Pub Date : 2024-07-31DOI: 10.1177/0148558x241264659
Li (Lily) Zheng Brooks, C. S. Agnes Cheng
Recent studies provide evidence that corporate social responsibility (CSR) conscious firms are less likely to engage in high-profile corporate misconduct and be subject to SEC investigations, suggesting that auditor litigation risk may be lower for better CSR performers. However, we argue that the association between CSR performance and auditor litigation risk may not be linear for two reasons. First, for a given level of audit risk, the lower the perceived risk of material misstatement, the higher the actual detection risk. Second, ceteris paribus, an incorrectly assessed low audit risk acceptable for abnormally high CSR performance would also increase auditor’s actual detection risk. Using a matched sample analysis for the period of 2004 to 2013, this study finds that the propensity for auditors to be sued first decreases as CSR performance improves, but then increases with excessively high abnormal CSR performance. Further analyses indicate that the convexity of CSR performance on auditor detection risk arises from the inherent risk channel (client business risk, financial misreporting, and earnings management), but not from the control risk channel (internal control material weaknesses). This study provides new insights on the signaling value of CSR performance on an auditor’s litigation risk.
{"title":"Abnormal CSR Performance and Auditor Litigation Risk","authors":"Li (Lily) Zheng Brooks, C. S. Agnes Cheng","doi":"10.1177/0148558x241264659","DOIUrl":"https://doi.org/10.1177/0148558x241264659","url":null,"abstract":"Recent studies provide evidence that corporate social responsibility (CSR) conscious firms are less likely to engage in high-profile corporate misconduct and be subject to SEC investigations, suggesting that auditor litigation risk may be lower for better CSR performers. However, we argue that the association between CSR performance and auditor litigation risk may not be linear for two reasons. First, for a given level of audit risk, the lower the perceived risk of material misstatement, the higher the actual detection risk. Second, ceteris paribus, an incorrectly assessed low audit risk acceptable for abnormally high CSR performance would also increase auditor’s actual detection risk. Using a matched sample analysis for the period of 2004 to 2013, this study finds that the propensity for auditors to be sued first decreases as CSR performance improves, but then increases with excessively high abnormal CSR performance. Further analyses indicate that the convexity of CSR performance on auditor detection risk arises from the inherent risk channel (client business risk, financial misreporting, and earnings management), but not from the control risk channel (internal control material weaknesses). This study provides new insights on the signaling value of CSR performance on an auditor’s litigation risk.","PeriodicalId":501201,"journal":{"name":"Journal of Accounting, Auditing & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141881961","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 : 2024-07-31DOI: 10.1177/0148558x241264431
Beau Grant Barnes, Marc Cussatt, Paul Demeré, Nancy L. Harp
“Envelopegate” is a term used to describe PricewaterhouseCoopers’ (PwC)’s service failure that occurred during the 2017 Academy Awards ceremony (“the Oscars”). For PwC, the error resulted in immediate and unprecedented negative publicity, which was driven by a viral response on social media and other online media platforms. Thus, Envelopegate offers a unique opportunity to observe the potential spillover effects of negative viral events on the brand name reputation of an audit firm. Using intraday and daily client stock returns, we find a significant negative market response for PwC audit clients within the first minute of trading on the day following Envelopegate. The negative market effect is driven by clients with higher demand for auditor reputation, but we find no evidence that results are driven by any specific audit market region. Thus, our research underscores the susceptibility of an audit firm’s brand value to negative viral events, even when the event is unrelated to audit services. The findings of this study should be of interest to scholars exploring how audit firms form and maintain reputations as well as to professional service firms that engage in highly visible client services as part of their strategic efforts to enhance brand value.
{"title":"Can a Viral Blunder Damage Auditor Brand Name Reputation? Evidence From Envelopegate","authors":"Beau Grant Barnes, Marc Cussatt, Paul Demeré, Nancy L. Harp","doi":"10.1177/0148558x241264431","DOIUrl":"https://doi.org/10.1177/0148558x241264431","url":null,"abstract":"“Envelopegate” is a term used to describe PricewaterhouseCoopers’ (PwC)’s service failure that occurred during the 2017 Academy Awards ceremony (“the Oscars”). For PwC, the error resulted in immediate and unprecedented negative publicity, which was driven by a viral response on social media and other online media platforms. Thus, Envelopegate offers a unique opportunity to observe the potential spillover effects of negative viral events on the brand name reputation of an audit firm. Using intraday and daily client stock returns, we find a significant negative market response for PwC audit clients within the first minute of trading on the day following Envelopegate. The negative market effect is driven by clients with higher demand for auditor reputation, but we find no evidence that results are driven by any specific audit market region. Thus, our research underscores the susceptibility of an audit firm’s brand value to negative viral events, even when the event is unrelated to audit services. The findings of this study should be of interest to scholars exploring how audit firms form and maintain reputations as well as to professional service firms that engage in highly visible client services as part of their strategic efforts to enhance brand value.","PeriodicalId":501201,"journal":{"name":"Journal of Accounting, Auditing & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141863621","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 : 2024-07-24DOI: 10.1177/0148558x241264897
Mahmoud Delshadi, Ahmad Hammami, Michel Magnan
We investigate if and how a peer’s bankruptcy affects financial reporting by other firms within the industry. Prior research documents that the bankruptcy filing of a peer firm has negative capital market effects on other firms within the industry (lower stock market value and higher cost of debt). We argue that firms within an industry experiencing peer bankruptcies modify their financial reporting to mitigate such negative capital market effects. However, tension arises as to whether such modification is toward more conservative accounting or the opposite. Using a large sample of firms from 1980 to 2018, we find that following a peer firm bankruptcy filing, other firms within the industry exhibit a rise in conditional conservatism in their financial reporting. Our findings are robust to a battery of tests including the exclusion of distressed industries, the 2000 dot-com crash period, and the 2008 financial crisis period as well as employing an alternative proxy for conditional conservatism. The results are not significant for placebo bankruptcies 1 and 2 years before actual bankruptcies. Further analyses show that the spillover effects are more pronounced for firms in homogeneous industries, which exhibit higher leverage, with strong governance mechanisms, and in industries that experience strong market reaction following peer bankruptcy announcements. We also find that the bankruptcy filing of larger and older firms leads to stronger spillover effects.
{"title":"Tension in Financial Reporting: Reacting to a Peer Bankruptcy Announcement","authors":"Mahmoud Delshadi, Ahmad Hammami, Michel Magnan","doi":"10.1177/0148558x241264897","DOIUrl":"https://doi.org/10.1177/0148558x241264897","url":null,"abstract":"We investigate if and how a peer’s bankruptcy affects financial reporting by other firms within the industry. Prior research documents that the bankruptcy filing of a peer firm has negative capital market effects on other firms within the industry (lower stock market value and higher cost of debt). We argue that firms within an industry experiencing peer bankruptcies modify their financial reporting to mitigate such negative capital market effects. However, tension arises as to whether such modification is toward more conservative accounting or the opposite. Using a large sample of firms from 1980 to 2018, we find that following a peer firm bankruptcy filing, other firms within the industry exhibit a rise in conditional conservatism in their financial reporting. Our findings are robust to a battery of tests including the exclusion of distressed industries, the 2000 dot-com crash period, and the 2008 financial crisis period as well as employing an alternative proxy for conditional conservatism. The results are not significant for placebo bankruptcies 1 and 2 years before actual bankruptcies. Further analyses show that the spillover effects are more pronounced for firms in homogeneous industries, which exhibit higher leverage, with strong governance mechanisms, and in industries that experience strong market reaction following peer bankruptcy announcements. We also find that the bankruptcy filing of larger and older firms leads to stronger spillover effects.","PeriodicalId":501201,"journal":{"name":"Journal of Accounting, Auditing & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-07-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141776934","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 : 2024-07-24DOI: 10.1177/0148558x241264668
Bobae Choi, Doowon Lee, Le Luo
The crossholding of multiple firms by major shareholders in the same industry is known as common ownership. In this article, we examine how common ownership affects the carbon-related disclosure practices of cross-held firms. We report that common ownership decreases a firm’s propensity to disclose carbon information as well as the quality of such disclosures. A one standard deviation increase in measures of common ownership decreases the likelihood of participating in the Carbon Disclosure Project (CDP) survey by as much as 19.4%. Our results are robust to exogenous events, such as changes in common ownership and robustness tests, including Heckman two-stage regression and the exclusion of the financial sector. Further analyses demonstrate that the negative impact of common ownership on carbon disclosures is stronger in carbon-intensive sectors than in other sectors and for hard than for soft disclosures.
{"title":"Carbon Disclosure and Common Ownership","authors":"Bobae Choi, Doowon Lee, Le Luo","doi":"10.1177/0148558x241264668","DOIUrl":"https://doi.org/10.1177/0148558x241264668","url":null,"abstract":"The crossholding of multiple firms by major shareholders in the same industry is known as common ownership. In this article, we examine how common ownership affects the carbon-related disclosure practices of cross-held firms. We report that common ownership decreases a firm’s propensity to disclose carbon information as well as the quality of such disclosures. A one standard deviation increase in measures of common ownership decreases the likelihood of participating in the Carbon Disclosure Project (CDP) survey by as much as 19.4%. Our results are robust to exogenous events, such as changes in common ownership and robustness tests, including Heckman two-stage regression and the exclusion of the financial sector. Further analyses demonstrate that the negative impact of common ownership on carbon disclosures is stronger in carbon-intensive sectors than in other sectors and for hard than for soft disclosures.","PeriodicalId":501201,"journal":{"name":"Journal of Accounting, Auditing & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-07-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141777017","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 : 2024-06-25DOI: 10.1177/0148558x241257973
Ruby Lee, Mark Zakota
We investigate the role of covenants in private loan contracts that place requirements or limitations on borrowers’ environmental actions (hereafter, “environmental covenants”). Utilizing a machine learning algorithm, we find that environmental covenants are highly prevalent, appearing in 54% of loan contracts in our sample. The use of these covenants is significantly associated with borrowers’ environmental risk exposure, borrower–lender information asymmetry, and key contract terms, such as collateral and loan maturity. The association between environmental risk and environmental covenants is more pronounced when borrowers face greater financial distress, lenders have a stronger reputation, and there is a higher risk of regulatory enforcement. Additional analysis shows that the presence of a board committee overseeing environmental matters reduces lenders’ demand to contractually address the borrower’s environmental risk. Collectively, our results provide novel insights into the contractual mechanisms addressing environmental risk and the factors shaping lenders’ environmental monitoring demand.
{"title":"Lenders’ Environmental Monitoring: Evidence From Environmental Covenants in Private Loan Contracts","authors":"Ruby Lee, Mark Zakota","doi":"10.1177/0148558x241257973","DOIUrl":"https://doi.org/10.1177/0148558x241257973","url":null,"abstract":"We investigate the role of covenants in private loan contracts that place requirements or limitations on borrowers’ environmental actions (hereafter, “environmental covenants”). Utilizing a machine learning algorithm, we find that environmental covenants are highly prevalent, appearing in 54% of loan contracts in our sample. The use of these covenants is significantly associated with borrowers’ environmental risk exposure, borrower–lender information asymmetry, and key contract terms, such as collateral and loan maturity. The association between environmental risk and environmental covenants is more pronounced when borrowers face greater financial distress, lenders have a stronger reputation, and there is a higher risk of regulatory enforcement. Additional analysis shows that the presence of a board committee overseeing environmental matters reduces lenders’ demand to contractually address the borrower’s environmental risk. Collectively, our results provide novel insights into the contractual mechanisms addressing environmental risk and the factors shaping lenders’ environmental monitoring demand.","PeriodicalId":501201,"journal":{"name":"Journal of Accounting, Auditing & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141502580","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 : 2024-05-21DOI: 10.1177/0148558x241250107
Ashiq Ali, Zhongwen Fan
This study examines whether the issuance of capital expenditure forecasts facilitates debt contracting by acting as a commitment to not engage in the expropriation of lenders through opportunistic investment activities. We find that firms with higher leverage and lower credit quality are more likely to issue capital expenditure forecasts. Furthermore, for firms that issue capital expenditure forecasts, loan spreads are lower and investment efficiency is greater, and these associations are stronger when the forecasts are more credible. We do not find similar results for earnings forecasts. When comparing the roles of capital expenditure covenant (which typically specify the upper limit of the allowed amount) with capital expenditure forecast, we find that the former reduces overinvestments and the latter reduces underinvestments. These results suggest that capital expenditure forecasts can be a commitment mechanism to reduce contracting costs with creditors.JEL Classification: G31; M4
{"title":"The Role of Capital Expenditure Forecasts in Debt Contracting","authors":"Ashiq Ali, Zhongwen Fan","doi":"10.1177/0148558x241250107","DOIUrl":"https://doi.org/10.1177/0148558x241250107","url":null,"abstract":"This study examines whether the issuance of capital expenditure forecasts facilitates debt contracting by acting as a commitment to not engage in the expropriation of lenders through opportunistic investment activities. We find that firms with higher leverage and lower credit quality are more likely to issue capital expenditure forecasts. Furthermore, for firms that issue capital expenditure forecasts, loan spreads are lower and investment efficiency is greater, and these associations are stronger when the forecasts are more credible. We do not find similar results for earnings forecasts. When comparing the roles of capital expenditure covenant (which typically specify the upper limit of the allowed amount) with capital expenditure forecast, we find that the former reduces overinvestments and the latter reduces underinvestments. These results suggest that capital expenditure forecasts can be a commitment mechanism to reduce contracting costs with creditors.JEL Classification: G31; M4","PeriodicalId":501201,"journal":{"name":"Journal of Accounting, Auditing & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141150942","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 : 2024-05-06DOI: 10.1177/0148558x241244842
Yangyang Chen, Jeffrey Ng, Chong Wang
This article offers the novel insight that loan pricing is affected by the redeployability of borrowers’ capital assets and labor. We find that both capital and labor redeployability are negatively related to loan spread, suggesting that borrowers with higher redeployability enjoy more favorable loan pricing. This finding is consistent with redeployability promoting reduced cost stickiness and enhanced liquidity, which in turn reduces borrowers’ probability of default and lenders’ loan losses given default. Our cross-sectional test results reveal that the relation between redeployability and loan pricing is stronger for firms with more growth opportunities, which is consistent with lenders viewing redeployability as an important way to minimize potential loan losses from risky investments. Also, the relation between redeployability and loan pricing is weaker for loans with more stringent nonpricing terms, suggesting that strict terms may protect lenders and make redeployability less important in loan pricing.JEL Classification: D22, G21, G32, J62.
{"title":"Do Capital Asset and Labor Conditions Matter in Loan Pricing? Evidence From Capital and Labor Redeployability","authors":"Yangyang Chen, Jeffrey Ng, Chong Wang","doi":"10.1177/0148558x241244842","DOIUrl":"https://doi.org/10.1177/0148558x241244842","url":null,"abstract":"This article offers the novel insight that loan pricing is affected by the redeployability of borrowers’ capital assets and labor. We find that both capital and labor redeployability are negatively related to loan spread, suggesting that borrowers with higher redeployability enjoy more favorable loan pricing. This finding is consistent with redeployability promoting reduced cost stickiness and enhanced liquidity, which in turn reduces borrowers’ probability of default and lenders’ loan losses given default. Our cross-sectional test results reveal that the relation between redeployability and loan pricing is stronger for firms with more growth opportunities, which is consistent with lenders viewing redeployability as an important way to minimize potential loan losses from risky investments. Also, the relation between redeployability and loan pricing is weaker for loans with more stringent nonpricing terms, suggesting that strict terms may protect lenders and make redeployability less important in loan pricing.JEL Classification: D22, G21, G32, J62.","PeriodicalId":501201,"journal":{"name":"Journal of Accounting, Auditing & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-05-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140887421","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 : 2024-04-26DOI: 10.1177/0148558x241245171
Mingcherng Deng, Xiaoyan Wen
We study the impact of internal control disclosure in a model in which a client company privately invests corporate resources in its internal control system that subsequently determines its financial reporting precision. Without internal control disclosure, the capital market cannot observe the precision and must price the client value based on its conjecture. With internal control disclosure requirements, the effectiveness of internal controls is disclosed, which reveals the precision to the market. Thus, internal control disclosure provides the client with another channel to influence the market pricing. Contrary to the conventional wisdom, we find that the client tends to invest less in its internal control system with disclosure requirements. As a result of lower precision, internal control disclosure may lower the informativeness of audited financial reports, albeit ex-post communicating more information to the market. We also find that internal control disclosure reduces the client’s ex-ante payoff when the auditor bears a high misstatement cost due to audit failure.JEL Classification: M41, M48
{"title":"The Role of Internal Control Disclosure in Financial Reporting Precision and the Quality of Audited Financial Reports","authors":"Mingcherng Deng, Xiaoyan Wen","doi":"10.1177/0148558x241245171","DOIUrl":"https://doi.org/10.1177/0148558x241245171","url":null,"abstract":"We study the impact of internal control disclosure in a model in which a client company privately invests corporate resources in its internal control system that subsequently determines its financial reporting precision. Without internal control disclosure, the capital market cannot observe the precision and must price the client value based on its conjecture. With internal control disclosure requirements, the effectiveness of internal controls is disclosed, which reveals the precision to the market. Thus, internal control disclosure provides the client with another channel to influence the market pricing. Contrary to the conventional wisdom, we find that the client tends to invest less in its internal control system with disclosure requirements. As a result of lower precision, internal control disclosure may lower the informativeness of audited financial reports, albeit ex-post communicating more information to the market. We also find that internal control disclosure reduces the client’s ex-ante payoff when the auditor bears a high misstatement cost due to audit failure.JEL Classification: M41, M48","PeriodicalId":501201,"journal":{"name":"Journal of Accounting, Auditing & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140805642","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 : 2024-03-19DOI: 10.1177/0148558x241230117
Mara Cameran, Domenico Campa, Claudia Gabbioneta, Angela Pettinicchio
The professional literature has provided evidence of discrimination against ethnic minority professionals in a number of research contexts, including law, architecture, construction, and health care. However, research on ethnicity-based discrimination in the accounting profession has been sparser and has generally relied on ethnic minorities’ perceptions of discrimination rather than actual discrimination. In this study, we complement and extend this research by investigating whether ethnic minority audit partners are associated with lower audit fees than nonethnic minority audit partners. We also consider whether the association between ethnicity and audit fees depends on the status of the audit firm in which audit partners work. We find that ethnic minority audit partners are associated with lower audit fees and that this holds true only when they work in lower-status audit firms. Supplementary analyses carried out on our data suggest that discrimination is more likely to be performed by audit clients than by audit firms as we do not find evidence that audit firms systematically and selectively allocate ethnic minority audit partners to clients with specific characteristics (e.g., potentially less lucrative clients). Our study contributes to the literature on ethnicity-based discrimination in the accounting profession, to the literature on professional stereotypes, and to the audit pricing literature.JEL Classification: C33, J71, M42.
{"title":"Do Ethnic Minority Audit Partners Face Discrimination? Evidence From the Australian Audit Market","authors":"Mara Cameran, Domenico Campa, Claudia Gabbioneta, Angela Pettinicchio","doi":"10.1177/0148558x241230117","DOIUrl":"https://doi.org/10.1177/0148558x241230117","url":null,"abstract":"The professional literature has provided evidence of discrimination against ethnic minority professionals in a number of research contexts, including law, architecture, construction, and health care. However, research on ethnicity-based discrimination in the accounting profession has been sparser and has generally relied on ethnic minorities’ perceptions of discrimination rather than actual discrimination. In this study, we complement and extend this research by investigating whether ethnic minority audit partners are associated with lower audit fees than nonethnic minority audit partners. We also consider whether the association between ethnicity and audit fees depends on the status of the audit firm in which audit partners work. We find that ethnic minority audit partners are associated with lower audit fees and that this holds true only when they work in lower-status audit firms. Supplementary analyses carried out on our data suggest that discrimination is more likely to be performed by audit clients than by audit firms as we do not find evidence that audit firms systematically and selectively allocate ethnic minority audit partners to clients with specific characteristics (e.g., potentially less lucrative clients). Our study contributes to the literature on ethnicity-based discrimination in the accounting profession, to the literature on professional stereotypes, and to the audit pricing literature.JEL Classification: C33, J71, M42.","PeriodicalId":501201,"journal":{"name":"Journal of Accounting, Auditing & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-03-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140170354","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 : 2024-03-01DOI: 10.1177/0148558x241229508
Jengfang Chen, Sungsoo Kim, Dhinu Srinivasan, Yaou Zhou
This paper examines the role of supply chain common institutional investors (i.e., who own stocks of both upstream suppliers and their downstream customers in a supply chain) in the valuation of upstream supplier firms’ order backlog information. Based on the theory and evidence that backlog orders’ predictive power is diminished further in a supply chain due to the bullwhip effect, we hypothesize and find that the overpricing of order backlog is mainly driven by upstream rather than downstream firms. More importantly, we use both hedge portfolio methods and Fama-MacBeth regressions to show that common institutional investors in a supply chain can utilize their knowledge to better incorporate the bullwhip effect and mitigate the magnitude of order backlog mispricing. Further, we find that the overpricing of second-tier suppliers’ backlog orders and thus, the role of supply chain common institutional investors is more pronounced during expansion periods than during recession periods. Overall, we highlight the role of institutional supply chain knowledge in improving pricing efficiencies of complex supply chain dynamics.
{"title":"Can Common Institutional Investors in Supply Chains Decode the Bullwhip Effect? Evidence From Order Backlog Mispricing","authors":"Jengfang Chen, Sungsoo Kim, Dhinu Srinivasan, Yaou Zhou","doi":"10.1177/0148558x241229508","DOIUrl":"https://doi.org/10.1177/0148558x241229508","url":null,"abstract":"This paper examines the role of supply chain common institutional investors (i.e., who own stocks of both upstream suppliers and their downstream customers in a supply chain) in the valuation of upstream supplier firms’ order backlog information. Based on the theory and evidence that backlog orders’ predictive power is diminished further in a supply chain due to the bullwhip effect, we hypothesize and find that the overpricing of order backlog is mainly driven by upstream rather than downstream firms. More importantly, we use both hedge portfolio methods and Fama-MacBeth regressions to show that common institutional investors in a supply chain can utilize their knowledge to better incorporate the bullwhip effect and mitigate the magnitude of order backlog mispricing. Further, we find that the overpricing of second-tier suppliers’ backlog orders and thus, the role of supply chain common institutional investors is more pronounced during expansion periods than during recession periods. Overall, we highlight the role of institutional supply chain knowledge in improving pricing efficiencies of complex supply chain dynamics.","PeriodicalId":501201,"journal":{"name":"Journal of Accounting, Auditing & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140019262","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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