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Can Common Institutional Investors in Supply Chains Decode the Bullwhip Effect? Evidence From Order Backlog Mispricing Journal of Accounting, Auditing & Finance Pub Date : 2024-03-01 Jengfang Chen, Sungsoo Kim, Dhinu Srinivasan, Yaou Zhou
This paper examines the role of supply chain common institutional investors (i.e., who own stocks of both upstream suppliers and their downstream customers in a supply chain) in the valuation of upstream supplier firms’ order backlog information. Based on the theory and evidence that backlog orders’ predictive power is diminished further in a supply chain due to the bullwhip effect, we hypothesize
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Shaping Firms’ Financial Reporting: Evidence From the Spillover Effect of the FED’s Stress Test Journal of Accounting, Auditing & Finance Pub Date : 2024-02-21 Lanyi Yan Zhang, Ziyun Yang, Yu Bai, Lin Wang
This research investigates how bank regulation, specifically the stress test conducted by the Federal Reserve (FED), influences the financial reporting decisions of borrowers. Previous studies indicate that the FED’s stress test can lead to a reduction in credit supply and stricter lending standards for banks. Expanding on this body of literature, our study shows that the impact of the stress test
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CFO Accounting Expertise and SEC Comment Letter Process Journal of Accounting, Auditing & Finance Pub Date : 2024-02-13 Soo Young Kwon, Jee-Hae Lim, Jongwon Park
In this study, we explore the expanded role of chief financial officers (CFOs) in facilitating corporate disclosure by examining how their accounting expertise influences the resolution process of Securities and Exchange Commission (SEC) comment letters issued on 10-K reports. Using CFO professional profile data collected extensively through EDGAR, Lexis-Nexis, and several online searches, we find
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Tax-Motivated Income Shifting in Audit-Firm Networks: Comparing Big 4 and Non-Big 4 Firms Journal of Accounting, Auditing & Finance Pub Date : 2024-02-05 Bradley Blaylock, Elaine Doyle, Anastasios Elemes
Recent research provides evidence consistent with tax-motivated income shifting taking place in Big 4 networks. Non-Big 4 networks have global footprints and audit a significant proportion of private-firm clients. Thus, we cannot make sense of audit-firm networks’ tax avoidance proclivities and the impacts their tax advice may have on aggregate client-firm income-shifting figures without examining
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The Bright Side of Risk-Taking: Evidence From Financial Analysts Journal of Accounting, Auditing & Finance Pub Date : 2024-01-27 Jinglin Jiang, Bo Liu
This study investigates the relationship between analysts’ facial width-to-height ratio (fWHR) and their selected forecast boldness under different conditions (e.g., tournament condition and skill levels). The aim is to determine if fWHR captures innate or calculated risk-taking preferences. Supplementary tests reveal that high-fWHR analysts issuing bold forecasts achieve more favorable outcomes in
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Understanding Analysts’ Use of Macroeconomic News Journal of Accounting, Auditing & Finance Pub Date : 2024-01-05 Ruiting (Dan) Dai, Hui Ding, X. Frank Zhang
Using a comprehensive measure, the Macroeconomic News Index (MNI), we examine how analysts use macroeconomic news in their earnings forecasts. We find that analysts incorporate but underreact to quarterly macroeconomic news. Cross-sectionally, analysts’ reaction to macroeconomic news varies in a predictable way. Analysts incorporate macroeconomic news more efficiently when firms have lower exposure
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The Role of Audit Committee Interlocks in the Dissemination and Contagion of Accrual-Based and Real Earnings Management Journal of Accounting, Auditing & Finance Pub Date : 2024-01-04 Ravi Dharwadkar, David Harris, Linna Shi, Nan Zhou
We examine the effect of audit committee interlocks on the dissemination and contagion of accrual-based earnings management (AEM) and real earnings management (REM) for the pre- and post-SOX periods. We use “dissemination” to denote information association and “contagion” to designate causal information transmission. We first document that interlocked firms exhibit AEM dissemination (but not REM dissemination)
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CEO Political Contribution and Accounting Conservatism Journal of Accounting, Auditing & Finance Pub Date : 2024-01-02 C. S. Agnes Cheng, Wenli Huang, Shuo Li, Yu (Tony) Zhang
This study investigates whether CEO political contribution, as a measure of CEO political ideology, is associated with a firm’s financial reporting policies in accounting conservatism. Using a sample of federal-level political contributions by CEOs in S&P 500 firms, we find that firms with Republican-leaning CEOs, who tend to have conservative ideology, are associated with a higher degree of accounting
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Does Financial Statement Line-Item Comparability Affect Analysts’ Forecasts? Journal of Accounting, Auditing & Finance Pub Date : 2023-05-15 Elaine Henry, Fang-Chun Liu, Steve Yang, Xiaodi Zhu
This study investigates comparability of firms’ financial statement presentation, that is, the display of line items on financial statements. The line items that are displayed on financial statemen...
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Customer Concentration and Income Smoothing Activities Journal of Accounting, Auditing & Finance Pub Date : 2023-05-15 Boochun Jung, Tae Wook Kim, Sang Hyun Park, Sung Wook Yoon
We examine how customer concentration affects managers’ income smoothing incentives to signal their private information about risk and future earnings. We find a negative relation between customer ...
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Analyst Forecasts, Managerial Learning, and Corporate Investment Journal of Accounting, Auditing & Finance Pub Date : 2023-05-15 Yaqin Hu, Yuan Zhang
Building on prior results that financial analysts have an information advantage relative to managers at the macroeconomic level, we show that such an information advantage is an important source of...
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What Affects Factor Loading Uncertainty and Expected Returns? The Role of Accounting Quality Journal of Accounting, Auditing & Finance Pub Date : 2023-05-15 Bin Miao, Chenkai Ni, Charles Shi
Despite considerable research on the association between accounting quality and expected returns, much is yet to be learnt about specific underlying mechanisms. Motivated by recent advancements in ...
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Does Social Capital Mitigate Managerial Self-Dealing? Evidence From Insider Trading Journal of Accounting, Auditing & Finance Pub Date : 2023-05-12 Sung Gon Chung, Jimmy Lee, Sang Hyun Park
In this study, we examine whether the social capital surrounding the firm’s corporate headquarters mitigates managerial self-dealing in the form of opportunistic insider trading. We find strong evi...
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Fair Value Measurement in Inactive Crypto Asset Markets Journal of Accounting, Auditing & Finance Pub Date : 2023-04-25 Eyal Beigman, Gerard Brennan, Sheng-Feng Hsieh, Alexander J. Sannella
This article proposes a new dynamic method, the Principal Path Method (PPM), for pricing crypto asset against a primary or functional (fiat) currency in situations where these assets do not trade d...
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Bold Recommendation, Analyst Coverage, and Stock Return Journal of Accounting, Auditing & Finance Pub Date : 2023-04-21 Foong Soon Cheong, Changhee Lee
If all analysts have access to the same public information, why would some analysts deviate from the “herd” and issue “bold” recommendations? Is boldness in recommendation a signal of overconfidenc...
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Online Versus In-Person Visits and Analysts’ Forecast Performance Journal of Accounting, Auditing & Finance Pub Date : 2023-02-20 Jun Wang, Chongfeng Wu
We evaluate the effect of online versus in-person visits on analysts’ forecast performance. Our results show that online visits significantly improve the timeliness of analysts’ forecasts but have ...
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Managerial Overconfidence and Dividend Stickiness Journal of Accounting, Auditing & Finance Pub Date : 2023-02-15 Jui-Chia Lin, Min-Teh Yu
In this study, we examine whether overconfident CEOs strive to smooth dividends. Our findings show overconfident CEOs increase dividends more as earnings increase and decrease dividends less as ear...
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Research Opportunities to Confirm or Dispel the Myths of CECL: Looking Past the Headlines to Actual Results Journal of Accounting, Auditing & Finance Pub Date : 2023-02-11 R. Harold Schroeder
CECL—an accounting response to lessons learned from the 2008 to 2009 financial crisis—like most accounting standards, is not perfect. Imperfections are a direct result of tradeoffs embedded in majo...
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The Relation Between Cash Reserves, Governance, and Donations in Nonprofit Organizations Journal of Accounting, Auditing & Finance Pub Date : 2023-02-07 Mina Pizzini, Mikhail Sterin
Cash reserves enable nonprofit organizations to absorb financial shocks and meet unexpected demand for charitable services. Large cash holdings, however, provide managers with an opportunity to use...
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Initial Evidence on the Association Between Audit Fees and Client Participation in Underfunded Multiemployer Pension Plans Journal of Accounting, Auditing & Finance Pub Date : 2023-01-20 James M. Fornaro, Hua-Wei Huang, Yi-Hung Lin
In this study, we examine the association between audit fees and client participation in underfunded multiemployer pension plans. Consistent with our hypothesis, our regression results find that au...
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Measuring Disaggregation Quality Journal of Accounting, Auditing & Finance Pub Date : 2023-01-20 Ryan Casey, Feng Gao, Michael Kirschenheiter, Siyi Li, Shailendra Pandit
We construct a modified measure of disaggregation quality (MDQ) based on the disaggregation quality (DQ) measure from Chen et al. Both are parsimonious measures of disclosure quality in the annual ...
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Effects of Fair Value Reporting of Derivatives on Liquidity Management Policies and Firm Value: Evidence From SFAS No. 133 Journal of Accounting, Auditing & Finance Pub Date : 2023-01-12 Jiyoon Lee
I examine the effects of fair value reporting of derivatives, in accordance with SFAS No. 133, on corporate risk management policies and firm value. Prior studies predict that effective risk manage...
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Voting on Auditor Ratification by Shareholder Type: Impact of Institutional Shareholder Dissent on NAS Fees and Audit Quality Journal of Accounting, Auditing & Finance Pub Date : 2023-01-10 Siddharth Purohit, Naman Desai
Institutional investors have a better understanding of corporate performance than non-institutional investors, and their presence tends to improve the overall governance mechanism of a company and ...
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Credit Default Swaps and Borrowers’ Real Earnings Management: Evidence From Credit Default Swap Initiation Journal of Accounting, Auditing & Finance Pub Date : 2023-01-03 Yuxuan Wang, Ruirui Fang, Nan Hu, Rong Huang
In this study, we examine whether the initiation of credit default swap (CDS) trading alters borrowers’ real earnings management activities. Creditors increase debt supply and loosen loan contracts...
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Shaping the Information Environment: International Evidence on Financial Reporting Frequency and Analysts’ Earnings Forecast Errors Journal of Accounting, Auditing & Finance Pub Date : 2022-12-24 Andrei Filip, Junqi Liu, Andreea Moraru-Arfire
This article investigates the role of mandatory interim financial reporting in financial analysts’ annual earnings forecast errors. We provide large-scale evidence from 49 countries that a mandator...
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Tax-Related Restatements and Tax Avoidance Behavior Journal of Accounting, Auditing & Finance Pub Date : 2022-09-06 Mollie T. Adams, Kerry K. Inger, Michele D. Meckfessel, John J. Maher
Our research empirically examines the relationship between tax avoidance and the likelihood of incurring a tax-related restatement, as well as the effects tax restatements have on future tax avoida...
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Earnings Quality and Trading Volume Reactions Around Earnings Announcements: International Evidence Journal of Accounting, Auditing & Finance Pub Date : 2022-09-06 Jeff Zeyun Chen, Siu Kai Choy, Gerald J. Lobo, Ying Zheng
Using a cross-country setting, we document differences in the relation between earnings quality and the two components of trading volume around earnings announcements, one related to differential i...
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Inexperienced Component Auditors and the Internal Information Asymmetry of Multinational Corporations Journal of Accounting, Auditing & Finance Pub Date : 2022-09-01 Tom Adams, Ying Zhou
With the global expansion of business operations, many U.S. corporations now operate internationally. While these multinational corporations (MNCs) rely on information about their operations to all...
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Beauty and Accounting Academic Career Journal of Accounting, Auditing & Finance Pub Date : 2022-08-25 Yanju Liu, Hai Lu, Kevin Veenstra
We examine the impact of beauty on the academic career success of tenure-track accounting professors at top business schools in America and show that beauty plays a significant role. Specifically, ...
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How Do Auditors Respond to Clients’ Rollover Risk? Journal of Accounting, Auditing & Finance Pub Date : 2022-08-25 Gerald J. Lobo, Myungsoo Son, Hakjoon Song
We examine whether and how auditors incorporate rollover risk in assessing a client’s risk. Rollover risk is the risk associated with long-term debt maturing in 1 year, which has to be refinanced o...
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The Association of the Qualitative Informativeness of Market Risk Disclosures With Stock Liquidity Journal of Accounting, Auditing & Finance Pub Date : 2022-08-25 Mark Kohlbeck, Xin Luo
The SEC’s 2016 Concept Release summarizes the ongoing debate regarding the usefulness of market risk disclosures and calls for additional discussion. We respond to the SEC’s call and investigate ma...
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SEC Comment Letters and 10-K Accounting and Linguistic Reporting Complexity Journal of Accounting, Auditing & Finance Pub Date : 2022-08-24 Jenna J. Burke, Katherine Gunny
The increasing complexity of 10-K reporting has caused difficulties for investors seeking to understand and analyze a company’s financial reports. In this study, we examine whether the SEC’s commen...
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Can Corporate Social Responsibility Counteract Managers’ Incentives to Manage Earnings? Journal of Accounting, Auditing & Finance Pub Date : 2022-07-21 Christopher P. Agoglia, Cathy A. Beaudoin, Stephen Kuselias, George T. Tsakumis
Many firms engage in corporate social responsibility (CSR) initiatives, which aim to serve a broader set of stakeholders (e.g., workforce, communities, environment). These companies often encourage...
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Product Life Cycle Lengths and Real Activities Management Journal of Accounting, Auditing & Finance Pub Date : 2022-07-11 Crystal Xu, Meng Yan
We examine how short product life cycle lengths constrain real activities management among a group of manufacturing firms. Companies with short-cycle products face fast product obsolescence and constant pressure to develop and market new products. Fast product obsolescence increases the cost of overproduction, while constant pressure for new product development increases the cost of opportunistic spending
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Audit Committee Chair Monitoring Incentives to Use Voluntary Disclosure in the Audit Committee Report Under High Agency Conflicts Journal of Accounting, Auditing & Finance Pub Date : 2022-07-11 Matthew R. Reidenbach
This study evaluates whether an association exists between the agency incentives of the audit committee chair and voluntary disclosure of their monitoring activities in their audit committee report...
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Textual Analysis and Future Performance: Evidence From Item 1A and Item 7 Journal of Accounting, Auditing & Finance Pub Date : 2022-07-06 Mehrzad Azmi Shabestari, Jorge A. Romero
Although there is previous research on textual analysis in accounting, little is understood about the effects of the tone and sentiments of the text disclosed in annual report filings (10-K) on the investor assessment of the future performance of the firm. This study inks the tone and sentiments of the text disclosed in the corporate annual reports and expectations regarding the future performance
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The Corroboration Role of Management Earnings Forecasts in Private Loan Markets Journal of Accounting, Auditing & Finance Pub Date : 2022-06-10 Xinghua Gao, Yonghong Jia, Nicholas R. Krupa, Jennifer Wu Tucker
Management earnings forecasts (MEFs) may reduce information risk by corroborating the inferences that lenders draw from their private communication with borrowers. Consistent with this idea, we find that among firms with a general policy of issuing MEFs, those providing MEFs in the 6 months before loan origination with a forecast horizon beyond the origination date enjoy lower loan spreads. The frequency
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Customer Concentration and Managerial Bad News Withholding Journal of Accounting, Auditing & Finance Pub Date : 2022-06-04 Yangyang Chen, Gang Hu, Jun Yao, Jingran Zhao
We investigate whether the presence of major corporate customers affects managerial bad news withholding behaviors. Using data from a large sample of U.S. firms, we find that firms with a more concentrated customer base have a greater tendency to withhold bad news. Furthermore, we show an amplified effect of customer concentration on bad news withholding for firms that rely more on major customers
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Enterprise Risk Management Maturity: A Clinical Study of a U.S. Multinational Nonprofit Firm Journal of Accounting, Auditing & Finance Pub Date : 2022-06-03 Abolhassan Jalilvand, Sidharth Moorthy
This study, which is based on actual events, presents a dynamic analysis of the development, implementation, and post-implementation review of establishing an enterprise risk management (ERM) system for a U.S. multinational nonprofit firm over a 5-year period, 2015–2020. Using the Risk and Insurance Management Society Risk Maturity Model (RIMS RMM), questionnaire-based risk data and multi-dimensional
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Financial Restatements and the Demand for Trade Credit Journal of Accounting, Auditing & Finance Pub Date : 2022-05-19 Mai Dao, Duong Nguyen, Hongkang Xu
This article is the first to study the relation between financial restatements and restatement firms’ demand for trade credit as a source of financing. Using a sample of U.S.-listed firms for the 2000–2016 period, we find that restatement firms tend to use more trade credit in the year following the restatement disclosure year than do non-restatement firms. Moreover, we find evidence that restatement
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Do Mutual Funds Trade on Earnings News? The Information Content of Large Active Trades Journal of Accounting, Auditing & Finance Pub Date : 2022-05-16 Linda H. Chen, Wei Huang, George J. Jiang, Kevin X. Zhu
Using monthly holdings data, we show that in contrast to findings in existing literature, mutual fund trades in aggregate do not have predictive power for future earnings information. We identify active trades by mutual funds, that is, trades not passively driven by fund flows, and show that only large active trades by mutual funds contain information on future earnings. Moreover, we show evidence
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Free Cash Flows and Price Momentum Journal of Accounting, Auditing & Finance Pub Date : 2022-04-25 Jiajia Fu,Fangming Xu,Cheng Zeng,Liyi Zheng
This study investigates the role of free cash flows and (cross-sectional and time-series) price momentum in predicting future stock returns. Past returns and free cash flows each positively predict future stock returns after controlling for the other, suggesting that cash flows and momentum both contain valuable and distinctive information about future stock returns. A strategy of buying past winners
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Aggressive Tax Planning and Labor Investments Journal of Accounting, Auditing & Finance Pub Date : 2022-04-05 Simone Traini,Nathan C. Goldman,Christina M. Lewellen
We examine the association between aggressive tax planning and labor investment efficiency among U.S. firms. Labor is an important input to production that is material to many firms, and prior research suggests that inefficient labor investments can negatively affect future profitability and growth. We provide evidence that firms engaging in aggressive tax planning are associated with deviations from
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Cutting Through Complexity: Segment Disclosure and Pricing Efficiency Journal of Accounting, Auditing & Finance Pub Date : 2022-04-03 Doina C. Chichernea,Philipp D. Schaberl,Maya A. Thevenot
In 1997, Statement of Financial Reporting Standards (SFAS) 131 introduced a substantial change in how segment information is reported in US-GAAP (Generally Accepted Accounting Principles) financial statements. We seek to examine whether this change in financial reporting policy increases investors’ ability to process information relevant to conglomerate firms (i.e., those operating in multiple industries)
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CDS Channels of Influence on Discretionary Accruals Journal of Accounting, Auditing & Finance Pub Date : 2022-03-26 Hao Cheng,Kian Guan Lim
Existing studies indicated that firm debt holders can use the credit default swap (CDS) market to hedge their credit risk, and thus they would reduce their monitoring of the firms, leading to largely distressed firms shirking and increasing positive abnormal earnings accruals. Besides providing insurance, however, the CDS spreads also perform price discovery of credit risk information sought by trade
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The Impact of PCAOB-Type Regulations on Auditors Under Different Legal Systems Journal of Accounting, Auditing & Finance Pub Date : 2022-02-28 Minlei Ye, Dan A. Simunic
This article analyzes the impact of Public Company Accounting Oversight Board (PCAOB)-type regulatory oversight and legal liability on audit quality and social surplus. We show the conditions under which regulatory oversight can improve audit quality and social surplus, as compared with the impact of legal systems. Moreover, we demonstrate that regulatory oversight is not likely to substitute effectively
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The Estimated Propensity to Issue Going Concern Audit Reports and Audit Quality Journal of Accounting, Auditing & Finance Pub Date : 2022-02-28 Ling Chu, Hila Fogel-Yaari, Ping Zhang
Auditors’ propensity to issue Going Concern Audit Reports (GCARs) is one of the proxies often used for audit quality. Although this propensity is a distinguishing characteristic of auditors, it does not indicate quality according to both theory and practice. In theory, higher quality auditors make fewer audit errors; they are more likely to issue GCARs to clients that deserve them and less likely to
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Level 3 Income and CEO Cash Compensation in the Financial Industry Journal of Accounting, Auditing & Finance Pub Date : 2022-02-28 Chaur-Shiuh Young, Liu-Ching Tsai, Hui-Wen Hsu
This article examines the role of fair value gains or losses related to Level 3 valuations in CEO cash compensation for U.S. financial firms. Our results show that Level 3 income is compensation-relevant. By separating Level 3 income into unrealized and realized Level 3 income, we find that CEO cash compensation is less sensitive to unrealized than realized Level 3 income, which indicates that compensation
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The Real Effects of Internal Audit Function Quality: Evidence From Investment Strategies Journal of Accounting, Auditing & Finance Pub Date : 2022-01-20 Lawrence J. Abbott, Dereck Barr-Pulliam, William L. Buslepp, Susan Parker
This article examines the relation between internal audit function (IAF) quality and investment efficiency, a recurring value-added corporate activity critical to firm survival and profitability. We argue that an IAF, unlike other information intermediaries, is uniquely positioned to have access to firm-specific, private information—particularly related to localized, firm-specific risks. If a more
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Unregulated Corporate Financial Disclosure and Analysts’ Forecast Properties: The Case of Embedded Value Reporting by Life Insurers Journal of Accounting, Auditing & Finance Pub Date : 2022-01-09 Samir M. El-Gazzar, Rudolph A. Jacob, Scott P. McGregor
This paper investigates the association between life insurers’ voluntary disclosure of embedded value (EV), an unregulated market-driven fair value measure, and analyst forecast accuracy and dispersion. EV is an estimate of the present value of future net cash flows from in-force life insurance business. Advocates of this disclosure believe that EV is a better measure of economic performance than traditional
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Opportunistic Avoidance of Litigation Loss Accruals and the Mitigating Effects of Auditors Journal of Accounting, Auditing & Finance Pub Date : 2021-12-30 Hsin-Yi Huang, Eric Lohwasser, Zhiyuan Yu, Hsihui Chang
We find that firms with preliminary earnings that are expected to just meet analyst forecasts are more likely to only disclose (i.e., not accrue) litigation loss contingencies, claiming that the litigation event falls below the qualitative thresholds necessitating accrual. We also find that this opportunistic treatment of a subjective estimate is reduced when firms’ auditors have expertise in the defendant’s
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Valuation Issues, Auditor Fraud, and PCAOB Confirmation: Findings From an Analysis of Lawsuits Against Large Public Accounting Firms Journal of Accounting, Auditing & Finance Pub Date : 2021-12-30 Andrea Everard, Kent St. Pierre
In this article, we bridge the gap between academia and practice by analyzing and presenting the results of allegations in more than 200 lawsuits against the largest public accounting firms. Our findings are critical as the lawsuits damage the firms’ reputations, the credibility of the profession in general, and may result in large monetary losses and loss of clients. We find three key results not
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Spurious Correlation Due to Scaling Journal of Accounting, Auditing & Finance Pub Date : 2021-12-27 Robson Glasscock, Oleg Korenok, Jack Dorminey
Scaling is common in empirical accounting research. It is often done to mitigate heteroscedasticity or the influence of firm size on parameter estimates. However, Barth and Clinch conclude that common diagnostic tools are ineffective in detecting various scale effects. Using analytic results and Monte Carlo simulations, we show that common forms of scaling, when misapplied, induce substantial spurious
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Designing Efficient Stratified Mean-Per-Unit Sampling Applications in Accounting and Auditing Journal of Accounting, Auditing & Finance Pub Date : 2021-12-27 Thomas W. Hall, Lucas A. Hoogduin, Bethane Jo Pierce, Jeffrey J. Tsay
Despite technological advances in accounting systems and audit techniques, sampling remains a commonly used audit tool. For critical estimation applications involving low error rate populations, stratified mean-per-unit sampling (SMPU) has the unique advantage of producing trustworthy confidence intervals. However, SMPU is less efficient than other classical sampling techniques because it requires
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Price Reversals After Extreme Price Shocks: Impact of Earnings Information With Time Series Evidence From Emerging Market Journal of Accounting, Auditing & Finance Pub Date : 2021-12-17 T. G. Saji
The purpose of the article is to analyze the relevance of earnings fundamentals in predicting extreme price reversals of an emerging stock market. We collect monthly price data on six sector indices from Bombay Stock Exchange (BSE) of India for the period 2004–2019. The research decomposes industry stock returns into Potential Maximum Gains (PMG) and Potential Maximum Losses (PML) with price extremes
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R&D Reporting Rule and Firm Efficiency Journal of Accounting, Auditing & Finance Pub Date : 2021-12-15 Nilabhra Bhattacharya, Yoshie Saito, Ramgopal Venkataraman, Jeff Jiewei Yu
Critics opine that full expensing of research and development (R&D) depresses near-term profits and incentivizes myopic managers to under-invest in R&D, compromising firm efficiency. Advocates of the expensing rule argue that little rigorous research evidence supports the claimed adverse consequences. We examine the impact of the R&D expensing rule on firm efficiency by exploiting an exogenous shock:
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Auditor Choice and the Informativeness of 10-K Reports Journal of Accounting, Auditing & Finance Pub Date : 2021-12-15 Karel Hrazdil, Dan A. Simunic, Nattavut Suwanyangyuan
This study provides new evidence on the influential role of external auditors in enhancing the informativeness of form 10-K annual reports to shareholders. Specifically, we find that the client’s choice of a Big 4 auditor (PwC, EY, KPMG, and Deloitte) versus a non-Big 4 auditor contributes to cross-sectional variations in 10-K disclosure volume. We also document that the benefit of enhanced disclosures
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Management Forecasting Ability and Predictive Ability of Dividend Changes for Future Earnings Journal of Accounting, Auditing & Finance Pub Date : 2021-12-11 Hsihui Chang, Souhei Ishida, Takuma Kochiyama
We revisit the predictive ability of dividend changes for firms’ future earnings and extend the literature by examining the effect of management forecasting ability. Although prior studies have examined the relationship between dividend changes and future earnings, the empirical evidence is mixed. The belief that dividend changes have implications for future earnings depends on the assumption that
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Capital Account Liberalization and Firm Innovation: Worldwide Evidence Journal of Accounting, Auditing & Finance Pub Date : 2021-12-03 Fangfang Hou, Xinpeng Xu
This study investigates whether capital account liberalization, a leading characteristic of globalization, is associated with firms’ future innovation output. Employing a novel firm-level panel data set covering 41 countries over two decades, we show that capital account liberalization is significantly associated with higher corporate patenting activities, particularly for firms from innovation-intensive
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An Examination of Audit Quality Surrounding Within-Firm Engagement Office Changes Journal of Accounting, Auditing & Finance Pub Date : 2021-12-03 Adam J. Greiner, Julia L. Higgs, Thomas J. Smith
We examine the relation between within-firm office changes and audit quality in the United States. Our primary analysis documents a reduction in audit quality, measured using abnormal discretionary accruals and restatements, when the client is transferred to a smaller within-firm office (downsize effect). We are unable to find evidence that clients experience significant improvement in audit quality