Pub Date : 2024-06-21DOI: 10.1016/j.bar.2024.101429
We examine whether corporate site visits by independent directors enhance their monitoring effectiveness. Exploiting a novel dataset from the Chinese market, we find that such visits have a negative effect on the extent of real earnings management, and identify vetoing board proposals as a potential channel through which site visits constrain real activities manipulation. The effects are more pronounced for independent directors with greater monitoring ability or stronger monitoring incentives, and for firms with weaker internal or external governance. We further document that the intensity of site visits has an incremental negative effect on real earnings management, the restraining effect could persist for at least two years, and site visits also reduce accrual manipulation. This paper sheds new light on independent directors’ active participation in corporate governance and has practical implications for institutional improvements.
{"title":"Making outside directors inside: Independent directors’ corporate site visits and real earnings management","authors":"","doi":"10.1016/j.bar.2024.101429","DOIUrl":"10.1016/j.bar.2024.101429","url":null,"abstract":"<div><div>We examine whether corporate site visits by independent directors enhance their monitoring effectiveness. Exploiting a novel dataset from the Chinese market, we find that such visits have a negative effect on the extent of real earnings management, and identify vetoing board proposals as a potential channel through which site visits constrain real activities manipulation. The effects are more pronounced for independent directors with greater monitoring ability or stronger monitoring incentives, and for firms with weaker internal or external governance. We further document that the intensity of site visits has an incremental negative effect on real earnings management, the restraining effect could persist for at least two years, and site visits also reduce accrual manipulation. This paper sheds new light on independent directors’ active participation in corporate governance and has practical implications for institutional improvements.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":null,"pages":null},"PeriodicalIF":5.5,"publicationDate":"2024-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142314903","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-06-20DOI: 10.1016/j.bar.2024.101431
We examine whether tone management in different aspects of forward-looking statements (FLSs) is related to managers' self-serving overinvestments. Using data for U.S.-listed firms between 2003 and 2019, we provide novel evidence that the abnormal tone of nonearnings-related qualitative FLSs' is significantly and positively related to firms' overinvestments but that other aspects of FLSs are insignificant to overinvestments. Moreover, this relation is more substantial in financially unconstrained firms. Our findings reveal the heterogeneous roles of different aspects of FLSs in firms' opportunistic disclosures concerning future overinvestments. Further analyses also indicate that this relationship is more pronounced for firms with less monitoring and managers with greater career concerns. We also employ instrumental variables with a two-stage least-square approach and a Heckman selection model to mitigate the endogeneity issue. Our results are robust after conducting a battery of robustness tests. Overall, our findings provide robust evidence that managers are likely to strategically manipulate nonearnings-related qualitative FLSs to mislead investors’ perception of firms' future fundamentals to achieve self-serving purposes.
{"title":"Strategic forward-looking nonearnings disclosure and overinvestment","authors":"","doi":"10.1016/j.bar.2024.101431","DOIUrl":"10.1016/j.bar.2024.101431","url":null,"abstract":"<div><div>We examine whether tone management in different aspects of forward-looking statements (FLSs) is related to managers' self-serving overinvestments. Using data for U.S.-listed firms between 2003 and 2019, we provide novel evidence that the abnormal tone of nonearnings-related qualitative FLSs' is significantly and positively related to firms' overinvestments but that other aspects of FLSs are insignificant to overinvestments. Moreover, this relation is more substantial in financially unconstrained firms. Our findings reveal the heterogeneous roles of different aspects of FLSs in firms' opportunistic disclosures concerning future overinvestments. Further analyses also indicate that this relationship is more pronounced for firms with less monitoring and managers with greater career concerns. We also employ instrumental variables with a two-stage least-square approach and a Heckman selection model to mitigate the endogeneity issue. Our results are robust after conducting a battery of robustness tests. Overall, our findings provide robust evidence that managers are likely to strategically manipulate nonearnings-related qualitative FLSs to mislead investors’ perception of firms' future fundamentals to achieve self-serving purposes.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":null,"pages":null},"PeriodicalIF":5.5,"publicationDate":"2024-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924001951/pdfft?md5=f858185e740e8003b63f30b50ded124d&pid=1-s2.0-S0890838924001951-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141463359","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-06-17DOI: 10.1016/j.bar.2024.101426
Capitalisation of development costs mandated under IAS 38 is an important accounting issue conveying a signal to users of accounting information regarding future economic benefits. Using a longitudinal sample of UK firms, firstly, we examine the adverse effect of CEO overconfidence levels on the association between capitalised development costs and future economic benefits, proxied by cash flows. Secondly, we examine the moderating influence of board gender diversity on this association. We find that the association between capitalised development costs and future cash flows, while positive, is significantly weaker for firms with higher levels of CEO overconfidence, implying that the signalling effect of capitalisation is diluted. Moreover, our results show that board gender diversity significantly moderates the managerial bias associated with high overconfidence levels, helping to restore the neutrality of accounting and the strength of signalling with regards to future economic benefits.
{"title":"Capitalised development costs and future cash flows: The effect of CEO overconfidence and board gender diversity","authors":"","doi":"10.1016/j.bar.2024.101426","DOIUrl":"10.1016/j.bar.2024.101426","url":null,"abstract":"<div><div>Capitalisation of development costs mandated under IAS 38 is an important accounting issue conveying a signal to users of accounting information regarding future economic benefits. Using a longitudinal sample of UK firms, firstly, we examine the adverse effect of CEO overconfidence levels on the association between capitalised development costs and future economic benefits, proxied by cash flows. Secondly, we examine the moderating influence of board gender diversity on this association. We find that the association between capitalised development costs and future cash flows, while positive, is significantly weaker for firms with higher levels of CEO overconfidence, implying that the signalling effect of capitalisation is diluted. Moreover, our results show that board gender diversity significantly moderates the managerial bias associated with high overconfidence levels, helping to restore the neutrality of accounting and the strength of signalling with regards to future economic benefits.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":null,"pages":null},"PeriodicalIF":5.5,"publicationDate":"2024-06-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924001902/pdfft?md5=77e9566a6aa3354727d5599486bd89ad&pid=1-s2.0-S0890838924001902-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141463493","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-06-17DOI: 10.1016/j.bar.2024.101428
The research comprises a case study focussed on the wording of 34 audit reports of the British South Africa Company (BSAC), which Cecil Rhodes established by Royal Charter to colonise Rhodesia from 1889 to 1924. The accounts were audited by Cooper Brothers & Co., now PricewaterhouseCoopers. The research analyses three audit-report characteristics that influenced audit-report wording. Of the 34 audit reports, eight contained qualified (i.e., unfavourable) audit opinions. Based on verbatim annual general meeting minutes and private correspondence, we provide evidence of the effect of the audit qualifications. The research further analyses the evolution of the audit-report wording over the period. Initially, the auditors customised the audit-report wording. Each year, they made micro changes to improve the precision of the wording. Then, in 1911, well in advance of any audit-report regulations, the wording became standardised and remained so until the end of the study period. The paper adds insights into why auditors standardised audit-report wording. We conjecture that years of struggling with customised wording prompted the auditors to adopt standardised wording. We do not know whether this decision applied just to the BSAC audit reports, or whether 1911 heralded standardised audit-report wording for all Cooper Brothers & Co. audit reports.
{"title":"Nineteenth century audit reports: Evolution from free-form to standardised wording","authors":"","doi":"10.1016/j.bar.2024.101428","DOIUrl":"10.1016/j.bar.2024.101428","url":null,"abstract":"<div><div>The research comprises a case study focussed on the wording of 34 audit reports of the British South Africa Company (BSAC), which Cecil Rhodes established by Royal Charter to colonise Rhodesia from 1889 to 1924. The accounts were audited by Cooper Brothers & Co., now PricewaterhouseCoopers. The research analyses three audit-report characteristics that influenced audit-report wording. Of the 34 audit reports, eight contained qualified (i.e., unfavourable) audit opinions. Based on verbatim annual general meeting minutes and private correspondence, we provide evidence of the effect of the audit qualifications. The research further analyses the evolution of the audit-report wording over the period. Initially, the auditors customised the audit-report wording. Each year, they made micro changes to improve the precision of the wording. Then, in 1911, well in advance of any audit-report regulations, the wording became standardised and remained so until the end of the study period. The paper adds insights into why auditors standardised audit-report wording. We conjecture that years of struggling with customised wording prompted the auditors to adopt standardised wording. We do not know whether this decision applied just to the BSAC audit reports, or whether 1911 heralded standardised audit-report wording for all Cooper Brothers & Co. audit reports.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":null,"pages":null},"PeriodicalIF":5.5,"publicationDate":"2024-06-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924001926/pdfft?md5=c427e0eddb2a60dae873012357e4f338&pid=1-s2.0-S0890838924001926-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141717807","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-06-15DOI: 10.1016/j.bar.2024.101427
Entrepreneurs manage the capital structure of their start-ups to align the assumption of financial risk with their risk appetite. We focus on the ways in which management control systems (MCS), categorized as financial and non-financial MCS, serve as determinants of financial leverage in start-ups. Of particular interest is the influence of entrepreneurs' financial literacy on this relationship. We test these associations on a sample of business-incubated start-ups by combining survey and archival data. Our results show that financial MCS are negatively associated with financial leverage, unlike non-financial MCS, which are positively related. Entrepreneurs’ financial literacy mitigates the impact of these associations. Overall, our aim is to shed light on how start-ups navigate the trade-off between taking risks and controlling their operations. In addition, we add to the growing literature on the adjustment of financial leverage and the role of MCS and financial literacy in managing such leverage.
{"title":"Management control systems, business financial literacy and financial leverage in business-incubated start-ups","authors":"","doi":"10.1016/j.bar.2024.101427","DOIUrl":"10.1016/j.bar.2024.101427","url":null,"abstract":"<div><div>Entrepreneurs manage the capital structure of their start-ups to align the assumption of financial risk with their risk appetite. We focus on the ways in which management control systems (MCS), categorized as financial and non-financial MCS, serve as determinants of financial leverage in start-ups. Of particular interest is the influence of entrepreneurs' financial literacy on this relationship. We test these associations on a sample of business-incubated start-ups by combining survey and archival data. Our results show that financial MCS are negatively associated with financial leverage, unlike non-financial MCS, which are positively related. Entrepreneurs’ financial literacy mitigates the impact of these associations. Overall, our aim is to shed light on how start-ups navigate the trade-off between taking risks and controlling their operations. In addition, we add to the growing literature on the adjustment of financial leverage and the role of MCS and financial literacy in managing such leverage.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":null,"pages":null},"PeriodicalIF":5.5,"publicationDate":"2024-06-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924001914/pdfft?md5=00735c234becfff6ac08eb6b0341d057&pid=1-s2.0-S0890838924001914-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141410525","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-06-11DOI: 10.1016/j.bar.2024.101422
In this study, we examine the impact of rank-and-file employee stock options on audit fees. We document compelling evidence that option grants to rank-and-file employees are positively related to audit fees. Further analyses show that this positive relation is more pronounced when a firm's real earnings manipulation risk is higher and when rank-and-file employees are more sensitive to monetary incentives. We also find that options granted to rank-and-file employees are positively related to audit efforts. The evidence suggests that auditors perceive options to rank-and-file employees to be associated with increased audit risk.
{"title":"Rank-and-file employee stock options and audit pricing: Evidence from S&P 1500 firms","authors":"","doi":"10.1016/j.bar.2024.101422","DOIUrl":"10.1016/j.bar.2024.101422","url":null,"abstract":"<div><div>In this study, we examine the impact of rank-and-file employee stock options on audit fees. We document compelling evidence that option grants to rank-and-file employees are positively related to audit fees. Further analyses show that this positive relation is more pronounced when a firm's real earnings manipulation risk is higher and when rank-and-file employees are more sensitive to monetary incentives. We also find that options granted to rank-and-file employees are positively related to audit efforts. The evidence suggests that auditors perceive options to rank-and-file employees to be associated with increased audit risk.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":null,"pages":null},"PeriodicalIF":5.5,"publicationDate":"2024-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141416059","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-06-08DOI: 10.1016/j.bar.2024.101421
This study examines whether connected boards of directors restore their reputation via conservative accounting after financial misstatements. Using a sample of restating firms from 2004 to 2020, we find central boards of directors are positively related to accounting conservatism in the post-restatement period. More importantly, we find accounting conservatism has positive effects on the reputation restoration of directors in central boards, leading to more prestigious board seats, additional outside directorships, and higher compensation following restatements. The reputation recovery of directors in central boards is more prominent among restating firms that seek external financing where potential benefits of director reputation are greater. The findings suggest that directors in central boards successfully recover their damaged reputation via conservative accounting after restatements and minimize adverse consequences in the director market. Our robustness tests support the causal interpretation of our evidence. Collectively, our study offers novel insights into the monitoring incentives resulted from the reputation restoration of directors in central boards via conservative accounting after financial reporting failures.
{"title":"Director networks, accounting conservatism and director reputation: Evidence after financial reporting failure","authors":"","doi":"10.1016/j.bar.2024.101421","DOIUrl":"10.1016/j.bar.2024.101421","url":null,"abstract":"<div><div>This study examines whether connected boards of directors restore their reputation via conservative accounting after financial misstatements. Using a sample of restating firms from 2004 to 2020, we find central boards of directors are positively related to accounting conservatism in the post-restatement period. More importantly, we find accounting conservatism has positive effects on the reputation restoration of directors in central boards, leading to more prestigious board seats, additional outside directorships, and higher compensation following restatements. The reputation recovery of directors in central boards is more prominent among restating firms that seek external financing where potential benefits of director reputation are greater. The findings suggest that directors in central boards successfully recover their damaged reputation via conservative accounting after restatements and minimize adverse consequences in the director market. Our robustness tests support the causal interpretation of our evidence. Collectively, our study offers novel insights into the monitoring incentives resulted from the reputation restoration of directors in central boards via conservative accounting after financial reporting failures.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":null,"pages":null},"PeriodicalIF":5.5,"publicationDate":"2024-06-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141329475","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-05-31DOI: 10.1016/j.bar.2024.101407
The establishment of the International Sustainability Standards Board (ISSB), and the endorsement by the International Financial Reporting Standards (IFRS) foundation of the principles underlying the Integrated Reporting (IR) Framework, attest to a regulatory intent to develop a disclosure framework better connecting sustainability-related financial disclosures with financial disclosures. Strategic Reporting (SR), effective in the United Kingdom (U.K.) since 2013, is a prime example of such a framework. Utilizing proprietary data from PwC U.K., we find higher SR disclosure quality is associated with higher liquidity, lower cost of capital, and more accurate, less dispersed analysts’ forecasts. We then hypothesize and compare these impacts with the capital market effects of disclosure quality under the reporting framework preceding SR. We find that the effects of higher liquidity and lower cost of capital are more pronounced under SR, suggesting that SR, as a mandated, more connected reporting framework, enables more effective capital market communication. We also find that the incremental capital market benefits are more significant for entities with higher exposure to the change, better sustainability performance and higher organizational complexity. For regulators and standard setters, these findings indicate that their emphasis on greater connectivity of financial and non-financial information is valued by market participants.
国际可持续发展标准委员会（ISSB）的成立，以及《国际财务报告准则》（IFRS）基金会对综合报告（IR）框架基本原则的认可，证明了监管机构有意制定一个披露框架，更好地将与可持续发展相关的财务披露与财务披露联系起来。自 2013 年起在英国（U.K.）生效的战略报告（Strategic Reporting，SR）就是这样一个框架的典型例子。利用普华永道英国公司的专有数据，我们发现较高的战略报告披露质量与较高的流动性、较低的资本成本以及更准确、更分散的分析师预测相关联。然后，我们将这些影响与 SR 之前的报告框架下信息披露质量对资本市场的影响进行了假设和比较。我们发现，提高流动性和降低资本成本的效果在证券交易准则下更为明显，这表明证券交易准则作为一个强制性的、关联性更强的报告框架，能够实现更有效的资本市场沟通。我们还发现，资本市场的增量效益对那些受变革影响较大、可持续发展表现较好和组织复杂性较高的实体更为显著。对于监管者和标准制定者来说，这些研究结果表明，市场参与者重视加强财务和非财务信息的联系。
{"title":"Is greater connectivity of financial and non-financial information in annual reports valued by market participants?","authors":"","doi":"10.1016/j.bar.2024.101407","DOIUrl":"10.1016/j.bar.2024.101407","url":null,"abstract":"<div><div>The establishment of the International Sustainability Standards Board (ISSB), and the endorsement by the International Financial Reporting Standards (IFRS) foundation of the principles underlying the Integrated Reporting (IR) Framework, attest to a regulatory intent to develop a disclosure framework better connecting sustainability-related financial disclosures with financial disclosures. Strategic Reporting (SR), effective in the United Kingdom (U.K.) since 2013, is a prime example of such a framework. Utilizing proprietary data from PwC U.K., we find higher SR disclosure quality is associated with higher liquidity, lower cost of capital, and more accurate, less dispersed analysts’ forecasts. We then hypothesize and compare these impacts with the capital market effects of disclosure quality under the reporting framework preceding SR. We find that the effects of higher liquidity and lower cost of capital are more pronounced under SR, suggesting that SR, as a mandated, more connected reporting framework, enables more effective capital market communication. We also find that the incremental capital market benefits are more significant for entities with higher exposure to the change, better sustainability performance and higher organizational complexity. For regulators and standard setters, these findings indicate that their emphasis on greater connectivity of financial and non-financial information is valued by market participants.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":null,"pages":null},"PeriodicalIF":5.5,"publicationDate":"2024-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924001641/pdfft?md5=cba492ad19900a8084f8b8fb25cb6ee9&pid=1-s2.0-S0890838924001641-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141329542","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-05-31DOI: 10.1016/j.bar.2024.101406
Business Rates (BR) are key to the interaction between national, devolved, regional and local institutions of government in the UK. A liability to the tax can make the difference between the life and death of a business, and the design and implementation of business rates interacts with areas of policy concern as disparate as devolution, planning, charity regulation and digitalisation. We examine how BR affect political struggles between the devolved governments and the UK government using a governmentality approach focused on counter conduct, extending the scant literature on this type of taxation. Our theoretical contribution is to analyse how resistance, represented by the Foucauldian concept of counter conduct, manifests within the complex and understudied context of BR. In particular, we show that counter conduct has spatial and territorial elements which have the potential to destabilise the entire business rates programme and ought to be taken much more seriously.
{"title":"Devolution, counter-conduct and territoriality: The case of Tax Business Rates in the United Kingdom","authors":"","doi":"10.1016/j.bar.2024.101406","DOIUrl":"10.1016/j.bar.2024.101406","url":null,"abstract":"<div><div>Business Rates (BR) are key to the interaction between national, devolved, regional and local institutions of government in the UK. A liability to the tax can make the difference between the life and death of a business, and the design and implementation of business rates interacts with areas of policy concern as disparate as devolution, planning, charity regulation and digitalisation. We examine how BR affect political struggles between the devolved governments and the UK government using a governmentality approach focused on counter conduct, extending the scant literature on this type of taxation. Our theoretical contribution is to analyse how resistance, represented by the Foucauldian concept of counter conduct, manifests within the complex and understudied context of BR. In particular, we show that counter conduct has spatial and territorial elements which have the potential to destabilise the entire business rates programme and ought to be taken much more seriously.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":null,"pages":null},"PeriodicalIF":5.5,"publicationDate":"2024-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S089083892400163X/pdfft?md5=9a6a8ff49f448165d1f4d6363a2eecda&pid=1-s2.0-S089083892400163X-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141439802","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-05-01DOI: 10.1016/j.bar.2023.101303
Bryan Byung-Hee Lee , Jay Junghun Lee
This study examines the role of financial statement comparability in mitigating analysts' optimism for accruals. Prior research shows that sell-side analysts do not fully incorporate accrual information in anticipating future earnings and thus tend to issue more optimistic forecasts for firms with a higher level of accruals. We posit that financial statement comparability allows analysts to use industry peers' information in assessing the persistence of accruals, thereby lowering their optimism for accruals. We find that analysts' accrual-related optimism is significantly moderated for firms with a high degree of financial statement comparability. Further, we disaggregate financial statement comparability into accrual comparability and cash flow comparability and find that the inverse relation between comparability and analysts' optimism for accruals is driven by accrual comparability rather than cash flow comparability. Moreover, exploiting the mandatory adoption of IFRS as an exogenous increase in comparability, we find that analysts’ optimism for accruals decreases significantly following the IFRS adoption while it does not show a significant change in non-IFRS-adopting countries during the same period. Collectively, the results suggest that financial statement comparability helps analysts process and interpret accrual information, thereby improving their forecasting activities.
{"title":"Financial statement comparability and analysts’ optimism for accruals","authors":"Bryan Byung-Hee Lee , Jay Junghun Lee","doi":"10.1016/j.bar.2023.101303","DOIUrl":"10.1016/j.bar.2023.101303","url":null,"abstract":"<div><p>This study examines the role of financial statement comparability in mitigating analysts' optimism for accruals. Prior research shows that sell-side analysts do not fully incorporate accrual information in anticipating future earnings and thus tend to issue more optimistic forecasts for firms with a higher level of accruals. We posit that financial statement comparability allows analysts to use industry peers' information in assessing the persistence of accruals, thereby lowering their optimism for accruals. We find that analysts' accrual-related optimism is significantly moderated for firms with a high degree of financial statement comparability. Further, we disaggregate financial statement comparability into accrual comparability and cash flow comparability and find that the inverse relation between comparability and analysts' optimism for accruals is driven by accrual comparability rather than cash flow comparability. Moreover, exploiting the mandatory adoption of IFRS as an exogenous increase in comparability, we find that analysts’ optimism for accruals decreases significantly following the IFRS adoption while it does not show a significant change in non-IFRS-adopting countries during the same period. Collectively, the results suggest that financial statement comparability helps analysts process and interpret accrual information, thereby improving their forecasting activities.</p></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":null,"pages":null},"PeriodicalIF":5.1,"publicationDate":"2024-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139061353","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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