Financial reporting decisions can be influenced by the distribution of executive decision-making power. We examine whether internal governance, the process through which the power to make decisions is distributed between CEOs and their subordinates, can influence the level of conservatism in such decisions. We show that firms with better internal governance are more conservative. We also find that the effect is more pronounced for firms with less powerful and older CEOs, those with subordinate executives who contribute more, and those who are more mature. We conduct various tests that confirm the robustness of our results. Unlike other studies that focus only on CEOs, we examine how the top management team as a group and the power distribution between CEOs and key subordinates shape financial reporting quality. Our study can inform various stakeholders, including firms aiming to appoint executives and strengthen their internal governance. JEL Classifications: G34; M12; M41; M50.
{"title":"The Impact of Internal Governance on Conservatism: Evidence from Australia","authors":"Millie Liew, June Cao","doi":"10.2308/jiar-2022-024","DOIUrl":"https://doi.org/10.2308/jiar-2022-024","url":null,"abstract":"\u0000 Financial reporting decisions can be influenced by the distribution of executive decision-making power. We examine whether internal governance, the process through which the power to make decisions is distributed between CEOs and their subordinates, can influence the level of conservatism in such decisions. We show that firms with better internal governance are more conservative. We also find that the effect is more pronounced for firms with less powerful and older CEOs, those with subordinate executives who contribute more, and those who are more mature. We conduct various tests that confirm the robustness of our results. Unlike other studies that focus only on CEOs, we examine how the top management team as a group and the power distribution between CEOs and key subordinates shape financial reporting quality. Our study can inform various stakeholders, including firms aiming to appoint executives and strengthen their internal governance.\u0000 JEL Classifications: G34; M12; M41; M50.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2023-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45497277","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines whether and how individual-level auditor industry expertise affects audit pricing and audit quality. Using 11,650 firm-year observations from China, where an audit report must be signed by two auditors, we examine the industry expertise of both signing auditors and find that expert signing auditors charge higher audit fees and provide higher quality audits. We also explore the role of fee premiums on the expertise-quality association and find that the positive expertise-quality association is moderated by fee premiums charged by specialist auditors. Finally, we find that engagement auditor expertise, either alone or in conjunction with review auditor expertise, is positively associated with audit fees and audit quality. Data Availability: Data used in this study are publicly available from the sources described herein. JEL Classifications: M4; M42.
{"title":"The Effects of Industry Specialist Engagement Signing Auditors and Review Signing Auditors on Audit Fees and Audit Quality: Evidence from China","authors":"Zilong Song, Yumiao Yu, Junheng Zhan","doi":"10.2308/jiar-2020-075","DOIUrl":"https://doi.org/10.2308/jiar-2020-075","url":null,"abstract":"\u0000 This study examines whether and how individual-level auditor industry expertise affects audit pricing and audit quality. Using 11,650 firm-year observations from China, where an audit report must be signed by two auditors, we examine the industry expertise of both signing auditors and find that expert signing auditors charge higher audit fees and provide higher quality audits. We also explore the role of fee premiums on the expertise-quality association and find that the positive expertise-quality association is moderated by fee premiums charged by specialist auditors. Finally, we find that engagement auditor expertise, either alone or in conjunction with review auditor expertise, is positively associated with audit fees and audit quality.\u0000 Data Availability: Data used in this study are publicly available from the sources described herein.\u0000 JEL Classifications: M4; M42.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2023-08-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45824001","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Regulators in the United Kingdom recommend that 33 percent of board members of large U.K. firms be female by 2020. We use this setting to investigate whether greater female representation and any associated financial benefits can be achieved without establishing quotas. Using data between 2012 and 2018 for the Financial Times Stock Exchange (FTSE) 350 firms, we find a significant increase in female representation on boards in recent years, and the rate of increase in gender diversity is higher in these years. Our results also indicate that board gender diversity is positively associated with both financial performance and firm value. However, this association exists only in recent years. Finally, capital market participants value nonexecutive female board members more than executive female board members. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G30; G38; M41.
{"title":"Voluntary Gender Diversity Targets and Their Impact on Firm Performance and Firm Value","authors":"Ana Marques, Olga Pascaru","doi":"10.2308/jiar-2021-010","DOIUrl":"https://doi.org/10.2308/jiar-2021-010","url":null,"abstract":"\u0000 Regulators in the United Kingdom recommend that 33 percent of board members of large U.K. firms be female by 2020. We use this setting to investigate whether greater female representation and any associated financial benefits can be achieved without establishing quotas. Using data between 2012 and 2018 for the Financial Times Stock Exchange (FTSE) 350 firms, we find a significant increase in female representation on boards in recent years, and the rate of increase in gender diversity is higher in these years. Our results also indicate that board gender diversity is positively associated with both financial performance and firm value. However, this association exists only in recent years. Finally, capital market participants value nonexecutive female board members more than executive female board members.\u0000 Data Availability: Data are available from the public sources cited in the text.\u0000 JEL Classifications: G30; G38; M41.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2023-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47690925","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-07-01DOI: 10.2308/1542-6297-22.2.171
{"title":"Editorial Policy","authors":"","doi":"10.2308/1542-6297-22.2.171","DOIUrl":"https://doi.org/10.2308/1542-6297-22.2.171","url":null,"abstract":"","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135568280","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-07-01DOI: 10.2308/1542-6297-22.2.i
{"title":"Covers and Front Matter","authors":"","doi":"10.2308/1542-6297-22.2.i","DOIUrl":"https://doi.org/10.2308/1542-6297-22.2.i","url":null,"abstract":"","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":"103 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135568288","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The regulatory reform of internal controls (ICs) in China mandates that certain firms incorporate corporate social responsibility (CSR) engagement into ICs and issue IC reports. Using a staggered difference-in-differences research design, we find that IC effectiveness has worsened following this reform, but this deterioration is partially mitigated when mandated firms report their CSR engagement. Additional analyses demonstrate that this deterioration is further lessened when CSR reports are prepared in accordance with Global Reporting Initiative reporting guidelines or assured by external auditors and when firms spend more on CSR activities. Finally, cross-sectional analyses suggest that CSR engagement mitigates the deterioration in IC effectiveness more in non–state-owned enterprises and in firms that have better financial performance, lack political connections, or are located in regions with higher market development or social trust. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M4; M48.
{"title":"Does Regulatory Reform of Internal Controls in China Improve Internal Control Effectiveness? Role of Corporate Social Responsibility Engagement","authors":"Yi‐Hung Lin, Ting‐Chiao Huang","doi":"10.2308/jiar-2021-044","DOIUrl":"https://doi.org/10.2308/jiar-2021-044","url":null,"abstract":"\u0000 The regulatory reform of internal controls (ICs) in China mandates that certain firms incorporate corporate social responsibility (CSR) engagement into ICs and issue IC reports. Using a staggered difference-in-differences research design, we find that IC effectiveness has worsened following this reform, but this deterioration is partially mitigated when mandated firms report their CSR engagement. Additional analyses demonstrate that this deterioration is further lessened when CSR reports are prepared in accordance with Global Reporting Initiative reporting guidelines or assured by external auditors and when firms spend more on CSR activities. Finally, cross-sectional analyses suggest that CSR engagement mitigates the deterioration in IC effectiveness more in non–state-owned enterprises and in firms that have better financial performance, lack political connections, or are located in regions with higher market development or social trust.\u0000 Data Availability: Data are available from the public sources cited in the text.\u0000 JEL Classifications: M4; M48.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45225003","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines stock price reactions to International Accounting Standards Board announcements associated with International Accounting Standard (IAS) 19R during the standard-setting process. IAS 19R removes the corridor approach in accounting for actuarial gains and losses on defined benefit plans. This rule change likely weakens the financial position of most firms that previously used the corridor approach upon adoption and subsequently increases balance sheet volatility. Using a sample of listed firms in Norway, we find that the market generally reacts negatively to IAS 19R events, but stock price responses are insignificantly different for affected and unaffected firms, suggesting that shareholders view the standard as value neutral. However, market reactions are more negative for firms with higher bankruptcy risk. Additional analyses indicate that market reactions vary with discretion in actuarial assumptions and funded status. Overall, our results document how investors respond to the amendments to pension accounting rules under IAS 19R.
{"title":"The Impact of Changes in Pension Accounting under IAS 19R on Shareholder Wealth","authors":"Tzu-Ting Chiu, David Ogudugu","doi":"10.2308/jiar-2021-062","DOIUrl":"https://doi.org/10.2308/jiar-2021-062","url":null,"abstract":"\u0000 This study examines stock price reactions to International Accounting Standards Board announcements associated with International Accounting Standard (IAS) 19R during the standard-setting process. IAS 19R removes the corridor approach in accounting for actuarial gains and losses on defined benefit plans. This rule change likely weakens the financial position of most firms that previously used the corridor approach upon adoption and subsequently increases balance sheet volatility. Using a sample of listed firms in Norway, we find that the market generally reacts negatively to IAS 19R events, but stock price responses are insignificantly different for affected and unaffected firms, suggesting that shareholders view the standard as value neutral. However, market reactions are more negative for firms with higher bankruptcy risk. Additional analyses indicate that market reactions vary with discretion in actuarial assumptions and funded status. Overall, our results document how investors respond to the amendments to pension accounting rules under IAS 19R.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47806729","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Reza Espahbodi, Jiarong Lin, Nan Liu, Theodore J. Mock, Mohan Song
In 2015, the Hong Kong Institute of Certified Public Accountants issued a standard requiring auditors to communicate key audit matters (KAMs) in the audit report. This standard provides an opportunity to examine the effect of KAMs on audit fees and financial reporting quality. Using public companies listed on the Main Board of the Hong Kong Stock Exchange as the treatment group and the companies listed on the Shanghai and Shenzhen Main Board Stock Exchanges as the control group, pre-post and difference-in-differences analyses show that the KAMs standard resulted in improved financial reporting quality but also higher audit fees. Further analyses show that, although the increase in audit fees was related to the risk of material financial statement mis-statements and audit firm business risk, the improvement in financial reporting, which occurred for companies with low financial reporting quality, resulted from the “threat to management of disclosure in KAMs.”
{"title":"The Effect of Reporting Key Audit Matters on Audit Fees and Financial Reporting Quality: Evidence from Hong Kong","authors":"Reza Espahbodi, Jiarong Lin, Nan Liu, Theodore J. Mock, Mohan Song","doi":"10.2308/jiar-2021-045","DOIUrl":"https://doi.org/10.2308/jiar-2021-045","url":null,"abstract":"\u0000 In 2015, the Hong Kong Institute of Certified Public Accountants issued a standard requiring auditors to communicate key audit matters (KAMs) in the audit report. This standard provides an opportunity to examine the effect of KAMs on audit fees and financial reporting quality. Using public companies listed on the Main Board of the Hong Kong Stock Exchange as the treatment group and the companies listed on the Shanghai and Shenzhen Main Board Stock Exchanges as the control group, pre-post and difference-in-differences analyses show that the KAMs standard resulted in improved financial reporting quality but also higher audit fees. Further analyses show that, although the increase in audit fees was related to the risk of material financial statement mis-statements and audit firm business risk, the improvement in financial reporting, which occurred for companies with low financial reporting quality, resulted from the “threat to management of disclosure in KAMs.”","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45615570","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Under the accrual accounting model, the timing role of accruals leads to a negative correlation between accruals and cash flows. Our study investigates the time-series trend of the timing role of accruals and finds a temporal decline in the magnitude of the correlation between accruals and cash flows in our sample of 51 countries over 1991–2019. This decline is primarily caused by increases in loss firms and operation volatility. Several accounting and economic factors, such as the use of accrual accounting, discretionary accruals, matching between revenues and expenses, IFRS adoption, and accounting connectedness, are positively associated with the strength of the accrual-cash flow relation and therefore decelerate the decline of the accrual timing role. Additional analysis suggests that the decline in accrual timing over time is present regardless of a country’s economic growth, legal tradition or institutions, and the extent of the use of accrual accounting. JEL Classifications: M41.
{"title":"The Changing Role of Accrual Accounting: International Evidence","authors":"Haidan Li, Siqi Li","doi":"10.2308/jiar-2022-019","DOIUrl":"https://doi.org/10.2308/jiar-2022-019","url":null,"abstract":"\u0000 Under the accrual accounting model, the timing role of accruals leads to a negative correlation between accruals and cash flows. Our study investigates the time-series trend of the timing role of accruals and finds a temporal decline in the magnitude of the correlation between accruals and cash flows in our sample of 51 countries over 1991–2019. This decline is primarily caused by increases in loss firms and operation volatility. Several accounting and economic factors, such as the use of accrual accounting, discretionary accruals, matching between revenues and expenses, IFRS adoption, and accounting connectedness, are positively associated with the strength of the accrual-cash flow relation and therefore decelerate the decline of the accrual timing role. Additional analysis suggests that the decline in accrual timing over time is present regardless of a country’s economic growth, legal tradition or institutions, and the extent of the use of accrual accounting.\u0000 JEL Classifications: M41.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":"1 1","pages":""},"PeriodicalIF":1.2,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41954409","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine how country-level labor market characteristics affect corporate environmental disclosure practices and the environmental impacts of firms’ operations. Using a sample of firms from 36 countries over the 2005–2016 period, we show that firms domiciled in countries with more developed labor markets have higher levels of environmental disclosure and less damaging environmental impacts than firms in countries with less developed labor markets. In addition, we find that firms operating in countries with better-developed labor markets tend to reduce their environmental impacts through the purchase of goods and services rather than through substantive changes to their own operations. Taken together, the findings suggest that better-developed country-level labor market institutions play an important role in improving firms’ environmental disclosure and in reducing their environmental impacts.
{"title":"Labor Market Institutions, Environmental Disclosure, and Environmental Impacts","authors":"Hsuan-Lien Chu, Nai-Yng Liu, Albert H. C. Tsang","doi":"10.2308/jiar-2022-015","DOIUrl":"https://doi.org/10.2308/jiar-2022-015","url":null,"abstract":"We examine how country-level labor market characteristics affect corporate environmental disclosure practices and the environmental impacts of firms’ operations. Using a sample of firms from 36 countries over the 2005–2016 period, we show that firms domiciled in countries with more developed labor markets have higher levels of environmental disclosure and less damaging environmental impacts than firms in countries with less developed labor markets. In addition, we find that firms operating in countries with better-developed labor markets tend to reduce their environmental impacts through the purchase of goods and services rather than through substantive changes to their own operations. Taken together, the findings suggest that better-developed country-level labor market institutions play an important role in improving firms’ environmental disclosure and in reducing their environmental impacts.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45269121","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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