ACCOUNTING/PUBLIC POLICY Research Papers - Academia.edu (original) (raw)

Databases and online systems have dramatically changed the way businesses transact and maintain records. The database-supported transaction systems enable businesses to conduct their businesses electronically, leading to quicker exchange of information on products and sales. With databases supplying information and online systems providing processing capabilities, businesses can input and process transactions as they occur. In turn, this facilitates quicker retrieval, classification, and reporting of activities. Unlike in the past where reports were generated several months after events

- by
- •
- Stochastic Process, Information Technology, Information Assurance, Time Dependent

In recent years, a paradigm shift has occurred regarding the way organizations view risk management. Instead of looking at risk management from a silo-based perspective, the trend is to take a holistic view of risk management. This holistic approach toward managing an organization's risk is commonly referred to as enterprise risk management (ERM). Indeed, there is growing support for the general argument that organizations will improve their performance by employing the ERM concept. The basic argument presented in this paper is that the relation between ERM and firm performance is contingent upon the appropriate match between ERM and the following five factors affecting a firm: environmental uncertainty, industry competition, firm size, firm complexity, and board of directors' monitoring. Based on a sample of 112 US firms that disclose the implementation of their ERM activities within their 10Ks and 10Qs filed with the US Securities and Exchange Commission, empirical evidence confirms the above basic argument. The implication of these findings is that firms should consider the implementation of an ERM system in conjunction with contextual variables surrounding the firm.

- by Olaoye Ogundele
- •
- ACCOUNTING/PUBLIC POLICY

We investigated the link between tax laws and financial accounting standards by considering the attempt by the International Accounting Standards Committee (IASC) to ban the use of the LIFO inventory method. Our goal was to identify... more

- by Daniel Zeghal
- •
- ACCOUNTING/PUBLIC POLICY

This paper empirically examines the impact of the Sarbanes-Oxley Act (SOX) of 2002 on the voluntary disclosure of information security activities by corporations. The empirical evidence provided clearly indicates that SOX is having a positive impact on such disclosure. These findings provide strong indirect evidence that corporate information security activities are receiving more focus since the passage of SOX than before SOX was enacted.

- by Lawrence Gordon
- •
- Information Security, Accounting, Voluntary disclosure, Empirical evidence

The use of activity-based costing (ABC) has been steadily, if not rapidly, spreading on an international level. This fact notwithstanding, the economic benefit associated with adopting ABC is suspect, at best. In an effort to shed additional light on this apparent dilemma, this paper empirically investigates the stock market effects of announcing the adoption of an ABC system. The research methodology includes both parametric and non-parametric tests for excess market returns from a seemingly unrelated regressions model with a matched pairs sample of firms. The analysis indicates that the installation of an ABC system in the United States is not associated with a significant (either positive or negative) stock market reaction.

- by Katherine Silvester and +1
- •
- Research Methodology, Activity based costing, ACCOUNTING/PUBLIC POLICY, Seemingly Unrelated Regression

We examine the value relevance of Australian firms' discretionary R&D accounting policy and the association between this expenditure and the firm's future economic performance. The results indicate that: (1) managerial discretionary accounting practice, capitalizing or expensing R&D expenditure, demonstrates greater value relevance than accounting figures that are the product of mandatory R&D expensing, (2) managerial discretionary capitalized R&D accounting figures demonstrate higher association with market share prices than managerial discretionary expensed expenditure, (3) the strength of the association between R&D accounting figures and the firm's market value is higher for firms that are members of a defined industrial group than for the general population of firms and (4) R&D capitalized expenditure is positively and significantly associated with the firm's future earnings. We also examine the sensitivity of comparative value relevance models to the choice of deflator variables. Our results are robust with respect to such choice. Implications of our findings for accounting rule makers and researchers are also offered.

Extending Cormier and MagnanÕs approach [J. Account. Audit Finance 14 (1999) 429] into a new context, our study investigates the determinants of corporate environmental reporting using a cost/benefits framework within FranceÕs unique legal and regulatory context. Results suggest that, in addition to firm size, proprietary costs, information costs and media visibility determine corporate environmental reporting. Industry-specific reporting patterns are also apparent.

- by Denis Cormier
- •
- Firm Size, ACCOUNTING/PUBLIC POLICY

Our study investigates the relationship of independent auditor fees, hours and quality, with particular emphasis on initial audits. Using audits of Texas independent school districts, empirical results indicated specific low bailing relationships. First year independent audits had statistically significant lower audit fees. Despite the lower fees, quality was higher and more audit hours were utilized.

- by Donald Deis
- •
- Audit Quality, First Year, ACCOUNTING/PUBLIC POLICY, Audit fees

Numerous studies have examined the value relevance and other characteristics of international and country-specific accounting standards. This paper evaluates the experimental designs of selected studies with respect to the controls essential for effective research. Both cross-country and within-country research designs share a common need for controls. Perhaps the most distinctive element of effective design in these studies is the control for institutional, cultural, and structural differences between countries. Previous research shows that the key outputs of various country-specific accounting standards are functions of a variety of factors including accounting-related issues, legal origin, shareholder protection, the information environment, financial markets, and enforcement of these standards. In addition, effective studies of country-specific or international accounting principles require control for firm and industry-specific effects and for self-selection bias, as in conventional within-country examinations. When controls are not sufficient, observed differences in the outputs of alternative accounting standards may result from differences between countries or firms rather than from different accounting principles. We review a sample of recent research with attention to these control considerations.

- by martine akullu
- •
- Research Design, Experimental Design, Financial Market, ACCOUNTING/PUBLIC POLICY

We examine whether managers' decisions to capitalize or expense R&D expenditures convey information about the future performance of the firm. Focusing on a French setting where managers can choose to capitalize R&D expenditures under certain circumstances, we find that, after controlling for industry effects, firms that capitalize R&D expenditures spend less on R&D, have more volatile R&D efforts, and are smaller and more leveraged than firms that expense R&D expenditures. We also find that capitalizers capitalize R&D outlays when they need to meet or beat thresholds. Finally, we show that the decision to capitalize R&D is generally associated with a negative or neutral impact on future performance, even after controlling for self-selection. Our results also show that when firms both capitalize and expense R&D expenditures, the expensed portion exhibits a stronger (and negative) relationship with future performance. Market-based tests corroborate these findings. While we cannot unambiguously establish whether our findings imply that management uses R&D capitalization to manage earnings or because it is unable to estimate the earning power of R&D projects, our results suggest that management is unable to truthfully convey information about future performance through its decision to capitalize R&D. Our findings, based on real data as opposed to simulated data, therefore contrast with previous supportive evidence in favor of capitalization in the literature.

- by Anne Cazavan-jeny
- •
- ACCOUNTING/PUBLIC POLICY

This study uses an agency theory framework to analyze the incentives for voluntary formation of audit committees. Empirical variables are chosen to proxy for costs of conflicts of interest between stockholders, bondholders, and managers. Also tested is the influence of size and the incentives of (Big Eight) auditors and directors to establish audit committees. Univariate and multivariate tests are undertaken on 135 firms listed on the New Zealand Stock Exchange. The results indicate that voluntary audit committees are not related to auditor incentive variables or to agency cost variables arising from the separation of (residual) ownership and (decision) control. A relation is found between voluntary audit committee formation and directors' incentives. Both the number of directors on the board and intercorporate ownership were found to be the more important determinants of voluntary audit committees.

- by Margaret Bradbury
- •
- ACCOUNTING/PUBLIC POLICY, Audit committee

This study considers the effect of board of director composition on corporate tax aggressiveness. Our logit regression results for a choice-based sample of 32 corporations comprising 16 tax-aggressive corporations and 16 non-tax-aggressive corporations show that the inclusion of a higher proportion of outside members on the board of directors reduces the likelihood of tax aggressiveness. The ordinary least squares regression results from our sensitivity analysis of a cross-section of 401 corporations confirm our main results about board of director composition and tax aggressiveness.

- by Grant Richardson
- •
- Sensitivity Analysis, Cross Section, ACCOUNTING/PUBLIC POLICY, Corporate Taxes

Article history: a b s t r a c t Regulators and others recently highlighted the increasingly important role of internal auditing in supporting and interacting with the audit committee to ensure the integrity and quality of financial reporting. Likewise, one of the roles of the audit committee is to oversee the quality of monitoring mechanisms implemented by the firm, which includes the internal audit function. However, our understanding of the relationship between the audit commit-⇑ Corresponding author. Address:

- by Abhijit Barua and +2
- •
- Internal Audit, Financial Reporting, Empirical evidence, ACCOUNTING/PUBLIC POLICY

Our aim is to increase understanding of the potential effects of culture and corporate governance on social disclosures. The ethnic background of directors and shareholders is used as a proxy for culture. Corporate governance characteristics include board composition, multiple directorships and type of shareholders. The dependent variable, disclosure in annual reports of Malaysian corporations, is measured by an index score as well as in terms of number of words. Our results indicate a significant relationship between corporate social disclosure and boards dominated by Malay directors, boards dominated by executive directors, chair with multiple directorships and foreign share ownership. Four of the control variables (size, profitability, multiple listing and type of industry) were significantly related to corporate social disclosure with the exception of gearing. This study has public policy implications for Malaysia as well as a number of other countries in the Asia-Pacific region.

- by Lestyo Wijito
- •
- Corporate Governance, Culture, Disclosure, Profitability

This paper analyzes the factors behind Chinese listed companies' voluntary adoption of Internet-based financial reporting, as well as their extent of disclosure. Factors identified as being relevant to voluntary disclosure choices in the more advanced market economies are included. In addition, theories on innovation diffusion and voluntary disclosure are used to generate hypotheses about factors specific to the Chinese context, such as type of auditor, foreign listing, different classes of stock ownership, and government regulation. Findings from the largest 300 listed Chinese companies support the proposition that these firms' Internet-based disclosure choices are responsive to specific attributes of their environment. The implications of the findings for policy and research are delineated.

- by yang bo
- •
- Capital Markets, China, Financial Reporting, Market economy

This study examines the association between corporate social responsibility (CSR) and corporate tax aggressiveness. Based on a sample of 408 publicly listed Australian corporations for the 2008/2009 financial year, our regression results show that the higher the level of CSR disclosure of a corporation, the lower is the level of corporate tax aggressiveness. We find a negative and statistically significant association between CSR disclosure and tax aggressiveness which holds across a number of different regression model specifications, thus more socially responsible corporations are likely to be less tax aggressive in nature. Finally, the regression results from our additional analysis indicate that the social investment commitment and corporate and CSR strategy (including the ethics and business conduct) of a corporation are important elements of CSR activities that have a negative impact on tax aggressiveness.

- by Grant Richardson and +1
- •
- Corporate Social Responsibility, Socially-responsible Investing, Statistical Significance, Regression Model

This study examines the determinants of the variability in corporate effective tax rates in Australia spanning the Ralph Review of Business Taxation reform. Our results indicate that corporate effective tax rates are associated with several major firm-specific characteristics, including firm size, capital structure (leverage) and asset mix (capital intensity, inventory intensity and R&D intensity). While the Ralph Review tax reform had a significant impact on many of these associations, corporate effective tax rates continue to be associated with firm size, capital structure and asset mix after the tax reform.

- by Grant Richardson
- •
- Tax reform, Capital Structure, Firm Size, Effective tax rate

Enterprise risk management (ERM) has emerged as a new paradigm for managing the portfolio of risks that face organizations, and policy makers continue to focus on mechanisms to improve corporate governance and risk management. Despite these developments, there is little research on factors associated with the implementation of ERM. Research is needed to provide insights as to why some organizations are responding to changing risk profiles by embracing ERM and others are not.

In this study, we examine the importance of goal congruence in management control systems (MCS) using a theoretical framework that draws upon both agency theory and stewardship theory. Two aspects of goal congruence are considered: (1) a manager's voluntary acceptance of an organization's strategy, i.e., principal-agent alignment, and (2) manager consensus regarding their organization's strategy, i.e. agent-agent alignment among the potentially divergent interests of multiple agents. We demonstrate the impact of managers' strategy acceptance (consensus) on four measures of economic benefit: inputs (resource accumulation), outputs (volume of services), operating efficiency (output per unit of input), and cost structure flexibility (adaptability to volume). The results indicate that greater manager consensus is associated with hospitals that accumulate more resources and provide higher levels of service with greater efficiency and additional cost structure flexibility. Our evidence also indicates that hospital managers (MDs, nurses and CFOs) are not motivated by individual opportunism alone, and that goal 0278-4254/$ -see front matter Ó congruence does not depend solely upon selecting the right performance measures and incentives to remove inefficiencies and moral hazards. We conclude that goal congruence based upon both strategy acceptance and reinforcing incentives may result in MCS that are less costly and more effective.

- by Gary Ferrier
- •
- Accounting, Agency Theory, Moral Hazard, Management Control System

This paper presents a frame of reference for conceptualising connected reporting issues given the growing range of corporate requirements and stakeholder responsibilities facing organizations today. A notional continuum for locating corporate financial reporting (CFR) and corporate governance (CG) responsibilities alongside potential corporate social responsibility (CSR) reporting and stakeholder value creation (SVC) requirements is developed. The urgency for such an integrative perspective arises from the swiftly expanding scholarly research relating to corporate responsibilities. These academic exhortations are framed as inert and independent domains of discourse, given the absence of a wider connecting framework, to link what are in effect, closely related issues. The broad argument advanced is that CFR, CG, CSR, and SVC need to be notionally integrated into a spectrum of corporate disclosure responsibility, so that debates on conformance and performance reporting issues can be articulated in a comprehensively interlinked manner rather than disparately. The paper also addresses issues relating to the mandatory reporting, articulation and promulgation of CSR and SVC standards, in the light of the notional continuum posited. Some implications of the continuum are discussed, including the need to qualify calls which have been made 0278-4254/$ -see front matter Ó

This paper discusses trade-os associated with three research designs commonly used in the earnings management literature: those based on aggregate accruals, those based on speci®c accruals and those based on the distribution of earnings... more

- by Maureen McNichols
- •
- Research Design, Earnings Management, ACCOUNTING/PUBLIC POLICY

Responding to the widespread adoption of the Internet and the rapidly growing demands for information from stakeholders, corporations around the world are using the Internet for business and financial disclosures. Internet reporting has the benefits of low cost, wider reach, frequency and speed. Despite these benefits Internet reporting varies across companies and across countries. We study Internet financial reporting (IFR), in particular the presentation and content of IFR, of 660 large companies in 22 countries to identify the firm, and environmental determinants of IFR. The study revealed that firm size, listing on US stock exchanges and technology were firm specific determinants of IFR. Given that IFR is not just about the content of disclosure, but also about employing new presentation methods, the environment of disclosure was included in the research. The overarching disclosure environment of a country was found to be an important environmental driver for IFR presentation and less strongly for IFR content. The presentation aspect of IFR was more associated with the identified determinants than the content of IFR, which suggests that Internet presentation technologies were more related to the determinants than the content of the reports on the company Web sites.

- by ROGER DEBRECENY
- •
- Public sector accounting, Financial Reporting, Firm Size, STOCK EXCHANGE

Royal Ahold (Koninklijke Ahold NV) was one of the major success stories in the 1990s and is one of the major failures, suffering a complete meltdown, in 2003. We investigate the strategy, investor relations, accounting transparency and corporate governance of Ahold; these elements jointly drive the firm's performance over the past decade. Investor relations and its implications are an important but under researched aspect of the market's belief formation process. For Ahold, investor relations is an important component of reputational bonding . Can foreign firms bond themselves effectively by renting US securities laws? Journal of Financial Economics 75, 319-359]. Our clinical study documents investor relations' influence on investor expectations. We then provide an in-depth analysis of the strategy, accounting transparency and corporate governance that lead to Ahold's downfall. We provide insights and implications into these relationships that present theory and empirical studies have not fully addressed.

- by Abe De Jong
- •
- International Economics, Financial Economics, Accounting, Corporate Governance

- by Daniel Zéghal
- •
- ACCOUNTING/PUBLIC POLICY

Executive compensation, especially cash bonus compensation, has come under fire by the Securities and Exchange Commission (SEC), the US Federal government, and the media for its role in the current economic crisis. Specifically, the SEC has argued that some compensation packages provide incentives for risk-taking that may undermine shareholder value over the long-term. Short-term incentive payments to executives in the form of cash bonuses are mostly contingent on reaching targets of accounting-related measures or financial performance measures (FPMs). However, the incentives from these payments may lead to accrual manipulation and earnings management (EM). Alternative measures are nonfinancial performance measures (NFPMs). We expect that firms that employ NFPMs in bonus contracts will have a lower prevalence of EM, since these measures tend to focus executives on the long-term. In this paper, we examine the type of performance measures used by firms in the S&P 500 index in their cash bonus compensation. We find that firms that use both FPMs and NFPMs have lower discretionary accruals compared to firms that use only FPMs, consistent with lower income-increasing EM. However, we do not find evidence of a reduction in EM behavior using the incidence of meeting or just beating analyst earnings benchmarks, another common EM proxy. In additional tests on a subset of firms with equity offerings, in which incentives for income-increasing manipulation are likely high, we find that firms with NFPMs have lower discretionary accruals. The implication is that NFPMs can be used in compensation contracts to reduce EM behavior and 0278-4254/$ -see front matter Ó

- by Salma Ibrahim
- •
- ACCOUNTING/PUBLIC POLICY

It is shown that, in the absence of transaction costs and in line with the Coase Theorem, the going concern decision is efficient in the sense that bias arising from either Type I or II errors is not expected. However, when transaction costs in the form of legal costs, are introduced, bias is expected. The direction of the error depends upon the audi-torÕs relative bargaining power. It is also shown that its relative bargaining power provides an incentive for the client company to mislead. Finally, certain empirical observations pertinent to this analysis are discussed together with the regulatory implications.

- by Paul Barnes
- •
- Audit, Coase Theorem, ACCOUNTING/PUBLIC POLICY, Bargaining Power

The widespread acceptance of International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) makes it timely to examine their technical determinants as well as their implications for the accounting profession and the process of accounting harmonization. In this respect, we suggest that the principles-based approach to the standards and its inner flexibility enables the application of IAS/IFRS to countries with diverse accounting traditions and varying institutional conditions. Furthermore, the principles-based approach involves major changes in the expertise held by accountants and, hence, in their educational background, training programs, and in the organizational and business models of accounting firms. Finally, we submit that the standards set by the IAS/IFRS constitute a step forward in the process of accounting harmonization, although there is still far to go in the comparability of accounting measures across countries and regions. (M. Trombetta).

- by Marco Trombetta
- •
- Globalization, Convergence, International Accounting Standards, Business Model

Prior research documents that the DuPont components of return on net operating assets (profit margin and asset turnover) represent an incremental source of information about the operating characteristics of a firm and are useful tools for market participants . We find that the informativeness of DuPont components about future profitability is reduced in the healthcare setting, relative to an all-industry sample. Moreover, to the extent that DuPont components are useful for market participants, we show that profit margin is more persistent than asset turnover for US for-profit health care providers, which contradicts the results documented in prior literature that considered all industries. We argue that the special features of the health care industry (i.e. heavy regulation, unique operational characteristics) affect the information content of accounting signals obtained based on financial statements.

- by Hassan Hassabelnaby
- •
- ACCOUNTING/PUBLIC POLICY

No. 59 requires auditors to assess whether substantial doubt exists about a clientÕs ability to remain a going concern. This study reports an experimental economic test of a game-theoretic model of that judgment. Competing behavioral predictions are based on loss avoidance, risk seeking, altruism, and adversarial play. We also examine how strategic dependence affects auditorsÕ and clientsÕ propensity to depart from equilibrium.

In the field of breast biology, there is a growing appreciation for the ''gatekeeping function'' of basal cells during development and disease processes yet mechanisms regulating the generation of these cells are poorly understood. Here, we report that the proliferation of basal cells is controlled by SLIT/ ROBO1 signaling and that production of these cells regulates outgrowth of mammary branches. We identify the negative regulator TGF-b1 upstream of Robo1 and show that it induces Robo1 expression specifically in the basal layer, functioning together with SLIT2 to restrict branch formation. Loss of SLIT/ROBO1 signaling in this layer alone results in precocious branching due to a surplus of basal cells. SLIT2 limits basal cell proliferation by inhibiting canonical WNT signaling, increasing the cytoplasmic and membrane pools of b-catenin at the expense of its nuclear pool. Together, our studies provide mechanistic insight into how specification of basal cell number influences branching morphogenesis.

- by Angel Moran
- •
- Cell Adhesion, Membrane Proteins, Morphogenesis, Western blotting

The IASB has achieved great success in extending the adoption of international financial reporting standards, but it has also encountered opposition at national and regional levels. Some of this opposition arises from differences in national accounting cultures, which are embedded in the market structures and institutional and legal frameworks within which business entities operate. These issues are particularly apparent in the debate on the IASB's revision of its conceptual framework, which expresses its own vision of an international accounting culture. An important example is the issue of whether stewardship should be a distinct fundamental objective of financial reporting.

- by jasmine kaur
- •
- Culture, Market Structure, Conceptual Framework, ACCOUNTING/PUBLIC POLICY
- by Mark Dirsmith
- •
- Risk assessment, Empirical Study, ACCOUNTING/PUBLIC POLICY, Risk Assessment
- by Terrell Zollinger
- •
- Accounting, ACCOUNTING/PUBLIC POLICY, Financial Ratios, Cash Flow

We examine the association between corporate governance and the quality of information available to financial analysts. Our results indicate that the quality of financial analysts' information about upcoming earnings increases with the quality of corporate governance. Recent research indicates that the quality of firm-provided mandatory and voluntary disclosures increases in the quality of specific corporate governance mechanisms. Our results add to this stream of research by showing that better quality corporate governance is associated with a key benefit to the end users of firm-provided financial disclosures: an increase in the overall quality of information possessed by financial analysts, one of the key users of firm-provided financial disclosures.

This study examines earnings management by US-based oil companies in the period immediately after the impact of hurricanes Katrina and Rita. We show that large petroleum refining firms -but not the smaller crude oil and natural gas production companies -recorded significant abnormal income-decreasing accruals in the fiscal quarter immediately after the impact of hurricanes Katrina and Rita (Q4 of 2005). In addition, we show that these results are driven by abnormal current accruals. Prior studies show that some firms respond to periods of heightened political scrutiny by recording abnormal income-decreasing accruals (e.g. . The effect of antitrust investigation on discretionary accruals: a refined test of the political cost hypothesis. The Accounting Review 67 (1), 77-96; Han, J., Wang, S., 1998. Political costs and earnings management of oil companies during the 1990 Persian Gulf Crisis. The Accounting Review 73 (1), 103-118]). Our results add to this stream of research by examining a political costincreasing event that occurred after the passage of the Sarbanes-Oxley Act (SOX) of 0278-4254/$ -see front matter Ó 2002. The results suggest that in the post-SOX period managers continue to engage in income-decreasing earnings management during periods of heightened political cost sensitivity, at least in the case of large petroleum refining firms.

- by Mahmud Hossain
- •
- Earnings Management, Persian Gulf, Oil Industry, Natural Gas

The China Securities Regulatory Commission (CSRC) is the regulatory body that enforces securities laws and regulations in the People’s Republic of China. Somewhat akin to the SEC in the US, the CSRC carries out investigations to identify and prosecute securities fraud. The aim of this study is to provide some empirical evidence on the impact of the CSRC’s enforcement actions. We find that enforcement actions have a negative impact on stock prices with most firms suffering wealth losses of around 1–2% in the 5 days surrounding the event. Moreover, we find that firms have a greater rate of auditor change, a much higher incidence of qualified audit opinions, increased CEO turnover, and wider bid-ask spreads. The negative stock returns and the costly economic consequences for firms suggest that the CSRC has credibility and its actions have teeth.

- by Daniel Gao
- •
- China, Public sector accounting, Ceo Turnover, Empirical evidence
- by M. Magnan
- •
- Stock Market, Pulp and Paper, Environmental Performance, ACCOUNTING/PUBLIC POLICY

This study investigates whether earnings quality declined during the late 1990s, a period marked by extraordinary stock market activity, and whether industry specialist auditors were effective in stemming any such decline. Specifically, we examine whether the magnitude of discretionary accruals increased and the Earnings Response Coefficient (ERC) decreased in the 1997-1999 period relative to those of the 1990-1996 period. Our findings are as follows. First, we find a significant increase in the magnitude of discretionary accruals and a significant decrease in ERC in our sample, which suggests an overall decrease in earnings quality across the periods. Next, both the increase in discretionary accruals and the decrease in ERC are shown to be significantly smaller for clients of industry specialist auditors. Finally, it is shown that the effectiveness of industry specialist auditors was limited and that they were associated with some earnings 0278-4254/$ -see front matter Ó quality decline. Collectively, these results imply a pervasive earnings quality decline during the late 1990s that even high quality auditing was insufficient to fully prevent.

- by Gregory Kane
- •
- Stock Market, Audit Quality, ACCOUNTING/PUBLIC POLICY, Earnings Response Coefficient

This longitudinal study reports the impact of changes in generally accepted accounting principles on financial statement disclosures for 100 public and private institutions of higher education. Disclosures from the period when all colleges and universities followed the same accounting standards are compared with disclosures in periods after major changes in accounting and reporting standards were made by the Financial Accounting Standards Board (FASB) for private institutions and by the Governmental Accounting Standards Board (GASB) for public institutions. We find that an importance-weighted disclosure index shows that user needs are better met using the new reporting standards for public but not private institutions. An expanded unweighted index, however, shows improvement for both public and private colleges and universities. Using this disclosure index, the improvement for universities reporting under GASB standards exceeded the improvement for those reporting under FASB standards. journal ho mepage: www.elsevier.com/lo cat e/jaccpubpol 1 Of the 100 institutions included in , 90 were clearly following the AICPA audit guide, three were early adopters of SFAS No. 117 (FASB, 1993b), although not SFAS No. 116 (FASB, 1993a, and the others used either the government model or a mix of AICPA audit guide, government or other formats.

- by Teresa Gordon
- •
- ACCOUNTING/PUBLIC POLICY, Accounting standards, Information Need, Indexation

Donors frequently impose restrictions on the use of contributions to non-profit institutions. These restrictions may be imposed in an attempt to ensure that the objectives of the donors are achieved, to limit administrative accretion (lattice), and to discourage the pursuit of objectives deemed by donors to not be fundamental to the core mission. On the other hand, donor restrictions may be costly to the extent that administrators possess better knowledge of the underlying production/cost function. This study evaluates the degree to which the common perception that the lack of financial flexibility inhibits institutional efficiency is empirically valid in the context of institutions of higher education. The degree of financial flexibility (the ratio of unrestricted net assets to total assets) is used as a measure of the degree to which institutional performance may be constrained by donor restrictions. Our results show a positive relationship between the degree of financial flexibility and cost inefficiency for all types of private higher education institutions. Thus, contrary to common belief, enhanced financial flexibility appears to lead to higher cost inefficiency. Conversely, greater financial restrictions appears to lead to more cost efficiency. This finding suggests that line item budgeting, for example, may not be as ineffective a cost control mechanism as it is commonly perceived to be. More rigorous comparative studies are needed to support the anecdotal evidence often cited to show the inefficiency of line-item budgeting.

- by Yaw Mensah
- •
- Higher Education, Comparative Study, Profitability, Cost Efficiency

This study examines the link between effective tax rates (ETR) and political connections in developing economies. The political connections explanation is informed by the observation that developing economies tend to be ''relationship-based'' rather than ''market-based'' capitalisms. Two proxies of political patronage are developed and applied to a group of Malaysian firms over a 10-year period. We find firms with political connections pay tax at significantly lower effective rates than other firms. Our results suggest that political connections are an important determinant of ETR in relationship-based economies.

- by Chek Derashid
- •
- Developing Economies, ACCOUNTING/PUBLIC POLICY, Public Policy

This study examines the annual reports of 100 United States (US) institutions of higher education to determine identifiable and measurable factors associated with extent of disclosure. Each disclosure was weighted by its relative importance to users of college and university financial statements. The measurement construct for extent of disclosure was the ratio of an institution’s total disclosure score to its total possible disclosure score. Institution size and public/private status were associated with total extent of disclosure but leverage and audit firm size were not significant. Extent of disclosure of non-financial performance information (service efforts and accomplishments) was associated with high tuition rates and low dependence on tuition revenue and with state auditors as opposed to public accounting firm auditors. The findings are consistent with accountability and public interest tenets (Coy, D., Fischer, M., Gordon, T., 2001. Public accountability: a new paradigm for college and university annual reports. Critical Perspectives on Accounting 12 (1), 1–31). Highly visible institutions, those larger in size or audited by the state, disclosed more information. Moreover, some institutions used a corporate-style report to better promote their interests.

- by Mary Fischer
- •
- Accounting, United States, Information Service, Financial Performance

China have yielded many local policies that only serve the interests of local governments. The policy of first levying and then rebating taxes is an example of how local governments eschew the national tax regulations to boost local economies rather than national interests. In 2001, the Chinese government announced the termination of local tax rebates, which had some expected outcomes. We find that local governments complied with the new tax policy even though it no longer allowed local governments to grant tax incentives. However, some companies found ways to avoid the greater tax burdens by moving their business registration locations to tax havens. We also find that firms controlled by local governments were less likely to change registration locations. Our study examines the national tax regulation in China and explores how tax rules 0278-4254/$ -see front matter Ó influence company decisions. In addition, we show that non-tax incentives, such as local economic development, may also influence company decisions. Ó 2007 Elsevier Inc. All rights reserved. JEL classifications: M4; H2; H7; K3 Keywords: Public policy; Effective tax rate; First levying and then rebating taxes; Location change; China tax policy 2 The favorable tax rate varies from 15% to 18% for different zones, but the most common rate is 15%. Since we will not use the specific tax rate in our analysis, we simply use 15% as the favorable tax rate. Hainan is the only province among these five special economic zones. Shenzhen, Zhuhai, and Shantou are in Guangdong province and Xiamen is in Fujian province. 3 In 2003, the central government launched a series of policies to cool down the over-heated economy and prohibited large-scale investments nationwide. Local governments in Jiangsu province disregarded the warnings and initiated the RMB16 billion investment of the TieBen Steel Corporation. Utilizing the administrative resources, local governments masked the investment under fourteen different projects and consumed extensive resources to support the investment in ''TieBen''. The incident was exposed in 2005 and the people involved faced various criminal charges. 4 All companies in Hainan receive the preferred tax rate that is offered by the central government. 556 L. Wu et al. / Journal of Accounting and Public Policy 26 (2007) 555-583

- by Chen-zhong Li
- •
- Local Economic Development, Tax Policy, Conflict of Interest, Tax Burden

Accounting researchers have long been interested in the extent to which managers alter reported earnings for their own bene®t. The late 1970s and the early 1980s saw the development of a large body of research that studied accounting choice and provided evidence consistent with managers, incentives to choose bene®cial ways of reporting earnings in regulatory and contractual contexts (see Holthausen and Leftwich, 1983; Watts and Zimmerman, 1986 for reviews of these studies). Beginning with the paper by Healy (1985), many studies of managerial incentives to alter earnings have focused on accruals. Accounting accruals are a summary measure of the timing dierences that result from all accounting choices (Watts and Zimmerman, 1990, p. 138). Using a summary measure reduces the problems associated with the inability to measure the eect of various accounting choices on earnings (Watts and Zimmerman, 1990, p. 144). Further, while total accruals ± the dierence between net income and cash¯ow from operations ± are observable, the discretionary component of accruals is not. This means that market participants cannot completely unravel managers' exercise of discretion over accruals, and makes accruals a sharper instrument for managing earnings than accounting choices or changes. 2 Earnings management studies frequently correlate discretionary accruals with managerial incentives and rely on accrual models to segregate accruals into discretionary and non-discretionary components (e.g., Jones, 1991; Holthausen et al., 1995). The ability of accrual models of isolate the discretionary component in accruals is thus essential to the joint hypothesis tests in

- by Messod Beneish
- •
- ACCOUNTING/PUBLIC POLICY

This study investigates whether and how the information values of reported earnings and their components changed around the Asian financial crisis of 1997-1998. Regression analyses on a sample of 10,406 firm-years from nine Asian countries from 1995 to 2000 reveal the following. First, the crisis led to a significant decline in the value relevance of discretionary accruals but had no significant impact on the value relevance of nondiscretionary earnings components such as operating cash flows and nondiscretionary accruals. Second, the decrease in the value relevance of discretionary accruals during the crisis was more severe for firms in countries with weak institutions than for those in countries with strong institutions. Third, the value relevance of discretionary accruals declined to a greater extent for firms with high information asymmetries than for firms with low information asymmetries. Our results are robust to a variety of sensitivity checks.

- by Jason Lee
- •
- Asian Financial Crisis, ACCOUNTING/PUBLIC POLICY, Cash Flow, Discretionary Accruals

journal homepage: www.elsevier.com/locate/jaccpubpol file key performance reports in the Commission's EDGAR data repository in the eXtensible Business Reporting Language (XBRL) format. 2 This research concentrates on one aspect of the SEC interactive data filings -the correct mathematical computation of related numeric facts in the filing. There are three reasons for conducting this research. First, computational errors are one of the most important aspects of data quality in the reporting process. In financial reporting, computational errors affect validity, completeness, accuracy, reliability and, when viewing filings longitudinally, consistency. These are key attributes of data quality ITGI, 2007;. The effectiveness of the SEC's mandate will be determined, in large measure, by the data quality of the information filed by corporations. A key objective of the SEC's program is to develop an ecosystem that supports the production, collection and distribution of data to a wide variety of information consumers . High quality data will be an important attribute in the ecosystem as well as meeting the SEC's own supervisory requirements. If information consumers cannot rely on the soundness of mathematical relationships, they may lose trust in the complete information set. Second, identification of computational errors in XBRL filings is readily tractable with automated tools. This is in contrast to other formats such as HTML or PDF, which do not provide sufficient semantics to undertake automated analysis of data quality attributes. Third, policy prescriptions from research on computational errors have immediate benefits for the Commission, filers, information consumers, the accounting profession and other stakeholders.

- by Maureen McNichols
- •
- Research Design, Earnings Management, ACCOUNTING/PUBLIC POLICY

Article history: a b s t r a c t

- by Mikhail Pevzner
- •
- Stock Market, ACCOUNTING/PUBLIC POLICY, Stock Price