Contemporary Accounting Research最新文献

Foreign workers have been an important part of the labor force in public accounting firms over the past two decades. In this paper, we investigate whether and why foreign workers influence audit quality. We find that audit offices with more newly hired foreign labor have a lower mean absolute value of discretionary accruals and a smaller rate of restatements for their clients. The effect is more pronounced for audit offices that face more resource constraints or require greater foreign expertise. The results of improved audit quality are robust to alternative measures of immigrant intensity and audit quality, alternative samples, and using different ways to address endogeneity concerns. Overall, our paper contributes to the literature by showing the impact of foreign labor in the auditing profession and provides public policy implications for the recent H-1B visa debate.

Previous research on calculative intermediaries shows how these effectively challenge, distort, and disrupt accounting practices in ways that policy-makers might not anticipate. The promises of surveillance capitalism—with its attendant data architectures, datafication processes, and technological sophistication—are different, supposing more accurate ways of reading individuals and greater calculative certainty overall. Yet there is little empirical research to explore how surveillance capitalism manifests itself at the organizational level, either conceptually or operationally. As a result, it remains uncertain whether such specters of omniscience are as haunting in reality as they appear in theory. We explore these themes by way of an ethnographic study into credit scoring in China, showing how intermediary organizations developed a multiplicity of credit scoring models based on machine learning and big data that differed both from original expectations and from each other. These different “renditions” of credit scoring suggest that the data architectures of surveillance capitalism are just as much subject to challenge and adaptation by intermediary organizations as calculative practices, such as accounting, are in more analog environments.

Auditor changes are significant corporate events marking disruptions in the auditor-client relationship. Prior studies have primarily examined the impact of such changes on audit quality and investment decisions of market participants. We study the effect of auditor changes on the voluntary disclosure of forward-looking information. Managers may choose to reduce disclosure due to the possible adverse effect of the disruptions on disclosure credibility. Alternatively, shareholders may demand increased disclosure to intensify monitoring, as the auditor change signals potential issues between the company and the auditor. Employing multiple identification strategies, we find that firms are less likely to issue management earnings forecasts (MEFs) following auditor changes. We also find that governance quality mitigates the negative impact of auditor changes on the issuance of MEFs. Additionally, auditor changes are associated with lower market reactions to forecast releases. The overall evidence is consistent with the notion of reduced forecast credibility. Lastly, we conduct cross-sectional analyses on characteristics of the auditor changes and find evidence consistent with signaling and anticipated successor audit quality to be underlying mechanisms for the association between auditor changes and MEFs. Our study provides the first large sample evidence that auditor changes have a disruptive effect on the voluntary disclosure of forward-looking information.

We examine the economic determinants and informational effects of credit rating affirmations (i.e., the reiteration of past credit ratings) for a sample of US public firms from 1995 to 2020. We find that credit rating affirmations typically follow major corporate events and changes in firm fundamentals that increase information uncertainty about a firm's creditworthiness, suggesting that affirmations reduce uncertainty. We further document that rating affirmations provide value-relevant information to equity and debt investors. Using a short-window event study method, we show that equity investors react positively to rating affirmations and that information uncertainty around affirmations diminishes. These findings are more pronounced for firms with non-investment-grade ratings. We further show that our results strengthen for firms with greater pre-affirmation information uncertainty. Finally, consistent with our information uncertainty reduction results from the stock market, we report that bond yield spreads decrease for affirmed firms. Again, the effect is more pronounced for firms with non-investment-grade ratings. In summary, we highlight the significant capital markets' effects of credit rating affirmations, an area that the literature has largely ignored.

Exclusions from street earnings can include both expected exclusions, forecasted ex ante by analysts, and unexpected exclusions, revealed after earnings are reported. While prior research largely examines total exclusions from street earnings, unexpected exclusions reflect the news or surprise in exclusions. We investigate the properties and informativeness of unexpected exclusions for future profitability, benchmark beating, analyst forecast errors, and future stock returns. We find that unexpected exclusions represent a mix of transitory and recurring items and are informative about future street earnings. In an analysis of hand-collected analysts' reports, we find that unexpected exclusions are more likely to reflect misestimated recurring items when analysts forecasted exclusions, and unexpected transitory items when analysts did not forecast exclusions. We also examine benchmark-beating behavior, in which street earnings meet street forecasts but GAAP earnings miss GAAP forecasts. We observe that benchmark beating is more likely to occur when analysts forecast exclusions than when they do not. Moreover, we find unexpected exclusions are more persistent when street earnings meet street forecasts but GAAP earnings miss GAAP forecasts. These findings are consistent with recurring earnings amounts being opportunistically shifted to excluded items to meet analysts' street forecasts. Finally, we find some evidence that analysts and investors react to, but do not fully incorporate, the information in unexpected exclusions, based on forecast revisions and stock price reactions.

Using a sample of 30,270 forecasts by 2,280 analysts under a stacked difference-in-differences framework involving 22 major climatic disasters in the United States, we examine the effect of climatic disasters on information production by security analysts, who play a crucial role in the financial market as information intermediaries. We find that earnings forecasts by analysts who experienced a major climatic disaster become less accurate than those by unaffected analysts within 3 months after the disaster, due to distracted attention. Disaster-zone analysts are more likely to allocate their attention to firms of greater importance or salience, and they tend to reiterate their previous forecasts to maintain the quantity and timeliness of their forecasts. Overall, we document the real impact of cognitive bias on financial professionals' performance.

Firms are required to provide financial information via the financial statements and the management discussion and analysis (MD&A), a narrative explanation of the financial statements. Our study examines how firms use the MD&A channel when their financial statement channel is inadequate. We focus on two textual attributes of the MD&A: non-GAAP disclosure and forward-looking statements. We find that firms with less adequate financial statements discuss non-GAAP measures more and provide a larger number of forward-looking statements. We then identify the topics, and therefore the context, in which non-GAAP and forward-looking disclosures are provided. Our study provides evidence on how managers use the MD&A, a relatively more flexible channel, to provide information when their financial statement channel is less adequate.

Given that tax-related critical audit matters (tax CAMs) were prevalent among accelerated filers (18.5% of observations) during the initial year of CAM disclosures, we examine whether an auditor's disclosure of tax CAMs is associated with variation in tax-related financial reporting quality, tax avoidance, and tax-related earnings management. Finding an association between tax CAMs and one of these tax outcomes would indicate that the new auditor reporting standard has indirectly affected investors. Examining the first year of CAM disclosures, we do not find that tax CAMs are associated with broad proxies of tax-related audit or financial reporting quality (e.g., restatements, internal control weaknesses, comment letters) or tax avoidance (e.g., effective tax rates or book-to-tax differences). We do find that tax CAMs are associated with a modest increase in tax accrual quality, an increase in the reserve for unrecognized tax benefits, and a reduction in the likelihood of tax-related earnings management. However, we do not find these tax CAM effects persist into the second year of CAM reporting. Our evidence is consistent with tax CAM disclosures having a modest but short-lived effect on companies' reporting of tax accounts. Our findings should inform the PCAOB as they conduct their post-implementation review of the new audit reporting standard.

Building on Banker, Byzalov, and Plehn-Dujowich's (2014, The Accounting Review, 89(3), 839–865) congestion cost theory, we model firms' trade-off between a rigid cost structure and a high inventory level to reduce the congestion costs caused by uncertain demand. We demonstrate that firms with a higher inventory level adopt a less rigid cost structure, but the effect of cost structure on inventory is theoretically ambiguous. Using a large sample of manufacturing firms in the United States, we empirically investigate the dynamic interdependence between cost structure and inventory choices. Our results reveal that cost structure rigidity and inventory are negatively associated with each other over time, suggesting that they serve as substitutes in tackling demand uncertainty. Further analysis demonstrates that firms favor higher inventory levels over more rigid costs when inventory-carrying costs decrease, fixed input costs increase, or downside risk escalates.

In empirically estimating the relation between CEO compensation and accounting-based firm and peer performance, researchers often define the performance variables net of CEO compensation expense. We analytically show that a researcher's use of CEO compensation as a regression's dependent variable and as an expense in defining a regression's independent variables representing accounting-based firm and peer performance will bias the researcher's pay-for-performance and relative performance evaluation (RPE) regression coefficients. In a panel estimation of CEO compensation, we document an attenuation bias in the coefficients on net firm and net peer performance. This evidence may partially explain inferences of weak CEO incentives and limited usage of RPE in prior work. Our results imply that in CEO compensation regressions, a researcher can remove biases in inferring CEO incentives and RPE usage by using gross rather than net accounting performance variables—that is, by adding back CEO compensation expense to net accounting measures.