Most recent papers:

• Discretionary Accruals: Earnings Management ... or Not?
  Andrew B. Jackson.
  Abacus. October 17, 2017
  This paper discusses some limitations of discretionary accruals measures. While discretionary accruals are acknowledged to be noisy proxies for earnings management, they are still widely used in the literature. This paper attempts to explain from basic econometrics how discretionary accruals are estimated, and in doing so why they are inappropriate measures for earnings management. It is shown that decisions of peer firms will influence the regression coefficients, and hence residuals, in accruals models, which may lead to false conclusions about earnings management in other firms. This point is emphasized using an artificially constructed firm with no changes in its fundamental performance, and hence no discretion in its accruals. I also note concerns about the inferences, which are commonly not acknowledged in research. Finally, using Accounting and Auditing Enforcement Releases and Enron as examples, I demonstrate how discretionary accruals do not capture what literature often claims.

  October 17, 2017   doi: 10.1111/abac.12117   open full text
• Why Do Overconfident REIT CEOs Issue More Debt? Mechanisms and Value Implications.
  Kelvin Jui Keng Tan.
  Abacus. August 24, 2017
  This paper examines why overconfident CEOs issue more debt than equity within US Real Estate Investment Trusts (REITs) and the value implications of this debt preference. Consistent with a demand‐side story, the paper finds that overconfident CEOs choose to issue more debt than equity than their non‐overconfident counterparts. The findings also rule out the supply‐side story that overconfident CEOs are screened out of the equity market. CEO preference for debt is associated with a decline in shareholder wealth. Specifically, using an event study, the paper finds that overconfident CEOs suffer an approximately $67 million loss associated with debt issues in market capitalization. Further analysis suggests that the loss stems from the higher default risk induced by overconfident REIT CEOs’ debt preference. The demand‐side explanation remains robust even after considering several CEO demographics, estimation methods, and the following five possible alternative drivers of the main results: (1) insider information; (2) risk tolerance; (3) past performance; (4) dividends; and (5) board pressure.

  August 24, 2017   doi: 10.1111/abac.12111   open full text
• Can Real Estate Investors Avoid Specific Risk?
  Andrew Baum, Nick Colley.
  Abacus. August 22, 2017
  Using modern portfolio theory, the traditional asset allocation process employs measurements of risk and return delivered by asset classes—for example, stocks, bonds, and real estate—to build efficient portfolios. To build efficient portfolios in practice using this type of analysis requires that the risk and return characteristics of the asset class can be replicated in real portfolios. This may be true of stocks and bonds, but is it true of real estate? Using new analysis coupled with previous UK‐based research based on the uniquely rich MSCI (IPD) dataset for UK direct real estate, this paper compares the risk and return characteristics of real estate investment approaches (direct exposure, balanced and specialist unlisted funds, a multi‐manager approach, and listed securities) relative to a UK market index. Based on a random stochastic simulation of historic performance data from 2003 to 2012, we conclude that the difficulty of diversifying away specific risk in such a lumpy asset class means that it is extremely difficult and/or costly to access or replicate direct property market returns. This suggests that an investor/manager setting out to deliver returns in line with a market index would have to demonstrate significant levels of skill. While listed real estate, which is more readily diversifiable, fails to deliver returns that are correlated with direct real estate in the short term (one to five years), it is clear that multi‐manager strategies were able to deliver returns that more effectively replicated a direct benchmark. However, multi‐manager fees negatively impacted on net returns. Specific risk can be avoided by real estate investors, but at a cost.

  August 22, 2017   doi: 10.1111/abac.12114   open full text
• The Interrelationships between REIT Capital Structure and Investment.
  Jamie Alcock, Eva Steiner.
  Abacus. August 15, 2017
  We explore the interdependence of investment and financing choices in US listed Real Estate Investment Trusts (REITs) in the period 1973–2011. We find that the investment and financing choices of REITs are interdependent, but they are not made simultaneously. Our results suggest that investment determines leverage, but leverage has no apparent effect on investment decisions. Conversely, the debt‐overhang conflict between shareholders and debt holders that theoretically drives the reverse influence of leverage on investment policy does not appear to filter through to the actual investment choices of REITs. Rather, we find that REIT managers utilize the maturity dimension of capital structure to mitigate potential investment distortions and ensure that investment remains on its value‐maximizing path. We also present novel evidence on the role of investments in driving a wedge between REIT target leverage and actual leverage levels, and on the interplay between investments and leverage adjustments toward the target ratio in explaining REIT capital structure dynamics.

  August 15, 2017   doi: 10.1111/abac.12113   open full text
• Investing in Real Estate Debt: Is it Real Estate or Fixed Income?
  Maarten Spek.
  Abacus. August 04, 2017
  This paper will analyze the risk return profile of real estate debt. Using a Monte Carlo simulation model, different debt layers (mezzanine and senior) are analyzed and compared to real estate investments. The results clearly show that senior debt is not heavily correlated to real estate and therefore behaves more like fixed income and should be valued accordingly. Mezzanine, however, is correlated to real estate, especially the downside, and should clearly be underwritten as such. Furthermore, due to a scarcity of finance, debt can show superior risk return characteristics over direct real estate and private funds. This scarcity is likely during periods of thin liquidity and uncertain valuations on the balance sheet, as recently demonstrated by the global financial crisis.

  August 04, 2017   doi: 10.1111/abac.12112   open full text
• The Contribution of Foreign Real Estate Investment to Housing Price Growth in Australian Capital Cities.
  Ross Guest, Nicholas Rohde.
  Abacus. July 14, 2017
  This paper models the effects of foreign investment in real estate on housing prices in Australia. We use a variety of panel data models that account for cross‐sectional heterogeneity across Australian cities and find that increases in investment are significant predictors of rises in the Australian Bureau of Statistics’ Residential Property Price Index. Our results are generally robust and suggest that increases in foreign investment account for between 20% and 30% of the rise in housing prices between 2004 and 2014 in Sydney and Melbourne. In other capital cities the effects appear to be negligible. Some policy implications of our findings are discussed.

  July 14, 2017   doi: 10.1111/abac.12110   open full text
• Future Realized Return, Firm‐specific Risk and the Implied Expected Return.
  Pengguo Wang.
  Abacus. June 20, 2017
  In this paper, we propose a novel approach to derive a firm‐specific measure of expected return. It builds on recent accounting‐based valuation models developed by Clubb (2013) and Ashton and Wang (2013). The measure is intrinsically linked to commonly used financial ratios, including book‐to‐market, (forward) earnings yield, and dividend‐to‐price, as well as growth and past returns. The empirical evidence shows that it is significantly positively associated with future realized stock returns and also significantly correlated with commonly used risk characteristics in a theoretically predictable manner. The results are likely to be of interest to practitioners and managers in making capital allocation decisions and to academics in need of proxies for firms’ discount rates and expected returns.

  June 20, 2017   doi: 10.1111/abac.12109   open full text
• Measurement Model or Asset Type: Evidence from an Evaluation of the Relevance of Financial Assets.
  Willoe Freeman, Peter Wells, Anne Wyatt.
  Abacus. June 01, 2017
  This study focuses on the operation of the Level 1, 2, and 3 measurement uncertainty hierarchy embedded in the SFAS 157 accounting for financial assets. Prior studies conclude the SFAS 157 fair value measurement model and prevailing financial market conditions are causal factors for the lower value relevance of the Level 3 financial assets. The contribution of our paper is to provide evidence on an additional, hitherto undocumented source of measurement uncertainty impacting the relevance of SFAS 157 financial assets to investors: the type of asset appearing in Level 3 financial assets as a result of asset securitizations and SFAS 140 securitization accounting. The paper also presents evidence that suggests the SFAS 166 amendments were unable to fully address informational transparency for financial assets arising from securitizations. The key contribution is evidentiary insights suggesting the prescribed measurement model has a relatively lower impact on measurement uncertainty and relevance of financial assets compared to the effects of the asset type.

  June 01, 2017   doi: 10.1111/abac.12108   open full text
• Unexpected Inflation, Capital Structure, and Real Risk‐adjusted Firm Performance.
  Jamie Alcock, Eva Steiner.
  Abacus. May 02, 2017
  Managers can improve real risk‐adjusted firm performance by matching nominal assets with nominal liabilities, thereby reducing the sensitivity of real risk‐adjusted returns to unexpected inflation. The net asset value of US equity real estate investment trusts (REITs) serves as a good proxy for nominal assets and, accordingly, we use a sample of US REITs to test our hypothesis. We find that for the firms in our sample: (i) their real risk‐adjusted performance, and (ii) their inflation‐hedging qualities are inversely related to deviations from this ‘matching‐nominals’ argument. In addition to providing managers with a vehicle to maximize real risk‐adjusted performance, our findings also provide investors with the tools to infer inflation‐hedging qualities of equity investments.

  May 02, 2017   doi: 10.1111/abac.12102   open full text
• Why Do Canadian Firms Cross‐list? The Flip Side of the Issue.
  Andreas Charitou, Christodoulos Louca.
  Abacus. April 11, 2017
  We investigate the relation between managerial incentives and the decision to cross‐list by comparing Canadian firms cross‐listed on US stock exchanges to industry‐ and size‐matched control firms. After controlling for firm and ownership structure characteristics, we find a positive association between substantial holdings of vested options held by CEOs prior to cross‐listing and the decision to cross‐list. Further, firms managed by CEOs with substantial holdings of vested options exhibit positive announcement returns and negative post‐announcement long‐run returns. CEOs of cross‐listed firms seem to take advantage of the aforementioned market behaviour, because they abnormally exercise vested options and sell the proceeds during the year of listing only when their firms underperform during the subsequent year. In addition, there is a positive relation between substantial holdings of vested options and discretionary accruals during the year of listing, consistent with the view that CEOs manage earnings to keep stock prices at high levels. Overall, these results have significant implications for the cross‐listing literature, suggesting an association between cross‐listing and CEO incentives to maximize CEO private benefits.

  April 11, 2017   doi: 10.1111/abac.12106   open full text
• Accounting Research in Abacus, A&F, AAR, and AJM from 2008–2015: A Review and Research Agenda.
  Martina K. Linnenluecke, Jacqueline Birt, Xiaoyan Chen, Xin Ling, Tom Smith.
  Abacus. April 10, 2017
  This paper uses bibliographic mapping techniques to map the research conversation in four Pacific Basin accounting journals listed on the Social Sciences Citation Index (Abacus, Accounting and Finance, Australian Accounting Review, and the Australian Journal of Management). We identify the main research streams in these journals as Accounting Standards, Environmental Accounting, Earnings Management, Disclosure, Conservatism, Auditing, Impairment, Cost of Capital, and Corporate Governance. We critically review each research stream, identify emerging research trends, and suggest an agenda for future research on accounting in the Pacific Basin.

  April 10, 2017   doi: 10.1111/abac.12107   open full text
• Noise Momentum Around the World.
  Charlie X. Cai, Robert Faff, Yongcheol Shin.
  Abacus. March 20, 2017
  We argue that arbitrageurs will strategically limit their initial investment in an arbitrage opportunity in anticipation of further mispricing caused by the deepening of noise traders' misperceptions. Such ‘noise momentum’ is an important determinant of the overall arbitrage process. We design an empirical strategy to capture noise momentum in a two‐period generalized error correction model. Applying it to a wide range of international spot‐futures market pairs, we document pervasive evidence of noise momentum around the world.

  March 20, 2017   doi: 10.1111/abac.12101   open full text
• Does Integrated Reporting Matter to the Capital Market?
  Shan Zhou, Roger Simnett, Wendy Green.
  Abacus. March 02, 2017
  Integrated reporting () is an emerging international corporate reporting initiative to address limitations to extant corporate reporting approaches, which are commonly criticized for being both voluminous and disjointed. While  is gaining in popularity, current momentum has been limited due to a lack of clear evidence of its benefits. Utilizing the most suitable setting currently available, being discretionary disclosures made by listed companies on the Johannesburg Stock Exchange, this study provides evidence that analyst forecast error reduces as a company's level of alignment with the  framework increases. Further, the improved alignment is associated with a subsequent reduction in the cost of equity capital for certain reporting companies. The results are obtained after controlling for factors relating to financial transparency and the issuance of standalone non‐financial reports, which suggests that  is providing incrementally useful information to the capital market over and above existing reporting mechanisms.

  March 02, 2017   doi: 10.1111/abac.12104   open full text
• The Impact of IFRS 8 Adoption on the Usefulness of Segment Reports.
  Peter Kajüter, Martin Nienhaus.
  Abacus. March 02, 2017
  We analyze the impact of IFRS 8 on the usefulness of segment reports from an investor's perspective. The analysis comprises three steps. First, we compare the value relevance of segment reports before and after the introduction of IFRS 8. Second, we analyze a treatment group of firms that had to change their segmentation upon IFRS 8 adoption and a control group that was unaffected by its introduction. Third, the requirement to report financial information for the current and previous year under current accounting rules allows us to analyze a unique data set of segment reports for the same company and the same year under two different standards. Our results based on German listed firms show superior value relevance of segment reports according to IFRS 8 compared to IAS 14 in all three steps. Additional analyses suggest that the adoption of IFRS 8 is also related to a decline in information asymmetry. Our findings are robust to a number of alternative specifications.

  March 02, 2017   doi: 10.1111/abac.12105   open full text
• Does Ownership Identity Matter? A Meta‐analysis of Research on Firm Financial Performance in Relation to Government versus Private Ownership.
  Kun Tracy Wang, Greg Shailer.
  Abacus. February 22, 2017
  We examine whether reported ownership–performance relations systematically differ for government versus private ownership by integrating the diverse empirical results for listed corporations in emerging markets. Our meta‐analysis confirms popular perceptions that, compared to private ownership, government ownership is associated with inferior performance. We find that, on average, the underlying ownership–performance relation is negative for government ownership and positive for private ownership, and the difference between these relations is significant. We also find that the positive private ownership–performance relation is stronger for institutional/foreign ownership compared to family/management ownership. Further analysis shows that negative (positive) government (private) ownership and performance relations have weakened (strengthened) over time. Our assessment of the sources of heterogeneity shows that reported relations are biased by estimation methods that fail to adequately control for endogeneity. Our results suggest that the nature of ownership–performance relations in emerging markets remains very dynamic and warrants ongoing research interest.

  February 22, 2017   doi: 10.1111/abac.12103   open full text
• Extreme Uncertainty and Forward‐looking Disclosure Properties.
  Julia Krause, Thorsten Sellhorn, Kamran Ahmed.
  Abacus. February 14, 2017
  This study investigates the effect of extreme uncertainty on disclosure behaviour by analyzing the quality and quantity of forward‐looking disclosures during the global financial crisis and pre‐crisis periods, controlling for other determinants of disclosure behaviour. Prior research has struggled to distinguish between the quality and quantity dimensions of forward‐looking disclosures. Also, the impact of the recent financial crisis on these forward‐looking disclosure attributes has not yet been examined systematically. We address this gap by exploiting the unique setting of German publicly traded firms. These firms must provide forward‐looking information within their audited financial statements, although relevant regulation is sufficiently vague to allow great variation in the quality, scope and quantity of forward‐looking disclosures actually observed. Using hand‐collected data from 2005 to 2009, we provide evidence of a significantly negative association between crisis and disclosure quality. This finding is robust to several different disclosure quality proxies and regression specifications. In contrast, we find no negative significant relation between crisis and disclosure quantity; rather, there is evidence that reported volume increases during the crisis. Our results are consistent with extreme uncertainty, as occurring during times of crisis, negatively affecting the quality of voluntary disclosures, while firms maintain or increase disclosure quantity, ultimately diluting the information density of forward‐looking disclosures.

  February 14, 2017   doi: 10.1111/abac.12100   open full text
• Working on the Railroad: Public Accounting Talent in the United States—The Case of Haskins & Sells (Now Deloitte).
  Dale L. Flesher, Gary John Previts, William D. Samson.
  Abacus. January 26, 2017
  Nineteenth century US railroads were the first ‘big businesses’ and had profound influence on society. This paper addresses one source of talent for the early US public accounting profession—railroads. Following the end of the US Civil War (1861–65), industrial expansion was a revolutionary experience, with large trusts appearing in the wake of the railroad's maturing influence on the development of a vast continental economy. Accounting practice also was impacted by railroads. For example, the development of annual reports, income measurement, the standardization of reporting by regulators, developing fixed and variable cost, and throughput concepts for capital intensive business—all were related to the railroads. This paper focuses on a significant link between the emerging public accounting profession and the railroads by examining how an early major US public accounting firm relied upon accounting skill developed within railroads as an important source of talent. Arguably, talent is the most important resource of a professional firm. While it is a commonly held view that the immigration of UK accountants in the late nineteenth century was the source of public accounting talent, this paper provides evidence of a competing explanation—the sourcing of talent from a firm (Haskins & Sells) that continues to the present day as Deloitte. Key leadership and personnel of that time gained their experience while working on the domestic railroads.

  January 26, 2017   doi: 10.1111/abac.12099   open full text
• The Effect of Business and Financial Market Cycles on Credit Ratings: Evidence from the Last Two Decades.
  Gerald J. Lobo, Luc Paugam, Hervé Stolowy, Pierre Astolfi.
  Abacus. January 26, 2017
  We analyze the effect of business and financial market cycles on credit ratings using a sample of firms from the Russell 3000 index that are rated by Standard and Poor's over the period 1986–2012. We also examine investor reaction to credit rating actions in different stages of business and financial market cycles. We document that credit rating agencies are influenced by business and financial market cycles; they assign lower credit ratings during downturns of business and financial market cycles and higher ratings during upturns. Our study is the first to find strong evidence of pro‐cyclicality in credit ratings using a long window. We also document stronger investor reaction to negative credit rating actions during downturns. Our results confirm theoretical predictions and inform regulators.

  January 26, 2017   doi: 10.1111/abac.12096   open full text
• Is it Shameful to be an Accountant? GenMe Perception(s) of Accountants' Ethics.
  Ariela Caglio, Mara Cameran.
  Abacus. January 23, 2017
  The function that accountants fulfil in the economic system is dependent on their ability to maintain the perception of high ethical standards. Building on the idea that birth cohorts, otherwise known as generations, are a useful proxy for the socio‐cultural environment of different time periods, we focus on the so‐called ‘GenMe’, that is, students and young workers born in the 1980s and 1990s. In particular, combining the accounting and business ethics literature, the purpose of our paper is to contribute to an increased awareness of the GenMe perceptions of accountants, with special attention given to ethical aspects. We believe that the perceptions of this age group are particularly crucial for the future of the accounting profession as it is these young people who will either become professional accountants or the accountants' future clients. Using an extensive database of 1,794 questionnaires, results show that the impression of the accountant as a corrupt professional is not dominant among GenMe and seem to suggest the existence of a multifaceted perception of accountants' ethics. Specifically, the factors that contribute to influencing GenMe perceptions of accountants' ethics are level of education, having attended an accounting course at high school level, gender, and belonging to the accounting profession. Finally, our study indicates that there is room for improving public perceptions of accountants' ethics through university courses in ethics, continuing education programs, and focused communication strategies by accounting firms and professional bodies.

  January 23, 2017   doi: 10.1111/abac.12098   open full text
• Measuring the Comparability of Company Accounts Conditionally: A Research Note.
  Ross H. Taplin.
  Abacus. January 12, 2017
  Comparability indices summarize the level of comparability between companies at a national and international level, an issue of importance to investors, regulators, and standard setters. Comparability indices can identify areas where comparability is low and where comparability is deteriorating. Furthermore, they can be used to quantify the extent to which initiatives such as International Financial Reporting Standards (IFRS) are successful in raising comparability between company accounts. Despite past literature emphasizing how factors other than country influence accounting methods used by companies, current comparability indices ignore these other factors. This paper introduces new national and international indices within the T index framework to fill this gap in the literature. Formula for the new national and international indices, and their standard errors, are provided. An example using European data is used to demonstrate the calculations and illustrate the importance of controlling for these firm specific factors.

  January 12, 2017   doi: 10.1111/abac.12097   open full text
• Responses and Rejoinders to Commentaries.
  Yaowen Shan, Terry Walter.
  Abacus. December 29, 2016
  There is no abstract available for this paper.

  December 29, 2016   doi: 10.1111/abac.12092   open full text
• Towards a Set of Design Principles for Executive Compensation Contracts.
  Yaowen Shan, Terry Walter.
  Abacus. December 29, 2016
  Executive compensation has been controversial for many years. Controversies over executive pay have sparked outrage from some sectors and calls for increased regulation and reform. Yet others argue that knee‐jerk reactions to perceived abuses of pay can lead to a host of unintended and inefficient outcomes. This paper argues that much of this controversy is due to executives being rewarded via contracts that have weaknesses in design. We argue that few stakeholders in firms would object to generous compensation for managers whose performance results in abnormally high long‐term shareholder wealth creation. We state a set of principles, developed from a review of the extensive theoretical, regulatory, and empirical literature, that we offer as fundamental building blocks for designing executive remuneration systems in public firms, especially where ownership and control are separated. Our purpose is to generate broad debate and discussion leading to a consensus as to the principles that should be present in all executive compensation contracts such that the interests of shareholders and managers are more closely aligned.

  December 29, 2016   doi: 10.1111/abac.12090   open full text
• What is an Investment Project's Implied Rate of Return?
  Graham Bornholt.
  Abacus. December 21, 2016
  How to measure a project's implied rate of return has long been an unresolved problem, except for some special cases. This paper derives return on present cost (ROPC) as the correct measure of an investment project's implied rate of return. The IRR is a biased measure except for projects classified as simple projects, and this bias is likely to be substantial in many real‐world applications. Thus while net present values should be used to determine whether to accept/reject projects, I recommend that analysts use ROPC in place of the IRR as a measure of a project's true rate of return.

  December 21, 2016   doi: 10.1111/abac.12093   open full text
• Open Market Share Repurchases in Germany: A Conditional Event Study Approach.
  Christian Andres, André Betzer, Markus Doumet, Erik Theissen.
  Abacus. December 15, 2016
  We analyze the decision to announce an open market share repurchase and the share price reaction to the announcement. We use a conditional estimation approach, which takes into account that the repurchase decision is made rationally and that, consequently, there is a potential selection bias. This approach requires a ‘non‐event sample’ of firms that could reasonably be expected to announce a repurchase but did not. The specific institutional rules for share repurchases in Germany allow us to construct such a sample. We find that a conditional approach yields results that are qualitatively comparable but differ in detail from those obtained using a non‐conditional approach. We confirm earlier findings of negative share price performance prior to the repurchase announcement and positive and significant announcement day abnormal returns. The results of our probit models are consistent with the free cash flow hypothesis and provide at least partial support for the rent extraction, signalling, and capital structure hypothesis. The results of the cross‐sectional regressions provide support for the signalling hypothesis once we control for selection bias.

  December 15, 2016   doi: 10.1111/abac.12094   open full text
• Do Financial Analysts Perform a Monitoring Role in China? Evidence from Modified Audit Opinions.
  Jiandong Chen, Rong Ding, Wenxuan Hou, Sofia Johan.
  Abacus. September 06, 2016
  This paper examines the impact of analyst coverage on the financial reporting quality of firms as reflected by modified audit opinions (MAOs). Using a sample of Chinese listed firms between 2003 and 2009, we find that analyst coverage, which serves as an external governance mechanism, helps to enhance the financial reporting quality of Chinese listed firms. The effect is more pronounced for non‐state‐owned enterprises (i.e., private firms), in that they are more dependent on external equity capital and, therefore, under greater pressure from analysts to provide high‐quality accounting information. Furthermore, analysts play a more effective role for firms with stronger incentives to manipulate financial reports. Our findings are robust to the control of endogeneity issue.

  September 06, 2016   doi: 10.1111/abac.12081   open full text
• The Consequences of Increasing the Scope of Managerial Judgement in Accounting Standards.
  Wei Zhou, Liansheng Wu, Hong Wang.
  Abacus. August 23, 2016
  This paper investigates the consequences of increasing the scope of managerial judgement (ISMJ) in accounting standards via a difference‐in‐differences approach in the unique setting of China. A substantial increase in accruals‐based earnings management is found after ISMJ, in addition to a decline in real activities‐based earnings management resulting from temporarily increased sales, boosted inventory, and expense deferrals. In contrast, we find a significant increase in the relevance of accounting information. Further analysis reveals significant negative cumulative abnormal returns related to the announcement of accounting standards change over the short term. We also find a larger long‐term increase in the crash risk of the stock prices of firms that engage in more accruals‐based earnings management after ISMJ. All of these effects are more pronounced in non‐state‐owned enterprises than in state‐owned enterprises.

  August 23, 2016   doi: 10.1111/abac.12085   open full text
• Social Trust and Bank Loan Financing: Evidence from China.
  Deqiu Chen, Xuejiao Liu, Cong Wang.
  Abacus. August 18, 2016
  Using a sample of non‐state‐owned enterprises (NSOEs) in China, we investigate the impact of social trust on firms' access to bank loan financing. We find that privately controlled firms in trust‐intensive regions are more likely to obtain loans from banks than those in regions with a lower level of social trust. The positive effect of trust on access to bank loans is more pronounced for firms that have no political connections, firms that are located in regions with poor legal environments, and firms that hire less reputable auditors. We also examine the channels through which social trust promotes bank finance. The results show that firms in trust‐intensive regions have a lower likelihood of default and higher financial reporting quality. Finally, we find that loans to NSOEs in trust‐intensive regions are associated with fewer collateral requirements, longer maturity, and lower interest rate spread. Overall, these findings suggest that social trust alleviates lenders' concerns regarding moral hazard and plays an important role when NSOEs raise capital from the bank loan market.

  August 18, 2016   doi: 10.1111/abac.12080   open full text
• Internal Control Deficiency Disclosures among Chinese Reverse Merger Firms.
  Juan Mao, Michael Ettredge.
  Abacus. August 15, 2016
  In recent years, financial reporting problems among Chinese reverse merger firms (CRMs), listed on US exchanges, have attracted unfavourable attention from regulators, investors, and the business press. Under the Sarbanes‐Oxley Act of 2002 (SOX), managers' Section 302 assessments of internal control over financial reporting are intended to provide investors with early warning about the likelihood of current and future non‐GAAP financial reporting problems. We investigate managers' propensity to issue unfavourable SOX 302 reports when internal control problems exist. We find that managers of CRMs have equal or greater propensity to issue adverse SOX 302 reports when serious internal control problems exist in the current quarter than those of control firms listed on US exchanges, including reverse merger and initial public offering (IPO) firms from the US and other countries as well as Chinese IPO firms. Furthermore, managers of CRMs also have an equal or greater propensity to issue adverse SOX 302 reports when internal control problems are not known to exist. One reasonable conclusion is that CRM firms tend to have weaker internal controls than comparison groups, and CRM firms are forthcoming in disclosing such weakness. Finally we analyze the specific nature of internal control deficiencies disclosed by each category of our sample firms.

  August 15, 2016   doi: 10.1111/abac.12087   open full text
• Pay Gap and Performance in China.
  Rajiv D. Banker, Danlu Bu, Mihir N. Mehta.
  Abacus. August 12, 2016
  The growing gap between the pay of executives and employees has been the subject of much media publicity and political attention in recent times. We analyze the pay gap between executives and employees, focusing on three components: executive pay premium relative to industry peers; employee pay premium; and average pay gap at the industry level. We examine how the executive and employee pay premium components of the pay gap drive firm performance. On one hand, economic theories of matching and managerial talent suggest talented executives who generate relatively better firm performance receive wage premiums, implying a positive relation between pay gap and performance. On the other hand, sociological theories suggest that the inequity implied by a larger pay gap lowers firm performance by adversely affecting employee morale and productivity. To test these alternative theories, we utilize pay gap data from China that provides a setting with strong national preferences towards social equity but also with a scarcity of experienced managers and abundance of low‐cost labour. Our results strongly support the economic theories—firm performance is largely driven by pay premium for executive talent. Additional tests using a smaller sample of US firms with pay gap data are consistent with our primary findings. Our study is likely to be of interest to politicians, regulators, and company executives responsible for understanding and evaluating pay gap and executive pay.

  August 12, 2016   doi: 10.1111/abac.12082   open full text
• Financial Reporting Quality and External Debt Financing Constraints: The Case of Privately Held Firms.
  Shujun Ding, Mingzhi Liu, Zhenyu Wu.
  Abacus. August 12, 2016
  Using a sample consisting of 1,160,801 observations of privately held firms, we explore the relationship between earnings quality and privately held firms’ debt financing, access to debt, and cost of debt, as well as the moderating effects of provincial‐level economic development on this relationship. Our findings indicate that better earnings quality increases private firms’ access to debt financing and lowers their cost of debt. The empirical results also show that these effects are more pronounced in less developed provinces.

  August 12, 2016   doi: 10.1111/abac.12083   open full text
• The Impact of Corporate Governance on Informative Earnings Management in the Chinese Market.
  Zhijun Lin, Ming Liu, Carlos Noronha.
  Abacus. August 12, 2016
  This study investigates the relationship between corporate governance and informative earnings management (IEM) for Chinese listed firms. While most previous studies on earnings management adopt the opportunistic perspective, we examine earnings management from the informative perspective, treating discretionary accruals as a means for managers to signal private information to external stakeholders regarding the firm's future cash flows or potential earnings. We hypothesize that good corporate governance practices motivate firm managers to engage in informative earnings management. By developing a measurable proxy of IEM, we test the association of managerial IEM with internal corporate governance mechanisms. The empirical results support our hypotheses, indicating that corporate governance has a positive impact on the possibility of managerial IEM, and better corporate governance should contribute to improving the transparency of financial reporting and the informativeness of reported earnings.

  August 12, 2016   doi: 10.1111/abac.12084   open full text
• Institutional Arrangements and Government Audit Independence in China.
  Jason Zezhong Xiao, Suchang Yang, Xinmin Zhang, Michael Firth.
  Abacus. August 12, 2016
  China has adopted an executive‐dominated government audit system (GAS), which is frequently criticized for lacking independence. Through a questionnaire survey and interviews, we investigate whether and how the reporting/control requirements of the GAS (hereafter, the institutional arrangements) result in a lack of government audit independence in China and how this affects budget supervision by the People's Congress. We contribute field evidence to support the prediction that an executive‐dominated GAS lacks independence and transparency, which in turn is detrimental to the wider accountability regime. However, the specific level of independence varies according to the types and levels of government audit. Our findings enrich the government audit literature, enhance our understanding of the relationship between institutional arrangements and audit independence in a transition economy, and serve as a call for institutional reform relating to the Chinese GAS.

  August 12, 2016   doi: 10.1111/abac.12086   open full text
• Significance Testing: We Can Do Better.
  Thomas R. Dyckman.
  Abacus. June 13, 2016
  This paper advocates abandoning null hypothesis statistical tests (NHST) in favour of reporting confidence intervals. The case against NHST, which has been made repeatedly in multiple disciplines and is growing in awareness and acceptance, is introduced and discussed. Accounting as an empirical research discipline appears to be the last of the research communities to face up to the inherent problems of significance test use and abuse. The paper encourages adoption of a meta‐analysis approach which allows for the inclusion of replication studies in the assessment of evidence. This approach requires abandoning the typical NHST process and its reliance on p‐values. However, given that NHST has deep roots and wide ‘social acceptance’ in the empirical testing community, modifications to NHST are suggested so as to partly counter the weakness of this statistical testing method.

  June 13, 2016   doi: 10.1111/abac.12078   open full text
• Audit Partner Disciplinary Actions and Financial Restatements.
  Wen‐Ching Chang, Yahn‐Shir Chen, Ling‐Tai Lynette Chou, Chia‐Hui Ko.
  Abacus. June 13, 2016
  This study investigates the signalling role and rectification effectiveness of an audit partner disciplinary system. The signalling role refers to whether sanctions reflect the poor audit quality of disciplined audit partners, and rectification effectiveness addresses whether disciplinary actions enhance subsequent audit quality. The sample consists of Taiwanese listed companies, in the period 2000 to 2006, where the identities of audit partners who sign audit reports and who are sanctioned are accessible. Empirical results indicate that in the pre‐sanction period, the probability of financial restatements by clients of disciplined audit partners is significantly higher than that of non‐disciplined audit partners. The more severe or frequent the sanctions, the higher the likelihood of financial restatements in the pre‐sanction period. These findings imply that audit partner disciplinary actions can serve as a signal of lower audit quality provided by those partners. The rectification effectiveness of disciplinary actions is examined from two perspectives: (1) the effects on subsequent improvements of audit quality of disciplined audit partners; and (2) audit quality enhancement of successor non‐disciplined audit partners who accept clients from disciplined audit partners. Empirical results show a lower probability of restating financial statements audited by disciplined audit partners after sanctions. We also find a lower likelihood of restating financial statements audited by successor non‐disciplined audit partners in the post‐sanction period. Both findings support our conclusion that audit partner sanctions improve audit quality. Overall, audit partner disciplinary actions can signal lower quality audit partners and are effective in enhancing audit quality.

  June 13, 2016   doi: 10.1111/abac.12077   open full text
• Does the XBRL Reporting Format Provide Incremental Information Value? A Study Using XBRL Disclosures During the Voluntary Filing Program.
  Jap Efendi, Jin Dong Park, Chandra Subramaniam.
  Abacus. June 13, 2016
  This study investigates whether the eXtensible Business Reporting Language (XBRL) reporting format provides incremental information value beyond the same 10K/10Q filings previously provided in HTML format. Using a sample from the XBRL Voluntary Filing Program, we document a significant increase in stock price variance on the day when voluntary XBRL reports are filed. We find market response is stronger when more content is filed on the same day. To evaluate relative information value, we decompose the quarterly return variance for three primary news announcements related to earnings including earnings announcement, HTML filing, and XBRL filing. We find XBRL filings have larger relative information value than HTML filings. Our results indicate that the XBRL reporting format provides incremental information content.

  June 13, 2016   doi: 10.1111/abac.12079   open full text
• Disclosure and the Cost of Capital: A Survey of the Theoretical Literature.
  Jeremy Bertomeu, Edwige Cheynel.
  Abacus. June 13, 2016
  This article offers a survey of theoretical research on disclosure and the cost of capital. We summarize the current state of the literature and discuss the channels through which information affects the cost of capital. After giving an overview of asset pricing theory, we examine the rationale for an accounting risk factor or an ex‐ante effect of information on the cost of capital. Then, we discuss the role of voluntary disclosure, heterogenous beliefs, investor base, liquidity shocks, earnings management, and agency problems as determinants of the cost of capital. Linkages between productive decisions and the cost of capital, and their implication for investor welfare, are also examined.

  June 13, 2016   doi: 10.1111/abac.12076   open full text
• Diagnostics to Evaluate Cost of Capital Measures. Discussion of Christodoulou et al.
  Jeremy Bertomeu.
  Abacus. April 19, 2016
  Christodoulou et al. () develop measures of the cost of equity capital that require only accounting inputs, using as an identification strategy the linear information dynamics of Feltham and Ohlson (). I propose to test these measures by evaluating the predictability of innovations to abnormal earnings using various predetermined variables. The over‐identifying restrictions of this model require these innovations not to be predictable. Using a generalized model, I observe that the estimated measures are probably too low. I conjecture that this anomaly, which occurs jointly with a positive drift in abnormal earnings, is caused by the omission of economic assets such as intangibles.

  April 19, 2016   doi: 10.1111/abac.12074   open full text
• A Structural Accounting Framework for Estimating the Expected Rate of Return on Equity.
  Demetris Christodoulou, Colin Clubb, Stuart Mcleay.
  Abacus. April 19, 2016
  This paper shows how the expected rate of return (ERR) on equity may be estimated using only published accounting results, based on the information dynamics of reported earnings. As accounting‐based valuation models conditional upon financial statement articulation lead to a rank deficient system of estimating equations, the paper introduces a nonlinear constraint on the articulation that allows the information system simultaneously to produce an estimate for the ERR by iteration, together with predictions for the key clean surplus forecasts of net earnings, net dividend, and the book value of equity. Further decomposition produces estimates of expected capital gain, expected earnings, and the expected change in equity book value, and by rearrangement, the expected change in unrecorded goodwill. The clean surplus relation is maintained in the forecast variables. Exploratory data methods are used to examine the nonlinear relationship between components of the accounting‐based ERR and realized stock returns. Findings show that realized returns are higher (lower) than estimated ERR in expansionary (recessionary) periods, with evidence of a stronger returns impact in recessionary periods. For the large majority of firms, realized returns revert to the estimated ERR, and the time‐varying accounting components are strongly related to future realized stock returns, consistent with time variation in the ERR around a long‐run average. Predicted earnings and dividends provide useful additional information on short‐run variations in the ERR.

  April 19, 2016   doi: 10.1111/abac.12073   open full text
• Asymmetrically Timely Loss Recognition and the Accrual Anomaly. Discussion of Konstantinidi et al.
  Panos N. Patatoukas.
  Abacus. April 19, 2016
  There is no abstract available for this paper.

  April 19, 2016   doi: 10.1111/abac.12063   open full text
• Asymmetric Persistence and the Market Pricing of Accruals and Cash Flows.
  Theodosia Konstantinidi, Arthur Kraft, Peter F. Pope.
  Abacus. April 19, 2016
  We investigate whether stock prices reflect the asymmetric persistence of accruals and cash flows resulting from conditional conservatism. Using the Mishkin () test (MT), we provide further evidence on the earnings fixation explanation for the accrual anomaly. We also apply panel estimation techniques that significantly affect market efficiency inferences. Our results suggest that over our sample period (i) investors seem to partially anticipate asymmetric persistence in accruals and cash flows, (ii) the accrual anomaly originates in the mispricing of accruals in years of economic gains, even though the differential persistence between accruals and cash flows is greatest in years of economic losses, (iii) investors respond differently to accrual and cash flow surprises and, therefore, they do not naively fixate on earnings surprises, and (iv) after clustering standard errors in the MT by firm and year dimensions, there is no longer evidence of cash flow mispricing, while the statistical significance of accrual mispricing falls. All our findings contradict the earnings fixation explanation for the accrual anomaly. Our study has implications for understanding the accrual anomaly in relation to accrual dynamics, as well as for researchers interested in using the MT framework to test the rationality of investor expectations more generally.

  April 19, 2016   doi: 10.1111/abac.12072   open full text
• Valuation: Accounting for Risk and the Expected Return. Discussion of Penman.
  Matthew R. Lyle.
  Abacus. April 19, 2016
  There is no abstract available for this paper.

  April 19, 2016   doi: 10.1111/abac.12068   open full text
• Valuation: Accounting for Risk and the Expected Return.
  Stephen Penman.
  Abacus. April 19, 2016
  Under accounting principles, the recognition of earnings is path‐dependent and the path depends on risk and its resolution: under the so‐called realization principle, earnings are not booked until uncertainty is resolved. In asset pricing terms, the principle means that earnings cannot be recognized until the firm can book a low‐beta asset such as cash or a near‐cash discounted receivable. If the risk to which this accounting responds is priced risk, the accounting indicates the expected return. This paper connects accounting under this principle to risk and return, summarizes the supporting empirical evidence, and examines the implications for research on the implied cost of capital, cash‐flow betas, asset pricing models that imbed accounting numbers, and papers that assume an autoregressive model for the earnings path to infer the expected return. The accounting that captures risk and its resolution also has implications for the unsolved issue of specifying the appropriate accounting for accounting‐based valuation models and, indeed, for financial accounting standards.

  April 19, 2016   doi: 10.1111/abac.12067   open full text
• Equity Value as a Function of (eps1, eps2, dps1, bvps, beta): Concepts and Realities. Discussion of Ohlson and Johannesson.
  Alexander Nekrasov.
  Abacus. April 19, 2016
  There is no abstract available for this paper.

  April 19, 2016   doi: 10.1111/abac.12066   open full text
• Equity Value as a Function of (eps1, eps2, dps1, bvps, beta): Concepts and Realities.
  James Ohlson, Erik Johannesson.
  Abacus. April 19, 2016
  This paper examines three basic equity valuation concepts: (1) residual income valuation (RIV); (2) in the spirit of Miller‐Modigliani, the irrelevance of a firm's dividend payout policy; (3) betas/CAPM, to quantify risk and capitalization factors. As a first cut, results show that RIV, concept (1), lacks empirical support while in contrast concepts (2) and (3) hold up reasonably well. To address (2) and (3) we develop a model where earnings and earnings growth determine value. This model supplants RIV because of its greater intuitive appeal and empirical support. A linear function of eps1, eps2, dps1 maps into stock prices and theory specifies the coefficients’ admissible magnitudes. Both the concepts of dividend payout irrelevance and risk (cost‐of‐equity per CAPM) restrict the coefficients. Bvps is value‐irrelevant, in both the analytical and empirical analyses. The latter can be viewed as a case study; it considers S&P500 firms at two points in time, and the data was hand‐collected in real time from a public website (Yahoo!Finance). This scheme ensures perfectly synchronized data and it usefully provides not only consensus forecasts but also real time betas. Overall, the paper contributes by developing valuation concepts and by showing how these can be evaluated empirically.

  April 19, 2016   doi: 10.1111/abac.12065   open full text
• Review of Recent Research on Improving Earnings Forecasts and Evaluating Accounting‐based Estimates of the Expected Rate of Return on Equity Capital. Discussion of Easton and Monahan.
  Frank Ecker.
  Abacus. April 19, 2016
  There is no abstract available for this paper.

  April 19, 2016   doi: 10.1111/abac.12069   open full text
• Review of Recent Research on Improving Earnings Forecasts and Evaluating Accounting‐based Estimates of the Expected Rate of Return on Equity Capital.
  Peter D. Easton, Steven J. Monahan.
  Abacus. April 19, 2016
  We extend Easton's (2007) review of the literature on accounting‐based estimates of the expected rate of return on equity capital, which we refer to as the ERR. We begin by reiterating the reasons why accounting‐based estimates are used. Next, we briefly review the recent literature that focuses on improving forecasts of expected earnings by either (i) removing predictable errors from analysts’ forecasts of earnings or (ii) developing cross‐sectional regression‐based estimates of earnings using prior‐period financial data. In the remainder of our review we discuss a recent debate on methods for evaluating estimates of the ERR. We highlight the key points in the debate so that the reader will find it easier to form an independent view of the relative merits of the proposed methods.

  April 19, 2016   doi: 10.1111/abac.12064   open full text
• Accounting Valuation and Cost of Capital Dynamics: Theoretical and Empirical Macroeconomic Aspects. Discussion of Callen.
  Yaniv Konchitchki.
  Abacus. April 19, 2016
  There is no abstract available for this paper.

  April 19, 2016   doi: 10.1111/abac.12071   open full text
• Accounting Valuation and Cost of Equity Capital Dynamics.
  Jeffrey L. Callen.
  Abacus. April 19, 2016
  This paper provides a selective survey of Ohlson and Vuolteenaho‐type accounting valuation models. The focus is on the valuation, return, and cost of capital dynamics of these models. Emphasis is placed primarily on variations of these models that incorporate risk aversion, parameter uncertainty, and/or time‐varying costs of equity. Empirical papers that address the dynamics of these models are also surveyed.

  April 19, 2016   doi: 10.1111/abac.12070   open full text
• Revisiting the Fundamental Concepts of IFRS.
  Günther Gebhardt, Araceli Mora, Alfred Wagenhofer.
  Abacus. March 10, 2014
  There is no abstract available for this paper.

  March 10, 2014   doi: 10.1111/abac.12024   open full text
• A Comparative Analysis of the Investment Characteristics of Alternative Gold Assets.
  Tim Pullen, Karen Benson, Robert Faff.
  Abacus. March 10, 2014
  Employing daily data over the period 1987–2010, we examine the diversifying, hedging and safe haven properties of gold bullion, gold stocks, gold mutual funds, and gold exchange traded funds (ETFs). First, with regard to gold bullion, we document a clear and strong hedging role over a mere diversifying capability. Second, our results highlight that gold stocks, gold mutual funds, and gold ETFs tend to be diversifiers. Third, both gold bullion and gold ETFs show support for the safe haven property. However, gold stocks and gold mutual funds display very little evidence of the safe haven characteristic. Consequently, investors who are keen on securing the safe haven features of gold investment cannot generally rely on gold stocks or mutual funds. Instead, they need to take positions directly in bullion or gold ETFs.

  March 10, 2014   doi: 10.1111/abac.12023   open full text
• The Information Content of Ratings: An Analysis of Australian Credit Default Swap Spreads.
  Jue Wang, Jiri Svec, Maurice Peat.
  Abacus. March 10, 2014
  We examine the information content of Australian credit rating announcements by measuring the abnormal changes in credit default swap (CDS) spreads. CDS spreads provide a direct view of credit quality and thus should impound information quickly when investors receive new credit risk related information via a rating event. Using an event study methodology, we show that watch downs and rating upgrades contain valuable information even after controlling for sources of contamination. We find that watch downs elicit statistically significant market reactions, while subsequent downgrades are anticipated. Upgrades are associated with a significant but small abnormal reduction in CDS spreads, whereas watch ups appear to contain no new information.

  March 10, 2014   doi: 10.1111/abac.12022   open full text
• Earnings Management Surrounding CEO Turnover: Evidence from Korea.
  Jong‐Seo Choi, Young‐Min Kwak, Chongwoo Choe.
  Abacus. March 10, 2014
  This article examines the empirical relation between chief executive officer (CEO) turnover and earnings management in Korea using a sample of 403 CEO turnovers and 806 non‐turnover control firms during the period 2001–2010. We classify CEO turnovers into four types depending on whether the departure of the outgoing CEO is peaceful or forced and whether the incoming CEO is promoted from within or recruited from outside the firm. We measure earnings management by both discretionary accruals and real activities management. We also control for the endogeneity of CEO turnover and a potential selection bias using 2SLS and Heckman's two‐stage approach. After controlling for corporate financial performance and governance structure, we find upward earnings management by the departing CEO only when the departure is forced and the new CEO is an insider. In this case, the new CEO also engages in downward earnings management using both discretionary accruals and real activities management. We also find some evidence that the new CEO recruited from outside the firm manages discretionary accruals upward following the peaceful departure of his predecessor. In all other types of CEO turnover, we do not find evidence of significant earnings management by either CEO.

  March 10, 2014   doi: 10.1111/abac.12021   open full text
• The Value Relevance of Mandatory Non‐GAAP Earnings.
  Elmar R. Venter, David Emanuel, Steven F. Cahan.
  Abacus. March 10, 2014
  This paper examines the value relevance of earnings components where there is a mandatory requirement to report generally accepted accounting principles (GAAP) earnings and non‐GAAP earnings, and where the items to be eliminated from GAAP earnings are defined in detail. The setting is different from non‐GAAP earnings disclosures presented in the United States and elsewhere, where managers have discretion over whether to report a non‐GAAP earnings number, and what to exclude from GAAP earnings. Our mandatory setting enables us to report value relevance results that are not confounded by managers' discretionary choices regarding non‐GAAP earnings exclusions. We use price‐level regressions, based on the Ohlson (1995) model, to test for incremental and relative value relevance. The results show that non‐GAAP earnings reported under a mandatory regime have higher value relevance than GAAP earnings. The disaggregation of these items is useful to investors in a setting where managerial motivations are minimized.

  March 10, 2014   doi: 10.1111/abac.12020   open full text
• Are Legal Families Related to Financial Reporting Quality?
  Frederick Lindahl, Hannu Schadéwitz.
  Abacus. June 03, 2013
  A large body of financial accounting research explores the quality of accounting in different countries. An important assumption in most of that research is that common law provides a firmer foundation for good accounting transparency than civil law. Researchers usually regress their proxy for accounting quality on an indicator variable that designates the firm's country as a common or civil law jurisdiction (along with other regressors). But what is the support for that nearly universal assumption? This study addresses that question. It traces the distinctions made by legal scholars that characterize the two ‘families’. It analyzes La Porta et al. (1998), which is the nearly universal citation to support the civil/common dummy, and assesses the design and development of research designs that use law in accounting studies. It concludes that the use of the civil/common distinction as applied in accounting studies cannot be supported, and offers suggestions for how to better investigate the ways in which the law interacts with financial reporting.

  June 03, 2013   doi: 10.1111/abac.12008   open full text
• Stock Return Predictability of Residual‐Income‐Based Valuation: Risk or Mispricing?
  Lee‐Seok Hwang, Woo‐Jong Lee.
  Abacus. April 01, 2013
  In an influential paper, Frankel and Lee (1998) conclude that the stock return predictability of the value‐to‐price ratio (V/P) results from market mispricing. This paper confirms whether the V/P reflects the rational risk premiums associated with the V/P factor or is better explained by market inefficiency. Following Daniel and Titman (1997), this paper examines whether the V/P characteristics or the V/P factor loadings predict stock returns. The findings show that the V/P loadings are positively associated with average returns even after controlling for the V/P characteristics in both time series and cross‐sectional tests. The overall results suggest that the mispricing explanation of the V/P effect is premature.

  April 01, 2013   doi: 10.1111/abac.12007   open full text
• Do Board Characteristics Influence the Shareholders' Assessment of Risk for Small and Large Firms?
  Jonathan A. Christy, Zoltan P. Matolcsy, Anna Wright, Anne Wyatt.
  Abacus. April 01, 2013
  This paper investigates the association between board characteristics and shareholders' assessment of their exposure to economic and agency risks as reflected in the volatility of stock returns. Our hypotheses incorporate prior evidence that small and large firms have ‘dramatically’ different board structures, reflecting the firms' different monitoring and advising needs. We hypothesize and find evidence that only the shareholders of well‐established large firms are able to generate positive net benefits, in the form of lower equity risk, from independent boards and well‐connected independent directors with multiple directorships. We also find professional and formal industry degree qualifications on the board are associated with shareholders' risk assessment for some small firms consistent with the focus of small firms on building growth and scale. While we find evidence that formal industry professional affiliations (weak evidence) and MBAs provide benefits for the shareholders of large firms, there is limited evidence that financial expertise on the board systematically influences shareholders' risk assessments for small or large companies. The key conclusion from the evidence in this paper is that a ‘one size fits all’ approach to governance in relation to the board of directors may not meet the diverse needs of companies at different stages of economic development.

  April 01, 2013   doi: 10.1111/abac.12005   open full text
• A Pragmatist Defence of Classical Financial Accounting Research.
  Brian A. Rutherford.
  Abacus. February 19, 2013
  One reason for the disdain in which classical financial accounting research has come to held by many in the scholarly community is its allegedly insufficiently scientific nature. While many have defended classical research or provided critiques of post‐classical paradigms, the motivation for this paper is different. It offers an epistemologically robust underpinning for the approaches and methods of classical financial accounting research that restores its claim to legitimacy as a rigorous, systematic and empirically grounded means of acquiring knowledge. This underpinning is derived from classical philosophical pragmatism and, principally, from the writings of John Dewey. The objective is to show that classical approaches are capable of yielding serviceable, theoretically based solutions to problems in accounting practice.

  February 19, 2013   doi: 10.1111/abac.12003   open full text
• The CLERP 9 Audit Reforms: Benefits and Costs Through the Eyes of Regulators, Standard Setters and Audit Service Suppliers.
  Keith A. Houghton, Michael Kend, Christine Jubb.
  Abacus. February 19, 2013
  Over the past decade or more Australia amongst other jurisdictions has experienced substantial reforms to auditing regulation in an effort to boost public confidence in the auditing profession. This paper aims to examine whether these changes in the Australian regulatory environment for audits have (a) provided enhanced confidence in reported financial data, (b) impacted audit costs and (c) not limited competition in the market for audit services. Using qualitative interview data, this study reports on the perceptions of auditors, auditing standard setters and regulators in relation to the CLERP 9 reforms to the Australian auditing regime in the later part of the 2000s. A theoretical framework is developed to evaluate whether these reforms are substantive enough in nature to effect public confidence in reported financial data and market competition in audits.

  February 19, 2013   doi: 10.1111/abac.12002   open full text
• Pacioli's Example Entries—a Conundrum Resolved?
  Alan Sangster, Greg Stoner, Giovanna Scataglini‐Belghitar, Paul De Lange, Brendan O'Connell.
  Abacus. November 21, 2012
  This paper discusses the nature of the 10 example paragraph entries at the end of Pacioli's bookkeeping treatise. It concludes that these are entries from fledgling banking operations involving one account holder and one borrower who, along with two others, has financial transactions with the account holder. The widely held assumption that they are examples of entries in the Ledger is set aside and it is concluded that, on the basis of the available evidence, they are examples of entries in a Ricordanze, a record book Pacioli described as being used to record items of this type.

  November 21, 2012   doi: 10.1111/j.1467-6281.2012.00372.x   open full text
• ‘Different from What Has Hitherto Appeared on this Subject’: John Clark, Writing Master and Accomptant, 1738.
  John Richard Edwards.
  Abacus. November 21, 2012
  This paper argues the importance, for the study of accounting history, of collecting evidence of accounting's past and of questioning its conventional wisdoms. It is known that Cronhelm (1818) explained in algebraic terms the mathematical relationship between assets, liabilities and capital reported in a balance sheet. It is also known that the balance sheet equation Assets (A) – Liabilities (L) = Capital (C) became a foundation for teaching bookkeeping as the twentieth century progressed. Current knowledge suggests that, during the first half of the twentieth century, this mathematical approach to teaching accounting gained a foothold in the United States based on the writings of Sprague and Hatfield, and also in Continental Europe. This paper reveals that, in the 1730s in England, John Clark cogently demonstrated an algebraically rooted understanding of the inter‐relationship between double entry bookkeeping and the structure of the balance sheet as exemplified by the above equation. The paper proves that journal‐oriented learning was not the exclusive training method employed by bookkeeping instructors during the early eighteenth century and raises the possibility that other teachers of bookkeeping were providing a more thoughtful education for aspiring clerks, bookkeepers, managers and businessmen than has hitherto been thought the case. This study also shows that accounting technologies do not continuously evolve towards their current state of elaboration, and that it is important for researchers to remain aware of plurality in patterns of accounting change and to be willing to embrace the full range of methodological approaches available for studying accounting phenomena.

  November 21, 2012   doi: 10.1111/j.1467-6281.2012.00375.x   open full text