Three essays in risk management in financial institutions

The choice to adopt risk-sensitive measurement approaches for operational risks: the case of Advanced Measurement Approach under Basel II New Capital Accord This paper investigates the choice of the operational risk approach under Basel II requirements and whether the adoption of advanced risk measurement approaches allows banks to save capital. Among the three possible approaches for operational risk measurement, the Advanced Measurement Approach (AMA) is the most sophisticated and requires the use of historical loss data, the application of statistical tools, and the engagement of a highly qualified staff. Our results provide evidence that the adoption of AMA is contingent on the availability of bank resources and prior experience in risk-sensitive operational risk measurement practices. Moreover, banks that choose AMA exhibit low requirements for capital and, as a result might gain a competitive advantage compared to banks that opt for less sophisticated approaches. - Internal Risk Controls and their Impact on Bank Solvency Recent cases in financial sector showed the importance of risk management controls on risk taking and firm performance. Despite advances in the design and implementation of risk management mechanisms, there is little research on their impact on behavior and performance of firms. Based on data from a sample of 88 banks covering the period between 2004 and 2010, we provide evidence that internal risk controls impact the solvency of banks. In addition, our results show that the level of internal risk controls leads to a higher degree of solvency in banks with a major shareholder in contrast to widely-held banks. However, the relationship between internal risk controls and bank solvency is negatively affected by BHC growth strategies and external restrictions on bank activities, while the higher regulatory requirements for bank capital moderates positively this relationship. - The Impact of the Sophistication of Risk Measurement Approaches under Basel II on Bank Holding Companies Value Previous research showed the importance of external regulation on banks' behavior. Some inefficient standards may accentuate risk-taking in banks and provoke a financial crisis. Despite the growing literature on the potential effects of Basel II rules, there is little empirical research on the efficiency of risk-sensitive capital measurement approaches and their impact on bank profitability and market valuation. Based on data from a sample of 66 banks covering the period between 2008 and 2010, we provide evidence that prudential ratios computed under Basel II standards predict the value of banks. However, this relation is contingent on the degree of sophistication of risk measurement approaches that banks apply. Capital ratios are effective in predicting bank market valuation when banks adopt the advanced approaches to compute the value of their risk-weighted assets.

Turnaround across diverse global supply chains using shared metrics and change methodology: The Case of Amer Sports Corporation

Purpose - The purpose of this paper is to document the outcome of a global three-year long supply chain improvement initiative at a multi-national producer of branded sporting goods that is transforming from a holding structure to an integrated company. The case company is comprised of seven internationally well-known sport brands, which form a diverse set of independent sub-cases, on which the same supply chain metrics and change project approach was applied to improve supply chain performance. Design/methodology/approach - By using in-depth case study and statistical analysis the paper analyzes across the brands how supply chain complexity (SKU count), supply chain type (make or buy) and seasonality affect completeness and punctuality of deliveries, and inventory as the change project progresses. Findings - Results show that reduction in supply chain complexity improves delivery performance, but has no impact on inventory. Supply chain type has no impact on service level, but brands with in-house production are better in improving inventory than those with outsourced production. Non-seasonal business units improve service faster than seasonal ones, yet there is no impact on inventory. Research limitations/implications - The longitudinal data used for the analysis is biased with the general business trend, yet the rich data from different cases and three-years of data collection enables generalizations to a certain level. Practical implications - The in-depth case study serves as an example for other companies on how to initiate a supply chain improvement project across business units with tangible results. Originality/value - The seven sub-cases with their different characteristics on which the same improvement initiative was applied sets a unique ground for longitudinal analysis to study supply chain complexity, type and seasonality.

Latest Miocene - Pliocene Larger Foraminifera and depositional environments of the carbonate bank of La Désirade Island, Guadeloupe (French Antilles)

In this paper we present first results of the study of planktonic Foraminifera, large benthic Foraminifera and carbonate facies of La Désirade, aiming at a definition of the age and depositional environments of the Neogene carbonates of this island. The study of planktonic Foraminifera from the Detrital Offshore Limestones (DOL) of the Anciènne Carrière allows to constrain the biochronology of this formation to the lower Zone N19 and indicates a latest Miocene to early Pliocene (5.48 - 4.52 Ma) age. Large benthic Foraminifera were studied both as isolated and often naturally split specimens from the DOL, and in thin sections of limestones from the DOL and the Limestone Table (LT). The assemblages of Foraminifera include Nummulitidae, Amphisteginidae, Asterigerinidae, Peneroplidae, Soritidae, Rotalidae (Globigerinidae: Globigerinoides, Sphaeroidenellopsis, Orbulina) and incrusting Foraminifera (Homotrema and Sporadotrema). The genera Amphistegina, Archaias and Operculina are discussed. Concerning the Nummulitidae we include both "Paraspiroclypeus" chawneri and "Nummulites" cojimarensis, as well as a newly described species, Operculina desiradensis new species, in the genus Operculina, because the differences between these 3 species are rather on the specific than the generic level, while their morphology, studied by SEM, is compatible with the definition of the genus Operculina (D'Orbigny1826, emend. Hottinger 1977). The three species can be easily distinguished on the basis of their differences in spiral growth: while O. desiradensis has an overall logarithmic spiral growth, O. cojimarensis and especially O. chawneri show a tighter and more geometric spiral growth. O. cojimarensis and O. chawneri were originally described from Cuba in outcrops originally dated as Oligocene and later redated as early Pliocene. Therefore, O. chawneri was considered until now as restricted to the early Pliocene. However, in the absence of a detailed morphometric and biostratigraphic study of the Caribbean Neogene nummulitids, it is difficult to evaluate the biochronologic range of these species.The history of the carbonates begins with the initial tectonic uplift and erosion of the Jurassic igneous basement of La Désirade, that must have occurred at latest in late Miocene times, when sea-level oscillated around a long term stable mean. The rhythmic deposition of the Désirade Limestone Table (LT) can be explained by synsedimentary subsidence in a context of rapidly oscillating sea-level due to precession-driven (19-21 kyr) glacio-eustatic sea-level changes during the latest Miocene- Pliocene. Except for a thin reef cap present at the eastern edge of the LT, no other in-place reefal constructions have been observed in the LT. The DOL of western Désirade are interpreted as below wave base gravity deposits that accumulated beneath a steep fore-reef slope. They document the mobilisation of carbonate material (including Larger Foraminifera) from an adjacent carbonate platform by storms and their gravitational emplacement as debris and grain flows. The provenance of both the reefal carbonate debris and the tuffaceous components redeposited in the carbonates of La Désirade must be to the west, i. e. the carbonate platforms of Marie Galante and Grande Terre.

A low number of Swiss companies uses nanoparticles

Nanoparticles <100 nanometres are being introduced into industrial processes, but they are suspected to cause similar negative health effects to ambient particles. Poor knowledge about the scale of introduction has not allowed global risk analysis until now. In 2006 a targeted telephone survey among Swiss companies (1) showed the usage of nanoparticles in a few selected companies but did not provide data to extrapolate to the full Swiss workforce. The purpose of the study presented here was to provide a quantitative estimate of the potential occupational exposure to nanoparticles in Swiss industry. Method: A layered representative questionnaire survey among 1626 Swiss companies of the production sector was conducted in 2007. The survey was a written questionnaire, collecting data about the used nanoparticles, the number of potentially exposed persons in the companies and their protection strategy. Results: The response rate of the study was 58.3%. The number of companies estimated to be using nanoparticles in Switzerland was 586 (95% Confidence Interval 145 to 1027). It is estimated that 1309 workers (95% CI 1073 to 1545) do their job in the same room as a nanoparticle application. Personal protection was shown to be the predominant protection means. Such information is valuable for risk evaluation. The low number of companies dealing with nanoparticles in Switzerland suggests that policy makers as well as health, safety and environmental officers within companies can focus their efforts on a relatively small number of companies or workers. The collected data about types of particles and applications may be used for research on prevention strategies and adapted protection means. However, to reflect the most recent trends, the information presented here has to be continuously updated, and a large-scale inventory of the usage should be considered.

Financial Markets and Real Ecinomy: Four Essays in International Trade

Financial markets play an important role in an economy performing various functions like mobilizing and pooling savings, producing information about investment opportunities, screening and monitoring investments, implementation of corporate governance, diversification and management of risk. These functions influence saving rates, investment decisions, technological innovation and, therefore, have important implications for welfare. In my PhD dissertation I examine the interplay of financial and product markets by looking at different channels through which financial markets may influence an economy.My dissertation consists of four chapters. The first chapter is a co-authored work with Martin Strieborny, a PhD student from the University of Lausanne. The second chapter is a co-authored work with Melise Jaud, a PhD student from the Paris School of Economics. The third chapter is co-authored with both Melise Jaud and Martin Strieborny. The last chapter of my PhD dissertation is a single author paper.Chapter 1 of my PhD thesis analyzes the effect of financial development on growth of contract intensive industries. These industries intensively use intermediate inputs that neither can be sold on organized exchange, nor are reference-priced (Levchenko, 2007; Nunn, 2007). A typical example of a contract intensive industry would be an industry where an upstream supplier has to make investments in order to customize a product for needs of a downstream buyer. After the investment is made and the product is adjusted, the buyer may refuse to meet a commitment and trigger ex post renegotiation. Since the product is customized to the buyer's needs, the supplier cannot sell the product to a different buyer at the original price. This is referred in the literature as the holdup problem. As a consequence, the individually rational suppliers will underinvest into relationship-specific assets, hurting the downstream firms with negative consequences for aggregate growth. The standard way to mitigate the hold up problem is to write a binding contract and to rely on the legal enforcement by the state. However, even the most effective contract enforcement might fail to protect the supplier in tough times when the buyer lacks a reliable source of external financing. This suggests the potential role of financial intermediaries, banks in particular, in mitigating the incomplete contract problem. First, financial products like letters of credit and letters of guarantee can substantially decrease a risk and transaction costs of parties. Second, a bank loan can serve as a signal about a buyer's true financial situation, an upstream firm will be more willing undertake relationship-specific investment knowing that the business partner is creditworthy and will abstain from myopic behavior (Fama, 1985; von Thadden, 1995). Therefore, a well-developed financial (especially banking) system should disproportionately benefit contract intensive industries.The empirical test confirms this hypothesis. Indeed, contract intensive industries seem to grow faster in countries with a well developed financial system. Furthermore, this effect comes from a more developed banking sector rather than from a deeper stock market. These results are reaffirmed examining the effect of US bank deregulation on the growth of contract intensive industries in different states. Beyond an overall pro-growth effect, the bank deregulation seems to disproportionately benefit the industries requiring relationship-specific investments from their suppliers.Chapter 2 of my PhD focuses on the role of the financial sector in promoting exports of developing countries. In particular, it investigates how credit constraints affect the ability of firms operating in agri-food sectors of developing countries to keep exporting to foreign markets.Trade in high-value agri-food products from developing countries has expanded enormously over the last two decades offering opportunities for development. However, trade in agri-food is governed by a growing array of standards. Sanitary and Phytosanitary standards (SPS) and technical regulations impose additional sunk, fixed and operating costs along the firms' export life. Such costs may be detrimental to firms' survival, "pricing out" producers that cannot comply. The existence of these costs suggests a potential role of credit constraints in shaping the duration of trade relationships on foreign markets. A well-developed financial system provides the funds to exporters necessary to adjust production processes in order to meet quality and quantity requirements in foreign markets and to maintain long-standing trade relationships. The products with higher needs for financing should benefit the most from a well functioning financial system. This differential effect calls for a difference-in-difference approach initially proposed by Rajan and Zingales (1998). As a proxy for demand for financing of agri-food products, the sanitary risk index developed by Jaud et al. (2009) is used. The empirical literature on standards and norms show high costs of compliance, both variable and fixed, for high-value food products (Garcia-Martinez and Poole, 2004; Maskus et al., 2005). The sanitary risk index reflects the propensity of products to fail health and safety controls on the European Union (EU) market. Given the high costs of compliance, the sanitary risk index captures the demand for external financing to comply with such regulations.The prediction is empirically tested examining the export survival of different agri-food products from firms operating in Ghana, Mali, Malawi, Senegal and Tanzania. The results suggest that agri-food products that require more financing to keep up with food safety regulation of the destination market, indeed sustain longer in foreign market, when they are exported from countries with better developed financial markets.Chapter 3 analyzes the link between financial markets and efficiency of resource allocation in an economy. Producing and exporting products inconsistent with a country's factor endowments constitutes a serious misallocation of funds, which undermines competitiveness of the economy and inhibits its long term growth. In this chapter, inefficient exporting patterns are analyzed through the lens of the agency theories from the corporate finance literature. Managers may pursue projects with negative net present values because their perquisites or even their job might depend on them. Exporting activities are particularly prone to this problem. Business related to foreign markets involves both high levels of additional spending and strong incentives for managers to overinvest. Rational managers might have incentives to push for exports that use country's scarce factors which is suboptimal from a social point of view. Export subsidies might further skew the incentives towards inefficient exporting. Management can divert the export subsidies into investments promoting inefficient exporting.Corporate finance literature stresses the disciplining role of outside debt in counteracting the internal pressures to divert such "free cash flow" into unprofitable investments. Managers can lose both their reputation and the control of "their" firm if the unpaid external debt triggers a bankruptcy procedure. The threat of possible failure to satisfy debt service payments pushes the managers toward an efficient use of available resources (Jensen, 1986; Stulz, 1990; Hart and Moore, 1995). The main sources of debt financing in the most countries are banks. The disciplining role of banks might be especially important in the countries suffering from insufficient judicial quality. Banks, in pursuing their rights, rely on comparatively simple legal interventions that can be implemented even by mediocre courts. In addition to their disciplining role, banks can promote efficient exporting patterns in a more direct way by relaxing credit constraints of producers, through screening, identifying and investing in the most profitable investment projects. Therefore, a well-developed domestic financial system, and particular banking system, would help to push a country's exports towards products congruent with its comparative advantage.This prediction is tested looking at the survival of different product categories exported to US market. Products are identified according to the Euclidian distance between their revealed factor intensity and the country's factor endowments. The results suggest that products suffering from a comparative disadvantage (labour-intensive products from capital-abundant countries) survive less on the competitive US market. This pattern is stronger if the exporting country has a well-developed banking system. Thus, a strong banking sector promotes exports consistent with a country comparative advantage.Chapter 4 of my PhD thesis further examines the role of financial markets in fostering efficient resource allocation in an economy. In particular, the allocative efficiency hypothesis is investigated in the context of equity market liberalization.Many empirical studies document a positive and significant effect of financial liberalization on growth (Levchenko et al. 2009; Quinn and Toyoda 2009; Bekaert et al., 2005). However, the decrease in the cost of capital and the associated growth in investment appears rather modest in comparison to the large GDP growth effect (Bekaert and Harvey, 2005; Henry, 2000, 2003). Therefore, financial liberalization may have a positive impact on growth through its effect on the allocation of funds across firms and sectors.Free access to international capital markets allows the largest and most profitable domestic firms to borrow funds in foreign markets (Rajan and Zingales, 2003). As domestic banks loose some of their best clients, they reoptimize their lending practices seeking new clients among small and younger industrial firms. These firms are likely to be more risky than large and established companies. Screening of customers becomes prevalent as the return to screening rises. Banks, ceteris paribus, tend to focus on firms operating in comparative-advantage sectors because they are better risks. Firms in comparative-disadvantage sectors finding it harder to finance their entry into or survival in export markets either exit or refrain from entering export markets. On aggregate, one should therefore expect to see less entry, more exit, and shorter survival on export markets in those sectors after financial liberalization.The paper investigates the effect of financial liberalization on a country's export pattern by comparing the dynamics of entry and exit of different products in a country export portfolio before and after financial liberalization.The results suggest that products that lie far from the country's comparative advantage set tend to disappear relatively faster from the country's export portfolio following the liberalization of financial markets. In other words, financial liberalization tends to rebalance the composition of a country's export portfolio towards the products that intensively use the economy's abundant factors.

The influence of supplementary health insurance on switching behaviour: evidence from Swiss data.

This paper focuses on the switching behaviour of enrolees in the Swiss basic health insurance system. Even though the new Federal Law on Social Health Insurance (LAMal) was implemented in 1996 to promote competition among health insurers in basic insurance, there is limited evidence of premium convergence within cantons. This indicates that competition has not been effective so far, and reveals some inertia among consumers who seem reluctant to switch to less expensive funds. We investigate one possible barrier to switching behaviour, namely the influence of supplementary insurance. We use survey data on health plan choice (a sample of 1943 individuals whose switching behaviours were observed between 1997 and 2000) as well as administrative data relative to all insurance companies that operated in the 26 Swiss cantons between 1996 and 2005. The decision to switch and the decision to subscribe to a supplementary contract are jointly estimated.Our findings show that holding a supplementary insurance contract substantially decreases the propensity to switch. However, there is no negative impact of supplementary insurance on switching when the individual assesses his/her health as 'very good'. Our results give empirical support to one possible mechanism through which supplementary insurance might influence switching decisions: given that subscribing to basic and supplementary contracts with two different insurers may induce some administrative costs for the subscriber, holding supplementary insurance acts as a barrier to switch if customers who consider themselves 'bad risks' also believe that insurers reject applications for supplementary insurance on these grounds. In comparison with previous research, our main contribution is to offer a possible explanation for consumer inertia. Our analysis illustrates how consumer choice for one's basic health plan interacts with the decision to subscribe to supplementary insurance.

Paleohydrological Reconstruction from Late Holocene Records in Interdune Lakes (N'Guigmi, Northern Bank of the Lake Chad, Niger)

An old erg covers the northern part of the Lake Chad basin. This dune landform allowed the formation of many inter- dune ponds of various sizes. Still present in certain zones where the groundwater level is high (e.g. Kanem, southern Manga), these ponds formed in the past a vast network of lacustrine microsystems, as shown by the nature and the dis- tribution of their deposits. In the Manga, these interdune deposits represent the main sedimentary records of the Holo- cene environmental succession. Their paleobiological (pollens, diatoms, ostracods) and geochemical (δ18O, δ13C, Sr/ Ca) contents are often the basis for paleoenvironmental reconstruction. On the other hand, their sedimentological char- acters are rarely exploited. This study of palustro-lacustrine deposits of the Holocene N'Guigmi lake (northern bank of the Lake Chad; Niger) is based on the relationships between the sedimentological features and the climato-hydrological fluctuations. The mineralogical parameters (e.g. calcium carbonate content, clay mineralogy) and the nature of autoch- thonous mineralization (i.e. amorphous silica, clays, calcium carbonates) can be interpreted using a straightforward hy- dro-sedimentary model. Established to explain the geochemical dynamics of Lake Chad, this model is based on a bio- geochemical cycle of the main elements (i.e. silicium, calcium) directly controlled by the local hydrological balance (i.e. rainfall/evaporation ratio). All these results show that a detailed study of sedimentological features can provide impor- tant paleohydrological informations about the regional aridification since ca 6500 14C BP.

The impact of authority advice and accountability on auditors' decision to recognise norm-violating transactions.

Auditors face the difficult responsibilty to approve companies' financial accounting information reliably. They are trained to work according to accounting standards that are designed to help them in their decision making. Yet, auditors do not work in a social vacuum and are thus subject to various influences. One important source of influence at work is authority figures (e.g., experts, supervisors). On this background, we examined within two studies the impact of (1) authority advice to comply with accounting standards or to additionally maximize profits and (2) of participants' accountability for their decision. In Study 1, (n = 184 accounting students), participants who were advised by an authority to comply with accounting standards had a lower probability to recognise transactions that violated those standards than participants who were advised to comply but also to maximise profit. However, holding participants accountable for their decision reduced the difference between the two groups. In Study 2, (n = 58 managers), we again found an interaction between authority advice and accountability. But unlike the first study, participants only showed a lower probability to recognise transactions that violated accounting standards when they were held accountable and when the authority only advised them to comply with the standards. We discuss our results in light of unethical decision making and different norms or pressures to which managers may be exposed but students may not.

Industrial nanoparticle application : representative survey among Swiss companies shows low usage and basic protection means

Manufactured nanoparticles are introduced into industrial processes, but they are suspected to cause similar negative health effects as ambient particles. The poor knowledge about the scale of this introduction did not allow global risk analysis so far. In 2006 a targeted telephone survey among Swiss companies (1) showed the usage of nanoparticles in a few selected companies but did not provide data to extrapolate on the totality of the Swiss workforce. To gain this kind of information a layered representative questionnaire survey among 1'626 Swiss companies was conducted in 2007. Data was collected about the number of potentially exposed persons in the companies and their protection strategy. The response rate was 58.3%. An expected number of 586 companies (95%−confidence interval 145 to 1'027) was shown by this study to use nanoparticles in Switzerland. Estimated 1'309 (1'073 to 1'545) workers do their job in the same room as a nanoparticle application. Personal protection was shown to be the predominant type of protection means. Companies starting productions with nanomaterials need to consider incorporating protection measures into the plans. This will not only benefit the workers' health, but will also likely increase the competitiveness of the companies. Technical and organisational protection means are not only more cost−effective on the long term, but are also easier to control. Guidelines may have to be designed specifically for different industrial applications, including fields outside nanotechnology, and adapted to all sizes of companies.

Effective corporate governance : experimental evidence on international auditors'judgments and the contribution of financial accounting education

1 Summary This dissertation deals with two major aspects of corporate governance that grew in importance during the last years: the internal audit function and financial accounting education. In three essays, I contribute to research on these topics which are embedded in the broader corporate governance literature. The first two essays consist of experimental investigations of internal auditors' judgments. They deal with two research issues for which accounting research lacks evidence: The effectiveness of internal controls and the potentially conflicting role of the internal audit function between management and the audit committee. The findings of the first two essays contribute to the literature on internal auditors' judgment and the role of the internal audit function as a major cornerstone of corporate governance. The third essay theoretically examines a broader issue but also relates to the overall research question of this dissertation: What contributes to effective corporate governance? This last essay takes the perspective that the root for quality corporate governance is appropriate financial accounting education. r develop a public interest approach to accounting education that contributes to the literature on adequate accounting education with respect to corporate governance and accounting harmonization. The increasing importance of both the internal audit function and accounting education for corporate governance can be explained by the same recent fundamental changes that still affect accounting research and practice. First, the Sarbanes-Oxley Act of 2002 (SOX, 2002) and the 8th EU Directive (EU, 2006) have led to a bigger role for the internal audit function in corporate governance. Their implications regarding the implementation of audit committees and their oversight over internal controls are extensive. As a consequence, the internal audit function has become increasingly important for corporate governance and serves a new master (i.e. the audit committee) within the company in addition to management. Second, the SOX (2002) and the 8th EU Directive introduced additional internal control mechanisms that are expected to contribute to the reliability of financial information. As a consequence, the internal audit function is expected to contribute to a greater extent to the reliability of financial statements. Therefore, effective internal control mechanisms that strengthen objective judgments and independence become important. This is especially true when external- auditors rely on the work of internal auditors in the context of the International Standard on Auditing (ISA) 610 and the equivalent US Statement on Auditing Standards (SAS) 65 (see IFAC, 2009 and AICPA, 1990). Third, the harmonization of international reporting standards is increasingly promoted by means of a principles-based approach. It is the leading approach since a study of the SEC (2003) that was required by the SOX (2002) in section 108(d) was in favor of this approach. As a result, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) commit themselves to the development of compatible accounting standards based on a principles-based approach. Moreover, since the Norwalk Agreement of 2002, the two standard setters have developed exposure drafts for a common conceptual framework that will be the basis for accounting harmonization. The new .framework will be in favor of fair value measurement and accounting for real-world economic phenomena. These changes in terms of standard setting lead to a trend towards more professional judgment in the accounting process. They affect internal and external auditors, accountants, and managers in general. As a consequence, a new competency set for preparers and users of financial statements is required. The basil for this new competency set is adequate accounting education (Schipper, 2003). These three issues which affect corporate governance are the initial point of this dissertation and constitute its motivation. Two broad questions motivated a scientific examination in three essays: 1) What are major aspects to be examined regarding the new role of the internal audit function? 2) How should major changes in standard setting affect financial accounting education? The first question became apparent due to two published literature reviews by Gramling et al. (2004) and Cohen, Krishnamoorthy & Wright (2004). These studies raise various questions for future research that are still relevant and which motivate the first two essays of my dissertation. In the first essay, I focus on the role of the internal audit function as one cornerstone of corporate governance and its potentially conflicting role of serving both management and the audit committee (IIA, 2003). In an experimental study, I provide evidence on the challenges for internal auditors in their role as servant for two masters -the audit committee and management -and how this influences internal auditors' judgment (Gramling et al. 2004; Cohen, Krishnamoorthy & Wright, 2004). I ask if there is an expectation gap between what internal auditors should provide for corporate governance in theory compared to what internal auditors are able to provide in practice. In particular, I focus on the effect of serving two masters on the internal auditor's independence. I argue that independence is hardly achievable if the internal audit function serves two masters with conflicting priorities. The second essay provides evidence on the effectiveness of accountability as an internal control mechanism. In general, internal control mechanisms based on accountability were enforced by the SOX (2002) and the 8th EU Directive. Subsequently, many companies introduced sub-certification processes that should contribute to an objective judgment process. Thus, these mechanisms are important to strengthen the reliability of financial statements. Based on a need for evidence on the effectiveness of internal control mechanisms (Brennan & Solomon, 2008; Gramling et al. 2004; Cohen, Krishnamoorthy & Wright, 2004; Solomon & Trotman, 2003), I designed an experiment to examine the joint effect of accountability and obedience pressure in an internal audit setting. I argue that obedience pressure potentially can lead to a negative influence on accountants' objectivity (e.g. DeZoort & Lord, 1997) whereas accountability can mitigate this negative effect. My second main research question - How should major changes in standard setting affect financial accounting education? - is investigated in the third essay. It is motivated by the observation during my PhD that many conferences deal with the topic of accounting education but very little is published about what needs to be done. Moreover, the Endings in the first two essays of this thesis and their literature review suggest that financial accounting education can contribute significantly to quality corporate governance as argued elsewhere (Schipper, 2003; Boyce, 2004; Ghoshal, 2005). In the third essay of this thesis, I therefore focus on approaches to financial accounting education that account for the changes in standard setting and also contribute to corporate governance and accounting harmonization. I argue that the competency set that is required in practice changes due to major changes in standard setting. As the major contribution of the third article, I develop a public interest approach for financial accounting education. The major findings of this dissertation can be summarized as follows. The first essay provides evidence to an important research question raised by Gramling et al. (2004, p. 240): "If the audit committee and management have different visions for the corporate governance role of the IAF, which vision will dominate?" According to the results of the first essay, internal auditors do follow the priorities of either management or the audit committee based on the guidance provided by the Chief Audit executive. The study's results question whether the independence of the internal audit function is actually achievable. My findings contribute to research on internal auditors' judgment and the internal audit function's independence in the broader frame of corporate governance. The results are also important for practice because independence is a major justification for a positive contribution of the internal audit function to corporate governance. The major findings of the second essay indicate that the duty to sign work results - a means of holding people accountable -mitigates the negative effect of obedience pressure on reliability. Hence, I found evidence that control .mechanisms relying on certifications may enhance the reliability of financial information. These findings contribute to the literature on the effectiveness of internal control mechanisms. They are also important in the light of sub-certification processes that resulted from the Sarbanes-Oxley Act and the 8th EU Directive. The third essay contributes to the literature by developing a measurement framework that accounts for the consequences of major trends in standard setting. Moreovér, it shows how these trends affect the required .competency set of people dealing with accounting issues. Based on this work, my main contribution is the development of a public interest approach for the design of adequate financial accounting curricula. 2 Serving two masters: Experimental evidence on the independence of internal auditors Abstract Twenty nine internal auditors participated in a study that examines the independence of internal auditors in their potentially competing roles of serving two masters: the audit committee and management. Our main hypothesis suggests that internal auditors' independence is not achievable in an institutional setting in which internal auditors are accountable to two different parties with potentially differing priorities. We test our hypothesis in an experiment in which the treatment consisted of two different instructions of the Chief audit executive; one stressing the priority of management (cost reduction) and one stressing the priority of the audit committee (effectiveness). Internal auditors had to evaluate internal controls and their inherent costs of different processes which varied in their degree of task complexity. Our main results indicate that internal auditors' evaluation of the processes is significantly different when task complexity is high. Our findings suggest that internal auditors do follow the priorities of either management or the audit committee depending on the instructions of a superior internal auditor. The study's results question whether the independence of the internal audit function is actually achievable. With our findings, we contribute to research on internal auditors' judgment and the internal audit function's independence in the frame of corporate governance.