers, 2) market related drivers, 3) method characteristics and personal preferences, and 4) employer related drivers. We show that firm-specific aspects, such as newness of the major business and lack of peer comparability, can play a dominant role in method choice. Our research contributes to the valuation literature by providing a more nuanced picture of the drivers’ influencing the method choices of sell-side analysts. Additionally, we add to the literature by suggesting a framework that has the potential to let us better understand analysts’ behaviour and thus serve future research on the exploration of this phenomenon. Our study provides further insights for executives on the aspects that are influencing a firm’s valuation and internal decision-making.

This study investigates the introduction of the Companies Act 2006 Regulations 2013 in the United Kingdom. The regulation mandates the disclosure of specific sustainability information in a firm’s annual report, particularly information on GHG emissions and gender distribution, and the disclosure of general information on environmental, employee and human rights issues. We investigate the consequences of this regulation on firms’ disclosure in their annual reports. Drawing on traditional economic theory and socio-political theories, we argue that firms increase only the disclosure of specific information on the mandated topics in response to the regulatory intervention, but not the disclosure of general information. Our sample consists of the FTSE-100 firms and a matched control group of U.S. firms. We use textual analysis to assess the disclosure of specific and general sustainability information in firms’ annual reports. Our results reveal a significant increase in the disclosure of specific information on the mandated topics relative to the control group. When we capture the content of the mandated topics more broadly, only the disclosure of gender distribution is significantly higher – relative to the control group – after the SR Regulations became effective. Our results remain robust to a number of additional tests, including hand-collected data.

We investigate the role of geographic proximity in corporate investment using a setting of Taiwanese firms’ investment in mainland China. Geographic proximity with different provinces in mainland China affects the amount of information Taiwanese firms have when managing their oversea investment. The deregulation of direct flight routes between Taiwan and mainland China took place in 2008 and serves as a change to the travel distance and time. This feature enables a difference-in-difference empirical design. Guangdong province (control group) does not experience the reduction in travel distance and time, but nonGuangdong provinces (treatment group) do because of direct flight routes. We find that geographic proximity increases the propensity of Taiwanese firms’ investment and the associated investment performance as well. We also find that the direct flight policy improves investment efficiency (through the reduction of under-investment) and enlarges investment spread. The evidence suggests that geographical proximity reduces the coordination costs and moral hazard problems in the invested divisions.

This study investigates how institutional investor trading behavior affects audit fee by examining mutual fund herding in specific. We find that herding weakens mutual funds’ information advantage and monitoring effectiveness, resulting in higher audit fee. Our findings are robust using propensity score matching method and remain significant under the natural experiment of the 2004 SEC regulation change on mutual fund disclosure frequency. A potential explanation to our main finding is that herding fund managers, who become less effective monitors, are associated with deteriorated corporate disclosure. Empirically, we document that mutual fund herding is associated with worsened earnings quality, higher idiosyncratic volatility, and higher crash risk.

We study the relationship between anti-fraud controls and fraud risk factors and the incidence of fraud in non-profit organizations (NPOs) using data from the US IRS Form 990. This is a US requirement, but many international organizations register with the IRS to facilitate tax-deductible contributions and many large US NPOs have operations in other countries. Our study uses the largest and most current data set to date, including all NPOs that reported an asset diversion during the years 2008-2014 and over 200,000 non-fraud NPOs.. We systematically examine an extensive set of variables related to anti-fraud controls divided into policy controls, governance controls and external controls and fraud risk factors, divided into operational and management risks. We found strong support for our contention that anti-fraud controls relate to less fraud, especially for large NPOs. Policy controls were significant for all size groups. We also found strong support for the notion that fraud risk factors are related to more incidence of fraud. Health and Education NPOs were the largest and had differences in controls for only the largest NPOs. These findings provide insight into organizational characteristics related to the incidence in fraud in NPOs, and should benefit auditors, audit committees, and donors.

The study examines the relationship between components of OCI and analysts’ forecasting behaviour, being forecast accuracy, analyst following and herding. The findings show that CFH and FCX (AFS) elements are negatively (positively) associated with forecast accuracy and herding. We also find that analyst following increases with AFS but decreases with FCX items. Importantly, we document that disaggregated AFS, CFH and FCX components have differential associations with some properties of analysts’ behaviour relating to earnings forecasts. Findings for REV and DBP are less consistent. This study bears directly on the OCI reporting practices under IFRS. The IASB (2011) requires that entities shall report OCI items based on whether they may (or must) be reclassified subsequently to net income. Also, the evidence bears indirectly on the conundrum surrounding the effects of OCI line items on the analysts’ information environment and their behaviour. Together with prior evidence, our findings provide empirical evidence that some OCI items (CFH and FCX) may increase uncertainty and make it more difficult for analysts to predict net income, and other OCI items (AFS) may be used by management to smooth net income, making net income less volatile and easier to predict. This study contributes to a growing literature relating to financial analysts and the usefulness of OCI information, and suggests that market participants might benefit from more transparent OCI disclosures.

This paper examines the determinants and performance consequences of narrative feedback amounts in subjective performance evaluation. The data of narrative feedbacks in Korean State Owned Enterprises (SOEs) provides a unique setting to investigate the evaluators’ motivation for giving narrative feedback and the evaluatees’ response to narrative feedback in subjective performance evaluation. First, we find that evaluators present large amount of narrative feedbacks about the highly weighted, long–tenured, and both high scored and low scored performance measures, and SOEs with large number of evaluators and large number of employees. This empirical evidence is consistent with evaluators giving substantial narrative feedback when evaluators face low information acquisition cost, high confrontation cost and high intrinsic motivation for providing comments. Second, we find that evaluatees are more likely to improve the performance measures with large amount of feedback, especially those with large amount of suggestion for development. This paper suggests that evaluators have their own incentives to provide narrative feedback and evaluatees improve their performance by utilizing information of narrative feedback.

Product and process innovations are key activities for achieving strategic goals and obtaining superior performance against competitors. Previous empirical studies have not examined the moderating role of strategic positioning in relating both product and process innovations to performance for a large sample of operating units. We investigate how strategic positioning determines the impact of product and process innovations on operating performance for manufacturing plants in Canada. Our results indicate that differentiation plays a positive moderating role for product innovation and cost leadership plays a positive moderating role for process innovation. These results support claims that strategy matters in determining what innovation is successful. We also find that new product and new process innovation have lagged effects on performance whereas improved product and process innovation have more immediate effects on performance.

This article examines how accounting and accountability are performed by the university managers employing multiple and competing institutional logics in the midst of a societal and organisational change. The study relies mainly on interview data with altogether 20 university managers at all levels in the selected two universities. Relying on the theory of institutional logics we analyse how the university managers combine and manage the accounting-related activities, structures, processes and meanings within hybrid, knowledge-intensive organisation, and drawing on these competing logics. We found that the multiple logics manifest themselves differently in the understandings and processes of accounting and that the competing institutional logics and the tensions between enable a certain extent of agency by the individual managers. Indeed, the challenges by the turbulent organisations require a hybrid manager capable of dealing with the pluralism inherent in the context. The study makes three main contributions to the existing literature on accounting in higher education. First, it contributes to the literature on the role of accounting(s) in hybrid organisations (universities); second, it contributes to the literature on the development and institutionalisation of the new, managerialised and marketised academia and on the role of accounting within this development; and third, it contributes to the literature on on the financial management of higher education institutions.

The purpose of this paper is to provide a comprehensive review of empirical research on management accounting practices (MAPs) in the context of post-socialist countries (PSCs) with an intention to identify, how has transformation to a market economy influenced MAPs development across PSCs in the past few decades, and what role has agency (Battilana & D’Aunno, 2009) played in MAPs development. In total 42 articles in international research journals in English language, published in period 1991-2016, were selected and analyzed. Traditionally, the institutional (structural) perspective is adopted to explain the development of MAPs in the PSCs (Paladi & Fenies, 2016). This literature review advances our understanding of the nature of transformation in the PSCs; it offers an insightful explanation of the processes of MAPs development and changes from a novel perspective that fits in the notion of agency into the development of MAPs across different PSCs. The two groups of external and internal agents are identified and examined in terms of their “agentic” and “negotiating capacities” (Emirbayer & Mische, 1998) that define their abilities to be engaged in MAPs changes. The paper contains critical assessments of the quality of the selected publications in terms of theories used and theoretical contributions, and provides directions for future research.

Our study attempts to contribute to this ongoing debate by examining the interplay between industry (banking) regulation and the role of board of directors (firm-level), using a field study based on a major financial institution Scandinavian Bank (SB). SB, which is a major co-operative bank, supervisory board has several roles varying from monitoring and service to strategy and commitment building. The new regulation, Basel III, and distant supervisor, European Central Bank (ECB), introduce monolithic perspective on board, controlling, where trust is built solely based on independence and competence. The dilemma is challenging to SB, as the power of nominating candidates for the supervisory board is in the hands of local co-operative banks, i.e. owners of SB. For these banks, representation on the supervisory board is essential, but this will result in the eyes of ECB to lack of independence and in several cases also lack competence. The SB is in a very sound condition financially and far ahead of all regulatory requirements. Therefore, from the perspective of SB Group representatives and most of other local players, these requirements are interpreted as micromanagement without any proper meaning. Although, the regulation has lead to improved practices of audit and risk management committees resulting to better transparency and understanding of these issues in the supervisory board, it is still an open question whether this regulation serves SB Group’s business purposes.

Modern prisons find themselves in a constant pursuit of multiple, potentially conflicting aims, linked to having to account for both resocialization and security. Quantitative performance measurement is a common means to pursue organizational goals. However, research on performance measurement concerned with multiple organizational aims has focussed primarily on the relation between financial and non-financial aims. We add to this debate by drawing on the concept of organizational liminality, which allows focussing on the in-between-state of prisons in their pursuit of multiple non-financial aims. Drawing on a case study in the German prison sector we show how performance indicators issued by the ministry of justice organize interconnecting and in parts conflicting organizational dynamics. We thereby contribute to the literature on performance measurement by empirically and theoretically examining how numeric representations organize the relation between multiple non-financial organizational aims, here security and resocialization in prisons.

In this study, we examine whether conservatism influences the timing of M&A decisions. Prior studies document that acquisition performance is lower if M&A are undertaken during booming markets. Hence, the timing of the M&A decision is an important channel through which conservatism can improve investment efficiency. We contend that, as conservatism triggers managers to promptly report loss, they will be more reluctant to undertake M&A during booming markets in an attempt to prevent the reporting of negative earnings in the future. Empirical evidence confirms our expectations. We find that more conservative firms are less likely to make M&As during booming markets and the negative effect is more pronounced if firm faces greater agency costs. Moreover, the avoidance of M&A during high-valuation markets leads more conservative firm to exhibit a better acquisition performance than less conservative ones.

Purpose -The purpose of this study is to examine if the provision of non-audit services poses a threat to the auditor’s independence, with a focus on Swedish public firms. Design/methodology/approach -Data about audit fees, non-audit fees, auditor tenure, and modified/going concern opinions has been collected from the companies’ annual reports. The sample consists of small-, mid- and large cap companies listed on the Stockholm Stock Exchange in the period from 2012 to 2015. Subsequently, regression analyses were conducted to test the formulated hypotheses. Findings -The results show a positive relationship between audit fees and non-audit fees, but do not suggest a loss of independence. There is no relationship between the amount of non-audit fees and the auditor’s propensity to issue a modified/going concern opinion. Furthermore, no association between the amount of non-audit services and the length of the auditor tenure was found. Originality/value -When it comes to Swedish literature on the topic, there are a few studies that investigate the relationship between non-audit services and auditor independence. The focus of these studies is on small and medium-sized enterprises, bankrupt firms or both. Studying this topic in the context of public Swedish firms contributes to the academic discussion by offering an additional perspective that has not been explored in previous research.

The paper illustrates how the member organisations of a fair trade alliance use social impact accounts and disclosures in a well-synchronised fashion to (re)formulate the legitimate vision of fair trade amid the tensions, contradictions and challenges prevailing in the field. Moving beyond the legitimacy theory, we mobilise Bourdieu’s theory of the symbolic violence as explained by Everett (2002) to examine how fair trade organisations position themselves within the alliance and how they interact with the stakeholders. The finding is informed by a comparative narrative analysis of the social impact accounts and disclosures of the UK fair trade organisations as well as the narratives that document stakeholders’ opinion in the public domain. The paper unravels some important insights into the uses of social impact accounts and disclosures, by the dominant organisations of a business alliance, to mutually (re)formulate a common understanding of the legitimate vision of their business operations.

This study attempts to measure the tone of the MD&A section in Japanese firms and analyze its fundamental characteristics. Much research in accounting and finance examines the role of linguistic tone in firm disclosures, but, there is no research on Japanese firms and few studies on non-English text-based disclosure. To measure the tone, the word list is important. This study uses a word emotion correspondence table by Takamura et al. [2006] as criteria for tone classification. Some of the results show the opposite result to past studies. It may be due to differences in audit regulations. in Japan, there is no audit of the MD&A section in the annual report. Therefore, there is less risk of litigation risk for Japanese firms in comparison to that of U.S. firms, resulting in differences in the role of MD&A between Japan and the United States. And additional results show that market factor is the determinant of firms with positive tone disclosure and fundamentals are the determinant of firms with negative tone disclosure. So, the determinants of disclosure tone in MD&A may differ by the polarity.

We examine the effects of directors´ prior bankruptcy involvement on the reputation and financing policies of firms. Specifically, we investigate whether past bankruptcy exposure of directors is relevant to bondholders and affects public debt contracts. Using a large sample of bond issues, we document higher credit spread and lower bond size for firms with a bankruptcy exposure director suggesting that bondholders are concerned about the prior experience of the director. Further, we test whether bankruptcy exposure influences firm’s financing and investing policies. We document higher levels of leverage and cash holdings providing partial support for the “hot stove” effect.

This paper discusses an issue related to the disclosure of the outcome of institutional investors’ proxy voting. First, the actual condition of the disclosure by institutional investors about their voting criteria and outcomes is reviewed. This paper finds evidence that investment trusts increased the rate of opposition to the takeover defense measures proposal after the revision of Japan’s Stewardship Code. This result bears testimony to the existence of some situations where the institutional investor does not maximize the investee company’s value when exercising voting rights. Moreover, by testing the change of the investors before and after the revision of Japan’s Stewardship Code, it turns out that there is a possibility that the monitoring by asset owners is effective to reduce the “agency problems” mentioned above. In addition, the firm-side analysis implies that firms with an extremely high ownership ratio of the investors that actively vote against their proposals put forth a “good” proposal appreciated by institutional investors.

Accounting firms, corporations, and non-profits use social technology to disseminate information to engage clients and regulators, attract and develop employees, manage business intelligence, and innovate business processes. Despite its benefits, social technology’s unique reach and speed create new risks for managers, accountants and auditors. This study develops a new Integrated Social Technology Strategy and Risk Management Framework based upon prior research and modifications to Kaplan and Norton’s (2004) Balanced Scorecard and the new COSO Enterprise Risk Management – Integrated Framework (2016). A field investigation involving three leading accounting organizations support this framework’s representativeness for the accounting profession and its potential usefulness to managers, consultants, and researchers. This framework identifies social technology strategies, significant risks, and effective risk management controls from governance to monitoring activities. Further, this framework may assist professionals exploring how social technology use provides value to their organizations and stakeholders.

This case study research explores management accounting and control systems (MACS) in private equity (PE) backed growth firms. We study the role of PE investors in professionalising management of buyout companies, and in shaping MACS. The study is based on observations of two divisional spin-offs, both companies that had moved from public to private ownership, and have PE investors. Within-case and cross-case analyses are used to explore the relationships between PE type, growth type and MACS. One of the cases was outsider led buyout and the other insider led buyout. In addition, the strategies of growth were different between the cases. The organic growth in the outsider led buyout required investments in product development and new production capacity while the growth in the insider led buyout was based on acquisitions and change in the industry logic. The results of our study contribute to the current understanding of the management control practices in the industry where risks and uncertainties are exceptionally high. We find that PE investors complement financial information with different evaluative practices. Despite the importance of strategy implementation for the value based management of the growth businesses we did not find that performance measurement or cost accounting would be exploited for that purpose.

French mandatory joint audit requirement provides a unique environment to investigate the impact of auditor’s gender on audit fees by considering number of Big 4 auditors in auditor pair composition. We investigate whether the presence of a female auditor as joint engagement partner, exacerbates or attenuates the coordination and cooperation between competing audit firms. We use propensity score to control client characteristics of Big/Big and Big/non-Big auditor pairs and employ system GMM approach on a sample of French listed firms. We find that auditor pair with a female engagement partner earns an audit fee premium. Further, we show that regardless of the auditor pair combination female audit fee premium earned by Big/non-Big auditor pair is approximately the same as the audit fee premium earned by Big/Big auditor pair.

Little attention has been paid in accounting research to accountability and control processes in the office. Yet this has been a central site of organisational planning and control since the 19th century. Through the dual theoretical lenses of Foucaultian and Labour Process theories, this study employs historical photo-elicitation methodology to investigate and critique the implementation of management control and accountability in the scientifically managed office which emerged in the US during the late 19th and early 20th centuries. It reveals the pervasiveness of organisational surveillance through disciplinary records maintenance and knowledge based governance. Office staff emerge as adjuncts to the accounting record, working at deskilled accounting tasks in a gradually feminising and mechanising office environment. Our visually derived historical account of these transformations in office administration allows us to reflect on some contemporary issues. The production line design and efficiency so promoted by scientific management served as a forerunner to the today’s open plan office, as well as influencing contemporary office management philosophies such as Activity-Based Working (ABW). Furthermore, we seek to inform current debates on the role of accounting in contemporary neo-liberal society. In the technologies of micro-measurement inherent in scientific management, we receive an early glimpse of the subsequent role that accounting can play within a neo-liberal agend

Non -IFRS (or “adjusted”) earnings tend to be more and more popular (Bentley et al. 2016; Black et al. 2016). Adjustments are made by managers to standards-compliant earnings mainly exclude non-recurring or non-operating items (such as restructuring and acquisition charges and gains/losses on sales of assets) in order to give a better picture of permanent earnings and to portray “core earnings”. Standard setters and securities regulators have recently expressed concerns about adjusted earnings, criticizing their lack of rigor, transparency, consistency in comparability across firms. While there is an abundant literature on the consequences of adjusted earnings (in terms of usefulness and value relevance or earnings management), little is known about the determinants of the voluntary disclosure of non-IFRS earnings (Ebitda, operating income or net income) in press releases. On a sample of French listed companies over the 2007-2015 period, our findings are consistent with the idea that the rationales differ for disclosing Ebitda on the one hand and adjusted operating income or net income on the other hand. While Ebitda seems to be disclosed in response to investors and creditors demands beyond the information that can be found in financial statements; adjusted operating income and adjusted net income seems to be primarily driven by the desire to influence investors’ perception about the firm performance.

One of the major aims of the IASB and FASB’s recently completed project on revenue recognition was to develop a joint principles-based revenue standard that is consistently applicable across different entities and industries. However, due to strong lobbying efforts coming from various interest groups the Boards had to compromise the theoretical soundness and principles-based nature of the standard in order find consensus with its constituents and thus to ensure participatory legitimacy. Strikingly, one powerful industry group, the telecommunications companies as well as their users, did not manage to push through their interests, despite strong and continuous lobbying efforts unitedly coming from the entire industry. We use this setting to explore the lobbying behaviour of a specific industry group as well as the response behaviour of the IASB and the FASB in respect of their legitimacy by conducting a comprehensive content analysis of comment letters as well as of the Boards’ responses to them. In contrast to previous lobbying literature, we find that the Boards completely turned down the industry’s conceptual arguments, partly with convincing arguments, partly by “silencing” the criticism, and only responded to economic consequence arguments. We furthermore challenge the achievement of procedural legitimacy because the Boards obviously ignored the views of the industry’s users, and, since they weakened the conceptual soundness of the revenue recognition model in favour of other industry groups, but they refused to do so with regard the telecommunications industry.

We examine whether lenders use analyst forecasts of the borrowing firm’s earnings when establishing covenant thresholds in private debt contracts. We find greater proximity between the analysts’ consensus earnings forecast and the future earnings performance required by the contract among borrowers whose analysts have historically issued accurate earnings forecasts, consistent with our hypothesis that lenders use analyst earnings forecasts when establishing debt covenant thresholds. These results are robust to firm and year fixed effects as well as an instrumental variable approach that addresses potential correlated omitted variables. We also find that the likelihood that the borrower violates a debt covenant following a decline in creditworthiness is increasing in the extent to which the debt covenant threshold is set closer to analyst expectations, suggesting that lenders’ use of analyst research increases the effectiveness of debt covenants in transferring contingent control rights following declines in creditworthiness. Our results provide new evidence on the role of sell-side analysts in debt contracting and inform the literature on the information used by lenders when establishing debt covenant thresholds.

This paper studies the corporate social responsibility reports (CSR) of the Big Four through the lens of language. We aim to highlight the set of linguistic strategies that these firms use, and certain translation issues that arise as they struggle to reconcile widening gender equality values, in line with their adherence to the UN Global Compact, with their internal gender inequality. We study the CSR reports of 19 audit firms, all part of the same Big Four network. We use theories of signaling and impression management, and insights from the most recent research on linguistic relativity and economics. The use of images of female in the CSR report is positively correlated with the percentage of female employees, while negatively correlated with language gender marking. This suggests that CSR reports are used as a signaling device and that language influences the firm’s ability to challenge local meanings of gender. The qualitative and descriptive nature of our study does not allow us to perform quantitative robustness checks due to the small sample size. In the future, harmonization of accounting practices may go beyond the purely financial statements into the CSR realm, including gender equality issues. Being aware that such performance is conveyed through language (words and images) and, therefore, the gendered structure of the language in which the report is originally written may matter for a successful standardization. Combining different theories and through the lens of language, we provide a novel approach to the study of issues arising from translation when it involves gender-related social accounting.

This case introduces students to the concepts of sustainability reporting and integrated reporting. Through the reporting of Ford Motor Company, the case addresses the importance of grasping such concepts as materiality of sustainability issues, integrating sustainable development initiatives with business strategy, and connecting financial and sustainability information in integrated reports. Students research sustainable business reporting frameworks and explore how the company assesses the materiality of sustainability-related issues. The case encourages students to reflect critically on the motivations for sustainability reporting, its stakeholders, and challenges with sustainability reports to preparers, auditors and investors. The case can be used to discuss sustainability topics in many undergraduate and graduate level accounting courses, including accounting electives such as Accounting Theory, Advanced Auditing, Ethics, and International Accounting or, as well as in standard financial, international accounting, and managerial accounting courses.

Abstract In this article, we analyse the visual and classificatory power of accounting numbers (Quattrone, 2009; Busco & Quattrone, 2015) by using Husserlian phenomenology to study the restructuring of a firm. We thus explain how accounting images and inscriptions impact individuals at a distance by drawing on the dynamics of perception. By revisiting the Husserlian concept of image-consciousness, we characterize the perception of accounting inscriptions as the product of the interaction between a physical thing (image-thing), a representation (image-object), and a more or less observable reality (image-subject). We reveal the benefits of using this level of analysis by studying how accounting images progressively transformed a painful corporate liquidation into an industrial and financial success. We conducted a longitudinal analysis of the restructuring of a large French firm, which took place in the early 1980s. Through phenomenological analysis, we build on works studying accounting inscriptions and the visual power of accounting, by specifying how they act by drawing on the levers of perception in a flexible, fragile, and sometimes even involuntary way, going as far as to subjugate individuals’ representations.

The purpose of this study is to examine the performance consequences of misalignment among business strategy, organizational configurations and management accounting systems. Based on a questionnaire surveys conducting in publicly held manufacturing companies listed in Indonesia Stock Exchange, we hypothesize and find that misalignments among business strategy, leadership style, organizational culture and management accounting systems are negatively associated with both financial and non-financial performance. The findings of our study suggest that product differentiation companies should employ transformational leaders, promote flexible organizational culture, and use broad-focused management accounting systems. By contrast, cost leadership companies should employ transactional leaders, promote controlled organizational culture and use narrow-focused management accounting systems.

This study investigates whether and how the financial reporting quality (FRQ) of privately held firms is influenced by local government tax enforcement. To establish a causal relation between the two, we exploit China’s province-managing-county (PMC) reform in 2003. Under this reform, prefectural local governments experience either a fiscal squeeze or revenue shortfall. Consequently, they are incentivized to implement stricter tax enforcement to redress lost tax revenue. Using the PMC reform as an exogenous shock to governments’ fiscal revenue and tax enforcement, we find that the heightened post-reform tax enforcement leads to improved FRQ for private firms incorporated in a PMC-reformed city. The positive effect of PMC reform on FRQ becomes insignificant: (1) when the local prefectural government is less fiscally squeezed in the post-reform period; (2) for private firms outside the prefectural local government’s tax jurisdiction; or (3) for firms for which the prefectural city government has less incentives to collect tax. Complementing Hopes et al. (2012), we find that the stricter tax enforcement induced by PMC reform reduces tax avoidance by privately held firms. As the fiscal hierarchical system is a global phenomenon, and the dual roles of local governments as tax payers and tax collectors are prevalent in many countries, our study provides valuable insights into the role of local government tax enforcement in shaping private firms’ FRQ.

Despite the agency perspective of corporate tax avoidance, there is little empirical evidence confirming that managers do extract rents derived from aggressive tax practices. This study investigates the association between tax aggressiveness and managerial rent extraction by focusing on informed insider trading, a self-serving action with an unambiguous impact on insiders’ personal wealth and representing the most direct channel through which managers expropriate outside shareholders. We find that insiders from firms with greater tax aggressiveness gain significantly higher returns from insider purchases than those from firms with less tax aggressiveness and this outperformance results from trading on future earnings news. We also find that insiders under the cover of aggressive tax practices more likely trade on bad news via insider sales and gain more from these trades. The overall evidence is consistent with aggressive tax avoidance serving managerial interest through gainfully exploiting private information and extracting rents from uninformed shareholders.

This paper investigates the effect of short selling threats on managers’ earnings management choices in an international setting. Using data from 22 countries between 2003 and 2015, we find that short-selling threats constrain real earnings management, and this effect is mainly driven by firms operating in countries with weak shareholder protection. Furthermore, firms with great short selling potentials substitute accrual earnings management with real earnings management. We also reveal a stronger constraining effect of short sale on real earnings management among firms in the countries where short sale is feasible. Overall, we find that short sale modifies managers’ choices of earnings management.

In this paper, we investigate how insiders trade prior to the issuance of modified audit opinions, and how it affects the market reaction in Asian markets. We test the link between insider trading activities and issuance of MAO in the light of agency theory and signaling theory. Our evidence is consistent with both of these theories. We find that insiders are less likely to buy stocks before the issuance of going concern opinion, and that they are more likely to buy stocks before the issuance of material uncertainty, scope limitation and GAAP violation opinions. We also find that insider buying activity sends positive signals to the market and lead to less negative market reaction to modified audit opinions. This study contributes to the literature by showing that insider trading behavior depends on the level of severity and uncertainty of third-party news, and the price reaction to modified audit opinions is a function of observable insider trading signals.

Valuing loss firms is difficult as negative earnings lose information content. In this study, we demonstrate that forecasted one-year-ahead earnings for loss firms are value relevant. We develop an earnings forecast model for loss-making firms in order to separate between persistent and transitory losses. We show that the forecasted earnings are associated with firm value. Using cross-sectional valuation models, we find that, the coefficients of current earnings for transitory loss-making firms are significantly higher than that for persistent loss-making firms, suggesting that earnings is an important value determinant for transitory losses. We also find that, the coefficients of book value for transitory loss-making firms are significantly lower than that for persistent loss-making firms, supporting that persistent loss-making firms are more likely to adopt an abandonment option instead of bearing infinite losses. Our results are also generally supported by the use of analyst forecast information.

Do accounting scandals affect capital markets returns? To investigate this, I theorized that investors’ responses are determined by the type of event, the economic penalties, and the opinion of experts involved in the process. Using three- and eight-day stock prices window from 486 tax, fraud, quality and corruption scandals between 2007 and 2016, I found that the consequences of scandals in capital markets are scarcely related with firms’ financial performance but highly explained by how controversial events are perceived by forecasters. Highly controversial events (tax and quality scandals) have smaller abnormal returns than low controversial events (corruption and fraud) that have more aggressive results. Also, if present, regulatory sanctions on firms positively influence abnormal returns. In average tax and corruption scandals have positive abnormal returns; meanwhile quality and financial fraud have negative abnormal values. In other words, analyzed evidence suggests that when the capital market’s social verdict about a scandal is negative (quality and financial statements fraud scandals) the abnormal returns are also negative and the opposite results with positive verdicts (tax and corruption scandals) and the harder the judgment, the lower the abnormal returns.

Recent studies show that hedge fund activists are effective in monitoring. They create firm value by being able to identify undervalued firms and promote positive changes. We propose that accounting information comparability can facilitate hedge fund activists’ monitoring effectiveness. We find that higher accounting information comparability is associated with higher abnormal returns around hedge fund campaign announcements and that this association is stronger for firms with more agency problems and for more experienced hedge fund activists. In addition, we find that greater comparability is associated with a higher likelihood of activists using hostile tactics and firms experiencing superior post-activism performance. Taken together, our findings suggest that hedge fund activists utilize comparable information to identify undervalued firms and push for value-enhancing changes to improve firm performance. Our paper contributes to the literature by providing new evidence on the monitoring role of accounting information comparability.

We study how sell-side analysts map both quantitative and qualitative information from earnings conference calls into their forecasts of fundamental firm risk. We find that analysts perceive firm risk to be lower when absolute earnings surprises are small and tone of earnings conference calls is more positive. Further, we find that the relative importance of earnings call tone increases during periods of high macro-uncertainty and this increase improves the calibration of the risk forecasts. Our results are robust to alternative empirical specifications and increase our understanding of the "black box" that is the analyst forecasting process.

Costing systems can vary from very simple cost allocation techniques to more complex systems with multiple cost pools and cost drivers, whereby firms use different costs for different purposes. Whether or not more complex costing systems are also more usefulness for decision-making is still an issue of debate. Prior studies, analysing this relationship resulted in mixed findings To unravel these mixed findings, this study sets out to investigate when firms adopt more complex costing systems as well as which underlying mechanisms influence the relationship between costing systems complexity and cost usefulness. Based on the theory of Galbraith (1973), hypotheses which relate firm-level characteristics to costing systems complexity are formulated and using cognitive psychology theory, hypotheses on the relationship between costing systems complexity and usefulness are developped. Using survey data our results show that the adoption of more complex costing systems is significantly associated with high operational turbulence, a high level of IT-integration, and a high level of product customization. Moreover the relationship between costing systems complexity and cost usefulness is moderated by the presence of organizational processes that stimulate knowledge creation.

The aim of this paper is to investigate how accounting numbers are used in the organisation and management of temporary organisational record production projects. The findings of the paper are based on interview data gathered from record producers involved in the management of short-term record production projects. The data were analysed through the lens of strong structuration theory to highlight the use of accounting numbers in the continual processes of temporary organising that record producers face in such environments. The paper finds that accounting numbers are used by record producers to continually reproduce the structures of temporary record production projects while at the same time providing projects with enough fluidity to allow musical tasks to take place. In doing so, the findings of the paper highlight how this is possible through drawing upon the calculative, symptomatic and existential qualities of accounting numbers, offering a novel conception of the operation of accounting numbers beyond permanent organisational settings. The paper responds to calls for the flexible adoption of strong structuration theory by extending the notion of active agency and outcomes to focus on the situated use of accounting numbers within domains that exist outside of permanent organisational forms. The paper also furthers our understanding of how non-accounting actors use accounting within the music industries.

This study investigates the relationship between abnormal audit hour and cost of equity capital in Korean audit market. Although prior research suggests abnormal audit hour reflects auditors’ effort and shows positive relation with financial reporting quality, we find that abnormal audit hour is positively related to ex-ante risk premium in equity market. This implies investors regard abnormal audit hour as information risk and there might exist un-observed errors in normal audit fee model with regard to accounting issues such as auditor-client disagreements. We also find that this relationship is more prominent in firms with positive abnormal audit hour, less profitable auditor and with large portion of quality review hour. These results imply that auditors’ over input, especially, excessive audit hour commitment under low profitability and high portion of quality review management would be the major source of investors’ concern about financial statement credibility. Results of this study contribute to the extant literature by showing expanded evidence on whether investors’ response to abnormal audit effort as new source of information risk.

We examine whether ex ante litigation risk deters corporate insiders from exploiting private information. We use the staggered adoption of Universal Demand (UD) laws, which presents a quasi-exogenous variation in shareholder litigation risk. The reduced litigation risk following the passage of UD laws leads to greater tendency for corporate insiders to utilize their information advantage. Insider trading, especially opportunistic insider sales, are more informative about firms’ future performance post UD laws. Further analysis shows that the effect of UD laws on the return predictability of insider trading varies with firms’ information environment, alternative governance mechanisms and managerial incentives in a predictable manner. The disciplinary effect of litigation is greater for more opaque firms, firms less constrained by alternative governance mechanisms such as institutional ownership and media coverage, and firms with greater managerial career concerns. Overall, we provide evidence highlighting the disciplinary role of shareholder lawsuits in restraining managerial opportunism in insider trading.

Does a company’s stock mispricing influence its decision to issue an earnings forecast? Does executive compensation affect the nature of the forecast? How does the market react to these forecasts? I address these questions using cross-sectional and time-series variation in stock mispricing related to the liquidity-driven trades of mutual funds. I find that managers issue earnings forecasts more frequently when their company’s stock appears mispriced. In answering the second question, I uncover unintended consequences of executive compensation schemes, in that managers of mispriced firms strategically withhold information from investors to benefit from stock option exercises. I also show that in responding to forecasts of mispriced firms, investors act as if they are able to distinguish informative management earnings forecasts from uninformative ones. Finally, the difference-in-differences estimations lend credibility to the results by exploiting the exogenous fund outflows due to the 2003 mutual fund trading scandal. Collectively, my findings highlight the interplay between stock mispricing, managerial earnings forecast incentives, the company’s resulting disclosure policy, and the market reaction to it.

One of the most critical decisions top management in corporate groups has to make is the allocation of resources among competing investment opportunities. Information asymmetry between the parent and the subsidiary, however, creates agency conflicts that complicate such allocation. We examine whether accounting information can mitigate those agency costs in a UK setting where a choice existed for subsidiaries to voluntarily adopt IFRS. We find that adopting subsidiaries have greater cash holdings, receive more group borrowings and pay less dividends. These findings are consistent with IFRS adoption reducing agency costs of excess cash. Further, we find that IFRS subsidiaries have greater (lower) capital expenditures when in growing (declining) industries and invest more in innovation and intangible assets.

We investigate whether isomorphic pressures play a role in determining a firm’s working capital policy. Using instrumental variable estimation and excess-variance tests to overcome reflection problem in identifying isomorphic pressures due to peer interactions, we find that average change in working capital of peers positively impacts a firm’s working capital policy choice. Further, we hypothesize and find that the impact of peers’ working capital decisions on a firm is moderated by industry competitiveness. We also find that firms do not follow their peers if they are cash constrained i.e. they cannot afford to follow. In addition, we document that a firm’s long term investment strategy is negatively related to a firm’s propensity to follow peers in deciding its working capital policy.

Infographics combine visual and textual information and thus may be used to attract attention, with the ultimate purpose of influencing the thoughts and feelings of readers of accounting information. However, little is known about the role of infographics in sustainability reports. This study examines the practice and features of infographics in sustainability reports, particularly focusing on whether infographics are used for impression management (IM) purposes by utilising selectivity, visual manipulation and performance comparisons. As infographics become more widely used, it is important to understand their use in corporate sustainability reporting (CSR), particularly because their use is not regulated. Additionally, the association between IM and sustainability disclosure is scrutinised. The findings reveal that infographics are becoming increasingly utilised in CSR and that they are commonly used by environmentally sensitive industries. The key social and environmental aspects depicted by infographics are air emissions, energy usage, water consumption, labour practices and decent work. We find clear evidence of infographics being harnessed for IM purposes and that there is a bias in selecting, comparing and emphasising sustainability performance trends towards favourable disclosures that enhance company reputation. Further, we find evidence of an association between IM and social disclosure in relation to selectivity and visual emphasis strategies but the association with environmental disclosure is only found for selectivity and performance comparison strategies.

Starting October 2013 auditors of premium listed firms in the UK are mandated to prepare an expanded audit report. In this report auditors provide details on audit procedures, main risks of material misstatement (RMMs), and materiality thresholds. We analyze if the increased audit disclosure reduces private lenders’ monitoring costs and shapes loan contracting. Our evidence suggests that the introduction of the expanded audit report is associated with improved lending terms for adopting firms relative to matched samples of non-adopting US and UK firms. The analyses of expanded audit reports in the post-adoption period show that borrowers with more RMMs are perceived to be riskier, which translates into less favorable loan contracting terms. Additional tests indicate that uncertainty in the tone of the disclosures reduces the negative impact of the number of RMMs on lending terms. Taken together, our results indicate that the expanded audit report disclosures contain relevant information, which shapes loan contracting.

The present study examines and compares the perceptions of Catalan mayors and municipality comptrollers on aspects related to the Spanish legislative framework on financial sustainability. These aspects touch upon the usefulness and necessity of maintaining the existing legislative framework in light of the results so far, its impact on decision-making, flexibility and on citizens’ welfare as well as on alternative plans that could safeguard municipalities’ financial health. The 178 responses on a structured questionnaire indicate that when strict rules are imposed on the management of expenses, surpluses and debt, the interests of the two groups are aligned. Nevertheless, the views of mayors appear to be more pessimistic. Municipality size and financial condition does not influence the respondents’ perceptions. Finally, it appears that while the application of strict rules has bear fruit, this trend is not sustainable in the long-run and the introduction of more flexible measures is required.

Reducing tax-motivated profit shifting is an increasingly important element in the agenda of academics and policy-makers in the effort to understand tax-planning behavior and to promote tax fairness. In this research, we view profit shifting as the outcome of corporate governance characteristics of multinational enterprises (MNEs), ceteris paribus. Using a sample of 860 parent firms from 24 countries, 6,698 subsidiaries in 49 countries, we first measure profit shifting from the responses of subsidiary profits to parent earnings shocks. Subsequently, we draw on several agency theories of the firm and we show that elements of board structure, directors’ experience and networks, and CEO duality determine the aggressiveness of profit shifting. According to our baseline specification, a one-standard deviation change in these board characteristics implies an 11.06% total response in our measure of profit shifting. We contend that closely observing these corporate governance characteristics can yield improved identification of profit shifting flows and ways to contain them.

The objective of our study is to assess small entrepreneurial firms (n=167) filing a petition for reorganization under the Finnish Company Reorganization Act, which is comparable to Chapter 11 of the Bankruptcy Act in the United States. Approximately 77 percent of the final sample firms interrupted the reorganization process after filing a petition for reorganization. In particular, the study examines whether the financial paths are different within the firms filing for reorganization and whether the financial and non-financial information is connected to survival time in reorganization. In this study it is assumed that longer the survival time the better the chance at success. The findings of this study indicate that different financial paths can be found within firms filing a petition for reorganization. The results also provide evidence on the connection between pre-filing financial information and survival time. Especially one variable, which is strongly connected to pre-filing liquidity, may affect survival time in reorganization. Furthermore, the results show evidence on the connection between non-financial information and survival time. However, the combined model, including both financial and non-financial information does not outperform models based on financial or non-financial variables.

We explore how professional organizations respond when their professionals engage in misconduct. Using data on professional misconduct by accountants in the Japanese audit industry, we empirically examine the relationship between professional misconduct and punishment with organizational-level and individual-level factors that respectively moderate the relationship. We found that audit firms tend to assign fewer clients to those accountants who initially audited financial statements that are restated later, suggesting that audit firms punish accountants who engage in misconduct by not entrusting professional tasks to them. Further, we also found that such relationships differ between Big Four and non-Big Four audit firms, and also differ between accountants who have high relative organizational standing and those who have low relative organizational standing within their organization. Our findings indicate there are unequal punishments: punishment for accountants who engage in misconduct differs across organizations and individuals.

This paper measures empirically the extent to which firms manipulate their carbon emission disclosure. Whereas many studies provide empirical evidence for earnings management, the quantitative literature is silent with respect to firms’ intention to manage non-financial disclosures. We fill this gap and develop an empirical model to evaluate whether firms manipulate carbon disclosure in their favor after having incurred environmental controversy costs. Our analyses are based on all firms that have carbon emission data in the Asset4 database. We find support for our hypothesis that firms engage more frequently in decreasing emission disclosure management around years in which they incurred environmental controversy costs. We find no evidence that audits of sustainability reports prevent environmental disclosure management. Thus, external assurance is not able to mitigate the problem of biased environmental disclosures. We attribute this finding to the limited assurance of sustainability report audits.Our findings have implications for the audit profession, which should revise their practice of providing only limited assurance levels on CSR reports and should start the transition from a mere labelling to a thorough auditing process. Our results imply that investors and other stakeholders should consume carbon emission disclosures with caution.

This paper examines the two main fiscal reforms that Spain adopted after the crisis: the law on budget stability and the creation of the country’s first independent fiscal institution, the AIReF. Our main question is whether these two reforms reflect a reformist or a conservative approach to public crisis management. Our analysis suggests that the government adopted an ambivalent strategy displaying tendencies both to reform but also to resist, trying to keep or regain decision power for itself.

The purpose of this paper is to examine the accounting practices at UK gas companies during the first half of the 19th century with regard to the origin of depreciation accounting. We are especially concerned with the historical development of the accounting practices at the Independent Gas Light and Coke Company (IGLC). It is a historical/empirical study based on the minutes of the directors’ and general meetings. Although a large number of studies have been made on the development of depreciation accounting, little is known about the actual circumstances at the accounting practices of the individual company. IGLC also began in 1830 to treat expenditure for taking down, rebuilding, and so forth as being different in nature from operating expenses. In 1834, along with a total equivalent to 1% of capital charged against revenue，the cumulative amount of such expenditures began to be recorded as a capital category in the capital account. This meant that revenue receipts were allocated to capital expenditure. This practice was not temporary, it continued and became customary. It is interesting that IGLC calculated depreciation based on capital and not assets. Gas companies focused on capital because they considered their entire gas supply operation as a whole. To maintain their overall operation, they calculated an amount equivalent to a certain rate of capital and charged to revenue. This was a unique accounting method at the IGLC.

The Japanese local governments are expected to issue the same financial statements and the comparability will be guaranteed, after the release of guidelines for the intergraded public accounting standards through the Ministry of internal affairs and communications in 2015, which standards are among others strongly influenced and inspired by the IPSAS model. Nonetheless three different models are still going on now. These financial statements, however, seem to have a fundamental defect, because the important fact is ignored that the subsidies or grants are playing much more crucial role in the public sector than in the private sector as an incentive tool. The public sector should have another budget constraint other than private sector and Kornai (1979・1980) first called it a “soft budget constraint”. An incomplete contracts approach is applied to deal with problems that the soft budget constraint can cause between the central government and local governments. Our proposition is simple: give them a sub-optimally lower budget by the means of decreasing grants or subsidies, if they submit a distorted report. This measure could reveal the true performers and give us a judgment basis on how far their reforms are going. To be more specific, another statement of financial performance should be included in the financial statements as a tool for investigating how many grants or subsidies are appropriate for each local government. This statement was proposed in Japan but completely forgotten for a number of years.

CSRR has become a widespread practice amongst companies to discharge their public accountability about CSR practices. In order to perfectly perform public accountability, a high-quality CSRR practices involving comprehensive disclosure of ‘vision and goals’, ‘management approach’, and ‘performance indicators’ on each of the CSR items is required. CSRR regulations, both voluntary and mandatory, have therefore emerged in order to assist companies in discharging their public accountability. CSRR is expected to be of higher quality for companies listed on SRI indices as these companies are believed to have a high ethical commitment in doing business. However, few studies have examined the quality of CSRR disclosure by SRI index participants. Moreover, these studies have been largely conducted within the context of developed countries and fail to consider the impact of CSRR regulations on CSRR quality. This research thus attempts to address these gaps by examining the influence of regulations on CSRR quality for companies listed on the Indonesian SRI-Kehati index. This study adopts a case study design involving two mining companies on the SRI-Kehati index. Employing a documentary analysis and content analysis methodology, it is demonstrated that the CSRR quality of these companies increased following the development of mandatory and voluntary CSRR regulations in Indonesia. The findings also indicate that similar companies have an identical quality and practice of CSRR.

Konchitchki and Patatoukas (2014) (hereafter KP 2014) show that aggregate accounting earnings growth predicts future nominal Gross Domestic Product (GDP) growth and that professional macro forecasters do not fully incorporate the information contained in aggregate accounting earnings. Based on results from prior literature, which find that accounting earnings reflect bad economic news in a timelier manner than good news, we condition KP’s GDP growth forecast model on the sign of earnings changes. We show that negative changes in aggregate earnings predict future GDP growth, while positive changes in earnings do not. Furthermore, we show that professional macro forecasters underreact to the information contained in negative changes in aggregate earnings about future GDP growth. In additional analyses, we find evidence suggesting the incremental usefulness of negative earnings changes is driven by accounting conservatism rather than other drivers of asymmetric timeliness in earnings.

Risk management and management control are considered to include distinct though potentially interrelated practices to manage firm risks and uncertainties. Little is known, however, how they interrelate in the context of risk and uncertainty which risk management is meant to address. We collect archival and survey data to examine this question. Findings support the expectation that risks arising from environmental uncertainties that are recognized and understood by the firm are managed through risk management practices as well as through performance-based rewarding and performance measurement. However, environmental uncertainties that are less easily translated into managerial risk assessments are primarily managed through risk management practices, and result in less use of performance-based rewarding that would be based on more noisy measures of performance. Finally, results show that risk management, performance-based rewarding and performance measurement are complementary practices in the management of firm risks.

The purpose of this study is to investigate usage of financial graphs in Japanese corporate annual reports and evaluate the quality of those graphs, in order to compare and contrast the results with those of studies in other countries, including European countries, the United States, and other Asian countries. This study observes and describes the nature of graph use in corporate annual reports in Japan and analyzes whether the representational neutrality of the graphs are violated. The observation suggests that graphs are used widely in Japanese annual reports. However, results did not find that Japanese firms were selective in using graphs or that graphs were distorted or used to misrepresent the facts. In addition, the survey found no statistical evidence to support the hypothesis that graphs were included in annual reports when they could present a favorable view of performance rather than an unfavorable view. These findings are different from any results of other prior research, show that the graphs in Japanese corporate annual reports are accurate, and suggest that Japanese firms are not attempting to manage impressions by means of graphs used in their annual reports. The results might be influenced by several factors, including Japanese culture and/or aesthetics in financial reporting practices.

We examine the economic consequences of disclosure regulation using a regulation implemented in a staggered manner that requires publicly listed Chinese firms to issue earnings forecasts under certain conditions. We find the regulation substantially increases the directly affected firms’ frequency of management earnings forecasts, but approximately one third of the firms that are required to issue mandatory earnings forecasts fail to issue the required forecasts (noncompliant firms). The stock market reacts positively to the announcements of mandatory earnings forecasts. More importantly, the mandatory earnings forecast regulation helps increase the directly affected firms’ future earnings response coefficient (FERC), suggesting that the regulation helps increase the total information available to stock market investors. We also find that the regulation creates a spillover effect on some firms that do not issue earnings forecasts in the post-regulation period. Specifically, we find that the noncompliant firms experience a significant increase in the FERC in the post-regulation period when their peer firms in the same industry issue at least one mandatory forecast. However, we find no evidence of a spillover effect for the firms whose expected earnings do not fall into the scope of the regulation and thus are not obligated to issue any earnings forecasts.

We study whether auditors adjust risk assessments in response to low financial statement readability and communicate this in the audit opinion in response to heightened risk of financial misstatement. We build on prior research that suggests that financial statement readability is negatively associated with firm performance. We first show that financial statement readability is negatively associated with auditors’ risk assessment. Specifically, low readability is associated with higher audit fees and a greater lag in the issuance of the audit report. We also find that low readability increases the likelihood of the auditor using more explanatory language in unqualified audit reports, consistent with the idea that auditors convey their higher risk assessment to shareholders.

This study assesses whether the direct method incrementally predicts future operating cash flow and earnings beyond the indirect method. Using a sample of Australian listed companies reporting under International Accounting Standards, results indicate that the direct method predicts future operating cash flows with greater accuracy than the indirect method. Direct method disclosure is incrementally useful for predicting earnings when companies experience low earnings permanence. Findings show that users cannot re-create or estimate direct method line items accurately with mean absolute percentage errors above 3 percent outside the upper 25th percentile for cash receipts from customer and cash payments to suppliers. In fact, estimated direct method line items provide less predictive accuracy for earnings and operating cash flow than an aggregate operating cash flow measure, after controlling for accruals. This result also holds after I truncate estimation errors for direct method disclosures to the upper 90th and 75th percentiles.

This paper studies the calculative practice of recognizing revenue from the sale of virtual goods. By virtual goods we mean non-physical objects, such as avatar feature or skill boosts, which are usable only in the environment where they are sold in. Accordingly, the transactions concerning the virtual goods can only be observed in the same virtual environment. The study contributes to the growing literature on the work of financial reporting, translation of accounting regulations into practice, and on the infrastructures that support financial reporting.

Some firms in the technology sector choose to cooperate with competitors (“co-opetition”) in Standards Setting Organizations (SSOs). These SSOs create technology standards that facilitate rapid market penetration of new technologies such as Wi-Fi, Bluetooth, and Blue-Ray. Active participation in the standard setting process requires the exchange of proprietary information with competitors. While the goal of such information sharing is to further a technology or a market, firms potentially receive an unintended benefit from access to competitor and industry information. We examine whether active SSO participation enhances a firm’s information set and allows managers to better predict future sales and earnings. Comparing firms that actively contribute information in SSOs with firms that passively participate (i.e., do not share information), we find that SSO-contributing firms are more likely to issue annual sales forecasts after initiating their collaboration. We also find the SSO-contributing firms experience an improvement in the accuracy of their annual sales and earnings forecasts and a reduction in the dispersion of analysts’ earnings forecasts. Our findings contribute to the literature by showing that collaborating with competitors in the product market provides an important unintended benefit of improving the manager’s information set.

Purpose: The purpose of this article is to reflect on the corpus of gender research in accounting journals, with the overall aim of evaluating the extent to which it has contributed to our understanding of the organization of accounting, and its social and organizational functions. Design/methodology/approach: A critical analysis was undertaken of a selection of gender articles. The selection included all gender papers published between the years 2004–2014, in 58 journals ranked A*, A, and B from the Australian Business Deans Council (ABDC) journal ranking list. Patterns within the publishing norms of those journals were identified and critically reflected upon. Findings: We grouped gender research into three categories, namely: gender as a dummy (or control) variable, gender as giving voice, and gender as a process and organizing principle. Of these three categories, we contend that using gender as a dummy variable is very common, and proved to be least fruitful in explicating the roles of gender in accounting. Moreover, many published papers confuse sex with gender. Research limitations/implications: This paper discussed future avenues and approaches for research gender in accounting without, however, expanding on recent changes in gender research.

In this paper we identify technologically similar patents and firms by performing textual analysis on 7.7 million patent descriptions. We find that information about technological similarity is impounded into stock prices by demonstrating that stock returns of technologically similar firms comove contemporaneously. However, we find that stocks of technologically similar firms cross-predict each other’s returns, suggesting that this information is not impounded into prices fully and immediately. Moreover, the magnitude of return cross-predictability is lower when the number of investors informed about the links, as proxied by the number of common analysts covering technologically related firms. This suggests that investor inattention may explain observed predictability.

Our study examines the role of corporate reputation in enhancing the timeliness of external audit and earnings announcement. Changes in regulation and the financial reporting environment have resulted in longer audit report lags, which have resulted in an increase in the proportion of firms that release earnings before completion of the audit. We find that corporate reputation is negatively associated with the likelihood of time constraint in the audit process and the likelihood of firms releasing earnings after audit completion. Our findings have implications for various stakeholders interested in improving external audit and financial reporting timeliness, given the challenges faced by auditors in terms of more onerous audit requirements and shorter filing deadlines, as well as demands for timelier information faced by firms.

We examine the time trend in the Big 4/non-Big 4 audit quality differential since the start of PCAOB inspections in 2004. One view predicts the inspection regime to narrow the differential by raising the audit quality of non-Big 4 auditors relative to that of Big 4 auditors. A second view predicts the differential to remain unchanged, i.e., the Big 4 increase their audit quality in step with the non-Big 4 to protect their premium brand identity. Yet another view suggests a widening of the differential because the Big 4 are subject to annual inspections and thus have more opportunities for continuous improvement to protect their brand. Consistent with the first view, we find an attenuation in the Big 4/non-Big 4 audit quality differential over the 2005-2014 time period when we use discretionary accruals and the likelihood of restatements as proxies for audit quality. We also find that much of the attenuation in the audit quality differential can be explained by improvements in the audit quality of small (i.e. triennially inspected) audit firms. However, when we use the likelihood of a going concern opinion as an indicator of auditor independence to measure audit quality, we find no attenuation. Thus, although our findings are consistent with inspections narrowing the Big 4/non-Big 4 differential with respect to auditor competence, they also suggest that the differential is likely to persist with respect to auditor independence because of Big 4 size-related incentives arising from litigation risk and reputation loss concerns. Our study contributes to the literature on the consequences of PCAOB inspections, particularly for product differentiation, which remains a fundamental question in auditing.

We explore the day-to-day decision making processes of tax professionals to understand how client related factors might influence them to take an innovative or aggressive tax decision. Previous academic work has explored how client relationships may affect professionals’ judgement in the context of auditor independence. We extend this work beyond audit, to focus on tax professionals across a diverse range of professional settings. This is timely and topical work, given the recent release of the “Paradise” and “Panama” papers which has reinvigorated the public and political debate on client / professional relationships, and their influence on tax avoidance. We find that the age and stage of professionals, their geographic location and factors relating to the size and international focus of their employing firm amplify the degree to which client factors may lead them to make a more innovative or aggressive tax decision. The degree to which their employing firm is understood as having a client-focused ethos also impacts on the importance of the client expectations on their decisions, although this does not translate necessarily to tax minimisation. Given the prevalence of commercialisation logics within both professional service and law firms, our findings have implications to the future training of tax professionals, and for firms’ self-awareness of the influence of their tax employees.

We investigate the effect of information contained in valuation allowance for deferred tax assets on cost stickiness. Dhaliwal et al. (2013) find that managers use their private information properly in estimating valuation allowance for deferred tax assets and the information in valuation allowance for deferred tax assets gives incremental information about the persistence of loss for loss reporting firms. By using tax categories following Dhaliwal et al. (2013), we find that the magnitude of cost stickiness of firms with material increase in valuation allowance for deferred tax assets is significantly smaller than that of other firms. The results suggest that firms with managers’ positive prospect about future performance shows stickier cost behaviors because material increase in valuation allowance for deferred tax assets reflects managers’ negative perspective about future performance. This study contributes to the literature for the following two reasons. First, by examining the effect of managers’ perspective about future performance on cost stickiness, this study helps analyze the mechanism of the cost stickiness more specifically. Second, by providing the link between cost stickiness and tax information, this paper enhances understanding of the relation between cost behavior and tax information. Third, this paper extends the understaning of cost behavior for loss reporting fims by investigating loss reporting firms.

In light of the concerns about inherent measurement uncertainty and subjectivity embedded in accounting estimates and the demand for new auditing standards on accounting estimates, this study examines firms’ practice in making material changes in accounting estimates (CAEs) – CAEs that are subject to mandatory disclosure in accordance with Accounting Standard Codification 250 (ASC 250). The result suggests that anticipated impacts of CAEs on earnings in the context of meeting or beating analyst forecasts significantly influence managers’ decision to make CAEs. Regarding CAEs impact on earnings, we find that earnings for the CAE quarter is less persistent, suggesting that CAEs are a one-off adjustment to revenue or expenses. We also find that financial reports are more likely misstated, subject to SEC inquiries (i.e., SEC comment letters), and are more difficult to read. Reflecting auditors’ view on CAEs as a source of audit risk, audit fees increase significantly when the firm makes a material CAE. Finally, abnormal returns around earnings announcements suggest that investors do not fully understand the impact of CAEs on future cash flows despite the disclosure requirements – investors only partially discount the meet/beat premiums when the meet/beat is aided by a positive CAE, leaving a significant net benefit to firms. These findings, together, provide strong evidence of managers’ self-serving biases in their CAE decisions and support the need for enhanced CAE disclosure.

We examine whether debt research has investment value for debt investors. Specifically, we examine the event-time and post-event bond price reactions around the issuance of debt analysts’ recommendations and find that both the levels of and changes in recommendations are associated with the event time abnormal bond return, while the price reaction is stronger for changes in recommendations. We also find that changes in recommendations are associated with a significant post-event bond price drift, suggesting that the initial bond market reaction is incomplete. The calendar time portfolio approach shows that buying (selling) bonds following upgrades (downgrades) generates significant abnormal bond returns. We also document that debt analysts’ coverage of debt securities is non-random and that the information in their bond-specific recommendations is incremental to that in the firm-level recommendations. Overall, our results suggest that debt analysts’ reports have investment value.

Using U.S. sample, we show how inside debt affects labor investment efficiency. Inside debt has recently been shown to increase manager’s conservatism and long-term horizon due to deferred payments. As labor investment has been recognized as an integral factor for firm’s long-term survival and growth, the inside debt is expected to lead the manager to approach labor investment efficiency. We empirically find positive association between manager’s inside debt holdings and labor investment efficiency. Our results imply that the inside debt mitigates the agency problem between equity holders and debtholders.

Firms commonly use disaggregated accounting information to facilitate efficient contracting over intangible assets. However, reliance on accounting measures creates information asymmetries and thus a role for contract audits. Using a hand-collected sample of technology licensing agreements with royalties based on product-line revenues, I investigate how perceived weaknesses in the licensee’s accounting system and reporting flexibility affect the design of two key audit terms—(1) the scope of audit rights, and (2) penalties for adverse audit outcomes. I find that perceived weaknesses in the licensee’s reporting system lead to the granting of broader audit rights to the licensor, consistent with licensors demanding broader auditor rights when the licensee’s accounting system is believed to be less reliable. However, when the licensee has greater reporting flexibility, the contracting parties are more likely to include penalties in their agreements, consistent with the deterrence theory that penalties are a more cost-effective means to discourage intentional misreporting. Licenses covering more territory and having longer duration are associated with narrower audit scope terms, consistent with the self-enforcement theory that the greater the opportunity cost of early termination, the greater the licensee’s incentives to self-enforce. Overall, my results suggest that audit scope and penalties can improve contracting efficiency in two different ways.

We investigate whether bank monitoring that relies on private information in private debt decreases the demand for earnings quality in public debt. In doing so, we focus on Japanese main banks that have high abilities to access the private information of borrowing firms. We find that under stable financial conditions in the bond-issuing firms, accruals quality is negatively associated with bond yield spreads, regardless of the existence of a main bank, suggesting that reporting higher quality earnings affects the reduction of the cost of debt in public debt. In contrast, we find that when the bond-issuing firms with a main bank have high default risk, there is no relationship between accruals quality and bond yield spread. The results suggest that when a main bank has a stronger incentive to monitor their borrowing firms due to the firm’s poor financial performance, the increased bank monitoring using private information decreases the demand for earnings quality in bond contracts.

This paper examines research and development expenditure manipulation in an industry where R&D expenditures are exceptionally large, and when R&D manipulation is expected to bear significant costs to the firm. I study whether research-reliant firms manipulate quarterly R&D spending for earnings reporting purposes when at the same time firms must meet markets’ R&D growth expectations. These conflicting expectations set by investors, and the resulting complex reporting decisions have not been discussed in the previous literature. I use cross-sectional model developed by Gunny (2010) in quarterly setting to detect firm’s abnormal R&D spending, and find that firms meeting or exceeding markets’ annual earnings expectations postpone fourth quarter’s R&D spending in to the first quarter of the following year. I also find that R&D manipulation for earnings management purposes is conditional to firm reaching markets’ R&D growth expectation. In addition, I find that the R&D manipulation by postponing quarterly spending has no effect on firm’s real operations measured by the level of R&D investments. This study is the first to use cross-sectional residual model on quarterly R&D expenditures, and it presents detailed evidence on quarterly expenditure manipulation in highly R&D-intensive industry.

We investigate how increased mandatory disclosure requirements of the Dodd-Frank Act (DFA) affect disclosures of bank-holding companies (BHCs). The DFA regulations and disclosure requirements impact large BHCs differently than smaller BHCs. We find that, following the introduction of the DFA, mandatory disclosures of large banks directly affected by the DFA and those banks unaffected by such regulation become more similar. Compared to small banks and other financial firms, however, large banks are incrementally less likely to issue management forecasts and less likely to increase the frequency of forward-looking statements in the MD&A sections of their financial reports. Finally, we also find weak evidence that large banks increase the quality of voluntary disclosures by issuing annual management forecasts with a narrower width. Overall, our findings suggest that following the introduction of the DFA, large banks substitute away from voluntary disclosures relative to small banks and other non-regulated firms in the financial sector.

Our paper examines whether the implementation of key audit matters in auditors’ reports affects managers’ reporting behavior. In line with prior research in psychology, we argue that greater transparency through KAM sections lead to higher accountability pressure as managers may expect their judgments to be scrutinized more strongly in the presence of KAM sections. This may evoke a more critical and thorough evaluation of their accounting choices, which could ultimately result in better financial reporting quality. Further, we examine whether varying levels of informational precision in KAM sections adversely affect our predictions. 54 financial statement preparers participated in an experiment where they were asked to make an accounting decision on a complex area of financial reporting judgment: goodwill impairment testing. Our findings show that participants who received a KAM section with firm-specific content are less likely to engage in earnings management activities compared to participants who receive a traditional auditor report without a KAM section. However, we find no significant effect for KAM sections containing non-firm specific information. Thus, our results suggest that KAM sections may serve as a beneficial mechanism for enhancing managerial financial reporting quality in the highlighted area, but only when information precision in KAM disclosure is high.

The non-executive compensation in Taiwan is commonly considered underpaid and is a highly concerned issue for the public. Companies must trade-off between the cost and benefit when rewarding higher compensation to non-executives. Using data in Taiwan from 2008 to 2015, we find partial evidence that the average compensation for non-executives is positively correlated with firm performance. We further partition the compensation into fixed and variable parts, and find that fixed (variable) pay is negatively (positively) associated with firm performance. After considering the percentage of compensation classified into operating expense, we find significant positive (negative) incremental effects of fixed (variable) pay on firm performance. Overall, our results show that non-executive compensation is important to firm performance, and firms must consider compensation structure with the functional categories of cost carefully when designing compensation schemes for non-executives.

Investor’s incentives to monitor banks’ public risk information are attenuated when the prudential supervisor is known to operate on private information in order to facilitate preemptive supervisory interventions. In this paper we use variation in the confidential reporting requirements under the COREP framework across European countries between 2007 and 2013 as an indicator for such a supervisory preference for private information. We find that a stronger reliance on confidential reporting requirements is associated with a significant decrease in trading volume around the publication of banks’ annual reports. This relationship is stronger where the supervisor has more regulatory resources, indicating a better ability to act on its private information. Our study adds to the literature on the influence of institutional characteristics on market discipline by highlighting the role of supervisory information.

Stock options expensing has been a controversial issue since it was first raised in the 1980s. Due to major opposition, it wasn’t till 2005 before stock options expensing was mandated. In 2006, the financial press highlighted yet another phenomenon related to stock options, i.e. stock options backdating, which refers to cherry picking a date on which the stock price is lower than that of the actual grant date and reporting this cherry-picked date to the regulators. Financial press suggests that had employee stock options been expensed, the incidences of options backdating would have reduced. I compare a sample of firms which voluntarily expensed stock options over 2002-2004 and a sample of firms which did not. The proportion of grants that are suspected of being backdated is lower for the sample of voluntary adopters during their post-adoption period relative to non-adopters. This study provides empirical evidence to the suggestion made by the financial press that both the stock options expensing and stock options backdating phenomena are potentially related and contributes to the stock options expensing debate by highlighting yet another benefit to stock options expensing.

We investigate whether audit partners’ general knowledge is associated with audit quality, measured by discretionary accruals, and audit fees. We investigate this research question for client firms that change the lead audit engagement partner but do not change the audit firm, as this setting allows us to control for cross-sectional heterogeneity between audit firms and clients. We examine three different characteristics of audit partners’ general knowledge: professional experience, industry specialization and the number of clients of the audit partner. We use a sample consisting of 2,088 Belgian firms who changed audit partners but not audit firms over the period 2010-2015. Overall, we find no association between general knowledge of audit partners and audit quality in the first year after the partner switch. However, we document a consistent positive association between professional experience and audit fees implying that audit partners with extensive professional experience use their experience as a competitive advantage allowing them to charge higher audit fees. In contrast, industry specialization and number of clients are negatively associated with audit fees in some but not all of our tests.

Developing and implementing a national sustainable development strategy (NSDS) has proven a challenge for many governments. This paper examines how the UAE has attempted to institutionalise sustainability through the development and implementation of a NSDS. Employing the interpretivist lens of institutional theory and the Sociology of Worth, we examine speeches by significant actors and official documents - especially relating to key moments in the international and national sustainability arena - to understand the norms and values that inform these efforts in the UAE context. We conclude that the malleability of the sustainability concept has provided an opportunity where ecological norms have become subordinated to economic ones. We ask how ecological sustainability can be rescued in a contested environment where political and economic imperatives hold sway. The study hopes to contribute to recent concerns about the paucity of research into sustainable development and accounting.

This paper examines the interdependence between a firm's internal agency problem and a firm's external relationship with its suppliers. Elaborating on a linear principalagent model inside a firm that engages in external procurement, we demonstrate that moral hazard problems are not necessarily detrimental to a firm.Introducing asymmetric information in our model leads to higher expected marginal production costs because the principal demands less cost-reducing effort from the agent if effort is unobservable. This reduces the expected compensation that is paid to the agent. Moreover, anticipating higher marginal production costs of the firm, the suppliers set a lower input price to stimulate demand for the input. The cost effect and the additional effect on the firm's revenue have a negative whereas the compensation and the input price effect have a positive influence on expected firm profit. We derive conditions for the level of competition on the input market under which the two beneficial effects outweigh the detrimental effects. In addition to that we find a positive relationship between the number of firms on the input market and incentives provided to agents employed in downstream firms. When elaborating on a multi-product firm, we show that the effect of moral hazard problems on firm profit depends on procurement decisions and on segment profitability. Additionally, we show that optimal incentive provision in a multi-product firm depend on procurement decisions.

This study analyzes Capital Market Days, a relatively new and unique disclosure medium which is organized by a company's Investor Relations department. It allows for face-to-face interactions between company representatives and influential market participants. The study discusses the characteristics and prevalence of Capital Market Days. It also investigates their information content by applying an event study methodology. The sample includes all German DAX 30-listed corporations in the period from 2000 to 2016. Consistent with the hypothesis, this study finds that Capital Market Days do not lead to significant abnormal returns on average. While the findings of this study have implications for hosting companies, participating analysts and regulators, they should be viewed as a piece of a larger puzzle that increases our understanding of face-to-face interactions.

Apart from few comparative surveys focusing on the largest companies, there are no content analyses of the codes’ full content among German companies. Due to country-specific differences results of content analyses can hardly be transferred from one country to another. Refining existing coding schemes to include new topics, enforcement and implementation, we analyze the content, its patterns and anteceding factors. While codes are common, our findings indicate substantial differences in the degree to which codes address topics and functions. We find a single underlying dimension: the intensity of regulation. Codes are most elaborate in terms of what actors are supposed to do, while issues like guidance and enforcement are dealt with in less detail. Endorsement of the code by the top management is also quite low. We find that regulatory intensity differs by stock market segment, which is not a proxy for company size but rather for the presence of the companies in the public and regarding the code’s role, e.g., the preservation of a company’s image. Our study contributes to the literature by examining the codes’ full content of the largest German listed companies. In addition, we modified and disclosed a frequently used coding scheme that can be considered for future research. Finally, we contribute to the business practice by generating a basis for benchmarking their code and giving recommendations for reconsidering their content and design.

Multinational corporations are frequently alleged to use transfer prices to strategically minimize the firm's exposure to taxation when transferring goods, services and intangibles between related entities in different countries. This paper analyzes the implications of a frequently discussed remedy to this issue: the use of market-based transfer prices. While market-based transfer prices prevent conventional profit shifting, we find that they do not remove tax considerations from economic decision making in transfer pricing. In particular even when the market place is most transparent, cross-border tax rate differences influence the behavior of all actors in the market-places on both sides of the border.

Conceptual frameworks of private standard setters frequently state that costs of reporting financial information shall be justified by associated benefits. Frequent criticism targets the expected costs of reporting financial information due to new reporting standards to be inadequate compared to the expected benefits. Research has remained largely silent on insights here. Stepping into this research gap, our study analyzes the relevance of cost-benefit considerations for interested persons, as it seems fruitful to update research in this field and offer practice (e.g., standard setters and interested persons) valuable insights. The study uses a content analysis of 1,647 comment letters submitted to FASB’s and IASB’s joint Revenue Recognition Project. The results show that costs and benefits are frequently indicated and emerge mainly in the middle stages of the standard-setting process. Preparers are the most active interest group regarding these indications, followed by auditors, regulators, and users. Essentially, this study illustrates the high relevance of an efficient cost-benefit consideration for interested persons. It reveals a more structured inclusion of cost-benefit considerations and points to the need for support by research and interested persons. Interested persons benefit from the findings through explicit advice for their own commenting behavior, for example, directly opposing costs to benefits, instead of the current practice of separately indicating them.

The paper aims to investigate the quality of academic education in the context of ACCA accreditation from the perspective of a critical stakeholder group – students. The identification of their views contributes to the ongoing discussion surrounding the accounting education quality, and how it relates to practice. The study is based on an online survey questionnaire. There was a total of 384 responses used in the study, provided by students of three leading Polish universities. We took into consideration such characteristics of our respondents as gender, age, type of studies, work experience. The multiple regression analysis allows us to conclude that accreditation is a factor moderately influencing the quality of accounting education. Students indicate the subject coverage and difficulties in preparation for accredited exams as significantly important factors influencing the education quality. Accreditation and its impact on the quality of education are important and current issues, at the same time not undertaken in the academic research. The presented study is an attempt to fill in the gap in the literature of this field, while also being relevant for practice. The results contribute to a better understanding of accreditation processes and students’ expectations. They may also be useful to more successfully design and develop accounting curricula at higher education institutions which have already been accredited or are considering such a possibility.

This study examines whether a company’s organizational structure has an impact on its cost of debt. On the one hand, it can be argued that corporate diversification lowers a company’s default probability by reducing its overall earnings and cash flow volatility. On the other hand, corporate diversification, contrary to existing opinions that it has no effect on systematic risk, might in fact be able to lower the systematic risk of a company by reducing its exposure to countercyclical deadweight costs of financial distress. In line with this theoretical prediction, I find that diversified companies on average have a lower cost of debt than a comparable portfolio of stand-alone companies. In addition, I predict and find that the cost-of-debt-reducing effect of diversification is stronger during periods of economic or financial crises. Corporate diversification lowers the risk position of debtholders and hence secures the debtholders’ wealth during times of high uncertainty.

Existing studies analysing the value relevance of capitalised development costs focus exclusively on equity markets and thus provide a partial view towards the market implications of research and development (R&D) capitalisation. This study sheds light on the debt market effects of capitalised R&D, using a global sample of public bonds and private syndicated loans. First, we provide evidence that R&D capitalisation is associated with a firm’s debt market choice. Higher amounts of development costs capitalised are associated with firms’ decision to raise funds in the public instead of the private debt market. Second, we show that capitalised R&D investments reduce cost of debt (bonds’ and syndicated loans’ prices). Lastly, we document that debt market participants are able to look through a firm’s motives of R&D capitalisation, as we only find a reduction in the cost of debt when R&D capitalisation is not attributed to earnings management incentives.

This study contributes to the literature on global governance by highlighting the importance of not losing sight of the nation state as an important player in the transnational governance arena. Specifically, literature on global (accounting) regulation devotes a great deal of attention to the roles of organisations and agencies with transnational remit (such as global standard setters, donor agencies) while often downplaying the significant impacts of the more traditional cross-country links forged through economic relationships and resource dependencies between national and transnational institutional fields. This was specially noted in the case of the indirect influences of the US’s decision to delay IFRS convergence. While being interpreted as an indirect source of influence, such a decision played a very significant role on the convergence negotiations in India. The study shows how the US influence was channelled through Japan with which India has significant trade and economic relations and, most importantly, holds a joint forum specifically to discuss convergence issues. The consequences of India’s links with countries such as US and Japan in the decision-making process provide a vivid indication of the important roles of cross-governmental relationships in the global governance arena, and also question the position of transnational organisations as pervasive powers in such governance. The study’s findings clearly demonstrate that the pursuit of full IFRS convergence strongly favoured by the transnational forces was invariably challenged in the Indian context by the influences of powerful nation states advocating a more cautious approach.

The study examines whether accounting comparability matters for mutual funds’ portfolio decisions. I measure accounting comparability at the holding level by assessing similarities with portfolio peers, explicitly adopting an investor perspective. Methodologically, I follow De Franco, Kothari and Verdi [2011], extended with a cash flow-based model. I first show that comparability is high and varies predictably with the type of mutual funds. For the same firm, comparability is higher in mutual fund than in analyst portfolios, which I derive from analysts’ coverage decisions. Likewise, it is higher in portfolios of active funds. I then provide evidence consistent with comparability arising from the selection of already comparable firms. For the same portfolio, a firm is more likely to be included if it is more comparable to portfolio peers. For the firm that is included, comparability increases until and around inclusion, but not subsequently. The findings are in line with accounting comparability reducing portfolio management costs.

Job promotions are one of the most important ways to incentivize hard work from low-level employees. At the same time, they are also used to sort employees according to their skills. These two functions are often in conflict. An external job candidate might be the best qualified, but hiring him reduces motivation for the existing workforce. We extend prior research by taking the effect of job similarity between current and future job into account. We show that if the job after promotion requires a vastly different skill set than the one currently performed, then this makes it easier and thus more likely for a firm to promote only internal candidates. Furthermore, we analyze competition on the demand-side of the labor market and its effect on promotion decisions, depending on firm productivity.

This paper evaluates specifications of price-earnings relations when capital markets are not a priori assumed to be fully efficient. Using a ‘hybrid’ model, I test whether the extent to which price reflects fundamental value creates an omitted correlated variable biasing estimated price to earnings ratios (P/E ratios) and earnings response coefficients (ERC). Since fundamental analysis cannot be disentangled from a test of market efficiency, I empirically estimate the degree of market efficiency. My results show that investors’ immediate responses to earnings news amount to 112-130% of the full effect that would have occurred under market efficiency, i.e., 100%, indicating stock market’s overreaction. Thus the bias in estimated P/E ratios and ERCs caused by an omission of the price adjustment process amounts to 12-30%. Further, prior literature traditionally assumes P/E ratios and ERCs to be positively associated with market efficiency. Recent literature, however, provides evidence on a negative cross-sectional association between P/E ratios and ERCs. In the light of this result, I test whether market efficiency is positively or negatively associated with P/E ratio and ERC magnitudes, respectively. My results reveal a positive (negative) association between ERCs (P/E ratios) and the degree of market efficiency arising from that fact that high persistence in investors’ expectations is associated with higher cost of arbitrage.

This paper breaks up the rather uniform notion of participative budgeting by providing insights into how the practice can vary between organizations. Drawing on qualitative empirical evidence collected in three companies, it is outlined how different dominant logics (Friedland & Alford, 1991) play a decisive role in particularly shaping participative forms of budgeting in each company. Moreover, it is argued that specifically management accountants take in a central role in designing, shaping, and structuring organizations’ budgeting practices, which also affects how other organizational members (can) participative at the practice. The paper outlines how management accountants are engaged in and work on the practice in a way that is consonant with their own interests and aims at aligning different, sometimes competing, expectations that are set by other organizational actors.

While accrual accounting and general-purpose financial statements (GPFSs) have spread to local government (LGs), existing studies do not clarify the effect of adopting accruals with cash-based budgeting. This study aims to clarify the impact of accrual accounting for internal decision making, especially budget priority decisions, with a focus on depreciation expenses and durable life information included in fixed assets. We conduct a survey experiment of all 1 788 Japanese LGs budgeteers (response rate: 40.9%). In 2017, Japanese LGs began reporting general public financial statements (GPFSs) based on unified LG accounting standards that require them to create a fixed asset register according to acquisition cost. We test the hypothesis that budgeteers change their decision priorities related to a building investment when they have depreciation expenses and durable life information based on accrual accounting. The results provide evidence that budgeteers change their decisions about budgeting priorities using accrual accounting, in particular fixed asset information. This study contributes to accounting research and practice to reveal the initial impact of adopting accrual accounting on budgetary decision making using the unique methodology of a survey experiment.

A century before Pacioli’s treatise of 1494 that described how to correct errors and make adjusting entries in the ledger, the accountant in Francesco Datini's company in Pisa made adjustments in the account for Profits and losses to rectify errors identified in the ledger. While the accountant knew where the mistakes had occurred, he did not consistently make adjusting entries in the appropriate ledger accounts. As a result, these individual accounts were closed without alteration. In other cases, an entry in the form of a note was added to the ledger account where the error had occurred, while the ‘real’ entry was made in the account for Profits and losses. This paper presents a series of errors, most of which were detected by the accountant in the company’s ledger for 1395-6. It shows that, contrary to the perception in the literature, accountants of that period not only detected errors, they devised methods to address them that ensured the overall financial result reflected a fair presentation of what had occurred; and that they did not simply use the account for Profits and losses as an easy outlet in which to record an amount that balanced the books. It also finds that the accuracy of individual ledger accounts was not deemed important once they had been balanced, even after errors were detected.

Significant changes are being made to the way independent auditors report audit results. The opinions issued previously, short and rather rigid in wording, no longer meet the expectations of the business community. Report readers want to learn about the broader context in which the auditors worked to analyse their conclusions more effectively. What is particularly interesting in this context is the auditor's duty to present Key Audit Matters (KAMs) concerning areas of the highest risk. In light of the above, the purpose of this article is to present the extent to which changes have been implemented in independent auditors' reports from audits of financial statements of the largest companies in the Polish market and to identify key audit matters as well as the verification procedures applied by auditors. Auditors' opinions from audits of consolidated financial statements of the 30 largest companies listed on the main market of the Warsaw Stock Exchange for the years 2014 – 2016 were analysed in detail. The total sample comprised 90 opinions. The research methodology consisted mainly of case studies, with deductive and inductive reasoning used to formulate conclusions based on the analysis and synthesis method. The results of this research indicate that some independent auditors have been implementing new elements of reporting on a current basis. Auditors also give rather detailed reasons for selecting the specific KAM and the verification techniques used.

To dispose of goodwill through a sale or a closure of business is a “backdoor exit” that can be used opportunistically to avoid a goodwill write-down. Attaching goodwill to a sale of business is a discretionary managerial decision that has no real or accounting effects other than the accounting effects for the selling firm. This paper analyzes whether goodwill disposals are managed for accounting purposes. A quantitative analysis of a sample of 200 UK firms over the period 2010 – 2014 provides evidence that goodwill disposals obey certain patterns: they are more substantial in firms that have goodwill impairment losses and poor accounting performance, and less substantial in firms that have good corporate governance measured by the activity of the audit committee, than in other firms. These findings are followed up by a multiple case analysis of firms that have large or frequent goodwill disposals.

In this paper, we examine the impact of connections, i.e., relationships established outside the focal firm, between the CEO and the other named executive officers, finding they reduce the likelihood of involuntary turnover of those non-CEO executives. While this is not surprising as the CEO generally has the authority to hire/fire subordinates, we find that this is associated with higher firm value and lower investment inefficiency which is consistent with the benefit of keeping executives with connections with the CEO on the top management team. We further examine and find a differential impact based on the genesis of the connection, i.e., connections that arise from other activities such as mutual membership in a charitable organization or club are the ones associated with lower likelihood of turnover and higher firm value. In additional analyses, we find the results consistent with our findings being driven by powerful CEOs.

We examine the relation between executive pensions and the choice between Chapter 11 and workouts before and after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Using a sample of 252 financially distressed firms that either filed for Chapter 11 reorganization or conducted an out-of-court debt restructuring workout, we find that the firms with executive pension plans were more likely to choose Chapter 11 than workouts before BAPCPA but less likely to do so after BAPCPA. Our study documents that the incentives of insiders, in addition to those of outside creditors, are important in a firm’s choice between Chapter 11 and a workout. Additionally, our finding that the preference for Chapter 11 over workouts is reversed after BAPCPA implies that BAPCPA effectively restricts the payments of executive pensions under Chapter 11 and protects creditors, consistent with its intended purpose.

The nature and impact of the visual representations on which management accounting is build has attracted increasing attention. To contribute to this research we draw from analytical and critical aspects from one of the oldest and deepest tradition in the analysis of images, the Christian orthodox theology of icons. Building from controversies and studies in this tradition, we generate three insights. First, we point to the need, so far neglected, to question and theorize the relation between the representation and what is represented. Second, we highlight the prominence of symbolism over aesthetic aspects. Third, we underline that images are both embedded within meaningful relationships with other images, and used in social and power relationships. Building on these insights, we elaborate the notion of epistemic power to account for the capacity of visual representations as those used in management accounting to provide knowledge of an object of inquiry, which cannot be immediately conscripted nor clearly perceived in its entirety. Eventually, we discuss the potential integration of insights from theological analysis into accounting research and contributes to it by showing how reasoning on visual representations initially elaborated in theology can further extend our understanding of accounting in secular organizational settings.

The International Integrated Reporting Council (IIRC) claims that integrated reporting (IR) can enhance corporate accountability, yet critical and interpretative studies have contested this outcome. Insufficientempirical research details how preparers experience accountability while constructing IR; to fill this gap, this study analyses how the preparers’ mode of cognition influences the patterns of accountability associated with IR. Drawing on research into forms of accountability, this study adopts a functionalist approach to narrative analysis to elucidate the function that a narrative mode of cognition adopted in preparing the IR serves in extending accountability toward stakeholders. The empirical analysis particularly benefits from in-depth interviews with the IR preparers of a global insurer that has used IR since 2013. The preparers’ narrative mode of cognition facilitates dialogue with IR users. It addresses accountability tensions by revealing the company’s value creation process. Preparers’ efforts to establish a meaningful dialogue with a growing variety of stakeholders through broader and plainer messages reveals the potential of IR as a narrative source of a socializing form of accountability. However, financial stakeholders remain the primary addressees of the reports. This article offers new insights for dealing with corporate reporting and accountability in a novel IR setting. Further research should integrate users’ accountability expectations.

Motivated by recent concerns about the lack of females on corporate boards and the prevalence of financial opacity in many firms, this study examines the timing of female director appointments on corporate boards and stock price crash risk. The findings show that firms with females appointed to an all-male board for the first time are more likely to disclose withheld negative information, especially for high opacity firms (proxied by discretionary accruals), thus accelerating a stock price crash. On the other hand, firms with female board directors for an extended period are less likely to experience stock price crashes since their presence helps to curb bad-news hoarding-activities by managers. Overall, these results are consistent with the notion that firms with females on the boards are more diligent in disclosing financial information.

This paper examines contested valuations of life itself. It is based on an ethnographic study of a hospital’s geriatrics and palliative care department, that is a setting where life ends. There, contests of valuation arise around the fundamental questions of how life should end, who should live and who can be let to die, and based on which criteria. We analyze these valuations drawing on Agamben’s conceptualization of thanatopolitics, or the extension of the sovereign power over life (or biopolitics) to a power over death itself. In hospitals, resources allocations, calculative practices and organizational technologies tend to devalue aged patients and to reduce them to ‘bare’ lives that cannot be ‘treated’ anymore. Geriatricians then have to introduce alternative conceptions of the value of life to demonstrate that their patients’ life is still worth living. We thus analyse the intersections between accounting and death to highlight the role of contested valuations of life in the definition of what makes a life no longer worth living.

This study explores the impact of a decrease in informational opacity on Belgian nonprofit organizations’ capital structure. Using data from 7,936 Belgian nonprofit organizations (NPOs) over the period 2006 – 2015, we assess the impact of the introduction of financial statement disclosure requirements on NPOs’ capital structure using alternative leverage proxies. Adopting a difference-in-differences approach, and using a representative sample of for-profits as a control group (to filter out the potential effects of the financial crisis), we find that the public disclosure of financial statements positively affects NPOs’ access to (especially financial) debt.

This study investigates the change in the corporate practice of disclosing information on anti-corruption in corporate social responsibility reports (CSR) consequent to the EU directive on non-financial reporting issued in 2014. Information on anti-corruption has been dealt with in the internationally accepted CSR frameworks and part of CSR reports. With the transposition of the directive, anti-corruption matters are to be covered in the mandatory non financial report. Against this development, this study empirically examines, for a sample of 55 European listed companies, whether there is a change in such voluntary disclosures from period previous to the directive (2012) in comparison to period after the issuing of the directive and before its transposition (2015). Following legitimacy theory, we expect companies to improve the amount and quality of disclosures. Further, we expect disclosures to be associated with legitimacy variables i.e.: negative disclosures, exposure to corruption and firm size. We assess and compare the quantity, breadth and informational quality of the disclosure. We conduct the tests on the whole sample and on two sub-samples of firms exposed and not exposed to corruption. Results show a change in the disclosure and a positive association of quantity, scope and informational quality of anti-corruption disclosure with time effect, propensity of a firm towards voluntary negative disclosure on corruption, corruption-risk exposure and firm size.

This study tests if the information content of interim earnings announcements increases with the introduction of International Reporting Standards (IFRS) in Sweden. The study uses approximately 11,500 firm-quarters for the period of 2001–2016. Univariate analyses finds that both abnormal trading volume, AVOL, and abnormal return variance, AVAR, significantly increases post introduction of IFRS. However, using a difference-in-difference test between mandatory and voluntary adopters, shows that the information content of mandatory adopters did not increase more than for the voluntary adopters. Multivariate analyses shows that AVOL significantly increases post introduction of IFRS but that it is non-significant for calendar quarter 1–3, which indicates that results are driven by Q4. There is, however, a significantly negative change that affects AVAR. AVAR decreases post introducing of IFRS for the whole sample and for Q2. AVAR also shows a time trend with increasing information content.

We study the optimal timing for shareholders to contract with the auditor for the performance of non-audit services, namely management consulting services, by distinguishing between ex ante (before the auditing process) and ex post (after the auditing process) contracting. Depending on the information gathered throughout the auditing process, the auditor exerts the complementary consulting effort subsequent to the manager's effort. We find that ex ante contracting creates additional audit incentives due to information knowledge spillovers, which allow the auditor to make appropriate effort decisions during the consulting stage. Due to strategic effects, the increased audit incentives decrease misreporting by the manager and subsequently increase reporting accuracy such that the shareholders' efficiency loss due to the moral hazard problem with the manager is alleviated. The shareholders, however, must reimburse the auditor for the possible reputational losses that may arise in the case of ex ante contracting and an inappropriate consulting effort decision such that there is a trade off regarding the advantageousness of ex ante contracting. In addition, we show that if collusion between the manager and the auditor is viable, then ex ante contracting can have further positive effects.

This paper investigates the link between one managerial characteristic, the degree of risk aversion, and accounting conservatism. Two models are analyzed, one where the degree of conservatism is chosen by the principal (Board) and accounting information is used for stewardship, and a second where the principal delegates the choice of the degree of conservatism to the manager and accounting information is primarily used for investment efficiency. We show in the first model that higher risk aversion reduces the demand for conservatism from a stewardship point of view. In the second model, we show that delegation is an optimal way for the principal of committing to conservative reporting. Hiring a more risk-averse manager lowers the cost of implementing this conservative reporting. The two models provide opposite predictions for the association between managerial risk aversion and the degree of conservatism. Empirical evidence favors the second model’s prediction. The paper suggests that managers with specific characteristics and incentive contracts might be endogenously chosen by the firm to implement an ex-ante optimal degree of conservatism.

The US Securities and Exchange Commission (SEC) has considered allowing or requiring the use of International Financial Reporting Standards (IFRS) by its US registrants for many years. During its first decade, the International Accounting Standards Board (IASB) endeavored to improve its due process, its governance structure, and IFRS. In part, this was done to meet SEC concerns regarding the breadth and depth of IFRS and the IASB’s independence in its standard-setting process. One aspect of the IASB’s legitimacy relates to the participation of US stakeholders in its standard-setting process. This study investigates US comment letter writers and their responses to 111 IFRS issues released for comment during the IASB’s first decade (2001 through 2010). Increased SEC attention to and consideration of using IFRS did relatively little to increase US responses. The average 14 responses from the US per issue is far lower than experiences at the Financial Accounting Standards Board (FASB). When share-based payment issues are excluded, contrary to Sutton (1984) US responses are lower for the earlier Discussion Papers than for later IASB releases for comment. Overall, the results suggest that except for the large public accounting firms, most US stakeholders acted either as if the FASB would continue to set US GAAP or that the FASB, the SEC, and the large public accounting firms would protect their interests before the IASB.

The purpose of the research is to evaluate the effect of ownership control change on organizational factors (organizational structure, management information system and psychological empowerment), rules and routines of management accounting in a company acquired to meet new organizational principles established by the acquiring company. The results showed that the new organizational principles brought the philosophy of individual performance optimization to the acquired company (Alpha). The new rules and routines of management accounting were materialized in a Performance Evaluation System (PES) with comprehensive management indicators of financial, operational and behavioral nature. After the acquisition, the acquired company reinforced the mechanistic structure, improved utility of the operation and management of the management information system and increased the psychological empowerment of managers. At Alpha, the institutional change was classified as formal, revolutionary and progressive. We concluded that the institutionalization of the new PES in the Alpha company was dependent on organizational factors. The results also indicated that the interaction between the mechanistic structure, management information system, whose nature is operational and managerial, and a moderate feeling of psychological empowerment propelled the institutionalization of rules and routines of management accounting at Alpha.

We draw from recent developments regarding the articulation between critical accounting research and quantitative methods to develop a framework in order to examine how quantitative methods can contribute to advance critical research in accounting. We first distinguish four epistemic perspectives that we argue to be specific to critical research in accounting and distinct from mainstream research. We then discuss how different quantitative methods can contribute to those different perspectives. Eventually, we discuss the implications for critical accounting research, for begin critical from a methodological point of view and regarding the opportunities for dialogue between mainstream and critical approaches in accounting.

This study examines whether the fees paid to auditors are contingent on firm’s involvement in CSR activity. We find that firms with CSR activity (CSR firms) spend more money on audit service than firms without CSR activity (no-CSR firms). However, no-CSR firms spend more money on non-audit service than CSR firms. Change in auditor’s fees shows that unlike non-audit fees, no-CSR firms’ increase in audit fees is significantly more than that of CSR firms. This relationship is more pronounced around no-CSR firms’ initiation of CSR activity. It suggests that before and after the initiation of CSR activity, no-CSR firms appear to reinforce the quality of financial information.

This study aims to examine how CEO equity incentives affect corporate social responsibility (CSR) engagement. We consider different type of CSR actions, including positive CSR, negative CSR, internal CSR and external CSR. Using an equity incentive measure that reflects CEO wealth sensitivity to stock price performance, we find that CEO equity incentives are positively associated with CSR engagement, manifested in both more positive CSR and less negative CSR activities. Overall, our results suggest that CEO equity incentive motivates CEO to conduct CSR. Equity incentives align interests between managers and shareholders to more induce superior CSR engagement in more long term and more balance between the engagement of internal CSR and external CSR.

This study investigates the effect of International Financial Reporting Standards (IFRS) harmonization on bidder’s M&A profitability. We assume that the usage of a similar business language amongst countries will reduce the costs and errors on identifying profitable investments in foreign countries and thus lead positive market reaction to M&A announcements. We further predict that the positive association between accounting standard convergence and M&A profitability extends to post acquisition performance. Using a sample of cross-country mergers and acquisitions from the period of 2001-2016, we find that the three-day cumulative abnormal return (3-day CAR) and change in return on assets (∆ROA) are greater for M&A deals made after the period when both the bidder’s country and target’s country adopt mandatory IFRS. Further, we document that this positive association between IFRS harmonization and M&A profitability is pronounced when the bidder’s market is developed. In other words, even if IFRS conciliation facilitates the bidder on identifying a profitable project, if the bidder domiciles in less-developed market, then investors do not react positively to the M&A news. This implies that the positive effect of IFRS harmonization is not realized by unification itself, but should be combined with market supporting institutions.

Under the Financial Reporting Council’s presumption that mandating new disclosure requirement in the audit report would provide information useful to investors, we examine whether the auditor disclosed materiality threshold is associated with the firm’s earnings quality. We document that a lower threshold of materiality level is associated with a higher earnings quality, as measured by lower discretionary accruals, higher accruals quality, and less earnings smoothing. We also find some evidence that the negative association between auditor disclosed materiality threshold and earnings quality is more pronounced when the auditor is more independent, when management’s incentive to manage earnings is higher, and when there is lower information uncertainty. Overall, our results are useful to investors who rely on the new audit report disclosures to gain insights into the audit process and more importantly to infer the quality of the firm’s reported earnings. Our results could also be relevant to regulators, such as the PCAOB and IAASB, who are contemplating whether to impose similar materiality threshold disclosure requirements in audit reports.

Usage of cost behavior terminology in financial reporting has not been studied. There are two reasons to believe that usage is important and that it will vary among reporting firms and the analysts covering them. First, these would be voluntary disclosures that may reveal competitively sensitive information, and managers could weigh resulting proprietary costs against other considerations, chiefly poor financial performance. Second, especially when financial performance is poor, this terminology could be used constructively to inform stakeholders about planned changes in cost structure. This is a different orientation than the obfuscation perspective of most textual analysis. We report two studies. The first samples 496 English language annual reports published in 38 countries in 2012, one-third of which used either or both of the terms fixed and variable cost. This usage was associated with a measure of the overall communication effectiveness of annual reports and with declining financial performance. The second study employed a large global sample and business media documents between 2000 and 2016. In the combined subjects of earnings and press releases, documents containing fixed or variable cost are more likely to contain references to losses than not. Executives used these terms in conference calls before analysts did, and usage across all corporate and media documents was associated with adverse macroeconomic conditions.

We examine whether the idiosyncrasy of individual employees of U.S. financial regulators contributes to inconsistent regulatory outcomes. Using a sample of SEC comment letters, we show that SEC reviewers’ idiosyncratic style plays an economically and statistically significant role in explaining the cross-sectional variation in filing review outcomes, even after holding firm and disclosure attributes constant. We also show that the reviewer style is persistent across firms and time. Finally, we find that reviewers with a stricter style are associated with improved financial reporting quality. These findings suggest that individual SEC reviewers have significant influence on the SEC filing review process.

The demand for durable goods is highly cyclical, with a business cycle amplitude several times that of nondurable goods. Accordingly, the cash flows and stock returns of firms producing durable goods are riskier. We construct a measure of the durability of a firm’s output and document that durability increases a firm’s total risk, idiosyncratic risk, and systematic risk. We then document that durability is a key determinant of corporate policies. As durability increases, financial leverage, payouts, and investment in research and development decrease, while cash balances and the value of cash increase. Further, durable goods producers tend to be more focused and less sensitive to product market threats. The latter is consistent with theories predicting that product durability helps to insulate firms from competition, because the higher risk exposure makes entry less attractive to potential new entrants.

Drawing on the theory that managers learn about the fundamental values of their firms from their own stock prices, we show that stock price informativeness (SPI) of US firms, proxied by idiosyncratic volatility have a significant positive effect on the sensitivity of capital expenditure (CAPX) and selling, general and administrative (SG&A) investments to stock prices. However, we further find that the positive effect of SPI on SG&A investment-to-price sensitivity is weaker for firms with industry specialist auditors and auditors with longer tenure. This suggests that managers rely less on SPI when they can also rely on high-quality auditors who provide informational advantages/resources to the client. This finding highlights the significance of information role played by high-quality auditors in guiding managerial decisions in CAPX/SG&A investment for firms.

Does D&O Insurance Matter for Stock Price Crash Risk? Evidence from an Asian emerging market Abstract The purpose of this paper is to address the opposing views of the relationship between Directors' and officers' liability insurance (D&O insurance) and stock price crash risk in a major Asian emerging stock market of Taiwan. The two-stage least squares regression analysis is used to address the endogeneity issues in this paper. The research results show that D&O insurance is significantly associated with stock price crash risk in the Asian emerging stock market of Taiwanese firms. Moreover, considering the improvement of corporate governance quality, the effect of D&O insurance coverage is significantly negative related to the firm-specific stock price crash risk. More importantly, the result shows that the effect of improvement of corporate governance quality on negative relationship of D&O insurance coverage and the firm-specific stock price crash risk is more pronounced for higher levels of D&O insurance coverage firms. Our research results have valuable implications for policymakers, company managers, and investors in terms of promoting D&O insurance policies, reducing crash risk, and making effective investment portfolios. Keywords: Directors' and officers' (D&O) insurance, Corporate governance, Taiwan, Emerging market, Crash risk

We investigate whether a firm’s information temporal disaggregation enhances its information environments, facilitating investors’ more efficient processing of information on the earnings announcement date. We find that the post-earnings announcement drift (PEAD), which likely appears in a weak information environment according to the prior literature, is less pronounced for firms that disclose monthly comparable store sales (CSS) than for firms that disclose only quarterly CSS. We also find evidence that analysts’ underreaction to reported earnings when they revise earnings forecasts is lower for monthly CSS firms than for quarterly only CSS firms, providing corroborating evidence that monthly CSS disclosures mitigate PEAD by improving information environments. Monthly CSS firms also have lower analyst forecast errors and lower analyst forecast dispersion, indicating higher overall accuracy and greater agreement among security analysts, thus substantiating better information environments. Overall, our evidence supports the argument that the release of monthly CSS data leads to more efficient functioning of stock markets by enhancing information environments.

This study examines the association among different types of liability leverage and abnormal audit effort. Existing studies have found mixed results regarding the relation between total liability leverage and audit effort, audit effort measured using audit fee. Our paper documents a statistically positive relation between liability leverage and audit effort by separating the total liability leverage into types and using abnormal audit hour as proxy for audit effort. We distinguish total liability leverage into operating and financial liability leverage by usage and characteristics. We find that auditors interpret both operating and financial liability leverage as audit risk and contribute additional audit effort, which is reflected as abnormal audit effort. More importantly, we find operating liability leverage has a greater magnitude of correlation with abnormal audit effort compared to financial liability leverage. The result suggests auditors interpret operating liability leverage to have greater influence on audit effort. As prior study states that operating liability leverage has higher uncertainty due to estimations and accruals, we expect auditors contribute greater abnormal audit hour to lessen uncertainty risk. The correlation between operating liability leverage and abnormal audit effort is stronger for firms with income-increasing accruals. Overall, our findings are important addition to two streams of studies: liability leverage and audit effort.

In this paper, we investigate how the tax-induced earnings management is affected by prior tax regulation expectations, and the ownership structure. We avail Taiwan’s specific corporate tax policy reform, that is, raise corporate income tax by reducing corporate tax exemption items and decrease the corporate income tax rate from 25% to 17% at the same time, to examine firms’ tax-induced earnings management from ownership perspective. Through the late completion of the new law “The Act for Industrial Innovation” on April 16, 2010, we show that firms with effective tax rate lower than 17% do more upward earnings management in 2009 based on their expectations. Also, firms with effective tax rate higher than 20% do more downward earnings management in 2009. These results hold both for accrual and real earnings management. As for family firms, we find out family firms in the lower effective tax rate group(less than 17%) will appear to do less upward accrual and real earnings management. Family firms in the higher tax rate group (higher than 20%) tend to do less downward accrual earnings management. Further, we find firms with greater foreign institutional ownership tend to do more upward real earnings management when they have effective tax rate less than 17%. Meanwhile, we find firms with greater foreign institutional ownership tend to do less downward real earnings management when they have effective tax rate more than 20%.

Our study directly tests Francis (2011)’s suggestion that abnormal audit fees might capture audit effort and/or auditor’s pricing on client risks. Following audit fee decomposition by Simunic (1980), we decompose audit fees into hourly fee and audit hours which represent fee premium and audit effort, respectively. Using listed firms in South Korea, we find positive relation between abnormal audit fees and hourly fee as well as abnormal audit fees and audit hours. We further perform several cross-sectional tests and find that high quality auditors such as Big N auditors and industry specialist auditors enhance those positive relations. Also, providing non-audit services increase the positive association between abnormal audit fees and hourly fee and audit effort. Those positive relations incrementally decrease in lower accounting quality and auditor tenure has insignificant effect on the relations. Lastly, the association between abnormal audit fees and fee premium as well as audit effort do not systematically differ in positive and negative abnormal fees classification.

We examine whether qualitative non-GAAP disclosures provide information about future performance beyond non-GAAP financial figures and whether these disclosures help investors better understand future firm performance. We find that items excluded from non-GAAP earnings are more persistent (i.e., of poorer quality) when they are accompanied by poorer quality non-GAAP disclosures (as proxied by a self-constructed index of coded items found in earnings releases issued by S&P 500 and S&P MidCap 400 firms) during the period 2009-2013. This finding suggests that the quality of non-GAAP disclosures contains information about the persistence of non-GAAP exclusions, which enables investors to better evaluation future firm performance. Moreover, the distance between investors’ belief about the persistence and the actual persistence of non-GAAP exclusions is smaller in the presence of better quality non-GAAP disclosures, consistent with higher quality disclosures facilitating investors’ understanding about future performance implications of non-GAAP earnings information. In addition, we show that our self-constructed index of non-GAAP disclosure quality is inversely related to the probability of a firm receiving an SEC comment letter concerning non-GAAP disclosure issues. We further show that firms experience an improvement in non-GAAP disclosure quality index after receiving SEC comment letters on non-GAAP disclosure issues.

Using a sample of 24,228 firm-year observations from 2000 to 2013, we find that increases in analyst coverage lead to decreases in one-year-ahead crash risk. Prior literature attributes crash risk to managers hoarding bad news. Analysts could reduce such behavior by reducing information asymmetry or exacerbate it by increasing the pressure on managers for short-term results. Our results support the former argument and are inconsistent with the latter. Moreover, we find this result to be more pronounced when the coverage change is attributable to All-Star analysts, supporting our hypothesis that star analysts reduce future crashes by disseminating information more promptly to the market than their non-star counterparts. Our findings remain after controlling for endogeneity and are robust to alternative measures of crash risk. Finally, we find that analysts, particularly star analysts, choose to cover firms with greater prior firm-specific crash risk, consistent with the argument that they provide greater value to their clients in the context of crash-prone firms.

In 2014, the European Union (EU) passed a corporate social responsibility (CSR) directive that mandates large firms listed on EU stock exchanges to prepare non financial reports on CSR starting in fiscal year 2017. We predict and find that treated firms (i.e., large firms that previously did not voluntarily prepare CSR reports) significantly increase their CSR expenditures after the passage of the CSR directive in 2014. This finding from a difference in-differences test is consistent with firms increasing CSR expenditures to anticipate adverse stakeholder reactions upon mandatory disclosure of CSR performance. Consistent with this interpretation, our cross-sectional analyses reveal that the increase in CSR expenditures is larger for treated firms with (a) previously low levels of CSR expenditures and (b) higher exposure to potential adverse stakeholder reactions from customers, investors, and regulators. Taken together, our findings shed light on one particular channel through which disclosure regulation creates real effects: anticipation of adverse stakeholder reactions.

It has already been proved that the management control system (MCS) helps to align the interests of different organizations within an inter- organizational relationship (IOR) context, but how and why this method succeeds deserves specific attention. The present qualitative and longitudinal study addresses this question in organizations that had to deal with a state-controlled MCS implementation within the socio- medical sector. This study specifies the different elements of the implemented MCS, and its findings underline a twofold dynamic in the case investigated. The implementation of the technical element of the MCS is argued to fail in terms of its technical qualities but to succeed as a motor for cultural change. The culture of the sector, based on cost control managed by the State prior to MCS implementation, evolved into a result-oriented paradigm. This phenomenon is explained by the fact that the technical element was used as a diversionary tactic in order to implement a more fundamental change within the IOR. The article pinpoints the crucial role of cultural control in the alignment of IOR interests. It shows that the failure of an MCS element may be necessary in order to trigger a cultural change and consequently have a greater impact on the control of the IOR.

The management of multinationals companies often decides in favour of an aggressive tax avoidance strategy pushing the legal limits on behalf of the shareholders and to the disad-vantage of the spirit of democratically legitimised tax laws. The public and the media debate if such an aggressive behaviour is immoral. Aggressive tax avoidance is a subset of aggressive legal interpretations in all fields directed against the (objective) will of a legitimised legislation. A thorough ethical analysis based on the deontological approach of Kant demonstrates that tax avoidance per se is not immoral only aggressive tax avoidance as a special case of operating on the edge of legal boundaries. Applying the Kantian “contradiction of willing test” shows that this maxim cannot be willed as a general law of nature. If all natural or legal persons would aggressively interpret laws in all subjects and in every imaginable situation, the system of law per se would break down. Therefore, aggressive tax avoidance by managers of multinational companies violates their moral duty to obey not only the letter, but also the spirit of the law. Supporting this line of reasoning, several professional bodies for tax consultants in Great Britain have recently introduced a prohibition of aggressive tax planning as a binding ethical principle for tax consultants.

Using a laboratory experiment, we investigate the effects of two non-monetary controls – beliefs systems and accountability – on agents’ incentive to cooperate in a setting where economic incentives promote both cooperation and competition. When cooperation is individually rational, we find that either non-monetary control, by itself, is beneficial. However, consistent with motivational crowding-out, they are substitutes. In contrast, we predict and show that the controls are complements when economic incentives are misaligned and non-economic considerations drive the choice to cooperate. We discuss implications for theory and practice.

Well-functioning equity markets are predicated on investors’ access to reliable and accurate information. Yet, manipulative communications touting stocks are common in capital markets around the world. Although the price distortions created by so-called “pump-and-dump” schemes are well known, little is known about the investors in these frauds. By examining 421 “pump-and-dump” schemes between 2002 and 2015 and a proprietary set of trading records for over 110,000 individual investors from a major German bank, we provide evidence on the participation rate, magnitude of the investments, losses, and the characteristics of the individuals who invest in such schemes. Our evidence suggests that participation is quite common and involves sizable losses, with nearly 6% of active investors participating in at least one “pump-and-dump” and an average loss of nearly 30%. Moreover, we identify several distinct types of investors, some of which should not be viewed as simply falling prey to these frauds. We also show that portfolio composition and past trading behavior can better explain participation in touted stocks than demographics. Our analysis offers insights into the challenges associated with designing effective investor protection against market manipulation.

Abstract: On the basis of company archives collected by various public and private institutions or made available by the firms themselves, it is possible to show that there could be quite a large gap between theoretical discourse and accounting practices before 1885. The study of academic works studying these practices on the basis of company archives has provided us with a better understanding of how these methods evolved, and the logic behind them. The evolution of the methods used to allocate overheads before 1885 are not considered to be linear, cumulative and irreversible. Rather than a process of continual improvement, gradually perfecting the method to meet the needs of users, what we have seen is that that successes and failures alternate in a process that nevertheless leads to improvements.

This paper examines the effect of cost cross-subsidization on the structure of reported costs in electricity supply. Especially, we examine whether cross-subsidization can outweigh economies of scale in reported costs. We identify two opportunities to cross-subsidize costs: (i) between regulated and unregulated customers as well as (ii) between regulated and unregulated business segments. Based on the analysis of 76 Swiss electricity suppliers from 2013-15, our results show that cost cross-subsidization outweighs economies of scale in both situations. Costs are cross-subsidized between different customer groups demanding the same product as well as between different business segments focusing on different products. However, this effect is mitigated when electricity suppliers operate in other monopolies outside electricity supply such as gas supply. We show how organizational structures can both encourage and mitigate cross-subsidization. Furthermore, we show how cross-subsidization affects cost structures of reported costs.

Prior literature finds the price adjustment after earnings announcements is not immediate. This paper shows that informed investors act strategically to prevent their information from immediately affecting prices after announcements. Specifically, we examine the price discovery at the preopening auction after earning announcements. We show that traders place more orders at the end of the preopening after earnings announcements, a behavior that reduces the market’s ability to learn their information, and we find they make profits on these late orders.

Firms may avoid appearing myopic and imply that they have a long-term focus by textually emphasizing innovation in their 10-K. Since this textual emphasis is unverifiable, it may be untruthful. This study examines the relation between this form of voluntary disclosure and firms’ actual long-term focus. We find that this disclosure is truthful on average. Consistent with the long-term focus implication of this textual emphasis, the emphasis has a positive association with firms’ actual investment in the long-term: both with CAPEX and patent measures of innovative effort. To deepen our understanding of why unverifiable information is truthful, we examine situations with different levels of credibility. We distinguish between capital market pressure to retain current investors by explaining poor earnings performance and market pressure to attract new investors during a seasoned equity offering (SEO). Current investors are more likely to be aware of the firm’s reputation for innovation effort, and therefore the emphasis of innovation needs to be more consistent with reputation to be credible. However, new investors are less likely to be aware of the past, and therefore the emphasis of innovation may be less consistent with reputation. We find that long-term signaling is less (more) truthful when it addresses future (current) investors.

We provide evidence that particulate matter (PM) pollution negatively affects analyst information production. Compared to analysts experiencing clean air, analysts exposed to PM pollution are less likely to issue forecasts within a short-term window of earnings announcements. Forecasts issued immediately after earnings announcements by analysts exposed to PM pollution are less likely to be bold (particularly less likely to be negatively bold) and are less likely to result in improvements in forecast accuracy. Both information supply and demand side factors explain the variation in negative effects of PM pollution. The above results are robust to controlling for firm/analyst and time fixed effects. Our difference-in-difference designs and placebo tests corroborate these results. Findings from the study provide evidence of an additional cost of PM pollution on the efficient operation of capital markets.

We examine whether investor relations (IR) firms create value by improving their clients’ communications. We find that IR clients experience higher restatement announcement returns than propensity-score matched control firms. Inconsistent with IR firms hyping for their clients, we do not observe return reversals in the post-restatement periods. The positive impact of IR is greater for clients with higher information asymmetry. Further investigations show that the valuation impact goes through both the expected cash flows and the discount rate. Overall, our findings suggest that IR professionals increase value for their clients by helping them communicate effectively during periods of crises, when communication is vital.

This paper examines how the type of news affects firms’ voluntary disclosures. We exploit hand-collected product-level disclosures made by publicly-traded biotech firms, which provide evidence of drugs’ progression through key regulatory milestones towards marketability. Of note, the disclosures allow us to distinguish firms’ treatment of good news (i.e., when drugs progress towards marketability) versus bad news (i.e., when drugs are abandoned). We first document that firms increase disclosures following good news (e.g., consistent with incentives to maximize shareholder value), as well as following bad news (e.g., consistent with minimizing shareholder litigation costs). Critically, we then document that the increase in disclosure for good news is higher relative to that for bad news, suggesting that firms view the net benefits associated with disclosure of good news as stronger relative to those for bad news. These results are consistent across product-level regressions, firm-level specifications, and other robustness tests.

This paper studies the relation between accruals and audit pricing. We start from a balance sheet auditing perspective. We assume auditors attempt to minimize the probability of recording unrealizable assets or failing to record liabilities. Under these assumptions, we argue that underlying economic characteristics of various transactions, as reflected in our articulation-based accruals, will be predictably associated with audit fees, either because more effort is required or because greater risk is present. Further, the economic characteristics will be associated with different accruals depending on their source and type. More specifically, we believe that audit fees relate to the asset type and source of the accrual via the underlying economic characteristics of the firm. Consistent with our expectations, we find that total accruals have a non-linear relation with audit prices, with both large positive and large negative total accruals driving audit fees higher. Also, accruals originating from the balance sheet and the income statement have a positive relation with audit fees, while accruals generated from the statement of owner’s equity are negatively related to audit fees. Finally, decomposing total accruals into five articulation based accrual components reveals varying relations with audit fees.

This paper examines how lenders perceive the role of foreign institutional investors. Using a sample of international syndicated loan contracts, we find that the U.S. institutional ownership is positively associated with the use of restrictions in loan contracts, especially the covenants addressing shareholder-debtholder conflicts. This finding suggests that lenders view U.S. institutional investors as expropriators of lenders’ wealth. We identify the JGTRRA Act of 2003 as an exogenous shock to U.S. institutional ownership and our difference-in-difference analysis suggests an increase in covenants usage among borrowers affected by this event. In the cross-sectional analysis, we find that the positive association is more pronounced when U.S. institutional investors have a short investment horizon, consistent with short-term focused institutional investors exacerbate shareholder-debtholder conflicts. We also find the association to be more pronounced when borrowers are domiciled in countries with strong creditor protection and contract enforcement, suggesting that lenders use restrictive contract terms as protective mechanisms.

I explore the role of participants’ relationships with borrowers and lead arrangers in syndicated lending. I predict and find that these relationships mitigate the information asymmetry problems faced by participants with both borrowers and lead arrangers, and allow participants to take a larger share in the loan. In particular, participants with a borrower relationship take, on average, a 10% larger share of the loan, with the effect being more pronounced when the borrower is informationally opaque or less conservative in its accounting. Similarly, participants with a lead arranger relationship take, on average, a 9% larger share of the loan, with the effect being more pronounced: (i) when the borrower has engaged in accounting irregularities or covenant violations in the past, (ii) when the lead arranger is a repeat lender or a large lender, and (iii) when participants have limited information acquisition capacity. Furthermore, loans with a larger total share taken by participants with a borrower or lead arranger relationship are associated with a smaller lead arranger share, less concentrated loan syndicate structure, a lower loan spread, and a lower upfront fee, consistent with these relationships mitigating information asymmetry. Overall, my study sheds light on how participant-level relationship lending shapes debt contracting.

We investigate newspaper censorship of firm-level negative news using a rare setting in which many companies were involved in similar tunneling scandals. We find that the Chinese censorship authorities restrict the dissemination of tunneling news on state-owned enterprises, firms with greater numbers of employees, and large taxpayers. An examination of different levels of censors reveals a surprising magnitude of local protectionism: almost all tunneling news involving in-province firms is blocked by provincial governments. We also find that cross-provincial competition and the political power structures are factors driving the provincial-level censorship. Finally, we show that the tunneling news that is reported leads to negative market reactions and greater trading volumes, indicating that the news that survives the censorship has information content.

We examine the implication of executive gender on asset prices. Using a large sample of US public firms during 2006–2015, we find a negative association between female CFOs and future stock price crash risk. However, the impact of female CEOs on crash risk is not statistically significant. The results support the notion that because CFOs’ primary duties include financial reporting and planning, they should play a stronger role than CEOs in curbing bad news hoarding activities. Our findings are robust to several econometric specifications controlling for potential endogeneity and to alternative measures of crash risk. At last, we show that the negative relation between female CFOs and future crash risk is more pronounced among firms with weaker governance, less market competition, lower analyst coverage, and higher leverage. Collectively, our evidence highlights the importance of CFO gender for firm financial decision making and stock return tail risk.

This study examines whether corporate commitment to CSR and sustainability affects firms’ choice of financial reporting frequency. Specifically, we examine whether firms with superior CSR performance and commitment to sustainability choose to abandon quarterly financial reporting voluntarily following the reporting regime change in Europe in 2013. We argue that corporate commitment to CSR and sustainability symbolizes firms’ long-term investments and disapproval of management short-termism. As such, firms with strong commitment to CSR would reduce financial reporting frequency to avoid undesired pressure from short-term oriented investors. Using a sample of the London Stock Exchange (LSE) listed companies, we find that firms with superior CSR performance are more likely to abandon the quarterly Interim Management Statement (IMS) voluntarily following the change in the U. K’s Disclosure and Transparency Rules in 2014. In addition, firms with superior CSR performance are more likely to use Trading Updates to communicate with investors instead of IMS at fixed quarterly intervals. Our results are robust to different specifications and controls for firm characteristics known to affect firms’ financial reporting decision. Overall, the evidence in this study is consistent with corporate commitment to CSR symbolizes a firm’s long-term investments and management orientation towards sustainability affects firms’ financial reporting frequency decision.

We show that peer banks play a significant role in determining a bank’s accounting for loan loss provisions. The peer influence is more pronounced for banks with less capable managers and when banks are under greater regulatory scrutiny. Channel tests indicate that peer effects work through observational. Finally, we provide evidence suggesting that peer effects improve the timeliness of bank loan accounting.

This study uses a sample of 1,316 firm-year observations of S&P 500 companies (2012–2016) to investigate whether and how the pressure of social media (i.e., Twitter) affects firms’ disclosure practices (i.e., voluntary political disclosure). Our results show that Twitter-adopting companies, especially those followed by more Twitter users or targeted by Twitter users are more transparent in their disclosure of corporate political contributions, policies governing over, and board oversight of corporate political contributions. Our cross-sectional analyses suggest that the association between Twitter adoption and CPD transparency is stronger for firms that operate in industries with more active Twitter users, are less visible, and have better reputations. Our results remain robust when we control for self-selection bias, alternative social media platforms (i.e., Facebook), and non-interactive social media platforms. Taken together, our findings suggest that social media (i.e., Twitter) exerts pressure on firms’ voluntary disclosure practices.

This paper explores the determinants of pension buy-in and buy-out decisions in the UK. Pension buy-in and buy-out transactions have experienced a rapid expansion in the UK market as one of the pension de-risking strategies to reduce pension risk since 2007. Sponsor firm's financial characteristics and pension fund characteristics are the key determinants for firm to engage in pension buy-ins and buy-outs with insurance companies. In addition, this research finds that firm manages expected return rate on pension assets to improve the condition of pension fund before the event of pension buy-in and buy-out. This incentive is explained by the anecdotal evidence that the better condition of pension fund, the lower the premium to be paid by sponsor firm. Further analyses compare two pension de-risking strategies, pension buy-ins and buy-outs and closing defined benefit (DB) pension plans in terms of management in pension assumptions. It provides evidence that firm manages its pension assumptions differently for these two pension de-risking strategies.

In 2013, audit firm mergers created two “Chinese” audit firms – Ruihua and BDO Lixin – that outranked EY and KPMG to become two of the four largest audit firms in China in terms of total audit revenue. In this study, we examine the impact of this change in audit market structure on the audit pricing behavior of these two large local audit firms – or Big L – relative to the Big 4 and other local audit firms. Using a difference-in-differences design, we find that the pre-post change in audit fees for the Big L auditors is significantly higher than that for the Big 4 and the other local audit firms around the mergers. Specifically, there was a significant decline in audit fees for clients of the Big 4 auditors around the mergers, while audit fees for both Big L auditors increased after the mergers. We also find a significantly higher pre-post change in audit fees charged by the Big L auditors relative to that of other local auditors around the mergers. We interpret the results as consistent with a shift in the relative market power among the large audit suppliers in China and the development of brand name reputations by the Big L firms in the post-merger period. This study answers calls by Francis (2011) and DeFond and Zhang (2014) for further research on the effects of changes in market structure in the audit industry. Implications for various regulators of the accounting profession are discussed.

This study examines the effect of mandatory Corporate Social Responsibility (CSR) disclosure on firms’ financial constraints using a quasi-natural experiment in China that mandates a subset of listed firms to disclose their CSR activities. Using a difference-in-differences research design, we find that mandatory CSR reporting firms experience an increase in financial constraints after the mandate. Additional analyses reveal that the increase in financial constraint is more pronounced for firms without political connections and firms with low CSR reporting quality. The results suggest that CSR activities that can be valuable for seeking political connections in emerging economies come at the cost of shareholder wealth, with increasing agency problem and financial constraints. High CSR reporting quality can help to mitigate the negative effects of mandatory CSR reporting on financial constraints.

In this study, we investigate how Say-on-Pay regulations affect firms' pay-for-performance sensitivity and Compensation Discussion & Analysis (CD&A) readability. We find that firms' pay-for-performance sensitivity has increased on average since Say-on-Pay was implemented. In addition, the increase in pay-for-performance sensitivity is more significant in companies with higher quasi-index institutional ownerships. Because prior literature has shown that quasi-index institutional investors had only limited influence on companies' pay-for-performance sensitivity before Say-on-Pay was implemented, our results suggest that Say-on-Pay is useful in strengthening shareholders' monitoring effect on executive compensation. Moreover, we find that CD&A has become harder to read after Say-on-Pay, and this decrease in CD&A readability is more significant in firms with higher institutional ownership concentration and more dedicated institutional ownership. In recent years, Dodd-Frank Act requires companies to disclose more compensation-related information. In addition, after Say-on-Pay, shareholders, especially sophisticated investors, demand more information to facilitate their assessment of companies' executive compensation policy for voting purposes. These factors might contribute to our findings.

This paper examines how financial constraints affect firm’s choice of stock repurchase or cash dividend payment and analyze the effects of the interaction between financial constraints and accounting conservatism on the choice of stock repurchase or cash dividend payment. We also examine the effect of the interaction between financial constraint and accounting conservatism on the firm’s choices of debt or equity financings. The findings show that because of accounting conservatism considerations, companies with higher financial flexibility are more likely to repurchase stock than to pay cash dividends. From the interaction term between financial flexibility and accounting conservatism, we find that when a company’s financial flexibility is low, they prefer not to repurchase stocks by cash, even if they have high degrees of accounting conservatism. When firms have low financial flexibility and high accounting conservatism, they prefer not to adopt debt financing. However, we do not support that a company with high financial flexibility and low accounting conservatism prefer either debt or equity financing. Overall, the importance of financial flexibility overrides the importance of accounting conservatism in the financial decision-making process.

There are many settings in which formal incentive contracts do not work or are not available to managers to influence employee behavior. Organizational settings are commonly characterized by difficult to measure tasks, where actions that are required to be taken by different parties cannot be fully specified ex-ante. Anecdotal evidence suggests that managers address this control challenge by adopting informal management practices. More specifically, there is growing awareness of the role of relational contracts to motivate desired behaviour, but little empirical evidence documenting their use. There are two important determinants for using relational contracts within the firm; clarity (i.e. clarity on what are desirable and undesirable behaviors and the rewards and punishments that flow from these behaviors) and credibility (i.e. convincing employees that managers will keep their promises and vice versa). We explore how the lenient, informal use of both financial and nonfinancial rewards can be used to establish relational contracts. We categorize managers based on their experience as leaders to distinguish those with most to gain by quickly building clarity and credibility with subordinates. We predict and find that managers who are new to the organization but experienced in the leadership role, use rewards more leniently compared to other managers, and that some leniency in rewards improves clarity and credibility.

Banks make more lending and open more branches near their CEO’s birthplace. This reflects hometown favoritism rather than information advantages: the effect is stronger during economic downturns, among altruistic CEOs, in struggling counties, and among marginal mortgage applicants. Furthermore, while hometown favoritism does not affect the bank’s profitability, it leads to positive economic outcomes in counties exposed to greater favoritism. Together, our results suggest home favoritism as one channel that deepens credit inequality.

We examine the effect of XBRL disclosure on both short and long-term stock liquidity. An extensive body of research has found links between firms’ information environments, stock liquidity, and cost of equity capital. The SEC, as well as various proponents of XBRL technology, claim that mandated XBRL disclosures, by reducing investors’ information processing costs, should reduce information asymmetry and thus improve liquidity. We examine this contention over three periods. First, we find results consistent with Blankespoor et al. (2014) that liquidity generally decreases around 349 initial XBRL filings compared to a matched sample. Second, we find mixed results when considering all first time XBRL filers. Third, we find a stronger association between XBRL and liquidity for second time XBRL filers. Importantly, consistent with theory, we find that firms with low analyst following and low tag counts (high inverted tag counts) are more likely to improve liquidity following their XBRL filings.

In the last decade the accounting profession in Brazil underwent profound changes, such as the new mandatory accounting sufficiency exam, which impacted not only the accounting information, but also the accountants’ formation and exertion of the profession. Based on the changes and the human capital theory, this paper’s purpose is to verify which variables can explain the accounting students’ passing rate in the sufficiency exam in Brazil. The descriptive research was carried out from documents, which had as its population Accounting courses in Brazil. The research population comprises 1.687 active Accounting courses based on INEP’s database, on that the sample is composed of 568 Brazilian Accounting courses. To achieve the objective, it was performed a descriptive statistic of the variables, a Kruskal-Wallis and Mann-Whitney mean test were also performed to verify if the Approval Rate in the Sufficiency Exam, the concepts of CPC and ENADE, and the Rate of Master’s and PhD’s are the same or different between the regions, the institutions that have a Stricto Sensu program in Accounting and between public and private institutions, moreover the assumptions of multiple linear regression were later applied. The results show that institutions that have a Stricto Sensu program have a passing rate in the sufficiency exam significant higher, additionally the CPC and ENADE scores had also a greater rate than those that do not have the program at the significance level of 1%.

Being voted as a star analyst increases an analyst’s compensation, reputation, and mobility. In this paper, we examine financial analysts’ economic incentives arising from currying favor with mutual funds in star analyst voting. Using the proprietary, detailed voting data from China, we find that analysts issue more optimistically biased recommendations on the firms held by the voting funds. The extent of the recommendation bias increases with the relative weight of the firm in the voting funds’ portfolios and the weight of the funds’ vote in the calculation of final voting outcome, and decreases with the reputation of the brokerage houses that employ the analysts. In addition, we find that the capital markets do not seem to recognize and discount analysts’ recommendation bias arising from such voting connections. Collectively these findings suggest that analysts issue biased recommendations to secure favorable votes from, or return favor to, the mutual funds that vote for them.

The main purpose of this paper is to examine the impact of the CEO relative power and that of other executive compensation components on firm performance. Furthermore, this paper takes into account the firm productivity and characteristics. We calculate the ratio of CEO’s compensation to the top-five executives’ as the proxy of the CEO relative power which is an effective measure to capture the CEOs’ power in the top executive team and reflect agency problems. The empirical results show that firms with high CEO relative power have insignificant agency problems. Moreover, firms with high Tobin’s Q, zero R&D, high market-to-book ratio, low leverage have significant negative association between the magnitude of CEO relative power and firm performance. Based on the our findings, we deduce that the negative impact of CEO relative power mainly comes from cash and stock, while simultaneously stock option still plays an effective role in enhancing firm value. Additionally, this paper also reveals hump-shaped relation between managerial compensation and Tobin’s Q, which could result from the trade-off between entrenchment effect and incentive effect.

This study examines whether the PCAOB’s restrictions on auditor-provided tax services (APTS) improve a firm’s audit quality, earnings quality and reduce tax avoidance activities. Using a difference-in-differences research design and refined treatment and matched control samples, I find that the likelihood of general restatements and meeting or beating prior year earnings significantly decreases following the PCAOB rules. I also find evidence of reduction in tax avoidance activities after the PCAOB rules as both total effective tax and cash effective tax rates increase. Overall, my results show that compared to the Sarbanes Oxley Act that only required clients’ audit committees to pre-approve APTS purchases, the PCAOB’s restrictions on auditor initiated aggressive tax transactions and tax services to company executives further improve both audit quality and earnings quality and prevent firms from engaging in aggressive tax avoidance activities.

Motivated by the debate about the introduction of the Fair Value Option for financial liabilities (FVOL) and the requirement to recognize and separately disclose in financial statements Debt Valuation Adjustments (DVAs), this study investigates whether DVA disclosures reflect changes in credit spreads. Using a sample of U.S. bank holding companies that adopt the FVOL, we show that DVAs generally cannot be explained by the same factors that explain contemporaneous changes in the credit quality of these institutions. This can be a result of the opportunistic use of the FVOL or the superior ability of managers to estimate own credit risk. To investigate these alternative hypotheses, we split the sample based on different fair value levels. Our results indicate that DVAs can explain future changes in credit risk, providing support for the latter explanation.

Taiwan SAS No. 54 “Special Considerations—Audits of Group Financial Statements” was implemented on July 1, 2015. This standard greatly increases the responsibility of the group’s engaging auditor in the shared audit report when the group’s subsidiaries are audited by different auditors. The rationale behind this new SAS standard is that the standard setter believes that a group enterprise’s financial report issued under a shared audit report may compromise the audit quality. However, such belief hasn’t been tested empirically for Taiwan firms. This study uses the corporate credit risk index of group enterprises as the proxy for audit quality, and examines whether the adoption of a shared audit report will affect corporate credit risk index. The results show that the corporate credit risk index of a group enterprise is significantly higher when it is subject to a shared audit report. This empirical result provide empirical support for the standard setters’ belief that increasing the responsibility of engaging auditors in the shared audit reports contributes to the improvement of audit quality.

This study first tests whether and how the interactive effects of financial flexibility and accounting conservatism affect corporate investment and financing decisions. Subsequently, it explores the valuation of a firm on top of the correlation between financial flexibility and conservatism. In robustness checks, we examine the effects of hedge factor and agency cost on the aforementioned relationships. The findings show that firms with high financial flexibility and low conservatism in the prior period are more unlikely overinvestment in the current period. In addition, we find that equity mispricing have impact on firm’s financing and investment decision. Especially, our empirical results show that overpricing firms with higher reporting quality leading to higher probability in equity financing; thus, result in overinvestment problem. Moreover, once firms have underpricing with lower financial opaque, leading to lower probability in equity financing and tend to underinvest. Our results are robust when controlling for firm’s hedge factor or agency cost.

This study attempts to investigate whether auditor supply chain specialization affects the timeliness of financial reporting. The supply chain specialization is measured as an auditor who audits a client and that client’s suppliers, major buyers, or both. Using a sample of 16,658 firm-year observations of U.S. publicly listed companies from 2007 through 2015, we document that financial reporting timeliness is positively associated with auditors’ specialization on supply chain. Further, we find that, when clients have internal control weaknesses, financial reporting timeliness increases with audit supply chain specialization. Since recent regulatory actions suggest that improving timeliness of financial reporting is a priority for regulators, the evidence about auditor supply chain specialization and financial reporting timeliness might provide political implications for regulators.

Long-term success today requires firms to sense changes in their environments early and react efficiently to them. Increasing middle managers’ participation in decision-making about market-related and product-related questions has been suggested as one way of enhancing this strategic responsiveness; abandoning formal planning, such as annual budgets, has been another. Yet, empirical evidence on the matter is scarce and conflicting. Drawing on data from Denmark’s 500 largest firms, we show that participation of middle managers in decision-making about new products and markets to serve, in-deed, increases firms’ strategic responsiveness as assessed by a reduction in firms’ downside risk. However, this effect is not a direct one. Nor does it interact positively or negatively with the emphasis put on formal planning as submitted in literature. Our evidence suggests that emphasis on planning mediates the relation between stronger participation of middle managers in decision-making and the increase in firms’ strategic responsiveness. This has implications for ongoing theory building and practice.

State-owned enterprises (SOEs) provide public services, and government decision makers receive performance reports on SOEs for supervision. We conduct an experiment to analyze how decision makers evaluate SOEs’ performance based on these performance reports. We recruited German graduate students and asked them to assume the role of municipal council members and allocate budgets to SOEs based on their performance. We manipulated the SOEs’ performance across various performance dimensions (financial, customer, process, and employee) in the reports. Furthermore, we manipulated the financial status of the municipality. Our data show that, in the information acquisition phase, participants’ attention is skewed toward the financial and customer performance of the SOEs. However, participants allocate budgets rather evenly across SOEs that outperform in the financial, customer and process dimensions. By manipulating the financial status of the municipality, we show that participants put more effort into the information evaluation process when resources are scarce.

This paper investigates how IPO firms adjust their management forecasting strategies to accommodate the changes in their economic condition and the resulting changes in the costs and benefits of management forecast issuance after IPOs. We differentiate firms that redact proprietary information from their IPO registration statements (redacting firms) from the other firms (non-redacting firms). Compared with non-redacting firms, redacting firms face more intense tradeoff of protecting proprietary information and reducing investor information asymmetry post IPOs. We find that in the first two quarters post IPOs, redacting firms are less likely than non-redacting firms to issue forecasts. Conditional on issuing forecasts, redacting firms issue quarterly forecasts less frequently, and forecast fewer items. We also find some evidence that firms are more reluctant to forecast items that are more closely related to the redacted information than other items. Redacting firms exhibit a positive time trend in their likelihood of issuing forecasts over eight quarters after the IPOs, consistent with the proposition that proprietary cost concerns become relatively less important than investor information asymmetry over time. Moreover, the increase for redacting firms appears to be driven by their subsequent seasonal equity offerings.

This study examines company tax avoidance behavior prior to mandatory error-announcements requested by the Financial Reporting Enforcement Panel (FREP) and in the following periods. We find that companies, that have been requested to publish an error-announcement due to IFRS accounting issues, subsequently reduce their tax avoidance behavior estimated by GAAP and Cash ETRs. Since there is no formal conjunction between IFRS accounting and German tax accounting, we figure that companies decrease their tax avoidance behavior to recapture reputational damage. Our analysis contributes to the growing literature of the interactions between tax avoidance and reputation by using the unique enforcement system and tax characteristics in Germany.

Goodwill-related accounting measures are important items in European banks' financial statements. From a quantitative viewpoint, goodwill equaled 30% of net book value in 2007 (on average), while goodwill impairment determined huge charges during the global financial crisis. From a qualitative viewpoint, goodwill and its impairments are opposite expressions of the synergies expected in M&As. The estimate of both values in the banking industry is affected by high discretion and raises peculiar issues. Despite such matters of attention, value relevance of goodwill-related measures in banks has since been neglected by academic literature. This study verifies whether goodwill recognition and goodwill impairment losses are useful to investors in valuing the equity of a sample of 110 EU banks from 2005 to 2015 (767 bank-year observations). The analysis is conducted by using well-accepted models of value relevance that are extended to account for banks industry-specific variables. The results suggest that goodwill recognition is positively and significantly associated with market prices, while impairment losses may be interpreted differently according to the bank's performance. Specifically, such losses are positively and significantly associated with market prices in banks with negative earnings, likely because investors are concerned that current impairments may hide further write-downs and operating losses in the future.

This paper examines the comparability of non-GAAP earnings. Recent work on earnings comparability focuses on GAAP earnings despite non-GAAP earnings being widely used by both firms and financial statement users. Using the De Franco et al. (2011) method, we quantify the comparability of a suite of GAAP and non-GAAP earnings metrics. The findings indicate that street earnings are significantly more comparable than GAAP earnings, supporting the benefit of non-GAAP adjustments by analysts. Moreover, the superior comparability of street earnings is likely attributed to the removal of material nonrecurring items and recurring items with considerable measurement errors. In the supplementary analysis, we find that street earnings bring greater comparability improvement for firms that are larger, followed by more analysts, and have more volatile returns.

Variance investigation has been identified as an effective accountability-oriented control mechanism for reducing budgetary slack in existing literature (e.g. Webb, 2002). This paper focuses on two further research questions: (1) the extent to which different accountability-oriented control characteristics (i.e. external investigation and self-reporting) of variance investigation impact on budgetary slack; and (2) the moderating effect of moral development on this relationship between accountability-oriented control characteristics of variance investigation and budgetary slack. Our experimental results show that both external investigation and self-report can generate accountability pressure to reduce the budgetary slack. More specifically the effect of external investigation on reducing budgetary slack is greater than that of self-reporting. This study also reveals that moral development moderates the effect of external investigation on budgetary slack. When comparing subordinates with low moral development with those with high moral development, our results show that the effect of external investigation on budgetary slack is stronger amongst the former group than that in the latter. This study does not find any moderating effect of moral development on the relationship between self-reporting and budgetary slack. Our study sheds some new light on varying effects of two accountability-oriented control characteristics of variance investigation on budgetary slack, as well as different levels of subordinates’ moral development which may be considered in management control system design and implementation.

Performance measures play a significant role in corporate governance. Prior accounting research has examined the use of performance measures mainly in the context of management incentive contract, or the design of performance measurement system in a firm. However, little has been studied about how external regulatory body can affect firms’ performance measures, and furthermore, its implication for corporate governance. Using data about China’s central government-owned firms (CSOE), we investigate how government-enforced EVA adoption affects its propensity to conducting fraud. We find that EVA adoption can significantly reduce CSOEs’ propensity to engaging in fraud, in comparison with LSOEs. Furthermore, the negative effect of EVA adoption on CSOEs’ fraud propensity is stronger in regions with better legal environment; but this effective effect is weaker for industries with high government protection, such as defense industry. In addition, we find that the role of EVA adoption in reducing fraud propensity is more pronounced for violations related to information disclosure. One possible channel for EVA adoption to reduce fraud propensity is that EVA adoption changes managers’ incentive to engage in over-investment in order to achieve short-term profit, thus reducing the probability of accrual-based earnings management. Overall, findings of this study suggest that government as ultimate firm owner can play a positive role in reducing fraud through adjusting performance measures.

The extant literature reveals that audit committee (AC) members with industry expertise can enhance the AC’s effectiveness in monitoring the financial reporting process. In this study, we focus on AC banking and accounting expertise and examine their effects on bank loan contracting. We find that banks charge a lower interest rate, are less likely to require collateral, use more financial covenants, and offer longer maturity loans to borrowers whose AC members have banking and/or accounting expertise. Additional analyses indicate that the association between AC expertise and loan terms is primarily driven by banking expertise, either alone or in conjunction with accounting expertise, than by accounting expertise alone. We also find that borrowers with banking expertise on the AC obtain larger loans and have more lenders in the loan syndicate. The results are robust to a battery of robustness tests to address the issue of joint determination of loan terms and endogeneity. Overall, our results suggest that banks value borrowers’ AC banking expertise in mitigating information risk and agency cost.

In this study, I experimentally examine the effects of incentive framing on two stages of creativity process: idea generation and idea selection. For idea generation performance, I find that participants under penalty contract outperform those under bonus contract. Specifically, I predict and find that penalty contract leads to higher level of cognitive flexibility and more highly novel ideas. I further find that the positive effects of penalty contract only lead to better performance in the initial phase but not the later phase of idea generation process. For idea selection performance, I predict and find that participants under penalty contract tend to select extreme novel ideas rather than balanced ideas that are both novel and useful. This study extends the literature on creativity by bring to the forefront neglected role of framing of incentives and the effects of incentives on creative idea selection performances.

We examine the effect of adoption of International Accounting Standard 41(IAS 41) for biological assets on stock price informativeness. International Accounting Standard 41: Agriculture requires fair value measurement and enhances disclosure for biological assets. We investigate whether the adoption of IAS 41 can facilitate firm-specific information for agricultural activities capitalized into stock prices, as measured by idiosyncratic volatility. Using a sample of IAS 41 adopters from countries that mandates IFRS in 2005 and the control samples of non-IAS 41 adopters, we find that stock price informativeness for IAS 41 adopters increases from the pre-adoption period to the post- adoption period. The finding supports the view that a single International Accounting Standard on accounting for all agricultural activities can help reduce stock price synchronicity. Further analysis shows that the effect is not different between firms that transforms bearer plants, which derive value in use of assets and other biological assets. Overall, our results are consistent with the notion that the increased transparency from IAS 41 adoption broadly facilitates firm-specific information flows entering into stock market and thereby reduces synchronicity, making stock price more informative.

This study examines the interactive effect of supervisor pay transparency and vertical pay dispersion on decisions in a participative budgeting setting. We investigate supervisor and subordinate budgetary decisions when vertical pay dispersion is high (versus low) and when supervisor pay is transparent (versus not transparent) to subordinates. As predicted, we find a significant interaction between supervisor pay and vertical pay dispersion on misreporting. Specifically, when vertical pay dispersion is high (low), pay transparency significantly increases (decreases) subordinates’ cost overstatements. Further investigation suggests that this result is NOT driven by fairness concerns, but by social comparison and benchmarking (i.e., subordinates using supervisor pay as a pay standard). We also find that supervisors set higher cost thresholds when vertical pay dispersion is high when and only when such pay dispersion is transparent to subordinates. Our results further suggest that pay transparency and vertical pay dispersion jointly affect firm profit in our setting. Implications for theory and practice are discussed.

This paper explores the empirical association between corporate social responsibility (CSR) in accounting firms and audit quality by drawing upon a three-year (2010–2012) proprietary database on the CSR activities of accounting firms in China. We find that accounting firms with higher levels of CSR achieve greater audit quality. We also find that the relationship between CSR and audit quality is more pronounced in accounting firms that spend more on training and have lower employee turnover. To the extent that we control for confounding factors and potential endogeneity concerns, our results suggest that that socially responsible accounting firms are driven by their ethical concerns to achieve higher audit quality.

Using a sample of U.S. banks and indices for economic policy uncertainty and monetary policy uncertainty developed by Baker et al. (2016), we investigate whether these two sources of policy uncertainty affect bank earnings opacity. When economic and monetary policies are relatively uncertain, it is easier for bank managers to distort financial information, as unpredictable policy changes make assessing the existence and impact of hidden “adverse news” more difficult for external stakeholders such as investors and creditors. Policy uncertainty also increases the fluctuation in banks’ earnings and cash flows, thus providing additional incentives for bank managers to engage in earnings management. Our results show that uncertainty in economic policy and in monetary policy are positively related to earnings opacity, proxied by the magnitude of discretionary loan loss provisions and the likelihood of just meeting or beating the prior year’s earnings, and negatively related to the level of accounting conservatism (i.e., the timeliness of recognition of bad news relative to good news). Collectively, our results suggest that economic policy uncertainty and monetary policy uncertainty lead to greater earnings opacity. We also find that the impact of policy uncertainty on financial reporting distortion is less pronounced for stronger banks (i.e., banks with high capital ratios).

This paper explores the role of accounting in structuring civil society intervention in the context of the recent ‘refugee crisis’ in Germany. In particular, it is examined how initially loose volunteer movements turned into formalized and legally independent organizational forms throughout the height of the migration movement. We particularly focus on the constitutive capacity of lists as a basis for enabling more sophisticated forms of accounting which then constitute the inside and the outside of the organization. While our study highlights the importance of accounting in shaping organizational boundaries, i.e. defining what counts as inside and outside, we also acknowledge that accounting only unfolds its full potential within an interplay of other elements such as specific forms of expertise, legal requirements and categorizations. We also show that the formalization of civil society movements is never a linear evolvement but might become disengaged and reactivated.

International transfer pricing within multinational enterprises (MNEs) is considerably complex as transfer prices have to satisfy taxation and managerial accounting objectives. We consider an MNE consisting of an upstream affiliate in one country and a divisionalized downstream affiliate in another country. We find that the inherent trade-off of international transfer pricing between the upstream and the downstream affiliate can be resolved at the domestic level by adjusting the internal transfer price between the divisions of the downstream affiliate. The optimal domestic transfer price not only accounts for the costs of the internally traded good but also for tax differentials. We further show that our finding is robust in that it can be applied to a variety of circumstances, including multilateral investment choices, or when the good is internally traded to multiple subsidiaries in multiple countries.

Abstract This study addresses this lack of research in two related ways (stages): the first stage investigates the RGHM disclosure practices of four major gambling companies operating within Australia. We draw upon the ethical branch of stakeholder theory, to examine the detail of annual report disclosure practices in terms of RGHM to assess the extent to which gambling companies publicly discharge (or do not discharge) their accountability to stakeholders regarding problem gambling. In so doing, we develop a disclosure index of what gambling companies ‘should’ report in relation to RGHM issues in order to discharge their accountability to stakeholders. The findings in stage one suggest that there is no substantial attempt by gambling companies to ‘account’ for the actual or potential social ‘costs’ associated with their corporations’ activities. Stage two, therefore, extends the first stage of the study by further investigating evidence that might (or might not) indicate whether there is a de-coupling of gambling companies projected and actual practises related to RGHM. We examine the content of public documents (public submissions made by gambling companies to the New Productivity Commission Inquiry into Gambling in 2008) to ascertain the views expressed by gambling corporations regarding RGHM and the social issues related to problem gambling.

The structural characteristics of companies’ annual reports (such as their length, complexity and intelligibility) and the qualitative information they contain (e.g., on any risks they may be facing) can provide useful insights that can help increase the accuracy of bankruptcy prediction. In this study we use a sample of German companies that we compiled through propensity score matching to analyze the impact of this information on the validity of models used to predict a company’s likelihood to go bankrupt. The findings provide empirical evidence that both the structural characteristics of an annual report and the qualitative information it contains increase the accuracy of predicting bankruptcy. On this basis, we argue that both types of elements should be introduced into models for predicting bankruptcy, especially in models used to distinguish between companies that are likely to go bankrupt and companies that, although financially distressed, are likely to remain solvent.

In this paper we attempt to shed light on whether the role of lead underwriters in the aftermarket IPO through their trading activity leads to information asymmetry prior and after the lock-up period. This is the first study that classifies the lead underwriters into three distinct categories. We use a novel approach to classify the lead underwriters into Winners (those who benefit both themselves and the company based on the level of underpricing and maximization of their fees), Non-winners and Stabilizers. Using a dataset of 1,051 IPO US firms over the period 2000-2015, results demonstrate that Winners have an information advantage over the rest market participants which is inconsistent with the efficient market hypothesis (EMH). Specifically, results show that there is strong positive association between changes in holdings of Winners and subsequent market adjusted Buy-and-Hold Abnormal returns. These results indicate that Winners do have information advantage over the rest market participants and they seem to exploit this private information for their own benefit. Thus, for safeguarding the interest of public investors more screening is needed to monitor the post IPO activity in order to reduce market inefficiencies.

This paper shows a sustained positive trend in positive quarterly earnings surprises over the past two decades for a significant proportion of firms in the S&P 500. The distribution of quarterly earnings surprises over time has not shifted symmetrically to the right, however. Rather, the shift is the result of fewer small earnings surprises in the bins at or just below zero and more and larger positive earnings surprises in the bins further away from zero. We also show a sustained increase in the proportion of firms in the S&P 500 with earnings surprise strings consistently greater than zero and consistently greater than higher thresholds. Of two possible explanations of these trends – of increasingly upwardly biased earnings or increasingly downwardly biased earnings forecasts, our evidence is more consistent with the former. This is because with the latter it is unlikely that financial analysts would bias their forecasts downward to produce the distribution shift that we find unless somehow they had foreknowledge of firms’ earnings management practices contemporaneous with the release of their forecasts. These results are robust to scaled or unscaled earnings surprises and to the earnings surprise shocks from the Sarbanes Oxley legislation and the 2007–2008 global financial crisis. An equivalent temporal analysis of sales surprises also shows a right shift in the bins of the distribution, but the movement is weaker.

Sustainability reporting can be considered a simultaneous strategic signaling choice that might lead to a situation similar to a prisoner´s dilemma: the majority of firms chooses to report on sustainability although the signal has no value to investors and hence causes negative net benefits for the reporting firms. Consequently, we predict and find empirical evidence that increases in the levels of sustainability reporting are positively associated with cost of equity capital increases for specific ranges of simultaneous increases in sustainability performance. This association is even more pronounced for firms employing CEOs with a tendency towards sustainability reporting. Our findings are in line with the argument that CEOs opportunistically engage into sustainability reporting at the expense of the firms’ owners.

The present study is focused on the potential market benefits of presenting a high quality Integrated Report. Specifically, this preliminary research assess whether such characteristic is value relevant to investors. We investigate whether the market valuation of traditional accounting measures (book value of equity and net income) is higher for companies presenting an integrated report considered as "leading practice” when compared to companies publishing a regular integrated report. Our sample includes all the unique companies from the IIRC Examples Database. Financial and non-financial data were collected for a period of 10 years starting in 2006. Main findings confirm that either the book value of equity or operating income have a positive and statistically significant impact on the market value and, as expected, those relationships are intensified when they come from companies recognized as “best practice” in the integrated reporting process.

Significant changes have taken place in the organisational culture of the public sector. These changes have brought accountability and sustainability into the spotlight and have led to the concept of corporate social responsibility (CSR) in public administrations. Within the public sector, State-owned enterprises (SOEs) could provide an important example on these issues to other companies and society and could be of crucial importance in the promotion and development of socially responsible policies. This fact leads us to analyze the research done in the field of SOEs related to CSR practices. This study analyses the current state of the research in this field and identifies the main theoretical and empirical contributions made into CSR in published research in internationally-reputed journals, in the context of SOEs, in order to provide a foundation for future studies. Our results show that the issue has been addressed recently comparing it with the research carried out in this field in the private enterprises, despite the commitment that these companies have on CSR. Most of the studies are descriptive, although explanatory ones are increasing in recent years. Studies of the effect of CSR practices on users are scarce and are an interesting area of research. The review shows that SOEs research is significant in those countries which state has a strong presence in companies.

Budgets and peer monitoring are control mechanisms (formal and informal, respectively) widely recognized in control and management literatures due to their capacity to motivate employees to align their behavior with firm expectations. Several studies have suggested that peer monitoring can be a determinant variable in explaining the motivational effects of budgets. However, those studies are ambiguous in not specifying how these variables relate. This paper examines the different roles that peer monitoring can potentially play on the relationship between budgets and goal commitment. We used a combination of proprietary and survey data gathered from 80 store managers from a division of one of the largest world retail chain companies to test hypotheses. We found that budget motivational properties intensify the level of direct peer monitoring, which in turn contributes to increase managers’ goal commitment. In contrast, the results have also provided evidence of the dysfunctional interaction between indirect peer monitoring and budgets, negatively influencing managers’ goal commitment. This may be the case only for managers performing below expectations.

Under the German Inheritance Tax and Gift Tax Act the transfer of business assets can be exempted from taxation up to 100%. However, this exemption depends on the evolution of the company's payroll, which is highly uncertain. We model the uncertain nature of payroll evolution using a Geometric Brownian motion. We obtain closed-form solutions for the expected effective exemption and for the expected effective tax rate. We find that the uncertainty effect is most pronounced for moderate negative and positive growth rates. Furthermore, higher uncertainty reduces the value of the effective tax exemption. Given progressive taxation, we are able to isolate an uncertainty-related progression effect; this effect is strongest for moderate uncertainty. We show that – due to the special form of the tariff according to Section 19 ErbStG – the progression effect can even be positive.

Our study finds that, while both compensation and internal pay gap exhibit lower underpricing, it is on average higher when there are high levels of industry and local pay gap. Economically, having a high compensated CEO on board is associated with a decrease of 2.99% in the value of initial returns to investors. The negative effect of total CEO remuneration on the value of underpricing concentrates among firms with high managerial discretion. Additionally, our findings suggest that the positive association between industry tournament incentives and IPO first-day returns is stronger in less competitive industries as well as among firms with specialist and overconfident CEOs. In contrast, the positive impact of tournament incentives on underpricing is less pronounced in competitive Metropolitan Statistical Areas (MSA) and on firms with new CEOs. The results are robust to various tests and alternative explanations.

Using a unique hand-collected data set of educational attainments as a proxy for general cognitive ability and educational quality, we examine whether heterogeneity of CEO academic qualifications in terms of nature, level and quality is important in explaining the variations in the level of IPO underpricing. With respect to undergraduate degrees, we find that science- and practice-oriented degrees (BSc) relate to lower underpricing compared to liberal arts degrees (BA). Similarly, master degrees that emphasize on a narrow discipline (MA and MSc) are generally unrelated to initial IPO returns, whereas MBAs contribute to lower underpricing. Finally, CEOs with titles characterized by considerable degree of conservatism, such as Juris Doctors (JD) holders of professional qualifications are perceived deliver valuable human capital compared to CEOs with a PhD or a medical degree (MD). Collectively, our results that while CEO education generally relates significantly to underpricing, the direction and magnitude of this relationship depends on the nature, level and quality of academic qualifications.

This study explores the relationship between contextual variables (strategy, external environment, organizational culture, decentralization and technology) and the use of non-financial performance measures (NFPM) for managerial compensation in SMEs. Using data collected from a questionnaire answered by 1 088 SMEs’ managers, I find that external environment and decentralization are associated with the adoption and use of NFPM for managerial compensations in SMEs. Specifically, I find that the lower the dynamism element of perceived environmental uncertainty (PEU), and the greater the PEU hostility and decentralization, the higher the adoption and use of NFPM. Finally, my study highlights important differences in the adoption and use of NFPM between small and medium firms, and between CEOs and non-CEOs.

This paper examines the association between clients’ involvement in political lobbying and audit fees. Using a U.S. sample of 4,824 firm-year observations, we find that auditors charge higher audit fees for clients with active lobbying activities. We also find that the positive association between lobbying and audit fees is weaker for firms with more independent directors and firms with more female directors on board. Overall, our findings suggest that lobbying firms are associated with higher audit risks, but this relationship is weaker for firms with stronger corporate governance.

We examine the impact of social capital on asymmetric cost behaviour. Social capital captures the strength of civic norms and the density of social networks in a region. As such, it is a socio-economic factor that might affect managerial resource adjustment decisions via different channels. We find that firms headquartered in U.S. counties with high social capital exhibit less asymmetric cost behaviour. Apparently, social capital restrains managers from taking opportunistic resource adjustment decisions that would induce cost stickiness. This is in line with our additional finding, that altruistic norms to act in an ethical manner are the dominant channel for our setting, by which social capital affects cost behaviour. Our results corroborate the important role of managerial discretion in cost behaviour and make a significant contribution in understanding how environmental, local factors explain differences in sticky cost behaviour across firms.

This paper analyses factors contributing to the rise and fall of large international audit firms (Big N) in China over the last four decades. It develops a general framework by considering broad institutional theory relating to both creation and weakening of an institution. It also applies institutional theory to Multinational Corporations (MNCs), using the construct of institutional distance, which comprises of regulatory, normative and cognitive dimensions. This study finds that Big N’s success in their initial entrance to China, their rapid growth and dominance and their current declining market share is a process of first gaining legitimacy, then maintaining, expanding and defending it. This process is a response to the changes in the institutional distances on regulatory, normative and cognitive dimensions. This paper contributes to the accounting literature by broadening the application of institutional theory. Understanding the development of Big N in China over the last four decades will assist policy makers, in particular in emerging economies, to facilitate and encourage big international audit firms to play an appropriate role within their economies. The result of this study can also assist such audit firms to position their future development around the world.

We measure the value relevance of Tier 1 capital, regulatory adjustments, and Tier 2 capital of U.S. banks. Our research design relies on a parsimonious multiplicative regression model that mitigates shortcomings of conventional research designs. Results for the years 2001–2016 show that Tier 1 capital is less value relevant than book equity. The value relevance of Tier 1 and book equity temporarily increase after the global financial crisis, then gravitate to a predicted value of one in times of economic stability. Some of the regulatory adjustments contradict policy objectives of the definition of Tier 1 bank capital: positive adjustments to bank capital, e.g. hybrid capital instruments, are mostly negatively associated with market returns. Important negative adjustments, i.e. goodwill, are positively associated with market returns. The value relevance of Tier 2 capital becomes strongly negative after the fall of Lehman brothers, thus reflecting the gone concern property of this component of capital.

Purpose – Materiality, as a content selection principle, is an emerging trend in sustainability reporting for making sustainability reports (SRs) more relevant for stakeholders. This paper investigates whether materiality matters in the reporting practice of universities who have adopted the Global Reporting Initiative (GRI) G4 Guidelines. Design/methodology/approach – Strategic stakeholder theory and sociological institutionalism serve for deriving conflicting expectations about the compliance of universities with the materiality principle. In the empirical section of this paper, content analyses are conducted on the documented material aspects, followed by a correlation analysis for analysing to which extent the material aspects are reported in the SRs. Findings – Although universities engage themselves in documenting in G4-19 stakeholder-material aspects according to different relevance levels and for two stakeholder groups (internal and external stakeholders), the material aspects are not appropriately reported in the SRs. The adoption of the materiality principle is a superficial one. Originality/value – This is the first study looking at the compliance between the documented material aspects and the content of the SRs in a particular challenging organisational field, the university sector. Keywords: Global Reporting Initiative, materiality, sociological institutionalism, strategic stakeholder theory, sustainability reporting, universities

We analyse how soft information about specific assets invested in a project contributes to the expanded financing of socially valuable projects that require investment in both general and specific assets. Our model captures important aspects of the lender-borrower relationship in project financing and allows for an interpretation of degree of softness of information with the lender. The manager-entrepreneur benefits from the lender’s recall rights under some conditions. If the manager-entrepreneur has the choice of financing the general asset in a competitive arm’s length loan market, she will choose a relationship loan with recall rights only if the endogenous quality of information is high enough. We show how the quality of information, the incentive to invest in the specific asset and the choice of loan arrangement depend on project characteristics, costs of information production and the manager-entrepreneur’s private benefits.

This paper tries to provide some insights about whether and how specific assurance practices became norms in specific constituencies. To that end, this research presents a descriptive-exploratory analysis of assurance practices disclosed in two countries with different levels of assurance activity (Italy and the U.S.) in a period of eleven years (2003/2013). Italy is among the countries with the highest assurance activity and the U.S., among the countries with the lowest assurance activity. The analysis, drawn on theoretical insights of institutional sociology and normativity production, found a framed situation in Italy, where assurance statements consistently included a narrow set of formal and procedural communications. And an unsettled situation in the U.S., with a more incipient assurance activity but more room for experimentation in substantial assurance practices. Finally, the results also reveal new findings about the association of particular professionals in the earlier and later stages of SR assurance practice norms. On the other hand, results suggest a significant influence of non-Big4 firms (such as engineering and consultant firms) in the emergence of SR assurance disclosure norms. On the other hand, results indicate that Big4 accounting firms are positively associated with the narrowing of the assurance focus to a selected subset of this activity in later stages of the development of the assurance norm. In this regard, this study provides insight into the circumstantial -but relevant- carrier role of Big4 firms determining what “assurance” means.

I elaborate upon the foundations of Gecon – Economic Management System – model to propose a new theory on goodwill and other identified intangibles with indefinite useful lives. I reason that firm value is made up of its physical and intangible wealth, both continuously affected by passage of time and change of conjuncture. The first, more stable, is the opportunity cost of the implemented managerial decisions to buy, sell and manufacture assets. The second, more instable, is the economic value of the new ideas and plans still to be implemented, which seems to be the true nature of goodwill. The non-recognized intangibles act like the firm’s virtuous. They are not separated assets, for their value is already reflected into the economic value of the physical and intangible wealth, the same way that virtuous in a person are embodied in her mind and body. According to this view, accounting goodwill is a portion of the intangible wealth of the acquirer, which quickly dissipates being converted (or not) into physical equity. Statistical tests on a 29,192 firm-year observation panel database show evidence that this new approach to goodwill (and other intangibles with indefinite useful lives) seems to be true.

This paper looks at the history of legal accounting regulation governing the Russian business practice in the eighteenth – early twentieth century. The purpose was to establish the role and degree of government intervention in setting the accounting guidelines. The study covers the government’s successive steps in this field: from making bookkeeping obligatory and defining the list of compulsory books to the distribution of their templates. It is stressed that the Russian legislator assumed the role of an accounting mentor, aiming to impose not only the concept, but also specific techniques of accounting, including double-entry bookkeeping. Although this role of the government can be interpreted in many ways, the paper highlights its efforts targeted at promoting a progressive accounting culture.

This study investigates the association between CEO narcissism and management forecasting practice. We measure CEO narcissism as the usage of first-person singular pronouns in conference calls and presentations, and find that CEO narcissism is negatively associated with the likelihood and frequency of issuing forecasts, negatively associated with forecast precision, and positively associated with forecast optimism and accuracy. This evidence is consistent with the view that narcissistic CEOs’ are lack of empathy for investors’ information demand and lack of commitment for establishing routine forecasting policies, and their self-admiration and sense of superiority drives them to avoid possible unfavorable outcome, specifically missing the forecast, at all costs. We also find that a narcissistic CEO is more likely to issue forecasts and to issue more frequent forecasts when the underlying earnings news is more extreme, due to narcissistic CEOs’ hunger for grandiosity and public attention.

This paper develops a new empirical measure of market expectations of future earnings, referred to as ‘market implied earnings’ by reverse engineering the Residual Income Valuation Model based on actual share prices. Since share prices reflect all information available to investors, market implied earnings are not based on single sourced information such as analysts’ forecasts. Market implied earnings are used to calculate earnings surprises and to test the information content of GAAP and non-GAAP earnings. Findings suggest that the estimated market implied earnings are on average closer in magnitude to non-GAAP earnings than GAAP earnings. Consistent with prior literature, non-GAAP earnings are found to have higher relative information content than GAAP earnings in terms of explaining cumulative abnormal returns around earnings announcements. Furthermore, there is no significant association between cumulative abnormal returns and non-GAAP earnings exclusions, indicating no incremental information content of GAAP over non-GAAP earnings. These results are robust with alternative model assumptions and specifications used in estimating market implied earnings.

Accounting financial experts on audit committees are associated with a lower probability of financial restatements, higher reporting quality, positive market reactions and other desirable outcomes. Yet, many firms have been reluctant to appoint such directors. As CEOs have incentives to minimise the effectiveness of the audit committee, we examine whether CEO power plays a role in explaining firms’ aversion to appointing accounting financial experts. Using data from 2004 to 2015 we find firms have a lower likelihood of appointing new accounting financial experts in the presence of powerful CEOs. We also find that firms with powerful CEOs are less likely to designate accounting financial experts as the chair of the audit committee. Our results have implications for regulators as we identify one of the impediments to the appointment of accounting financial experts to audit committees and their effectiveness.

We investigate how companies in cyclical industries manage their investment strategies to deal with threats and opportunities that come from uncertainty about the timing and amplitude of industry cycles. We conduct our analysis in the context of the Canadian Oil and Gas (O&G) Industry. Based on our discussions with industry leaders, analysis of company disclosures, and reviews of industry reports, business and academic articles, we identify two investment strategies that are prevalent in the O&G industry – a pro-cyclical strategy that invests heavily in growth periods and a counter-cyclical strategy that invests more conservatively in growth periods to build and sequester resources for decline periods. We use a long-term measure of balance sheet strength based on debt to cash flows to discriminate across these two strategies. We find that companies that are more conservative (lower debt to cash flows over time) achieve higher operating efficiency in general and that their efficiency advantage is greater in post-crisis periods following sharp price declines. We also document that conservative firms invest more in post-crisis periods and that their acquisitions yield significantly more reserve quantities per dollar of investment than other companies, especially in the post-crisis periods.

This paper investigates the role of target information asymmetry in explaining the premium gap between LBO deals and matching non LBO deals. Using a sample of 236 LBOs and 787 matching deals of U.S. public targets for the period of 1984 to 2013, we find that LBO target shareholders receive significantly less in takeovers than shareholders of non LBO targets and that the premium gap between LBOs and non LBOs is enlarged when targets’ information asymmetry is high. As target information asymmetry measure increases by a standard deviation, the premium gap between LBOs and non LBOs widens by 5% to 10%. We also find the influence of information asymmetry on premium gap mainly happens before merger announcement, but not after merger announcement. We explain our results as PE investors collude with target management and expropriate target shareholders when target is in asymmetric information environment.

Using a laboratory experiment, we investigate managers’ tendency to strategically influence performance evaluations that affect promotion decisions. One important distinction between performance evaluations that inform promotion decisions and evaluations that are only used to allocate tangible rewards is that employees who earn a promotion will leave the manager’s unit, such that their effort and skill will no longer benefit the manager. We propose that managers may therefore sometimes act strategically in promotion decisions, and provide biased recommendations, increasing the probability that low performing employees are promoted up and out of their unit, and decreasing the probability that excellent employees are promoted. We develop theory about how two crucial design variables of the organization’s control system, transparency about individual performance levels and interdependence of employees’ compensation, affect managers tendency to strategically influence promotion decisions. Data from a laboratory experiment confirm that managers strategically influence promotion decisions, and that the extent to which they engage in such behavior depends on transparency about individual performance levels and compensation interdependence.

We examine whether shocks to financial institutions affect the choice and composition of accounting-based covenants in private debt contracts and whether this effect represents a channel through which financial shocks affect corporate investment. We exploit plausibly exogenous variation in the payment defaults experienced by lenders that are not in the borrower’s region and industry. We find that financial institutions respond to payment default shocks by shifting the composition of financial covenants towards performance-based covenants (away from capital-based covenants) in newly signed credit agreements. In turn, the increased reliance on performance covenants constrains borrowers’ future investments, particularly among relationship-based borrowers. We also find that lender-specific shocks after the contract is in place affect investments, and that this effect varies depending on the composition of the covenants in place. Overall, the results are consistent with financial covenants being a channel through which financial sector shocks propagate to the real sector.

This research analyses companies from 25 countries that have mandatorily adopted International Financial Reporting Standards (IFRS) to determine whether relevant accounting information for investors differs from relevant accounting information for creditors under some risk conditions. The underlying premise is that the set of accounting information used by these accounting information users in their capital provisioning decisions is different, as empirically identified in this research. The study shows that accounting information is less relevant to investors in countries where there is greater informational risk (less enforcement), but this risk does not influence the relevance of the accounting information to the creditors. Regarding credit risk, accounting information is found to be more relevant to creditors in conditions in which companies have higher leverage and low credit ratings assigned to borrowers; the opposite evidence is found for investors in ratings.

This article sheds further light on the efficacy of “say on pay” (SOP) voting regulation to improve corporate governance and curb the exploitation of shareholders’ funds by powerful CEOs through excessive remuneration schemes. Australia introduced binding “two strikes” SOP regulation in July 2011, the only country to do so. This study of 3,477 firm-year observations provides evidence on its impact. We identify changes in shareholder voting patterns, changes to executive remuneration following shareholder dissent, and a willingness by the board to engage in management renewal following higher levels of shareholder dissatisfaction.

Drawing on institutional theory, agency theory and on the bonding hypothesis, this study investigates whether and to what extent legal institutions, both internal and external to a multinational corporation (MNC), impact its accounting quality. We employ a multi-country sample of MNCs registering affiliates or subsidiaries in offshore financial centers (OFCs) during the period 2002-2013. Our analyses show that MNCs cross-listing in the U.S., an external legal institution, exhibit lower abnormal accruals, higher accruals quality and more persistent earnings patterns compared to MNCs not-cross-listing in the U.S., thus supporting the bonding hypothesis. However, the positive association between cross-listing and accounting quality is negatively moderated by a MNC’s choice of OFCs in which to operate subsidiaries or affiliates, thereby suggesting that the internal legal institutions underlying foreign subsidiaries or affiliates’ operations do relate to the accounting quality of the parent firm. Moreover, the impact of a MNC’s home country governance on accounting quality is also moderated by its OFC attributes. Our study underscores, to regulators and investors, the importance of enhancing monitoring efforts for MNCs with opaque and complex structures that emanate from countries where their affiliates or subsidiaries are located, to better detect opportunistic earnings management.

This study investigates the relation between the accuracy of managerial demand expectations and cost behavior. Based on a unique dataset of 4,107 firm-year observations from 737 companies in Denmark, this paper first shows that cost stickiness is substantially stronger for unforeseen negative demand shocks than for expected demand shocks, which is in line with the argument that adjustment costs are typically higher when the time horizon for making the adjustments is shorter. Second, we find empirical evidence that omitting selling price changes can mislead researchers’ inferences about resource adjustments and cost stickiness when sales are used as a proxy for activity level, which is a common practice in existing literature. Finally, we show a moderating effect of managerial expectation accuracy on the relationship between demand volatility and cost elasticity. This helps reconciling the ongoing debate on whether companies increase or decrease cost elasticity in response to demand volatility.

Scholars have given considerable attention to investigating the role of isolated management control system components designed to achieve sustainability outcomes. However, there is a dearth of research examining these components in an integrated system. We investigate organizations’ sustainability management control systems designed to achieve sustainability objectives by exploring both strategic and operational components. Our statistical analysis was conducted by using a large sample of international companies, and we found that control systems, which are more comprehensive at both the strategic and operational levels, are associated with higher environmental performance and sustainability reporting. By taking a more comprehensive approach towards control systems and sustainability, this study provides theoretical contributions as well as practical implications by demonstrating how integration of various control mechanisms can enable better sustainability reporting and performance outcomes.

International Financial Reporting Standards (IFRS) is mandatorily adopted for all European countries in 2005, recent studies concentrate on the capital market effects of this event. This study aims to examine the change of cost of equity capital in pre- and post- IFRS period, and explore the role of mandatory IFRS adoption and concurrent enforcement in the association between conditional conservatism and cost of equity capital. We find that cost of equity capital is lower after mandatory IFRS adoption, especially for the countries adopt IFRS with strong enforcement. Also, the negative association between conditional conservatism and cost of equity capital is more pronounced for the countries which make substantive change of enforcement at the same time with IFRS adoption, while mandatory IFRS adoption alone has no impact on the association.

The purpose of this paper is to investigate earnings management by firms reporting a small profit or a small loss after the recent evidence that the discontinuity around zero earnings has disappeared. Using a large sample of US firms for the period 2002-2011, regression analysis and earnings distribution approach are employed to examine the earnings management of small profit and small loss firms in terms of both accruals management and real activities manipulation. The results suggest that both small profit and small loss firms are engaged in upward manipulation of accruals and real activities. This implies that failure to document a difference between firms to the right and left of zero by prior studies is not due to small profit firms not managing earnings, but rather this is more attributable to loss firms engaging in upward manipulation. Furthermore, it is indicated that the discontinuity around the distribution of earnings change has also recently disappeared as firms reporting a small earnings decrease demonstrate similar earnings management behavior to those reporting a small earnings increase. Our findings suggest that the disappearance of the discontinuity around zero earnings and zero change in earnings should not be interpreted as a sign of no earnings management. It also explains how earnings management could have contributed to the disappearance of the discontinuities in earnings distribution.

Filling a gap in the existing literature on integrated thinking and reporting (ITR), this work provides new empirical evidence on the nature and determinants of European companies’ approaches to ITR over the period 2002-2015. Employing univariate and multivariate analysis, and drawing from socio-political and economic theories, we identify distinctive approaches, observe their evolution, and investigate the contribution of company-level and contextual factors as drivers of ITR. The main results show that companies’ approaches to ITR (Holistic, Integrated, Conservative, and Minimalist) are related to company characteristics and tend to remain consistent over time exhibiting routine and imitation. Based on legitimacy theory and stakeholder theory, companies with greater size, leverage, and board activism are more likely to exhibit a Holistic level of integration, while Minimalist approach is driven by the same variables in opposite direction. Environmentally-sensitive and consumer-oriented industries, as well as economic growth and market performance, significantly contribute to higher integration. We suggest that these findings could drive companies’ choices alongside policymakers’ initiatives, by identifying which levers should be pulled to achieve the desired level of integration. Finally, within the debate on the future developments of integrated reporting, these results suggest the need for a tailored approach, rather than a one size fits all.

At the core of democratic control, accountability is a pivotal point in public administration as it is essential for evaluating value for money and indispensable for gaining citizens’ trust. The information disclosed should be reliable and in compliance with clear rules. Consequently, the audit function is fundamental for guaranteeing trustworthiness to various stakeholders. The aim of this paper is to compare the auditing processes in 20 European countries through an exploration of the audit requirements of local governments (LG), investigating who carries out the audits, their frequency, the types of audits and the auditing standards adopted. Furthermore, we will try to relate the different audit models with each country’s administrative characteristics. The results provide interesting insights for scholars, auditors and standard setters, showing that harmonisation in auditing is far from being achieved.

Based on the market's reaction to large positive and negative changes in consensus estimates, we measure the expected stickiness of changes in earnings forecasts. Our results suggest that investors expect moderately positive changes in earnings expectations to be permanent. Downward and extreme changes in earnings forecasts have lower expected persistence. The value impact of innovations in earnings estimates depends on the market's expectations of changes, levels and visibility of earnings rather than historic earnings persistence. The value impact of changes in earnings forecasts increases with the measurement period, suggesting that innovations in consensus forecasts should be measured over longer periods. Changes in required rates of return do not appear to be driving our results.

The paper contributes to the recent debate on the net benefits of the growing complexity and detailed disclosure requirements of International Financial Reporting Standards (IFRS). I investigate the impact of a voluntary turn away from IFRS on analysts in a country specific setting, Switzerland, where departure from IFRS is made possible for listed firms. Using difference-in-difference analysis, the article studies analysts’ following and accuracy around the switch from IFRS to the Swiss domestic accounting standard (Swiss GAAP). Firms leaving the international standard experience lower analyst following and accuracy. However, further analysis provides evidence that such effects are principally driven by foreign analysts, and analysts without prior experience on Swiss GAAP. Overall, IFRS -despite its demanding requirements and complexity of information- delivers beneficial information to international analysts.

This paper examines the impact of firms’ dissemination of non-financial information through Facebook on corporate reputation. We use corporate social responsibility (CSR) disclosure to proxy for non-financial information. We investigate this relationship empirically in the German setting by using a corporate reputation index that tracks the general public’s perceptions of corporate reputation over time. Using firms’ discretionary use of Facebook to communicate CSR information, we find that firms posting single or multiple CSR information experience a decrease in corporate reputation. More specifically, this effect becomes larger with time. Additional analyses indicate that non-professional stakeholders perceive reputation as being lower if a firm increases the number of CSR postings suggesting a diluting effect if CSR communication is high (quantity effect). However, if we differentiate postings based on whether their content relates to an environment, social or economic activity of a firm, we find a positive effect on reputation for firms posting environmental information (quality effect). Also, only firms with an above-average amount of earned media attention, as well as “Likes”, “Comments”, and “Shares” experience a significant decrease in corporate reputation with an increase in the number of CSR posts. Overall, findings suggest that non-professional stakeholders perceive social and economic activities related to CSR as a greenwashing tool.

Literature suggests that individuals have endogenous preferences for accounting conservatism due to intrinsic loss aversion. However, no empirical evidence for this claim exists. This paper provides first experimental insights on individuals’ endogenous preferences for conservative compared to neutral accounting. Findings suggest that in a judgment context based on innate loss aversion, individuals value conservatism more highly than neutrality in accounting. We further investigate if individuals also show explicit preferences for conservative vs. neutral accounting by implementing a choice setting. Our results provide evidence that individuals do prefer conservative accounting when presented with both options. The study contributes to the ongoing discussion on accounting conservatism by establishing that a disregard for peoples’ endogenous preferences for conservatism associated with neutral accounting can have detrimental economic consequences, such as a lower willingness to invest.

This paper analyses the relationship between corporate governance and tax avoidance. This study aims to highlight the wide-ranging effects of institutional investors, which channel into corporate policy. This analysis uses a regression discontinuity design (RDD) in a two-stage instrumental variable (IV) model and takes advantage of the exogenous variation in the index membership around the index threshold. The sample comprises the firms in the German prime standard indexes. The DAX (MDAX) index consists of the largest 30 (next-largest 50) publicly listed firms by market capitalization in Germany. This paper argues that the differences in corporate governance result from the value-weighted composition of the market capitalization-based indexes. The findings show a significant discontinuity in the level of the corporate governance characteristics at the cutoff. The largest MDAX firms show stronger corporate governance characteristics compared to the smallest DAX firms. The analysis shows that strong corporate governance characteristics drive down the effective tax rate for the DAX companies. This paper contributes to existing research by establishing a causal relationship between corporate governance and taxes. This is the only paper measuring corporate governance directly in the index setting. Different from previous research, the largest MDAX firms do not show increasing tax rates upon inclusion in the DAX. Instead, lower tax rates are observed.

I examine whether the corrupt actions of some firms affect the propensity of their peers to engage in earnings management practices. Controlling for firm characteristics, industry fixed effects, and manipulation incentives and ability, results show that firms engage more in upward earnings manipulations during the years in which their corrupt rivals distort competition by bribing. In addition, the evidence indicates that these spill-overs are more pronounced, the higher the degree of severity of corruption, proxied by the unfair profits that corrupt firms earn through their bribery. The findings suggest firms exposed to rivals’ corruption experience relative performance evaluation pressures. When corrupt firms gain performance-enhancing favors, their non-corrupt peers face a competitive disadvantage and seek to (re)establish a comparative edge. This is pursued by engaging in larger income-increasing manipulations relative to firms not exposed to competitors’ corruption. The documented existence of spill-over effects of corporate misbehavior complements the recent evidence on contagion of a single type of firm financial misconduct and provides insights into how the financial reporting environment is affected by corruption. This may drive policy makers’ efforts when designing the instruments to curtail this phenomenon.

When given a choice, employees select incentive schemes that best fit them. Therefore, firms can design incentives to attract specifically employees with the desired skill level, risk preferences, and personality traits. While prior research provides evidence on the relationships between skill level and incentive selection as well as risk preferences and incentive selection, there is little evidence on the role of personality. Using survey data from 406 lower, middle, and higher-level employees, we investigate what incentive schemes individuals choose depending on their level of Core Self-Evaluation (CSE). We argue that high-CSE employees prefer and self-select into incentive schemes (1) which offer a performance-based pay component, (2) where the share of performance-based pay is larger relative to total compensation, (3) which rely stronger on financial performance measures, and (4) where firms provide stronger implicit promotion-based incentives. Our results support the first two notions while we find no support for the effects of financial performance measures and implicit incentives.

We investigate whether employee social media disclosures are informative about future earnings, and whether they are efficiently used by analysts and investors. We document that employee predictions of company performance, available on Glassdoor.com, are prevalent and incrementally informative about future earnings; the informativeness is increasing in the difficulty of forecasting earnings and the size of the employee base. Finally, information in employee social media disclosures is not fully incorporated in analyst forecasts and in stock prices of companies with low analyst coverage, resulting in predictable consensus forecast errors and predictable stock returns. Our results establish the role of employee social media disclosures as a source of new information in capital markets.

Corporate social responsibility (CSR) disclosure is of strategic importance, and thus must be considered by the board of directors. We overcome several methodological weaknesses of the prior studies, analyse a large multi-country sample, and control for CSR performance, in order to yield reliable results on the association between board characteristics and CSR disclosure. We find that four board characteristics are positively associated with CSR disclosure (board activity, optimal size, independence level, and independence policy), while two are negatively associated (CEO chair, and length of tenure). Second, we find that country culture is a significant determinant of CSR disclosure, particularly the cultural dimensions of individualism, masculinity, and a long term orientation (which favours savings over social spending). Third, we find culture impacts the association between CSR disclosure and board characteristics. For example, the presence of women on boards is only relevant for CSR disclosures in countries with specific cultural traits.

Prior research has analyzed accounting quality around the world only working on institutional differences mainly at country level. Little research has been devoted to top management cultural values (here defined as CFO’s country of origin), which has turned out to be able to generate unique results on firms’ outcomes. In this work, building a unique hand collected dataset based on 954 unique CFOs across Europe and 4,478 firm-year observations I investigate the effect of CFO country of origin on accounting quality in the European Union. My findings show first, as a validity test, that there is a CFO fixed effect on accounting quality also in a cross-country setting (i.e. outside the US). Then, I show that in the EU foreign CFOs are able to foster accounting quality relative to local peers. Moreover, working on economies clusters I find that CFOs working in insider economies, but born elsewhere (outside this area) are able to marginally improve accounting quality for the firm they work with. On the contrary, this does not apply if a CFO born in an insider economy works outside his area of birth. Finally, working on CFO turnover, I find that overall CFO changes have an effect on accruals quality level. Nonetheless, cross-sectional tests reveal that such changes are significant when CFO turnover happens from CFO born in a low (high) IP country to a CFO born in a high(low) IP country, where accounting quality improves(worsens).

Does the U.S. patent system transfer patent information to the financial market? This study uses variation in the local patent information availability to identify local changes in trading volume in reaction to the release of a patent. The variation comes from changes in the geographic location of U.S. Patent and Trademark Depository Libraries over time. I find strong evidence for a significant increase in the local trading volume of stocks after the release of a patent in counties that have access to patent information, after controlling for county, patent event, and firm characteristics.

We examine the role of corporate boards of directors in shaping disclosure tone. Boards of directors play an important governance role with respect to firm disclosures, leading us to expect them to influence financial reporting narratives. We investigate whether the tone of firms’ narrative annual report disclosures is associated with the human and social capital of its board of directors. Analyzing a large sample of SEC registrants from 2003 to 2014, we find that directors’ age is negatively associated with negative, positive, uncertain, and total disclosure tone. These results are consistent with older directors reporting cautiously. Meanwhile, board gender balance is associated with less rich, yet more optimistic tone. Education and financial expertise are positively associated with all four types of tone, indicative of richer narrative disclosures. Board turnover is positively associated with negative and total tone yet negatively associated with positive and uncertain tone, suggesting that new directors bring fresh disclosure styles. Our study helps decode the “black box” of disclosure tone, which Loughran & McDonald (2011) show has important economic implications.

Contracting practices reflect a response to the nature and severity of a firm’s agency problem. We expand from the traditional static theorization of the principal-agent model and employ an evolutionary framework to examine the dynamic nature of the agency problem and thus, executive compensation contracting as firms evolve over their life cycle. Specifically, we test and find significant differences in the level and mix of compensation across stages of firm development. Additionally, our results suggest differing weights on accounting and market measures of performance across the life of the firm, consistent with differences in the informativeness of each signal across life cycle stages. Using disclosed bonus contract performance metrics, we identify differences in the number and types of metrics used, as well as the weights on alternative performance measures, as the firm evolves. One implication of our results, important for researchers, suggests systematic biases in traditional pooled cross-sectional models of executive compensation, highlighting the need to understand the role of the dynamic agency problem in firm contracting decisions.

In a sustainability assurance context, the aim of this paper is to examine the impact on the cost of capital of some attributes of assurance providers. Specifically, it examines the impact of the type of assurer, industry specialization and experience on the cost of capital by identifying those attributes of practitioners that increase investors’ confidence in assurance reports: independence and competence. For a sample of international listed companies from the period 2007–2014, our evidence shows a lower cost of capital when assurers’ independence and competence are greater, that is, when the assurers are from accounting firms and industry specialists and have greater experience in the assurance market but not more than six years. Moreover, we evidence the complementary effect of accountancy firms on the relationship between industry specialization and experience and on the cost of capital. In addition, we report how these attributes allow firms to enjoy a lower cost of capital than the mean of their country, providing them with a financial advantage.

This paper studies differential employee responses to the public disclosure of individual performance information throughout an organization. We argue that, to the extent that employees care about the perception that colleagues have of their productivity, public disclosure will increase motivation. Moreover, the effect should be stronger for employees whose colleagues expect them to have higher performance. We obtained data from a bank that transitioned from private to public disclosure of employee rankings, and find significant heterogeneity in the employee responses to public disclosure, consistent with our hypothesis. Employees that had performed poorly in the past increase their output more than good performers in response. Likewise, more highly educated employees also react more strongly to the change. However, contrary to the literature that finds gender differences in motivation under relative performance compensation systems, we do not find systematic gender differences in the response to public disclosure. Overall, the results suggest that public disclosure is an important dimension to consider when designing a compensation system.

In firms, reporting belongs to the key activities of management accountants. Usually, a manager is responsible for a decision and informed about the decision’s success by a report. We investigate how reporting (un)favorable news to the manager affect how managers perceive the reporting skills of the management accountant. Many other situations exists in the business world where decision-makers similarly evaluate others who are not otherwise involved in the decision at hand than reporting the decision’s outcome. Using a laboratory experiment, we predict and find that the favorability of the news reported bias managers’ subjective performance evaluation of the management accountant. This biased is even magnified if the manager’s compensation depends on the reported results. We also find evidence that the bias is context-dependent, that is the manager’s evaluation of reporting-related skills is biased but not the assessment of reporting-unrelated skills.

We examine the association between board independence and restrictiveness of covenants in U.S. private debt contracts around the global financial crisis (GFC). We show that board independence is associated with less restrictive covenants suggesting lenders willingness to delegate some monitoring of firms with independent boards. The more nuanced analysis between the pre-GFC, GFC and post GFC periods shows mixed results. We also suggest that during the GFC and aftermath, lenders place more emphasis on ex-ante screening relative to ex post monitoring. We contribute to the literature by providing evidence on covenant use and lenders choices in periods of credit rationing.

This article presents the results of an exploratory study to identify behavioral styles of individuals performing functions in accounting offices. The M.A.R.E Diagnostic was used to analyze motivational orientations and behavioral competences and profiles of these professionals through a quantitative research applied to 66 owners of accounting offices affiliated to SESCON-SP, Brazil. A comparative analysis with a national sample and with a sample of students of MBA´s programs in finance and accounting collected in previous studies was also conducted. The results showed that these professionals are significantly more focused on the Mediating and Entrepreneuring motivational orientations. Behaviorally, they are predominantly, Motivators, Coordinators, Mentors and Achievers, indicating that the behavioral development of accounting office’s owners is associated with their efforts to focus on people management, implementation of procedures concerned with the continuity of the organization, as well as in improving productivity patterns and organization standards and mainly on becoming aware of and implementing much needed innovation processes.

Time estimates are an important part of many costing systems. As they may be subject to estimation error and hence result in measurement error in product and service costs, it is important to understand the sources of this estimation error. We performed a computer-based lab experiment to test the impact of task interruption and social interaction during the estimation process on the inaccuracy of time estimates. As predicted, we find that the negative impact of task interruption on time estimation accuracy is mitigated when participants can socially interact with others before making a final time estimation alone. Hence, managers may offset the detrimental effect of task interruption by encouraging their employees to socially interact during the time estimation process.

In this paper, we intend to answer the following question: what role can management tools play in organizations that are faced with institutional complexity, i.e in organizations confronted with multiple and potentially contradictory logics which shape organizational process. To that end, we have based our study on institutional logics as well as the theoretical framework proposed by Boltanski and Thévenot (1991, 2006). We have also carried out a qualitative case study of an organization which provides a textbook example of institutional complexity, the French Scènes Nationales, which are characterized by artistic, managerial and political logics. We show that management tools can help to bring about a compromise between the various logics to make them complementary or hybridized rather than competing.

This paper reports that corporate social responsibility (CSR) expenditures in firms with CEOs who are more centrally located in their social networks are negatively associated with firm value. However, this negative association is mitigated in firms with better governance. Furthermore, we find that CSR expenditures by more centrally positioned CEOs are positively associated with future increases in CEO compensation and future improvement in a CEO’s network position. Additional tests show that the negative association between CSR expenditures by more central CEOs and firm value is lower during periods of positive exogenous shocks to the societal demand for CSR (disasters and financial crises), and in counties with higher social capital. Overall, our findings suggest that more central CEOs use CSR to entrench themselves and gain private benefits rather than to access relevant information.

This paper examines the different factors that impact internal auditors’ compensation. In order to analyse the effects of internal audit function characteristics, stakeholder relationships, and firm characteristics on the chief audit executive’s compensation we run an ordered logistic regression using survey data from 298 chief audit executives. Our study finds positive significant effects for internal audit function competence and independence on chief audit executive compensation. Furthermore, we find positive significant effects for the internal audit function’s subordination to the audit committee as well as for size and complexity. Our results contribute to the existing literature by providing empirical evidence regarding determinants of internal auditor compensation.

This study undertakes a global analysis of meta-data corresponding to sustainability reports generated by various organizational types including for profit and non-profit, listed and non-listed in addition to small and large firms to understand those factors reasonably expected to influence firm decisions to externally assure the reports and the contingent firm choice of assurance provider. Using a sample of 4,504 sustainability reports generated in 2015 by organizations from 31 countries, the research applies a sequential binomial logistical regression analysis to identify the country, firm and report level factors corresponding with the firm decisions to externally assure the reports and the choice of external assurance provider. We find that the Environmental, Social and Governance (hereafter ESG) Report, organizational and country level factors reasonably expected to influence firm choice to externally assure ESG Reports and the contingent firm choice of assurance provider. This study contributes to the extant academic literature relating to the firm choice to externally assure ESG Report and the contingent choice of external assurance provider, which remains inconclusive to date.

This study seeks to understand how accounting was used in the Royal Navy in the eighteenth century to control the use of alcohol on board ships. Regulations for provisioning of beer (and other alcohol) are used to investigate the role of accounting as ‘government’ in the Navy. Accounting regulations were introduced to provide a means of cost control and governance of provisions for the well-being of the seafarers. Beer was initially believed to protect against scurvy, the allowance of beer continued as a means of controlling the sailors and for keeping them happy. The evaluation is informed by the later work of Foucault.

This paper discusses the need to measure academic standards and promote teaching and learning of the skill of professional judgement in accounting, through practise and assessment. We report on a pilot study using a survey instrument developed to allow pre and post measurement of the ability of students at a large Australian university to exercise judgement skills. We investigate methods to scaffold the learning of judgement skills to a professional level across undergraduate business and commerce curricula. We find that appropriate learning strategies, interventions and assessment must be in place in courses such as auditing to promote skills development in students. The paper empowers academics to enable students to make self-managed decisions to improve and document their own standard of learning of the skill of judgement.

We examine the control implications of recognition versus disclosure and argue that it is easier to write more complete contracts when amounts are recognized in the financial statements, as opposed to disclosed in the footnotes. We use this framework to predict that recognition of otherwise disclosed amounts will not only increase covenant use, but also decrease covenant tightness and the cost of debt capital. We find evidence consistent with this prediction around the adoption of SFAS 158. More importantly, the results are consistent with the claim that accounting standards can affect the efficiency of debt contracts, and that lenders trade off between contracting mechanisms based on whether accounting information is recognized or disclosed.

This paper examines the events that follow from a critical audit matter (now called a Key Audit Matter, KAM) to determine its economic consequences and whether these events constitute a response to prior earnings management or other explanations such as a “big bath’ by an incoming CEO or a corporate response to a whistle blowing event related to the KAM. A single-firm event study with key-competitors comparison assesses the economic consequences of twelve events (including write downs and fines) and an earnings management study assesses the motivation for the events. The methodology combines the insight of a case study analysis with the statistical benchmarking of a larger-sample study. The results show the events had a significant economic implication while the earnings management analysis places the company’s abnormal accruals in lower five percent of the companies making up the FTSE350 and the lowest seven percent of the industry sector. The study provides a single case analysis of a now compulsory audit-judgment disclosure. The wealth effect of the incoming CEO’s decisions on the investing public exceeded £1.27 billion plus significant investigatory costs and subsequent fines to the company.

This study investigates independent non-executive directors’ compensation from an agency theory perspective which incorporates country-level institutional characteristics. Using a sample of 5,585 independent non-executive directors serving on 805 boards of non-financial listed firms in 23 countries, we find that country-level, firm as well as director-specific characteristics explain INED compensation amount, while compensation design is fundamentally influenced by isomorphism at the country-level.

The objective of this paper is to analyse position, strategy and effectiveness in the IASB-FASB’s lease standard-setting process, and in particular analysing Big Four audit firms’ comment letters. The study is mainly based on last re-exposure draft of 2013 and on final standards published in 2016. The sample contains 655 comment letters collected from IASB and FASB website in the public consultant period. We conduct a content analysis to find evidence about position, strategy and effectiveness. Additionally, we focus on Big Four audit firms’ comments letters to provide a comprehensive analysis considering the general approach, the definition of a lease, the reflection of the leases expenses on the lessee’s income statement, lessor accounting and lease terms and variable payments, some of the critical matters of the lease proposal.

Integrated Reporting (IR) represents a recent and innovative initiative to connect in one company report a firm’s financial and non-financial performance in a clear and concise manner. This emergent approach is a relevant shift from existing reporting practices, which generally involve the production of financial statements in accordance with accounting standards and a separate, mostly voluntary, stand-alone sustainability report. We examine the alleged benefits associated with the adoption of IR in the context of South Africa where it is mandatory since March 2010. We specifically focus on the textual attributes of IR that capture both the “amount” (length) and the “style” of information (readability and tone). Our results suggest that IR readability and conciseness are associated with several market benefits for companies, in terms of firm value, stock liquidity, analysts’ forecast dispersion, as well as with ESG (environmental, social and governance) effects. We additionally explore the role of external assurance on IR as a credibility-enhancing mechanism for this form of reporting. In so doing, we shed light on the intended value-enhancing ability of IR for different types of users and audiences. Furthermore, we provide evidence that IR assurance moderates the negative associations among low quality textual attributes and the economic consequences investigated and that such results hold true considering both the presence of assurance and its quality.

This paper studies the link between career concerns and narrative disclosure characteristics. While prior theoretical and empirical literature has focused on the withholding of bad news, I investigate whether more career-concerned managers strategically use the language attributes of tone, complexity, self-serving attribution, and financial sophistication to favorably influence the market’s assessment of their ability. To identify career concerns as a driver of disclosure characteristics, I use tenure as well as exploit exogenous variation in CEO and CFO remaining tenure on the board of directors provided by classified board structures. To attribute disclosures directly to individual managers, I analyze their disclosure behavior in the context of earnings-related conference calls of U.S. firms. The results indicate that career concerns affect executives’ disclosure characteristics, indicating that managers strategically exploit language in their outside communication. This study contributes to the disclosure literature by shedding light on the link between career concerns and manager-specific characteristics in narrative disclosures.

We study the links between conditional conservatism and voluntary disclosure of management private information. We argue that conditional conservatism acts as a mechanism that lends credibility to voluntary disclosure by providing a 'hard' reporting benchmark that allows outsiders to better evaluate the truthfulness of management forecasts. Using a large sample of US firms we show that more conditionally conservative firms issue more good news forecasts. We also show that good news forecasts are associated with greater market reactions in conditionally conservative firms, signaling greater credibility of disclosure.

In an experiment with professional analysts, we study their reliance on CEO personality information when producing financial forecasts. Drawing on social cognition research, we suggest analysts apply a stereotyping heuristic believing that extraverted CEOs are more successful. The between-subjects results with CEO extraversion as treatment variable confirm that analysts issue more favorable forecasts (earnings per share, long-term earnings growth, and target price) for firms led by extraverted CEOs. Increased forecast uncertainty leads to even stronger stereotyping. Additionally, personality similarity between analysts and CEOs has a large effect on financial forecasts. Analysts issue more positive forecasts for CEOs similar to themselves.

This paper investigates antecedents of product unit cost accuracy and quantifies their effects with respect over- and undercosting from a portfolio perspective. It complements current literature on cost system design, which has mainly focused on the overall accuracy of cost systems. We develop a model which explicitly models production technology and conduct numerical experiments to identify what drives product cost accuracy and how the patterns of product cost estimation errors are influenced by these drivers. We show that individual products in sophisticated cost systems like Activity Based Costing (ABC) can be both over- and undercosted and that product cost biases are best described as a tendency, while traditional volume-based system produce cost estimates with a low variance. We quantify the effects of a number of variables on product unit cost accuracy and identify a general tendency of ABC systems to undercost mass-products while they tend to overcost complex products in small volumes. Finally, we provide insights how cost system refinements work from a portfolio perspective and document that strongly overcosted products benefit much more from refinements then strongly undercosted products.

Chief executive officers (CEOs) are arguably the most important individuals in a firm and when they need to be replaced, the decision to pick a successor can have long-lasting implications. Understandably, the succession literature is a vast field, yet most studies are plagued by endogeneity issues, as any planned succession is a choice by the firm and thus subject to self-selection. We exploit the exogenous event of a sudden CEO death and employ a differences-in-differences method to approach more causal inferences about how the CEO succession impacts firm performance. Our results show that effects are strongest in the medium run (up to ten years) where we find a positive effect on accounting performance and Tobin's Q which is intensified by large cash holdings and attenuated by high levels of entrenchment.

This paper aims to take a further step in the examination of the influence of internal factors over environmental information disclosed by companies. This study seeks to examine the influence of managers’ personal values over the environmental disclosure quality. The empirical analysis explores, using structural equation modelling, whether these values determine environmental disclosure quality directly, or whether this influence is mediated by factors related with the organisational structure. In this sense, the main contribution of this work is to show that the relationship between managers’ personal values and Environmental Disclosure Quality is not direct, but is fully mediated by the organisational structure.

The credit union sector has undergone considerable growth in recent years, to the point of becoming a significant part of the overall financial system. However, given the relative low sophistication of credit union operations and of their depositor/member base, little attention has been paid to issues of financial transparency and, more specifically, to the use of accounting (earnings) discretion by credit unions. In this paper we provide the first comprehensive evidence of the use of earnings management strategies by credit unions through the use of discretionary charges to the loan loss provision. We show that credit unions carry out strategies of income smoothing, big baths and loss avoidance similar to those of other financial institutions. We then go one step further and show how this earnings discretion may be, at least partly, explained by their particular maximization problem (saver/borrower orientation), analyzing the effects of earnings discretion on the supply of loans by credit unions. We also examine a local exogenous shock and show how those credit unions which managed (increased) their earnings through discretion were able to achieve significantly higher rates of growth of their loan portfolio without losing members or deposits.

The paper examines the recent ‘revival’ of zero-based budgeting (ZBB). This particular approach to budgeting had initially emerged in the 1970s and has only recently reappeared on a larger scale, as evidenced by a surge in corporate and media attention since 2014. Our paper analyzes the origins behind this revival. By means of a qualitative analysis of media articles, we first trace the re-emergence of the concept and how it has been framed as a solution to corporate problems. We thereby identify the particular role of an activist shareholder, 3G partners, in bringing ZBB to the attention of corporate executives. We then use archival data to examine the firm characteristics that make it more likely that a firm has adopted, or is considering adoption of, zero-based budgeting. We find evidence that firms in certain industries and with cost inefficiencies are more likely to adopt the technique. Finally, we examine the economic outcomes of adoption. We find some evidence suggesting that adoption reduces cost inefficiencies. Overall, our paper highlights how shareholder activism can drive the adoption of a management accounting technique.

Corporate social responsibility (CSR) performance is a multidimensional, “umbrella” construct, that has generated concerns about construct validity and reliability of empirical proxies of CSR performance (CSRP), attracting the “validity police”. Although the breadth and depth of CSRP measurement continues to increase, its links to an underlying, agreed-upon theory remains in doubt. Meanwhile, a market for quantitative measurement of CSRP has grown dramatically. The purpose of our study is to review the CSRP constructs and proxies employed in studies published in a select set of journals and working paper series, and to determine how evidence may be influenced by the selection of CSRP proxies. We situate our analysis within the academic debate on the calibration of construct and proxy convergence and precision, which provides a basis for evaluating the empirical durability of CSRP constructs across proxy specifications. Using a combination of statistical techniques and interviews with professionals involved in the CSR ratings industry, our analyses show the potential for empirical results to be significantly sensitive to proxy selection and provide qualitative evidence that helps explain the need for more precise and thorough construct and proxy development. This research is critically important because accounting literature builds on significant results generated by different proxies for CSRP.

The objective of this paper is to investigate factors that determine the size of errors in energy costing systems. Many companies, especially non-energy intensive ones, use imprecise methods for measuring and allocating energy costs. As a result, their energy cost information is likely to be inaccurate and they lack the information necessary for energy management. However, getting more accurate energy cost information comes at a cost. It requires investment in sub-metering and more advanced IT systems for capturing and managing data, as well as expenses for staff analyzing the data and preparing reports. A cost-benefit tradeoff is required. The main goal of this paper is to better understand which factors determine the accuracy of energy cost information. To model the influences of these energy specific factors on accuracy we use numerical simulations. Specifically, we model simplifications that occur as a result of interdependencies between activity cost pools and cause errors in energy costing systems. The benefits of investing in more refined energy cost information depend on how accurate a company’s current energy cost information already is. Therefore it is useful to know under which conditions even imprecise methods already provide relatively accurate information on energy costs, and under which other conditions more refined (and more expensive) methods actually provide significantly more accurate information.

In this explorative study, I investigate semantic structures of CSR and financial reports. I study how the meaning of environmental values is translated in the language of accounting and CSR reports. The study is conducted using a case company’s CSR and annual financial reports for 2009-2012. To analyse semantic structures, contextual and referential meanings of environmental values I use Tropes software. Semantic strictures analysis reveals that CSR reports uses intensity mechanism and leave space for interpretation and reflection on the feelings of their composers. Semantic analysis helps us understand the translation of environmental values’ meaning done by the reports preparers. Financial reports create the notion of impartiality and indifference, while CSR reports favor inclusive pronouns to emphasize participation and involvement. I find that environmental values have different referential meaning in two types of discourse. In CSR there is more connotation towards action and proactive thinking while in financial reporting there is connection to risk and to quantification. These findings add to the discussion of the potential bridging CSR and accounting functions, and consequently their discourses.

This paper compares the Percentage-of-Completion Method (PCM) with the Completed-Contract Method (CCM) of revenue recognition in IT companies. As intangible items such as customized system products become increasingly important for business clients, there is ongoing debate concerning the superiority of PCM revenue recognition. From a managerial perspective, the application of PCM to long-term contracts indicates effective internal control that meets PCM criteria while limiting management’s accounting discretion. On the other hand, from an agency theory perspective, PCM may increase agency costs due to revenue management (e.g. top-line smoothing) involving manipulation of completion percentages for each fiscal term. This paper examines discretionary changes in gross accounts receivable of listed IT companies in Japanese markets and finds a deterrent effect of PCM on revenue management. The paper contributes to accounting scholarship and practice by finding empirical support for the use of PCM for revenue recognition in the IT industry.

The assurance of non-financial information is on the top list of the agenda of professional bodies since the enforcement of the European Directive that from 2017 onwards requires an estimated 6,000 large EU companies to prepare a Statement of Non-Financial Information that should be audited. By exploiting the unique features of a setting in which the disclosure of non-financial information and the positive assurance on the disclosure from an audit firm became mandatory, we investigate the relationship between the quality of disclosures and both audit firm and audit partner characteristics. Our evidence from this quasi-natural experiment suggest that audit partner expertise is one of the most important component of audit quality for narrative information and audit partner characteristics are important elements in explaining disclosure behavior and cross-sectional variation in disclosure quality after the enforcement of a regulation. Along this way, we extend the recent evidence on the audit partner effects in the assurance of numbers on the auditing of non-financial narrative information.

Populism is a term that dominates the political agenda. Citizens, politicians and media talk about populism and the disastrous consequences that it might have. This study contributes to the interdisciplinary accounting research by connecting the phenomenon of populism with economic rationalism. It will examine the parliamentary debate for the establishment of the Greek National Health System through the lens of political accountability, in order to evaluate how populism can have animpact on the proper development of accounting. In particular, it examined how populist politicians understand and use accounting concepts. The analysis of the discourses illustrated that populism constituted a master political narrative, it highly influenced political accountability as it was used in a context of excessive polarization and, it defined the ways in which politicians made themselves accountable to the citizens. Thus, accounting was used in order to enhance polarization and economic rationalism was undermined. Populism created a mentality that more and more resources have to be spent, without enhancing the necessity of providing a clear plan for the proper use of these resources. Accounting concepts such as planning and savings were completely ignored. In this way a negative relationship between populism and public sector efficiency has been identified.

This study examines the extent to which managerial talent plays a role in shaping the clarity of regulated financial disclosures. Consistent with the notion that more talented managers are likely to commit to more transparent disclosure policies, we find that more able management teams are associated with the production of more readable regulatory filings. To mitigate potential concerns that our results are driven by firm characteristics or current period performance, we show that our results are robust to the inclusion of firm fixed effects and hold across both high and low partitions of current firm performance. We also take advantage of a set of exogenous shock-based analyses (regulatory and death) that provide better identification that our results are driven by underlying differences in managerial talent. Finally, we isolate cross-sectional variation in annual report readability attributable to differences in underlying managerial talent and show that this component explains a significant amount of variation in post 10-K filing stock return volatility. In sum, our evidence suggests that managerial talent impacts a firm’s financial filing readability and has meaningful stock market implications.

We experimentally investigate nonprofessional investor reactions to misstatements for companies that issue corporate social responsibility (CSR) reports. We rely upon Stereotype Content Theory and Betrayal Aversion Theory to predict that investor reactions to misstatements will differ based on the level of CSR performance (average vs. high) and misstatement type (unintentional vs intentional). We expect that high-performance CSR companies are more likely to be forgiven for unintentional misstatements but are more likely to generate feelings of betrayal in investors for intentional misstatements. We find that while investors experience stronger feelings of betrayal in cases of intentional misstatements than unintentional misstatements, CSR performance shields a company from negative investor reactions to both types of misstatements: intentional and unintentional. We also report that this effect is due to investors having a higher assessment of warmth for high-performing CSR companies, and this sentiment fully mediates the relationship between CSR performance and investor reactions. Rather than feeling more betrayed following an intentional misstatement, we find that investors are more willing to forgive a high-performing CSR company than an average-performing CSR company in both conditions.

We examine the relationship between CEO tenure and audit fees. After controlling for client and auditor attributes in the analyses, we find that audit fees are higher in the initial three years of CEOs’ service, suggesting that CEOs in their early career is likely to show high risk-taking behavior and manage earnings that increases the probability of financial misreporting. Auditors incorporate this risk in their audit pricing decisions resulting in higher audit fees. We also find that audit fees are higher in the final year of CEOs’ service, supporting the argument for departing CEOs’ horizon problem that CEOs in their final year of their service are more likely to manage earnings, and auditors consider this action as increasing reporting risk - in their audit pricing decisions, which leads to higher audit fees. However, we do not find any effect of CFO power on audit fees in these two time-periods, nor do we find that there is any difference in audit fees between the firms exhibiting corporate social responsibility and the firms that are not engaged in such socially responsible behavior. Finally, we find evidence that the firms with more effective audit committees pay relatively lower audit fees in initial years of CEOs’ service indicating that effective audit committees reduce financial reporting and audit risk during that time-period.The main results hold when the effects of several CEO characteristics, client bargaining power are included in the analyses.

This study examines the determinants of defined benefit (DB) pension plan provision in the United Kingdom (UK). Using hand-collected data for a sample of FTSE 100 firms sponsoring DB plans and a duration hazard research design, which models the cause-specific hazards of closure, we find that firms where human capital is important as well as firms where the CEO and CFO participate in the main DB pension plan as the rest of the employees are more likely to retain their pension plans, even though the results are stronger for CEOs. On the contrary, DB plans are less likely to be retained by firms that voluntarily adopted FRS 17. Overall, these results suggest that DB plans are an important retention and motivational tool consistent with the labor economics literature. In addition, CEO incentives in particular play an important role in DB plan retention decisions. Moreover, the results provide some evidence that the introduction of new accounting standards may be used to legitimize corporate decisions.

Based on a hand-collection of annual reports of the constituents of the STOXX Europe 600 covering a period of 8 years, we investigate the value relevance of corporate social responsibility (CSR) information. Using textual analysis, we construct topic-specific disclosure measures that examine the prevalence of the six CSR topics identified by the EU directive on non-financial disclosure, namely environment, social and employee matters, respect for human rights, anti-corruption and bribery matters, in firms’ annual reports. Through a traditional value relevance study, we first, identify which CSR topics provide information content for prices. In a next step, we examine whether the institutional environment impacts the incremental value relevance of the topic-specific disclosure measures. Except for ecology, our results reveal, that for social and employees matters, human rights and corruption the strength of the institutional environment drives the incremental value relevance of the CSR topic.

This paper aims to investigate the usefulness of disclosure provided in the Management Report by Egyptian firms from the viewpoint of institutional investors and financial analysts for their investment decisions. A survey was carried out formulating questions that cover both mandatory and voluntary management disclosure. The sample includes all Egyptian banks and insurance companies (as institutional investors), and the financial analysts who work at stockbrokerage firms. The final sample consists of thirty-six respondents working in institutional investors firms and seventy-eight respondents working as financial analysts. Our main findings reveal that our sample finds some voluntary information more useful than mandatory information, which highlights a gap between regulation requirements and users’ information needs. Moreover, the respondents consider information related to ownership structure more important than information on risks and forward-looking performance. Our findings could be useful to regulators for revising rules that ensure Management Report of high-quality information. In addition, our research could be helpful to managers because it provides a clear view of important voluntary disclosure items that should be include in the Management Report. Finally, this study provides evidence about the institutional investors and financial analysts’ perception on usefulness of information for their decision making.

This paper examines economic consequences associated with the emerging practice of hiring financial analysts as investor relations officers (IRO). We posit that analysts-turned-IROs have a competitive advantage in communicating with investors, thereby lowering the effort expended by the investment community to process corporate disclosures. Using a unique manually-collected dataset on the employment history of IROs (compiled from LinkedIn, Capital IQ, RelationshipScience.com, and appointment press releases) and a difference-in-differences research design with matched control sample, we first show that 8-K disclosure readability improves after firms hire former analysts as IROs through reductions in length, complexity, and the proportion of uncertain financial terms. We also find some evidence that these companies are more likely to host analyst/investor days. Perhaps most importantly, we find increases in analyst following, institutional investors, and stock liquidity after hiring a former analyst as IRO. Overall, our findings suggest that firms benefit from hiring Wall Street analysts as IROs.

The relationship between trade and bank credit is one of the frequent research topics in both the banking and finance literature. Nevertheless, there is still contradictory and limited empirical evidence on how general economic condition changes affect this relationship and if they have a differential impact on different classes of firms. This paper builds on Love et al. (2007) study of crisis effect on trade credit vs. bank loan relationship, and on Huang et al. (2011) analysis of the counter-cyclical substitution effect. I employ robust fixed effects panel regression model with time varying coefficients on the full population of Slovenian non-financial companies (including micro companies) for the 2006-2016 period. Results confirm the substitution effect between trade credit and bank loan for large, medium-sized and small companies, where the effect’s strength changes with firms’ sizes and economic conditions. However, for micro firms this relationship evolves from substitution to complementarity as long-term credit crunch evolves into liquidity crisis. This indicates tighter conditions to get a bank loan lead to tighter conditions to grant trade credit to micro firms, i.e. firms with low collateral.

A deliberate location of information within the corporate disclosure can be used for misleading purposes. It could result in capital misallocation. This study analyses if managers provide systematically information in different locations of the president’s letters with impression management purposes. The paper examines the variability intra-document in syntactical complexity and attributions between companies in two radically market-based different periods, determined by the international financial crisis. The setting is provided by a civil-law country, Spain. The results show that, in line with impression management, managers are more prone to use variability in attributions, but not in syntactical complexity. Financial Services and Real Estate is the sector with the highest evidence of impression management. This latter finding can be related with the key role that this sector played in the detonation of the financial and economic crisis.

This paper analyses national expenditure efficiency effects of e-government; human capital or population’s level of education; state of development; democracy and corruption. On a second step, we reproduce the same model by focusing on the main government functions -education; health care; and social protection-. Our results show that e-government development; as well as human capital promote national expenditure efficiency. On the other hand, corruption promotes public inefficiency.

We examine the long-term transparency effects of past risk disclosures following an exogenous shock to macroeconomic risk. In 2015 the Swiss National Bank (SNB) abruptly announced it would discontinue the longstanding minimum euro-Swiss franc exchange rate. We show that firms with more transparent disclosures regarding their foreign exchange risk exposure ex ante exhibit significantly lower information asymmetry ex post. The gap in bid-ask spreads appears within 30 minutes of the SNB announcement and persists for two weeks. We confirm the informational role of past risk disclosures with a field survey of three groups of market participants: (1) Sell-side analysts emphasize existing disclosures to evaluate the translational and transactional effects of the currency shock. (2) Lending banks’ credit officers rely on past disclosures as the primary resource available for smaller unlisted firms in the immediate aftermath of the shock. (3) Investor-relations managers use existing financial filings as a key internal information source when communicating with external stakeholders. In sum, the results imply that risk disclosures continue to attenuate information asymmetry and the costs of adverse selection well beyond their initial publication date.

This study investigates the effectiveness regulatory disclosure, specifically the power to name and shame persistently offending financial service providers (FSPs) in its annual reports awarded to the Irish Financial Services Ombudsman (FSO) in 2013. The existing literature on ombudsmen focuses mainly on the global spread of the ombudsman concept since the 1960s but is largely silent on the effectiveness of financial ombudsmen. As the first country to award its financial ombudsman name and shame powers, Ireland represents a novel setting in which to test the impact of regulatory disclosure by an FSO on the behaviour of FSPs. Our results show that the number of complaints lodged against FSPs dropped precipitously in its immediate aftermath (in a comparison of means test p < 0.01) and, following a one-year lag, so did the percentage of complaints lodge that proceeded to a full investigation and finding (in a comparison of means test p = 0.07). This study argues that despite international scepticism on the efficacy of name and shame strategies, the experience of the Irish FSO suggests that regulatory disclosure had considerable impact in shaping the preferences of FSPs and improving the effectiveness of the FSO.

The European Accounting Review (EAR) is an international journal of the European Accounting Association (EAA). EAR publishes papers related to business, management and accounting. The first issue was published in May 1992, thus celebrating its 25th anniversary in 2017. Inspired by this event, this paper shows a lifetime overview of the journal by using bibliometric indicators. The aim of this paper is to provide a complete overview of the academic structure of the journal. This analysis includes key factors such as the most cited articles, leading authors, originating institutions and countries, plus an insight of the publication and citation structure. In order to conduct that analysis, the paper uses the Scopus database for all the journals’ information available in that database (1992-1995 and 2007-2016). We collected the non-available information for the remaining years (1996-2006) from the ‘view secondary documents’ of Scopus database and the EAR webpage. Additionally, the paper uses the VOS viewer software in order to create a graphic map of the bibliometric results. This graphical analysis uses bibliographic coupling and co-citation. By using this analysis we get a deeper understanding of how EAR is linked to other journals and researchers across the globe. Results indicate that EAR is a journal which must be taken into account in the area of business, management and accounting by a wide range of authors, institutions and countries from all over the World.

As a consequence of the digital transformation, taxpayers are more and more confronted with already prefilled tax returns instead of completing blank forms. However, there is almost no evidence on how prefilled tax returns impact compliance behavior. In a controlled experiment with 213 participants, we study this research question. We show that prefilled tax returns have a meaningful influence on compliance behavior and consequently on tax revenues. If tax returns are correctly prefilled, we find that subjects are significantly more tax compliant than with blank tax returns. However, in cases of an incorrect prefilling, our results suggest that prefilling can have reverse and asymmetric effects. If prefilled income is lower than actual income, individuals tend to reduce tax compliance compared to correctly prefilled tax returns. In contrast, if prefilled income is higher than actually income, no further influence on compliance behavior is observed.

This paper examines the association between college-firm distance (i.e., the geographical location of the college that a CEO attended relative to the location of the firm’s headquarters) and earnings management. Past research shows that a person’s college experience is often important in shaping their identity and social network, and they are likely to develop good local social connections and knowledge in the region during their college years. We expect that these local social connections decrease information asymmetry and thus increase the scrutiny from local stakeholders, which in turn increase the costs of conducting earnings management. In addition, their local networks and knowledge may allow CEOs to make more accurate earnings forecasts, which decrease their incentive to manage earnings to achieve their own forecasts. As college-firm distance increases, the CEO’s social connection and their local knowledge advantages decrease, and the CEO’s incentive to manage earnings increases. Consistent with this view, we find that college-firm distance is positively associated with accruals earnings management. Further analyses show that the effect is mainly driven by incomeincreasing abnormal accruals. In addition, we also find that this relationship is only statistically significant for big firms, consistent with the view that CEOs of big firms who attended colleges farther away from their firm’s headquarters tend to be more overconfident about their performance, leading to them having to manage earnings to meet or beat their overoptimistic earnings forecasts. Overall, this paper shows that local connections and knowledge that CEOs acquired during their college time reduces their incentives to conduct earnings management.

When conducting an audit for a firm with a conclusive poor (healthy) financial condition, the result leads to an indubitable going concern (unqualified) opinion. However, when financial distress symptoms are not that explicitly interpreted by the accounting data, the audit opinion could be influenced by diverse factors. The aim of this paper is to analyze whether the prior year audit opinion can sway the next report choice in doubtful financial conditions in contrast with unequivocal negative conditions (experiment 1). Additionally, we test if auditor experience tempers this effect (experiment 2). In both between-subjects experiments, the prior year opinion is manipulated in four levels. In the first level, the prior report is not provided. In the other three levels, participants receive different prior opinions: unqualified, unqualified with a matter section, or going concern. Results show that unqualified and going concern prior opinions persuade auditors when suggesting the next report choice more than other situations (unavailability of prior report or a matter paragraph issued). In addition, our evidence suggests that auditor experience mitigates the influence of prior opinions on auditors’ judgments.

Purpose: This paper explores the use of environmental disclosure by Environmental Non-Governmental Organisations) and in what way the information is used. Previous studies have explored the extent to which this information is used and the relevancy to certain groups but the question remains vacant as to how exactly the information is used. It commences by discussing the gap in the environmental reporting literature in particular the absence of understanding around the use. Relevant theory is covered including stewardship theory which traditionally is adopted within a financial reporting context but provides invaluable insight to the area. Design/methodology/approach: The data consists of 15 semi-structured interviews with senior representatives of major UK NGOs. The data provides insight as to if the reports are used and if so how in particular the information is used. Analysis is adopted from O’Dwyers earlier work of thematic coding through an intensive reflection process. Findings: A use of these reports is clear from the findings as well as a demand for the information. Many of the groups provided explanation of using such information for the purposes of stewardship, while others a resource decision making use (typically expected of shareholders). In addition, there were other ways in which these groups highlighted the use of this information; through self-stewardship and a way in which to instigate relationships with organisations. These responses indicate environmental reports as a way of providing somewhat key information for this user group. Originality: This paper is an extension of somewhat limited work exploring these theories in the area of demand for environmental reporting. Stewardship theory has faced increased attention particular in relation to financial reporting but is yet to receive significant focus within other forms of accountability and communication. Additionally, the research provides new insight to one particular group’s use of such information and adds to the theory further. Finally, it is one of the first steps to recognise the similarities between the demands of this group and other stakeholders with regards to environmental reporting.

This paper investigates the potential relationship between contractual rigidity and the timeliness of accounting information in a two-period principal-agent setting. Specifically, we first analytically and then experimentally examine the role of the timeliness of accounting information in different contractual settings, that is, flexible and stationary contracts. Under the flexible contract regime, a principal can set different fixed wages and incentive weights in the first and second periods, respectively. In contrast, under the stationary contract regime, a principal must set the same fixed wages and incentive weights over the two periods. We compare the overall performance in high- and low-timeliness cases and find the following three main results. First, we find that the timeliness of accounting information plays a key role under the stationary contract regime. Second, we show that the timeliness of accounting information does not matter under the flexible contract regime because a principal can accommodate the timeliness of accounting information by adjusting the parameters of a compensation contract. Third, we analytically show that the overall performance under the flexible contract regime is better when compared to the stationary contract regime. However, our experiment shows that the efficiency of the stationary contract exceeds the efficiency of the flexible contract.

This study investigates whether using hyperlinks that connect summarized financial graphs with detailed financial statement information reduces the effect of graphical distortions on nonprofessional investors’ perceptions of firm performance. Using 206 undergraduate accounting students as proxies for nonprofessional investors, we find that while distorted graphs do bias nonprofessional investors’ perceptions of firm performance, the provision and use of hyperlinks to the underlying source information eliminate those effects (i.e., de-bias). Using the dual-process theory of cognitive processing (Kahneman and Frederick 2002; Evans 2006, 2008), we find that hyperlinks enhance the overriding effect of System 2 processing (i.e., analytical processing) on System 1 processing (i.e., intuitive processing) and indirectly reduce nonprofessional investors’ perceptions of a firm’s future earnings growth potential. The study contributes to standard setting as well as financial reporting practice by providing empirical evidence that the SEC’s policy guidance on implementing hyperlinks has benefits to nonprofessional investors. Second, it contributes to both the literature on distorted graphs and hyperlinks by suggesting hyperlinking to source data mitigates the effects of graphical distortions.

Bushman, Lerman, and Zhang (2016) present remarkable evidence contradicting the long held-notion that accruals and cash flows are negatively correlated. We postulate that the absence of a consistent negative correlation can be better understood by recognizing that there exists a “confounding” variable (Elwert and Winship 2014), namely, earnings. We offer a conceptual framework based on the premise that accounting earnings are the best available indicator of economic events which precipitate the creation of accruals and cash flows. We then demonstrate conceptually and empirically that the negative correlation between accruals and cash flows is not to be taken as an empirical regularity. We further show that, once we condition the accrual-cash flow regressions on earnings partitioned on a portfolio basis, the negative correlation and explanatory power emerge consistently. Our study demonstrates the importance of considering earnings and the underlying economic activities to understand accrual-cash flow relationships.

This paper examines the effect of CEOs' outside opportunities on the use of relative performance evaluation (RPE) in CEO compensation. My tests exploit the staggered rejection of the Inevitable Disclosure Doctrine (IDD) by U.S. state courts as an exogenous increase in CEOs' outside opportunities. I find that the rejection of the IDD leads to a significant increase in the sensitivity of CEO pay to systematic performance (less RPE). This increase is more pronounced for CEOs with greater labor market mobility and not related to measures of governance quality. These results suggest that firms link CEO pay to systematic performance to retain talent and ensure participation.

Using a sample of firms from mandatory IFRS adopting countries that reported significant nonrecurring items during the fiscal year, we find that the persistence of nonrecurring items has increased for the IFRS firms relative to the non-IFRS benchmark firms after mandatory IFRS adoption. We also find that the propensity of firms to use positive nonrecurring items in order to avoid losses and to avoid decline in earnings has decreased after the IFRS adoption. Our results suggest that managers are using the inherent flexibility in these standards to better convey their private information about the future prospects of the firm. We also find that the IFRS adoption has led to a more efficient market pricing of both positive and negative nonrecurring items.

The reliability for the capital market in Japan has fallen by accounting fraud which occurred at one of the excellent firms in Japan. Why did accounting fraud occur in Japan? First, it is likely that governance mechanism and the internal controls system did not work well in Japan. Second, it is likely that since forensic accounting education is not cultivated in Japan, there have been no chances to learn theory of fraud systematically and theoretically. Although a forensic accounting course will first be opened in Japan in Fall 2017, Huber (2017) argues that the fraud triangle does not apply to fraud and the model that attempts to predict and detect fraud should be considered, since the fraud triangle is not supported by empirical studies. Urgent studies to clarify a fraud mechanism and to detect and predict fraud will be needed. This is the motivation of my study. Therefore, I examine whether the fraud triangle can apply to financial statement fraud. The effectiveness of the fraud triangle should be clarified through this analysis.

This study examines how the endogenous mechanism that determines board structure is affected by the adoption of board independence regulations. Although being mandated to have a high-independent board uniformly, firms still try to tailor board structure to firm-level economic factors by choosing different board remodeling options. Empirical evidence shows how firms adapt themselves to a new environment and rebuild board structure accordingly.

The purpose of this study is to investigate the impact of differential levels of the enforcement of accounting standards on a particular capital market outcome - investment efficiency. We investigate this impact using a sample of listed firms from countries that use IFRS. We find strong evidence that the higher the level of enforcement of accounting standards, the higher the level of investment efficiency. Specifically, higher levels of the enforcement of accounting standards result in lower investment-cash flow sensitivities, and a higher sensitivity of investment to growth opportunities. We also find that higher levels of the enforcement of accounting standards result reduce both underinvestment and overinvestment problems.

Previous research has provided indicators of financial distress based on discriminant analysis and binary regression models, among others, where the causality between the predictors of financial distress and the financial distress indicator had to be determined. However, financial distress may manifest in a number of ways and is of complex nature. Furthermore, for some of the financial distress measures, the estimation of the parameters of the model, used to calculate the financial distress measure, is based on a dependent variable, which in most cases is a binary variable related to the occurrence of bankruptcy. In this respect, the estimated measures are rather related to the prediction of an extreme event (bankruptcy) rather than the deterioration of financial health. The present study attempts to provide a new measure of firms’ financial health based on the use of economic network analysis as well as a set of variables found to predict financial distress in previous studies. The novelty of this approach relates to the ability of economic networks to map relations in a system. In this respect, by viewing the firm as a system, the network is used to search for relations that become stronger among financial ratios that have been found to relate to financial distress. The proposed measure is found to relate directly to proxies of financial distress as well as to have incremental predictive ability over other well-known measures of financial distress.

In recent years, academic research has been featured by an increasing interest on accounting choices in family firms. Basing on the socio-emotional wealth (SEW) theory, this paper investigates the differences within family firms regarding accounting discretion in goodwill impairment decisions. It analyses a sample of US public firms in the period 2003-2015. The findings show that first generation family firms are more likely to exploit accounting discretion in goodwill impairment decisions than second or later family firms. First generation family firms display SEW concerns different from those of second or later generation family firms. This leads to a different approach to goodwill impairment. Our paper can contribute to SEW studies and to the literature on earnings management in family firms. Family firms cannot be considered as a homogeneous group with the same propensity to exploit the discretion allowed by accounting rules in highly subjective fair value measurements. Generational change significantly influences the firm’s accounting choices, leading to more credible earnings and assets values for second or later generation family firms. This study suggests that earnings management literature needs a more fine-grained investigation on how family ownership structures affect accounting discretion.

This paper examines the relation between the dispersion in pay-performance-sensitivity among the top management team and earnings quality. We first develop a model analyzing managers’ incentive to manipulate earnings when their compensation is dependent on firm value, such as with equity and options grants. Generally, equity and options compensation creates incentives for managers to manipulate earnings upward. Our model shows that dispersion in pay, however, hampers the coordination between managers to manipulate earnings, resulting in better quality financial reporting. We empirically test our theory and find a generally positive relation between pay-performance-sensitivity dispersion and earnings quality. The stock market appears to understand these effects and price the firms’ equity accordingly.

Credit derivatives provide an alternative trading venue especially for pessimistic investors, facilitating the revelation of negative information that corporate managers attempt to hide. Supporting such information impounding view, we find that stock price crashes are less frequent after the inception of credit default swaps (CDS) trading on a firm’s debt. The stock crash-reduction effect is stronger for firms whose managers actively manipulate the information content of their corporate reports or when managers can benefit from higher share prices. Our study offers novel evidence on how financial innovations in the debt market help improve the price discovery of the equity market.

Using firm-level data from 39 countries, we examine the relationship between CSR disclosure and firm’s information asymmetry with the presence of financial reporting quality at firm-level and country-level. We found a negative relationship between CSRD and information asymmetry. We also found that financial reporting quality positively determines the amount of CSR information in CSR reports. Using two sub-groups: low-CSRD firms and high-CSRD firms, there is strong evidence that firms which disclose a greater amount of CSR information have a lower degree of information asymmetry, but this negative relationship is less pronounced or even disappears in firms with high financial reporting quality. It suggests that financial and CSR disclosure act as substitutes in reducing information asymmetry. Finally, there is a weak evidence for the negative effect of institutional financial reporting quality on CSRD as well as its moderation on the link between CSRD and information asymmetry. This study promotes the contingent role of financial reporting quality in CSRD-related research, enriching the understanding of CSR disclosure and its consequences.

This paper investigates the valuation model choice of sell-side equity analysts when valuing information technology and biotechnology firms, which can be classified as new economy companies. Based on a content analysis of 180 equity research reports from for 18 US-listed firms published from July 2013 to June 2015, we find that analysts are more likely to use discounted cash flow (DCF) model when valuing new economy companies. We also find that analysts with CFA designation are more likely to use DCF to value new economy firms. The valuation model choice, however, does not have significant impact on the target price forecasting performance of equity analysts. The findings suggest that analysts choose valuation models with more flexibility when valuing new economy companies which are associated with higher uncertainty and their valuation model choices do not necessarily leads to more reliable stock price forecasts and investment recommendation.

In this study, we examine the role of banking expertise on the board of directors on accounting conservatism. We provide an innovative way to measure banking expertise based on working history in banks of all individual directors on the board. We argue that directors with banking expertise would have information advantage about the market-level demand for accounting conservatism, hence having them on the board can help non-financial firms avoid excessive conservatism. Also, directors with banking expertise often possess an interpersonal network in the banking industry which can act as a private communication channel in debt contracting, resulting in less demand for accounting conservatism at firm-specific level. We find that accounting conservatism is negatively correlated with our measures of banking expertise on the board. The results are not affected by self-selection bias and robust as we use different models. The evidence has some implications for boards of directors.

We introduce a new approach to predicting market returns that combines the cross-section of dividends, earnings, and book values to explain current stock prices and extract aggregate expected returns. Our measure of market return expectations is strongly correlated with popular ex-ante equity premium measures and business cycle variables. We infer aggregate risk aversion using our measure and find estimates that are economically sensible and vary over time with the business cycle. The proposed measure portends a significant fraction of the time-series variation in stock market returns at horizons of one month to one year, achieving an out-of-sample R2 of 12.6 percent at the annual horizon, where its predictive ability dominates that afforded by popular predictive variables. We also find that our measure predicts returns in international markets.

This paper examines the association of corporate reputation and firm performance on a balanced panel data sample of 49 FTSE UK firms over the period 2005-2015. Analysing 169,994 news media articles from four main UK newspapers (Financial Times, The Times, The Guardian and The Mirror), I construct a corporate reputation index. Next, the association of corporate reputation and operating performance, as well as with profit drivers (sales, profit margin, operating expense and salaries expense) are investigated. Results from regression analysis provide evidence that corporate reputation has a strong positive association with operating performance, sales growth and profit margins and outperforms Britain’s Most Admired Companies index [used as a benchmark] as an explanatory variable. However, the study was not able to provide any evidence of a significant association between corporate reputation and operating expenses or salaries expenses. Nevertheless, this study contributes to the academic literature on unrecorded intangible assets by introducing a new [objective] measure of corporate reputation and providing evidence of its association with operating performance through various profit drivers.

Despite the importance of religious organizations, not much research activity has yet examined the fundamental relationship between accounting and religion or religious organizations. An increasing focus of scientific investigations on the relationship between religion and modern management systems is apparent. The objective of the present literature review is to present a broad view of the current state of the journal literature on accounting in Christian organizations. Acceptance and design of accounting, as well as regulations of responsibility, are strongly influenced by underlying corporate governance. Role-related questions about people affected by accounting in Christian organizations potential for conflict and can impact the value and quality of accounting. In this context, this review aims to discuss contextual particularities identified by studies and to clarify parallels and differences. The research question was answered through a systematic literature review in order to get a current state of research on accounting in Christian organizations. The findings show: 1)Christian organizations today depend more than ever on the goodwill of stakeholders. 2)Stakeholders demand transparent disclosure based on professional accounting standards and ethically founded corporate governance. 3)A stable financial basis enables them to achieve spiritual targets. 4)Conflicts occur primary on the personal level, when individual roles and expectations are threatened.

This study examines whether both financial and non-financial information on analysts’ forecasts transfer along the supply chain for the semiconductor industry. I find that when releasing or revising earnings forecasts, analysts incorporate both financial and non-financial information contained in conference calls held by their downstream firms in the supply chain. In addition, the extent to which such information is incorporated in analysts’ forecasts is conditioned on the echelon distance in the supply chain. Specifically, I find that the non-financial information is more informative for related upper-stream analyst than financial information when the echelon distance goes further in the supply chain. Finally, I find that foreign analysts rely on both financial and non-financial information in conference calls held by its downstream supply chain partners, while local analysts focus mainly on non-financial information.

Financial reporting standard setters and tax regulators jointly determine the level of mandatory book tax conformity that describes the correlation between tax and financial accounting treatments. This paper provides a theoretical framework of the strategic interactions in a dual reporting and auditing process in that a manager issues a tax and a financial report subject to potential audits by a tax and an independent auditor. I analyze the effects of exogenous changes in the level of mandatory book tax conformity, i.e. IFRS adoptions and the CCCTB, and discuss their potential implications on the taxation process and on the properties of financial reports. I show that the tax and the financial reporting and auditing processes are strategically interrelated. Furthermore, I find that moving towards a one book system improves the efficiency of the taxation process but decreases strategic auditing incentives that cause conformity reports to become red flags for financial statement users. When financial reporting incentives are strong, some managers find it optimal to overpay taxes for fraudulent earnings that remain undetected more frequently. The reliability of financial reports is ambiguously affected by changes in the level of mandatory book tax conformity. The results are useful to guide the political and academic book tax conformity debate and highlight the importance of jointly considering the strategic interplay of the tax and the financial reporting processes.

Capital budgeting is an important management process within firms. Empirical evidence suggests that incentive aspects and capital budgeting are interdependent and should be analyzed in combination. This paper analyzes a model with a founder (agent) who approaches a firm (principal) for funding and execution of a proposed project. The execution of the project requires productive effort by the founder and the firm can decide whether to allocate capital before or after effort is exerted. The founder can also exert lobbying effort to influence the capital allocation decision. The model shows that the firm takes into account the misallocation costs and the incentivization costs that differ for the capital allocation options. It can be shown that the optimal capital allocation mechanism and corresponding incentive provision depends on environmental conditions and firm characteristics. Capital budgeting schemes should therefore not only vary between firms but also change and adapt over time. Lobbying effort proves to be partially beneficial and therefore the firm wants to control this influence activity in some scenarios to reduce misallocation costs. However, we also find that there are scenarios where output sharing as an incentive instrument is not sufficient to fully control productive and lobbying effort.

The objective of this study is to reveal a mechanism that a relaxed application of controllability principle accompanied by aggregate performance measures leads to flexible role orientation. Although the prior literature has acknowledged a negative effect that the relaxed application for the principle increases the members’ role stress, some of the studies have emphasized their flexible attitudes toward given works without any regard to their own profits. However, such optimistic perspective has veiled a mechanism bridging these opposite effects. By using a computational simulation, called agent-based modeling, we have investigated how the flexible role orientation is formed in a network structure in which distributed agents interact with the neighbors to improve their contributions given a level of aggregation. We found that more aggregate measures are more likely to enhance the formation of flexible role orientation through the observation of micro-macro loop (i.e., repetitive interactions between each agent’s activities and the emergent outcome). Based on a mathematical feature of this model, this finding suggests that even if the aggregation negatively affects the agents' performances, an ambiguity accompanied by the aggregate measures is likely to provoke the agents to show their flexible role recognitions because they cannot recognize such negative effects correctly.

The Basle Accords and the financial crisis that was triggered after 2007, highlighted the importance of the credit rating of financial institutions assigned by the main rating agencies. Shareholders, investors, governments and regulators regard this rating as a sign of the health of financial institutions. As the importance of this rating for the banking sector has increased, questions have arisen about the existence of disparities between the rating attribution of financial institutions located in emerging or non-emerging countries and about whether the sovereign rating of a country should be the maximum threshold for the rating of financial institutions. In the light of this, the aim of this research is to analyze the differences in the determinants of the credit ratings of financial institutions, having as a differential, the subsequent segregation of these determinants in the two blocks of countries. It can be concluded from the findings that there are really differences between the rating determinants of these institutions, whether they are located in emerging or non-emerging countries. The size and quality of credit transactions are the variables that most influenced the sample of financial institutions (FIs) in non-emerging countries, followed by the sovereign rating. In the case of institutions located in emerging countries, it was found that the sovereign rating was the main rating determinant of these institutions, together with the total debt to total assets ratio.

The purpose of this study is to examine how managerial discretion in corporate social responsibility (CSR) reporting affects asset pricing in the presence of heterogeneous types of investors. This study presents a costly signalling model, which consists of management who disseminate messages about firm financial and CSR performances, and two types of investors: those who are interested only in financial performance and those who are interested in both financial and CSR performances. Results of equilibrium analysis show that (i) the manager may more aggressively engage in manipulating CSR reporting than financial reporting under appropriate conditions; (ii) both types of investors determine shareholdings by using CSR reporting but not financial reporting; and (iii) the price may react to CSR reporting more sensitively than to financial reporting. Furthermore, this paper shows that managerial reporting discretion may increase the price explanatory power for both financial and CSR performances. This study suggests that management discretion in CSR reporting may increase the price efficiency and therefore, from the point of view of corporate reporting regulation, the results provide a rationale for delegating CSR reporting discretion to firms.

This paper investigates how a firm’s life cycle affects corporate CSR disclosure. Using data from Japanese firms from 2006 to 2015, the firm life cycle is classified according to Dickinson (2011). The results show differences in disclosure levels depending on the firm life cycle. In the maturity stage, the amount of disclosure is significantly larger while, in the growth stage, the amount of disclosure is smaller. Additionally, there are differences in disclosure levels depending on the type of CSR information. Environment-related information has a significant influence in Japan. On the other hand, there were no significant differences in terms of governance and society. In Japan, stewardship codes have been introduced and reference those of the United Kingdom. For CSR-related information, disclosure should occur in accordance with laws and regulations, and information other than disclosure based on laws and regulations should also be addressed subjectively. The situation of firms has not been considered thus far. In the future, an appropriate disclosure strategy that considers firms’ growth stage would be employed to improve firm value. Additionally, various studies are being conducted in Japan, Europe, and the United States about the adequate amount of CSR disclosure in reports, including integrated ones. This research shows that CSR disclosure content is not uniform across firms, and a more detailed analysis can contribute to nationwide policy planning. In addition, as responsible investment progresses globally, CSR disclosure is gathering interest in Europe, the United States, and Japan.

Tax specialists perform non-audit tax services (NATS) for clients as well as assisting in financial statement audits. Prior research attributes positive financial reporting outcomes from NATS to knowledge sharing (KS), but public data do not provide insight into interactions between tax and audit professionals. Research in other specialist contexts suggests differing effectiveness across engagements, possibly due to variation in KS. We interview highly experienced audit and tax professionals about their experiences in KS while working across service lines. We first investigate the economic context in which these exchanges occur, discussing factors associated with contracting (i.e., client’s decision to purchase NATS services; the audit partner’s decision to use a tax specialist). Regarding KS during task performance, results show that various social and behavioral factors, such as personal relationships and team continuity, client expectations, and the firm and/or team culture (including tone at the top and incentives), are important, but some results differ across service contexts. We also find contention between auditors and tax specialists; e.g., relating to competing incentives, information hoarding, lack of a shared goal, and attitudes towards other service lines. Overall, our findings contribute to KS theory in the audit and NATS contexts and highlight important considerations for practice and future research regarding the collaboration between these two service lines.

This paper provides evidence that intensified product market competition increases information asymmetry between corporate insiders and investors. I use volume and gains from insider trading as proxies for information asymmetry. I show that when a firm faces competitive threats insiders purchase and sell more stocks and their trading better predicts future stock returns and long-term profitability changes. These results hold for several alternative measures of competitive intensity and they are related to the degree of restrictiveness of insider trading regulation. I show that future firm performance turns more idiosyncratic when competition intensifies increasing forecasting relevance of firm-specific information better known to insiders. Furthermore, I provide evidence that firms reduce informativeness of mandatory and voluntary disclosures leaving investors in a disadvantage.

Prior literature examining the market pricing of Level 3 fair value levels face the difficulty of disentangling the effects of asset characteristics from managers’ measurement and recognition choices. We investigate the return relevance of Level 3 fair value gains and losses (FVGL), i.e., changes in fair values that reflect actual fair value re-measurements. Using a sample of 219 listed U.S. banks from 2008 to 2011, we find that the pricing of Level 3 FVGL is conditional on the extent they reflect permanent versus temporary changes in underlying asset values. Specifically, consistent with their relatively more permanent nature, Level 3 FVGL in net income are more return relevant and have greater predictive ability for future earnings than Level 3 FVGL in other comprehensive income (OCI). Additional analyses reveal that only Level 3 fair value losses are priced, suggesting that managers cannot credibly convey good news in subjective measurement contexts.

Under the Basel II guidelines, banks can use either standard or advanced approaches for calculating regulatory capital. Differing from the standard approach, advanced approaches are built upon banks’ own estimated risk parameters. In this study, we examine three questions: What are the factors driving banks to apply advanced approaches? Do banks underestimate risk weighted assets (RWAs) by using advanced approaches? Do investors react differently to the RWAs reported under the two different approaches? Using a sample of European listed banks from 2005 to 2015, we find that beyond country-level specification, the heterogeneity of loans, trading activities and solvency are firm-level factors explaining banks’ RWA reporting choice; however, the relationships vary across credit risk, market risk and operational risk. Consistent with regulatory capital arbitrage, our results suggest that weakly capitalized banks report lower RWAs than well-capitalized banks, regardless of the approach used to compute RWAs. In response to the third question, we provide evidence showing that the credit market reacts significantly to changes in RWAs reported under advanced approaches but not under standard approaches.

This paper aims to consider ways of granting disclosure incentives in order for the Signaling Theory to develop and encompass the Legitimacy Theory. First, the author discusses that ESG strategies for managing stakeholder externalities create real option value that leads to corporate value creation, both as business opportunities as well as appeals to a company’s legitimacy. At the same time as making real option thinking useful for strategic decision-making by management, it is necessary to structure non-financial information disclosure for convincing optionality related to controlling externalities from the viewpoint of investors. Second, at the stage where conditions are not met for companies able to autonomously undertake management with a view to externalities, the author discusses how supplementing incentives for issuing signals regarding differentiation from other companies in the same industry relating to controlling externalities is required in the disclosure of non-financial information in statutory reporting systems. On the other hand, since the materiality of financial reporting is centered on risks and opportunities for business, disclosure regulations are required separately for material social values. Events not originally related to corporate value can create incentive for the fulfillment of accountability of companies by the mediation of “negative intangibles” through reputation.

This paper reports on survey data from 414 employers of accountants in the financial services sector; specifically Australian public accounting practice firms. The aim of the research is to examine a number of pertinent issues relating to the accounting labour market and skills shortages, recruitment methods and graduate skills. Important findings relate to the difficulty these firms have in sourcing high quality graduates. The most important recruitment strategies used by the firms entail some form of recommendation or knowledge of the applicant, such as word-of-mouth, ‘old school ties’ and internship programs. By far the main reason for rejecting graduates at the interview stage relate to poor communication skills and inadequate work experience. Findings reinforce the difficulties international graduates face in gaining employment in the accounting industry; they face a disadvantage with respect to the recruitment methods employed by the respondent firms and the fact only a small proportion of these firms employ international graduates.

This paper aims to clarify why the ASBJ slowed down the development of revolutionary standards during a period of 2009-2012, with breaking down the three phases, based on the Strategy-Structure-Performance paradigm in organisations theory: ASBJ's self-perception of regulatory environment, its standard-setting strategy, and its organisational structure. According to both organisation analysis and survey of significant documents, it seems that the ASBJ constructed an organisation which put accounting professions and regulators into core positions to globalise Japanese GAAP close to IFRS. However, the organisation and its underlying strategy contradicts its standard-setting behaviour. To explain reason for this gap, we verified discourses of key players in the standard-setting process. It show that all stakeholders defended the advance of globalisation of Japanese GAAP before 2010; but since then, industrial actors changed their negative approaches to the strategy. Probably, the change was due to a shift of the US SEC's prudent stance on mandatory adoption of IFRS, which reminded these actors having worried about huge switching costs to apply IFRS, of an idea that isolation threat from the global society was removed. Accepting their concerns, the ASBJ delayed the development speed of standards to be set as soon as possible. We have two interpretations for the reason of this gap. One could be the intervals. Another could be the revival of consensus-based setting in Japan.

Purpose: To consider how enabling control operates in non-hierarchical settings. The viable system model (VSM) offers a template for designing recursive organisations around autonomous, self-regulating units. This paper discusses how features of enabling control manifest in the VSM and cybernetic principles enable self-regulation Design/methodology: Evidence from a case study of controls in a radically decentralized organization is (re)analysed from the perspective of enabling control and self-regulation. Data was collected via semi-structured interviews with various levels of management and by material from corporate publications, web sites and presentations. Findings: Repair and flexibility features of enabling control can be incorporated into non-hierarchical organisational designs. Control systems designed to support self-regulating autonomous units reflect top management’s trust in the abilities of operational managers and are therefore perceived to be enabling. While self-regulation increases managers’ ability to handle contingencies it also increases the risk of goal divergence and loss of organisational cohesion. A clear, strong and shared corporate vision and culture minimally constrain autonomy of operational units while preserving cohesion Research limitations: The case company's use of organisational culture to maintain cohesion may not be generalizable Originality: Few studies consider the operation of control in non-hierarchical organizations. The findings reveal differences in the control issues faced by organisations designed around self-regulating autonomous units rather than bureaucratic hierarchies.

This paper examines effects of environmental protection activities on corporate tax avoidance. Focusing on the environmental responsibility, we reveal an association between actual outlays on environmental protection activities and tax avoidance measured by the effective tax rate (ETR), whilst we also use environmental ratings in accordance with previous studies. Utilising tax-deductible costs for environmental protection activities enable us to more directly analyze the effects of environmental protection activities on the ETR compared with the previous studies because the ETR is measured based on monetary amounts. Moreover, we also investigate how corporate governance influences this association because both environmental protection activities and tax avoidance activities are largely related with management decision-makings. The results show that the ETR becomes lower for firms that spend more environmental protection costs whilst the ETR has no relation with the environmental ratings. The results utilising the environmental protection costs are totally different from those using the environmental ratings as previous studies. We also show that such negative effects of environmental costs on corporate tax avoidance become moderated for firms with more outside directors. In addition, the negative relationship between the environmental protection costs and the ETR is found to become stronger for firms with higher institutional ownerships.

In this study, we explore audit pricing across the globe to make inferences about various institutional settings related to country-level pricing differences, and the economic signifi-cance of the pricing effects of these macro-level factors. Using a large international sample with firms from 27 countries, and after controlling for purchasing power and the economic development of the country, we find that particularly the litigation risk in a jurisdiction, the general trust in major companies within a society, and the market structure (i.e., market share of Big4 audit firms) in a national audit market are the main drivers for these differences. To the extent that the documented pricing differences attributable to differences in institutional settings reflect audit effort and hence the level of assurance provided, our findings suggest that country-level macro factors have a significant impact on audit quality across the globe.

This case study addresses a puzzle encountered while researching a large Portuguese company which started a still on-going adoption of the Beyond Budgeting approach four years ago. It was apparent that the adoption of several principles of Beyond Budgeting was uneven across the company at the time of the research, in particular across different hierarchical levels. This uneven adoption formed a loosely coupled system, which can be explained by two different factors: the anticipated resistance in the lower levels and the strong hierarchies within the organization. The paper discusses the perception of upper and middle level managers on how the coexistence of change and stability and the inherent creation of a loosely coupled system was key to enable a long term, gradual change process to be triggered. In particular, the paper discusses how, by first introducing and gaining acceptance of Beyond Budgeting principles at top management level only, implementation difficulties and tensions at other organizational levels have been avoided and more favorable conditions have been created to a future implementation in the remaining parts of the company.

This study examines the readability of corporate communication in the CEO letters in the corporate social responsibility (CSR) reports presented by the firms included in the S&P 500 Index. These documents were content analyzed through the use of an automated algorithm provided by Readable.IO. Using a frame of analysis that combines agency theory, legitimacy theory and social psychology theory of impression management, we studied the impression management tactics used. The main findings suggest that leading CSR companies (those listed in the Dow Jones Sustainability Index) do not engage in impression management. They present more readable and longer CSR information. These companies disclose CSR information generally in a positive way. However, the “goal relevance of the impressions” (assessed by firm’s sustainability performance) and the “value of desired goals” (assessed by firm’s financial performance) impacted on manager’s choice of a specific level of readability and length of CSR narrative disclosures.

The objective of the study is to analyse the influence of the characteristics of the National Business Systems in the disclosure of gender-related Corporate Social Responsibility practices by 150 companies in Latin America that signed the Declaration of Support for Women’s Empowerment Principles. Hypotheses based on the literature review regarding the National Business System were tested in order to associate them to the level of disclosure (dependent variable) obtained by data collection and consolidation. We observed a level of disclosure of CSR practices related to gender by companies studied on average 7.41 points on a scale of 0 to 28 points. The highest level of disclosure was related to the principle of establishment of high-level corporate leadership for gender equality. The results were obtained by the use of non-linear Poisson regression model. The following hypotheses were not rejected, confirming the influence of the independent variables in the disclosure of gender-related information: the pressure of unions has a positive influence; the country’s level of concentration of power has a negative influence; the country’s level of individualism has a negative influence; the country’s level of orientation towards femininity has a negative influence; and the country’s level of economic development has a positive influence. The study innovates and contributes by introducing the explanation of gender-related social disclosure with the National Business System approach.

The age of Big Data has witnessed an increasing integration of calculative infrastructures into various spheres of contemporary life. Drawing on a field study of the UK television industry, this paper explores the calculative practices emerging in connection with digital analytics, and their role in shaping and regulating television audiences and their viewing behaviour. Using a governmentality perspective (Miller and Rose, 1990; Rose and Miller, 1992), this paper argues that digital analytics are illustrative examples of technologies for governing everyday life. Through continuous, microscopic surveillance and measurement, the calculative technologies of digital analytics render hitherto unruly and elusive audiences visible, knowable and manageable. In this manner, they shape the very contours of television consumption and television culture.

This study measures the effect of team-based tutorials on learning approaches. A quasi-experiment with a pre-test and a post-test was executed. We compared a team learning group (experimental group) with a lecture-based learning group (control group). To implement team learning the 5 basic elements of Johnson and Johnson (1989) were taken into account. Biggs’ Revised Two Factor Study Process Questionnaire (R-SPQ-2F) was used (Biggs,2001) to measure the learning approaches. The results show that both learning group, team and lecture-based learning, had a significant influence on the surface approach. In both groups, the surface approach score increased. The deep approach was also significantly influenced by both learning paths. There was a significant increase of the deep learning approach in the team tutorials and a significant decrease in the lecture-based group. This means that the team tutorials had a positive influence on students’ deep approach. This change in students’ learning approach is exactly what today’s accounting educators aim for: encouraging accounting students to use a deep learning approach, and develop the skills that professionals need in the future workplace.

Purpose – Risk disclosure plays a central role to inform investors and stakeholders about risks faced by companies and the recent EU Directive2014/95/UE specifies how companies might disclose non-financial information in their annual reports. The purpose of this paper is to understand how the adoption of Integrated Reporting (IR), a form of voluntary disclosure that can be added to the traditional annual reports, can impact on risk disclosure (RD). Design/methodology/approach – The paper adopts a qualitative and documentary approach to explore RD in the IR of Italian companies at the end of 2015. Findings – The study reveals that many of the companies have embedded financial reporting into an IR, therefore providing one report embedding RD. We found RD about almost all the different types of risk (particularly operations - climate change RD included, integrity and strategy). The RDs vary in terms of metrics, news tenor, and time orientation, with a prevalence of non-monetary - past oriented RD. Research limitations/implications – The research adds knowledge about the possible role of IR in meeting stakeholder’s information needs, in relation to the specific risks faced by a company. Originality/value – The study sheds light on RD provided through IR considering the type of risk disclosure, the metrics of RD, the outlook orientation ), and the type of risk news. The results are relevant to detect how companies act and what can be done to improve RD.

EU regulation No 537/2014 contains restrictions on non-audit services (NAS) in public interest entities in order to improve audit quality and restore investor confidence in financial statement information. However, such restraints do not exist for the majority of private firms even though these firms mainly rely on debt financing. If NAS decrease confidence in the financial statements, then these services hinder a private firm’s financing flexibility as creditors demand sound financial information. To test this notion, this study examines whether NAS matter to debt pricing in a private firm setting. We argue that introduced uncertainty due to NAS will increase creditors’ monitoring costs and therefore lead to a higher cost of debt. Based on a sample of Belgian private firms over the period 2010 – 2015, we find that firms engaging in NAS other than audit and tax services are associated with a higher cost of debt. We further find that hiring auditor-provided tax services exhibits a negative association with the cost of debt when audit effort increases.

This study examines whether the financial reporting practices of socially responsible firms differ from the companies which are less committed to corporate social responsibility (CSR). More specifically, we analyze whether companies with high (low) levels of CSR performance and larger (smaller) analysts’ coverage, are more (less) likely to report high (low) quality earnings’ numbers. Using a sample of non-financial listed companies from 42 countries during the period 2005-2014, our results show that there is a statistically and economically significant positive relationship between CSR performance and earnings quality, indicating that firms with high levels of CSR commitment are less likely to use earnings management (EM) strategies. For the firms with high levels of CSR performance, we find that financial analysts moderate CSR-EM relationship. These results support the view that CSR commitment and analyst coverage complement each other in affecting firms’ financial reporting behavior in general and constraining earnings management in particular.

This paper uses extant academic literature to examine the relationship between tax aggressiveness and corporate social responsibility (CSR). Tax aggressiveness and CSR have been long standing research issues each with significant ethical dimensions and implications embedded in distinct bodies of academic literature. Discussion regarding the nature and extent of the relationship between tax aggressiveness and CSR emerged about ten years ago with perspectives offered from different disciplines using a variety of methodologies and theoretical perspectives. Despite this literature, the relationship between tax aggressiveness and CSR remains contentious. An integrative literature review was employed to identify and discuss the main themes in the literature, and suggest directions for future research. The review revealed four main themes regarding the nature and purpose of taxation, empirical research, normative and theoretical perspectives. Implications for future research are drawn from the literature.

In the latest revision of its Conceptual Framework, the IASB introduced the distinction between cautious and asymmetric prudence. This paper takes the IASB’s approach as a motivation to explore how the notion of cautious prudence originated and developed over time. By tracing the meaning of prudence in various national settings since the mid-19th century, we find that it increasingly lost its traditional connotation with (asymmetric) conservatism, gradually altering its meaning to the exercise of caution in the preparation of accounts. Using a critical discourse analysis of a multitude of historical documents, we identify the major changes in the economic and accounting environment that triggered and shaped the transformation of prudence. We find that the roots of the change lie in the early American endeavours in financial accounting theory building since the 1940s while subsequently in particular the IASC took over a vital role in the elaboration and dissemination of the modern notion of cautious prudence. Thereby, this paper contributes to our understanding of how prudence became a concept which is continuously accused of evoking confusion in the accounting community.

This paper examines how to design consistent incentive systems in a dual board with a two-tier principal-agent relationship (shareholder, supervisory and executive board). The executive board’s task is to make multi-period investment decisions. Within this setting the implications of both a) centralized and b) delegated compensation authority are analyzed. Accordingly, a) the shareholder designs the incentive systems for both boards or b) the supervisory board designs the incentive system for executive board, while the shareholder designs the incentive system for the supervisory board, anticipating the incentive effects on the delegated compensation authority with respect to the executive board. Prior research neglected two-tier principal-agent relationships and delegated compensation authority. Hence, the requirements stated in literature are not sufficient in this setting. I show how compensation functions and performance measures must be designed to ensure preference similarity, i.e. decisions by both the supervisory and the executive board which are in line with the interests of the shareholder. In general, my findings indicate the importance of similar, but not identical incentive systems for both boards. However, under centralized compensation authority identical performance measures prove indispensable. Furthermore, under delegated compensation authority compensation costs must be considered in the performance measure of the supervisory board.

Firm tax avoidance has gathered substantial public attention in both the real world and academic literature. Stakeholder theory suggests that firms need to maintain good relationships with all firm stakeholders to be sustainable. Although it makes the firm profitable in the short run, tax avoidance may diminish the sustainability of the firm. Therefore, the purpose of this study is to empirically examine the relationship between tax avoidance and sustainability. This study uses 30 years of data from 58 countries, and provides empirical evidence on whether effective tax rates can distinguish sustainable firms from those that are not. Results indicate that tax avoidance diminishes sustainability; tax avoidance is found in most countries and there are significant variations of tax avoidance at the individual firm level.

The paper decomposes carbon performance into an inherent and a managed component. The inherent component captures a company’s average carbon emissions that reflect the firm’s business model and operating environment. The managed component is subject to management’s effort and ability to actively decrease a company’s carbon emissions. While the inherent component of carbon performance is estimated based on a regression of firm characteristics and the firm’s industry, the residuals of this regression reflect the managed component of carbon performance. Using a Heckman-type model to correct for self-selection bias associated with a voluntary carbon disclosure decision, we examine for a sample of large U.S. companies operating in carbon intensive industries whether the capital market values the inherent and managed components differently. Evidence reveals that, on average, the capital market attaches value to both, the inherent and managed component of carbon performance. Investors seem to attach more weight to the inherent component than the managed component, which indicates that the managed component contains considerable measurement error. Our findings suggest that previous empirical tests focusing on total carbon emissions underestimate the firm value effect of carbon emissions due to measurement error.

This study examines the economic implications of fair value liability gains and losses arising from the adoption of Statement of Financial Accounting Standards No. 159 (hereafter, FAS 159). Consistent with the notion that gains and losses contain value-relevant information, we find a positive correspondence between a firm’s FAS 159 fair value liability gains and losses and current period stock returns. However, further analysis indicates that fair value gains and losses from liabilities have a negative association with future returns, suggesting that investors misprice this earnings component. This negative association is stronger for firms with low levels of institutional ownership. While the value-relevance tests provide some evidence that fair value changes from liabilities have information content, the negative association with future stock returns suggests that these gains are eventually not realizable or that the market has overreacted to the initial recognition of these gains. Overall, our study contributes evidence regarding the controversy over the recognition of fair value liability gains and losses by providing direct empirical evidence that such gains and losses are priced by the stock market but subsequently reversed within the next 12 months.

This paper investigates whether mandatory audit engagement partner rotation provides informational value to the debt market participants. Using a unique dataset from the United Kingdom (UK) where audit engagement partners are mandated to sign the auditor’s report in their names and rotate every five years, we find that credit rating agencies do not reward firms that have experienced audit engagement partner rotation in general. However, they do react positively when a firm experiences the appointment of a new female audit engagement partner during the mandatory rotation period considered (i.e. from 2009 to 2014), leading to significantly higher credit scores. We also find that mandatory audit engagement partner rotation in general and, in particular, the appointment of a new female audit engagement partner during the mandatory rotation period considered improve audit quality. Overall, these results suggest that mandatory audit engagement partner rotation matters to the debt market participants. This is particularly the case when a new female audit engagement partner is appointed probably because they are less likely to impair their independence relative to their male counterparts.

We investigate how credit market pressures and tax considerations affect financial reporting strategies of private UK firms. We find private firms close to a credit rating category boundary manage accounting accruals upward (categories being high risk, cautious, normal, stable, secure). We also find that among private companies there is a pecking-order for which type of accruals these firms manage first. Private firms are sensitive to whether the accrual management triggers taxation or not and, we therefore, split our measure of accrual management into two parts, tax-affecting and non-tax-affecting accruals. We find that private firms prefer to revalue fixed assets, an event which is not reported in the income statement, and only if this revaluation does not move them to the desired credit category, do these firms top up their accrual management by using tax-affecting working capital accruals the following year. We also find that these activities have a positive effect on the credit rating. Overall, our results suggest that there are considerable differences between how credit ratings affect accounting choices related to accruals management among publicly traded and private firms, and further, that large scale credit rating methods do not detect this behaviour.

This study examines the relation between asymmetric earnings timeliness and revenue-expense matching patterns. Adopting Dichev and Tang (2008), we distinguish expense-leading-revenue matching and expense-lagging-revenue matching from contemporaneous matching. When expenses lead (lag) revenues, they are of conservative (aggressive) nature. We hypothesize that expense-leading-revenue matching affects asymmetric earnings timeliness in the positive (conservative) direction and that expense-lagging-revenue matching affects asymmetric earnings timeliness in the negative (aggressive) direction. Empirical analysis shows that expense-leading-revenue matching is associated with significantly more asymmetric timeliness and expense-lagging-revenue matching is associated with decreases in asymmetric timeliness. This result is robust for various specifications and control variables.

Since the late 1990s, two important business paradigms have emerged: corporate sustainability and enterprise risk management (ERM). While these two paradigms developed independently, they both generally focus on the importance of identifying and managing risks related to the achievement of strategic objectives. Recently, there have been calls for integration of corporate sustainability and ERM efforts given their potential overlapping emphasis on risks to the overall business. We are unaware of any empirical research that examines whether the benefits of implementing ERM are impacted by the performance of sustainability activities. We find a positive association of higher performance and value for firms engaging in ERM-only as compared to firms that do not engage in either activity. We also find a strong positive association of higher performance for firms engaging in sustainability-only activities as compared to firms that do not engage in ERM or sustainability. While we find that firms engaging in both ERM and sustainability are associated with higher performance relative to firms that engage in neither ERM nor sustainability, we find mixed results as to whether performing both ERM and sustainability is better than performing just one. We also find that performance measures in the next two fiscal periods are, in most cases, strongly associated with both ERM and/or sustainability initiatives suggesting that there is a multi-year performance impact from these activities.

In this paper, we investigate the association between the purpose of a loan and the type of debt covenants, separated into balance-sheet-based and income-statement-based covenants. We use private loan deal observations obtained from the DealScan database over the period between 1996 and 2009. We classify our sample loan deals into three categories based on the purpose of borrowing, namely borrowings for corporate daily operating purposes, financing purposes, and acquisition and investing purposes. Our results provide evidence that the purpose of the loan is significantly associated with the type of debt covenants, suggesting that the lender and the borrower have considered the loan purpose when structuring their debt agreements. More specifically, the results indicate that the loans borrowed to fund acquisitions or long-term investment projects are more likely to have income-statement-based covenants, and less likely to have balance-sheet-based covenants. In contrast, the loans borrowed for corporate daily operating purposes or financing purposes are more likely to contain balance-sheet-based covenants relative to income-statement-based covenants.

This study examined the material cost behavior of manufacturers. The proportionality of material costs to production volume is assumed typically based on the physical relationship between material quantities used and production volume while material prices are assumed fixed. However, managers might have some ways to influence material usage and prices, depending on the business environment they face. This study decomposed material cost changes into material volume changes and price changes and investigated the behavior of each component against sales changes. This study investigates whether material costs have any asymmetric behavior of stickiness or anti-stickiness and whether asymmetry results from material quantities used or prices paid if there are any. The results of this analysis are as follows. First, material cost changes are symmetric for all firms. Loss firms show more elastic changes than profit firms. Second, material quantities used have the similar change patterns to those of material costs for profit firms and loss firms. Third, the material prices of profit firms show anti-sticky behavior. That is, the material prices go up when sales figures go up and the prices go down much more when sales go down. As for loss firms, material prices do not change for sales changes. In sum, it is shown the material cost behaviors are different for profit firms and loss firms and even material prices are adjusted depending on the sales trend and earnings status.

The attention and concern regarding corporate governance structures’ effectiveness, particularly concerning audit committees’ effectiveness, in safeguarding the interests of investors has been growing. Prior literature has focused on the analysis of some characteristics of audit committees in improving earnings quality. Notwithstanding the various studies addressing this analysis the results are mixed. This study focuses on the analysis of the relation between the number, independence and expertise of audit committee members and the number of meetings held and earnings quality for European companies. Earnings quality is proxied by a modified Jones (1991) model. The results show evidence of a positive relation between the proportion of independent members of the audit committee, the number of members and the number of meetings held, and earnings quality. However the study does not provide any evidence of a positive relation between the existence of more than one expert member and earnings quality. Our conclusions suggest that more independent and bigger committees and that hold more meetings are more effective in constraining earning management practices. This study contributes to previous literature by studying European companies, measuring some characteristics of the audit committee differently and analysing whether the level of investor protection influences the relation between the characteristics and earnings quality.

Our study analyses the relationship between the level of earnings management and the debt of unlisted companies in two countries liable to economic adjustment programmes – Portugal and Ireland – between 2008 and 2016. We also analyse whether there are differences between both countries in what results are concerned. In a sample of 970 unlisted companies, and according the discretionary accruals, we find evidence of a positive relationship between the level of debt and the level of earnings management, thus concluding that the level of this relationship is different in each country. We also demonstrate that during the period of time in which the financial support occurred, there was mitigation in the relationship between the level of earnings management and indebtedness.

This study explores factors that influence the adoption of digital accounting. The literature suggests that perceived benefits, organizational readiness and external pressures promote the adoption of technical innovations. Using a mixed-methods approach, we combine interviews and a survey to test this theory. Exploratory factor analysis of a survey of Finnish accounting firms results in five factors. These are (1) ‘attitudes and perceived benefits’ representing the thoughts that digitalization improves working efficiency and opens up new business opportunities to accounting firms, (2) ‘lack of competence’ indicating a perception that a firm lacks required competence, (3) ‘investment in operations development’ which relates to a firm’s development of new services, (4) ‘lack of customer pressure’ which indicates that customers do not demand digital accounting services, and (5) ‘keeping up with digitalization’ which relates to a perceived importance of digitalization. Our analysis suggests that a low level of digitalization is associated with negative attitudes and perception of benefits, a lack of competence and a lack of customer pressure. A high level of digitalization is associated with positive perceptions of benefits and a firm’s competence and investment in operations development. Our results suggest that the adoption of digital innovations is also influenced by attitudes and a perceived importance of being up-to-date.

This article examines the relation between Corporate Social Responsibility practices and the extent of earnings management. The empirical study is conducted using data for 100 large Spanish firms defined as sustainable by the Corporate Reputation Business Monitor ranking. Using panel data methodology during a five-year period (2011-2015), we find a negative impact of corporate social responsibility practices on earnings management. Our findings suggest that ethical concerns are likely to drive managers to produce high quality financial reports. These results are consistent with the argument that engaging in socially responsible activities not only improves stakeholder satisfaction, but also has a positive effect on corporate reputation.

This paper proposes a dynamic study of water supply management control systems in the context of the former Soviet republics (Moldova). The qualitative analysis is based on an original methodological approach, linking historical perspective and stakeholders’ theoretical framework. This approach enables to highlight the role of the stakeholders in the evolution of management control systems of a water supply company. This research is focused on the management of Water Supply Chains (WSC) and the use of associated management control techniques in the post-Soviet context.

The worldwide recession caused by the financial market crisis has raised widespread criticism on free stock market-based capitalism, highlighting the need for alternative ways of doing business. In the European Union, economists and institutions have begun to look back at industrial policies to implement a new way of doing business based on economic and social sustainable development, which is one of the founding principles of the European Union. This being the context, this paper discusses financial reporting regulation within the uniqueness of the EU institutional context and examines the consistency of IFRS adoption with the EU societal objectives. Specifically, the paper examines IFRS capability to support economic and social sustainable development. In doing this, not only does it provide regulators with a post-implementation overall assessment of IFRS adoption in the European Union but also with some guidance for future endorsement.

We extends the literature on accountability by providing causal experimental evidence on whether perceived accountability influences Chinese accountants’ aggressive financial reporting judgments when formal accountability is imposed and when it is not imposed. We draw on the literature on Confucianism and interdependence to suggest that the Chinese cultural values of harmony within hierarchy and interdependence provide useful insights for understanding accountability. Our findings support the hypothesis that when formal accountability is imposed, accountants are not likely to make aggressive financial reporting judgments, irrespective of their scores on perceived accountability measures. Our findings further show that when formal accountability is not imposed, accountants who score lower on perceived accountability measures make more aggressive financial reporting judgments, compared to those who score higher on those measures. Our findings are relevant to enterprises in designing and developing culturally appropriate accountability mechanisms. Our findings also have implications for various standard setters, regulators and researchers.

Prior studies document a negative association between labor unions and both accounting and financial measures of firm performance. While prior work explores employee or management behavior to explain the negative association, this study investigates how unionization can influence the behavior of major customers. In particular, this study investigates the relation between supplier unionization and sales to major customers. We argue that major customers shift purchases away from suppliers that unionize to avoid potential supply chain disruptions and present findings consistent with this argument. Our results are robust to endogeneity concerns from difference-in-differences and regression discontinuity research designs. Further, higher switching costs mitigate the decline in sales to major customers. Finally, we document that subsequent to unionization, major customers begin purchasing from additional suppliers and consequently suppliers’ customer concentration declines. These findings suggest that employee unionization can adversely affect a firm’s relationships with their major customers.

How to mitigate agency problems has been a lengthy discussion in agency literature. In this paper, we develop a theory on how Balanced Scorecard can mitigate agency problems. Using the roles of Balanced Scorecard as the decision-facilitating and decision-influencing, we propose that (a) information available in Balanced Scorecard can reduce information asymmetry, (b) multidimensional performance-based measures in Balanced Scorecard can reduce differences in risk preference, (c) strategically linked performance measures in Balanced Scorecard can reduce differences in risk preference. This paper contributes to the management accounting literature by shedding useful lights on how BSC can alleviate agency problems. Furthermore, this paper also contributes to enhancing our understanding of how BSC can be used to optimize firms’ performance.

The increasing demand for non-financial information about the sustainability of economic activities has led the EU legislator to introduce the Directive 2014/95 to foster the transparency and the comparability of Non-financial Information (NFI). This paper reports the findings of a study into preparers’ and auditors’ perceptions about the content, the reporting framework and the disclosure format of NFI, as specified by the Italian implementation Decree 254/2016. Building on Franck (1990) theory of legitimacy in international laws, we explore the extent of credibility of the Italian regulation in terms of its: i) transparency, ii) coherence with similar practices and regulations and iii) adherence to a consistent regulatory framework. It is found that preparers favour many of the developments introduced by the Italian Decree. In particular, the Board’s responsibility for NFI is regarded as a fundamental step for the diffusion of social and environmental policies throughout the whole entity, both at horizontal and vertical level. Furthermore, the flexibility in the content, in the disclosure format and in the choice of the reporting standards is regarded as a credible approach to discipline NFI.

This paper predicts and finds that investor ex ante uncertainty is decreasing in a firm’s reporting reputation. Our two primary proxies for investor uncertainty are model-free implied volatilities and the variance risk premium, both with maturities that surround the impending quarterly earnings announcement. Our experimental construct of reporting reputation reflects manager/firm past ability and disposition to achieve expected earnings targets, empirically measured as the number of consecutive quarters the firm meets or beats the consensus analyst forecast (i.e., “reporting streak”). We document that both measures of uncertainty are decreasing in the length of the reporting streak, consistent with investors anticipating the expected price effects surrounding the earnings announcement and lowering option-related insurance costs based on the firm’s historical tendency to deliver expected performance in the past.

This paper examines whether factors from the broader family environment of married CEOs explain their tendency to avoid risky financial reporting actions. Using a comprehensive dataset with detailed information about CEO marital status, and CEOs' children age, gender and number, I hypothesize and test that firms headed by married CEOs, married CEOs with dependent children and married CEOs with a daughter as first-born child have higher Accruals Quality. Consistent with prior studies, the results show that married CEOs report accruals of higher quality. Yet, this effect is conditional on whether married CEOs' first-born child is a daughter. Regarding married CEOs' dependent children, the results show no effect on Accruals Quality. Overall, the results indicate that CEOs' broader family environment is a more significant determinant of their attitude towards financial reporting risk taking than marital status per se as prior research suggests.

The current study analyses the naïve investor hypothesis by examining the incremental association of cash subcomponents of earnings with the future profitability and stock returns after controlling for the level of current profitability. We use a sample of UK listed firms for the period 1989-2013 to provide empirical evidence that the cash component of earnings is not relatively homogenous and the higher persistence is entirely attributable to cash distributed to equity holders. Furthermore, it seems that the subcomponent associated with cash distributed to equity holders has a positive impact on future stock price performance which is more severe within firms with negative sign in current net income. Our findings suggest that naive investors misprice the issuances/distributions to equity when firms experience losses because they cannot understand the information contained in the current subcomponent of the cash component of earnings. The above evidence contributes on the literature by diagnosing the cash subcomponents of earnings and firm’s current profitability as contributing factors of naive earnings fixation.

We examine the spill-over effect of debt covenant tightness on equity mispricing. Although debt covenants protect lenders, the existing literature provides two competing perspectives of their consequences on corporate borrowers’ information environment. Whereas some studies suggest that monitoring promotes timelier disclosure and information dissemination, others reveal that covenant violation avoidance induces earnings management. Consistent with a trade-off between debt contracting efficiency and equity market information efficiency, we provide evidence that syndicated loan contracts arranged with a higher probability of covenant violation lead to an increase of post-earnings announcement drift in borrowers’ share prices. Further analyses reveal that this effect is more pronounced (i) for performance-based rather than capital-based covenants, (ii) if borrowers have fewer bargaining powers, and (iii) when there is an increase in earnings management after the loan issuance. Our study implies that tight covenants can generate negative unintended consequence that trades off the contracting and valuation roles of financial statement information between the debt and equity markets.

This paper reports on an on-going research analysing 1,300 accounting history articles published in specialized (Journal of Accounting Historians, Accounting History Review, Accounting History) and general journals (Accounting, Organisation and Society, Critical Perspectives on Accounting, Accounting, Auditing and Accountability Journal) between 1996 and 2015 using a topic modeling technique. The paper complements prior assessments of the research by providing measures of the relative prevalence of research areas and their evolution over time. The analysis offers insights into accounting history by refining previous categorisations, uncovering overlooked topic areas, and substantiating trends, such as the demise of interest in the technical core of accounting in favour of more variegated and fragmented approaches. Particular attention is paid to differences between specialized and general outlets.

This paper looks at recycling in general and ship dismantling in particular as an economic activity, contextualising it in debates about economization and marketization. It maintains that recycling is an economic activity which extends the boundaries of markets, by internalizing objects formerly externalized such as wastes. Taking Denmark and Scandinavian countries ship dismantling and recycling industry as its empirical focus, the paper aims at discussing how recycling connects to wider debates about the constitution of markets, and shows the importance of metrological devices as market devices to the economization of recycling. It further shows that, in materials recovery, measurement is a critical activity due to the problems in defining the values involved. This makes recycling difficult to stabilize as an economic activity. The consequences are considerable: notably, the possibility of economic failure can threaten the viability of the recycling industry, with considerable impacts on the economy of companies due to the high societal pressure. Furthermore, this paper aims at showing the interconnection between the processes of economization, marketization and politicization of a market (Callon, 2009). More specifically it provides empirical evidence of the stabilisation of a market in which different values are at play and are deeply connected.

This study examines whether socially responsible firms behave differently from other firms in their earnings quality. Specifically, we question whether firms that are better ranked in their corporate social responsibility (CSR) performance also behave in a responsible manner to constrain earnings management and whether the market rewards responsible behavior. Using data from S&P 500 US companies, we find that socially responsible firms are less likely and less-responsible firms are more likely to manage earnings. However, we fail to find significant relationships between CSR ranking and stock return or earnings response coefficient. Our findings are consistent with the notion that CSR activities are motivated by managers’ ethical incentives to serve the interests of stakeholders.

Abstract This study examines the effects of managerial ability on subsequent stock price crash risk using listed firm data in Korea. Compare to some financially advanced countries, the influence of managers is particularly more powerful in Korea, as ownership and management are not effectively separate in most Korean firms. In addition, we considered the effect of large business groups called Chaebol, which is family-run conglomerates with unique corporate governance system and hugely affect the Korean economy. It is important to recognize determinants of the stock price crash risk which would result in doubt on going concern to enhance the company’s sustainable management. Hence, this study focus on the managerial ability as one of the main factors of the stock price crash risk. We use the measures of firm-specific stock price crash risk based on Hutton et al. (2009). Managerial ability is estimated through a Data Envelopment Analysis (DEA) and tobit regressions following by Demerjian et al. (2012). From the empirical tests, there is a negative association between managerial ability and stock price crash risk. This suggests that managers with a higher ability release more voluntary disclosure to signal their ability, ultimately lowering subsequent stock price crash risk. We also find firms in large business group, Chaebol, weaken the negative association between managerial ability and subsequent stock price crash risk.

The purpose of this paper is to investigate how accounting serves a source for balancing potential contrasting views of water and promote compromises (if any) in a context characterised by multiple values. This paper adopts Boltanski and Thévenot’s sociology of worth framework to analyse the relations between accounting and the value of water. The empirical material is collected though a case study carried out in an Italian public. The analysis reveals that water is valued by combining the domains of market, industrial, green, civic, and fame orders of worth. In particular, the paper shows that industrial order of worth was a dominant order around which different compromises were established. Accounting contributed in the assessment and justification of water sustainability and in constructing the related compromises. The findings also reveal that accounting possesses a constellation of roles in relation to the value of water, operating differently depending by the orders of worth in which it was mobilised.

Extant literature does not provide a homogeneous view about the complex relationship between performance targets and motivation. In particular, we know little about the effect of performance targets on job satisfaction which is one of the most important drivers of motivation. According to goal theory, measurement properties of performance targets influence job satisfaction indirectly through goal ambiguity and conflict. Specifically, we focus on measurement diversity and subjectivity of performance targets since they have been presented as properties capable of addressing the incompleteness of compensation contracts. We obtained information on performance targets of individual incentive plans from two firms, in which a more diverse set of targets is associated with higher goal conflict and a greater reliance on subjective targets is associated with goal ambiguity experienced by employees. We find that the levels of conflict and ambiguity caused by diverse and subjective performance targets, respectively, lead employees to be less satisfied with their job. However, employees who engage in feedback-seeking behavior mitigate the negative effect of conflict and ambiguity on job satisfaction. These findings highlight the importance of behavioral responses to the measurement properties of performance targets and contribute to explaining their motivational effectiveness.

Using the political alignment index (PAI) employed by Kim et al. (2012) as a proxy for local IPO’s proximity to political power, we document a positive relation between political alignment index and IPO underpricing. Economically, firms in high PAI states are associated with an increase of 4.74% in the value of initial returns to investors. Further, our results suggest that the positive effect of PAI on the value of underpricing concentrates among small and young firms which operate in politically sensitive industries. Additionally, our study documents that policy risks and related uncertainties are greater during pre-election years and periods surrounding the electoral cycle. Finally, our findings show that firms operating in states with high policy risk have higher failure risk in subsequent periods following the offering. The results are robust to various tests and alternative explanations.

The purpose of this paper is to report the findings of a study designed to understand the development of management accounting and control in Sweden. The study is based on ten editions of the Controllers handbook, issued over a period from 1986 to 2013, and interviews with the editors of the successive editions. The results show that the development can be understood as three generations of paradigms of management accounting and control systems. The first two paradigms were built on dramatically different charts of accounts, and the third was built on integrating reporting supported by a management accounting and control package. The research implications are that we now know more of the historic development and thereby also have a basis to be able to address future challenges. This is relevant for both researchers and practitioners. As the paper only discuss the development in one country, it calls for further studies of the development of management accounting and control systems and packages in other parts of the world.

This paper presents the findings of a study on the sophistication of financial analysts’ cash flow forecasts, their properties, as well as on their market informativeness. The study uses a sample of listed companies from Eurozone stock exchanges during a horizon that includes the recent turbulent period of economic exuberance and subsequent crisis. The empirical evidence corroborates the hypothesis that analysts’ cash flow forecasts are a naïve extrapolation of earnings forecasts (Givoly et al., 2009); analysts efficiently incorporate expected depreciation during cash flow forecast formation but fail to incorporate changes in the working capital accounts. However, the evidence supports that cash flow forecasts issued by financial analysts perform better (in terms of accuracy) compared to those inferred from a prior cash flows and accruals reversal time series model. With respect to the market relevance of the forecasts, the study documents that cash flow forecasts offer value relevant information to the market that is however superseded by the information offered by earnings forecasts.

Over the last three decades, governments have commercialized and corporatized many of their government business enterprises (GBEs) without privatising them under New Public Management (NPM) policy. These GBEs have independent boards which are responsible for the corporate governance of these entities, including the hiring of chief executive officers (CEOs) and determining their compensation. We examine the association between pay and performance for GBE CEOs and find that the levels and changes in CEO compensation are not associated with GBE performance despite being the explicit intent of NPM policy. We suggest that this corporate governance failure could be due to the composition of the boards of GBEs, which are dominated by ex-politicians and public servants. Accordingly, we suggest some possible policy changes to both the determination of CEO compensation and the composition of GBE boards.

We examine the relationship between audit fees and the managerial tone in CEO annual letters to shareholders. Auditors’ specific knowledge gained through frequent interactions with client firms provides a unique setting to assess whether managerial tone is a non-financial matter related to engagement risk that influences audit pricing. We perform a textual analysis on a sample of 1,434 annual letters to shareholders among large U.S. firms from 2008 to 2013 and find that more resolute and optimistic managerial tone is associated with higher audit fees; whereas more engaging managerial tone is associated with lower fees. By examining client firms’ aggressive accounting choices, real activities management, and future performance, we provide evidence that auditors price the engagement risk associated with a managerial tone that appears less credible given information about economic risk factors impounded in financial statements. Our findings inform researchers, auditors, and regulators about the relevance of assessing managerial tone.

Using a sample of 442 financial reports issued by 69 Brazilian public firms, we examine the relationship between environmental information disclosure and the profitability and market value of these firms. Disclosure of environmental information was measured through a disclosure index developed based on the literature, comprised of 46 environmental indicators. Results indicate that the environmental disclosure is associated with a reduction in returns – measured by ROE and ROA – and in the market value of the firms measured through Tobin’s Q, and show that firms that disclose environmental information are larger in terms of total assets. Our results contribute to the literature by showing that environmental disclosure can result from the greater social pressures faced by larger firms, and that the possible economic advantages of the disclosure of environmental information, in terms of obtaining or maintaining legitimacy, may be quantitatively dominated by the costs associated with disclosure.

Abstract During the IASB’s and FASB’s joint revision of their conceptual frameworks between 2004 and 2010, two controversial debates arose on whether stewardship should be stated as a separate objective and on whether reliability should be replaced by faithful representation. Stewardship and reliability have played important roles in the history of accounting practice and thought and were coined “living laws” of accounting in recent literature. Our paper explores the relationship between living laws and conceptual frameworks by analysing the comment letters submitted to the IASB/FASB during their framework revision project. We find that constituents’ resistance to the proposed changes in the framework can be explained by the living law status of stewardship and reliability. However, we also find that once a departure from a living law has been established in a written conceptual framework this seems to be accepted by the accounting community over time. All in all, our study highlights the social and cultural role of conceptual frameworks in financial reporting that might even be more important than their actual direct influence on standard-setting and accounting practice.

The present manuscript examines an evolving Co-operative Compliance program in the context of Finnish tax administration interacting with some of the largest corporate taxpayers. Co-operative Compliance, which is operated in Finland under the label of Enhance Customer Collaboration, is one of the main initiatives taken by the OECD aimed at improving tax compliance and tax administration practices. According to the OECD, the following principle best characterizes co-operative compliance: “businesses that are prepared to be fully transparent can expect certainty about their tax position in return” (OECD 2013, p. 11). Overall, enhanced customer co-operation, like other co-operative compliance regimes, is premised on the ideas of voluntary participation, mutual trust and respect between the tax administration and its corporate clients. We analyze the mixed effects of collaborative compliance building upon the notion of post-political regulation (Garsten and Jacobsson, 2013).

We provide large sample evidence on the association between earnings management, debt covenants, and future firm performance. Firms engage in both real and accruals earnings management in order to avoid violating covenants. We examine whether shareholders benefit when their firms engage in earnings management to avoid a debt covenant violation. We find that relative to firms that do not violate a covenant, covenant violation firms experience significantly higher growth in ROA. Our results are consistent with banks imposing increased cost discipline (e.g., large reductions in capital expenditures, forced assets disposals) on firms. However, firms engaging in both real and accruals-earnings management generally experience slower growth in ROA. In addition, real earnings management firms experience negative abnormal stock returns, while accrual earnings management firms do not. Our results indicate that shareholders incur real costs when their firms engage in real earnings management activities in order to avoid debt covenant violations. These violations are costly for shareholders: bank intervention following covenant violations appear to change the firm’s operations in a way that is beneficial for the bank but suboptimal for equity holders.

As government and private actors rethink responsible business conduct, business forms emerge claiming to institutionalize the dual-purpose business entity – an enterprise with both a profit motive and a public welfare motive. This paper focuses on benefit corporations (BCs), the latest incarnation of the dual-purpose entity arising through the legislative process in the United States. Since 2010, 32 states have enacted BC legislation. We study how this legislation spread and evolved in a select group of states. In analyzing the legislative processes in these states, we mobilize the concept of institutional entrepreneurship, examining the role of interested actors and the struggles that take place between these actors in processes of institutional change. Our analysis suggests that business forms such as the BC are limited in the extent to which they institutionalize business conduct for the common good, instead promoting investment capital and associated governance processes. Indeed, this new business form appears to be a manifestation of the migration of responsibility for public services and social welfare to the private sector. We anticipate the implications of the shifting landscape of business conduct and the common good as the BC emerges as a potential player in the social welfare arena.

In this paper, we develop a novel approach towards estimating firm level expected stock returns. Building on (Ohlson 1995; Feltham and Ohlson 1995) linear pricing rule, we show that the firm-level one-period-ahead expected stock return is a linear combination of book-to-market ratio, forward earnings yield, and a variable summarizing one-period-ahead value-relevant `other information'. This `other information' can be inferred by the firm's one-period-ahead earnings expectation and the current stock price. The empirical evidence shows that the expected return estimates are significantly positively associated with future realized returns and are associated with a range of return predictive variables.

ABSTRACT We investigate if accruals quality is useful for stock market investors as an indicator of earnings quality, by examining its association with idiosyncratic return volatility, for a sample of UK firms listed on the London Stock Exchange. Using panel data, we find that poor accruals quality is statistically associated with higher firm-specific return volatility. This association also holds for other measures used for the quality of the information environment: dispersion in analysts’ forecasts, the innate component of accruals quality, which reflects the uncertainty about the nature of the firm’s business and the discretionary component of accruals quality, which is related to managerial discretionary choices. More specifically, we find that adding the dispersion in analysts’ forecasts increases the explanatory power for idiosyncratic volatility of the remaining measures of the quality of the information environment. Our results are consistent with the noise-based approach of idiosyncratic volatility. These findings are likely to contribute to the debate on whether idiosyncratic return volatility captures more firm-specific information being impounded into stock prices or essentially reflects noise. JEL Classification: G12, G14, M40 Keywords: Idiosyncratic Volatility, Accruals Quality, Analysts’ Forecasts.

This paper examines whether whistleblower fraud allegations affect firms’ contracting with their customers. Using a dataset of whistleblower allegations brought under the False Claims Act against firms accused of defrauding the government, we find that federal agencies do not reduce the total volume of contracts with accused firms; however, they substitute 31% of the harder-to-monitor cost-plus contracts for fixed-price contracts. Consistent with the government reacting more strongly when its risk exposure and bargaining power are greater, this reduction is larger among firms with higher contract volume and firms with higher contract volume of competed contracts. Our findings indicate that fraud allegations result in higher customer monitoring through contract-design changes.

This paper is an exploratory paper that examines and suggests controls for patient flows in the Swedish medical system. A multi-study critical approach is used to first generate a better understanding of the relationship between the number of patients encountered by doctors and work related exhaustion. A number of theoretical concepts are developed from the interviews. Furthermore, as this area of research contains an abundance of flaws that have not truly been tested, we also tested such flaws by means of a small separate study (Study 2). This study focuses on if administration should absorb all the time of medical doctors. We expected a negative correlation, but found a positive one. Finally, we used constructs from Study 1 (i.e., interviews) to develop and test theoretical constructs. The proposed constructs reported a high validity. A final structural equation modeling approach confirmed that a greater work recognition is negatively correlated with patient performance, but that a high patient performance is also negatively associated with work-related exhaustion. Our results support a study found in another context suggesting that a lack of patient contact may create stress for both medical doctors and patients.

Stock recommendations are considered the most influential output that financial analysts produce. However, extant evidence shows that stock recommendations are optimistically biased due to misaligned incentives that analysts face. We propose a novel measure to ex ante classify analyst stock recommendations as optimistically biased. Our measure is the percentage difference between the 12-month horizon target price reported by the analyst and the actual price of the stock one day before the announcement. We premise that, when target prices are closer to current prices but the recommendation is optimistic, the analyst is more likely to provide a biased recommendation. Using a dataset of 28,741 optimistic recommendations, i.e. “Buy” and “Strong Buy” recommendations, over the period 2003 to 2015, results show that when the difference between target prices and current actual prices is larger and the analysts’ recommendation is optimistic the cumulative abnormal returns (CARs) for a number of different windows are higher. Our regression results also confirm that our measure is positively related to CAR and it is highly statistically significant for all windows tested.

This paper analyses the 23-year history of salary cap regulations in the National Football League (NFL). While the aim of the salary cap is to ensure a level playing field this paper finds that the regulations are imperfect and the playing field is tilted towards teams in low-tax states. The results show a significant negative relation between the amount of the net (after-tax) salary cap represented by the personal income tax rate of the teams’ home states and the success of the teams. Over the sample period (1994-2016), teams in high tax states win on average every season 0.2 games less per each percentage point of tax differential. A team from California (highest average tax rate) wins 2.75 games less per year than a team located in a no-tax state such as Florida or Texas. While the main focus of this paper is the salary cap regime of the NFL, the results of this research also draw inferences onto the corporate world where salary cap regulations have been introduced more frequently into the policy debate over the last several years. Previous literature however has largely ignored binding maximum wage rules and their effects on the regulated firms’ performance.

In recent years, much attention has been devoted to the challenge of managing massive immigration flows into Europe. Despite the wide range of accounting and accountability concerns associated with migration policies and control systems, only a few accounting scholars have investigated this topic. Drawing from the social praxeology of Pierre Bourdieu, this paper adds to and extends previous accounting studies that have explored the limitations of a calculative accountability and the accounting blindness to the needs of suffering people. This study investigates and maps the policies, processes and agents involved in the migration management system deployed by the Italian government to cope with the refugee crisis. The analysis of interviews and official documents shows that accounting practices influence the distribution of the capitals in the field of migration management and exercise a symbolic violence on migrants’ identity so producing an accountability decoupled from its moral dimension and ineffective in addressing the humanitarian emergency.

This is the first study to experimentally investigate the interactive effects of time pressure (TP) and the order of information in an accounting context. Prior accounting research and Hogarth and Einhorn (1992) in their original article on the belief-adjustment (BA) model have called for an investigation of the potential moderating effect of TP on order effects. We propose and examine a path model of the effects of TP on nonprofessional investors’ belief revisions. Individual investors make a stock price judgment and short-term investment decision following the receipt of a news announcement with mixed information about the company’s stock. We manipulate the order of information and the time available for the decision. Our findings support the proposed model. First, investors trying to make a short-term profit under a time limit perceived significant TP, even when the time limit is equal to the time usually required to make such a decision. Second, perceived TP had a significant, positive effect on investors’ motivation but also on their stress and perceived task difficulty. Task difficulty had a significant interactive effect with the order of information on investors’ investment decisions. There is an optimal level of task difficulty at which order effects are eliminated. Third, greater motivation and stress caused increased stock price estimations and greater investments into the stock, which may explain individual investors’ excessive trading observed in prior research.

This paper empirically analyses the relation between earnings volatility and earnings predictability across business cycles in the eleven biggest economies, which include the main developed and emerging economies. By analysing annual data of 9,193 listed non-financial firms from 1995 to 2015 (total of 138,173 firm-year observations), we estimated firm-specific earnings persistence and forecasted earnings based on country-specific cross-section estimation. We show, in all countries, a strong relationship between earnings volatility, earnings persistence and earnings predictability and demonstrate that well-accepted cross-section models to forecast earnings would benefit from the consideration of different business cycles. Moreover, business cycles significantly affect earnings forecasts differently in developed and emerging economies. While periods of economic downturns are associated with higher forecast accuracy in developed countries, the significant and positive coefficient in emerging economies suggests that earnings accuracy is lower during recession periods.

This study examines whether the United States’ (US) regulatory intervention to encourage whistle-blowing, as enacted through the Sarbanes Oxley Act of 2002 and the Dodd-Frank Act of 2010, can be effectively transplanted into another country without having unintended consequences. A total of 98 US and 84 German Professional accountants participated in an experiment relating to a case of financial statement fraud. The provision of anti-retaliation protection and monetary rewards for whistle-blowing were manipulated. Germany is a country with a historical fear and distrust of whistle-blowers, whereas in the US whistle-blowers have been treated as heroes. Our findings provide strong support for the theory of path-dependence, which argues that because of the unique history and culture of a country, it should be ineffective to uniformly transplant laws from one country to another. This research informs global regulators in their design or redesign of future and existing whistle-blowing regulations.

This study examines the relevance to investors of greenhouse gas emission (GHGE) disclosures by publicly traded firms in Canada. While prior research shows that investors in Australia, Europe, and the United States price GHGE as a significant off-balance sheet liability, that evidence may not apply to Canada. We report two main results on the GHGE disclosures of Canadian firms. We first show a relation between actual or estimated GHGE per share and the market value of the firm’s GHGE off-balance sheet liability. Second, using a short event window, we show that a change in the GHGE off-balance sheet liability occurs contemporaneously with disclosures. Unlike the earlier studies, however, these valuation effects are much smaller and mostly reside with emission-intensive firms.

This manuscript aims to define the management behaviour of companies modelling the activity of firms throughout the application of the new Accounting Methodology of Radar Charts (AMRC). This analysis approaches the management behaviour through the definition of the kind of management (KM) adopted by firms according to their ordinary activity. Thus, KMs do not show whether companies are properly performing their ordinary activity, but is the achievement of optimal management (financial sufficiency and liquidity on transactions) in the considered areas. The results, performed on 156 Italian listed companies during 2007-2016, reveal differences between firms that adopt a positive KMs and those that adopt negative ones, especially in factors related to financial statements and market. There are additional differences when we analyse every KM, both for internal and external factors. As well, human capital, financing policy and location benefit companies to meet optimal management.

This paper examines users’ perceptions on the usefulness of the new auditor’s report introduced by the IAASB. Specifically, we employed the questionnaire survey to investigate perceptions of professional and nonprofessional users in Thailand on the importance of the components of auditor’s report, types of key audit matters (KAM) and types of audit opinions. We find that users perceive audit opinions and KAM as useful information when considering the components of new auditor’s report. Content analysis by KAM types reveals that users pay greater attention to issues related to fraud in revenue recognition, impairment of assets, and accounts receivable valuation than other KAM types. The results may be influenced by strong wordings and negative language in these matters. Regressions by types of audit opinions indicate that users significantly realize the usefulness of all modified audit opinions. However, we find no significant results for an unqualified opinion because users may consider the standard unqualified opinion as a boilerplate. Interestingly, users perceive that the KAM section remains informative for every type of audit opinions. Our findings support an attempt of the IAASB in improving the communicative value of the new auditor’s report. Nevertheless, the IAASB should simplify technical terms used in KAM and encourage users to increase the frequency of reading an auditor’s report, especially all types of KAM.

This paper tests whether the “style” of individual auditors influences the abnormal accruals of German listed firms. Since Germany is one of the few countries where listed companies are required to report the names of individual engagement and review partners, we apply fixed effects models to measure the impact of individual auditors’ style on audit quality. Our results suggest that, after controlling for audit firm and audit office effects, engagement partners have a detectable influence on the abnormal accruals of their clientele. While we find that auditors which have the ability to make important decisions and are able negotiate with the clients, mater for audit quality, this does not apply to the leaders of the audit team, the review partners. We obtain our results in the German audit environment which is generally characterized by high reputation risk and a two-tier audit quality enforcement system that operates through a “naming and shaming” approach. These characteristics, together with standardized auditor training and strict control mechanisms in work procedures result in a unique setting where audit quality is expected to be uniform. The outcome of this study is nonetheless consistent with audit quality of German firms being a function of distinct firm, office, and engagement auditor styles.

Global audit firm networks (GAFNs) are organized to deliver high-quality audits across their networks, allowing audit firm members to benefit from the use of a common name, branding and methodology. We investigate GAFNs’ capacity to deliver uniform and high-quality audits, as evidenced by their ability to avoid firm-level quality control defects identified in the Public Company Accounting Oversight Board (PCAOB) inspections. Using the incidence of Part II disclosures identified in 2,474 PCAOB inspection reports between August 26, 2004, and September 30, 2015, we do not find support that learning or knowledge transfer within GAFNs help to avoid future quality control defects. However, in examining the potential determinants of Part II outcomes, we find that two network-level attributes (relative GAFN member size and duration of Forum of Firms membership) contribute to lower incidence of quality control defects within GAFNs.

Higher education institutions have adapted to various reforms and scenarios over the years. We argue that one of the ways of differentiation higher education institutions is to perform an important level in sustainability. In this sense, the purpose of this investigations is to analyses social responsibility in high education institutions and examine whether governing board structures, reputation and economic and financial resources have a relationship with social responsibility. For this, the authors take a sample of 150 British high education institutions that are in a sustainability index by the People and Planet’s University Ranking in the last two consecutive publications, 2015 and 2016. In this vein, we carry out some ordinary least squares models and find that there are interesting results that affect social responsibility and some of its dimensions/areas. The authors show the following findings: first, there is a curvilineal relationship with an exponential growth curve between independent governors and social responsibility; board meetings present a negative relationship with social responsibility in the area of educations; reputation has a positive relationship with social responsibility when is split in some of its factors; and, we find a negative relationship between funding and research grant and social responsibility. This paper may be useful as a guide for performing social responsibility at high education institutions.

The paper evaluates the financial performance of Czech entities under control of companies listed in the EU and their relation to effective tax rates. Using individual corporate data, empirical evidence indicates a wide dispersion both in performance and taxation. The domicile of the parent has an impact on the subsidiary’s effective tax rate and the effective taxation of Czech subsidiaries under control of foreign listed parents is significantly lower than for other Czech companies. Despite exhibiting tax avoidance to some extent, the data reveal significant variability in relative tax rates suggesting that the majority of foreign parents from western and northern EU countries prefer to tax profits in the Czech Republic rather than elsewhere. Shifting profits to the Czech Republic results in superior reporting performance of the affected subsidiaries. In contrast, empirical evidence shows that parent companies from southern EU countries seek ways to avoid taxation. The unclear tax motives of both parent company groups hinder an appropriate assessment of the financial performance of subsidiaries from being conducted.

Capital market participants strive for timely access to business relevant information about private and public economic entities. In this study, we design a dynamic and software-independent information extraction algorithm capable of utilizing valuable information from thousands of current reports on Form 8-K filed with the U.S. Securities and Exchange Commission (SEC). The algorithm is used to examine the information content of voluntary Form 8-K disclosures on financial markets. We find that certain corporate events disclosed within "Item 8.01 Other Events" in current reports on Form 8-K are value-relevant for shareholders and investors. The findings in this study are relevant for capital market participants interested in extracting valuable information from SEC submissions quickly and cost-efficiently, and for regulatory authorities evaluating the impact of regulatory filings.

In a context characterised by the textualisation of ethical guidelines and the scientifisation of accounting practices, an important question to pose is how can accounting professionals be released from an excessive focus on technical accuracy, technical neutrality and technical abstraction. Grounded in a human person-oriented approach, the common good principle may help accountants to attenuate these phenomena by including more explicitly a consideration of public interest, and even going beyond it. First, the common good can serve as a basis for the establishment of an ethical protocol based on the search for embedded community goods, human development and the personal good of each member. Second, the common good provides specific ethical principles including subsidiarity, totality, teleological hierarchy, long-term commitment, reality and unity that can better assist accounting professionals to exercise ethical judgement. Rather than arguing in favour of a strict obedience to ethical rules enshrined in professional codes, this article advocates an open ended protocol inspired by the common good principle in order to promote the re-contextualisation of accounting practices conducted by reflexive and sentient practitioners.

The European legislator presumes that the joint provision of audit and non-audit services impairs auditor independence and, therefore, recently passed a new regulation on statutory audits of public interest-entities, which includes further restriction regarding the provision of non-audit services to audit clients. Motivated by this reform, our paper investigates whether investor and lender perceptions of audit quality are affected by auditor-provided non-audit services. Based on a sample of German companies, firms’ cost of debt and equity capital are used as proxies for investor and lender perceptions of financial reporting credibility, and the association between the level of non-audit service fees, including it different types, and the cost of debt and equity is tested. The findings suggest a significant positive association between total non-audit fees and cost of capital, implying that investors and lenders perceive higher levels of non-audit service fees as a threat to auditor independence. Investigating the effect of different types of non-audit services on both cost of debt and equity capital shows that other assurance and other consultancy services have a negative effect on auditor independence perceptions, while the provision of tax services does not have an impact. Furthermore, additional tests document that the cap on non-audit service fees relative to audit fees of 70 percent might be too moderate to improve investors’ perceptions of auditor independence.

Theory suggests that the quality information is relevant for optimal decision making in the transfer pricing function that affects both tax planning and managerial control. Exploiting survey data from transfer pricing managers at multinational companies (MNCs), we examine to what extent digital information technology (IT) supports contemporary transfer pricing systems and whether variation in the use of digital IT is associated with transfer pricing out-comes. We document substantial variation in the use of IT across firms’ transfer pricing pro-cesses and acknowledge that the uptake of sophisticated IT is still premature. Multivariate results suggest that the use of a relatively high IT support in the transfer pricing function pro-nounces the negative association of some tax planning opportunities (particularly leverage) with the GAAP effective tax rate (ETR) and that it fully attenuates the positive relationship between tax risk and the ETR. Consistent with theory, we also find a negative association between the intense use of cost-based transfer pricing methods profitability. This association diminishes with a more sophisticated IT support. Our study contributes to the literature on the mechanisms of tax planning and the optimal design of transfer pricing systems as part of a management control systems. Our results suggest that better IT might facilitate managing the conflicting tax and non-tax objectives of transfer pricing.

This paper examines how accounting concepts continue to be at the fore of an on-going and heated political debate on water management and supply in Ireland. It builds on and extends extant research on the formation of the Irish Water company, which used an actor-network approach. Using a similar approach, the focus of this study is on how accounting concepts were used during the years of 2015 and 2016, when domestic water charges became an even more politicised issue than previously. Previous research has shown how the concept of ‘cost’ was mobilised in a number of competing ways in attempts to achieve different political ‘ends’ in relation to the introduction of domestic water charges. This research reveals how the ongoing mobilisations of accounting concepts continue in the efforts of disparate actors in their attempts to gain their desired political ‘ends’. These efforts prompted a reorganising of previously formed calculative space, the assembling of new actors, and the formation of new calculative spaces. Of interest is that within these attempts, calculative practices are mobilised that have as their political ‘ends’ the re-associating of the concept of ‘cost’ with being a ‘means’ to providing a sustainable domestic water supply.

We examine the empirical association between customer satisfaction and tax avoidance. Customer satisfaction is a valuable intangible asset for most firms. On the other hand, tax avoidance is considered a socially undesirable corporate practice, which may harm firm reputation. Therefore, we argue that firms that focus on satisfying customers will avoid engaging in excessively risky tax policies. Using American Customer Satisfaction Index score (ACSI) as a measure of customer satisfaction, we find that customer satisfaction has a negative association with uncertain tax benefits (UTB). This finding is supported by a positive relation between customer satisfaction and cash effective tax rate, a negative relation between customer satisfaction and interests and penalties imposed by the Internal Revenue Service (IRS) upon tax audit. Taken together, we conclude that firms that are more concerned about customer satisfaction and reputation have a higher likelihood of avoiding tax aggressive activities

Drawing on legitimacy theory this study investigates the relationship of quantity and quality of voluntary environmental disclosures (VED) with Global Reporting Initiatives (GRI) guidelines, ISO 14001 and medium of disclosures. Secondary data sources such as annual reports, standalone sustainability reports and corporate social responsibility (CSR) reports were used for data collection purposes. After analysing the data through statistical software- SPSS, this study finds that both quantity and quality of VED has positive relationship with all three variables- GRI, ISO and medium of reporting. A key conclusion form this study is that organisations try to legitimize their environmental actions by VED and quantity and quality of VED is influenced by the management’s decision regarding the adoption of GRI guidelines for external reporting or certification to ISO 14001 for better environmental management system (EMS).

This paper compares bad debt estimation by firms extending credit to businesses (trade credit) with those extending credit to consumers (consumer credit). Consumer receivables differ from trade receivables in transaction size, credit risk, and disclosure requirements. First, we find significant differences in the conservatism of trade and consumer credit firms in their allowance for doubtful accounts, which presents mixed evidence relative to prior research. Second, we find mixed results with respect to trade credit firms. Trade credit firms exhibit significant and increasing conservatism in estimating bad debt expense in some instances but not in others. Finally, we find consumer credit firms estimate uncollectible accounts close to write-offs in the subsequent period with no signs of earnings management. One possible reason is that consumer credit firms must comply with additional disclosure and regulatory requirements that limit their ability to make opportunistic accruals. While these findings may be due to the difference in firms’ characteristics that we were unable to control, the fact that our study period coincides with an era of increased regulation, disclosure and transparency give us greater confidence in our conclusions.

The political budget cycle suggests that incumbents usually increase government spending to please voters in the year of election, resulting in an increase of budget deficit or a decrease of budget surplus during the year. This study examines if the political budget cycle exists among local governments in Indonesia by investigating its effects on local governments' cash holding and short-term liabilities. Using data from financial statements of 1,725 local government-years from 2007 to 2011, this study finds that budget surplus is lower during election years, consistent with the political budget cycle. This study further discovers that cash holdings are lower and short-term liabilities are higher during reelection years, confirming the relatively higher government expenditure by incumbents during the election years. Lastly, this study finds that the election effect is much stronger when mayors are still reelection-eligible (i.e. first-term) than when they are not (i.e. second-term).

We seek to understand the factors driving the controversial decision in Australia not to adopt the IFRS for SMEs. Using document analysis and interviews with the key players involved in the standard setting process, our research shows that maintaining the existing IFRS recognition and measurement criteria for all corporate entities was at the heart of the debate. The ideology of the standard setters’ and the key influential players involved in this discussion shaped the differential reporting debate where the IFRS for SMEs was not seen as a “good fit” for the Australian economy. The embedded “transaction neutrality” approach further supported this ideology as did training programs in the Big 4 firms and regulatory guidance issued by the Australian Securities and Investments Commission.

This paper traces the evolution of the Italian accounting regulatory system from the 1942 Civil Code to the introduction of IFRS in 2005 to reflect on how the interactions among the principles of the Market, State, Community and Association shaped the current accounting regulatory system. In particular, it focuses on the role played by: (i) preparers and users (Market); (ii) Italian and European legislators (State); (iii) academics (Community); and (iv) accounting professionals (Association). This analysis adds to accounting history literature by providing an understanding of the dynamic interplay between those principles in a civil law country, where the evolution of professional standards has been strictly dependent on legislative changes. Companies, the accounting profession, and the financial markets were never innovators in accounting practice, but only reacted to law requirements when improving financial reporting and promoting professional standards. This paper also shows how the academic community gradually lost its influence on the standard setting process, without any coordinate effort to play a more active role.

The objective of this paper is to analyse the effect of professional, technical and relational background (human and social capital) on promoting firm CSR disclosure. Following the Hillman et al (2000) taxonomy of board members, we classify directors as business experts, support specialists, and community influentials, and examine whether business, technical expertise or political ties in the boardroom affect CSR disclosure. This study confirms that not all outside directors are equally effective in improving CSR disclosure and that only certain kind of outside directors, those classified as support specialists, help increase it. On the other hand, our findings also evidence that directors with previous experience as politicians affects negatively CSR disclosure, probably because of their interests in protecting their political ties and avoiding the disclosure of competitive advantages to competitors. In addition, our analysis extension reveals that powerful CEOs and their incentives to reinforce their legitimacy in the eyes of the shareholders, affect positively the board/CSR disclosures relationship. Therefore, this paper supports those theories that claim for analysing the multiple configurations of corporate governance mechanisms in a “holistic approach” and the need to combine them to analyse their impact on CSR behaviour.

Within the board diversity literature, the issue of gender diversity has been extensively studied, however, limited research has examined whether gender diversity at board level has any influence on CSR decision outcomes. By considering the framing of these decisions, this paper aims to fill this knowledge gap and shed light on whether, and how, gender diversity influences CSR related decisions. Eight in-depth semi-structured interviews were conducted with board members of Australian companies to examine their perceptions of the effect of gender diversity with specific analysis of how they discussed and ‘framed’ their views. The findings show evidence that there is a general perception that gender diversity has the potential to influence board level CSR-related decisions, but the interviews identified some potential barriers to females in making significant contributions. Moreover, the paper contributes significantly to the body of knowledge by going beyond the plethora of quantitative analyses that examine direct relationships, and responds to calls for qualitative examination of board perspectives on CSR and its potential effect on decision outcomes, which has been rare in previous CSR research.

We investigate the impact of considering key audit matters (KAM) on auditor judgment performance and conducted a 2×2 between-subjects experiment based on a goodwill impairment testing case with 73 experienced auditors. We manipulated the two independent variables KAM consideration (present vs. absent) and client pressure (high vs. low). As dependent variables, we captured skeptical judgment and action as different facets of auditor judgment performance. Our results suggest that auditors’ reaction to our client pressure manipulation is rather weak. If at all, auditors seem to become slightly more skeptical in their judgments and actions when client pressure is high, which might suggest that a reasonableness constraint has been triggered. Furthermore, we find that auditors exhibit significantly less skeptical judgment when KAM consideration is present than when KAM consideration is absent. This suggests that, when considering KAM, auditors are more willing to acquiesce to their clients’ desired accounting treatments due to moral licensing.

I investigate the real effects of mandatory extraction payment disclosures, which require European oil, gas, and mining firms to publicly disclose their payments to foreign host governments in a granular report on their corporate website. Extraction payment disclosures are substantially more detailed compared to previous payment records, allowing activist groups to identify payment discrepancies and exert societal pressure on extractive firms. Using manually-collected host country data on firms' extractive activities abroad and exploiting the staggered, plausibly-exogenous adoption of extraction payment reports across European countries and firms' fiscal-year ends, I document that disclosing companies increase their payments to host governments but decrease and reallocate investments relative to tightly-matched, non-disclosing competitors from around the world. The effects are stronger for large firms and for firms that sell their products directly to end consumers. My results suggest that social responsibility disclosures can have sizeable real effects, especially if public shaming by specialized activist groups disciplines companies not to engage in illicit practices. In contrast, extraction payment disclosures are not associated with improved measures of corruption at the aggregate host country level, which questions unilateral disclosure mandates aimed at addressing foreign policy objectives.

In this paper we utilize the concepts of institutional work in understanding the role of accounting in organizational changes during periods of organizational success or failure. We especially discern de-institutional work (leading to rapid, surprising and revolutionary changes) from institutional work (portraying most typically evolutionary change). We illustrate these accounting change processes by using a longitudinal case data from the Nokia Group. The case analysis shows how trust in accounting can be divided into components of reliability and relevance, which may be very differently emphasized in financial and managerial accounting as well as among organizational levels. Further, we present a framework for analyzing elements of institutional work in accounting changes. We suggest that dimensions of relevance, reliability (including aspects of legitimacy) and the effort needed for change both facilitate analysis and guide managerial attention in accounting change projects. Furthermore, our analysis contributes to recent institutional work literature by distinguishing institutionalization and de-institutionalization of organizational practices in situations of success or failure.

We find VIXRSQ, the R-squared from annual regressions of market implied volatility on firm implied volatility to be an effective measure of a firm’s level of macro-connectedness. From 1996-2015, higher VIXRSQ firms have: (1) insider trades that are more strongly associated with one-year ahead aggregate returns, (2) earnings that are more strongly correlated with aggregate measures of equity returns, volume, and volatility, and (3) changes in firm profits that are associated with changes in aggregate profits for the calendar year. Our results imply high VIXRSQ firms can serve as bellwethers by providing aggregate information about both equity returns and profitability.

We develop new transaction management (TRM) proxies, to find empirical evidence of the strategic management of accounting transactions, aiming to carry out money laundering activities, within a sample of 355 firms controlled by Italian Mafias. Our results reveal that, using a cluster analysis, Mafia-controlled firms can be classified into two different groups corresponding to real firms and shell firms. Importantly, our estimations provide evidence of different TRM practices, which may be linked to specific money laundering activities. Finally, the seizure of Mafia-controlled firms and their assignment to legal administrators only have a significant impact on TRM within Mafia-controlled shell firms, whereas the null impact on TRM, within Mafia-controlled real firms, casts doubt on the ability of legal administrators to completely deter money laundering. This study proposes new TRM proxies, based on the nature of the expenditure transaction, which could be used by authorities as accounting red flags of money laundering. Furthermore, this study shows that traditional TRM proxies may be ill-suited for depicting TRM practices within firms sharing common traits with Mafia-controlled firms. Indeed, these firms may engage in TRM for illicit purposes, when the external scrutiny is weak, their financial statements are irrelevant for trading with stakeholders, because of dominant market positions, and they can count on colluded actors as counterparties of money laundering transactions.

In 1962, Catholic schools in a small rural city in the State of New South Wales, Australia went on strike to protest their lack of state financial aid. They viewed this lack of state aid as reflective of long-standing anti-Catholic discrimination that was supported by government. Both religious and education historians have supported this view and construed these events as a governmental use of power to oppress the Catholic Church in Australia. In this research, we examine the strike and surrounding events from an accounting perspective. We conclude there is a mythologised narrative of discrimination that is not supported by the accounting evidence and that, while there was entrenched anti-Catholic discrimination in Australia at the time of the strike, it was not a precipitator in the denial to Catholic schools of financial aid. We also conclude both the schools and the government were operating with an incomplete financial information due to the weaknesses in their accounting systems, so neither group understood fully the contribution that Catholic schooling was making to the state and the amount by which it was subsidising the government’s education budget as a substantial proportion of the cost of education shifted from the government to the Catholic Church.

We study the rumor mill effect of social media in the price discovery of potentially false information. We focus on merger rumors, where most rumors do not materialize. We find that merger rumors accompanied by greater social media activities, as captured by rumor-period user tweet volume, are less likely to be accurate. However, despite the negative relation between tweet volume and rumor accuracy, the market reaction is positively related to the rumor-period tweet volume. Falsely rumored targets with high tweet volume experience greater market reaction and prolonged price discovery compared to those with low tweet volume. Such behavior is more pronounced among targets with low institutional holdings and rumors that supply more details. Our evidence suggests that in the presence of false rumors, social media can be a rumor mill that distorts price discovery.

This paper investigates the motives of discretionary fixed-asset revaluation in Belgian nonprofit organizations (NPOs) and takes stakeholders unique to the nonprofit context into account. Revaluation alters financial statements (higher solvency and asset values, lower profitability) and could be opportunistically used for downward earnings management, which is widely documented in nonprofit sectors (Hofmann and McSwain 2013). We find that NPOs attach minor importance to revaluation’s favorable downward effect on earnings valuation, and much more to its unfavorable upward effect on asset valuation. Higher asset values signal a wealthy image and may result in a loss of funding and a loss of other benefits related to the nonprofit status. This logic clarifies why we find that donative (resource dependent) NPOs and NPOs with higher retained surplus (another signal of wealth) are reluctant to use revaluation. It is important that funders and regulators realize that NPOs’ economic wealth (asset value) is possibly higher than disclosed in the financial statements. This awareness can avoid a misallocation of economic resources.

We develop a measure of disclosure quality using the SEC’s Financial Statement Data Sets. Our measure extends the measure developed by Chen, Miao, and Shevlin (2015) in that our measure (ITEMS) is intuitive, does not depend on data aggregator subscriptions, captures the direct financial reporting practices of companies without being constrained by S&P’s data aggregation policy, and is better explained by commonly known determinants of disclosure quality. We test ITEMS against firm fundamentals that affect disclosure activities of firms and find that it is directly correlated with firm size, age, and complexity. We also find that ITEMS is inversely correlated with forecast errors, forecast dispersion, and bid-ask spread after controlling for firm fundamentals. This result is consistent with the notion that higher disclosure quality will help reduce information asymmetry. In additional tests, we find that financial reporting complexity drives our results because higher disclosure quality helps lower the information asymmetry in a more complex reporting environment.

This study examines whether and how political embeddedness influences the diffusion of corporate social responsibility (CSR) practices in China. Specifically, we investigate how government ownership and political connections affect Chinese listed firms’ likeliness of issuing CSR reports, but also the underlying CSR performance (CSRP) and its relation with the firms’ financial performance (CFP). Using panel data of 15,419 publicly traded firm-year observations in China for the years 2008–2014, our results show that politically embedded firms, and in particular firms that are centrally politically embedded, are more likely to issue CSR reports than firms without political embeddedness. The results also indicate that politically embedded firms, on average, have a higher CSRP than non-politically embedded firms. In addition, we find that for politically embedded firms, CSRP is more negatively related with financial performance than for firms without political embeddedness. This indicates that political embeddedness also affects the trade-off between CFP and CSRP. Our research thus provides first evidence not only on the effectiveness of government-induced CSR policies but also on its efficiency i.e., the potential opportunity costs that they imply. Furthermore, our results show that different types and levels of political embeddedness play significant but different roles in explaining firms’ CSR-related practices.

MNCs are regularly suspected to use transfer pricing for intangibles to shift profits from high-tax to low-tax jurisdictions. In contrast to prior research we endogenize the location choice for intangibles in an analytical model. Furthermore, we study the corresponding optimal transfer prices. Positive spillovers lead to non-zero optimal internal royalty rates despite the absence of marginal costs of using the intangible. In general, tax avoidance is recognized to be undesirable. Without restrictions on legal tax avoidance possibilities, we find that in line with the initial intuition MNCs locate their intangibles in low-tax jurisdictions to minimize tax payments. When restrictions on tax avoidance are present, MNCs need to trade-off tax minimization and efficient spillover creating maintenance investments. Then, for a large spillover, the intangible is optimally located in the high-tax jurisdiction. This ensures efficient investments because the spillover is internalized. Therefore, despite tax avoidance incentives, intangibles exhibit a `home bias'. In addition, the model predicts that curtailing profit shifting possibilities harms MNCs’ overall investments.

Most carbon accounting consists of valuing what has not happened. However, absent objects and their materialisations can be placed at the centre of political participation and be involved in public engagement. Using Marres’ (2012) notion of an experimental site of material politics, this paper investigates the role of absence in making environmental politics possible through the mediating role of simulating objects, such as carbon emission calculations. This is when calculative devices become seductive forces of public engagement and experimental sites for supporting the diffusion of new innovation technologies. The empirical analysis focuses on a calculative device developed by Autostrade, a firm that manages motorways, in its work to translate questions about capacity utilisation through fluidity of traffic into reductions in CO2 emissions. This reduction turned out to be a simulation that required an apparatus to be performed and that involved certain possible alternative scenarios focusing more on average CO2 reductions than absolute reductions. The Autostrade case highlights how calculations of CO2 emissions participate in the construction of the collective experience around them by interfacing concerns that encompass the rationalities of domestication of technological innovation and make motorway mobility a responsible and ac-countable experience.

In the last few years, the economic literature has shown an increasing interest in the lobbying activities on the International Accounting Standard Board (IASB). The purpose of this paper is to examine the impact of lobbying on IASB and to determine the characteristics of lobbyists by investigating the statistical evidences, focusing on the regulation of IFRS 16 – Leases. To extrapolate the data, we performed a content analysis of the comment letters addressing the Discussion Paper and the Exposure Drafts issued by IASB preceding IFRS 16. Then, the empirical statistical analysis has been carried out by mean of logistic regression analysis. Consistent with previous studies, our study on lobbying activities shows that preparers are the most active. However, we find a lower participation of lobbyists when the IASB started the project. This latter is not consistent with the academic literature. Then, we find that lobbying success is dependent on the credibility of the respondents. On the other hand, we find no significant evidences that say that lobbying success is positively related with the capability of lobbyists to transfer information to the IASB. Finally, we also find evidence that lobbying activities success is linked to the impact that the respondents have on the viability of the IASB. The application of this work can be extended to other accounting standards by adding new variables.

This study develops a revised perspective on the relevance of audit as a social oriented function and the future of auditing as a profession. We focus particularly on the aspect of professional development that has not been subject to much academic debate, at least not in recent years, i.e. the audit profession’s knowledge base. Our paper reports findings of an explorative European study into the skills sets, expertise and capabilities of the modern-day auditors with the aim of providing a critical assessment of whether the audit profession’s knowledge base may be seen as providing means to enable auditors to adequately respond to the evolving public demands for a socially meaningful audit function. We use an exploratory European study to address the following empirical questions: How do audit firms, as a distinctive type of Professional Service Firms (PSFs), manage expertise in a knowledgeable environment? How do auditors exercise their skills and competencies in such an environment? Addressing these questions allows us to make two related contributions. First, our research reveals a process of knowledge dis-intensification and challenges us to revisit the definition of a professional service as an intensive knowledgebased notion. Second, our paper highlights the gap between the claims of knowledge as an essential element of auditors’ identity and the practice of knowledge as a limited element in the auditors’ work. This ambiguity helps to perpetuate the “institutionalized myth” of audit as a knowledge-based activity and its overall sustainability.

We employ computer-based textual analysis to examine disclosure patterns for a sample of U.S. CSR reports from the period 2002-2016. Using report length, we observe a positive relationship between CSR performance and disclosure level, as predicted by signaling theory. The conclusion is further supported by our Latent Dirichlet Allocation (LDA) model results, namely, good CSR performers cover more topics and exhibit greater homogeneity of topic coverage, compared to poor CSR performers. The two CSR performance types differ not only in “how much they say” in CSR reports, but also in “what they say” and “how they say it”. We find that poor CSR performers devote more of their CSR report to areas of CSR strength but less to areas of CSR concern. This selective disclosure behavior is consistent with the predictions of legitimacy theory (i.e., “greenwashing”). Finally, our machine learning model reveals that various other linguistic features, in addition to the level of disclosure, are important for revealing performance type. In particular, our linguistic analyses suggest that good CSR performers: are more specific and advanced in their writing; are generally more sociable, friendly and cooperative; and exhibit features suggesting greater ambition, achievement, and level of sophistication, consistent with their proactive CSR strategies. Our results potentially expand the information set that can be used to ascertain a firm’s true CSR performance type. Further, our results are potentially useful to analysts and investors when they are provided with CSR disclosures by private firms.

These days, the chief financial officer (CFO) is expected to be a business partner to the chief executive officer (CEO) who actively participates in major corporate decisions going beyond the scope of financial reporting. To keep up with these expectations, CFOs need to signal their ability to cope with portfolio decisions such as mergers and acquisitions (M&As). Based on this, we expect that early-in-career CFOs have career incentives to heavily engage in M&As and to even advocate risky M&A deals. Hence, we predict that a longer career prospect of CFOs is negatively associated with M&A returns. Our empirical results support this reasoning. We further substantiate our finding by revealing several moderating influences. Specifically, our empirical evidence suggests that the negative relation between CFO career prospect and M&A returns is more pronounced if M&A activity is high and less pronounced if the CFO already advanced in his / her career. Overall, our findings highlight that the evolving CFO role incentivizes the CFO to take bold actions that could be detrimental to firm performance.

There are numerous studies analyzing influence factors on information selection and processing in management decisions. Although manager’s risk attitude effects decisions and risk-taking behavior, its effects on information activities have not yet been researched. Thus, we examine the impact of individual risk attitude on information selection and use and risk-taking behavior in investment decisions and its interactions with other factors in a quasi-experimental study. As expected risk-seeking decision-makers select and use less information in investment decisions than risk-averse individuals. Nevertheless, decision-makers’ familiarity with the information and decision context is more influential. Contrary to our expectations we found a negative relationship between risk attitude and risk-taking behavior, which was completely mitigated by the impact of individual risk perception. Our study contributes to the debate concerning effective information provision by management accountants to improve procedural rationality of managerial decision-making. Management accountants should be aware of influence factors when designing information systems and offer trainings to improve information processing. Future research should investigate interaction effects of risk attitude, risk perception and information quality in a field study setting.

Asymmetric cost behavior has attracted the interest of many (empirical) researchers in the last years. Managerial cost management decisions considering resource adjustment costs serve as main argument explaining this phenomenon. The effect is measured using a log-log-model based on total firm costs and sales. In imperfect markets, managers do not only make cost management decisions. They also react to changing market conditions by adapt-ing output prices and quantities. Adapting output quantities influences both costs and sales. However, changing output prices only directly affects sales and not costs. Based on an eco-nomic model, we show that due to managers’ market-related decisions the widely used measure in literature might be biased towards asymmetric cost behavior. Specifically, the measure might indicate asymmetric cost behavior although no resource adjustment costs exist. The bias always occurs in imperfect markets with Cournot competition and in monopo-listic markets. Under Bertrand competition, the bias might occur due to changes in the firm’s product mix. Based on the findings of the model, we suggest considering type and intensity of market competition, development of output prices over time, and information from segment reports to better control for market-related managerial decisions. By doing this, the precision of the asymmetric costs measure widely used in literature can be increased.

Despite the incomplete and discretionary nature of segment reporting under ASC 280 (SFAS 131) and IFRS 8, existing research suggests that disaggregation across business segments improves the ability of security analysts to forecast earnings. However, we find that greater disaggregation across reportable business segments is not associated with higher analysts’ forecasts accuracy. On the contrary, information aggregated in few business segments is associated with a smaller earnings forecast error. We attribute this finding to the following three shortcomings of segment reporting: (1) its discretionary nature when defining the reporting segments, (2) the absence of relevant line items to report, and (3) the blurred perspective on operations. Accordingly, we document and quantify a discrepancy between firm profitability as obtained from firm-level data and firm-level profitability as aggregated from segment-level data and show that this discrepancy is associated with a higher forecast error. Our findings suggest that segment reporting does not accurately assist in the assessment of the firms’ overall performance. Our panel consists of a sample of 910 diversified US listed companies and covers the period 2009 to 2016.

This study explores changes in management design and use of internal controls after an economic crisis when an economy goes from expansion to recession. The data is based on a survey of more than 180 managers before and after the crisis in 2008 in a country where the economic crisis and the transition from expansion to recession was particularly distinct. The findings indicate that in the absence of internal control related legislative changes after an economic crisis but with increased public scrutiny of accountability structures, managers perceive internal controls as more important and are more involved in ensuring their effectiveness. The design of internal controls changes to objective based controls, more formal documentation and more frequent top management reviews of controls. This has implications for policy and control institutions.

The purpose of this research is to provide an account of the quantity, location and intentions regarding the use of IUCN categories as biodiversity disclosures in an organisation that has a professional interest in practicing conservation programmes to prevent species from extinction. This study applies a mixed methods approach to investigate the quantity and location of IUCN categories as biodiversity disclosures to provide an account of the quantity, location and intentions regarding their use in an organisation that has a professional interest in practicing conservation programmes to prevent species extinction. The findings of this study reveal that IUCN categories are appropriate biodiversity disclosures to highlight the threat of extinction. In an organisation that has a professional interest in practicing conservation programmes to prevent species from extinction, IUCN categories play a central role in the corporate communication with stakeholders. Unlike findings from previous studies, this study shows that a high level of biodiversity disclosures is neither used for impression management nor to express philanthropic means but to express the sincere effort of practicing conservation practicing conservation programmes to prevent species from extinction.

While prior studies of gatekeepers have examined the roles of traditional gatekeepers defined as professionals with normative isomorphic obligations, this study explores the roles of non-traditional gatekeepers in an alliance that is neither hierarchical nor market based. Drawing on new institutional theory, our study investigates the roles that non-traditional gatekeepers play in Aboriginal health care delivery and how accounting is implicated. Canada’s Health Centre of the Paul Band is our site of investigation. We find that three themes bear on the roles of non-traditional gatekeepers on Aboriginal health care governance: 1) eco-system control, 2) resource control and, 3) program control. We also find that accounting helps to facilitate the execution of these governance roles through internal and cost control mechanisms. Accounting inculcates standardized practices that are useful in resolving tensions in the health care alliance, but accounting controls also create bureaucratic restraints that have the unintended consequences of limiting access to health care and causing tensions in the alliance.

The Directive 2014/95 is the first European step that requires mandatory non-financial information. According to Regulatory Integrated Assessment framework (RIA), the study aims to address the expected impact of the Directive within the analysis of empirical evidence before the mandatory approach. This permits, on regulatory side, to evaluate the quality of the regulation thus if the law achieves its policy objectives and, on firms side, to struggle where companies have to invest to meet law’s requirements. The regulation of sustainability matters is studied in literature broadly in a post-implementation phase and at national level. This research, instead, focuses on the ex-ante process at European level. The Oil & Gas sector is chosen as sample of the study, because it is one of the most advanced sectors in sustainability disclosure. The examination of the law, in terms of content requirements (what) and location of information (where), is the basis to apply the disclosure-scoring system, a partial form of content analysis, to the reports of the sample. The findings reveal a fair level of completeness of non-financial information, however, there are some areas that have to be improved to reach the requests of the Directive. Results show also the presence of overlap between financial reports and sustainability ones. In conclusion, the Directive will increase sustainability disclosure also in advanced sectors, even if there is an open point on the location of information.

We explore the question of whether control system design changes with the use of Enterprise Social Media (ESM). Although frameworks have been developed to conceptualize what types of behavior are enabled through ESM in organizations, ESM has been rarely considered as phenomenon that may change how control systems in organizations are configured. We provide arguments and empirical evidence regarding whether ESM use is associated with aspects of control system design. The aspects of the control system that we focus on are extent of subjectivity in performance evaluation (SPE), performance-based pay (PBP), and control aspects that form an organizational climate (OC). Our results show significant positive relationships between the use of ESM and SPE and the use of ESM and PBP. Some aspects that form an OC show positive, others show negative relationships with the use of ESM. Implications are discussed.

This study examines the effect of supplier scorecard performance on customer transactions. We propose that scorecard performance dimensions (delivery, cost, and quality) have varying impacts on future customer transaction quantities depending on the relative performance of competing suppliers. We further explore the effect of supplier types on the proposed relationships. Suppliers who supply complex components, which are large, and poorly performing pose greater risk to the manufacturer and therefore their relative scorecard performance may have a greater impact on customer order volume. Using ordinary least squares regression, we analyze a proprietary transaction-level data set from a major international electronics firm to test whether the firm’s monthly (for 41months) procurement decisions for 15 components that together are supplied by 78 suppliers are consistent with the relative performance evaluation (RPE) based on the firm’s supplier performance scorecard. Specifically, we test whether the allocation of the buyer’s monthly orders to a supplier is positively associated with the supplier’s performance and negatively associated with the reference ‘peer group’ supplier performance. We find that RPE exists for supplier and peer group delivery performance which is consistent with the short lead time and product life cycles in the smartphone industry. We also find that RPE exists for supplier cost performance when suppliers are larger or supply customized components.

Focusing on the format of dashboards and performance indicators, this study explores design features that make accounting visualizations influential in the engagement with highly complex organizational settings. Informed by empirical research on the reporting practices in Crossrail, Europe's largest infrastructure megaproject, this paper theorizes on how the design of accounting visualizations supports engagement with the challenges of project delivery. To address these concerns, we draw from the design theory concepts of affordances and visual conventions to show how designers deploy specific features to pre-form interaction with accounting visualizations. By theorizing three design principles – multimodal balance, visual relationality, and optical consistency – this paper contributes to understanding of how aesthetic and functional ideals inform the design and augment the power of accounting visualizations.

In this paper, we analyze the qualitative and quantitative differences and similarities between two prominent sustainability datasets namely the sustainability ratings developed by MSCI ESG KLD STATS (formerly known as Kinder, Lyndenberg and Domini Research & Analytics, Inc.) and Thomson Reuters ESG Research (formerly known as ASSET4). We find substantial qualitative differences between the two sources’ sustainability measures that are also reflected quantitatively through weak correlations between their scores. Our analysis of individual sustainability pillars reveals substantial differences, especially in evaluations of social and governmental topics. Additionally, we examine the impact of the dataset selection on prior empirical results by analyzing the effect of corporate sustainability performance on cost of equity. Following the methodology of El Ghoul et al. (2011), we find that corporate sustainability has a negative effect on the cost of equity when using MSCI ESG KLD STATS’s measurements, but not when using Thomson Reuters ESG Research’s measurements. The differences in the environmental, social and governance pillars between the datasets also impact the relationship between the single dimensions and the cost of equity. The results of this paper lead to the suggestion that researchers should choose sustainability ratings carefully, adjust differences between and within datasets, and conduct robustness checks to substantiate their theoretical justifications.

In this paper we estimate a discrete time hazard model to predict corporate default with a large database of financial reports including more than 6 million firm-year observations for large corporations as well as small and medium enterprises (SMEs) spanning 6 European countries from 2005 to 2014. We find that (1) financial leverage impacts more on the probability of default of SMEs than large corporations and (2) short maturity debt has a much bigger impact on corporate defaults than long maturity debt. We document how corporate defaults drivers are highly heterogeneous across European countries. These results hold across a rich set of robustness tests. Moreover, we show that sources of finance have a significant impact on loan prices. Our findings have important implications for credit risk modelling of bank loans, bank regulators and policy makers.

This paper examines the impact of unexpected hot weather (UHW) on firm performance. I find robust evidence that UHW has a significant negative impact on firms that are weather sensitive, as defined by their disclosures, but not on firms that disclose no weather-related risks, a result that holds in the cross section and across time. UHW is unrelated to revenue growth but is positively related to growth in operating expenses, suggesting a supply-side effect on performance. The hot weather-performance relation is stronger for firms where employees face greater risk from heat exposure and those with more geographically concentrated workforces.

There is a longstanding debate within the accounting profession on how to clearly distinguish liabilities from equity. Under current reporting standards, the distinction between liabilities and equity is intended to represent a distinction between the interests of a firm’s “owners” and those of its “creditors”. In this study, we argue that the owner-creditor distinction is inherently arbitrary, and in response, propose a liability-equity classification scheme in which capital received from external sources (“external capital”) is classified as liabilities and capital earned and retained from the firm’s internal operations (“internal capital”) is classified as equity. To validate our classification scheme, we theorize that the presence of liabilities in a firm’s capital structure is positively associated with its solvency risk. Consistent with this prediction, we find that the ratio of external capital in a firm’s capital structure is positively associated with proxies for solvency risk, and that this positive association is attributable to both capital contributed by shareholders (“stock capital”) and capital contributed by debtholders (“debt capital”). Our findings support the proposed classification scheme, which asserts that stock capital represents the firm’s liabilities to its shareholders, over the existing classification scheme, which asserts that stock capital represents equity.

I examine the effect of the tax burden on equity securities on the level on individual ownership in European listed firms, using a sample of over 45,914 observations for 9,055 European listed firms over the period 2001-2015. My results show a significant negative effect of the tax burden on equity securities on the level of aggregated individual ownership. If the tax burden on equity rises by 1 percentage points, aggregated individual ownership decreases by 0.06 percentage points. I also apply country-level analyses on the effects of single, large tax rate changes on aggregated individual ownership. When analyzing countries that experience changes in dividend taxation, but no changes in individual capital gains taxation (or vice versa), I am able to show that there is a significant clientele effect with respect to the firm-specific dividend payout ratio.

Increasing business complexity and the use of highly subjective future-orientated estimation mod-els amplify concerns in communicating uncertain business transactions and estimates. Since 2001, U.S.-firms are encouraged to disclose their highly uncertain accounting policies with a material impact on the presentation of the financial condition of the firm (critical accounting policies, CAP). The aim of this study is to examine whether CAP disclosures mitigate measurement error in the estimation of future economic outcomes. Based on our results, we find that measurement uncertainties have heterogeneous and firm-specific effects of the prediction of future outcomes. Particularly, we find that uncertain accrual components are not useful for predicting future cash flows per-se; but dependent on the importance and the specificity for a given firm.

In a large sample of private Spanish subsidiaries, we observe a significantly greater incidence of modified reports in foreign than in local group subsidiaries. This result is consistent with foreign group subsidiaries having lower incentives to avoid receiving modified audit opinions (MAOs), because of their lower dependence on external financing. Additionally, our tests reveal that, of the two types of MAOs that are potentially avoidable, only opacity related MAOs are more frequent in foreign than in local group subsidiaries. Curiously, despite the documented higher prevalence of earnings management in foreign-owned subsidiaries, the evidence of higher frequency of GAAP violation related MAOs in foreign group subsidiaries is weak. Thus, results suggest that the cost-benefit relation of avoiding MAOs hinges on the underlying reason for modification. In sum, our findings indicate that, as opposed to the public setting, foreign shareholders do not improve financial reporting quality in the private setting, but are associated with more opaque companies where the auditors are prevented from doing their work.

We examine the effect of economic policy uncertainty on the earnings management behaviour of US firms over the 1999-2015 period. We find that economic policy uncertainty exerts a positive effect on earnings management in accordance with the “lean against the wind” hypothesis. We also find that the positive effect of economic policy uncertainty on earnings management is pronounced for riskier firm. These finding remain robust in several sensitivity tests that comprise panel data estimations, instrumental variable estimation and panel vector autoregressive (VAR) models. All in all, these findings show that firm managers, by managing earnings upwards, aim to provide outsiders with an improved financial picture of their firm during periods of economic policy uncertainty.

This study examines the association between firm’s financial reputation and real activity-based earnings management. We use financial reputation rankings from Fortunes’ 1000 companies list, and measure real earnings management following Roychowdhury (2006). Our study presents a negative and significant association between corporate financial reputation and real earnings management after controlling for other factors that determine real activity-based earnings management. This study provides evidence that companies higher reputation are less involved in real earnings management activities. Results are consistent using propensity score matched sample. In order to eliminate the possibility of correlated omitted variable issue, we perform Heckman’s 2-stage model using firms suspected to be engaged in real earnings management and results are consistent. Our study suggests that reputation could serve as a disincentive for managers from manipulating earnings through real activities.

Minority shareholder protection has important capital market implications for corporate valuations and external funding. In this respect, squeeze-outs involving small private firms are concerning because inadequate shareholder protection may result in outcomes perceived as asset expropriation. This paper investigates the trustee of minority shareholders which is a form of minority shareholder protection used in Finland and Sweden in squeeze-out and sell-out cases. A trustee is typically either an attorney or an auditor, whose professions are governed by different codes of conduct. We analyze a comprehensive set of hand-collected cases of judicial valuation cases of Finnish private companies between 1998 and 2014 using statistical methods. We find that the trustee appears to benefit minority shareholders in the form of higher redemption prices. Our results also suggest that the trustee’s professional background is associated with the outcomes of judicial valuation. Compared to auditors, attorneys propose higher fair value estimates and appear to be more efficient in convincing the court that these valuations are justified.

Prior theory suggests that conflicts of interest between borrowers and lenders about future investments increase with debt maturity. Using a novel dataset and consistent with contracting parties minimizing agency costs related to future investments, I find that debt contracts with longer maturities are more likely to include a tailored capital expenditure covenant that allows the borrower to carryforward unused capital expenditure amounts and/or that allocates control rights over investments contingent on the borrower’s performance. I also find that for longer maturities, debt contracts have more covenants that are directly linked to the current performance of the borrower, thereby allocating control rights in a state contingent manner. Finally, I find that contracts with longer maturities are more likely to include a performance pricing provision that compensates contracting parties for wealth transfers. Collectively, these results imply that debt contracts are designed to alleviate over- and under-investment problems.

This paper examines why and how integrated reporting (<IR>) has been adopted in a local institutional context of Japan. We focus on the case of Japan and perform a fieldwork using a combination of in-depth qualitative interviews, observations and review of publicly available documents, to allow for data triangulation in order to capture the context in which <IR> is introduced and interpreted. Using institutional theory and notions of local translation and controversies, we find that <IR> has been adopted because of the need of organisational identity change in recent decades, as Japanese companies encountered a lack of trust on the part of global providers of financial capital. Thus, adoption was the consequence of external pressure from the West and internal pressures coming from local institutions in Japan. The study finds that <IR> allows for flexibility, which results in local interpretations in which some important <IR> elements may get lost. The paper adds to the body of knowledge relating to adoption of new accounting practice by focusing on the question of “Why and how does a particular accounting standard or framework become institutionalised in a particular context”? It responds to calls for studies that focus on implementing <IR> in practice and on how <IR> translates into a particular context, which is important for understanding how <IR> might be adopted in other jurisdictions.

This paper examines whether independent directors’ compensation is associated with related party transactions. We focus both on directors’ total compensation and on their equity-based compensation. Employing hand-collected data for S&P 1500 firms, we find that independent directors’ compensation is significantly associated with the occurrence of related party transactions. Specifically, we predict and find that level of compensation (equity-based compensation) is positively (negatively) associated with the number of and amount of RPTs. Next, we decompose our compensation measures into market level and excess components and find that the results are driven by the excess components. These findings suggest that overcompensating the directors reduces their independence and their board monitoring efficacy.

The aim of this paper is to examine the effect of internal control quality (ICQ) on the cost of equity capital and whether the former variable has a moderating effect on the association between voluntary disclosure and cost of equity capital in an emerging unregulated market namely, Egypt. ICQ is measured using a survey among external auditors based on an internal control checklist. A content analysis approach is used to proxy for the level of Voluntary disclosure in the annual reports of listed Egyptian companies. Furthermore, the Capital Asset Pricing Model (CAPM) framework is used to estimate cost of equity capital. Based on a sample of 256 firm-year observations over the period of 2007-2010, we find that ICQ is negatively and significantly associated with cost of equity capital. In addition, ICQ moderates the association between voluntary disclosure and cost of equity capital which is negative and significant for companies characterized only by high ICQ either when using and interaction variable between ICQ and voluntary disclosure or when conducting a sub-group analysis based on the level of ICQ. Our study contributes to the internal control literature and provides substantive evidence that ICQ plays an important role in reducing cost of equity capital either directly or indirectly by increasing the value relevance of voluntary disclosure among investors on the Egyptian stock exchange.

We investigate the effect of firm visibility on firms’ disclosure quality. Specifically, we examine the effects of media attention on firms’ disclosures about provisions for decommissioning and dismantling costs by European firms reporting under IFRS during the period 2005 to 2014. Using multivariate analysis, we find that firms that are more visible are more forthcoming with information about discount rates and horizons, use more specific language and adopt a more cautious tone (measured using sentiment analysis). Overall, we find that only 44% (45%) of our sample firms disclose discount rates (horizon) used to estimate the provision. We also find a stark difference between Eastern and Western Europe. The disclosure quality using computerized text analysis among Eastern European firms seems to be lower. However, this difference is not confirmed when analyzing disclosure on discount rates and horizons across Eastern and Western European companies as there is virtually no difference across the two groups in this regard. Visibility, meanwhile, seems to decrease firms’ narrative disclosure and reduce the use of cautious language.

The purpose of this study is to construct a historical narrative of the interplay between accounting standards in Japan and theories of regulation. For that purpose, first, by using explaining-outcome process-tracing method, we examine through which causal process brought about the coexistence of four sets of accounting standards in Japan and what kind of significance does each set of standards has. Second, we attempt to provide minimal sufficient explanations of this unique coexistence through the lens of theories of regulation. Our findings show that the delegation of the authority for accounting standard setting to the private sector in Japan is incomplete, and thus, the role of the public sector is still important. In the discussion about IFRS implementation in Japan, the movement in the United States, industry opinions, and ideological conflict between fair value versus historical cost, play important roles. These elements combined led to the ambiguous coexistence of four sets of accounting standards in Japan.

Transition economies have undertaken an accelerated series of reforms after the collapse of communism, aiming at the (re)construction of the market economy, and related institutions. The change in the accounting regulation, profession, and practices are part of this wider process, bringing these countries in the international accounting arena. In this paper we build on post-colonial accounting literature to examine the “territorial” disputes over the Romanian accounting reform, between two different groups of national experts from developed countries, namely France and UK. This paper draws attention on the drivers of accounting reform, which are not limited to the quality of financial reporting, but have their roots in the broader geo-political context.

This paper examines the relation between CSR reporting and the level of book-tax differences (hereafter, BTD). Consistent with the prediction, we document a negative association between CSR reporting and BTD. To the extent that accounting information quality is likely to be involved in tackling tax avoidance, we further consider its role in estimating the effect of CSR reporting on BTD. Three implications can be drawn from this analysis. First, accounting information quality is higher for CSR-reporting firms. Second, the aggressive level of BTD enlarges when CSR- reporting firms have poor financial reporting quality. Third, risk-taking incentives are perceived as an alternative explanation for higher BTD. The BTD results are robust to discretionary permanent book-tax differences measure and alternative econometric specifications. Overall, these findings highlight the importance of investigating the role of accounting information quality in elucidating why CSR-reporting firms exhibit lower levels of BTD.

This paper looks at the only known Venetian treatise on double entry bookkeeping that predates Pacioli’s Particularis de Computis et Scripturis: de Raphaeli’s La Riegola de Libro, or The Rules of Bookkeeping. Written in 1475, this manuscript remained undetected until the 1990s, escaping the attention of Fabio Besta, Vincenzo Vianello and others in the 19th and 20th century who desperately sought to disprove Pacioli’s authorship of his treatise. Had they found it, a different history would be told, but would Pacioli’s place have been usurped? This study considers the purpose behind de Raphaeli’s instructional manual, his pedagogy, the content – his syllabus – is presented and discussed; and the manner in which he taught bookkeeping is contrasted to those of Pacioli and his successors.

This study questions the use of the production costs measure developed by Roychowdhury (2006) as a proxy for firm’s overproduction behavior. By disaggregating the production costs measure into its components COGS and inventory change, we find that suspect firm-years exhibit higher abnormal COGS and indifferent abnormal inventory change. This is inconsistent with the prediction from the hypothesis that firms overproduce to decrease reported COGS in order to meet earnings target. We provide further example to demonstrate how this incorrect inference from the result of production costs affects the interpretation of subsequent studies which use it to measure overproduction.

ASC 805 gives the management of an acquiring firm flexibility in valuation and the possibility of recognizing day one bargain purchase gains (BPG). BPG acquisitions occurred frequently in the financial services industry during the crisis of 2008 and some of these acquisitions were assisted by the FDIC which provided partial indemnification against future losses. Regulatory scrutiny by the FDIC of potential future losses formed the basis for the indemnification agreements and counter-acted the use of BPG for earnings management. By comparing across all types of bank acquisitions (FDIC assisted and non-assisted), our results show that fair values reflected the underlying economic assets more accurately in FDIC assisted transactions whereas management was able to use inflated fair values to present an over-optimistic picture in Non-FDIC BPG acquisitions. Overall, our results use a novel institutional arrangement to demonstrate the inherent tension between optimism and relevance in fair value measurements.

We investigate whether the supplier-customer relationship has an effect on the cost structure of these companies by using our unique data set of Japanese manufacturing companies. Specifically, we examine whether a higher customer concentration will lead to a more rigid short-run cost structure, with higher fixed costs and lower variable costs. We first show that demand uncertainty can lead to lower cost elasticity, which is consistent with Banker, Byzalov, and Plehn-Dujowich (2014)’s findings. Second, and more importantly, we find that a higher customer concentration leads to greater fixed investments and a lower cost elasticity for SG&A costs and employment cost, after controlling for demand uncertainty and other factors.

This study examines the relationship between corporate environmental performance (CEP) and the cost of equity with considering the heterogeneity among CEP ratings. Improvement in CEP can reduce the cost of capital because of reduced litigation risk in the future and broader investor base. We apply four EP (environmental performance) measures (MSCI, Thomson/Reuters, Trucost, and Toyo-keizai) and verify this hypothesis by using a sample of Japanese firms over the fiscal years 2006-2013 during which Japanese firms experienced Fukushima nuclear disaster that changed the environmental awareness of the public and investors dramatically. Our empirical results show that the actual external environmental impacts rather than comprehensive EP measures affect the implied cost of equity for the fiscal years after the Fukushima nuclear accident. This suggests that the market consider firms with substantial external environmental costs riskier than firms with lower external costs.

To explore the role played by management controls in managing the complexities of innovation the paper draws on the case of a knowledge intensive firm operating in the internet sector which is facing the complexities involved in highly innovative processes. We show that different management controls, despite not being designed to work together as a system, may come to work together in practice, to enable individuals to generate paradoxes and thereby make sense of the complexities in a productive way. They do so in three ways. They keep opposing elements in recognizable proximity (in a ‘holistic duality’), so that they can be perceived as opposing by the individuals involved; they allow these elements to mutually transform into each other (in a ‘dynamic duality’); and they produce innovation as a result of their opposition (in a ‘dialectical duality’). While different controls are needed to enable individuals to recognize the opposing elements, we demonstrate that the controls cannot work alone in the management of complexities. Additional mechanisms and other information (eg. customer relationships and projects’ innovative potential) can provide the circumstances in which the different controls work together as a package to produce innovation because of the struggle between opposing demands. In such circumstances, and in contrast to a pre-designed system, the separate controls come to work as a package in temporary and fluid ways in managing the complexities of innovation.

Using employment history of over 17,000 directors of non-financial firms, we find that boards with directors who have executive experience in a commercial bank compensate CEOs with higher inside debt relative to equity. This result is consistent with arguments that professional experience shapes decision-making, and in this case banking experience makes directors more sympathetic to debtholders’ interests. The experience effect dominates the potential conflict of interest effect when bankers are elected to protect equity-holders interests. In line with the experience argument, our result holds for both current and past bank executives and for directors from banks who both are and are not the firm’s creditors. Our results are robust to a number of controls for endogeneity. We find evidence that this increase on inside debt is also beneficial for shareholders. The increase in inside debt associated with banker-directors moves the CEO’s incentives closer to the optimum in which agency costs of outside debt are minimized to the benefit of shareholders. Also, in line with the monitoring role of bankers, we also find that the link between inside debt and bankers on the board is stronger in firms with weaker corporate governance standards.

Asset pricing theory predicts a positive cross-sectional relationship between expected profitability and expected returns. However, empirical studies use lagged ex-post profitability as a proxy for expected profitability. In this paper, we use out-of-sample combination forecasts to estimate expected industry-level operating profit, gross profit, operating cash flow, and net income. We then construct real-time industry-rotation strategies based on high and low expected profitability. For each measure except gross profit, these predicted-profitability strategies earn significant alpha with respect to the Hou et al. (2015) four-factor model net of transaction costs and outperform strategies based on ex-post profitability.

This research adds to the recent developments of the new control paradigm, which emphasize that formal management control systems are beneficial for innovation outcome and entrepreneurship. Building on these findings, I analyze how startup companies use formal MCS, depending on the different forms and magnitudes of innovation they are aiming at. Moreover, this study examines whether Simons’ (1995) levers of control framework is applicable for an entrepreneurial setting. Therefore, I examine data collected through a field study composed of interviews in twenty startup companies either from the e-commerce industry or a research and development (R&D)-intensive industry. I am able to identify two forms of innovation in the interviewed startup companies. While e-commerce startup companies seem to relate to business model innovation, R&D-intensive startup companies mainly rely on product innovation. Traditional formal MCS as well as more dynamic and modern formal MCS, like IT-tools for idea generation, are used to control or evaluate innovation. I find differences in the use of formal MCS, depending on the form of innovation. The results also suggest that, the LOC framework is applicable to an entrepreneurial setting. While product and business model innovations seem to rely intensively on diagnostic and interactive control systems, the results suggest that product innovation is rather controlled with boundary systems and business model innovation with belief systems.

We consider a manager’s decision to bias earnings reports if he faces both financial incentives and career concerns. Previous theoretical literature extensively studies the effect of financial incentives on earnings management, showing that managers tend to inflate earnings reports if they are compensated for stock price movements. Although career concerns have undoubtedly impact on managerial decision making, there is only scarce theoretical insight into their implications for reporting bias. Our analysis gives new insights on the simultaneous effects of financial and career incentives on reporting bias assuming that earnings provide information on firm value and managerial talent. If the manager’s reporting objectives are unknown, the financial market and labor market incentives are not independent, but have substitutive effects. We identify conditions under which – for given financial incentives – stronger career incentives reduce the average reporting bias. Reporting bias might even fall below the level which occurs when only financial incentives are provided.

We investigate how the different roles of controllers shape strategic decision-making. We find that exercising the role of a business partner enhances the quality of a strategic decision. This effect is mediated by the interaction between a controller and manager that is characterized by cognitive flexibility. The scorekeeper role directly slows down decision-making processes, and it indirectly reduces the quality of a strategic decision. This indirect effect is also mediated by cognitive flexibility in the controller-manager interaction, and it is only observable at high levels of environmental dynamism. Our findings illuminate how the different controller roles shape strategic decision-making, and they shed light into specific characteristics that the controller-manager interaction is required to have in this context. In addition, this study has implications for developing a comprehensive picture of controller roles. The scorekeeper role emerges as a separate role that co-exists with the business partner and watchdog roles of controllers.

The voluntary disclosure literature in accounting has long debated whether managers have a tendency to withhold bad news. However, these studies have been conducted in settings in which, ex-ante, the tradeoff between potential benefits and potential costs of withholding information is obscure. In this paper, we study voluntary disclosure choices using a context rich setting of distressed firms in which potential benefits from withholding news (generally bad news) are seemingly high whereas the potential costs are seemingly low. Specifically, our focus is on how ‘going concern’ uncertainty affects voluntary disclosure choices. Our results suggest that as financial distress intensifies, there is a lower likelihood and frequency of management earnings forecasts suggesting that managers may be withholding news in distressed firm-years. For comparative purposes, we also present results for safe-firm years and find that managers have a tendency to disclose bad news as the financial health of the firm worsens.

In 2006, the European Court of Justice (ECJ) decided with the Cadbury Schweppes judgment that European Controlled-Foreign-Company (CFC) rules infringe the principle of freedom of establishment and restricted the applicability thereof. This paper analyzes the impact of mandatory amendments to European CFC rules on tax planning activities within Europe. Using a difference-in-differences approach, my results provide robust evidence that pre-tax earnings of subsidiaries located in European low-tax jurisdictions have increased by around 10 % after the Cadbury Schweppes judgment. My analysis shows further that the increase of pre-tax earnings is related to facilitated profit shifting activities. Multinational corporations with high incentives or enhanced profit shifting opportunities react more pronounced to the Cadbury Schweppes judgment. The findings point out that CFC rules became less effective and thus, profit shifting activities within Europe are less restricted after the ECJ judgment. Additional tests suggest further that on average 90 % of the increase in pre-tax earnings is attributable to strategic transfer pricing determination, while less than 10 % is attributable to debt shifting activities.

The implementation of new systems of quality management is often accompanied by shifting accountability structures. This is especially so in the case of public sector organizations, where the implementation of quality management is often enforced by regulatory change and triggered by economic pressures. In order to investigate the relationship between quality management, processes of quantification, and shifting accountability structures, we refer to the case of quality regulation in the German hospital sector. An analysis of its development over the last two decades reveals that various institutional actors were involved in a struggle of finding the ‘right’ level for quality regulation (between the state and organizational operations), and a balance between the diverse aspects of quality (structural, procedural and output-related). Against this background, we interpret quality management as a (calculative) infrastructure (cf. Bowker & Star, 1999; Power, 2015). Our case exemplifies a plurality of rationales for enacting accountability that draw on the same calculative infrastructure, which both manifest reform discussions and spawn new ones. As there is not a single logic for quality governance in German healthcare, we conclude that the definition of quality of public services is a political process, characterized by negotiations around the concept of quality through which, simultaneously, accountability is distributed in new ways among the diverse groups of actors involved.

We document a strong convergence between dividends and stock repurchases in terms of their relation to future earnings over the past decades. This is in contrast to prior studies that associate dividends with permanent earnings and stock repurchases with transitory earnings. Hence, our findings suggest that the relation between dividends and stock repurchases has changed from a complementary to a substitutive signaling role over time. Cumulative abnormal returns following payout announcements indicate that stock market reactions do not fully reflect this convergence. Further, we explore potential reasons for the documented convergence. We find that the declining signaling effect of dividends may be driven by the rising percentage of institutional ownership and a stronger relevance of agency cost of free cash flow considerations. At the same time, stock repurchases become more similar to dividends because they are paid more persistently and are less related to transitory nonoperating income. Our findings provide new insights on the choice between dividends and stock repurchases.

Donations are a clear yet costly signal of a firm’s commitment to CSR. In this paper, we test stock market reactions to donation announcements of major companies in Germany. Based on a unique hand-collected dataset containing 544 donation news announcements of German companies from 2010 to 2015, we examine abnormal returns surrounding the announcement of charitable donations. We find evidence consistent with the “stakeholder theory” - that is, on average, donation announcements receive positive market reaction. Furthermore, we conjecture that donations of medium-sized amount, directed at NGOs and not restricted in their usage are associated with significantly stronger positive market reactions. In addition, for the relationship between donation amounts and capital market reactions we find a discontinued relationship (with a boundary value of one million Euros) rather than an (inversed) U-shape relationship. Our paper contributes to the understanding of the impact of charitable giving on a company´s stock market performance and highlights which specific donation characteristics are valued by capital market participants.

This paper models the tax-efficient behavior of a multinational corporation that has both profitable and loss-making affiliates. Until recently, the literature has largely neglected loss-making affiliates altogether, and the few studies that take them into account are data driven and lack a sound theoretical foundation. Our theoretical model shows that when multinational corporations do not have flexibility to adjust their income shifting strategies within a tax year, in response to losses, they must take the expected, loss-adjusted tax rate differential into account rather than the larger statutory differential. Hence, empirical studies using the statutory tax rate differential might underestimate tax sensitivity. We also find that the degree of flexibility has important implications for where a multinational corporation is placed in the profit distribution. This finding has particular importance for the recent strand of literature that use bunching around zero profitability as a proxy for tax aggressiveness.

We study a principal-agent relationship where tasks that differ in their measurability are assigned to risk-averse agents. We provide conditions under which it is beneficial for the principal to deviate from efficient risk bearing, which suggests assigning the task that is harder to measure to the less risk-averse agent. The task assignment decision is significantly affected when adding relative performance evaluation and monitoring to the management control system. We find that these additional management controls restore efficient risk bearing. In turn, the optimal task assignment significantly affects the properties of the management controls. As a consequence of the assignment decision, (i) the incentive rate can increase in the noise of the performance measures and an agent’s risk aversion, and (ii) the extent of using relative performance evaluation can decrease in increasing correlation between the tasks.

Audit committee chairs (ACCs) are key players in corporate governance and the financial statement audit. However, relatively little is known about the actions ACCs take to ensure audit quality, and how these actions shape audit outcomes. Our interviews with 23 ACCs reveal three main insights: First, due to reputational concerns ACCs seek to deter management from making ‘extreme’ discretionary report-ing decisions (DRDs) because these decisions increase the risk of surprises. Therefore, ACCs need transparency about DRD ‘extremeness’, which they regard as a tangible audit output. Second, in order to obtain transparency about DRDs, ACCs deploy high-quality audit inputs (i.e., ‘good’ auditors) and processes (i.e., effective interaction with auditors). Third, this transparency helps foster temperance in management’s DRDs – a key audit outcome – either ex post through ACCs’ direct influence, or ex ante through a deterrence effect. The latter effect generates novel theoretical insights relevant to empirical audit quality research, and supports certain accruals-based measures as audit quality proxies.

Accounting standard setters have defined the provision of decision useful information as the primary objective of financial reporting. According to the FASB’s and IASB’s conceptual frameworks, decision usefulness is based on two fundamental qualitative characteristics, relevance and reliability (now replaced by ‘‘representational faithfulness’’). This paper reports on a conjoint analysis which examines preferences for these two qualitative characteristics, and the extent to which these characteristics contribute to decision usefulness. 202 master students from different cultural backgrounds enrolled in financial and managerial accounting courses completed a case that asked them to rank five different techniques by decision usefulness to calculate the risk premium in the context of determining a model-based fair value for a corporate bond. Different combinations of relevance and reliability are inherent in the five techniques in such a way that an increase in one characteristic is associated with a decrease in the other characteristic. The results show that relevance is preferred to reliability. Neither the individuals’ degree of uncertainty avoidance nor their familiarity with fair values impacts these preferences. Additional experimentation with auditors confirms the preference for relevance. These results have important implications for researchers, preparers of financial statements, and especially for standard setters.

In the context of when auditors are guilty of professional misconduct, this study examines the professional judgment embedded in the misconduct incidents, disciplinary process and resulting sanctions. In doing so, this study provides insights into the professional judgment exercised by the accounting profession’s Discipline Committee and the lack of professional judgment exercised by auditors guilty of professional misconduct. Focusing on the post-Canadian Public Accountability Board (CPAB) auditor subset data from Mescall et al. (2017), this study uses a classical approach to content analysis to illustrate the unprofessional auditor behavior that caused the misconduct, the behavior of the defendants during the discipline proceedings (e.g., pleas, defenses), the discipline committee reasoning when ascertaining guilt and discipline sanctions, and the monetary cost of professional discipline borne by members of the profession.

This paper provides evidence on the influence of the presence of an enforcement mechanism on auditors’ decision making. The extant enforcement literature focuses almost exclusively on capital market effects of enforcement actions. However, direct effects need to also receive attention. We conduct an experiment with 40 auditorsto test whether the likelihood of an enforcement review has an impact on auditors requiring conservative accounting choices from clients. Moreover, we test if enforcement leads to more conservative decision making by senior auditors, as opposed to junior auditors, due to their increased level of responsibility and potential liability. The results indicate that the higher likelihood of an enforcement review is not associated with more conservative decision making by auditors. However, auditors who were affected by enforcement reviews in the past tend to make more conservative accounting choices.

Corporate investments are often characterized by flexibility in responding to changes in the market. Hitherto, prior research has not investigated the effect of flexibility (real options) on the interplay of agency conflicts and taxes. We fill this void and investigate in a moral hazard model the effects of corporate taxes on the principal's propensity to incentivize the agent to work hard, given an investment opportunity that includes an option to alter the investment. We identify conditions under which higher corporate tax rates devalue incentive contracts (weak agency conflict), in addition to scenarios (strong agency conflict) in which the principal is more likely to offer incentives to the agent when corporate tax rates increase. We show the presence of the option is necessary for these tax effects to occur. Our results lead to interesting empirical implications: for example, in countries with a good corporate governance, higher taxes have a negative effect on firms' performance and investments, while the opposite is likely in countries with bad corporate governance. Our predictions help to explain cross-country variation in firms' investment levels after tax reforms.

This study explains the effect of relative performance information (RPI) on knowledge sharing among employees. Additionally, we investigate whether knowledge sharing depends on the observability of employees’ individual knowledge sharing decisions. Furthermore, we ask whether the effect of RPI on knowledge sharing differs when employees can observe each other’s knowledge sharing decisions. We argue based on psychological and sociological theory that RPI affects knowledge sharing among employees negatively, and that the observability of individual knowledge sharing decisions has a positive impact on knowledge sharing. We find arguments for both a reinforcing as well as a weakening of the effect of RPI depending on the observability of individual knowledge sharing decisions. A laboratory experiment confirms our predictions, and reveals that there are interactions between RPI and observability, which cancel out each other over time. RPI has initially no effect on knowledge sharing when individuals can observe each other’s knowledge sharing decisions. However, over time individuals increase knowledge sharing when they can observe their peers’ individual knowledge sharing decisions. This effect does not appear when RPI is provided.

Value-based (VB) management is an approach that seeks to align the interests of managers and shareholders by encouraging actions that maximize shareholder value. One possible approach to increase shareholder value is to optimize risk taking and the cost of capital. This paper focuses on rating changes which reflect credit risk. We use option pricing theory to analyze the effect of increased credit risk – as reflected by negative rating changes – on shareholder value. Increased credit risk can be the result of a higher cash flow variance which affects cost of debt, cost of equity and shareholder value. By comparing the capital market reaction to rating changes for users and non-users of VB performance measures, we investigate the shareholder value effect of using such measures. With a sample of 115 rating changes of listed German firms between 1996 and 2014, we separately analyze market reactions to downgrades and upgrades. We find that using VB performance metrics is positively associated with market reactions to downgrade announcements, and thus with shareholder value. This indicates that VB measures align the interests of managers and shareholders and initiate a risk-taking strategy in line with shareholders’ interests. Further, using VB metrics is not significantly associated with market reactions to upgrade announcements.

This paper seeks to reconcile the common theoretical acceptance that firm-side accounting activities and auditing are substitutable inputs with the ambiguous empirical evidence on the relation. Using a compact dynamic auditor-client-investor model I trace down conditions, under which exogenous shocks - such as increases in the auditor's liability to third parties - increase, respectively decrease the equilibrium quality of the auditee's financial accounting, and the supplied audit quality. The analysis shows that the driving forces of the equilibrium resource allocation are (i) whether accounting and auditing are strategic substitutes or complements, and (ii) how this strategic interdependency is affected by the exogenous shock. I show that strategic effort-complementarity can lead to situations in which the shock strictly increases (decreases) the accuracy of audited reports. The results emphasize the importance of distinguishing between conventional output-side and strategic input-side effort-interaction.

Over two-thirds of public companies now announce earnings prior to (versus with, or after) audit completion. We expect this practice has potential to increase pressure in auditor/client negotiations over post-announcement audit adjustments. We report results of a controlled experiment with audit partners and senior managers that indicates auditors are significantly less likely to require audit adjustments for aggressive financial reporting when earnings have been released (versus drafted). Further, we test and find this effect can be fully mitigated with strong audit committee effectiveness (i.e., including idealistic, but achievable, characteristics that are likely currently lacking in average committees) or with higher auditor professional identification. Our process-model tests suggest released earnings causes auditors to adopt directional goals to avoid adjustments, leading to biased decision processing and lower judgment quality. Our study provides evidence on the importance of high-quality auditors and audit committees in promoting high-quality financial reporting.

Numerous empirical studies suggest that companies allocate taxable profits artificially to con-duct tax planning regardless economic value creation. Thereby, the global tax base is not equi-tably distributed among countries. The OECD’s Action Plan against base erosion and profit shifting, which was firstly specified by the so-called Deliverables in 2014, demands to tax profits where economic value is generated. In this study, we investigate if corporate groups have adapted their behavior with regard to the alignment between reported profits and real activity. Investigating a large unconsolidated sample of EU firms, we find that earnings are increasingly in line with economic value creation defined by both employment and property, plant and equipment. Initial misalignment accounting for averagely 11 % up to 16 % of profits reported by a corporate group seems to decrease by € 1.100 million up to € 3.050 million per subsidiary and year after the OECD’s project was published. Our study informs politicians and researchers about the potential impact of the BEPS Action Plan on profit allocation.

Our study links the fields of research of strategic decision-making and integrated reporting. It advances the knowledge of the under researched concept of integrated thinking by describing how financial and non-financial information is used in strategic decision-making-processes. Using qualitative interviewing as a method, we asked fifteen senior executives from 12 different industries about their assessment of the importance of different types of information within strategic decision-making processes. As a result from the interviews, we derive a four-element conceptual model that explicates the utilization of financial and non-financial information within that context. Our findings show that both non-financial and financial information affect the strategic decision-making process. However, we found that executives do not only differentiate information in terms of financial and non-financial, but also qualitative and quantitative as well as internal and external nature. Furthermore, the importance of financial and non-financial varies throughout strategic decision-making process. Integrated reporting in its current setup seems to be able to address the concepts of information present in decision-makers’ minds in a way that it enables an internal transition from conventional thinking and strategic decision-making to integrated thinking in corporations.

This study examines the existence of financial news market segmentation driven by heterogeneous investor beliefs. I propose that financial events frequently leave room for interpretation, allowing news outlets to differentiate and target audiences with different levels of financial sophistication and dispositional optimism. I develop a probabilistic model to infer these unobservable audience characteristics from earnings announcement coverage and find economically significant heterogeneity. Consistent with this heterogeneity reflecting differences in earnings news interpretations, a larger difference in audiences exposed to an earnings announcement is associated with significantly higher trading volume and return volatility after the announcement.

Multiple tasks may provide different opportunities for self-interested behavior. This study investigates how the opportunity to misreport on a first task affects shirking behavior on a second task. Additionally, we investigate how formal controls affect this spillover of opportunism. In an experimental investigation, we vary the opportunity to misreport on a first task (absent vs. present). Nested within an opportunity to misreport, we further manipulate the strengths of controls for a first task (no, weak, strong). We find that an opportunity to misreport on the first task significantly increases shirking behavior on a subsequent task, regardless of the strengths of controls. We argue that the opportunity to misreport enables mechanisms of moral disengagement and ethical fading such that individuals are more willing to engage in self-interested behavior on the second task. Even if strong controls prevent actual lying, the economic frame established by the controls still leads to increased shirking behavior. Overall, our study informs accountants about the consequences of misreporting and the effects of formal controls.

In this paper, we examine the communicative value of auditor’s reporting in the UK where auditors are required to disclose the risks of material misstatement that had the greatest effect on the audit – key audit matters (ISA 700). By using well-known methods from computational linguistics, we find that the communicative value of auditor’s reports in post-ISA 700 periods is significantly higher than in the year immediately prior to the implementation. In addition, we document a continuous increase in communicative value over the first three years of the post-implementation period. We also find that content specific measures such as the specificity of key audit matters is significantly and positively associated with short-window capital market reactions. Our findings are important for financial statement users and regulators worldwide, which recently have proposed or approved similar extended reporting requirements.

Based on historical data, we simulate time series using IFRS 9’s expected credit loss (ECL) model and analyze how these behave compared to loan loss reserves under IAS 39. While the current model under IAS 39 has been prone to build provisions considered “too little, too late,” the ECL model is supposed to be more forward-looking. We use a stage-based simulation model to estimate the three components of ECL, probability of default, exposure at default and loss given default, while simultaneously considering the three IFRS 9 stages and possible stage transitions of financial assets. Calibrating our model with European banking data from 2005-2014, we develop modelling approaches to all ECL components based on real world assumptions, estimate the expected amount of reserves under the new ECL model, and test to which parameters this amount is most sensitive. Our results suggest that while simulated ECL reserves are not higher compared to IAS 39 reserves in general, they tend to exceed IAS 39 reserves during times of crises. Simulated reserves are very volatile to changes in the market environment and differ substantially for more troubled compared to non-troubled banks, as well as across European countries and regions. We further find a high sensitivity of the ECL depending on the model in use to estimate the probability of default. Our estimates suggest that IFRS 9 reserves are not likely to result in the IASB’s envisaged increase in countercyclical loan loss reserves.

This study examines investors’ perceptions of the SEC’s ‘extraction payments disclosure rule’. Intended to empower advocacy groups to hold governments and firms accountable, the rule requires extractive issuers to disclose by project their payments to governments. Stock price reactions around regulatory events suggest that investors, on average, expect net costs from a strict implementation of the rule. In the cross-section, abnormal returns around these events are negatively associated with firms’ vulnerability to advocacy group campaigns. Our archival and interview-based findings support the notion that financial disclosures can provide useful information to advocacy groups and lead to a redistribution of wealth, consistent with a public policy objective.

Internships have become an integral part of many undergraduate academic programs. Using graduate employment survey data obtained from respondents of the School of Accountancy of a major university in Singapore, this study examine whether internship experience influences the starting salaries of accounting graduates. Overall, we find that internship experience is positively related to the starting salaries of accounting undergraduates. We also compare students who obtained one of the three best degree class (Cum Laude or better) and students who obtained one of the three worse degree class (High Merit or lower). We find that internship experience is not significantly related to the starting salaries of students who obtain a degree class of Cum Laude or better. In contrast, we find internship experience to be positively related to the starting salaries of students who obtain a degree class of High Merit or lower. These findings suggest that students who are less able to demonstrate mastery of core accounting skills can enhance their starting salaries by actively seeking internship experience.

The paper investigates the Montecassino monastery in its power relations, with a view to unveil the role of accounting, as expressed by Bernard I inquiries (Inquisitiones), in the interplay of knowledge and power. Moving beyond functional approaches, the paper intends to offer an alternative explanation of the role of accounting in a context where religion and power are strictly intertwined. Drawing on Foucauldian ideas of subject and power in the truth-building (Foucault, 1982; 2002), the paper explores accounting in the way it operates in the process by which the Benedictine Order constitutes itself as a subject of power in a specific locus (Lands of Saint Benedict). The investigation shows the fundamental role of social practices adopted by the Abbot Bernard I by the inquiries he realized related to rights, obligations and privileges. In particular, early accounting practices, in the logic of ‘naming and counting’ (Ezzamel & Hoskin, 2002), are revealed to be pivotal in the process of truth-building that constituted the base of the re-establishment of power of the monastery. The originality of the work is reflected in spatial and temporal dimensions investigated. For the first time, the paper considers the monastery of Montecassino, a reference model for Benedictin

We propose a more direct approach to answer the question whether value and momentum are risk factors or anomalies. By asking financial analysts and professionals for their risk perceptions of company stocks, we obtain evidence on what constitutes a risky investment from their point of view. Contrary to the risk factor hypothesis, value and momentum stocks are not regarded as more risky. Supporting the validity of the analysis, other factors such as size and beta fall in line with their traditional interpretation as risk factors. At the same time, we observe higher return expectations for momentum stocks, which is consistent with empirical findings but again inconsistent with analysts believing in a risk-return trade-off.

Abstract We examine the behaviour of new equity issuers in China in relation to related party transactions (RPTs) before and after the regulatory constraints on recognising value transactions with related parties in reported earnings. We find that, on average, new equity issuers manipulate related party sales (RPSs) before the regulatory change but manipulate related party purchases (RPPs) after. Using an industry-based measure of normal gross margins, we find that, after the regulatory change, new equity issuers substitute purchase price deflation in related party purchases for selling price inflation in RPSs. We contribute to the existing literature by first documenting the trade-off between RPSs and RPPs to inflate earnings, and first providing empirical evidence regarding the use of transfer pricing in RPSs and RPPs. Keywords: related party transactions; earnings management; propping; regulations

We extend the prior work in the domain of corporate governance ensuing strategic implications for companies and their auditors. Specifically, we study the sensitivity of non-audit services (NAS) fees to key corporate governance mechanisms and provide a nuanced understanding of the association of managerial ownership and audit committees with NAS fees. We find that NAS fees are negatively associated with managerial ownership in those regions of ownership that are characterised by convergence-of-interests between managers and shareholders. However, NAS fees are positively associated with managerial ownership in the ownership region that is characterised by management entrenchment. We also find that firms with stronger audit committees have lower NAS fees regardless of how managerial ownership is structured.

This paper examines the risk management effect of commodity futures in Chinese non-financial public firms. We find that commodity futures is an effective tool of corporate risk management (CRM) in general. Based on a new approach to differentiate hedging from speculation, our evidence shows that the commodity futures for hedging intention (53% of the full sample) is the only source for this general risk management effect. In detail, this subsample can change significantly higher ex-ante price risk exposures into relatively lower ex-post risk exposures. Striking differently, the remaining subsample with speculation intention has neither a higher ex-ante risk exposure nor a lower ex-post risk exposure. This paper contributes to a new method of intention distinction in commodity futures, which is inspired by the amendment of Hedging Accounting Standard and is in line with the pervasive voluntary disclosure for derivatives in enterprises. More importantly, it sheds light on the underlying mechanism for the risk management effect for derivatives use in the real economy.

This paper examines how management forecasts, the cost of equity capital and corporate governance are related, using Japanese data. As management forecasts, capital investment forecasts as well as earnings forecasts are comprehensively available in Japan. Results shows that firms with more precise earnings forecasts can enjoy lower cost of equity capital. In contrast, the precision of capital investment forecasts has no relation with the cost of equity capital. In addition, the precision of capital investment forecasts has a negative influence on the cost of capital as long as corporate governance is poorly built. However, the strength of corporate governance is found to have no effect on the association between the precision of net income forecast and the cost of equity capital. These findings suggest that capital investment forecasts provide informativeness that is totally different from that in earnings forecasts to investors' valuation. The precision of earnings forecasts is a substitute for the quality of corporate governance and that of capital investment forecasts plays a complementary role, making up for the information shortcomings arising out of the low quality of corporate governance.

This paper investigates how Reactor firm characteristics, which are based on the typology of Miles and Snow (1978), impact on earnings management. Many empirical studies have shown that distressed firms engage in accounting fraud, profit manipulation, or earnings management. The main reason that firms go bankrupt or become distressed is that they cannot earn well and are not able to carry out their plans prior to their bankruptcy; that is, their strategy does not work. Miles and Snow refer to firms experiencing such conditions as Reactor firms. Thus, we predict that Reactor firms, which become distressed firms, often engage in earnings management. We examine the hypothesis that “firms tend to develop earnings management when their strategies become dysfunctional, that is, when they possess Reactor characteristics” using data from a mail survey of Japanese companies. Our mail surveys were sent in late 2015 to 2440 Japanese firms listed on the First and Second Sections of the Tokyo Stock Exchange; the survey response rate was 11% (270 of 2440 companies). Using factor analysis and partial least squares regression, the empirical results show that, of all the strategy characteristics, only the Reactor characteristics had a statistically significant positive effect on each factor for earnings management.

This paper examines the determinants and consequences of hedge fund activism with a focus on activist directors, i.e., those directors appointed in response to demands by activists. Using a sample of 2,704 activism events over the period 2004–2015, we identify 1,415 activist directors. We find that activists are more likely to gain board seats at smaller firms and those with weaker stock price performance. Activists remain as shareholders longer when they have board seats, with holding periods consistent with conventional notions of “long-term” institutional investors. As in prior research, we find positive announcement-period returns of around 4–5% when a firm is targeted by activists, and a 1.1% increase in return on assets over the subsequent one to five years. We find that activist directors are associated with significant strategic and operational actions by firms. We find evidence of increased divestiture, decreased acquisition activity, higher probability of being acquired, lower cash balances, higher payout, greater leverage, and reduced investment. With the exception of the probability of being acquired, these estimated effects are generally greater when activists obtain board representation, consistent with board representation being an important mechanism for bringing about the kinds of changes that activists often demand.

We document that labor unionization is associated with improvements in managerial investment efficiency and that these unionization effects are generally stronger in bargaining environments that are favorable to unions. Furthermore, we find that union monitoring of over-investment also has beneficial consequences in that it translates into better future profitability. Our results are robust to different measures of investment efficiency, omitted variables, empirical specifications, and endogeneity of union membership.

Japan possesses a unique audit system that is rarely the focus of western publications. What makes this system, which is regarded as one that confers more shareholder rights than its American counterpart, is the corporate governance choice it gives companies for the use of either an audit committee or a company audit. However, this system gives an appearance of flawlessness that has proven not to be real in actual practice. In this paper, we aim to analyze the shortcomings of the Japanese audit system’s legal framework as exposed by the Toshiba and Olympus corporate scandals. Our goal is ultimately, to generate practical recommendations on how to reinforce the framework of this, and comparable systems, so as to avoid similar fraudulent schemes in the future. As such, we concluded that: 1. Ensuring audit committee member autonomy from directors’ influence by allowing audit committee chairmanship exclusively to company outsiders is paramount. 2. Cooperation between the audit committee or company audit, who have in-depth understanding of a company’s internal workings and their importance, and independent auditors, who have the financial expertise to report on that derived audit risk information, leads to a theoretically reasonable audit system. 3. Pushing for the use of legal tools allowing audit committees or company audit to include their members’ opinions in the reports they must give to shareholders is imperative.

We investigate the extent to which the auditor ratification vote is informed – that is, the extent to which voters have knowledge about the quality of the auditor and vote accordingly. We find that, on average, shareholder votes against auditor ratification are not associated with audit failures (restatements) but are strongly associated with investment performance (stock returns). We then investigate the influence of institutional shareholders on the association between votes against the auditor and these two factors. For companies with higher (lower) institutional ownership, we find that votes against auditor ratification are driven by restatements (stock returns). Finally, consistent with audit committees being unable to distinguish between voter groups, we find that the probability of auditor dismissal is increasing in the proportion of votes cast against auditor ratification, regardless of the company’s level of institutional ownership. These findings suggest that the auditor ratification vote can result in auditors being held accountable for factors that extend beyond the quality of the work that they provide.

The decisions of top managers of nonprofit organizations during a financial crisis have a great influence on the organization. However, prior studies of nonprofit organizations during a crisis focus mainly on the effect of changes in management accounting systems. Our study aims to reveal the managers’ decision-making process, their use of accounting information, and their response the conflict between profitability and the organization’s mission. Our survey research targeting Japanese nonprofit nursing homes reveals the responses of top managers to a financial crisis. We also conducted interviews with some survey respondents and find that they made decisions within their mission domain and use accounting information positively. Nonprofit managers facing financial difficulties rarely introduce or change their management accounting systems.

Using the comparability measure of De Franco et al. (2011), this paper finds strong evidence of a positive relation between portfolio vega and accounting comparability. These results suggest that convex incentive options motivate managers to operate in risky projects and provide peer informative signals to improve boards oversight and investors uncertainty against systematic industry-wide shock. This paper also investigates how financial comparability fosters manager's risk allocation efficiency. This paper finds that higher accounting comparability is associated with lower firm's risk. In addition, managers with more convex payoff are less likely to take action to reduce idiosyncratic risk when firms' financial statements are relative comparable. These results suggest that conditional on comparable financial statement, convex stock options motivate manager to relax the constraint on proceeding idiosyncratic risk project.

Several studies in accounting have tried to examine the factors influencing accounting outcomes, but most have been carried out in the private sector. In this paper, we wish to investigate this issue with respect to public sector organizations. We focus on the potential impact exerted on accounting outcomes by CFO styles. Our theoretical framework is based on upper echelons theory. Specifically, upper echelons theory posits that top managers’ individual characteristics affect the way they play their roles and make their decisions. Additionally, it suggests that this causal relationship is moderated by two sets of variables, that is, managerial discretion and executive job demands. So far, upper echelons theory has been generally applied to private-sector CEOs. For our empirical analysis, we use data from the 200 Italian municipalities with populations above 40,000. For accounting choices, we use secondary data from the Ministry of the Interior, whereas the independent variables (such as CFO individual characteristics, as well as the variables intended to capture managerial discretion and job demands) have been collected through an online questionnaire. Our findings show that CFO personal characteristics do affect accounting choices and confirm the moderating impact of managerial discretion. For job demands, F on the contrary, our results contradict expectations.

This study adopts a two-step approach proposed by Leuz and Wysocki (2016) to examine the disclosure quality channel that drives the economic consequences of IFRS adoption. In the first step, we link the IFRS mandate to changes in disclosure quality proxied by the level of disaggregation of accounting data. We find that IFRS-adopting firms improve disclosure quality by providing more disaggregated information in annual financial statements upon IFRS adoption. In particular, IFRS adoption leads to more granular disclosure of intangible assets and long-term investments on the Balance Sheet and greater disaggregation of depreciation and operating income items on the Income Statement. In the second step, we directly link the observed disclosure changes to the benefits and costs of IFRS adoption. Our evidence is consistent with greater disaggregation of line items arising from IFRS adoption enhancing market liquidity and decreasing information asymmetry, but not affecting audit fees differentially. Thus, the cost-benefit tradeoff is not uniform across all IFRS-adopters.

This paper investigates the potential for accounting rules to mitigate under-investment induced by managerial myopia. It exploits the difference in U.S. GAAP requiring the capitalization of some costs of building certain intangibles (software development) but proscribing the capitalization of others (research and development costs incurred in other hi-technology firms). We first investigate whether other hi-technology firms suffer higher levels of under-investment in myopic settings relative to software development firms. Second, we investigate whether the capitalization of software development costs assists in mitigating under-investment within the software development industry and, whether this comes at the cost of over-investment in the presence of financial flexibility. Our findings are consistent with the mitigation of under-investment in the software development setting but we find no evidence of over-investment in the presence of high financial flexibility. Other hi-tech firms which cannot capitalize R&D costs suffer higher levels of under-investment relative to software development firms.

In the 1930s, active industrialization of the economy in the USSR was impossible without using modern management techniques and accounting methods. In order to increase the manageability of industrial enterprises, attempts to introduce standard costing were undertaken, but most of them failed. This led to the fact that the standard costing was recognized as a calculative technique not corresponding to the goals of the Socialist state. Then the Soviet researchers formulated the principles of the normative cost accounting, that was based on standard costing. The method in the new version was greatly simplified and lost its analytical focus. The paper investigates the influence of state policy on the transformation of standard costing methodology during the construction of the Socialist economy. The authors conclude that the transfer of the method developed under some political conditions to another political system should not be carried out mechanically; otherwise it can lead to deformation of its essence.

Because of public interest and the massive environmental impact of economic growth, sustainability has become increasingly more important for stakeholders, and, consequently, for companies. A management tool that supports sustainable management is material flow cost accounting, which helps management identify economic or ecological weaknesses in the production process, and exploit the company’s undetected potential for success. In this study, a production and cost theory-based material flow model is developed, including waste and rejects, which are the main sources of material losses. Moreover, the economic or ecological impacts of material and energy flows in and out of a quantity center are analyzed in detail. Furthermore, the conception and implementation of a production theory-based material flow cost accounting system are shown, and the relationship between existing cost accounting systems and material flow cost accounting are especially emphasized. Finally, with the extension of material flow cost accounting to include flexible product unit costing, which provides specific information for management, the requirements are met for greater application in practice of this cost accounting tool.

Companies restate when material misstatements are identified in previously issued financial statements. Restatements can have serious negative consequences for the restating company and its shareholders, which includes negative stock-market reaction, litigation, auditor resignation, and increased cost of capital. Misstatement research in Latin America is sparse, even though they are an important context to study this phenomenon. Chile in particular has a vibrant stock market with private institutional investors investing the citizens’ pensions. The results find that, after controlling for company characteristics including firm size, performance, leverage, and capital intensity, the board links positively and audit partner tenue negatively affects misstatements. Our finding raises important questions about the advisability of limiting audit partner rotation to strengthen auditor independence in Chile. Moreover, given the concentrated ownership and the inevitability of RPTs in developing countries, the findings have important implications for improving the economic exchanges and board governance of listed firms in emerging capital markets.

This study offers a methodology to analyze a company’s non-financial KPI disclosure through its business model. According to the literature, non-financial indicators provide information on critical aspects of a business (Gray et al., 2001; Lev and Radhakrishnan, 2003; PwC, 2015), but in order to be effective for external users they should be provided together with information that explains why a certain indicator is important for managers – how it is related to the company’s strategy and how it contributes to the value creation processes (Bukh, 2003). The business model illustrates how a company puts its strategy in action in order to create and capture value and it can become a useful framework for non-financial disclosure (Kozberg, 2001; Bukh, 2003; Holland, 2004). Thus the business model can be used as a tool to assess companies’ non-financial indicator disclosure. We analysed a sample of UK chemicals & pharmaceutical companies to verify to what extent they disclose business model related KPIs. Intangibles and non-financial disclosure play a crucial role in chemicals & pharmaceutical industry. Our results show that only half of the companies provide non-financial indicators that are related to business model, while the other companies do not disclose any non-financial KPI. This study makes a methodological contribution to the assessment of non-financial KPI disclosure. Our results have implications for different publics, from managers to standard setters and regulators.

This study investigates the effect of a change in financial reporting regulation, the adoption of International Financial Reporting Standards (IFRS), on investment decisions in Europe. It further investigates whether capital investment decisions were influenced by the adverse macroeconomic conditions that took place during the crisis period in the Eurozone in years 2008-2010. Moreover, we control for the fact that the impact of the IFRS adoption may differ depending on a) the timing of the adoption i.e. voluntary versus mandatory adopters and b) the legal enforcement and corruption levels. We provide evidence that financial reporting practices of mandatory versus voluntary adopters cause significant differences in (a) the cost of equity capital, (b) the level of capital investments and (c) the return on invested capital. Our evidence suggest that mandatory adopters improved the level of capital investments and the return on invested capital in the post IFRS period and that the cost of equity capital was reduced. These evidence are more pronounced under the strong legal enforcement environment. For the group of voluntary adopters, we verify also a significant reduction in the cost of equity capital in the post IFRS adoption period. Regarding their investment practices, we document higher level of capital investment relative to 3 mandatory adopters in both the pre and post IFRS period and even after controlling for the legal enforcement environment. We provide evidence that during the crisis period the cost of equity capital was increased for both groups. Furthermore, during the crisis period, the significant differences in the ROIC between the two groups are absorbed. Nevertheless, our results suggest that both groups keep their investment policy unchanged by not reducing the level of capital investments.

This paper aims at analyzing municipal risk management tools and practices. Based on a comparative case study of four Finnish cities, we found that municipal risk management practices are being developed in differing ways, i.e. there is practice variation among the case cities. However, this practice variation is not only related to the differences arising from the reproduction of the new risk management rules and routines as also the background of the key actors may explain the differences in the level and focus of municipal risk management. Further, there are no clear or common guidelines for municipal risk management efforts, and comprehensive risk management tools seem to be needed. We present guidelines for risk management as well as managerial implications for municipal risk management.

Research Question/Issue: This study investigates the factors influencing AC formation in an economy outside the widely researched Anglo-American corporate governance model in a governance model characterized by: (i) a two-tier board system, and (ii) a post-transitional economy. In particular, we focus on governance- and ownership-related determinants. Research Findings/Insights: Our primary analysis provides evidence of an inverted association with experienced, expert, and independent board members and the likelihood of AC formation. When the ownership structure comprises companies with foreign investors, those companies are more likely to have an audit committee. Larger firms having larger boards and those that have had experience with other boards’ committees are also more likely to have AC committees. Theoretical/Academic Implications: The paper’s findings show that companies prefer an optimal monitoring package. Our findings support the theoretical assumptions of selective adaptation theory showing that companies adopt alien concepts to local conditions and to the needs and interests of the local governance actors. Practitioner/Policy Implications: The results may be potentially helpful for supervisory bodies as well as regulators as they provide insights into factors influencing AC committee formation. This may be particularly helpful in addressing the challenges of adopting the Eighth EU Directive.

The purpose of this paper is to examine differences in the effect of monetary rewards on gender in a challenging cognitive task. We are interested in how rewards motivate men and women at various difficulty levels. To investigate this question, we conducted a three period between and within subject experiment using a modified Sternberg task (Sternberg, 1966) on 148 students in which we measured participants’ choices, their cognitive performance and financial outcome. We find that women and men respond differently to monetary rewards at various levels of task difficulty. At low task difficulty we did not find a significant effect of rewards, either for women or for men, on engagement in a challenging task. At medium task difficulty, rewards engaged women more frequently than men. At high task difficulty, rewards had a negative effect on willingness to engage in a challenging task for women and no effect for men. We found very high variation between thegenders, which may be the result of behavioural approach, or avoidance behaviour (women are higher in avoidance behaviour). On a stand alone basis personality traits did not, however, explain the choices in the model significantly. The most important determinant of choices was the success or failure feedback of the prior period. The study advances the literature studying gender differences in various incentive contexts.

In this study we explore the effect of cultural differences between two merging on acquisition performance and how this effect can be managed using integration tools. We show that greater cultural differences between both firms lead to increased employee resistance, which in turn depresses acquisition performance. Furthermore, we find that increased employee resistance reduces organizational learning as a consequence of the merger, a process that partially mediates the relationship between employee resistance and post-acquisition performance. Finally, we show that both the direct effect of employee resistance on acquisition performance, as well as the path mediated by organizational learning are moderated by the integration strategy used. Whereas a greater use of task integration tools increases the negative effects of employee resistance, a greater use of sociocultural integration tools helps to reduce these effects.

We examine the nature of accounting and accountability within a small charitable organization. Using primary-source data from face-to-face fieldwork, supported by additional responses and data from donors and regulators, we consider the tensions that can arise in seeking to meet the needs of many stakeholders. We see upwards accountability as arising from a need to report to donors, regulators, and financial authorities; and downwards accountability coming from a need to provide a service to the end-users of the service provided. It is not impossible for both upwards and downwards accountability to co-exist, but this complication means that the charity can be torn between stakeholders in discharging its responsibilities. To simplify procedures and clarify objectives, and thereby ease the process of accountability to multiple stakeholders, we propose a new Charitable Balanced Scorecard (CBSC) and show how this might be applied to our own particular case. We argue that its application to other charities can provide a focus and clarity that will enable them to more effectively meet the needs of their stakeholders, whomsoever they may be.

This paper examines the strategic effects of multi-period audits, where the accumulation of audit evidence over time affects the auditor’s testing strategy and the manager’s inclination to commit fraud. We study a two-period setting where we compare equilibria given a change in auditors and a continuing auditor. In examining two measures of audit quality, expected undetected fraud and audit risk, we find that audit quality is higher for the continuing auditor over the two periods. We also find that the continuing auditor exerts more effort in the period one and less audit effort in period two, relative to a change in auditors. Regulators and empirical researchers attribute this difference in audit effort to an impairment in auditor independence, which they conclude is evidence that audit quality deteriorates with audit tenure. This observed phenomenon may result from an impairment of independence, but we demonstrate that this is due, in part or in whole, to the rational strategic decisions of the continuing auditor. The results of our study provide guidance for future research in distinguishing between the effects of rational decision-making versus other externalities potentially attributable to an impairment in independence. Further, the results from our comparative statics suggest reducing the rotation period for mandatory audit partner rotation could have unintended negative consequences that potentially decrease total audit effort and increase the amount of fraud.

Purpose: the purpose of this paper in to provide a structured review of literature in the nexus of Accounting and Family business. This literature review tries to examine scholarly literature to develop insights, reflections and further research tracks in this emerging research area. Design/methodology/approach: all papers published in Accounting and Family business journals from 2000 to 2016 were examined. Family business journals were searched for Accounting key words and Accounting journals were searched for family ownership phrases aiming to grasp a broader range of literature. This review has mainly targeted papers exploring both accounting and family business research topics. Findings: majority of papers are focused on have a governance theme which shows researchers were prominently concerning about how a family business governs than other topics. The next following category with considerable amount of papers is Earnings management. Only small amount of article discussed accounting quality that this paper concludes research in this emerging area were mainly focused on how a family business governs rather than how accounting information are disclosed. Originality/value: this paper presents an overview of accounting and family business research with an opportunity to develop future publishable research in this emerging research area. Keywords: structured literature review, Accounting, Family business

Purpose. This paper aims to describe the history of the first Russian journal on accounting - Schetovodstvo, and to review articles, published in it for the turn of the nineteenth and twentieth century. Design/methodology/approach. The article uses a prosopography method to study the biography of the journal’s editor and main authors - key figures in the development of the history of Russian accounting. The methodology of literary research and critical analysis was used in the study due to review the journal publications. Findings. The paper presents unknown biographical facts of the journal authors, found in archival documents, reveals the interrelations between the key figures of the history of Russian accounting. The paper shows how the journal was established, for whom it was designed, how it was financed. The analysis of publications made it possible to elucidate the main problems in the field of accounting that scientists were studied at the end of the nineteenth and beginning of the twentieth century. Originality/value. This paper provides an overview of the pioneering scientific publications of Russian authors in the field of accounting, which consists not so much in quantitative characteristics as in substantive ones. A new direction of historical research - accounting journalism - is proposed in the paper.

Prior finance and accounting studies examine the effect of gambling attitude on financial markets, corporate decisions and accounting restatements using the geographical variation in gambling attitude. To extend the literature, we investigate whether gambling attitude affects auditors' pricing decisions. Using 56,031 firm-year observations for the period from 2000 to 2015, we find that the coefficients of gambling attitude measures are positive and significant at less than the 1% level in the audit fees regressions after controlling firm, auditor, and county related covariates. Further, we find that the positive effect of local gambling attitude on audit fee is attenuated as board monitoring for firm risk gets more effective by having more independent directors on board. And we find that positive effect of local gambling attitudes of firms on audit fees is reinforced as the auditor gets closer to its client firm. Results using propensity score matched sample and the difference-in-difference (DiD) estimation by exploiting corporate headquarter relocation events that lead to a change in local gambling attitude re-confirm our main results.

This paper aims to empirically investigate the existence, or not, of pluralist understandings of a complex and politically contentious issue in accounting – social and environmental reporting (SER). In doing so, an assessment of the implications of this investigation with regard to the development and dissemination of a critical dialogic approach to accounting is developed. The theoretical framing is set within critical dialogic accounting (CDA) and the need to ‘broaden out and open up’ perspectives in the field of accounting (Brown & Dillard, 2015; Dillard & Brown, 2015). Thirty-three participants were selected to represent the accounting profession: students, academics and practitioners. These participants subjective understandings of SER were then empirically investigated using Q methodology (Brown, 1980). Three perspectives of SER were identified amongst participants, including both business case and critically oriented perspectives. A third perspective was also identified that was initially thought to be a ‘middle ground’ approach. Findings are oriented toward verifying and extending prior literature in CDA regarding multiple perspectives of complex and politically contentious issues in accounting. This paper also presents an empirical identification of the “political frontiers” (Torfing, 2005) that hold potential for the development of 'chains of equivalence' to resist hegemonic domination by business case framings (Brown, 2009; Tregidga et al., 2015).

The idea of risk management has passed through many shifts from its initial conceptualisation grounded on measurements to encompass broader aspects of its daily practices. Although this changing process might appear to be a natural evolution of risk management practices, this article provides theoretical lenses to analyse the reason behind the rhetorical description of what is acceptable or not as ‘risk management’. Using the Discourse Theory of Laclau and Mouffe, this research demonstrates that the genealogical construction of risk management represents an attempt to create a hegemonic articulation of this signifier. However, given the multiple interpretations attained to the idea of ‘risk’, the fixity of ‘risk management’ is considered an impossible and necessary political attempt to legitimise a particular view of its management. By doing so, this article provides theoretical tools to analyse specific organisational contexts and understand current risk management practices and how a particular risk culture has been institutionalised.

Prior research has produced conflicting views on whether incentives help or hinder innovation in organizations. In addressing these controversial views, we argue for the importance of focusing on the effects of incentives on the allocation of effort across different behaviors. We highlight distal search and knowledge exchange as two key behaviors within the innovation process and we argue for combining explicit and implicit incentives for fostering them. More specifically, we propose a complementary role of knowledge exchange and distal search behavior in creating innovation performance and we develop hypotheses on how incentives support both of these behaviors to drive innovation performance. We test our hypotheses using survey and patent data from 282 firms in the chemical and pharmaceutical industry and find evidence that is consistent with our predictions.

In some ways this paper goes ‘back to basics’ to advance insights for the project of sustainability vis-à-vis broadly conceived governance and accounting. We begin by reflecting upon the concept and challenge of sustainability. Our appreciation of sustainability leads us to critically elaborate upon ways forward, towards a conceptual model, emphasizing here governance and accounting systems. While covering such apparently basic issues, we make a number of contributions. We highlight a lack of clarity concerning sustainability that is of potential import in practice. We articulate a framing in terms of global/local reference and holistic/partial ways forward vis-à-vis the sustainability challenge: this helps clarify ways forward and how they might be better joined up towards a more pragmatic if systematic approach. In elaborating ways forward, we collate insights into obstacles to achieving sustainability and how these may be overcome. Further, we draw inspiration from the idea of civil economy to develop stakeholder-orientation towards greater common good, making conceptually important linkages between more macro- and more micro-level practices. And we also problematize here differences between types and sizes of organisations vis-à-vis sustainability. In light of our reflections, we suggest directions for future research at the interface of sustainability and accounting in particular, pointing to areas so far scarcely being given enough, or meriting further, attention.

This study investigates market reactions to appointments of Chief Financial Officers (CFOs) with strategic backgrounds. While recent practitioner literature highlights that an increasing number of firms seeking CFOs with strategic related backgrounds, this creates a particular tension for investors since these appointments could bring benefits (i.e., more strategic ex-pertise) as well as costs (i.e., less accounting expertise). Given that cost and benefits of CFOs with strategic backgrounds should level out, we do not expect a significant market reaction. However, we expect that certain industries (i.e., high growth and dynamic) could pronounce the benefits of CFO with strategic backgrounds leading to positive investor reac-tion. Based on a sample of 845 CFO appointments from S&P 500 firms between 2004 and 2016, we investigate the cumulative abnormal returns (CARs) of these appointments. While controlling for several confounding effects, we find, contrary to our prediction, a positive and significant reactions to appointments of CFOs with strategic backgrounds on average. However, in line with our prediction, we find that this positive impact holds only true for high growth and highly dynamic industries.

This paper examines if a country’s legal origin is connected to the existence and magnitude of the accrual and post-earnings announcement drift (PEAD) anomalies in Europe. Previous studies have found the legal regime to explain the functioning of equity and credit markets (La Porta et al., 1997). This study is motivated by the conflicting results of the previous studies testing for the anomalies in Europe. This is arguably the first study to test for the accrual anomaly on a European sample using quarterly data and simultaneously examining both the accrual anomaly and PEAD. The sample includes 14,122 observations from 23 countries and the results show that the examined anomalies appear strongest in the English and Scandinavian legal origin countries whereas they do not exist in the newer market economies of Europe.

The Companies Act in India mandates qualifying firms to spend two percent of their profits on corporate social responsibility (CSR) activities, from 2015 onwards. We hand collect data on the first two years of application of this unique rule, for BSE500 firms. We find that firms included in business groups have a higher probability of spending only the required value. On the other hand, a higher level of ownership by an Indian block holder is associated with a higher probability of spending more than two percent of profits, as is a higher level of involvement (identified by the area where firms operate and whether firms spend the money directly). Finally, two types of discretionary expenses are also determinants of the amount spent on CSR activities: while advertising is positively associated with the probability of spending only the required value, R&D is associated with spending more than the required value.

Purpose – The authors review the major paradigms of translation theory, assessing which is most appropriate in the context of accounting regulations. They take the example of the IFRS term “impairment”, following it into 20 translations. They then examine the terms used for impairment in English translations of annual reports provided by firms. Consideration is given to whether the conclusions on the best approach to translation of regulations also apply to the translation of annual reports. Design/methodology/approach – The two empirical parts of the paper involve: (i) identifying the terms for impairment used in 20 official translations of IAS 36, and assessing their equivalence, and (ii) examining English-language translations of reports provided by 393 listed firms from 11 major countries. Findings – Nearly all the translations of the key term in IAS 36 are not equivalent. In translated annual reports, many terms are non-equivalent, peaking at 39% in German and Italian reports in one year. Practical implications – Although translators of regulations should aim for equivalence, translators of annual reports should instead consult the terminology in the original regulations. The authors also suggest implications for regulators, analysts and researchers.

Purpose - The aim of this paper is to report students’ perceptions on whether using an accounting software package enhances their understanding of the accounting cycle. Methodology/approach - The study uses survey research to determine students’ perspectives of the usefulness of using a software accounting program in enhancing students’ understanding of the accounting cycle in a real business environment. Findings – The study found that, in general, students perceived the accounting example they used in learning the accounting software as having some benefits in helping their understanding of the accounting cycle in real business environment, and that it had improved their information technology skills. On a gender basis, female students were more supportive of the statements concerning IT, and saw more IT benefits from the project than the male students. The female students also found the new technology easier to master than the male students. The project also played a supportive role in affirming students’ intentions to become accountants. Students were aware of the practical benefit of the Pastel training, which is to be able to add it to their CVs. On a language basis, the English First Language students found the project easier than the English Second Language students in some areas which had statistically significant different responses (understanding of the accounting principles, and ease of use of Pastel). Research limitations/Implications – Although the training is delivered on two campuses, the questionnaire was only administered on one campus, where the student body is much larger but less diverse in terms of language, with different teaching faculty. The results of this study cannot therefore be generalised beyond this group of students. Practical implications – Teaching faculty who may be considering adding a more practical element to their teaching will find this paper useful. Originality/Value - The accounting literature on information technology use is relatively scarce. This paper adds to the literature.

This paper addresses the existence of a link between the season overrun and the sentiment of audit reporting. We based our study on the archived data of 10-K reports filed to the Security Exchange Commission. Our sample consists of 65511 reports for the period 1993-2016. We combined the text mining with panel and quantile regression and control for the formal type of the audit report. Our results show that audit reports are not homogenous in sentiment. We document the existence of a robust link between the busy season and audit opinion sentiment. We raise the concern that extending audit reports can impair the consistency of factual and emotional communication. Police-setters and supervisory bodies might benefit from this research while formulating policies on changes to the audit reporting paradigm.

Using inventory accounting as setting, this study analyzes whether differences in aggregate GAAP versus macro-accounting properties matter for prediction. US-GAAP requires firms to report inventory at the lower of historical costs and replacement costs. In contrast, economists care about the current value of production and adjust corporate profits for capital gains and losses that result from pricing assets conservative or at historical cost. The quarterly-published “Inventory Valuation Adjustment (IVA)” removes inter-periodically shifts in GAAP profits resulting from pricing inventories at prices of prior periods. This study tests whether GAAP profits are systematically biased by GAAP properties on the aggregate level and whether macro-data can help to explain such a bias. Results show that aggregate IVA is negatively related to current GAAP profits, but positively related to future GAAP profits. Results further suggest that investors and analysts underestimate the bias of GAAP properties’ relevance. This is consistent with the idea that GAAP reporting properties can lead to inter-periodically shifts in profits on the aggregate level. IVA is useful to adjust for such biases. As aggregate GAAP profits are not only relevant to estimate economic outcomes such as GDP or tax incomes, but also for predicting aggregate income for diversified investors and funds, this study should be of interested for macro-economists, governments, investors and analysts.

This study examines the association between earnings quality and the ownership of the controlling family and the second largest owner, and the number of family owners within a setting of private family firms. The literature on family firms has focused on public family firms, probably due to data accessibility. As the majority of firms is private worldwide, investigation on private firms is requisite. Furthermore, most studies on family firms have compared family firms with non-family firms, and there are increasing calls for more understanding of the heterogeneity within family firms (Melin and Nordqvist 2007). In addition, the less attention on accounting practices in family firms may hamper conceptual advancement in the family business literature (Salvato and Moores 2010). This paper contributes to the literature by exploring the quality of earnings within the private family firm segment. We use a unique dataset that contains detailed information on family ownership for the whole population of private family firms. The results show a non-linear relationship between earnings quality and family ownership; that is, compared to firms fully owned by the controlling family, earnings quality is lower when family ownership is relatively higher or lower, but similar when family ownership is in-between. Moreover, we find that the ownership of the second largest owner is positively related to earnings quality, but there is no strong evidence that earnings quality is associated with the number of family owners.

This paper examines the joint inspection process between the Public Company Oversight Board (PCAOB) and a foreign jurisdiction to determine the impact of the inspection on audit procedures used during an audit and the overall quality control measures of the audit firm. We are interested in determining whether the joint inspection process has an impact on audit regulation in the foreign jurisdiction. To answer this question, we interview Big four audit partners involved in the joint inspection process in the foreign jurisdiction and regulators in both the foreign jurisdiction and the PCAOB to gather their perceptions of the impact of the joint inspection process on the foreign jurisdiction. We find that the joint inspection process had an impact both on how the auditor gathers and documents evidence during an audit and also on the overall quality control procedures used by the audit firm on each audit engagement. According to the perceptions of the interviewees, they believe that both audit quality and the level of professionalism of the national oversight body have improved in the foreign jurisdiction. Our results support the goal of public oversight improving the reliability of financial reporting allowing outsiders to receive information that they can rely upon in the decision making process.

We investigate whether timely loss recognition by Australian public companies differs from that of a large sample of Australian private companies during 2007-2016 when all companies had to follow IFRS accounting policies. As in Ball and Shivakumar (2005), we argue and find that public companies exhibit more timely loss recognition than independent private companies. However, as the degree to which they are controlled by an ultimate public company increases, private companies display the same conditional conservatism as their public company counterparts. We attribute the change to the imposition of the ultimate parent's accounting policies on its subsidiary to facilitate internal reporting efficiency and consolidation.

In this study, we examine how auditors view and respond to stock liquidity by examining the fees charged to clients. We provide evidence of a positive relationship between stock liquidity and audit fees. These results hold in an endogenous regression design, instrumental variables approach, analysis using S&P 500 index addition as an exogenous shock, and alternative liquidity measures. The effect of stock liquidity on audit fees is more pronounced for firms with weaker internal governance, where we use a low proportion of independent directors, absence of female directors, low frequency of board meetings, and low dedicated institutional holdings as proxies for internal governance. Our observed effect is also less pronounced for large (Big N) auditors. Path analysis indicates that auditor litigation exposure and investor information demand play a mediating role. Additional analysis indicates that higher stock liquidity is associated with more non-audit service fees and a higher issuance of going concern opinions. Taken together, our study provides evidence that the benefits of stock liquidity previously documented come with a cost.

In this study we examine the information dissemination role of the business press for analyst recommendation revisions. Consistent with the business press providing wider dissemination of analyst reports, we find evidence that press coverage of analyst forecast revisions significantly increases the initial market reaction to these revisions. Furthermore, our findings suggest that press coverage of analyst revisions results in significantly less drift for covered revisions than for non-covered revisions. Finally, we find that news flash coverage, rather than in-depth news coverage, of a forecast revision drives both our initial market reaction results and our drift results. Overall, our findings suggest a complementary role between analysts and the business press - increased dissemination of recommendation revisions, rather than information creation on the part of the business press, serves to better inform the market about analyst recommendation revision decisions. This study helps us better understand the interaction between two information intermediaries – the business press and analysts – and the capital market implications of this interaction.

We examine the extent to which corporate social responsibility (CSR) disclosure practices influence the likelihood of inclusion in a major corporate sustainability index (the DJSI World Index) above and beyond CSR performance. We also investigate several economic consequences of membership to the DJSI World Index. Using a propensity-matched sample based on multiple dimensions of CSR performance we find that the issuance of CSR reports, the assurance of CSR reports and the use of a reputed assurance provider have considerable influence on the likelihood of inclusion in the DJSI World Index. We also show that firms maintained or joining the DJSI World Index exhibit positive abnormal returns in the two months following the DJSI World inclusion decision and attract more sell-side financial analysts relative to CSR-performance matched firms not included in the index or firms excluded from the index. We also find that constituents of the DJSI World Index exhibit a greater percentage of long-term investors relative to matched non-DJSI World Index firms. Our results inform stakeholders on the importance of CSR reporting for sustainability index inclusion decisions and the financial implications of such decisions.

This paper provides an account and analysis using the perspective of the theories of Institutional Work (Lawrence & Suddaby, 2006) and Agonism (Mouffe, 2014) of the mechanisms and process of leadership of the Lebanese Association for Certified Public Accountants (LACPA) within the complex political and religious environment of the Lebanon. Utilising interview data from key players of LACPA, supported by archival documents, this study reveals the backstage governance of the LACPA, how the different groups interact, and ultimately how this is reflected on the function of the LACPA, as the exclusive body of accountants in Lebanon. The case shows that maintaining this institution has to be understood, beyond the technical aspects of the accounting profession and practice, to embody other political and religious/sectarian considerations. Given this multidimensional nature of the maintenance/survival of the accounting profession as an institution, the notion of agonistic pluralism (Mouffe, 2013) provided a more nuanced understanding of the maintenance of the accounting profession in Lebanon.

This paper introduces the first comprehensive cross-country index of income tax complexity faced by MNCs. The index consists of two sub-indices measuring the complexity of the tax code and the tax framework. To develop and construct the index, we conducted two surveys of highly experienced local tax consultants via the largest international tax services networks. Covering 100 countries for the year 2016, we find considerable variation in the level of tax complexity across countries. Moreover, we observe that countries often differ in their rankings on the two sub-indices, i.e. either have a low tax code and a high tax framework complexity or vice versa. Hence, when measuring tax complexity, both aspects should to be taken into account. Relating the tax complexity index to other country characteristics, we find weak negative associations with several economic, political and social characteristics. For example, countries with a higher level of tax complexity tend to have a lower GDP per capita and a lower level of development. In terms of tax rate measures, the relations are weak and positive. Overall, our analysis highlights the role of tax complexity as a distinctive feature of a tax system that should be considered in future research.

This study empirically examines the effect of non-controlling interests of listed subsidiaries on the dividend policies of companies. The results indicate that in firms with few investment opportunities, the higher the ownership ratio of non-controlling shareholders, the lower the dividends of their subsidiaries. This result is robust under several conditions. This study suggests that when subsidiaries have fewer investment opportunities, parent shareholders could exercise their residual control rights and exploit non-controlling shareholders by restraining their dividends, which may originate from their precautionary motive. This study also demonstrates that conflicts of interest arise between parent company shareholders and non-controlling shareholders with regard to the dividend policy of subsidiaries in Japan.

In this study, we examine how Public Company Accounting Oversight Board (PCAOB) international inspections on non-U.S. auditors affect international Merger and Acquisition (M&A) outcomes. Using a difference-in-differences research design, we find that following the PCAOB inspections, clients of inspected auditors are more likely to become acquisition targets and if they become targets, the likelihood of deal completion increases. Acquirers also pay higher premiums to targets with PCAOB-inspected auditors, and the deal quality is higher for M&As involving targets with PCAOB-inspected auditors than those with non-inspected auditors. The effect of PCAOB inspections on M&A outcomes is more pronounced for targets with greater information risk and for those located in countries with weaker legal institutions. Collectively, our results suggest that PCAOB inspections improve the credibility of audited financial statements, reduce information risk in M&A deals, and enhance capital allocation in global markets. Our study provides novel evidence on the real economic benefits of the PCAOB international inspection program.

Purpose: To analyze CSR communication in Latin American companies on Facebook. Specifically, disclosure and its determinants, as well as the legitimacy and interactivity of CSR posts are studied. Design/ methodology: A content analysis of Facebook posts was performed and an index was developed, in order to establish disclosure levels explained by means of regression modeling. In addition, an analysis of Facebook posts, reactions and comments was carried out. Findings: Content analysis shows that more posts are on the categories of society and environment. The regression model shows a strong link between corporate and board characteristics and the disclosure level. In spite of the dialogic character of Facebook, interactivity levels of messages are low, while high legitimacy levels are observed in posts by consumer and financial companies. Research limitations/ Implications: This study examines companies included in the Latin American Integrated Market (MILA in Spanish). Therefore, the generalization of the results is limited to the analyzed context. Practical Implications: Understanding CSR communication might contribute for companies to better relate with their stakeholders and change their practices as a result of the feedback provided by them.

This paper shows that a preference for short term investment opportunities arises naturally in public equity markets when there is (i) periodic financial reporting, (ii) reinvestment of past earnings, and (iii) different generations of investors. The model includes two types of investors that differ in the periods that they can trade. Short-horizon investors only trade for one period while long-horizon investors can trade for one or two periods. In equilibrium, a short term investment opportunity attracts more equity capital than a long term investment opportunity. Furthermore, a short term investment opportunity attracts more demand from short-horizon investors than long-horizon investors. The explanation is that the short term investment opportunity enables inter-temporal risk sharing across the generations of short-horizon investors. The results (partly) reverse when considering public debt financing. In public debt markets, more capital will flow to the long term investment opportunity when the effective interest rate is sufficiently low. The paper further shows that a long term investment opportunity becomes more (less) attractive when financial reporting features impairment accounting (conditional accounting conservatism).

I exploit the international staggered adoption of takeover laws in order to examine the effect of increased turnover sensitivity to performance on managers’ financial reporting choices. Using a difference-in-difference design, I find that the enactment of laws designed to promote takeover activity is associated with greater earnings management (abnormally high accruals, small positive earnings, and poor accruals quality). This is consistent with managers responding to increased risk of termination by distorting earnings information. Results are particularly pronounced for managers facing the greatest risk of termination – those with higher ex-ante forced turnover probability and at firms with poorer performance. The effects are mitigated in countries in which strong institutions can limit the CEOs’ ability to manage earnings. Overall, my results suggest that reforms aimed at enhancing governance through higher turnover sensitivity to performance can also have unintended consequences by encouraging earnings management through increased job security concerns.

We study the association between board-members’ attitude to risk, as measured by their personal legal infractions, and information asymmetry and agency problems prior to bankruptcy using a sample with 260 small firms from Sweden. We find that auditor resignations are more likely among firms having at least one board-member with a legal infraction. Furthermore, we find that legal infractions are negatively related to the likelihood that a firm discloses its annual report and the quality of the book-keeping, suggesting that information asymmetry problems are more severe when board-members have legal infractions. We also find that creditors recover a smaller part of their claims if board-members have legal infractions, indicating that the agency costs of debt are higher in firms whose board-members take more risks. A final finding in the study is that auditor resignations seem to transmit the association between legal infractions and creditors’ recovery rates.

Purpose: The purpose of this paper is to examine the accounting change from cash to accrual accounting, so as to identify and assess the knowledge gap that can affect this transition. Design/methodology/approach: In this context, this contribution is part of a broader research studying the effectiveness of the accounting transition in public sector, from cash accounting to accrual accounting. In particular, through a combination of text-mining techniques and qualitative analysis, this paper aims both to provide a methodology for the assessment of the quality of performance disclosure after the transition, and to investigate the organizational barriers that may affect its efficiency. Findings: The findings highlight a low degree of compliance with accrual accounting system and communication within financial statement, in particular, that is the result of substantial lack of accrual accounting culture in Italian public sector Originality/value: The underlying hypothesis is that the greater the effort made in communicating and interpreting results in the financial statements, the greater the level of effective implementation of the accrual accounting at organizational level. In contrast, the documents still containing references to previous cash approach in interpreting the management results demonstrate an overall poor knowledge of the accrual accounting within the organization.

Our objective is to estimate the expected cost of equity capital for private firms, divisions or projects. In the absence of market data, financial managers currently favor industry averages as a traditional heuristic, while researchers and textbooks recommend the usage of comparable companies. Severe concerns of reliability and validity arise, as these approaches lack an objective identification procedure, guidelines of a sufficient peer group size and an assessment of optimal granularity of industry definition. Practitioners thus face great uncertainty about the relative performance and credibility of the suggested methods. We propose a parsimonious model generating objective peer groups by capturing markets’ perception of differences in general theoretical characteristics (operating risk, financing risk and growth risk) of the expected cost of equity capital. While small peer group sizes result in preventable estimation errors, we find the first ten comparables to yield the best improvements in estimation accuracy. The theoretically founded approach outperforms the traditional heuristic in terms of higher precision and reduced bias. The highest precision and lowest bias is achieved by selecting peer groups based on risk factors from the same SIC division (broadest grouping). We recommend that practitioners and researchers focus less on more detailed industry definitions and more on differences in fundamental characteristics suggested by theory.

We contribute to the literature and examine the extent to which sustainability reporting determinants influence companies’ adoption readiness for GRI G4 guidelines in Indonesia. Drawing on legitimacy theory, stakeholder theory and institutional theory, we use a survey questionnaire to identify four sustainability reporting determinants, namely corporate exposure, competition pressures, stakeholder pressures, and CSR strategies. The adoption readiness is captured by four indicators, namely alignment, familiarity, the benefit and obstacle and commitment to adopt GRI G4 guidelines. Participants in our survey include seventy six companies, which published sustainability reports for the year 2014. Our findings show that the corporate sustainability determinants (corporate exposure, competition pressures, stakeholder pressures, and CSR strategy) influence significantly on the level of GRI G4 guideline adoption readiness.The findings of our study have implications to various regulators and policy makers, companies and organizations and researchers who are interested in enhancing sustainability reporting. Keywords: Sustainability reporting determinants, readiness for GRI G4 adoption, Indonesia

This study examines how a Swedish Big 4 firm allocates resources and whether the firm charges risk premium by increasing billing rates to public clients versus private clients. It uses a unique dataset containing audit hours and audit costs (i.e., hours*billing rates) for each team member in 909 teams and categorizing auditors to more than 7 ranks. Specifically, we investigate whether the audit firm allocates more audit costs and hours and assigns auditors with more expertise (i.e. higher billing rates) to public clients, compared to private clients, and whether the allocation of more costs/hours and expert auditors are mainly associated with higher ranks (e.g., partners and directors). Moreover, audit firms may charge risk premium to public clients and we examine whether the Big 4 firm actually do so by increasing billing rates at the individual auditor level. The results show that the audit firm allocates more audit costs and hours to auditors in higher ranks and assigns expert partners when auditing public clients. However, results do not indicate that the audit firm charges risk premium by increasing auditors’ billing rates. This paper provides new evidence using finer data on billing rates and complements previous studies that often compute average billing rates using audit fees and total audit hours, which is too crude and may confound different factors. Furthermore, it contributes to the literature by shedding new insights on audit firms’ resource allocation decisions.

Using a case study of a company in the green construction sector, this study examines how the use of numerical forms of representation in communicating and implementing strategy is driven by organisational culture. Prior literature has pointed to the potential role of calculative cultures in understanding how numbers are used. We argue that pragmatism offers a useful lens for examining how incomplete and relatively unsophisticated numerical information can generate action in an uncertain environment. The philosophy of pragmatism is that the truth is contained in the action. We found evidence of a highly pragmatic organisational culture driving a dominant use of numerical forms of representation. Numbers were used to reduce ‘day dreaming’, focus action on achieving outcomes, and provide direction on achievement of objectives. The pragmatic culture led to a quantitative enthusiasm, but this was also coupled with a quantitative realism (Mikes, 2009) on the limitations of numbers. The study contributes to literature by presenting evidence on how this pragmatic culture did not search for truth in numbers, rather the truth was judged by the actions that resulted. Representation and measurement were valued by the actions that resulted. In addition, the paper questions whether a pragmatic culture is helpful for organisations in accepting the incompleteness of numbers or whether it can lead to myopia and an excessive focus on management techniques which produce short-term actions.

Purpose: Audit firms tend to recruit newly graduated students. The question is how millennial students, who value other aspects of work-life than previous generations, perceive the audit firms’ images and their attractiveness as employers. The aim of the study is to explore millennial accounting students’ perceptions of audit firm attractiveness and how these perceptions are formed. Methodology: 56 accounting students from three universities in Sweden were interviewed in their last semester of their education (conducted during February-May 2017). The interviews were semi-structured and lasted on average one hour. Findings: The analysis is based on a subsample of the interviews. The tentative results show that the perceptions of the audit firms’ images are created by word-of–mouth and the individual audit employees, regardless of they are currently or formerly employed. Audit firms seems to attract a Millennial sub-group. They value development opportunities, intellectual challenges and work-life balance, however CSR, diversity and societal benefits are not valued to any higher extent, which Millennials are assumed. Implications: The study provides some insights in to potential issues regarding Millennials future job satisfaction. Millennials need for work-life balance and fair pay can be a potential source of job dissatisfaction. Also, the up-or-out system could cause potential problems in retaining millennial employees.

The aim of this paper is to identify the type of management accounting (MA) practices used in business entities surveyed in Poland, and to recognize the direction and factors of changes in MA methods and tasks in almost three decades of the dynamically developing market economy in Poland, after the change of the socio-political system at the turn of the 1980s and 1990s. To achieve this goal, the author answers a few research questions based on a review of the previous literature and data obtained from three surveys conducted in 1999, 2005, and 2016. This study confirmed that the number of companies in Poland which have departments that carry out tasks in the area of MA/controlling has increased steadily. The research indicates that operational MA practices (traditional costing, operational budgeting, variance analysis) dominated in enterprises between 2010-2015, just like in the years 2000-2005 and in the 1990s. At the same time, there are changes involving the use of variable costing as part of operational MA in a greater number of companies. In no more than 10% of the medium and large business entities which responded are the methods of strategic MA used alongside traditional practices. In the first period of development of the market economy in Poland, i.e. until 2004, many different economic and institutional factors influenced the change in MA practices, and in the next period, the respondents of empirical studies pointed to economic factors as being most important.

In the wake of the refugee crisis, central government in Sweden decided in an additional budgetary decision to allocate 9.8 billion SEK to municipalities and county councils. The decision that came near by the closing date of the financial reports and immediately triggered an intensive debate about when this governmental grant should be reported as a revenue. According to regulation the entire grant should be recognized as revenue by the end of 2016. However, 22.8 % of the municipalities chose to deviate from the regulation and neglected to recognize the revenue. This paper analyses if political and economic factors can explain the deviation. Political competition does not seem to have any explanatory power at all. The economic explanations were ambiguous and to some extent contradictory. One interpretation of the study is that political and economic factors alone cannot explain earnings management of sudden and unexpected incomes; thus, a more eclectic approach is needed to increase the explanatory power.

This paper seeks to examine the relation between audit quality and accounting conservatism in the United States for the period after the Sarbanes-Oxley Act implementation. More specifically, our study focuses on whether a deterioration of audit quality determinants, expressed by auditor size and expertise, will be followed by a parallel decline of the auditees' conditional conservatism. Based on a sample of New York Stock Exchange listed companies for the period 2001-2016, our methodology employs and adjusts a well-established approach by Khan and Watts (2009) to examine the aforementioned relation. The analysis performed demonstrates that the deterioration in the form of a switch from Big N to non-Big N auditors will be accompanied by a decline in the level of accounting conservatism. In addition to the aforementioned, we observe that firms experiencing switches from an industry expert to non-industry expert auditor also exhibit a decrease in the level of conditional conservatism. The findings seem to present some consistency with prior research in this area and attempt to provide useful insights for auditors and regulators concerning the quality of audits and establish whether its decline should remain a continuously increasing concern for the orderly operation of the firms and the economy.

This paper examines the relationship between material weaknesses in internal controls (MWIC) and accruals quality under the 2006 amendments of Financial Instruments and Exchange Law in Japan known as J-SOX. It also investigates whether the remediation of MWIC has the effect on accruals quality. We find that firms reporting MWIC exhibit significantly larger absolute, positive, and negative abnormal accruals, comparing to firms with no MWIC. It indicates that firms disclosing MWIC have lower accruals quality. In addition, our empirical results show that firms that remediate their previously disclosed MWIC exhibit improvements in accruals quality relative to firms failing to remediate internal control problems. Moreover, we find that the number of control problems is significantly and positively associated with abnormal accruals, suggesting that more severe control problems are related to lower accruals quality.

The Securities and Exchange Commission requires public firms to disclose peer composition as long as they employ benchmarks for compensation determination starting from 2006. We investigate managerial incentives of selecting peers to benchmark total pay level only (compensation peers) or performance targets for performance-based pay only (performance peers), or both (common peers). We find that firms select common peers with the desired combination of both high pay level and low expected performance. Regarding compensation (performance) peers, firms tend to select those with higher pay (lower performance) but not necessarily lower performance (higher pay). The results suggest that self-serving managers have the opportunity to inflate executive compensation without facing the tradeoff between pay and performance of potential peers, whereas extant literature would predict such tradeoff because of pay-performance linkage. To further test the self-serving behavior, we propose a firm-level strategic peer selection index (SPSI), and show that the SPSI is increasing with CEO power and negatively associated with subsequent firm performance. This measure of biased peer composition could be practically useful to identify “suspicious” firms involving opportunistic compensation practices that impair shareholders’ interests.

We examine market reactions to the disclosures of the shareholder votes withheld from the election of board members. We generally find greater positive market reactions to disclosure of higher shareholder disapproval. However, we document that this market reaction is influenced by a number of factors including (1) the role and responsibility of the board member, (2) the degree of shareholder participation in the election, (3) firm stock and accounting performance. Finally, we document that the outcome of the vote is associated with subsequent directors’ turnover. Overall, we conclude that the disclosure of the vote provides new information on the quality of board monitoring and potential future changes to board composition.

In this paper we exploit the complementarities between agency theory and resource dependence theory to investigate the influence of regulatory monitoring on financial reporting quality in the higher education sector. Using English universities, we find that financial reporting quality improves with the intensity of monitoring and resource dependence, proxied by the proportion of funding from the sector regulator, the Higher Education Funding Council for England (HEFCE). However, this positive influence is moderated in the presence of a pre-discretionary deficit, a proxy for the threat of regulatory intervention. A net benefit from monitoring remains for those universities with low levels of regulated funding but in those where there is high dependence the monitoring benefit is reversed and a pre-discretionary deficit is converted to a small reported surplus. These findings extend our theoretical understanding of financial reporting quality in the not-for-profit and public sectors, contribute to the limited literature on the financial governance of universities, and provide an early exploration of the complementarity of alternative theoretical frameworks in the domain of public sector accounting.

During the 12 years of conflict in the preparation of IFRS 15 (from 2002 to 2014), there were formations of coalitions between the respondents interested and affected by the changes proposed in the public consultation, as a way of influencing the norms for your ideal position. Thus, the main objective of this research is to identify what is the probability of success of lobbying, by the IASB/FASB in the preparation of IFRS 15, among respondents who form a coalition. To this end, we used the content analysis in 748 sample letters, secreted in 7 groups of interests, relating to conflicting issues displayed in 4 feedback from the IASB, assuming a total of 1.156 comments. In addition, the logistic regression model, with the purpose of identifying the odds ratio (probability of influence) between independent variables of the model and the success of lobbying (dependent variable). The results suggest that the influence on the success of lobbying on IFRS 15 was prevalent among the following groups, with discordant placements between the issues: regulators, preparers-telecommunication companies and construction companies-, the Accountants, other users and scholars, in this order. In relation to the main objective of this research showed that respondents participants of discordant coalitions, possessed the probability of impacting 3.87 times as the norms in the final version of IFRS 15 and achieve success of lobbying.

Measurement is a fundamental component of accounting. In part, firms use measures as representations of strategic objectives. A potential consequence of using measures to proxy for less-tangible strategic constructs is the tendency for managers to fall prey to surrogation, losing sight of the strategic constructs and behaving as though the measures are the constructs of interest. Prior research has found that tying compensation to a performance measure exacerbates surrogation (Choi, Hecht, and Tayler 2012, 2013). In this study, we predict and find that the mere presence of a measure (even absent compensation) is sufficient to lead managers to surrogate. This finding has implications for any accounting setting where measures are used to represent a construct of interest, and highlights the importance of understanding surrogation and developing strategies to reduce its effects.

We argue that the broader applicability of accounting research is often limited by the way accounting researchers typically place far greater weight on the relative cost of type I versus type II errors. To illustrate the extent of this problem, we examine the performance of simple financial ratio-type analysis for detecting earnings overstatements when the total misclassification costs are minimized subject to the relative cost of type I versus type II errors. We then contrast the likelihood of type I versus type II errors from this approach with those arising from several widely used measures of unexpected accruals. The results demonstrate how commonly-used unexpected accruals measures reduce the type I error rate by sacrificing the type II error rate. Given that accounting information users and auditors typically face much higher costs of type II errors, we explicitly identify why unexpected accruals models are likely far less useful in detecting earnings overstatements than a relatively simple approach using financial statement analysis red flags. Our results highlight the fundamentally contrasting incentives facing accounting researchers relative to those who might otherwise use the research in practice, and serve as a warning when the broader relevance of accounting research is increasingly under question.

Strategizing and management control research has been focused on what happens inside a single firm (Langfield-Smith, 1997, 2005, 2007). Most firms operate within an ecosystem (Moore, 1993), collaborating with partner firms to strategize (Chesbrough & Appleyard, 2007). But, our understanding of this inter-firm strategizing and the role of management controls remains limited. We believe a key factor for this limited attention has been the absence of useful frameworks to examine these multi-firm strategic interactions and our aim is to help fill this knowledge gap. We propose a conceptual framework based around business models (Zott, Amit & Massa, 2011) and strategy practices (Whittington, 2006). Business models provide a framing of the ecosystem within which firms carry out strategic interactions for value creation for customers (Osterwalder, Pigneur & Tucci, 2005). Using the business model of the focal firm, we can also trace strategy practices (Whittington, 2006) carried out by managers in the focal firm and partner firms and understand how inter-firm strategizing is carried out. We show how these practices can be examined and understood using a set of practice ideas from Schatzki (2005). We develop an understanding of the role of management controls in inter-firm strategizing by conceptualizing their role in enabling business models and strategy practices (Langfield-Smith, 2005). We contribute to future accounting research by showing how inter-firm strategizing and management controls can be investigated and propose four questions to help accounting researchers.

Due to capital constraints, companies cannot address every possible sustainability issue. Rather, they must prioritize which issues they deem to be the most material and allocate capital accordingly. In this study, we investigate whether and how three important factors (i.e., key decision-makers, sustainability reporting models, and stakeholder communication) relate to companies’ materiality determination process. We investigate these factors through the lenses of stakeholder theory and economic theory, i.e., profit maximization and the shareholder value approach, by collecting survey evidence from 104 professionals in the resource transformation sector who are involved or familiar with their company’s materiality determination process. This study contributes to the literature by providing important insights into companies’ internal decision-making processes regarding sustainability, and provides findings consistent with both stakeholder theory and the shareholder value approach, suggesting that they are not mutually exclusive approaches. That is, our results indicate that companies believe they can address the sustainability priorities that are important to stakeholders in a way that also improves the economic value of the company.

This paper expands knowledge on the drivers of private firms’ voluntary development cost capitalisation. In order to determine the factors influencing private firms’ capitalisation decisions, ours is the first study taking their material characteristics into account, such as a private firm’s relationships to external investors, its contractual motivations and its internal accounting infrastructure. For our research we use the German setting, in which limited liability companies have an explicit accounting option to capitalise development costs. Based on a sample of 495 private firms responding to a postal questionnaire, we find that their capitalisation decisions are driven by the absence of relationship lenders, private equity involvement, debt covenants as well as well-developed R&D management accounting systems. Our results indicate further that private firms capitalise development costs in the absence of relationship lenders (1) when they heavily rely on bank debt and (2) in order to obfuscate financial statement information for a higher number of equally important bank lenders. Our results show no influence of size-related financial disclosure, filing and audit requirements on the capitalisation decision of private firms.

We examine whether firms that improve the disclosure of non-GAAP information after the introduction of Regulation G in 2003 are rewarded by a reduction in the cost of debt. Specifically, we exploit the regulatory change to run a difference-in-difference approach that allows us to separate the effect on firms affected by the regulation from those that were not. We use long-term issuer credit ratings as a proxy for the cost of debt and find that firms, which improved their disclosure quality, experience a reduction in their cost of debt relative to an unaffected control group. This finding provides first evidence that non-GAAP earnings are incorporated into rating agencies’ credit risk assessment, arguably because they improve the accuracy of future cash flow forecasts.

Concerns have been expressed that public disclosure of outcomes from regulatory inspections of banks could lead to instability of the financial systems due to contagion effects. This paper analyses if the announcement of increases in loan loss reserves by supervisory authorities after a bank inspection lead to contagion in financial markets and whether contagion effects are associated with the choice of audit firms. The study is based on data from Denmark because Denmark has a unique system of open inspection reports. We find clear and strong evidence of negative returns in the announcing banks over the period 2009-2015. We also find a small but reliably negative share price decline among non-announcing peer banks and hence some evidence of contagion. However, the effect is not strong enough to suggest a systemic effect on the entire banking system. Finally, we find no evidence of contagion effects associated with the choice of auditors at the aggregate level, but when we distinguish between different auditor segments we find evidence of auditor contagion concentrated in audits by the same non-Big Four audit firms. This indicates that investors perceive that there are different audit quality segments in the audit market.

Venture capitalists (VC) play an important role in funding startups and they typically exit from their investments at an Initial Public Offering (IPO) or through acquisitions. This paper examines tone management of firms which have issued both an IPO and subsequently re-enter the equity market with a seasoned offering. Results show that firms with VC funding tend to reflect a more conservative tone in the Management Discussion and Analysis section of the IPO prospectus, with the intention to reduce litigation risk and protect their reputational capital. Despite being less optimistic in disclosures, VC-backed IPOs experience larger surprise unexpected earnings and perform better than non-VC-backed offers in the long-run. The effect of tone management magnifies for firms with VC funding that hire large auditors, receive more analysts’ coverage, operate in high-tech sectors and belong to industries facing high litigation risk.

Based on the context where succeeding independent directors are often professionally affiliated with their predecessors, we examine the influences of these successors on corporate governance as well as how these directors are nominated. Consistent with collusion hypothesis, our results show that the succeeding independent directors are often recommended by their professionally affiliated predecessors, and such recommendations have impaired the independence of succeeding independent directors, resulting in more related party transactions, higher possibility and more severity of violations, and less dissenting votes to insiders in particular in firms with higher concentrated ownership and firms located in provinces with a weak market environment. In addition, we find that the entirely compliant voting of successors and predecessors in historical records contributes to the likelihood of recommendation. Against conventional wisdom, our analysis also suggests that compliant independent directors are more likely to be recommended in regions with a larger pool of local candidates. Furthermore, our results rule out the alternative explanation of informational collaboration between RIDs (recommended independent directors) and their predecessors. We argue that RIDs have lost their independence in an economy when the external governance over the election of independent directors is weak.

In our study, we develop a CSR measure that captures discretionary CSR management. Based on CSR rating data, we propose a standard CSR determinants model that predicts a firm specific CSR benchmark. Consistent with microeconomic theory, we find that any deviations from the CSR benchmark (abnormal CSR) deteriorate future profitability. Furthermore, we document that firms with abnormal CSR are more likely to engage in earnings increasing accrual management and real activity manipulation. Firms with abnormal CSR have low levels of cash flows from operations and high production costs, while abnormal CSR increases discretionary expenses. Our findings indicate that abnormal CSR is likely to derive from agency problems and highlight the requirement for further analysis on CSR management in addition to research on the aggregated CSR rating level.

This paper investigates the effect of product market competition on the efficiency of managerial investments decisions. We employ a unique setting—Japanese products markets and find that competition leads to over-investment. Firms with better corporate governance mechanism seem to immune from investing excessively, and non-Keiretsu firms show similar resistance to over-investing activities. Our findings shed light on how competition can exacerbate agency problems.

Early accounting research suggests voluntary disclosures about a firm’s sustainability activities reduce information asymmetry. The premise is that for firms to proactively engage in sustainability activities requires the participation of their stakeholders, thus these firms have incentives to communicate their sustainability activities and reduce information asymmetry. These early studies, however, do not address whether firms’ sustainability disclosures deviate from their sustainability activities. To reduce this information asymmetry surrounding a firm’s sustainability activities, firms voluntarily report detailed information to reporting services, such as Datastream, that compile the information and calculate a firm’s environmental, social, and governance (ESG) score. Firms reporting low ESG scores are likely acting reactively by just meeting current regulations. Firms that report high ESG scores, however, could be proactively engaged in sustainability, or may be reporting deceptively about their actual activities. In our study, we classify firms using two first stage analyses: a cluster analysis, based on outcome measures; and, a self-selection analysis, based on input measures. In our second stage, we find proactive firms exhibit lower analysts’ forecast errors/dispersion and lower cost of capital than deceptive or reactive firms.

Using the sample of M&As undertaken by Chinese listed companies announced during 2010 to 2012, we provide new evidence for the relationship between the M&A and corporate innovation. As opposed to previous evidence, we find document a positive association between the M&A and ex post corporate innovation outcomes. Furthermore, our results show related-party deals stimulate higher performance of innovation, but horizontal M&As between related parties deteriorates the innovation outcomes after the M&As. Our evidence suggest the importance of information asymmetry and knowledge relatedness between the acquiring and acquired firms in spurring corporate innovation.

Materiality is the driver through which companies can identify and select issues to be included in non-financial reports favouring expectations and needs of all the stakeholders. Considering issues that have emerged from recent studies at international level, the aim of this research is to investigate, under the lens of Stakeholder Theory, the possible relationships between the application of materiality principle in non-financial reports and the characteristics of the companies under investigation and of their reports: industry, experience on voluntary disclosure (number of years with publication of a stand-alone non-financial report), presence of an independent auditor’s report, GRI or IR Framework (IIRC) adoption and stakeholder engagement. We selected, as subject of investigation, all the Italian listed companies that published a sustainability/integrated reports in the years 2013, 2014, 2015 and 2016 following guidelines and principles of GRI and IIRC. The number of reports analysed is 148. The research findings highlight the importance of industry as key determinant and above all of stakeholder engagement in the reporting process, in particular in the materiality analysis. This research is part of materiality analysis field of study and could be interesting both for international bodies working to define standards and guidelines on non-financial reports, and companies that choose to produce voluntary reports.

This article is a literature review. We examine the effects of other comprehensive income and its components on financial statement user. The paper identifies areas of research. We begin by studying the “aggregate” comprehensive income and comparing it with other metrics such as net income. Next, we focus on the components added to net income to achieve comprehensive income. It consists of two parts: firstly, we focus on the comprehensive income as an aggregate number. Then we provide a literature review around the components of “other comprehensive income”. Our results not only put in evidence fruitful research area. The comprehensive income is not a performance measurement metric; however we should increase our knowledge of interactions between comprehensive income and risk. They may help standards setters. We also inform the discussion on the cost and benefits of regulate more precisely or not the performance measures.

This study investigates the investment behavior of German firms that switch to parity codetermination. Specifically, firms that have more than 2,000 employees must establish a codetermined supervisory board with equal representation of employees and shareholders. We use a difference-in-difference research design that tests for changes in investment efficiency after employee representatives occupy 50 percent of the voting seats on the supervisory board. Our analyses reveal that firms that introduce parity codetermination on the supervisory board increase investment efficiency. Further, we find that codetermination mitigates under- and over-investment.

It is often said that corporate governance and value creation are interrelated. Unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed. The empirical evidence on this area have started to flourish and various researches have been performed with a view to shade more light to the association between corporate governance and financial outcomes, yet the results have been mixed and inconclusive. Adding to previous studies, we attributed the inconsistent results to the fact that there is a measurement error associated with the way by which previous literature measured corporate governance and/or model specification errors. In our study, we measured corporate governance using 2 different proxies; the first one is to include a full set of individual corporate governance provisions that have been recommended by the UK governance codes and empirical literature. In the second one, we used principal component analysis (PCA) to build 8 valid corporate governance factors using 28 individual corporate governance provisions. Our results which are based on dynamic panel data (DPD) modelling showed that measuring corporate governance using principal factors generates more robust results. We found that governance factors including Board Compliance and Board Diversification are the most significant factors that exercise a direct influence on firm financial outcomes. Our results are robust in the short (t), medium (t+3) and long term (t+5).

This study investigates how director compensation and busyness (i.e. holding multiple directorships) affect bank market value in an international context. We use a sample of 386 bank-year observations over the period of 2010-2015. We find that for the full sample, director compensation has a significant positive impact on stock market valuations. However, we do not observe a significant effect of director busyness on the firm value. By conditioning our analyses on two different bank types, we find that the positive effect of board of directors’ compensation on market valuations holds for conventional banks with no significant influence on their Islamic counterparts. We, additionally, examine the value relevance of Shari’ah supervisory boards’ compensation and busyness in the listed Islamic banks and results show that they are positively and negatively valued, respectively. Our results are important to investors and bank regulators in showing the signalling effect of board compensation and its multiple directorships to bank value and stability.

We propose a holistic approach to modelling of the links among various environmental and financial outcomes of a firm, taking into account the endogeneity of these relations. In particular, we explicitly incorporate financial risk in the environmental-financial accountability analysis. We find corporate environmental performance and disclosures, corporate financial performance, and financial risk to be endogenously determined. First, we find that higher and more objective environmental disclosures help improve a firm’s operating performance while mitigating its operating risk. This finding suggests that environmental disclosures are largely a means of engaging with and building a positive reputation among the firm’s key operational stakeholders including customers. Second, we find corporate environmental performance to improve a firm’s market value while reducing its market risk: for investors, environmental actions seem to speak louder than words. Third, consistent with the voluntary disclosure theory, we find a positive link between environmental performance and environmental disclosures. Finally, we find many of the links between the endogenous variables to be bi-directional. Overall these results have important conceptual and methodological implications for future research as well as for policy and practice related to the wider role of business in society.

Audit committee members’ (ACMs) professional skepticism is important to audit and financial reporting quality. However, concerns have been raised concerns about ACMs’ application of professional skepticism. Responding to calls for research on audit committee processes, we investigate the skepticism and questioning behavior of ACMs by analyzing the questions 29 very experienced ACMs ask to external auditors and CFOs regarding a significant accounting estimate. We further analyze the questions based on the expertise of the ACM, namely whether the ACM is a former audit partner (FAP) or non-accountant (NA). While we find both groups exhibit high levels of skepticism, we find differences in their application of skepticism via their focus and content of questions, as well as the way they challenge the auditor and CFO. These differences in ACM skepticism suggest ACMs with alternate expertise complement one another in their oversight roles. Framing our results based on professional skepticism as an attitude, we highlight the beliefs, feelings, and intentions of ACMs when confronted with a potentially aggressive management estimate which has been accepted by the auditors.

Today’s challenging environment is requiring organisations to deal with volatile, uncertain, complex and ambiguous factors. Such new conditions, require strategic foresight and risk awareness to be transferred within organisations, from operations to the control room. However, recent corporate scandals, environmental accidents and disasters provide evidence of corporations’ mismanagement, poor leadership, unclear or faulty decision-making processes, lack of responsibility and control. The study investigates how corporate disclosure of sustainability reports can change consequently to an operational failure. And specifically, the work discusses a single case study of an internationally relevant cruise company, Costa Crociere S.p.a. that in 2012 was involved by the wreckage of one of its largest cruise liners, the Costa Concordia. Our findings show that sustainability reporting narrative is strongly influenced by the mix of text and visual signs that may distort the reader attention from specific event.

This paper aims at analysing the quality of voluntary disclosure in the evaluation of audit risk based on the perceptions of external auditors. The study was conducted on a sample of Italian audit managers working for Big4 and non-Big4 audit firms. By adopting a mixed method approach, we first ran a set of interviews to audit partners and academics and then administered a paper-based questionnaire. We applied the approach used previously in the literature by Beattie and Smith (2012). The Integrated report has been viewed as the most relevant disclosure, whereas intellectual capital statement is conceived as less relevant. Environmental disclosures are gaining considerable attention from auditors, even more than is being given to Corporate Social Responsibility and sustainability reports. The Integrated report, Environmental report, Human capital disclosure and Intellectual capital disclosure are more relevant when assessing an existing client compared to a new one. This paper contributes to the voluntary disclosure literature by highlighting the growing role of non-financial voluntary disclosure in the auditors’ perception of their client’s business risk. Moreover, auditors can benefit from this study by redesigning their audit risk model. Managers can focus their disclosure effort on the voluntary information auditors focus on most.

This study investigates the effects of releasing embedded value (EV) report and EV report disclosure quality on life insurance companies’ credit risks by employing credit rating and bond yield spread from the year 2001 to 2010. Empirical results of this study show that releasing the EV report significantly and positively relates to life insurance companies’ credit rating (credit quality) while has the opposite effect on bond yield spread, indicating that releasing EV report significantly and negatively relates to firm credit risk. In addition, EV report disclosure quality is significantly and negatively associated with firm credit risk for observations with EV report or those in European area. Moreover, we also find that the readability about risk presentations in annual report is significantly and negatively related to credit risk for observations without EV report or those in non-European areas while has an insignificant impact on credit risk for observations with EV report or those in European areas. The result reveals that releasing EV report mitigates bond investors’ concerns for less readable risk presentations in annual report, implying that the information of embedded value report is more relevant to bond investors than that of annual report.

This paper explores the information dissemination and information creation roles of the financial press by examining whether the rebroadcasting of firm-initiated news (parroting) and the creation of original information by the media influence the stock market reaction to news disclosures. Using textual analysis, we calculate the tone expressed in corporate disclosures and related articles in the financial press, and further distinguish between parroted and original media tonal language. We provide evidence that the press affects price formation though both its information dissemination and information creation roles. However, press-generated information has the greatest impact on market reaction. We also find that there is an asymmetric market effect, with negative original tone being more value relevant to investors compared to managerial and media-parroted (positive and negative) tonal language. Overall, our findings have important implications for studies on the role of the financial press as an information intermediary, and suggest that market participants perceive a difference between simple dissemination of firm-initiated information and new reporter-generated information.

This paper examines the consequences of R&D capitalisation on the market’s anticipation of future earnings in the pre- and post-IFRS adoption periods in the UK. The transition in the UK to IFRS offers us a natural experiment as regards the impact of changing levels of management discretion in financial reporting. While the capitalisation criteria under IFRS and the UK GAAP are similar, IFRS require firms to capitalise R&D which meets certain criteria, while UK GAAP permitted, but did not require the capitalisation. We show that the transition from the UK GAAP to IFRS results in less information about future earnings being reflected within the share prices of R&D-capitalising firms. Our results are robust to, inter alia, controlling for firm-level characteristics that may affect the incorporation of information about earnings into current market returns. We also show that R&D capitalised under IFRS is significantly associated with earnings uncertainty, while no such association is detected under UK GAAP. The findings presented in this study provide strong empirical evidence to support contentions as regards loss of information arising out of constraining managers’ reporting discretion; and a warning against any assumption of ubiquitous benefit in the transition to IFRS. This has implications for the informational and allocative efficiency of markets; and should, therefore, be of significant interest to the users of accounts and accounting standard setters alike.

This study examines whether judgments of Japanese auditors regarding consolidation recommendations are influenced by the client’s incentive to portray financial reporting favorably as well as other possible variables such as the type of standard (principle vs. rule), self-construal (independent vs. interdependent), and gender. The results reveal the so-called “reverse” incentive effect by showing that Japanese auditors are more likely to recommend consolidation when their client’s affiliate company is in a critical financial condition than when the affiliate company is in a stable financial condition. The results also show that consolidation is more likely to be recommended by Japanese auditors who use a “principle” (control criterion) rather than a “rule” (example) and by those whose personality is characterized by being independent rather than interdependent. However, this study failed to clarify the judgmental features of female auditors. These results have global implications for the business and accounting world because all findings challenge the commonly-held assumptions in the international accounting literature.

We investigate whether the removal of mandatory audit requirement affects micro sized firms’ tax avoidance behavior. We utilize the Swedish audit regulation change that took place in 2010 and allowed micro firms to opt out of mandatory audit. Our findings show that firms that voluntarily remained audited exhibited increasing non-conforming and conforming tax avoidance relative to the matched sample of mandatory audit firms. We also examine several specific tax avoidance strategies and show that tax behavior changes associated to audit regulation change reflect both firm-level and owner-level tax avoidance perspectives. Overall, our evidence suggests that changes in corporate tax avoidance behavior occurred due to changes in the bargaining power balance between auditors and their clients.

Impression management and legitimisation frameworks has played a fundamental role in enabling academic researchers build a credible case regarding calls for real organisational commitment to sustainable practices. However, the core assumptions of the lenses limits its ability to explain organisational struggles with unsustainability practices. This paper proposes the controllability and stigma management framework. This framework, in two ways addresses the limitations of both lenses in accommodating discussions on unsustainability practices. First, it suggests that organisations have limited control over the environment. The controllability dimension of the lens lends support to the argument that embedded in sustainability reports are legitimate concern over the environmental constraints that limit organisational commitment towards less unsustainable practices. Second, it explains how organisations exploit discourses on controllability for the purpose of stigma management. The stigma management dimension helps explain why organisations voluntarily report on the controllability of unsustainability practices. The lens is demonstrated through an illustrative case study of Shell Plc’s sustainability reporting of oil spills, a stigmatising event in Nigeria.

In this paper, we investigate whether management build slack in MEF (Management earnings forecasts) or whether shareholder governance restrains its behavior. A principal who does not have as comprehensive information as an agent tries to set an accurate budget based on past performance. This tendency is often called a target ratcheting. Meanwhile, the agent tries to build slack using private information to maximize their future compensation. First of all, we verify whether MEF are determined based on past performance in the framework of shareholders as principals and managers as agents. As a result, target ratcheting is observed in MEF. Subsequently, in order to confirm whether the slack-building decreases as shareholder governance gets stronger, we analyze the relationship between institutional ownership and MEF. As a result, the MEF is higher as institutional ownership rises. Finally, we analyzed the relationship between the institutional ownership and the forecast error of the next year, and forecast errors become smaller as institutional ownership rises. A series of evidences suggest that management build slack in MEF, but shareholder governance restrains them.

This study examines the role that accounting plays in the delivery of health care to Canada’s First Nations, using the Health Centre of the Paul Band as a case study. While prior studies of relations between government and First Nations have focused on power, this study explores how relationships are formed and sustained in a network of actors with divergent interests, and how accounting is involved. Drawing on Actor Network Theory (ANT) (Latour, 1987; Callon 1986), our study reveals that accounting functions as a control device, and plays major roles in resolving tensions in the network. Additionally, we investigate the factors that influence health care outcomes for Aboriginal people. We find that five themes bear on the outcomes of Canada’s First Nations health care programs: funding, translation, compliance, enforcement and barriers. Our study contributes to accounting literature by using health care to better understand the role of accounting in an actor network that has plurality of overarching strategies. This study also makes some methodological contributions. It mitigates the tendency of previous management studies of a reductionist nature to disregard the context of the site of study as if a patient’s healthcare experience is an isolatable phenomenon. Our study suggests that: 1) site-specific context shapes participation; 2) external actors have significant impacts on site of study, and 3) genealogy is relevant to the site of study.

The international cooperation priorities and the Sustainable Development Goals link together agriculture, nutrition and education for developing countries towards sustainability. In line with these goals this research has done a “grass-root” experience in a rural area of a sub-Saharan country where a small NPO has been working for more than 20 years. The research work consists in asking the farmers’ preference for agriculture, nutrition or accounting training in six villages where the NPO already had built hand-dug wells for the farmers and child nutritional and educational centres. Recurrently, the NPO builds and donates the well for the farmers and starts a training program in agriculture, accounting and nutrition. The aim of this research is to observe the farmers’ perception of the NPO training in agriculture, nutrition and accounting and see which factors determine its preference for one course or another. The methodology followed in it is the case study exploratory research with quantitative and qualitative surveys. This methodology allows us a deeper understanding of the situation in the Woreda area. Results will be analysed through multivariate statistical analysis. Interesting results emerge such as that villages, rural or urban, which already used donated wells are very interested in receiving training in agriculture joined with a nutrition course in basic cooking. An accounting course on how to control main agriculture value-added activities and its costs has been added recently, so farmers are less familiar with it and only the more urban villages desire accounting training. These courses are embedded in an integral interdisciplinary program aimed at training and empowering families and villages towards sustainability.

This paper examines the interplay between tax and financial reporting incentives in the context of multinational enterprises -MNEs-. Specifically, I focus on how MNEs balance minimization of their group taxes through profit-shifting activities with the goal of maximizing divisional profits using financial financial reporting manipulation techniques. By using a sample of European firms for the period 2006-2015, my study provides evidence consistent with the alignment between the group tax-planning objectives and the parent company’s goal (i.e. the reduction of group tax expense). However, I find that this is less likely to be the case in presence of high tax incentives for the subsidiaries, which confirms a conflict of interests between subsidiaries and group goals. To mitigate endogeneity concerns, I look at the changes in the relation between tax incentives and profit manipulation strategies due to the adoption of transfer pricing rules that changed the cost-benefit trade-off of profit shifting activities in the context of MNEs. By using the adoption of transfer pricing standards for a group of companies included in my sample, I show that the whole group react in favor of tax group goals after the adoption. Additionally, I show how different incentives from unprofitable firms modify the balance between tax and financial reporting practices within MNEs.

We investigate the joint role of auditors’ and auditees’ incentives and disincentives in the decision to waive detected economically important misstatements (EIM) using a proprietary dataset with longitudinal information from 850 audit engagements in the Netherlands collected from working papers over the period 2005 to 2015. Understanding the drivers of the waiving decision is important because of the decision’s potential to compromise both financial reporting reliability and audit quality. The empirical results show that auditors are more likely to waive EIM when they provide non-audit services to a client that does not have an independent supervisory board. However, this differential waiving tendency is dampened by the existence of an independent supervisory board. We also find that auditors are more likely to waive EIM for clients that paid abnormal audit fees. Further, auditors are less likely to waive EIM when the risk of client loss is high and if share dispersion is higher. Lastly, auditors are more likely to waive EIM for public interest entities. Taken together, our results show that not only do auditors’ economic incentives vary in their effect on their waiving decisions but also these effects are differentially moderated by the auditees’ incentives.

Using a large sample of U.S. firms over the period 2000 up to 2012, and relying on the behavioral theory of the firm (combined with both life cycle effects and institutional theory), this paper explores the impact of social comparison on changes in firms’ SG&A ratio. Social comparison relates to comparing own performance against the performance of a meaningful reference group of other organizations (i.e., social reference group). Optimal levels of relative SG&A are hard to assess and we therefore argue that social comparison is likely to be an important input to managers’ SG&A decision processes. We find that social comparison significantly affects changes in firms’ SG&A ratio. In addition, the impact of social comparison is found to depend on the firm’s life cycle stage. Our results further indicate that social comparison has a significantly stronger effect in social reference groups characterized by high(er) similarity in terms of SG&A ratios.

This paper examines the integration of ethics and critical thinking in management accounting and control (MAC) textbooks. In MAC education, the focus often seems to be on the ‘technical’ rather than the ‘ethical’ side. This paper first argues that MAC choices have an inherent ethical dimension that should be acknowledged. Second, a content analysis of five top-ranked MAC textbooks is conducted to examine the integration of ethical reflections in MAC textbooks. The findings indicate that most MAC textbooks only marginally touch upon the ethical dimension of MAC in the main text, cases and exercises. In particular, textbooks at the introductory and intermediate level only seem to focus on the ‘technical’ side of MAC. This paper offers suggestions on how to take the integration of ethical reflections and critical considerations in MAC education further and concludes with directions for future research.

The U.S. capital market is based on the efficient flow of information to all investors, not just the large, institutional investors that dominate today’s markets. Investigating the flow of information to uninformed market participants, we examine whether ambiguity in the market leads to an increase in information demand by individual investors. Basing our hypotheses on the asset pricing model proposed by Mele and Sangiorgi (2015), which incorporates market ambiguity, we measure individual information demand using daily Google searches and measure market ambiguity using a metric based on the market trades of institutional investors. We find that individual investors increase their information demand during periods of greater market ambiguity. In particular, our results show that for random trading days, when there is higher market uncertainty, individual investors demand more information. We also provide evidence that information demand from individual investors spikes around earnings announcement days primarily when market uncertainty is highest. We fail to find evidence of increased demand for information around earnings announcements when there is lower ambiguity, i.e., low disagreement among institutional investors. These results collectively indicate that information demand by uninformed investors is influenced by market uncertainty as measured by the differential trading patterns of informed investors. Finally, we provide evidence that institutional investor disagreement

The 2015 International Accounting Standards Board (IASB) Conceptual Framework Exposure Draft (2015 IASB CF ED) proposes a mixed valuation and transactions approach to income determination. Nevertheless, it does not clearly choose between single or dual concepts of profit, which renders the 2015 IASB CF ED’s financial accounting model somewhat incoherent. The 2015 IASB CF ED proposes a rebuttable presumption that profit or loss should be all-inclusive. Only the IASB can rebut this presumption, but the 2015 IASB CF ED provides no clear conceptual basis on which to rebut this presumption. In spite of considering dual measurement, the IASB believes that it is neither possible, nor necessary, to distinguish between profit or loss and OCI on a conceptual basis. This paper suggests that the 2015 IASB CF ED’s approach to measurement can be improved by introducing a deprival value measurement rule in cases where fair value and historical cost are not appropriate. Furthermore, it argues that, under dual measurement it is both necessary and possible to make a conceptual distinction between the realised items of income and expense in profit or loss and those recognised by accretion in OCI.

As organizations become more complex, managers may face an important challenge of improving the quality of information available to other parties and thereby enhancing collaboration between all parties in an organization. In this study, we experimentally examine how managers can boost collaboration in multi-tier organizations by reporting their private information to other parties. We document how substantial variation in collaboration in multi-tier organizations arises, because managers vary considerably in how they report their private information to other parties. Our results show that managers with higher levels of grit have more determination and persistence to report their private information to other parties, boosting collaboration throughout multi-tier organizations. Our study helps explain why larger and more complex organizations may struggle to boost collaboration among its members, and why managerial reporting and grit are key to remedying this problem.

We investigate whether faultlines among senior executives and managers influence corporate disclosure processes and outcomes. Faultlines are hypothetical dividing lines splitting a group into subgroups based on the simultaneous alignment or overlap of members’ characteristics (Lau and Murnighan 2005). Faultlines among senior executives are likely to create relational and task conflicts, impede information sharing and divert managerial attention from common-goal task to handling conflicts. Therefore, we hypothesize that faultlines decrease corporate disclosure quality. Following organizational and social psychology literature (e.g., (Thatcher, Jehn, and Zanutto 2003; Lau and Murnighan 2005; Li and Hambrick 2005; Bezrukova et al. 2009), we construct faultline measures based upon multiple demographic characteristics such as age, gender, educational background, tenure, and expertise. Consistent with our hypothesis, we find that strong faultlines of senior executives are associated with increased financial restatements, material internal control weakness, 10-k filing delay and management forecast errors. Implications for theory and practice are discussed.

We investigate how practice areas of professional service firms (PSFs) manage innovativeness. Bringing together elements of social and human capital theory, as well as insights from management control theory, we argue that practice innovativeness is determined by features of the practice’s relationships with clients (social capital) and its professional staff (human capital), but that the programmability of tasks performed by the practice with its clients will moderate the effects of these features. Using survey data from 139 practices within a range of professional service firms from around the world we find practice innovativeness to be related to human capital (trained professional staff and reflective ability among staff) but not social capital. Task programmability moderates the effects on practice innovativeness of norms of flexibility in client relationships, trained staff and reflective ability among staff.

This paper explores how management accountants contribute to the translation of an institutional logic into organizational practices, based on insights from a case study in a large Dutch bank. This bank prioritized risk mitigation as a response to the risk logic — a broader collective understanding that risks should be thoroughly managed — that emerged and became dominant in the financial sector. Drawing on institutional theory, the study analyses how the management accountants were involved in the translation of the risk logic into particular risk management practices along with broader organizational practices. Our analysis offers insights into the role played by the management accountants in the interpretation and application of the risk management guidelines developed at the bank’s central level. The study reveals that the management accountants translated the risk logic in a way that was consistent with their previously developed identity as guardian and the associated cognitive structures, resulting in narrowly defined risk management practices, a focus on operational risks, and a “ticking the boxes” approach. The findings also suggest that the shift in logics implied the opportunity to resolve an identity struggle which became apparent at an earlier stage when the management accountants were supposed to assume the role of business partners.

A large number of empirical studies have been devoted to the effects of adoption of IFRS but the results have been inconclusive. We use a meta-analysis of 42 empirical studies with 68 independent samples to determine whether IFRS adoption has impacted on financial reporting comparability, market liquidity, and the cost of capital. This approach provides an objective view of the empirical results, in contrast to narrative reviews which offer subjective conclusions. We find that IFRS adoption has significantly increased financial reporting comparability, market liquidity, and reduced the cost of capital. However, our assessment of sources of heterogeneity shows that these relationships are moderated by differences in modes of adoption, differences in legal systems, the degree of divergence of local GAAP from IFRS, and the level of standards and regulatory enforcement of the country in which a firm operates. The results of this study should be of interest to regulators and policymakers particularly for jurisdictions that are still considering the adoption of IFRS.

We investigate how a reduction in information provision by SMEs limits their access to new banks and exacerbates the lock-in in their main bank relationship. We exploit a quasi-natural experiment induced by a policy change that allowed micro firms to stop providing their full financial statements to the public, allowing a subset of small firms in Germany to disclose less information. We find that firms who opt out face a significant reduction in the number of bank relationships which is mostly driven by a lower likelihood to find new lenders.

We study the impact of changes in labor protection on the accrual choices made by managers. We use two contrasting legal shocks that either increased labor protection (the Good Faith Exception) or decreased it (Right-to-Work laws). Using a sample that ranges from 1974 until 2016, we provide evidence of a positive impact of increased labor protection on income decreasing earnings management. Meanwhile, a decrease in labor protection seems to lead to a short-lived burst in positive abnormal accruals. We document a further impact on firms' conditional conservative behavior and on employees' payroll and wellbeing. Finally, results are robust to possible covariate imbalance and attrition bias.

We examine the association between auditor industry specialization and accounting quality in the European Union (EU). More specifically, we use a difference-in-difference statistical methodology to examine accounting quality for clients of non-specialists auditors, country-level industry specialist auditors as well as EU-level industry specialists and joint country-and-EU industry specialists, and we examine such non-specialists and industry specialists in the pre-IFRS adoption period versus the mandatory post-IFRS adoption period. We find significant differences in accounting quality for clients of non-specialist auditors between the pre- and post-IFRS periods, suggesting increasing accounting quality for clients of non-specialist auditors in the post-IFRS period as compared to the pre-IFRS period. Further, we document improving accounting quality for clients of country-level industry specialists as compared to non-specialists in the pre- and post-IFRS periods. Our results involving EU-level industry specialists find significant differences in accounting quality for clients of EU-level specialists auditors between the pre- and post-IFRS periods, providing evidence of improvement in accounting quality in the post-IFRS period. Our results suggest that industry specialism in the EU remains primarily a country-level factor, and provide evidence that the mandatory adoption of IFRS is associated with improved accounting quality.

This paper examines whether incentives systems using fair value based performance measures provide a (possibly) more short-term focused manager with incentive to make consistent (i.e. net present value-maximizing) investment decisions. First, we show which properties performance measures must in general fulfill to ensure consistent investment decisions if the time preference and the time horizon of the manager are unknown to the shareholder. In particular, to cope with a possibly extreme short time horizon, the expected value creation has to be recognized directly at the time of the investment. To construct such performance measures, we introduce a generalized form of the robust Relative Benefit Cost Allocation (RBCA) Scheme. Next, we focus on fair value based performance measures. After their derivation, we analyze their incentive effects. Our analysis reveals that despite their forward-looking and somehow early value recognizing character, fair value based performance measures in general do not induce consistent investment decisions. This is in particular due to the exit price orientation of IFRS fair values implying a neglection of firm specific competitive advantages (in the early value recognition). Only in the specific, rather unrealistic case of no firm specific synergies, consistent investment decisions can be ensured. We further show that fair value based performance measures are prone to manipulation by the manager.

We investigate how CFO characteristics and CFO power individually and jointly determine the use of strategic management accounting (SMA) practices in firms operating in German-speaking countries. Combining data from a survey amongst 250 CFOs and hand-collected biographical data, we find that CFO characteristics (background and education) affect the use of SMA practices. CFOs with a background and education in auditing (Accountant CFOs) use SMA practices to a lower degree, while accountants with an MBA (Strategic CFOs) use SMA practices to a larger extent. In addition, CFO-power is positively related to the use of all SMA-techniques studied in this paper. Moreover, the effect of CFO characteristics appears to be stronger under conditions of high CFO power. The results also show that the effects of the CFO characteristics differ between the sub-categories of SMA practices. While the use of SMA practices that emphasize product and industry knowledge and planning tasks are strongly associated with CFO characteristics, the use of costing and traditional financial measures is not. The findings expand our understanding of the roles that CFOs play in firms and suggest that ‘you only get who you hire when you provide them discretion’.

This study evaluates EBITDA as a financial performance measure and investigates the use of EBITDA in financial reporting. First, we take issue with recent comments that both the SEC and the IASB have levied against non-GAAP earnings numbers, and in particular EBITDA. While EBITDA allegedly provides an accurate reflection of the operations and abstracts from how assets are financed, we argue that (net) operating profit provides this information without the necessity of making subjective adjustments. Comparing various profit and cash flow numbers with EBITDA, we show that EBITDA often paints a rosy picture of the firm’s profitability and cash-generating ability. Next, we investigate the prevalence of EBITDA in financial disclosures based on a large sample of 22,354 annual reports from S&P 1500 firms between 2005 and 2016. We find that 14.8% of sample firms disclose and emphasize EBITDA numbers. EBITDA disclosures modestly increase over time and tend to be rather sticky. In our cross-sectional analyses, we find that, consistent with our hypotheses, EBITDA-reporting firms are smaller, more leveraged, more capital-intensive and less profitable than non-EBITDA reporting firms. EBITDA-disclosing firms also have longer operating cycles and their operating activities require higher investments in working capital.

Accounting information and processes can be in digital format in many occasions due to the development of information technology. Many routine tasks, that external accountants conduct, can be automated. This makes it possible to develop other services of the accounting firm in addition to bookkeeping and tax reporting. Digital accounting, however, requires that external accountants develop their skills in information technology. In this study, we investigate how cooperative learning can contribute to the learning of digitalized accounting. Cooperative learning is a structured way of small group working where students are more involved and engaged in learning when compared to traditional lectures. Key elements of cooperative learning are positive interdependence, individual accountability, promotive interaction, social skills and group processing. The data for our study is collected in a project, which aims to increase the knowledge of digital accounting among students and companies. The data consists of qualitative data collected from the group working, where accounting firms, their customers and students from two educational institutes worked together to find solutions to practical situations that digitalized accounting may cause. The data was also collected through a feedback survey. We find that cooperative learning is helpful when difficult tasks without an exact goal in the beginning have to be learned. Heterogeneous groups have positive impact on learning.

We investigate the effect of board interlocks with financial institutions on the relationship between their ownership structure and the cost of debt. In Italy, companies’ ownership is largely concentrated and the system is strongly debt-oriented with financial institutions being the primary source of funding for companies. This makes the Italian context suitable to examine debt-equity agency conflicts and, more specifically, to question whether having direct internal monitoring channels (i.e. presence on the board of directors) is valuable for financial institutions when determining loan conditions. Using a panel of 250 Italian non-financial listed companies over the period 2000-2012, we show that while concentrated ownership has an increasing effect on the cost of debt, financial directors moderate this relationship. Further, the presence of a family block holder exacerbates the agency conflict with debt holders. We find that financial interlocking directorates act as an even more important tool in mitigating the agency cost of debt in such cases. Our results are robust to a set of firm-specific characteristics and support the idea that board interlocks with financial institutions provide firms with an effective monitoring device in solving debt-equity agency conflicts.

We use detailed target-specific economic information about the nature of acquired assets to identify sources of synergies and explain variation in acquirer losses, target premia, and the division of synergy gains. We find that higher proportions of purchased technology, R&D, and trademarks are positively associated with synergies, suggesting value creation associated with acquiring innovation and brand equity. Moreover, these synergies are more likely to arise in related, rather than in diversifying acquisitions. On the other hand, a greater proportion of purchased goodwill is not associated with synergies, but negatively associated with acquirer wealth and positively associated with target premia, suggesting a higher likelihood of overpayment. We propose post-2001-SEC-mandated purchase price allocation disclosures as a rich source of information that helps researchers understand the underlying sources of shareholder gains associated with merger announcements.

We explore the relation between foreign institutional ownership and corporate tax planning. Using a comprehensive sample of international publicly listed firms, we find that equity investment by foreign institutions is positively associated with tax planning. By contrast, the relation is negative for domestic institutions. We address endogeneity concerns by exploiting multiple sources of exogenous variation in foreign institutional ownership. Importantly, our results suggest that foreign institutional shareholders can act as effective corporate monitors. We find companies with larger equity investments by foreign institutions to be more likely to adopt similar tax positions to those of their peers. In contrast, higher or lower tax avoidance relative to peer levels is less likely. Moreover, while the effect of foreign institutional ownership changes for more tax aggressive strategies, its positive impact on corporate tax planning is more pronounced in the presence of a powerful CEO and high information asymmetry.

In this paper we examine the moderating role of the audit committee in external auditor decision to use internal auditors’ work or direct assistance when internal auditors are engaged in enterprise risk management (ERM) consultancy. We hypothesise that despite a negative main effect of consultancy, if the audit committee is effective, external auditor reliance on internal audit function (IAF) will be greater when it provides assurance and consulting services than when it provides only assurance services. We analyse this question with a two-by-two between subject experiment on 92 certified external auditors, manipulating internal auditors’ role in ERM consultancy and the level of audit committee effectiveness. We find that internal auditors’ engagement in consultancy negatively, but not significantly, impacts the reliance decision. Audit committee effectiveness has an overall positive effect, which is significant for the external auditors’ reliance on internal auditors’ work but not for the reliance on their direct assistance. The moderating effect of the audit committee is significant for both types of reliance decisions and supports our hypothesis. Internal auditors’ ERM consulting is not likely to reduce external auditor reliance on IAF provided that AC executes appropriate oversight over its functioning. A limitation of this study is inherent in the experimental method.

This paper examines the challenges that non-English speaking countries are facing while communicating their financial information prepared under International Financial Reporting Standards (IFRS). The research addresses the nature of the challenges related to the linguistic translations of IFRS and explores some of procedures that are aimed to respond to these challenges. Since IFRS are issued in English and then go through multi-language translations there is a special research area on how to produce the same quality regulation and achieve comparability in non-English speaking countries. An overview of the related literature shows the importance of delivering a consistent and coherent message through the financial reports. The purpose of this paper is to examine the experience from an accounting language perspective in Balto-Slavic and Koreanic language families. This particular choice was made based on non-belonging of these languages to a Germanic language family. The discussion is based on observation of the changes in accounting regulations along with the approaches to the accounting education. The result indicates that the IFRS adoption process in non-German languages differs from country to country and that it cannot be based on the literary or verbatim translations, but needs to fit local peculiarities.

This study adopts behavioral contract theory in mathematical model and clarifies a situation in which the fixed salary contract is preferable to the incentive contract for the principal. In particular, this study assumes that the principal bears a psychological cost when the incentive contract deviates from the average (or mean) level of an industry or the principal’s beliefs. The results of this study are as follows. First, if the principal does not bear the psychological cost (benchmark) or if the principal bears such cost owing to cognitive bias, the incentive contract is preferable for the principal. Second, if the agent exerts influence activity, a case exists in which the fixed salary contract is preferable to the incentive contract for the principal. Specifically, when the average (or mean) incentive coefficient of an industry or the principal’s believed incentive coefficient is too high relative to the benchmark level, the fixed salary contract is preferable. These results are obtained from single task setting. Third, in the multitasking and multi measures case, even if the agent engages in influence activity for only one task, a case exists in which the principal should set all tasks’ incentive coefficients to zero (fixed salary contract).

This paper examines the implications of social media on introductory accounting student performance. There is a significant variation in the motivations and dedication levels of students who study introductory accounting and it is important to examine the implications of the potentially disruption nature of social media in this context. We conduct one of the most comprehensive surveys of students’ use of social media to date, which relates to a range of social media applications including chat based applications. Specifically we focus on the time students spend on social media applications and how this relates to their performance across a number of topic areas in the introductory accounting final examination. The results indicate the implications are varied and distinct for different student groups. The results show students who are generally lower performing across their degrees achieve significantly lower performance in basic introductory accounting concepts where they use social media applications, such of Facebook. Surprisingly the WhatsApp chat application leads to lower performance for students who are generally higher performing across their degrees. We also find that some students achieve higher results when using the WeChat application where they are generally lower performing and from a non-english speaking background. This study highlights the importance of carefully considering the emphasis or application of social media as part of accounting subject resources.

The topic on determinants of audit quality has attracted much research interests among academicians and practitioners. This study distinguishes from extant literature by investigating the impact of a unique control mechanism in China, namely, government auditor’s ethics commitment, on audit quality. Specifically, this research aims to examine the relationship among auditors’ ethics commitment, perceived strength of penalty by auditors, and government audit quality. Using the survey data of 143 Chinese auditors from government audit institutions, this study finds that the level of auditors’ ethics commitment is inversely related to reduced audit quality (RAQ), an inverse measure of government audit quality. Moreover, a stronger perceived penalty increases the magnitude of such negative association. Also, the complementary relationship between auditors’ ethics commitment and perceived strength of penalty varies with professional title, years of employment, and gender of government auditors. Finally, we find that as auditor’s tenure increases, the negative impact of auditor commitment on RAQ behaviors is stronger, while the deterrence of penalty is not unambiguous.

This paper examines the influence of client firm size, risk, complexity and corporate governance structure on auditor selection in the Australian initial public offering (IPO) setting in the mining industry. Given that auditors play a signalling role, this study investigates the influence of client firm characteristics on auditor selection for mining IPO events – where information asymmetry issues are prolific. Results of auditor industry specialisation support the hypotheses that low-risk firms and firms with ‘good’ corporate governance prefer industry specialist auditors (national-level and city-level) as a signalling mechanism. The results also show that mining IPO firms engaging industry specialist audit firms (national-level or city-level) tend to disclose the use of IPO proceeds as being for development or working capital purposes.

Prior research shows that individuals exhibit the propensity to surrogate performance measures for their underlying strategy to the extent that make decisions merely based on the performance measures. Strategy surrogation propensity can result in suboptimal strategic decisions if the existing performance measures are inconsistent with the intended strategy. We investigate whether flexible use of strategic performance measurement systems (SPMS) can overcome strategy surrogation in the context of product innovation wherein strategy surrogation is likely to have detrimental effect on firms’ strategic viability. We also investigate the moderating effects of environmental dynamism and the mediating effect of managers’ strategy engagement on the effectiveness of SPMS flexibility in reducing strategy surrogation. We conduct a 2x2 experiment, and find that, flexible SPMS significantly lowers participants’ strategy surrogation propensity when the environment state is dynamic. Additional analysis further reveals that managers’ engagement with the strategy significantly reduces strategy surrogation. Overall, our findings suggest that flexible SPMS can be a remedy to reduce strategy surrogation, which is often associated with the use of SPMS, and thus shedding light on the effective use of SPMS to facilitate innovations.

Using a sample of Chinese listed corporations, we examine the effect of voluntary management earnings forecasts on public debt financing. We find that firms that have voluntarily disclosed management earnings forecasts in the previous year have a higher likelihood of issuing corporate bonds, suggesting that providing voluntary management earnings forecasts facilitates firms’ accesses to the public bond markets. We also find that the relation between voluntary management earnings forecasts and the cost of bond financing is contingent on the identity of ultimate controlling shareholders. Privately controlled firms with a historical record of voluntary management earnings forecasts are associated with a lower cost of bond financing, while the costs of bond financing for government-controlled firms do not appear to be affected by the provision of voluntary management earnings forecasts. Our findings suggest that the voluntary disclosure of management earnings forecasts plays a large informational role in bond financing for firms with less sources of funding (e.g., privately controlled firms).

Purpose – This paper examines the FX risk effects of cash flow hedge accounting (HA). To the extent the HA qualification criteria and detailed documentation give investors confidence that FX derivatives effectively hedge risk, market-assigned FX risk premiums will be lower for firms using cash flow HA. Design/method – Probit analyses rely on the HA designation to examine the decision to use cash flow HA. Primary analyses test the hypothesized relationship between the magnitude FX risk premiums and such HA use. Additional analyses allow for the interaction between cash flow HA use and the extent of FX derivatives use. Findings – Hypothesis tests indicate that the magnitude of the FX risk premium is, on average, lower for firms designated as effective cash flow hedgers. In additional tests, the evidence suggests that the market assigns a lower FX risk premium to firms using a higher level of FX derivatives as effective cash flow hedges. Practical implications – The findings suggest that cash flow HA provides risk-relevant information to investors. Such positive effects of HA on investors’ understanding of risk management may guide U.S. accounting regulators in their efforts to improve HA.

Companies increasingly publish integrated reports whereby they integrate material financial and non-financial information about their value creating activities into a concise and coherent report. To enhance the quality and credibility of information in integrated reports, the International Integrated Reporting Council (IIRC) emphasises the role of corporate governance in preparing a high-quality integrated report aligned with the International IR Framework and establishing an appropriate credibility-enhancing process. Using the most suitable context currently available, integrated reports published by listed companies on the Johannesburg Stock Exchange (JSE) between 2012-2015, this study seeks to understand the impact of corporate governance on the quality of integrated reports as well as the extent and quality of credibility-enhancing mechanisms (CEMs) used by reporting companies for integrated reports. Our results support the complementary view that well-governed companies are more likely to provide high-quality integrated reports and to employ a range of traditional and innovative CEMs to enhance the credibility of their integrated reports. Further examination reveals that the positive relationship between corporate governance and CEMs is more prominent among firms with high agency costs.

This study examines whether rating agencies convey private information about corporate financial reporting. In particular, we investigate whether credit rating agencies detect accounting frauds before they are publicly revealed. First, based on 208 securities class-action lawsuits that involve accounting frauds during 1996 to 2014, we find that compared to matched non-fraud firms, fraudulent firms experience lower abnormal ratings, a greater likelihood of rating downgrades, and a greater likelihood of having a negative credit watch during four quarters prior to fraud revelation. Next, we find that negative rating actions incrementally predict future litigations after controlling for industry litigation risk, prior period’s stock returns and volatility, bankruptcy risk and capital issuance activities, consistent with rating agencies having incremental information about accounting frauds beyond that of other market participants. Third, we find that as early as four quarters before fraud revelation, rating agencies put more weight on cash flow based measures than earnings based measures in their rating models, suggesting that rating agencies adjust their reliance on the reported financial information of fraudulent firms before fraud revelation. Last, we find that negative rating actions shorten the duration of a fraud. Overall, we conclude that rating agencies possess private information about financial frauds and they impound the information in their ratings. As a result, negative rating actions on fraudulent firms accelerate fraud detection.

In this paper we analyze whether the voluntary purchase of audit reviews lowers firms’ cost of debt. The audit review is a tool through which boards monitor the actions of management throughout the year. Given the insurance role of auditing, the audit review is likely to reduce the monitoring costs of public and private lenders and correspondingly, borrowers’ cost of debt. We draw on 8,275 firm-year observations from 1,731 public firms in Canada over the 2004-2015 period to test our contentions. Our results suggest that firms with voluntary audit reviews have a lower cost of debt relative to firms with no-audit review and that this effect is stronger for public than for private debt. Additional tests show that the benefits to the voluntary review does not vary with borrower size. We are the first to document that purchasing an audit review caters to debt holders’ asymmetrical need for negative information and brings benefits to borrowers through a lower cost of debt financing.

This paper examines the effect of bank restatements on liquidity creation. Banks play a central role in creating liquidity for the economy by financing illiquid assets, such as business loans, with liquid liabilities, such as demand deposits. Results show that liquidity creation declines by 9% to 14% after a restatement by small banks (those with assets below $1 billion); similar effects are not present among larger banks. The decline in liquidity creation is greater when restatements identify severe misreporting, during periods of market-wide stress, and when banks undertook excessive risks leading up to the restatement. Restatements are followed by a shift in the composition of bank deposits towards less liquid time deposits, as well as a 5.9-basis-point increase in time deposit interest rates. Branch-level data suggest restatements lead to slower deposit growth in more concentrated local deposit markets, and in counties where households are more financially sophisticated.

The controlling families make a strategic decision of appointing external auditors to their economically linked group member firms. Some business groups hire a single auditor for all member firms, while others hire multiple auditors. This paper examines how effectively the appointment of a single auditor versus multiple auditors constrains intragroup value transfers within family business groups (FBGs). Using a sample of firms affiliated to FBGs in three East Asian economies, this study provides evidence (via related-party transactions and stock price effects of earnings announcements among member firms) that the single-auditor appointment more effectively constrains intragroup value transfers. In contrast, the appointment of multiple auditors (especially, along with non-Big 4) is associated with pervasive intragroup value transfers. This study reveals that the audit work performed by the same auditor for a business group mitigates the agency conflicts between controlling families and minority shareholders. Overall, the evidence is consistent with the ‘divide and conquer’ strategy of the controlling families to undermine the disciplining role played by external auditors.

We examine the effect of the staggered adoption of state-level constituency statutes on stakeholder demand for accounting conservatism. The adoption of state-level constituency statutes allows directors to consider stakeholder interests when making business decisions, thereby exogenously increasing a firm’s stakeholder orientation. Using a difference-in-differences analysis, we find that the increase in stakeholder orientation due to the adoption of the constituency statutes leads to a significant decrease in accounting conservatism. In other words, as firms pay more attention to stakeholder interests, accounting conservatism decreases. Our cross-sectional analyses show a more pronounced decrease in accounting conservatism for firms with ex ante higher stakeholder demand for conservatism as proxied by higher transient institutional investor ownership and lower liquidation values and for firms with more powerful stakeholders who have the ability to influence a firm’s financial reporting policy ex ante. Our findings suggest that 1) stakeholders demand for accounting conservatism as a mechanism to protect their interests and 2) stakeholder orientation substitutes for accounting conservatism in protecting stakeholder interests.

Understanding strategies as promises (Mouritsen & Kreiner, 2016), this study investigates how management controls are implicated in organizations’ strategizing practice to respond to continuous government policy changes. Our enquiry is built on a historical case study on a state-owned electricity company in New Zealand, which is exposed to different changes in climate change policy over the studied twelve-years time frame. The study shows how a plethora of management controls facilitate a strategizing practice that focused on repromising new futures of the firm in light of government’s changes in climate change policy by enabling senior managers, board members, and operational staff to memorize, forget, and forgive promises made. As management controls helped to develop and solidify promises, management controls partake in futurizing of strategy, bridging previous promises to new ones.

ABSTRACT: Recent evidence suggests that the Internal Revenue Service’s (IRS) tax monitoring activities deter corporate tax avoidance. IRS monitoring also improves the quality of annual financial reporting by discouraging earnings management. Our study juxtaposes the effect of IRS monitoring on annual reporting, putting more emphasis on suspect firms and those with foreign operations, with that on interim reporting. We document that the IRS monitoring effect is more pronounced among suspect firms who are more likely to be tax avoiders. We also document that, while US firms with foreign operations engage in more corporate tax avoidance, when those firms face increased probability of IRS audit, they are less aggressive than their peers. In the firms’ interim financial reporting, we document that while IRS monitoring and enforcement activities may be curtailing corporate tax avoidance, these audits are encouraging managers to build tax rates slacks in their interim financial statements. In addition to the inadvertent outcome of IRS audits in creating a bias in the interim estimates of annual GAAP ETR, we argue that such managerial slack-building behaviors contribute to the volatility of interim financial reporting in a way synonymous to earnings management effects and that this could be costlier for investors in the long-run. Thus, the positive impact of IRS monitoring on annual financial reporting quality may not extend to the interim financial reporting.

Exploring consequences of CEO turnover, we find that incoming CEOs increase sales less than continuing CEOs in peer firms, but reduce resources and costs more. Specifically, incoming CEOs restrain more COGS and SG&A, fire more employees, and discontinue more firm operations than continuing CEOs. Examining the mean one- and three-year earnings growth, incoming CEOs only marginally outperform continuing ones. Particularly, incoming CEOs nominated during unfavorable circumstances achieve significantly greater earnings growth than continuing CEOs because their larger cost savings overcompensate their lower sales growth. In contrast, CEOs nominated during favorable circumstances achieve significantly lower earnings growth than continuing CEOs because of their modest curtailments and lower sales growth. The study contributes by showing how incoming CEOs achieve earnings growth relative to continuing CEOs – by restraining costs, not by boosting sales.

Prior literature primarily identifies tax aggressive companies via an analysis of the underlying effective tax rate or variations of it. However, several disadvantages go along with this traditional measure like the interpretation of negative values and single-year outliers. Henry and Sansing (2014) point out that a mismeasurement of corporate tax avoidance stems from truncating ETRs. In this paper, we develop a new measure trying to overcome the shortcomings of the traditional tax avoidance measure. Furthermore, we present a descriptive comparison of the new measure with the already established long-run CashETR. Also, we manually seed artificial tax planning activity and evaluate in a logistic regression, which measure better identifies additionally seeded tax avoidance. The paper provides evidence that a classification based on the new measure might be a better indicator to identify tax avoiding firms than the long-run CashETR. Therefore, the contribution to the wide stream of tax avoidance literature is not only the development of a new measure but also a comparison with a widely accepted measure. The findings should be relevant for researchers in the field of tax avoidance and should be considered for further research.

This paper analyzes the use of different lobbying choices of European constituents who seek to influence the International Accounting Standards Board (IASB). Especially, European constituents can choose to participate in the IASB’s due process, in the European Financial Reporting Advisory Group’s (EFRAG’s) due process or they can decide to lobby both. The aim of this paper is to examine who of the European constituents take which lobbying choice and to unveil the underlying reasons for their choices. The findings of the paper are based on a quantitative analysis (by collecting comment letters submitted to EFRAG and IASB) and on a qualitative analysis (by including interview data from experts from both institutions). The findings of this paper reveal that time issues, English skills, the size of the constituent, and the country of origin are factors that can explain why the majority participates only in the IASB’s due process. Although the minority lobbies only EFRAG, EFRAG’s role is perceived as more important than in earlier years because more constituents decide to submit letters to both IASB and EFRAG.

Agency theory assumes that organizational members are opportunistic, purely extrinsically motivated actors. In contrast, stewardship theory claims that organizational members decide whether they act as self-interested agents or organization-centred stewards. The theory further assumes that this decision depends on psychological as well as situational factors including management control systems (MCS). Against this background, we explore different MCS configurations and investigate how they influence such decisions through a multiple case study of German non-profit hospitals. Our notion of MCS configurations comprises different types of accounting controls (planning, cybernetic controls, rewards and compensation) as well as non-accounting controls (administrative and cultural controls) and considers that these types may serve a constraining or facilitating role. We argue and find that the different types of controls and their respective roles influence organizational tension that arises out of opportunistic behaviour and conflicts between organizational members. In particular, we find that the consideration of non-accounting controls appears important in understanding the behavioural implications of accounting controls. Therefore, our study highlights the importance of taking a broader perspective on MCS. This broader perspective also may contribute to the reconcilement of some of the conflicting evidence regarding the usage of accounting information by professionals.

There is an increasing concern in the international policy debate that firms with digital busi-ness models avoid income and consumption taxes. We extend the literature by examining to what extent the income tax-motivated profit shifting differs if firms are active in the digital economy and if firms report sales in order to minimize consumption taxes as an alternative channel of tax planning. We exploit a unique setting in Europe over the period 2007-2016 with international corporate income and consumption tax rate differences. Within this set-ting, firms in the digital service sector are able to manage the consumption tax burden whereas firms offering physical services are not. We find limited evidence that multination-al firms with affiliates providing digital services are particularly aggressive income tax-motivated profit shifters and document strong evidence that these affiliates’ reported sales are associated with incentives to avoid value-added tax rates. We further find that income tax-motivated profit shifting behavior in general is attenuated for firms engaging more ac-tively in consumption tax planning. Our study identifies different tax planning channels, provides novel evidence on the effects of taxes in the digital economy, and offers a new ex-planation why some firms avoid more income taxes than others.

Socially Responsible Investment (SRI) is receiving increasing public attention and support. Yet, the workings of SRI as a process remain opague and its proper functioning a matter of debate. Notably, it is still unclear how companies employ sustainability reporting as a means to disclose or obscure their social performance and how investors and other capital market participants may incorporate it into their decision making process. Research has produced conflicting theoretical assumptions on this matter, alternatively supporting or objecting to the idea that social disclosure produces reliable and useful information and is valued by the capital market. We summarize this debate and review the empirical literature on social disclosure in the context of SRI. To this aim, we first recapitulate the diverging theoretical assumption on the function of social disclosure. We then show how secondary literature so far has refrained from explicitly approaching this issue. On this basis, we review 72 empirical studies on the relationships of social disclosure with (1) financial control variables, (2) social performance and (3) capital market performance. We find that empirical research does not support the concept that corporations employ social disclosure for financial reasons and that it remains inconclusive on its relationship to social performance. However, most studies so far provide evidence that the capital market indeed rewards companies with more extensive social disclosure.

The ability to reduce current and future taxable income with prior years’ taxable losses is highly relevant for explaining firms’ effective and marginal tax rates. Compustat data on the tax loss carryforward (TLCF) are, however, often missing. We propose a method to impute estimated values for the TLCF instead of the common practice of imputing zero values. A random selection of 10K forms confirms that the estimated values better capture a firm’s TLCF. Re-analysing the results of Frank et al. (2009) shows that this imputation yields a large decrease in measurement error. Using the estimated values therefore increases the probability of correct inferences in studies on, e.g., tax aggressiveness and the effect of taxes on managerial decisions.

This paper examines whether acquirers’ purchase price allocation decisions under IFRS 3 Business Combinations have information content with implications for the firms’ information asymmetry and cost of capital. IFRS 3 requires firms to allocate the purchase price to the identifiable assets acquired in the transaction. However, the purchase price allocation decision is discretionary in its implementation. The acquirer understands the nature of the targets recognised, and unrecognised assets, because the acquirer has gone out looking for asset complementarity and negotiated the acquisition of those assets. The IFRS 3 requirement can have information content for investors because acquirers know what they have bargained to acquire and how they plan to generate value from those assets. We thus argue and present evidence that large proportional allocations of purchase price to goodwill are not transparent, informative, and credible disclosures, and are consequently associated with relatively higher information asymmetry and also higher implied cost of capital. The results suggest using accounting discretion to recognise large purchased goodwill amounts potentially has reputational implications now that IFRS 3 has a clear intention the acquirer’s will be more transparent about the identifiable tangible and intangible assets acquired.

This paper presents a theory that demonstrates a multiplicative power law describes the long-run relation between market values and fundamental accounting values. The theory and the estimation of its parameters are based on two testable assumptions. Cross-section models based on this theory produce elasticities that are valid, long-run market response coefficients and accurately reflect the value relevance of accounting variables. We estimate these elasticities in the cross-section for Compustat firms for the years 1971-2016. We compare our multiplicative model, log-linear, estimates to estimated per-unit response parameters of traditional, additive-linear models that relate market and accounting values. Our results demonstrate the superiority of using elasticities to measure market response coefficients.

Under SFAS 131, firms must disclose segment earnings used for internal decision-making. We hypothesize that firms have an incentive to undo the effects of earnings management on segment earnings to avoid distortions of internally used information. Using a large sample of segment reports of U.S. firms from 1998 to 2015, we find that, consistent with our hypothesis, the contemporaneous relation between consolidated GAAP earnings and the reconciliation difference is negative. The negative relation is stronger for abnormal accruals than for other earnings components. We also hypothesize that a closer alignment between segment and GAAP earnings increases the incremental costs of earnings management. We find that firms with systematically more decoupled earnings engage in more earnings management and have less informative GAAP earnings and abnormal accruals. Overall, our results are consistent with firms attempting to shield internal performance measures from their own earnings management.

Lean strategy is becoming more and more popular not only in manufacturing but also in service organizations. Drawing on previous research (e.g. Kennedy, Widener, 2008; Fullerton et al., 2013) the paper aims to empirically examine whether organizations develop specific management accounting systems to support lean strategy implementation. The case study method was used in the research to gain deeper understanding of the phenomena analysed but it was supported by questionnaire conducted in the case company. It was found that there is positive and significant association of lean implementation and employee empowerment, whiteboards use and individual process costing. There was no positive and significant associations however between lean implementation and management accounting system simplicity. So it was generally observed that departments with higher use of lean methods also use management accounting practices more extensively. Limited evidence was found however that in the case company management accounting practices work together (as a package) to support lean strategy. Only in the case of employee empowerment and whiteboards associations between their use and top management support for lean initiatives were found.

China has witnessed a substantial growth in both foreign trades and foreign direct investments in the past decades. Due to this increasing exposure of international business, listed companies in China have expanding amount of cross-border transactions and multinational investments. To explore the impacts of international exposure on firms’ business decisions, this paper aims to investigate whether corporate internationalization affects tax avoidance activities in China. Based on 2,234 firm-year observations during the period 2001–2007, our empirical analyses show that firms that have top management teams (TMTs) with international exposure are more likely to shift profits to low-tax rate period than are firms without such TMTs. TMT’s international exposure is also found to be associated with lower effective tax rates (i.e., higher overall tax avoidance activities). By contrast, we do not find any significant difference in overall tax avoidance activities between firms with and without foreign subsidiaries. These findings are robust after controlling for various model specifications. Our research highlights the importance of international exposure of corporate management in affecting tax avoidance activities during globalizing China. The findings would be insightful for investors, accounting practitioners, and tax regulators in assessing tax avoidance activities of firms. They would also be helpful for corporations in selecting appropriate executives in devising tax strategies.

Using a topical-modeling technique (Latent Dirichlet Allocation) to analyze the content of analyst reports of Chinese firms, we find that institutional knowledge in politics creates an information asymmetry between local and foreign analysts. Local analysts’ earnings forecasts are significantly more accurate than those of foreign analysts, and the gap of their forecast accuracy is greater when local analysts discuss more topics related to politics and government policies in their reports. This positive association is stronger among firms that are either state-owned or receiving government subsidies. However, when the firms have high overseas sales (top 5% in the sample), foreign analysts can outperform local analysts in forecast accuracy and the foreign analysts’ superior accuracy is greater as they report more on topics pertaining to financial and profitability ratios of the firms.

The research environment in universities has been subject to substantial changes in recent decades (Guthrie et al. 2015). Driving this has been increased competition for students, as a consequence of the greater mobility of this customer base (Guthrie and Parker, 2014). A major part of this change in the research environment has been the increasing use of key performance metrics in assessing research output. Our objective is to first extend prior research to provide more recent and broad based statistics on publishing in accounting journals. Second we seek to document the research productivity of Australian accounting academics. In particular, we seek to document the reasonableness of performance metrics. We find that overall, accounting research in top tier journals is heavily dominated by US based authors, especially for A* ranked journals. We also find that the majority of research output by Australian based academics is published in A journals, with only a small percentage of A* journals featuring an Australian author. Finally, we document that nearly 50 percent of the research productivity of Australian based academics is produced by the top 20 percent of authors in the sample.

This study examines the role of management discretion in fair value measurement. Specifically, we investigate whether the use of discretion adversely affects the reliability of fair value information when measuring biological assets. Using Australian data, we find evidence consistent both with managers using their discretion to strategically influence the size of reported agriculture gains, and with boards of directors recognising this by distinguishing unrealised agriculture earnings from other earnings when compensating managers.

We develop composite measures of individual analyst expertise, and of the cohort of analysts following a firm in a given year, and demonstrate that these measures consistently outperform single-attribute measures of expertise in explaining the efficiency of analyst response to earnings attributes that have the potential to optimistically bias subsequent forecasts. Adapting and extending the approach of Drake and Myers (2011), we show that our composite measures of analyst expertise are significantly associated with a reduction in forecasting bias arising from high working capital accruals, high discretionary accruals, low accrual quality, abnormally low discretionary expenditure and low historic earnings persistence, and that these results are more consistent across earnings quality proxies than when similar tests are estimated using single-attribute measures of expertise. In addition to demonstrating the impact of the analyst quality at the firm-year level and across a broader array of earnings quality proxies than prior research, our firm-year composite measures of analyst expertise offer researchers using data of these dimensions a potentially useful method of controlling for and testing the impact of analyst expertise on forecast efficiency.

This paper examines the effects of a change in the imputation tax credit and an additional charge of a National Health Insurance supplementary premium on investor trading behavior around the ex-dividend day. Investor types in the Taiwanese stock market comprise institutional investors, margin account traders, and retail investors, among which domestic individual investors are at a disadvantage with respect to institutional investors in relation to tax. The empirical findings show that there is no systematic association between a type of investor’s trading behavior and the dividend yield. Retail investors are sensitive to changes in the tax system in regard to dividend income and tend to sell their stocks cum-dividend before the ex-dividend day. However, they buy back the stocks ex-dividend afterward, which is consistent with the tax-induced clientele effect. By contrast, margin account traders are net buyers before the ex-dividend day and become net sellers afterward due to the provision to cover short stocks before the date on which the stocks are recorded in the register of shareholders, which displays a stipulation-induced clientele effect. Finally, institutional investors exhibit different trading behavior around the ex-dividend day as in the case of retail investors and margin account traders.

This study explores the association between characteristics of Security and Exchange Commission (SEC) regional office directors and earnings management activities of firms under their respective jurisdictions. We find evidence indicating that SEC regional office directors’ functional expertise including past prosecution experience and formal business training are associated with lower discretionary accruals and lower probability of restatement for firms under their supervision. Results also suggest that longer-tenured directors are more effective at constraining accrual-based earnings management, while male directors are associated with higher likelihood of restatement. Our findings are consistent with the prediction that certain observable characteristics of senior managers in SEC can enhance performance of the regulator. We also provide empirical support for recent SEC’s preference of appointing senior regulators who have past prosecution experience.

We examine whether firms exploit potential regulatory frictions as a response to enforcement risks arising from the scrutiny of local Security and Exchange Commission (SEC) enforcement offices. We find that the probability of a firm relocating out of the jurisdiction of a SEC regional office is positively associated with its enforcement risk. We exploit shocks to enforcement intensity at the regional office for identification. Our results are stronger for small firms and firms with low analyst coverage. We also find that firms tend to relocate to regions with weaker SEC enforcement and not to provide explicit reasons for relocation.

Central bank disclosures support effective monetary policy by managing market expectations, but can also create negative externalities in the form of front-running, speculative attacks, and bank runs. The existence of significant market-wide externalities requires central banks to internalize welfare implications of their disclosure choices. Using IFRS adoption and observable deviations from IFRS as proxies for disclosure choices, we find that central banks are more likely to adopt IFRS to meet increased market demand for credible signaling of central bank policy. However, IFRS adoption is less likely in financially developed economies where the release of proprietary information may trigger unintended market-wide consequences (e.g., front-running). Moreover, the likelihood of IFRS adoption decreases with higher contracting costs associated with increased use of fair value accounting and greater financial constraints (proxied by low capital and high dividend requirements). Greater financial constraints compromise central bank credibility and the effectiveness of central bank policy. Finally, we document that central banks in financially developed countries (facing high dividend requirements) choose to deviate primarily from IFRS rules related to enhanced disclosures (fair value accounting). These findings suggest that central banks optimize disclosure to fit their institutional environment.

Using a sample of Chinese publicly listed firms, we investigate the impact of first-time standalone CSR reports on firms’ propensity to initiate acquisitions and the subsequent market valuations of acquisitions. We find that, compared to CSR non-initiators, CSR initiators are more likely to undertake acquisitions, and they receive more favorable short- and long-term market reactions to acquisition announcements. Our further analyses show that opportunistic CSR initiators are more likely to pay cash and receive less favorable market reactions, and that mandatory CSR initiators receive more positive market reaction to acquisitions than voluntary initiators do. We also find that CSR initiators with better CSR reporting quality are more likely to initiate acquisition deals and have higher market reactions. Further, the positive effects of CSR initiation on market reactions to acquisitions are more pronounced for acquirers with small firm size, low analyst coverage, and less financial constraints. Collectively, our results suggest that firms’ commitment to CSR disclosure and CSR disclosure quality can increase market valuation of acquisitions.

The adoption of IFRS is a significant event in the financial reporting in recent two decades. The IFRS is designed to provide useful information to users, however, evidence regarding reporting quality after the adoption of IFRS is mixed. This study examines the effect of IFRS adoption on different earnings management activities. In addition, the study further investigates whether earnings management behaviours toward the mandatory adoption of IFRS are subject to family firms. The findings show that firms increase real activities manipulation and decrease accrual-based earnings management in the post-IFRS periods. The evidence further suggests that the relation between the IFRS adoption and earnings management is conditional on family firms and family ownership. Where firms are controlled by family owners or family ownership increases, firms are less likely to engage in earnings management activities after the adoption of IFRS. These results suggest that the mandatory adoption of IFRS motivate firms to switch from accrual-based earnings management to real earnings management techniques, which is more costly to shareholders. Moreover, the results echo prior suggestions that features of financial reporting is dominated by management incentives rather than accounting standards.

In 2014, the International Public Sector Accounting Standards Board (IPSASB) published its first ever conceptual framework. Although the IPSASB generally follows a convergence strategy with the International Financial Reporting Standards (IFRS), the board decided to diverge from this strategy to develop a public sector specific framework and subsequently identified accountability and decision usefulness as objectives of public sector financial reporting. This qualitative empirical study investigates why the IPSASB decided to develop a public sector specific framework and how it identified accountability and decision usefulness as objectives. Analyzing the organization of international financial reporting in the public sector and the involvement of different actors in standard setting, the study at hand shows that the board’s actions were aimed at strengthening its technical and political legitimacy. Moreover, the study reveals that the IPSASB’s due process relied heavily on individuals from national standard setters and the staff as core resource providers of experiential expertise, while the public consultations were used to obtain verification of internal deliberations. It concludes by arguing that the publication of the conceptual framework provides the IPSASB with the opportunity to further strengthen its legitimacy as international standard setter of public sector financial reporting.

This paper reviews the state of management accounting research as evidenced by 696 studies published in seven top accounting journals from 2000 to 2016. The review is structured by research topics, research theories, and research methods, to picture the trend and latest development in management accounting research. The paper then makes a detailed discussion on the published studies which are conducted in the Chinese context, to explore the way of how Chinese context can facilitate the analysis of management accounting issues. In addition, the paper identifies potential research opportunities and suggests directions for future Chinese management accounting research.

Earnings expectation is considered as a rational aggregation of all available information. However, investors with limited attention are unlikely to behave in such rational fashion. For example, their overreliance on salient information is predictable, and could be exploited by analysts who seek individual influence. In this study, I find that the market reacts more strongly to forecasts revised during trading hours when investors are more attentive, and such salient forecasts are overweighed in their expectation which plays as the benchmark of actual earnings. I also find that analyst forecasts are revised more downward during trading hours, especially when expectation information is increasingly demanded, showing that analyst strategically timing their forecasts. Collectively, these evidence suggest that analysts shape investors’ expectation subtly by taking advantage of their behavioral bias.

As a fraud detection mechanism, whistleblowing is most effective when whistleblowing allegations are properly investigated. One key decision that needs to be made when handling a whistleblowing allegation of wrongdoing is the allocation of resources to investigate the allegation. Our study examines whether compensation structure and accountability of responsible parties affect the amount of resources allocated by responsible parties to investigate a whistleblowing allegation involving financial statement fraud. We find that the responsible party’s compensation structure (greater short-term versus long-term incentives) and accountability (weak versus strong) interactively influence the amount allocated to investigate allocations. Specifically, responsible parties allocate fewer resources when they have greater short-term incentives and accountability to the audit committee is relatively weak. Further, we find that the perceived credibility of the whistleblowing allegation partially mediates the significant interaction and responsible parties’ investigation allocations. Our results have implications for the remuneration and monitoring of individuals responsible for investigating whistleblowing allegations.

In this paper, I examine how audit market competition moderates the association between auditor independence and audit quality, where auditor independence is proxied for by the provision of non-audit services and auditor-client tenure. Using structural equation modeling (SEM), I first create a new measure of audit quality and then simultaneously assess both the construct of audit quality and the overall (both direct and moderating indirect) effects of audit market competition on audit quality. I find that auditors in a greater competitive audit mark, on average, provide a higher quality of audit services, while auditors with long audit tenure and the provision of non-audit services provide lower audit quality. In addition, I find audit market competition negatively moderates the inverse relationship between auditor-client tenure and audit quality. In contrast, competition has a positive moderation effect on the inverse association between the provision of NAS and audit quality. Further, the results in the measurement model show that internal control weaknesses, going-concern opinions, restatements, and security class action filings are great proxies for audit quality, while additional cautions shall be used when discretionary accrual is used as a proxy for audit quality. The findings of this paper will be of interest to regulators, audit committees, investors, and accounting researchers who interested in understanding audit market competition and auditors' behaviors.

This study makes use of a sample of Hong Kong listed firms selling assets or equity to their controlling shareholders (asset/equity tunneling) to investigate the effect of independent directors’ monitoring on the accounting conservatism reported before the tunneling. Accounting conservatism is viewed as an efficient financial reporting mechanism that improves contracting efficiency. Prior research shows a positive association between the ratio of outside directors and accounting conservatism, which support that accounting conservatism is a mechanism to monitor managers and reduce agency costs of firms. However, this study shows evidence that, in the tunneling setting, the positive association between independent directors’ monitoring and reported conservatism may come from controlling shareholders’ incentives to conceal the tunneling from the attention of independent directors. In addition, this study shows that independent directors are able to detect the opportunistic use of conditional conservatism, whereas they do not detect the opportunistic use of unconditional conservatism.

This study examines the value of earnings components on the momentum trading strategies. We find that accruals and cash flows contain distinct unpriced information to the momentum strategy due to their distinct persistent levels. The incremental performance beyond the momentum effects cannot be explained by rational expectations. Our finding supports that joint trading signals originated from earnings components and stock returns contain additional value than the individual information. The follow-on proposed trading strategies, buying past winners with low accruals (high cash flows) and shorting past losers with high accruals (low cash flows), consistently generate better payoffs than traditional momentum strategies.

Existing literature offers mixed empirical findings on the relationship between corporate governance strength and accounting conservatism. Since shareholder litigation rights are positively associated with corporate governance strength, we examine how an exogenous shock to shareholder litigation rights can affect conditional accounting conservatism by exploiting staggered enactments of the universal demand (UD) laws in 23 states over 16 years. The UD laws raise procedural hurdles for shareholders to file derivative lawsuits against executives and directors who allegedly breach their fiduciary duties. When derivative suits cannot serve as an enforcement mechanism for directors and managers to fulfill their fiduciary duties, we predict that directors will possess weaker monitoring incentives, thereby reducing the monitoring device role of accounting conservatism. Moreover, deteriorating corporate governance following UD law adoptions provides managers with greater opportunities to engage in aggressive accounting. Consistent with our prediction, we find a significant decrease in conditional conservatism following the enactment of UD laws. The decline in conditional conservatism is exacerbated for firms in which institutional investors hold smaller stakes or for firms that operate in non-litigious industries. Our findings are robust to potentially confounding legal changes, the exogeneity assumption, the assumptions for the difference-in-difference research design, alternative samples, alternative conditional conservatism measures, and alternative explanations.

We examine the effect of client firms’ technological competition on the likelihood that auditors issue going concern opinions. We find that client technological competition positively affects the likelihood of receiving going concern opinions. This finding is consistent with the notion that perceived audit risk increases with client technological competition so that auditors are more likely to issue going concern opinions to such clients to reduce potential litigation related cost. Further evidence shows that this positive effect is more pronounced for client firms that are financial constrained and with more technological originality, and for auditors facing higher litigation risk. Finally, we find that client technological competition reduces the probability of both Type I and Type II misclassifications, which implies that auditors improve reporting accuracy of going concern opinions in response to the higher audit risk induced by client technological competition, instead of simply being strategically conservative.

This study uses a sample of 8,463 Australian firm-year observations for the period 2004-2014, and show that high director turnover is associated with higher audit fees consistent with the notion that high director turnover increases audit risks (control risks) as a result of instability on the board that hampers effective internal controls and board monitoring. However, the influence of director turnover on audit fees is found to be stronger for external director turnover (new to company) than internal turnover (changed position within the company). This result is consistent with the idea that external director turnovers are likely to generate more changes in the strategies and policies affecting the objectives of the firm. In additional tests we show that the positive relationship between director turnover and audit fees is weaker for firms with strong board monitoring proxied by the percentage of independent directors and the number of board meetings.

In recent research, NPD project focuses the importance of organizational learning as not only individual level but also group level. TMS (Transactive Memory System) is one of organizational learning in group level. The concept of TMS is that learning, memorizing with knowledge about a group and collaborative division of labor for communicating among members. Previous studies focusing the function of TMS in NPD (New Product Development) clears that TMS contribute NPD performance (Akugün et al. 2005, 2006). However fewer studies have empirically verified how managers can bring about a TMS in new product development (NPD) teams to promote new product success (Chiang et al., 2014). Bai and Krishnan (2012) suggest that the function of MCS (management control system) will support the development of TMS theoretically. This study empirically investigates the function of MCS to TMS in NPD project. The results show that MCS has a positive relationship with NDP performance indirectly via developing and promoting TMS.

This paper studies detailed financial forecasts made by early stage ventures on a leading equity-based crowdfunding platform in the UK, where the regulatory environment for crowdfunding is weak. Private firms in the UK are required to file financial statements with Companies House, so forecasts are verifiable ex post. However, due to the weak regulatory environment for crowdfunding and entrepreneurs’ innate optimistic bias, the forecasts might not be of good quality and may mislead investors. We find the quality of forecasts to be poor, as evidenced by forecast sales being negatively associated with the post-money valuation. The forecasts are mostly optimistic, when compared to both the projects’ own ex post realizations and those of other young, private UK firms. The forecast financials are generally not related to funding outcomes, except that forecast profitability is weakly positively associated with a higher number of investors. While a higher number of forecast years is associated with a higher number of investors and a higher likelihood of becoming funded, it is not associated with the funded projects’ future survival and is negatively associated with the survival of unfunded projects. This paper demonstrates the poor quality of weakly regulated disclosures and suggests that retail investors make some use of forecast information but that their usage does not serve them well.

Prior studies find mixed evidence on whether analysts account for earnings management. Using auditors’ earnings adjustments to capture earnings management, we find that analysts account for a large part of managers’ aggressive accounting practice subsequently adjusted by auditors. The extent to which analysts account for earnings management is more pronounced for firms with higher institutional ownership, consistent with institutional investors demanding higher quality analyst research. Further, the evidence is less pronounced for firms audited by Big 4 audit firms, implying that adjustments made by more reputable auditors are less likely anticipated by analysts.

In this study, based on a sample of 16590 firm-year observations in 3627 firms and 24 countries that mandated IFRS adoption in 2005, we examine the role of culture in shaping how the adoption of International Financial Reporting Standards (IFRS) has affected financial reporting quality. We examine four dimensions of national culture: trust, power distance, individualism, and uncertainty avoidance. Consistent with our predictions, we find that 1) income-increasing earnings management generally increases after IFRS adoption, but the increasing effect is more pronounced in countries with low trust, large power distance, low individualism, and strong uncertainty avoidance, and 2) the effect of culture and enforcement on earnings management generally becomes stronger and more significant after IFRS adoption. Our additional tests show that despite the increased earnings management, value relevance still increases after IFRS adoption, and this increase is larger in countries with high trust, small power distance, low individualism, and weak uncertainty avoidance.

The aim of this paper is to critically examine the process and outcome of the implementation of International public sector Accounting standards (IPSAS) – based accounting system in the public sector of Sri Lanka. This study uses an interpretive analysis of interviews with national policy makers and key actors in the public sector in Sri Lanka as well as document sources associated with Sri Lankan government’s efforts and its effects in revising the policy on commercial type of accounting system in the public sector. We take the framework drawing on the work of Dillard et al (2004) in analysing, explaining and understanding the phenomena under observation. The findings of the research indicate that the public sector reforms and the transition from cash accounting to accrual accounting in the public sector have been strongly affected by the global institutional pressures imposed by the international agencies such as Public Sector Accounting Standards Board (PSASB) and the World Bank. Empirical evidence shows the dysfunctional impact of international standards in the public sector accounting standards as there are major structural issues yet to resolve. There are increasing doubts over whether the transition to accrual accounting is worth the costs and the additional risks involved. As far as authors perceive that accounting is an effective business language that enables an effective partnership among national and global players in policy making on adoption of a universal western accounting system into the public sector at global, national and local levels.

In contrast to the findings of a substantial literature that stock returns and concurrent innovations in earnings are positively correlated for individual firms, recent studies document that market portfolio returns are negatively correlated with concurrent innovations in aggregate earnings, which suggests the aggregate earnings are related to discount rate, or expected return, on market portfolio. Using a sample of IBES firms during the period from 1986 through 2014, we find a positive association between aggregate analyst earnings forecast errors and abnormal market portfolio returns, the excess of market portfolio returns over 30-year Treasury bond returns. Furthermore this paper shows that the returns of long-term Treasury bonds are negatively correlated with aggregate analyst earnings forecast errors but are unrelated to aggregate analyst forecast earnings growth, indicating that the negative contemporaneous relation between aggregate stock returns and aggregate earnings changes reflects primarily return news of aggregate earnings surprises rather than expected earnings growth. Our findings suggest that measurement errors in market’s aggregate earnings expectations and return news effect of aggregate earnings surprises jointly mask the cash flows news effect of aggregate earnings surprises.

Despite the proliferation of studies on CSR communication, there is lack of consensus and a cardinal methodological base for research on the quality of CSR communication. Over the decades, the findings from previous studies on the subject have remained conflicting, unintegrated and sometimes overlapping. Drawing on semiotics – a linguistic-based theoretical and analytical tool, our paper explores an alternative perspective to evaluating the quality and veracity of CSR reports. Our two-phased analysis employed the Greimas semiotics narrative schema and the semiotic square of veridiction to draw meanings from the corporate community involvement disclosures (CCID) of selected UK FTSE100 companies. Our paper advances CSR communication research by introducing a theoretical methodology which provides unique insights into how to evaluate the authenticity and quality of CSR communication. In addition, we present a distinctive CSR reliability model capable of guiding policy makers and corporations in designing CSR reporting standards.

In spite of the commonality between both France and the UK with respect to demography as well as cultural, socio-political and economic philosophies and affiliations, differences in their legal environments and ownership structures do affect their CG practices. This study aims to assess the extent to which national setting in CG attributes within the two countries have influenced their CSR activities. Using ratings over the 2007 to 2013 period, we show that a greater gender balance in boards of French and British listed companies supports stronger level CSR disclosure quality but no significant relationship with overall CSR performance score. Our findings also reveal stronger CSR performance in firms with a higher proportion of outside directors. In addition, CSR performance exhibits a negative relationship with a higher level of block ownership.

Abstract: All organizations, including charities, are vulnerable to the risk of losses due to fraud. Using a sample of 562 nonprofit organizations that report an asset diversion between 2008 and 2012, we examine whether fraud disclosures are relevant to donors’ giving decisions. We find that, all else equal, the disclosure of an asset diversion is associated with a significant decrease in contributions. Our evidence suggests that the negative donor response is attenuated for nonprofit organizations with stronger corporate governance structures. In addition, we find that providing pertinent information about the diversion mitigates the negative donor response. Furthermore, donors appear to respond to content of the fraud disclosures, including the fraud amount, the ability of the organization to recover its losses, and the identity of the perpetrator. Overall, our results are consistent with a high level of donor sophistication in reading the qualitative information on the IRS Form 990 and highlight the need for nonprofit managers to be transparent when problems occur.

A number of recent studies establish evidence using comparability measures based on pairwise comparison of the firm-level observations in the primary sample. Many such studies employ an all-combination design, which introduces non-independence into the pair-level observations in the secondary sample or into the firm-level observations in the primary sample augmented with the firm-level comparability measures constructed from their pair-level counterparts. This design suffers from the risk of over-rejecting the null hypothesis of no effect. A robust alternative design that includes only forklike pairs in the test samples is proposed. Applying this design to re-examine the auditor style issue, I find only weak evidence of the existence of an auditor style for Big4 auditors. Based on 100 randomly selected test samples, the conclusion can only be supported at the 5% significance level in 57 of the 100 test results.

This study examines the interplay between economic event characteristics and disclosure choices. We identify influential negative economic events that are first announced by a third-party (not the firm itself) and are readily observable to the market (e.g., major industrial accident, natural catastrophe) and examine firms’ subsequent disclosure choices. We hypothesize that firm disclosures about negative economic events are negatively associated with the level of perceived blame. Consistent with this prediction, we find that firms are 10 times less likely to issue a disclosure following events for which they might be blamed for causing relative to events for which they are likely to be perceived as blameless. We also show this blame-blameless asymmetric disclosure choice is more pronounced for firms with greater dependence on a positive reputation, such as frequent public debt issuers, NYSE firms, and profitable firms. These results are robust to controlling for event materiality, media attention, and firm characteristics. The results shed light on an event characteristic firms consider when making disclosure choices about individual economic events. Moreover, our focus on economic events highlights how samples based on disclosure events are more likely to contain relatively blameless rather than blamed events.

This paper investigates the heterogeneity underlying the association between audit fees and fair-valued assets for a sample of U.S. bank holding companies. We predict that the association between audit fees and fair-valued assets is more pronounced when the estimation uncertainty in the fair value estimates is relatively higher. We identify two settings to study this effect, including the GFC period and the volatility of the fair value measurement inputs. Our results show that despite the overall audit fee cut during the GFC period, auditors charge higher audit fees during the GFC period for auditing the same proportion of fair-valued assets. When looking at the proportion of fair-valued assets using the three levels of measurement inputs, we find that the significant fee increase with respect to fair-valued assets during the GFC period is mainly driven by the proportion of fair-valued assets measured using Level 1 inputs, suggesting the high estimation uncertainty already embedded in fair-valued assets measured using Levels 2 and 3 inputs is not associated with shifts in audit fees (unless there is a specialist auditor). In addition, we find that while industry specialists overall charge lower audit fees, they appear to charge incrementally higher audit fee during the GFC period for auditing fair-valued assets.This incremental fee increase is found to be more pronounced with respect to fair-valued assets using Levels 2 and 3 inputs.

Fundamental analysis is a technique that attempts to assess the value of corporate securities by examining key value-drivers such as earnings, growth, and competitive position. It uses information in financial statements to gain insights about a company’s future performance. However, a signal used in fundamental analysis may have different implications for future earnings under different circumstances. We use firm life cycle as a conditioning variable for fundamental analysis, and investigate how the implications of fundamental signals for evaluating firm performance vary according to life cycle stage. Using a sample of 81,613 firm-year observations from 1989 to 2014, we find that fundamental signals based on accounts receivable, capital expenditure, sales per employee, inventory, SG&A costs, and gross margin, are differentially informative about firm value across firm life-cycle stages. We find that signals that provide information about managers’ willingness to invest are particularly informative for intro-stage firms and that signals related to operating performance and efficiency are particularly informative for mature-stage firms. We also find that a simple trading strategy based on fundamental signals and firm life cycle is effective in separating winners from losers in terms of excess stock returns. Our findings provide insights about the use of accounting data in evaluating firms.

This paper investigates whether cash flow forecasts contain incrementally useful information for institutional investors. To do so, we examine the response of institutional investors to revisions in analysts’ cash flow forecasts. Our initial results show the presence of cash flow forecasts tempers the reaction of institutional investors to earnings revisions and, crucially, that institutional investors’ trade in the same direction as analysts’ cash flow forecasts revisions. We also split institutional investors into different groups based on their investment horizon (short-term and long-term). Our results show that only short-term investors respond to the revision of cash flow forecasts by adjusting their positions. Cash flow forecasts, therefore, moderate the trading of all institutional investors with respect to earnings revisions, but only short-term institutions trade significantly on cash flow forecast revisions. These results hold after controlling for earnings forecasts, stock recommendations, target prices, and sample selection bias. Our study, therefore, provides evidence that cash flow forecasts influence the trading behaviour of sophisticated investors.

This study examines the relation between information externalities across economically linked firms and voluntary disclosure. Information transfers from a major customer’s earnings announcement (EA) can substitute for its supplier’s disclosure. Conversely, to the extent that investors have diverse priors and/or limited ability to interpret the customer’s news, the EA can increase the demand for disclosure. We find that the supplier is more likely to issue earnings guidance subsequent to the customer’s EA when the EA news deviates more from the market’s expectation. This effect is more pronounced when the news is negative and when the supplier faces higher investor demand for disclosure, but is less pronounced when the EA is likely to be more revealing about the supplier’s future prospects. We also find that while the news component from the customer’s realized earnings substitutes for the supplier’s subsequent earnings guidance, forward-looking information irregularly bundled with the customer’s EA and harder-to-interpret information revealed at the EA trigger additional information searches.

Abstract In this paper, we examine whether sell-side financial analysts show a bias when translating their soft information into a hard format. Sell-side analysts produce both soft research output, in the form of a textual report, and hard research output, including earnings forecasts, target prices, and stock recommendations. In our study, we find evidence that analysts’ hard outputs undershoot the neutral implication of their own soft output. Furthermore, our cross-sectional results show that our observed conservative bias increases when the underlying information signals are of poorer quality, which we measure by the forecast horizon, linguistic cues in the report, and characteristics of the firms’ information environments. Consistent with the well-known analyst optimism, we find that hard outputs assimilate analysts’ soft output more conservatively when their soft output conveys bad news. Our findings suggest that the fundamental distinctions between soft and hard information lead to a predicable bias when analysts harden their soft information.

It has been argued that innovation is of importance for companies in the contemporary business environment. However, companies often face the challenge of demonstrating innovativeness and standardizing organizational processes at the same time. Thus, the present study aims to improve our understanding of how a company can use its management control system to enable the coexistence of innovation and standardization. The paper adopts a single-case study method and analyses the use of a management control system in the context of a business process outsourcing company, which faces the simultaneous need for standardization and process innovation. The study illustrates how the specific controls within levers of control complement and reinforce each other creating consistent and countervailing reinforcement. We show that such reinforcement enables the coexistence of innovation and standardization and contribute to understanding how specific controls tools and systems, specifically lean management, combine the levers of control creating countervailing reinforcement. Moreover, we investigate the nature of relationships between different controls, specifically describing the substance of the levers of control working together. The current study contributes to the growing stream of research on how management controls work collectively and impact on innovation. We focus on process innovation, which is less studied than product innovations

The argument over whether accounting regulation should follow rules or principles is contentious and inconclusive. This paper joins the debate by examining the financial reporting consequences of a rigid accounting rule in China, under which all companies are required to use December 31 as their fiscal year-end. We motivate our research questions through extensive interviews, followed by large sample analyses. We identify “mismatch” firms as those whose financial reporting cycles are not aligned with their seasonal business activities. We find that the mismatch firms exhibit higher levels of accrual-based earnings management than do the non-mismatch counterparts. However, there is little evidence such mismatch causes real activities manipulation. Moreover, our results show that the mismatch firms are more likely to engage in financially fraudulent activities as well as financial restatements. Also, such firms are associated with less analyst coverage, lower forecast accuracy, and greater forecast dispersion. Overall, our results suggest that mandating a uniform fiscal year-end induces a distortion in financial reporting quality.

Prior research has documented consistent differences in individual analysts’ performance (Jacob et al. 1999; Leone and Wu 2007). We attempt to explain these differences, drawing on recent evidence in biology, which shows a positive relation between individuals’ achievement drive and facial width-to-height ratio (fWHR) in men. We hypothesize that high-fWHR analysts exert more efforts and exhibit higher performance as a result of their higher achievement drive. Our empirical results show that these analysts are more likely to conduct corporate site visits and their performance is indeed better. Furthermore, we find that the association between analysts’ fWHR and their performance is more pronounced for analysts with lower status, for firms with higher uncertainty, and for analysts facing more intense competition. Overall, our paper offers a first step towards understanding analysts’ performance from a novel perspective.

Mutual funds do not always join hands with hedge funds in activism campaign. In this study, we explore how the incentive divergence between hedge funds and mutual funds affects hedge fund activists’ campaign decision, objectives and tactics. Such divergence arises from difference in objectives that mutual funds who simultaneously hold same-industry peers pursue for portfolio maximization whereas hedge funds aim at single target value maximization. Ex ante, hedge fund activists are found to be less likely to target firms with common ownership and such deterrence effect is stronger when a higher fraction of shares is active and when the firm operates in industry of higher common ownership concentration. Ex-post, hedge fund activists pursue more specific objectives but choose less confrontational tactics when targeting firms with common ownership. Additionally, common ownership targets enjoy higher market rewarding and better post-activism performance improvement. To establish causality, we adopt instrumental variable approach using annual reconstitution of Russell index. Collectively, my findings suggest that common ownership constitutes a hidden social cost deterring activism intervention by altering activists’ cost benefit trade-off.

Prior research documents that non-financial firms resort to more real activities management when their ability to manage accruals is constrained by specialist auditors (e.g., Chi et al. 2011; Burnett et al. 2012). Within the context of banks’ real activities management through repurchase agreements (repos), we argue that repo management can increase litigation risk for auditors and, hence, specialist auditors will pay greater attention to repo management and will better constrain the extent of such real activities management than nonspecialists. We find that banks audited by specialists, including both Big 4 and non-Big 4 specialists, are associated with less downward repo deviation than banks audited by non-Big 4 nonspecialists. We also find that banks audited by the joint national and city-level specialists are associated with less downward repo deviation than banks audited by Big 4 nonspecialists.

We examine whether there are executive compensation spreads between firms. We further discern the moderating effect of board capital on the relationship between peer pay and executive remuneration when SOEs face greater scrutiny through regulatory. The results show that the peer effect of executive compensation varies with the nature of a firm, that is, it has no significant effect on the level of executive compensation in SOEs, while showing significant effect on that in non-SOEs. The findings also show that the higher level of board capital breadth, the greater the effect of peer pay on executive compensation. More intra-industry experience of directors and greater understanding on peer compensation helps determine the appropriateness of benchmarks, and thus it shows greater peer effect on compensation.

The link between accounting data and the macro economy has received much recent attention. Specifically, aggregate accounting earnings has been found to be informative for explaining future growth in gross domestic product (GDP). A key finding from previous research is that macro forecasters do not take full account of current earnings data when forecasting future GDP growth. The previous evidence however is primarily from U.S. economic data and the importance of earnings as a component of GDP varies between economies. We therefore extend prior research to consider whether aggregate accounting earnings is informative for explaining growth in gross domestic product using data from four Asian countries. We find that macro analysts’ forecast errors are associated with growth in aggregate earnings for Australia, China and India but not for Japan. While generally confirming prior U.S. evidence, the results for Japan indicate a need for future research to better understand how prior results may vary between economies.

This paper examines how textual similarities of extended auditor's reports (EARs) relate to audit quality. To improve audit report transparency regarding audit quality, national regulators have adopted standards for extended or enhanced audit reports (EARs) that require auditors to disclose key (or critical) audit matters (KAMs) for an engagement in a particular year. The regulators insisted that, to achieve the intended objectives of providing more transparency with respect to audit quality, auditor must provide more engagement-specific, or non-standardized, language in EARs. We measure textual similarities within auditors' portfolios at the engagement level for both the KAM sub-sections of EARs and full EARs issued in the UK during 2013-2015 and find that similarity scores are positively associated with our proxy for audit quality, discretionary accruals. The relations are stronger for the KAM sub-sections than for the full EAR. Overall, we find evidence that engagements with higher implied audit quality are likely to have EARS that contain more engagement-specific language and KAMs, implying greater transparency.

This study examines the determinants and consequences of voluntary risk factor disclosure (RFD) of smaller reporting companies traded in the over-the-counter (OTC) market. We find that firms that are more R&D intensive, have a higher level of firm risk, have debt or equity issuance in the near future, and are audited by Big 4 auditors are more likely to provide RFD voluntarily in their annual reports. The results indicate that firms that provide voluntary RFD have a greater likelihood of subsequent listing on major stock exchanges than firms that do not. Further, we document evidence that the consequences of voluntary RFD vary with its quality. In particular, the likelihood of trading up to the major stock exchanges in the future and the stock liquidity are positively associated with the quality of RFD. Overall, our findings shed light on the disclosure practices of small entrepreneurial firms and suggest that promising entrepreneurial firms appear to signal themselves through good disclosure practices.

I study the effects of sharing common languages (i.e. language commonality) on the information flow between economic agents and on information production in the financial market. I manually construct a novel dataset on prevalent dialects for 2,091 cities and counties in China. I find that language commonality between analysts and CEOs facilitates analysts’ coverage decisions and improves sell-side information production. Trading on recommendations from analysts who share common dialects with CEOs of the firms they follow generates return premiums of about 10 to 13 percent with average holding periods of one year. The effects of language commonality mainly originate from less intelligible, more exclusive dialects. Overall, my findings suggest that language commonality reduces information asymmetry in the capital market.

This paper examines the relationship between female directors and corporate debt maturity structures. Consistent with the demand side story, we find that firms with a higher ratio of female directors tend to adopt a shorter debt maturity by using a higher ratio of short-term debt (due within 12 months). Our finding remains robust when we employ propensity score matching (PSM) and instrumental variable approaches to address potential endogeneity concerns. Moreover, we find that our sample results are driven by firms with weak corporate governance quality and higher corporate governance needs, indicating that female directors view short-term debt as a monitoring device.

This paper aims to explore an unintended economic effect of International Financial Reporting Standards (IFRS) adoption, that is, whether IFRS adoption affects two tax issues, book-tax conformity and corporate tax avoidance. Using a sample consisting of firms from 25 IFRS mandatorily adopted countries and 16 non-adopted countries during pre- and post-IFRS periods, we find that, on average, the IFRS mandate significantly reduces the book-tax conformity and induces firms to engage more in tax avoidance strategies. Furthermore, we also find that the effect of IFRS adoption on corporate tax avoidance will be more pronounced in countries with stronger legal investor protection and firms with dispersed ownership structure, suggesting that good corporate governance system encourages corporate insiders to exploit the tax avoidance opportunities from IFRS adoption. The results are robust to a series of sensitivity checks. This study helps policy makers to realize and understand the tax effect of IFRS adoption.

We extend the implied cost of equity capital (ICC) approach to jointly estimate a firm’s implied cost of equity capital (ICC), implied cost of firm (ICF), and implied cost of debt (ICD) capital in a unified framework. We follow Hou, van Dijk, and Zhang (2012) and use cross-sectional regression models to forecast the net income and the operating income of individual firms. Then, by equating the present value of the two groups of earnings forecasts to the market value of equity and market value of firm respectively, we are able to calculate ICC and ICF at the same time. Finally, we apply the weighted average cost of capital (WACC) equation to back out the ICD. Our ICD estimates have a strong relation with default-adjusted corporate bond yields, Moody’s credit ratings, and loan spreads. In addition, both the ICF and ICD estimates are related to firm-level characteristics that are known to predict equity returns.

Motivated by competing theories on the properties of earnings required for compensation performance measurement, we provide direct evidence on the properties of actual accounting earnings that are used in determining compensation payouts (Compensation Earnings). Using a large sample of manually collected Compensation Earnings for U.S. firms, we show that firms make economically significant adjustments to GAAP Earnings in arriving at Compensation Earnings. While GAAP Earnings exhibit conservatism, we fail to detect conservatism (either by statistical significance or by magnitude of coefficient) in Compensation Earnings using the same sample and the same research design. The absence of conservatism in Compensation Earnings is also documented in various subsamples partitioned on market-to-book ratio, leverage, firm size, and corporate governance. Further analyses indicate that the adjustment from GAAP Earnings to Compensation Earnings involves the removal of less persistent components of GAAP Earnings, resulting in Compensation Earnings that are more persistent than GAAP Earnings.

This study examines the stock price response to the 2013 regulation (Document 18) in China which requires independent directors with political connections to resign from the board of directors of publicly listed firms. We document a significant positive price response in the window surrounding the promulgation date and the response is also of important economic magnitude. The finding suggests that the market views the costs of hiring politically connected directors outweighing the associated benefits. Consistent with this view, politically connected directors display shirking behavior as evidenced by poor board meeting attendance. Further investigations show that the value decreasing of politically connected directors is mainly apparent within regulated industry and varies with earnings management practices. Interestingly, the market views politically connected directors favorably if firms have significant business transactions with the government.

This paper investigates whether and how the linguistic tone of earnings conference calls predicts future stock price crash risk. Earnings conference calls, as a timely platform for corporate voluntary disclosure, reveal manager and investor perceptions on firm performance and future prospect. Using a large sample of U.S. public firm earnings conference call transcripts from 2010 to 2015, we find strong evidence that firms face stock price crash risk in the coming year exhibit less optimistic tone during current year-end calls. Furthermore, the predictability of call tone for future crash risk is mainly driven by manager tone and the Q&A section tone. Subsample analyses show that the predictability of call tone for future crash risk is more pronounced for firms with less bad news hoarding behavior and incentives. Taken together, our results shed light on the predictive ability of corporate voluntary communication for future price crash risk.

This study examines whether the initiation of credit default swaps trading affects firm dividend policies. Reduced monitoring by banks following CDS initiation increases the potential for wealth expropriation from equityholders to managers, leading to overinvestment arising from the firm having excess free cash flow. Using a difference-in-difference research design, we predict and find evidence consistent with firms mitigating the increased agency problem following CDS initiation by increasing dividend payout to equityholders. Consistent with the agency explanation for the increase in dividends following CDS initiation, we also find evidence that the increase in dividends is larger for firms with larger free cash flow and for firms whose lead arranger banks have relatively less strong reputations in the loan syndication market. Inferences regarding the increase in dividends are unchanged using a propensity score matched sample. In addition, we find no evidence of a predetermined trend in dividends before CDS trading initiation.

Investors use information from numerous sources to evaluate stocks. This paper examines which information channel has the most impact on investors’ investment decisions. I measure the perceived quality of mandatory disclosure, voluntary disclosure, and other information from intermediaries and examine the impact of each information channel on equity pricing. I find that other information from intermediaries has the largest impact on equity valuation. Specifically, I show that stock prices deviate least (most) from their fundamental values for firms with superior (inferior) other information; stock prices revert least (most) to their fundamental values in the future when firms have superior (inferior) other information; and changes in other information have the most impact on the subsequent changes in mispricing. My evidence demonstrates that, among the three information channels, other information most effectively conveys information about firms’ fundamentals to investors.

We examine two key signals of firm valuation, the short interest in a stock and analyst recommendations for the stock, to see if their relation changes in bad times. During periods of macroeconomic uncertainty, we hypothesize and find that the positive association between the signals strengthens. During periods of poor firm performance, we hypothesize and find significant declines in the association. Additional analysis reveals that the contrast in the effect of bad times at the macroeconomic versus at the firm level is consistent with analyst incentive-based explanations. Our results are robust to a battery of tests that address the endogeneity concern. We also find that returns to trading strategies that exploit the discordance between analyst recommendations and short interest are significantly enhanced when further conditioned on firm-level bad state indicators. Combined with bid-ask spreads that are significantly wider in the increased discordance due to firm-level bad states, the evidence suggests that discordance in valuation signals results in noisier valuations and increased market frictions.

This study answers two related questions: (1) whether government reacts to firms' voluntary disclosure and (2) whether firms' anticipation of government reaction changes its voluntary disclosure decisions. I find that firms issuing bad news in their management earnings forecasts receive more attention from the IRS. In contrast, firms which regularly guide investors’ expectations downward by issuing earnings forecasts lower than actual earnings (i.e. lowball guidance strategy) receive less attention from the IRS. As a response, firms tend to avoid releasing bad news and adopt lowball guidance strategy when they face high political costs.

We study the dynamics of trading activity around earnings announcements in a cross-country setting through a decomposition suggested by Kim and Verrechia (1997). We find that better information environment has different effects on components of abnormal trading around the announcements: it simulates more trading from private information production but contributes to less trading due to narrower pre-event information asymmetry. Moreover, the effects are more pronounced on institution environment such as Common law legal origin and better anti-director rights. Disclosure policies aiming to “level the playfield” by lowering long-run information asymmetry may have an unintended consequence of making unsophisticated investors temporarily disadvantaged during a disclosure event.

This paper investigates the relationship between corporate strategy and cost stickiness under different managerial expectation and institutional settings. Using the data from China listed companies from 2002 to 2015, we find that: first, different competitive strategies will exhibit different cost behavior. The cost stickiness of differentiation strategy is higher than those choosing low-cost strategy. Second, different management expectation will affect cost stickiness. Optimistic expectations can increase cost stickiness while pessimistic expectations will reduce cost stickiness. Third, management expectation can adjust the relationship between corporate strategy and cost stickiness. If management expectations tend to be optimistic, the cost stickiness is higher with differentiation strategy than those with low-cost strategy. If management expectations tend to be pessimistic, then cost stickiness is higher with low-cost strategy than those with differentiation strategy. Finally, equity affects the extent of the effect of differential strategy on cost stickiness. State-owned firms with more differential strategy have stronger cost stickiness than non-state-owned firms.

Recent years have witnessed the reporting and assurance of non-financial information (NFI), such as the Environmental, Social and Governance (ESG) information becoming mainstream practices for large organizations. However, little is known about whether and how NFI is used by financial statement auditors. This study utilizes a setting where companies have engaged Big4 accounting firms to attest to their financial and NFI, but some choose to engage a common firm on both information while others decides to go with different firms. We study the implications of using the same Big4 firm attesting to both financial and NFI, where the knowledge transfer, if any, is mostly likely to happen. We find that companies using the same firm attesting to both financial and NFI pay higher audit fees and have less discretionary accruals, which we interpret as evidence of knowledge spillover from providing NFI assurance services to financial statement audit. We do not find evidence of knowledge spillover the other way, i.e. from providing financial statement audit to NFI assurance services. Exploratory analyses suggest that the phenomenon of having a common provider on both types of information may be associated with the trend of producing more integrated reports.

This study examines the effect of conditional management earnings forecasts mandates on firms’ voluntary disclosure and external information environment in the Chinese capital market, where firms are mandated to provide earnings forecasts when the expected fiscal-year earnings performances satisfy the predetermined disclosure conditions. We find that firms’ propensity to issue voluntary management earnings forecasts is higher when they anticipate the disclosure of mandatory management earnings forecasts in the future. This relation is stronger for government-controlled firms and for good news mandatory disclosure. We also find significant increase in the accuracy of analysts’ earnings forecasts for firms that provide voluntary management earnings forecasts, relative to firms with mandatory or no management earnings forecasts. However, the disclosure of mandatory management earnings forecasts significantly reduces the accuracy of analysts’ earnings forecasts. We further investigate this differential impact between voluntary and mandatory management forecasts and find that it is associated with the differences embedded in the management forecast quality. We also find that the positive impact of voluntary management earnings forecasts is larger for firms with a relatively low existing information environment. Our findings suggest that the conditional mandatory disclosure of management earnings forecasts can incentivise managers to provide voluntary management forecasts, which improves firms’ external information environment in the Chinese capital market. However, this disclosure regulation has unintended consequences because the mandatory disclosure of management forecasts deteriorates firms’ external information environment.

This study investigates how a partner’s Big 4 experience is perceived and valued by the non-Big 4 audit firm market. We use hand-collected U.S. partner data to examine whether companies are willing to pay a fee premium for audit partners with Big 4 experience. The Big 4 have differentiated themselves as nationally recognized firms for whose services companies are willing to pay a premium. It is unclear, however, whether this reputation follows individual auditors when they leave to a smaller audit firm. We find that non-Big 4 audit partners with Big 4 experience charge a fee premium of 21 to 46 percent when they are employed by a non-second-tier audit firm, but interestingly there is no fee premium for Big 4 experience at the second-tier audit firms. In further analyses, we do not find that audit quality is greater for clients of non-Big 4 audit partners with Big 4 experience than their counterparts without Big 4 experience which is inconsistent with this premium being driven by performance.

The concept of materiality is central to legislation in all areas of accounting, auditing, and securities regulation. It establishes a duty to disclose information that has value from an investor perspective. We adopt the environment generated by the European Market Abuse Regulation and assess the asymmetric materiality judgment of managers and investors. Our results show that managers' uncertainty can cause them to reveal adverse information even without an actual duty to disclose. Furthermore, the option to disclose immaterial information enhances the investors' overall supply of material information. Surprisingly, under harsh sanctions for the failure to specify whether a disclosure is material, investors' supply of material information can be impaired. In sum, this paper proposes positive spillover effects between disclosures of immaterial and material information. The findings are of interest to disclosing managers and their investors, as well as to regulators who aim at addressing over-disclosure of immaterial and under-disclosure of material information.

Using variation in local sunshine as a mood-priming construct, we examine the impact of managerial mood on corporate tax avoidance. We report strong, robust evidence that negative managerial mood induced by cloudy weather leads firms to undertake more aggressive tax positions. Reinforcing the intuition underlying our main result, we find that negative weather-induced mood is positively associated with managers’ subjective perceptions of firms’ financial constraints, but not with their actual financial constraints. In cross-sectional analysis, consistent with expectations, we find that the importance of weather-induced mood to tax avoidance subsides when the board has more directors with financial expertise and the threat that the firm will experience an Internal Revenue Service (IRS) audit is worse. We also find that firms are more apt to purchase tax services from their auditor when local weather is cloudy. Collectively, our evidence implies that corporate tax avoidance rises when managerial mood is more negative, although external monitoring by directors with financial expertise and the IRS constrains this behavior.

This paper examines the effectiveness of the use of CSR-linked executive compensation across US firms. Empirical analysis of a cross-industry sample from 764 listed companies for the period 2002-2013 revealed that the provision of CSR-linked compensation contracts to NEOs promotes CSR performance. We particularly found that tying NEOs’ pay to CSR targets produces positive effects from the second year after adoption; CSR results then increase monotonically as firms accumulate experience and learn how to use the system over time. The findings are consistent with corporate use of pay-for-CSR performance contracts increasing the alignment between agent and principal by rendering contracting more effective. Given the characteristics of CSR performance, results extend the applicability of agency theory to a novel setting. Additionally, we found that the joint use of CSR-focused governance systems moderates positively the effects on CSR performance of a firm’s accumulated experience in tying NEOs’ compensation to CSR targets.

The last two decades has witnessed an unprecedented number of countries adopting international financial reporting standards (IFRS). Studies on the reasons for their popularity and adoption by countries have leaned towards statistical approaches, which may or may not necessarily be conclusive in explaining the cross-sectional variations in the reasons countries adopt the standards especially from developing countries. Common to this inconclusive literature so far is the monocausal rationale underlying conditions (pathways) leading to the adoption of IFRS. To reconcile these conclusions this article employs Qualitative Comparative Analysis (QCA) methodology to study the adoption/non-adoption of IFRS by African countries. In contrast to work predicated on assumptions of causal homogeneity and causal competition on policy adoption, the results of the study reveals that multiple combinations of conditions lead to adoption/non-adoption of IFRS in Africa. This article contributes to the literature by suggesting greater leverage than current empirical studies in discerning the incentives facilitating or hindering African countries with regard to IFRS adoption/non-adoption.