This paper investigates whether board tenure is associated with corporate cash holding and whether country-level political stability moderates the effect of board tenure on corporate cash holding. Using 16,351 firm-year observations across 39 countries, our main results show that firms with higher average board tenure exhibit lower cash holding. Furthermore, strong political stability mitigates the negative relationship between the average board tenure and corporate cash holdings. Our results are robust to various specifications, including endogeneity issue, weighted least-square regression, global financial crisis effect, and alternative measures for corporate cash holding and country-level institutional factors. Overall, our results imply the need to strengthen the institutional environment, given that countries with stable politics are those with incentives for the board to function effectively.
{"title":"Political Stability, Board Tenure and Corporate Cash Holding","authors":"A. Ariff, K. A. Kamarudin, Aziz Jaafar","doi":"10.2308/jiar-2021-011","DOIUrl":"https://doi.org/10.2308/jiar-2021-011","url":null,"abstract":"This paper investigates whether board tenure is associated with corporate cash holding and whether country-level political stability moderates the effect of board tenure on corporate cash holding. Using 16,351 firm-year observations across 39 countries, our main results show that firms with higher average board tenure exhibit lower cash holding. Furthermore, strong political stability mitigates the negative relationship between the average board tenure and corporate cash holdings. Our results are robust to various specifications, including endogeneity issue, weighted least-square regression, global financial crisis effect, and alternative measures for corporate cash holding and country-level institutional factors. Overall, our results imply the need to strengthen the institutional environment, given that countries with stable politics are those with incentives for the board to function effectively.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2022-08-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46620503","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}
Using a unique sample of hand-collected profiles of foreign directors over the period of 2006–2016, I examine whether foreign directors’ board representation improves its dual role of monitoring and advising executives. The setting for this study is Russian public companies’ boards, different from that of prior research that was conducted in developed countries. I find that foreign directors’ board representation is positively associated with the probability of Russian companies’ cross-listing on London Stock Exchange’s Main Market, alone or in combination with other markets. Non-London stock exchanges that are popular among Russian companies are characterized by less rigorous listing and reporting obligations as compared to the London. Accordingly, foreign directors enhance the boards’ advisory role but only in cases in which their expertise is critical. Notably, foreign directors’ serving on the audit committee is related to lower discretionary accruals and fewer modified audit opinion instances, enhancing the board's monitoring role,
{"title":"On the dual role of foreign directors: New insights from the Russian boards","authors":"O. Kim","doi":"10.2308/jiar-2021-009","DOIUrl":"https://doi.org/10.2308/jiar-2021-009","url":null,"abstract":"Using a unique sample of hand-collected profiles of foreign directors over the period of 2006–2016, I examine whether foreign directors’ board representation improves its dual role of monitoring and advising executives. The setting for this study is Russian public companies’ boards, different from that of prior research that was conducted in developed countries. I find that foreign directors’ board representation is positively associated with the probability of Russian companies’ cross-listing on London Stock Exchange’s Main Market, alone or in combination with other markets. Non-London stock exchanges that are popular among Russian companies are characterized by less rigorous listing and reporting obligations as compared to the London. Accordingly, foreign directors enhance the boards’ advisory role but only in cases in which their expertise is critical. Notably, foreign directors’ serving on the audit committee is related to lower discretionary accruals and fewer modified audit opinion instances, enhancing the board's monitoring role,","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2022-08-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43932308","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}
Despite carbon emission is perceived as a main contributing factor to potential global climate change and associated future costs and liabilities, very limited research has focused on the value relevance of carbon management system (CMS) in the international context. Obtaining carbon emission and carbon management data from CDP from 2010-2017, we examine whether the adverse impact of carbon emissions on firm value is alleviated by the firms’ CMS. Our findings suggest that the level of carbon emissions is negatively associated with firm value, but a firm’s higher quality CMS weakens this negative relationship. The further analyses show that, the positive moderating effect of CMS is found only in carbon intensive, large, mature, and highly profitable firms. Our results provide potentially useful implications to corporate managers and outside stakeholders who are concerned about risks associated with carbon emissions and the financial implications of a firm’s CMS.
{"title":"Does a Carbon Management System Mitigate the Consequences of Carbon Emissions on Firm Value? An International Study","authors":"P. Shrestha, Bobae Choi, L. Luo","doi":"10.2308/jiar-2021-019","DOIUrl":"https://doi.org/10.2308/jiar-2021-019","url":null,"abstract":"Despite carbon emission is perceived as a main contributing factor to potential global climate change and associated future costs and liabilities, very limited research has focused on the value relevance of carbon management system (CMS) in the international context. Obtaining carbon emission and carbon management data from CDP from 2010-2017, we examine whether the adverse impact of carbon emissions on firm value is alleviated by the firms’ CMS. Our findings suggest that the level of carbon emissions is negatively associated with firm value, but a firm’s higher quality CMS weakens this negative relationship. The further analyses show that, the positive moderating effect of CMS is found only in carbon intensive, large, mature, and highly profitable firms. Our results provide potentially useful implications to corporate managers and outside stakeholders who are concerned about risks associated with carbon emissions and the financial implications of a firm’s CMS.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2022-08-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45157661","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 whether a firm’s business strategy is associated with financial reporting violations and audit fees in an emerging market setting. We follow the typology of Miles and Snow (1978, 2003) that describes a strategy continuum with the innovative ‘prospector’ strategy and the cost-leadership ‘defender’ strategy at the two ends. Using data from China, we find that prospectors are associated with more financial reporting violations and higher audit fees than defenders. Specifically, prospectors are positively associated with the occurrence of inadvertent reporting violations. Further analysis reveals that the increase in audit fees for prospectors is not different among firms exposed to different levels of business risk (proxied by ownership structure, auditor size, and leverage). We conjecture that the associations between business strategy and financial reporting violations and audit fees in China are due to firm financial reporting risks arising from accounting complexity.
我们研究了一家公司的商业战略是否与新兴市场环境中的财务报告违规和审计费用有关。我们遵循Miles and Snow（19782003）的类型，该类型描述了一个战略连续体，两端分别是创新的“探矿者”战略和成本领先的“捍卫者”战略。利用中国的数据，我们发现，与辩护人相比，探矿者与更多的财务报告违规行为和更高的审计费用有关。具体而言，探矿者与无意报告违规行为的发生呈正相关。进一步的分析表明，面临不同水平商业风险的公司（以所有权结构、审计师规模和杠杆率为代表）对探矿者的审计费用的增加没有什么不同。我们推测，在中国，企业战略与财务报告违规和审计费用之间的关联是由于会计复杂性引起的企业财务报告风险。
{"title":"Business Strategy, Financial Reporting Violations, and Audit Pricing in an Emerging Market – Evidence from China","authors":"Lily Chen, Fang Hu, A. Krishnan, Lina Z. Li","doi":"10.2308/jiar-2021-054","DOIUrl":"https://doi.org/10.2308/jiar-2021-054","url":null,"abstract":"We examine whether a firm’s business strategy is associated with financial reporting violations and audit fees in an emerging market setting. We follow the typology of Miles and Snow (1978, 2003) that describes a strategy continuum with the innovative ‘prospector’ strategy and the cost-leadership ‘defender’ strategy at the two ends. Using data from China, we find that prospectors are associated with more financial reporting violations and higher audit fees than defenders. Specifically, prospectors are positively associated with the occurrence of inadvertent reporting violations. Further analysis reveals that the increase in audit fees for prospectors is not different among firms exposed to different levels of business risk (proxied by ownership structure, auditor size, and leverage). We conjecture that the associations between business strategy and financial reporting violations and audit fees in China are due to firm financial reporting risks arising from accounting complexity.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2022-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45297995","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}
Arizona Mustikarini, Basil Abeifaa Der, Iris Stuart
Prior studies in developed countries investigate the auditor’s fraud detection process. However, it is unclear whether the results from developed countries apply in developing countries because no fraud detection research has been performed in this setting. The current study examines how auditors in two developing countries, Indonesia and Ghana, apply ISA 240 for fraud detection, including how auditors identify, investigate, and resolve potential fraud issues. We find that: (1) senior managers originate most asset misappropriation frauds; (2) auditors in Indonesia and Ghana do not use information technology or internal control assessment for fraud investigation; (3) auditors modify the audit program once potential fraud is detected; and (4) auditors use a more contending than conceding negotiation strategy when resolving potential fraud issues, which often stop short of requiring audit clients to record all audit adjustments.
{"title":"Applying of ISA 240 for Fraud Detection and Resolution: Evidence from Indonesia and Ghana","authors":"Arizona Mustikarini, Basil Abeifaa Der, Iris Stuart","doi":"10.2308/jiar-2021-024","DOIUrl":"https://doi.org/10.2308/jiar-2021-024","url":null,"abstract":"Prior studies in developed countries investigate the auditor’s fraud detection process. However, it is unclear whether the results from developed countries apply in developing countries because no fraud detection research has been performed in this setting. The current study examines how auditors in two developing countries, Indonesia and Ghana, apply ISA 240 for fraud detection, including how auditors identify, investigate, and resolve potential fraud issues. We find that: (1) senior managers originate most asset misappropriation frauds; (2) auditors in Indonesia and Ghana do not use information technology or internal control assessment for fraud investigation; (3) auditors modify the audit program once potential fraud is detected; and (4) auditors use a more contending than conceding negotiation strategy when resolving potential fraud issues, which often stop short of requiring audit clients to record all audit adjustments.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2022-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46281993","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 paper uses a unique setting of Canadian public firms adopting International Financial Reporting Standards (IFRS) to investigate the factors that motivate companies to revalue Property, Plant & Equipment (PP&E) under the deemed cost provision in IFRS 1, and whether revaluations help predict future performance, and what is the market reaction to such revaluations. Utilizing the probit model, difference-in-differences approach, and Wald test, we predict and find that large firms and/or firms with higher net PP&E to total assets ratios are more likely to revalue PP&E, and firms adopting the fair value option for PP&E record lower depreciation in the post-IFRS period. In addition, we find that investors react negatively to the firms electing the fair value option for PP&E and the market discounts such revaluation information.
{"title":"Fair Value Accounting for Property, Plant & Equipment: Impact of IFRS 1 Adoption","authors":"Yan Jin, Flora Niu, L. Sheng","doi":"10.2308/jiar-2021-084","DOIUrl":"https://doi.org/10.2308/jiar-2021-084","url":null,"abstract":"This paper uses a unique setting of Canadian public firms adopting International Financial Reporting Standards (IFRS) to investigate the factors that motivate companies to revalue Property, Plant & Equipment (PP&E) under the deemed cost provision in IFRS 1, and whether revaluations help predict future performance, and what is the market reaction to such revaluations. Utilizing the probit model, difference-in-differences approach, and Wald test, we predict and find that large firms and/or firms with higher net PP&E to total assets ratios are more likely to revalue PP&E, and firms adopting the fair value option for PP&E record lower depreciation in the post-IFRS period. In addition, we find that investors react negatively to the firms electing the fair value option for PP&E and the market discounts such revaluation information.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2022-05-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47252446","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}
Previous research reports a lower cost of debt when auditors are industry specialists at the national- and city-levels and at the firm- and office-levels. This study examines whether the cost of debt decreases with auditor industry specialization at the engagement partner level. Most audits are conducted on private companies and audit partners mainly gain industry expertise on private company audits. This paper uses data from public and private companies in Thailand and investigates the moderating effects of company type and the global financial crisis (GFC) on the association between auditor industry specialization and the cost of debt. The results indicate that audit partner industry specialization is negatively associated with the cost of debt only in the GFC period. In contrast to findings from prior studies, I find no additional benefit from hiring an industry specialist during the non-crisis period.
{"title":"Audit partner industry specialization and the cost of debt: Evidence from Thailand","authors":"K. Sanoran","doi":"10.2308/jiar-2021-059","DOIUrl":"https://doi.org/10.2308/jiar-2021-059","url":null,"abstract":"Previous research reports a lower cost of debt when auditors are industry specialists at the national- and city-levels and at the firm- and office-levels. This study examines whether the cost of debt decreases with auditor industry specialization at the engagement partner level. Most audits are conducted on private companies and audit partners mainly gain industry expertise on private company audits. This paper uses data from public and private companies in Thailand and investigates the moderating effects of company type and the global financial crisis (GFC) on the association between auditor industry specialization and the cost of debt. The results indicate that audit partner industry specialization is negatively associated with the cost of debt only in the GFC period. In contrast to findings from prior studies, I find no additional benefit from hiring an industry specialist during the non-crisis period.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2022-05-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44875038","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}
Songsheng Chen, Gopal V. Krishnan, Wenying Li, Yinqi Zhang
We contribute to the debate on whether the “Big N effect” on audit quality is due to client self-selection by controlling for pre-audit earnings quality, an important variable omitted in prior research. Using proprietary data from the Chinese Institute of CPAs, we find that pre-audit earnings quality is higher for Big 4 clients. Controlling for pre-audit earnings quality, restatement frequency is lower for Big 4 clients than for non-Big 4 clients, but there is no significant difference in discretionary accruals between Big 4 and non-Big 4 clients. Our findings indicate that Big 4 and non-Big 4 auditors in China pursue different strategies to enhance audit quality. The Big 4 enhance audit quality by recruiting and retaining clients with higher earnings quality and acting more conservatively towards clients with a higher risk for earnings restatement. In contrast, non-Big 4 auditors enhance audit quality by requiring more downward audit adjustments.
{"title":"Do Big 4 Auditors Enhance Audit Quality in China? A “Behind the Scenes Look”","authors":"Songsheng Chen, Gopal V. Krishnan, Wenying Li, Yinqi Zhang","doi":"10.2308/jiar-2020-056","DOIUrl":"https://doi.org/10.2308/jiar-2020-056","url":null,"abstract":"We contribute to the debate on whether the “Big N effect” on audit quality is due to client self-selection by controlling for pre-audit earnings quality, an important variable omitted in prior research. Using proprietary data from the Chinese Institute of CPAs, we find that pre-audit earnings quality is higher for Big 4 clients. Controlling for pre-audit earnings quality, restatement frequency is lower for Big 4 clients than for non-Big 4 clients, but there is no significant difference in discretionary accruals between Big 4 and non-Big 4 clients. Our findings indicate that Big 4 and non-Big 4 auditors in China pursue different strategies to enhance audit quality. The Big 4 enhance audit quality by recruiting and retaining clients with higher earnings quality and acting more conservatively towards clients with a higher risk for earnings restatement. In contrast, non-Big 4 auditors enhance audit quality by requiring more downward audit adjustments.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":"1 1","pages":""},"PeriodicalIF":1.2,"publicationDate":"2022-04-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43920219","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}
Employing a comprehensive measure of country-level corporate transparency, we document a positive relation between corporate transparency and externally financed firm growth. This relation is robust to controlling for variables related to the quality of a country’s legal institutions and the overall level of financial development. We also show that the level of external financing in the form of long-term debt is higher among firms in countries with greater corporate transparency. Further cross-sectional tests reveal that the role of corporate transparency in firm growth and external financing is less pronounced among bank-oriented countries as compared to market-oriented countries. In sum, our evidence highlights the positive impact of corporate transparency on economic growth through its impact on firm access to low-cost external financing.
{"title":"Corporate Transparency and Externally Financed Firm Growth","authors":"Shawn X. Huang, Raynolde Pereira, Changjiang Wang","doi":"10.2308/jiar-2021-070","DOIUrl":"https://doi.org/10.2308/jiar-2021-070","url":null,"abstract":"Employing a comprehensive measure of country-level corporate transparency, we document a positive relation between corporate transparency and externally financed firm growth. This relation is robust to controlling for variables related to the quality of a country’s legal institutions and the overall level of financial development. We also show that the level of external financing in the form of long-term debt is higher among firms in countries with greater corporate transparency. Further cross-sectional tests reveal that the role of corporate transparency in firm growth and external financing is less pronounced among bank-oriented countries as compared to market-oriented countries. In sum, our evidence highlights the positive impact of corporate transparency on economic growth through its impact on firm access to low-cost external financing.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2022-04-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48152730","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 how Japanese banks evaluate off-balance sheet operating leases in their credit assessments. Using a sample of 6,985 firm-year observations in Japan over the period 2001 to 2017, we find that banks in Japan evaluate off-balance sheet operating leases in certain circumstances. First, we find that banks evaluate such leases when firms have a strong relationship with a main bank. Second, banks assess firms’ credit risk by evaluating operating leases if there is a strong main bank relationship especially when estimation reliability is low. We uncover robust results by controlling for the systematic characteristics of a strong main bank relationship. Our study thus suggests that the main bank relationship plays the important role of conveying the off-balance sheet operating leases in loan contracts in Japan.
{"title":"Operating leases and credit assessments: The role of main banks in Japan","authors":"Y. Koga, S. Saudagaran","doi":"10.2308/jiar-2020-085","DOIUrl":"https://doi.org/10.2308/jiar-2020-085","url":null,"abstract":"This study examines how Japanese banks evaluate off-balance sheet operating leases in their credit assessments. Using a sample of 6,985 firm-year observations in Japan over the period 2001 to 2017, we find that banks in Japan evaluate off-balance sheet operating leases in certain circumstances. First, we find that banks evaluate such leases when firms have a strong relationship with a main bank. Second, banks assess firms’ credit risk by evaluating operating leases if there is a strong main bank relationship especially when estimation reliability is low. We uncover robust results by controlling for the systematic characteristics of a strong main bank relationship. Our study thus suggests that the main bank relationship plays the important role of conveying the off-balance sheet operating leases in loan contracts in Japan.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2022-04-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49242196","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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