Contemporary Accounting Research最新文献

In response to the extended audit report regulations implemented in the United States and internationally, both audit firms and regulators have increased scrutiny over critical audit matters/key audit matters (collectively referred to as CAMs) through internal and external inspections. At the same time, auditors and audit committees (ACs) have altered the content and timing of CAM-related discussions by communicating specific planned audit procedures earlier in the audit process. This study explores the effect of early communication of CAM-related audit procedures to the AC and increased scrutiny from inspections on auditors' propensity to adjust planned audit procedures in the presence of newly identified audit risks. Based on self-justification theory, we predict and find that early communication of planned audit procedures to the AC causes auditors to be less likely to adjust planned audit procedures even when additional risks arise that necessitate change, especially when inspection is likely. This has the potential for diminished audit quality. Interviews with audit partners provide context for how these findings relate to the current auditing environment.

This paper studies voluntary disclosures that firms have suspended, resumed, or completed their open market repurchase programs. Voluntary disclosures of repurchase status updates are common and value-relevant. They also inform subsequent repurchase activities: voluntary disclosers are more likely to complete their repurchase programs and to initiate new repurchase programs than firms with undisclosed repurchase status changes. Moreover, firms that disclose repurchase suspensions experience larger returns to subsequent repurchase authorizations, consistent with a reward for establishing a reputation for transparency via voluntary bad news disclosure. Finally, exploiting a change in repurchase reporting requirements, we document that voluntary updates are less frequent when mandatory disclosure increases. An important exception, however, is when macroeconomic uncertainty is high, such as during the Great Recession and the COVID-19 pandemic.

In 2017, the PCAOB began requiring audit firm tenure disclosure within the audit report for SEC registrant clients. Many commenters raised the concern that prominent disclosure of firm tenure would lead investors to inappropriately infer a negative relation between audit quality and long tenure. This is particularly troubling given that empirical evidence generally does not support this concern. In our first experiment, we predict and find that disclosing an audit firm's long tenure within the audit report increases investors' perceptions that the audit firm's independence was impaired while conducting the audit. However, we also identify an intervention that mitigates the effects of disclosing long tenure—an accompanying disclosure in the audit report of the firm's adherence to the SEC's mandatory partner rotation requirement. We find that such a disclosure moderates the effect of long tenure disclosure such that in the absence (presence) of a partner rotation disclosure, investors do (do not) perceive increased independence impairment when long firm tenure is disclosed. In a second experiment, we predict and find that long firm tenure disclosure reduces investors' preference to invest in an otherwise quantitatively optimal investment and that this relation is driven, in part, by perceptions of independence impairment. Again, this result is attenuated by partner rotation disclosure. Our results should be useful to regulators in understanding the effects of their disclosure mandate and to audit firms in understanding a practical way in which they might mitigate the implications of such effects.

We investigate whether a larger CEO employment network provides access to information that improves firms' earnings forecasts and find a significantly positive relation between CEO employment network size and management earnings forecast accuracy. Our results suggest that firms use information obtained from CEO contacts to increase the accuracy of their earnings forecasts. Our conclusion is further supported by evidence of positive associations between CEO employment network size and the likelihood, frequency, and precision of management earnings forecasts. We also find that CEO employment network size is positively related to analysts' reactions to the forecast news and the accuracy of management earnings forecasts relative to analyst forecasts. Overall, our results are consistent with a larger CEO employment network generating external information that increases the accuracy of firms' earnings forecasts.

We study the role of segment disaggregation in equity-based pay contracts in diversified firms. Disaggregated segment disclosures can improve the observability of managerial actions in internal capital markets and thus increase implicit incentives for managers to allocate resources as desired by shareholders, substituting for explicit incentives provided to CEOs. We use the adoption of Statement of Financial Accounting Standards No. 131 as an identification strategy and find that firms affected by this segment reporting mandate significantly decreased the provision of equity-based incentives in the post-adoption period, especially for firms with higher operating volatilities. This effect is also more pronounced for firms with weaker board monitoring in the pre-adoption period but with stronger external monitoring in the post-adoption period. Overall, our results suggest that disaggregated segment disclosures reduce the use of equity-based pay contracts in diversified firms by enhancing the monitoring of managers.

We explore the turnover intentions of creative R&D employees and the role of performance management practices in shaping these considerations. Since the success of a firm's R&D efforts hinges on the innovative ideas of its employees, it is crucial to retain particularly creative individuals. At the same time, however, we argue that this is especially difficult because both the higher outside options of creative employees and their specific individual characteristics make them, on average, more likely to leave their company. Most importantly, we suggest that two widely studied performance management design choices (target difficulty and career tournaments) typically used to motivate effort may influence the loss of creative talent. Using survey data from our unique access to R&D employees of a large manufacturing firm and a complementary experiment among business students, we find evidence that creative employees are, on average, more likely to leave their firm. Consistent with creative employees possessing a stronger learning orientation, we also predict and find that this tendency to leave is mitigated by target difficulty (as difficult targets speak to creative individuals' learning orientation) and exacerbated by the intensity of career tournaments (as they reduce team cohesion and, ultimately, undermine learning opportunities).

Many companies use color codes in their internal performance reports to highlight how current performance compares to performance in a previous period. We examine whether the use of color coding affects managers' decision-making in a resource allocation task. We argue that managers' decision accuracy will be lower if they receive noisier feedback, but that this detrimental effect of noise can be mitigated through color coding. Using two experiments, we find evidence consistent with our theory. Managers who receive reports in which performance increases are color-coded green and performance decreases are color-coded red are less affected by noise than managers who receive feedback reports without color coding. Supplemental analyses suggest that color coding induces managers to process feedback in a more holistic manner, which reduces the adverse effect of noise on managers' learning processes. Our findings have several important implications for research and practice.

We examine whether peer audit choices influence a bank's decision to obtain an audit voluntarily. We find that the likelihood of a bank voluntarily obtaining an audit is significantly associated with the audit decisions of peers. The relation is stronger when the peers are more salient due to closer geographic proximity, similarity in loan portfolio, and similarity in size. In addition, we find that peer influence on a bank's audit decision is moderated by the bank's existing level of assurance. Specifically, banks already obtaining a lower level of assurance are less likely to begin an audit in response to peer influence. We also find no evidence that peer influence extends to banks' decisions to cease obtaining an audit. Overall, our findings are consistent with peer influence significantly influencing banks' decisions to begin obtaining an audit.

Fiscal-year-end cash holdings are an important indicator in external stakeholders' assessment of a firm's liquidity and credit risk. Do fiscal-year-end cash holdings reflect a firm's intra-year liquidity conditions? We observe that firms report significantly higher cash holdings in the fourth fiscal quarter, followed by a subsequent reversal. This pattern is pervasive across industries, persistent over time, and not explained by conventional factors or calendar effects. The extent of the fourth-quarter cash increase is more pronounced for informationally opaque firms reliant on external markets and those with financial constraints and reduced monitoring. We investigate firms' real, financing, and timing activities that could potentially account for this pattern. Our study suggests that a complete picture of intra-year cash holdings dynamics is necessary for external stakeholders to fully assess a firm's liquidity and credit conditions.

Stock prices often provide firm managers with new information that can be used in real decisions. Studies generally focus on the ex ante disclosure policy and show that the presence of market feedback crowds out firms' disclosure. We instead examine a manager's ex post biasing incentives and find that market feedback amplifies overreporting bias, but not necessarily underreporting bias, due to three interacting effects. First, the manager biases the report more with feedback since decreased information quality crowds in the speculator's private information acquisition and improves investment efficiency, regardless of the reporting scenario (the information rationing effect). Second, the manager biases more in the overreporting scenario and less in the underreporting scenario, because reporting more favorable information crowds in private information acquisition, as the speculator expects a higher subsequent investment and therefore higher trading profits (the investment scale effect). Third, market feedback influences reporting bias not only through the speculator's information acquisition but also directly through the market maker's pricing function. Specifically, the market maker decreases the price discount, as he expects that the manager may learn correct information from the price and may invest more efficiently. Expecting a lower price penalty in the presence of feedback, the manager biases more in the overreporting scenario and less in the underreporting scenario (the investment correction effect). Overall, our results suggest that granting firms reporting discretion could improve investment efficiency and firm value when managers can learn through price.