We investigate the behavior of information providers (underwriters) and users (investors) in a controlled laboratory experiment where underwriters have incentives to deceive and investors have incentives to avoid deception. Participants play simultaneously as underwriters and investors in one-shot information transmission games. The results of our experiment show a significant proportion of both deceptive and non-deceptive underwriters. Despite the presence of deceptive underwriters, investors are receptive to underwriters’ reports, gleaning information content, albeit overly optimistic. Within our sample, deception by underwriters and reception by investors are the most profitable strategies. Moreover, participants who send deceptive reports to investors, but at the same time are receptive to reports of underwriters, earn the highest payoffs. These results call into question the characterization of duped investors being irrational.
{"title":"Deception and Reception: The Behavior of Information Providers and Users","authors":"Roman M. Sheremeta, Timothy W. Shields","doi":"10.2139/ssrn.2334470","DOIUrl":"https://doi.org/10.2139/ssrn.2334470","url":null,"abstract":"We investigate the behavior of information providers (underwriters) and users (investors) in a controlled laboratory experiment where underwriters have incentives to deceive and investors have incentives to avoid deception. Participants play simultaneously as underwriters and investors in one-shot information transmission games. The results of our experiment show a significant proportion of both deceptive and non-deceptive underwriters. Despite the presence of deceptive underwriters, investors are receptive to underwriters’ reports, gleaning information content, albeit overly optimistic. Within our sample, deception by underwriters and reception by investors are the most profitable strategies. Moreover, participants who send deceptive reports to investors, but at the same time are receptive to reports of underwriters, earn the highest payoffs. These results call into question the characterization of duped investors being irrational.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-03-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80416115","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}
P. Murphy, Michael J. Wynes, Till-Arne Hahn, P. Devine
We create and validate measures capturing internal and external motivations to report honestly as individual differences. Both measures have high levels of reliability, as well as convergent and divergent validity. To test their predictive validity, we conduct two experiments. In the first, MTurk participants have the opportunity and incentive to misreport with no immediate consequences, and in the second, participants with management experience report how they would act in a similar business context. We find that participants who are higher in internal motivations to report honestly are, indeed, more likely to report honestly than others. Partial evidence supports that people higher in external motivations report more honestly when we introduce management controls. We also provide evidence of unintended consequences; people who are higher in internal motivations actually misreport more under certain controls than they do absent those controls, consistent with self-determination theory. Results should be of interest to management and those charged with governance or oversight within an organization. Our measures are also useful to researchers investigating honest reporting by allowing them to identify, ex ante, individuals who wish to be honest versus appear honest.
{"title":"Why are People Honest? Internal and External Motivations to Report Honestly","authors":"P. Murphy, Michael J. Wynes, Till-Arne Hahn, P. Devine","doi":"10.2139/ssrn.2967548","DOIUrl":"https://doi.org/10.2139/ssrn.2967548","url":null,"abstract":"We create and validate measures capturing internal and external motivations to report honestly as individual differences. Both measures have high levels of reliability, as well as convergent and divergent validity. To test their predictive validity, we conduct two experiments. In the first, MTurk participants have the opportunity and incentive to misreport with no immediate consequences, and in the second, participants with management experience report how they would act in a similar business context. We find that participants who are higher in internal motivations to report honestly are, indeed, more likely to report honestly than others. Partial evidence supports that people higher in external motivations report more honestly when we introduce management controls. We also provide evidence of unintended consequences; people who are higher in internal motivations actually misreport more under certain controls than they do absent those controls, consistent with self-determination theory. Results should be of interest to management and those charged with governance or oversight within an organization. Our measures are also useful to researchers investigating honest reporting by allowing them to identify, ex ante, individuals who wish to be honest versus appear honest.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-03-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86116463","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}
As part of its efforts to improve the informational value of the standard audit report, the Public Company Accounting Oversight Board (PCAOB) proposed a new auditing standard that would require the auditor to report critical audit matters (CAMs) in the body of the audit report. The proposal met with approval from investor groups, while preparers have suggested the new disclosures could negatively affect the quality of the audit and the informational content of the audit report. This study examines how the proposed standard influences experienced, nonprofessional investors’ perception of the readability of the audit report, their valuation judgments, and their evaluations of management’s credibility. We find that the disclosure of a CAM negatively impacts the readability of the audit report, but does not, either directly or through its effect on readability, incrementally inform investors’ valuation judgments. Instead, investors focused on earnings benchmark performance when making valuation judgements. The disclosure of a CAM does, however, lower investors’ perceptions of management’s credibility when earnings just meet expectations. Our results suggest that the PCAOB’s proposed standard will have a significant, negative effect on the readability of the audit report but only a limited impact on the informational content of the audit report for investors.
{"title":"Nonprofessional Investors’ Reactions to the PCAOB's Proposed Changes to the Standard Audit Report","authors":"Brian Carver, Brad S. Trinkle","doi":"10.2139/SSRN.2930375","DOIUrl":"https://doi.org/10.2139/SSRN.2930375","url":null,"abstract":"As part of its efforts to improve the informational value of the standard audit report, the Public Company Accounting Oversight Board (PCAOB) proposed a new auditing standard that would require the auditor to report critical audit matters (CAMs) in the body of the audit report. The proposal met with approval from investor groups, while preparers have suggested the new disclosures could negatively affect the quality of the audit and the informational content of the audit report. This study examines how the proposed standard influences experienced, nonprofessional investors’ perception of the readability of the audit report, their valuation judgments, and their evaluations of management’s credibility. We find that the disclosure of a CAM negatively impacts the readability of the audit report, but does not, either directly or through its effect on readability, incrementally inform investors’ valuation judgments. Instead, investors focused on earnings benchmark performance when making valuation judgements. The disclosure of a CAM does, however, lower investors’ perceptions of management’s credibility when earnings just meet expectations. Our results suggest that the PCAOB’s proposed standard will have a significant, negative effect on the readability of the audit report but only a limited impact on the informational content of the audit report for investors.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-03-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90285612","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 use an eye-tracking device to measure information search behavior of individuals while evaluating Balanced Scorecard data. We showed that participants who were involved in the initial implementation of BSC were motivated to search for information in a more directive way, compared to those who were not involved in the implementation. We also showed that individuals who receive a dissenting opinion access a wider range of information by employing a sequential search. We discovered that individuals who employed a directive search were more likely to rate the new strategy as a success than those who employed a sequential search.
{"title":"The Effect of Motivated Reasoning and Dissent on Information Search and Strategy Evaluation Using Balanced Scorecard: An Eye-Tracking Study","authors":"Tota Panggabean, Yasheng Chen, Johnny Jermias","doi":"10.2139/ssrn.2900512","DOIUrl":"https://doi.org/10.2139/ssrn.2900512","url":null,"abstract":"We use an eye-tracking device to measure information search behavior of individuals while evaluating Balanced Scorecard data. We showed that participants who were involved in the initial implementation of BSC were motivated to search for information in a more directive way, compared to those who were not involved in the implementation. We also showed that individuals who receive a dissenting opinion access a wider range of information by employing a sequential search. We discovered that individuals who employed a directive search were more likely to rate the new strategy as a success than those who employed a sequential search.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-01-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84517094","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The paper reviews the literature on the adoption and implementation (A&I) process of activity-based costing (ABC). The paper finds that the majority of the studies have tried to identify technical, behavioral, organizational and other contextual factors that result in the adoption and successful implementation of ABC. However, findings have been inconclusive and only found few specific factors for instance top management support, implementation training, non-accounting ownership and business size, to be associated with a successful process. Only few studies challenge the well-behaved adoption and implementation process assumed in the factor studies, as the process actually includes legitimization issues, power struggles among individuals and pressure from certain institutions. To advance the research within the adoption & implementation of ABC, a future research agenda is proposed. This includes a request for research within new geographical regions and organizational sizes, a demand for a new research framework in contingency-theory related factor studies and a call for research within alternative management accounting research perspectives to illustrate the complexity of the adoption & implementation process.
{"title":"Activity-Based Costing: A Synthesis of Findings on Its Adoption and Implementation","authors":"Niklas Storgaard, R. Lueg","doi":"10.2139/ssrn.3055665","DOIUrl":"https://doi.org/10.2139/ssrn.3055665","url":null,"abstract":"The paper reviews the literature on the adoption and implementation (A&I) process of activity-based costing (ABC). The paper finds that the majority of the studies have tried to identify technical, behavioral, organizational and other contextual factors that result in the adoption and successful implementation of ABC. However, findings have been inconclusive and only found few specific factors for instance top management support, implementation training, non-accounting ownership and business size, to be associated with a successful process. Only few studies challenge the well-behaved adoption and implementation process assumed in the factor studies, as the process actually includes legitimization issues, power struggles among individuals and pressure from certain institutions. To advance the research within the adoption & implementation of ABC, a future research agenda is proposed. This includes a request for research within new geographical regions and organizational sizes, a demand for a new research framework in contingency-theory related factor studies and a call for research within alternative management accounting research perspectives to illustrate the complexity of the adoption & implementation process.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81492593","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 compares the market–book relation of Australian and US firms using firm-level dynamic analysis of using annual data for a long-run period in error correction modelling. This paper contributes to a recent call for alternative ways of estimating Ohlson-type linear valuation models (Ohlson and Kim, 2015). Log transformations of the data are used in this study to improve the statistical properties of the models. This study contributes to the findings on linear valuation model estimation for long-run firms. Based on the returns model estimation, we find evidence of a higher level of co-integration between market and book values for Australian firms.
{"title":"Analysing the Market–Book Value Relation in Large Australian and US Firms: Implications for Fundamental Analysis and the Market–Book Ratio","authors":"Victoria J. Clout, R. Willett","doi":"10.1111/acfi.12117","DOIUrl":"https://doi.org/10.1111/acfi.12117","url":null,"abstract":"This study compares the market–book relation of Australian and US firms using firm-level dynamic analysis of using annual data for a long-run period in error correction modelling. This paper contributes to a recent call for alternative ways of estimating Ohlson-type linear valuation models (Ohlson and Kim, 2015). Log transformations of the data are used in this study to improve the statistical properties of the models. This study contributes to the findings on linear valuation model estimation for long-run firms. Based on the returns model estimation, we find evidence of a higher level of co-integration between market and book values for Australian firms.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2016-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83671868","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 use an experimental survey design to measure how campaign finance regulation influences perceptions of political corruption and trust in politicians when citizens are exposed to information about regulation. Unlike most observational studies, results of this experimental study suggest that knowledge of campaign finance regulation substantially reduces citizens’ perceptions of corruption but has only limited effect on trust in politicians. Findings have crucial implications for public policy. At a time when public cynicism about politics is high, a significant reduction in perceptions of political corruption through successful dissemination of campaign finance regulation would be a boost to the legitimacy of democracies.
{"title":"Knowledge of Campaign Finance Regulation Reduces Perceptions of Corruption","authors":"N. Avkiran, Direnç Kanol, B. Oliver","doi":"10.1111/acfi.12121","DOIUrl":"https://doi.org/10.1111/acfi.12121","url":null,"abstract":"We use an experimental survey design to measure how campaign finance regulation influences perceptions of political corruption and trust in politicians when citizens are exposed to information about regulation. Unlike most observational studies, results of this experimental study suggest that knowledge of campaign finance regulation substantially reduces citizens’ perceptions of corruption but has only limited effect on trust in politicians. Findings have crucial implications for public policy. At a time when public cynicism about politics is high, a significant reduction in perceptions of political corruption through successful dissemination of campaign finance regulation would be a boost to the legitimacy of democracies.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2016-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81175188","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 discusses the differences in company identification across sources of Australian data and raises important issues which should be considered prior to merging across databases. In particular, we show that the practice among accounting databases of overwriting prior identifiers used by a given company, with its most recent, results in failure to match data which actually exists. We suggest a method for reconciling these differences and show that our method results in a match rate of 97 percent with the Aspect company identification file, and 94 percent after missing accounting data is considered. This contrasts with a match rate of only 71 percent when performing a direct merge.
{"title":"Merging Time‐Series Australian Data Across Databases: Challenges and Solutions","authors":"D. Katselas, Baljit K. Sidhu, Chuan Yu","doi":"10.1111/acfi.12123","DOIUrl":"https://doi.org/10.1111/acfi.12123","url":null,"abstract":"This study discusses the differences in company identification across sources of Australian data and raises important issues which should be considered prior to merging across databases. In particular, we show that the practice among accounting databases of overwriting prior identifiers used by a given company, with its most recent, results in failure to match data which actually exists. We suggest a method for reconciling these differences and show that our method results in a match rate of 97 percent with the Aspect company identification file, and 94 percent after missing accounting data is considered. This contrasts with a match rate of only 71 percent when performing a direct merge.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2016-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80280962","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 conduct a post-implementation research analysis of AS4, a standard guiding voluntary audits of material weakness (MW) remediation disclosures, to understand the reasons for the scarcity of AS4 audits in practice. We use multiple methods (experiments, comment letter analysis, and surveys) to understand the perspectives of key stakeholders. We find that regulators’ expectations of the use of the standard did not come to fruition because an equilibrium market for active use of the standard could not be achieved. Managers desire to engage in AS4 audits for the riskier MWs but do not expect the associated costs to be high. Auditors are reluctant to audit riskier MWs, and would charge a considerable risk premium. Finally, we find that investors value AS4 audits especially for riskier MWs and find value in an AS4 audit for those risky MWs beyond that of the year-end audit. The overall findings of our study indicate a mismatch in the cost-benefit functions of the key stakeholders led to a lack of AS4 audits. Our findings are important given the high costs associated with standard development and approval.
{"title":"The Mismatch between Expectations and Realities of AS 4 Audits: A Post-Implementation Research Analysis","authors":"Sanaz Aghazadeh, Marietta Peytcheva","doi":"10.2139/ssrn.2987919","DOIUrl":"https://doi.org/10.2139/ssrn.2987919","url":null,"abstract":"We conduct a post-implementation research analysis of AS4, a standard guiding voluntary audits of material weakness (MW) remediation disclosures, to understand the reasons for the scarcity of AS4 audits in practice. We use multiple methods (experiments, comment letter analysis, and surveys) to understand the perspectives of key stakeholders. We find that regulators’ expectations of the use of the standard did not come to fruition because an equilibrium market for active use of the standard could not be achieved. Managers desire to engage in AS4 audits for the riskier MWs but do not expect the associated costs to be high. Auditors are reluctant to audit riskier MWs, and would charge a considerable risk premium. Finally, we find that investors value AS4 audits especially for riskier MWs and find value in an AS4 audit for those risky MWs beyond that of the year-end audit. The overall findings of our study indicate a mismatch in the cost-benefit functions of the key stakeholders led to a lack of AS4 audits. Our findings are important given the high costs associated with standard development and approval.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2016-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73708024","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 propose a direct measure of abnormal institutional investor attention (AIA) using news searching and news reading activity for specific stocks on Bloomberg terminals. AIA is highly correlated with institutional trading measures and related to, but different from, other investor attention proxies. Contrasting AIA with retail attention measured using Google search activity, we find that institutional attention responds more quickly to major news events, leads retail attention, and facilitates permanent price adjustment. The well documented price drifts following both earnings announcements and analyst recommendation changes are driven by announcements where institutional investors fail to pay sufficient attention.
{"title":"It Depends on Where You Search: Institutional Investor Attention and Under-Reaction to News","authors":"Azi Ben-Rephael, Zhi Da, Ryan D. Israelsen","doi":"10.2139/ssrn.2692181","DOIUrl":"https://doi.org/10.2139/ssrn.2692181","url":null,"abstract":"We propose a direct measure of abnormal institutional investor attention (AIA) using news searching and news reading activity for specific stocks on Bloomberg terminals. AIA is highly correlated with institutional trading measures and related to, but different from, other investor attention proxies. Contrasting AIA with retail attention measured using Google search activity, we find that institutional attention responds more quickly to major news events, leads retail attention, and facilitates permanent price adjustment. The well documented price drifts following both earnings announcements and analyst recommendation changes are driven by announcements where institutional investors fail to pay sufficient attention.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2016-11-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91532630","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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