Audit pricing, reporting quality, and auditor switches in the post -SOX period

The Sarbanes-Oxley Act represents an important watershed event in the history and regulation of the accounting profession. In this dissertation, I develop arguments as to why we can expect differences in auditor behavior before and after SOX and empirically test if indeed there were differences in auditor behavior before and after SOX. My dissertation consists of three essays. For the three essays, I investigate issues related to auditor independence, audit pricing, the impact of auditor changes in the post-SOX period. The motivation for the first part of my research comes from the SEC's assertions that there are differences between types of non-audit services in terms of their potential to adversely impact auditor independence. The first part of my dissertation empirically validates the SEC's assertions that auditors would be more conservative in those instances where the tax and other non-audit services fee ratios are high but not when the audit-related fee ratio is high. The second part of my study examines if auditors are less likely to "low ball" their audit fees in the period after SOX than in the period preceding SOX. Legislators, regulators, and the media have expressed concerns that auditors "low ball" the fees for initial year audits and that such low-balling can lead to reduced audit quality. I find that there is significant initial year audit fee discount in pre-SOX period and but the fee discount does not hold in post-SOX periods. The third part of my dissertation examines the association between auditor switches and auditor conservatism. I find that a large portion of Big 4 clients switch to non-Big 4 auditors and there is no significant evidence indicating that successor auditors are more conservative in the post-SOX period.

Risk based post closure care analysis for Florida landfills

Subtitle D of the Resource Conservation and Recovery Act (RCRA) requires a post closure period of 30 years for non hazardous wastes in landfills. Post closure care (PCC) activities under Subtitle D include leachate collection and treatment, groundwater monitoring, inspection and maintenance of the final cover, and monitoring to ensure that landfill gas does not migrate off site or into on site buildings. The decision to reduce PCC duration requires exploration of a performance based methodology to Florida landfills. PCC should be based on whether the landfill is a threat to human health or the environment. Historically no risk based procedure has been available to establish an early end to PCC. Landfill stability depends on a number of factors that include variables that relate to operations both before and after the closure of a landfill cell. Therefore, PCC decisions should be based on location specific factors, operational factors, design factors, post closure performance, end use, and risk analysis. The question of appropriate PCC period for Florida’s landfills requires in depth case studies focusing on the analysis of the performance data from closed landfills in Florida. Based on data availability, Davie Landfill was identified as case study site for a case by case analysis of landfill stability. The performance based PCC decision system developed by Geosyntec Consultants was used for the assessment of site conditions to project PCC needs. The available data for leachate and gas quantity and quality, ground water quality, and cap conditions were evaluated. The quality and quantity data for leachate and gas were analyzed to project the levels of pollutants in leachate and groundwater in reference to maximum contaminant level (MCL). In addition, the projected amount of gas quantity was estimated. A set of contaminants (including metals and organics) were identified as contaminants detected in groundwater for health risk assessment. These contaminants were selected based on their detection frequency and levels in leachate and ground water; and their historical and projected trends. During the evaluations a range of discrepancies and problems that related to the collection and documentation were encountered and possible solutions made. Based on the results of PCC performance integrated with risk assessment, projection of future PCC monitoring needs and sustainable waste management options were identified. According to these results, landfill gas monitoring can be terminated, leachate and groundwater monitoring for parameters above MCL and surveying of the cap integrity should be continued. The parameters which cause longer monitoring periods can be eliminated for the future sustainable landfills. As a conclusion, 30 year PCC period can be reduced for some of the landfill components based on their potential impacts to human health and environment (HH&E).

Risk Based Post Closure Care Analysis for Florida Landfills

Subtitle D of the Resource Conservation and Recovery Act (RCRA) requires a post closure period of 30 years for non hazardous wastes in landfills. Post closure care (PCC) activities under Subtitle D include leachate collection and treatment, groundwater monitoring, inspection and maintenance of the final cover, and monitoring to ensure that landfill gas does not migrate off site or into on site buildings. The decision to reduce PCC duration requires exploration of a performance based methodology to Florida landfills. PCC should be based on whether the landfill is a threat to human health or the environment. Historically no risk based procedure has been available to establish an early end to PCC. Landfill stability depends on a number of factors that include variables that relate to operations both before and after the closure of a landfill cell. Therefore, PCC decisions should be based on location specific factors, operational factors, design factors, post closure performance, end use, and risk analysis. The question of appropriate PCC period for Florida’s landfills requires in depth case studies focusing on the analysis of the performance data from closed landfills in Florida. Based on data availability, Davie Landfill was identified as case study site for a case by case analysis of landfill stability. The performance based PCC decision system developed by Geosyntec Consultants was used for the assessment of site conditions to project PCC needs. The available data for leachate and gas quantity and quality, ground water quality, and cap conditions were evaluated. The quality and quantity data for leachate and gas were analyzed to project the levels of pollutants in leachate and groundwater in reference to maximum contaminant level (MCL). In addition, the projected amount of gas quantity was estimated. A set of contaminants (including metals and organics) were identified as contaminants detected in groundwater for health risk assessment. These contaminants were selected based on their detection frequency and levels in leachate and ground water; and their historical and projected trends. During the evaluations a range of discrepancies and problems that related to the collection and documentation were encountered and possible solutions made. Based on the results of PCC performance integrated with risk assessment, projection of future PCC monitoring needs and sustainable waste management options were identified. According to these results, landfill gas monitoring can be terminated, leachate and groundwater monitoring for parameters above MCL and surveying of the cap integrity should be continued. The parameters which cause longer monitoring periods can be eliminated for the future sustainable landfills. As a conclusion, 30 year PCC period can be reduced for some of the landfill components based on their potential impacts to human health and environment (HH&E).

Consequences of financial restatements for auditors and top executives

This dissertation consists of three essays and investigates issues related to the impact of financial restatements on auditor change, shareholder actions, and executive turnover in the post-Sarbanes Oxley Act (SOX) period. For the first essay, we examined auditor change at 569 restatement firms and 5,605 control firms for 2004. We found that restatement announcements significantly increased the likelihood of auditor resignation and dismissal in the post-SOX period. The second essay examines shareholder voting on auditor ratifications in 2006 following restatement announcements by SEC registrants in 2005. The proportion of votes not supporting auditor ratification is low even in the presence of a restatement. However, we find that shareholders are more likely to vote against auditor ratification after a restatement when compared to votes at (a) films without restatements, or (b) restating firms in the preceding period. The third essay examines the consequences of financial restatements on the turnover of chief financial officers (CFO). We find that restatement announcements do significantly increase the likelihood of CFO turnover no matter whether the departure is voluntary or forced in nature. Also, the significant relationship is present even after controlling for the effect of CEO turnover.

Armenia's foreign policy, 1991–2004: Between history and geopolitics

This dissertation is the first systematic study of Armenia’s foreign policy during the post-independence period, between 1991 and 2004. It argues that a small state’s foreign policy is best understood when looking at the regional level. Armenia’s geographic proximity to Iran, Russia and Turkey, places it in an area of heightened geopolitical interest by various great powers. This dissertation explores four sets of relationships with Armenia’s major historical ‘partners’: Russia, Iran, Turkey and the West (Europe and the United States). Each relationship reveals a complex reality of a continuous negotiation between ideas of history, collective memory, nationalism and geopolitics. A detailed study of Armenia’s relations with these powers demonstrates how actors’ relations of amity and enmity are formed to constitute a regional security complex. Turkey represents the ultimate “other”, while both Europe and Iran are seen as ideational “others”, whose role in Armenia’s foreign policy, aside from pragmatic policy considerations, reflects a normative quest. Russia and the United States, on the other hand, represent the powerful structural forces that define the regional security complex, in which Armenia operates. This dissertation argues that although Armenia has been severely constrained in certain foreign policy choices, it was adept at carving a space for action that privileged the issue of Nagorno-Karabakh over other geopolitical imperatives.

Executive characteristics and going concern opinions

Auditors have come under increased scrutiny over the past several years about the growing number of client failures without a warning in the form of a going-concern modified (GCM) audit opinion. Statement on Auditing Standards No. 59 requires auditors to evaluate whether substantial doubt exists on an audit client’s ability to continue as a going concern (AICPA 1988). My dissertation consists of three essays. ^ For the three essays, I empirically investigate issues related to GCM audit opinions and executive characteristics. Specifically, I examine the impact of executive tenure and gender on the issuance of GCM audit opinions. In addition, my dissertation addresses two other unique issues. Given that the Sarbanes-Oxley Act represents an important watershed event in the history and regulation of the accounting profession, I provide evidence about auditors’ propensities to issue GCM audit opinions in the post-SOX period. Further, I also expand extant research in this area by using multiple outcomes and thus go beyond the traditional use of bankruptcy alone as a tool to evaluate auditors’ GCM opinion. ^ The results indicate that, after controlling for other financial characteristics, GCM audit opinions are significantly more likely for firms that have CFOs with short tenure and/or for firms with a female CFO or CEO. However, when examining the association between executive characteristics and two types of reporting errors, the results vary with the type of reporting error. Overall, the results provide evidence that executive characteristics are associated with auditors' reporting decisions. ^

The electoral geography of the Slovak Republic: A comparison of the 1994, 1998, and 2002 parliamentary elections

In what can rightly be said to be one of the most dramatic geopolitical shifts in modern times, the collapse of communist regimes in Central Europe and the former Soviet Union brought about dramatic changes in the entire region. As a consequence, wide ranging political, economic, and social transformations have occurred in almost all of these countries since 1989. The Slovak Republic, as a newly democratic country, went through the establishment of the electoral and party systems that are the central mechanisms to the formation of almost all modern democratic governments. The primary research purpose of this dissertation was to describe and explain regional variations in party support during Slovakia’s ten years of democratic transformation. A secondary purpose was to relate these spatial variations to the evolution of political parties in the post-independence period in light of the literature on transitional electoral systems. Research questions were analyzed using both aggregate and survey data. Specifically, the study utilized electoral data from 1994, 1998, and 2002 Slovak parliamentary elections and socio-economic data of the population within Slovak regions which were eventually correlated with the voting results by party in the 79 Slovak districts. The results of this study demonstrate that there is a tendency among voters in certain regions to provide continuous support to the same political parties/movements over time. In addition, the socio-economic characteristics of the Slovak population (gender, age, education, religion, nationality, unemployment, work force distribution, wages, urban-rural variable, and population density) in different regions tend to influence voting preferences in the parliamentary elections. Finally, there is an evident correlation between party preference and the party’s position on integration into European Union, as measured by perceived attitudes regarding the benefits of EU membership.

Rapid responses of vegetation to hydrological changes in Taylor Slough, Everglades National Park, Florida, USA

We analyzed the dynamics of freshwater marsh vegetation of Taylor Slough in eastern Everglades National Park for the 1979 to 2003 period, focusing on cover of individual plant species and on cover and composition of marsh communities in areas potentially influenced by a canal pump station (‘‘S332’’) and its successor station (‘‘S332D’’). Vegetation change analysis incorporated the hydrologic record at these sites for three intervals: pre-S332 (1961–1980), S332 (1980–1999), post-S332 (1999–2002). During S332 and post-S332 intervals, water level in Taylor Slough was affected by operations of S332 and S332D. To relate vegetation change to plot-level hydrological conditions in Taylor Slough, we developed a weighted averaging regression and calibration model (WA) using data from the marl prairies of Everglades National Park and Big Cypress National Preserve. We examined vegetation pattern along five transects. Transects 1–3 were established in 1979 south of the water delivery structures, and were influenced by their operations. Transects 4 and 5 were established in 1997, the latter west of these structures and possibly under their influence. Transect 4 was established in the northern drainage basin of Taylor Slough, beyond the likely zones of influence of S332 and S332D. The composition of all three southern transects changed similarly after 1979. Where muhly grass (Muhlenbergia capillaris var. filipes) was once dominant, sawgrass (Cladium jamaicense), replaced it, while where sawgrass initially predominated, hydric species such as spikerush (Eleocharis cellulosa Torr.) overtook it. Most of the changes in species dominance in Transects 1–3 occurred after 1992, were mostly in place by 1995–1996, and continued through 1999, indicating how rapidly vegetation in seasonal Everglades marshes can respond to hydrological modifications. During the post-S332 period, these long-term trends began reversing. In the two northern transects, total cover and dominance of both muhly grass and sawgrass increased from 1997 to 2003. Thus, during the 1990’s, vegetation composition south of S332 became more like that of long hydroperiod marshes, but afterward it partially returned to its 1979 condition, i.e., a community characteristic of less prolonged flooding. In contrast, the vegetation change along the two northern transects since 1997 showed little relationship to hydrologic status.

Mapping Transnational Crime in El Salvador: New Trends and Lessons from Colombia

Since El Salvador’s civil war formally ended in 1992 the small Central American nation has undergone profound social changes and significant reforms. However, few changes have been as important or as devastating as the nation’s emergence as a central hub in the transnational criminal “pipeline” or series of recombinant, overlapping chains of routes and actors that illicit organizations use to traffic in drugs, money weapons, human being, endangered animals and other products. The erasing of the once-clear ideological lines that drove the civil war and the ability of erstwhile enemies to join forces in criminal enterprises in the post-war period is an enduring and dangerous characteristic of El Salvador’s transnational criminal evolution. Trained, elite cadres from both sides, with few legitimate job opportunities, found their skills were marketable in the growing criminal structures. The groups moved from kidnapping and extortion to providing protection services to transnational criminal organizations to becoming integral parts of the organizations themselves. The demand for specialized military and transportation services in El Salvador have exploded as the Mexican DTOs consolidate their hold on the cocaine market and their relationships with the transportista networks, which is still in flux. The value of their services has risen dramatically also because of the fact that multiple Mexican DTOs, at war with each other in Mexico and seeking to physically control the geographic space of the lucrative pipeline routes in from Guatemala to Panama, are eager to increase their military capabilities and intelligence gathering capacities. The emergence of multiple non-state armed groups, often with significant ties to the formal political structure (state) through webs of judicial, legislative and administrative corruption, has some striking parallels to Colombia in the 1980s, where multiple types of violence ultimately challenged the sovereignty of state and left a lasting legacy of embedded corruption within the nation’s political structure. Organized crime in El Salvador is now transnational in nature and more integrated into stronger, more versatile global networks such as the Mexican DTOs. It is a hybrid of both local crime – with gangs vying for control off specific geographic space so they can extract payment for the safe passage of illicit products – and transnational groups that need to use that space to successfully move their products. These symbiotic relationships are both complex and generally transient in nature but growing more consolidated and dangerous.

Essays in economic growth, political economy and institutions

This dissertation analyzes the effects of political and economic institutions on economic development and growth.^ The first essay develops an overlapping-generations political economy model to analyze the incentives of various social groups to finance human capital accumulation through public education expenditures. The contribution of this study to the literature is that it helps explain the observed differences in the economic growth performance of natural resource-abundant countries. The results suggest that the preferred tax rates of the manufacturers on one hand and the political coalition of manufacturers and landowners, on the other hand, are equal to the socially optimal tax rate. However, we show that owners of natural resources prefer an excessively high tax rate, which suppresses aggregate output to a suboptimal level.^ The second essay examines the relationship between the political influence of different social classes and public education spending in panel data estimation. The novel contribution of this paper to the literature is that I proxy the political power and influence of the natural resource owners, manufacturers, and landowners with macroeconomic indicators. The motivation behind this modeling choice is to substantiate the definition of the political power of social classes with economic fundamentals. I use different governance indicators in the estimations to find out how different institutions mediate the overall impact of the political influence of various social classes on public education spending. The results suggest that political stability and absence of violence and rule of law are the important governance indicators.^ The third essay develops a counter argument to Acemoglu et al. (2010) where the thesis is that French institutions and economic reforms fostered economic progress in those German regions invaded by the Napoleonic armies. By providing historical data on urbanization rates used as proxies for economic growth, I demonstrate that similar different rates of economic growth were observed in the regions of France in the post-Napoleonic period as well. The existence of different economic growth rates makes it hard to argue that the differences in economic performance in the German regions that were invaded by the French and those that were spared a similar fate follow from regional differences in economic institutions.^

Three essays on dual-class stock structure

Dual-class stock structure is characterized by the separation of voting rights and cash flow rights. The departure from a common "one share-one vote" configuration creates ideal conditions for conflicts of interest and agency problems between controlling insiders (the holders of voting rights) and remaining shareholders. The owners of voting rights have the opportunity to extract private benefits and act in their personal interest; as a result, dual-class firms are often perceived to have low transparency and high information asymmetry. This dissertation investigates the quality of information and the information environment of firms with two classes of stock. The first essay examines the quality of information by studying accruals in dual-class firms in comparison to firms with only one class of stock. The results suggest that the quality of accruals is better in dual-class firms than in single-class firms. In addition, the difference in the quality of accruals between firms that abolish their dual-class share structure by unification and singe-class firms disappears in the post-unification period. The second essay investigates the earnings informativeness of dual-class firms by examining the explanatory power of earnings for returns. The results indicate that the earnings informativeness is lower for dual-class firms as compared to single-class firms. Earnings informativeness improves in firms that unify their shares. The third essay compares the level of information asymmetry between dual-class firms and single-class firms. It is documented that the information environment for dual-class firms is worse than for single-class firms. Also, the finding suggests that the difference in information environment between dual-class firms and single-class firms disappears after dual-class stock unification.

The effect of domestic credit in the economic *development process

A commonly held view is that creation of excessive domestic credit may lead to inflation problems, however, many economists uphold the possibility that, generous domestic credit under appropriate conditions will result in increases of output. This hypothesis is examined for Japan and Colombia for the period 1950-1993.^ Domestic credit theories are reviewed since the times of Thornton and Smith, until the recent times of Lewis, McKinnon, Stiglitz and of Japanese economists like K. Emi, Tachi R. and others. It is found that in Japan of the Post-War period, efficient financial markets and the decisive role of the government in orienting investment decisions seem to have influenced positively the effectiveness of domestic credit as an output-stimulating variable. On the contrary, in Colombia the absence of the above features seems to explain why domestic credit is not very effective as an output-stimulating variable.^ Multiple regression analyses show that domestic credit is a strong explanatory variable for output increases in Japan and a weak one for Colombia's case in the studied period. For Japan the correlation depicts a positive relationship between the two variables with a decreasing rate very similar to a typical production function. Moreover, the positive decreasing rate is confirmed if net domestic credit is used in the correlations. For Colombia a positive relationship is also found when accumulated domestic credit is used, but, if net domestic credit is the source of correlations, the positive decreasing rate is not obtained.^ Granger causality tests determined causality from domestic credit to output for Japan and no-causality for Colombia at the 1% significance level; the differences are explained by: (1) The low development level of the financial system in Colombia. (2) The nonexistence of consistent domestic credit policy to foster economic development. (3) The lack of an authoritative orientation in the allocation of financial resources and the nonexistence of long range industrialization programs in Colombia that could channel productively credit resources. For the system of equations relating domestic credit and exports, the Granger causality tests determined no-causality between domestic credit and exports for both Japan and Colombia also at the 1% significance level. ^

Armenia's Foreign Policy, 1991-2004: Between History and Geopolitics

This dissertation is the first systematic study of Armenia’s foreign policy during the post-independence period, between 1991 and 2004. It argues that a small state’s foreign policy is best understood when looking at the regional level. Armenia’s geographic proximity to Iran, Russia and Turkey, places it in an area of heightened geopolitical interest by various great powers. This dissertation explores four sets of relationships with Armenia’s major historical ‘partners’: Russia, Iran, Turkey and the West (Europe and the United States). Each relationship reveals a complex reality of a continuous negotiation between ideas of history, collective memory, nationalism and geopolitics. A detailed study of Armenia’s relations with these powers demonstrates how actors’ relations of amity and enmity are formed to constitute a regional security complex. Turkey represents the ultimate “other”, while both Europe and Iran are seen as ideational “others”, whose role in Armenia’s foreign policy, aside from pragmatic policy considerations, reflects a normative quest. Russia and the United States, on the other hand, represent the powerful structural forces that define the regional security complex, in which Armenia operates. This dissertation argues that although Armenia has been severely constrained in certain foreign policy choices, it was adept at carving a space for action that privileged the issue of Nagorno-Karabakh over other geopolitical imperatives.

Executive Characteristics and Going Concern Opinions

Auditors have come under increased scrutiny over the past several years about the growing number of client failures without a warning in the form of a going-concern modified (GCM) audit opinion. Statement on Auditing Standards No. 59 requires auditors to evaluate whether substantial doubt exists on an audit client’s ability to continue as a going concern (AICPA 1988). My dissertation consists of three essays. For the three essays, I empirically investigate issues related to GCM audit opinions and executive characteristics. Specifically, I examine the impact of executive tenure and gender on the issuance of GCM audit opinions. In addition, my dissertation addresses two other unique issues. Given that the Sarbanes-Oxley Act represents an important watershed event in the history and regulation of the accounting profession, I provide evidence about auditors’ propensities to issue GCM audit opinions in the post-SOX period. Further, I also expand extant research in this area by using multiple outcomes and thus go beyond the traditional use of bankruptcy alone as a tool to evaluate auditors’ GCM opinion. The results indicate that, after controlling for other financial characteristics, GCM audit opinions are significantly more likely for firms that have CFOs with short tenure and/or for firms with a female CFO or CEO. However, when examining the association between executive characteristics and two types of reporting errors, the results vary with the type of reporting error. Overall, the results provide evidence that executive characteristics are associated with auditors' reporting decisions.

The Electoral Geography of the Slovak Republic: A Comparison of the 1994, 1998, and 2002 Parliamentary Elections

In what can rightly be said to be one of the most dramatic geopolitical shifts in modern times, the collapse of communist regimes in Central Europe and the former Soviet Union brought about dramatic changes in the entire region. As a consequence, wide ranging political, economic, and social transformations have occurred in almost all of these countries since 1989. The Slovak Republic, as a newly democratic country, went through the establishment of the electoral and party systems that are the central mechanisms to the formation of almost all modern democratic governments. The primary research purpose of this dissertation was to describe and explain regional variations in party support during Slovakia’s ten years of democratic transformation. A secondary purpose was to relate these spatial variations to the evolution of political parties in the post-independence period in light of the literature on transitional electoral systems. Research questions were analyzed using both aggregate and survey data. Specifically, the study utilized electoral data from 1994, 1998, and 2002 Slovak parliamentary elections and socio-economic data of the population within Slovak regions which were eventually correlated with the voting results by party in the 79 Slovak districts. The results of this study demonstrate that there is a tendency among voters in certain regions to provide continuous support to the same political parties/movements over time. In addition, the socio-economic characteristics of the Slovak population (gender, age, education, religion, nationality, unemployment, work force distribution, wages, urban-rural variable, and population density) in different regions tend to influence voting preferences in the parliamentary elections. Finally, there is an evident correlation between party preference and the party’s position on integration into European Union, as measured by perceived attitudes regarding the benefits of EU membership.