Shareholder ratification of the auditor and audit market competition

In my dissertation, I examine factors associated with firms’ submission of auditor selection for shareholder ratification and test if shareholder ratification of auditor selection is associated with the extent of price competition in the audit market (as measured by audit fees) and audit quality (as measured by clients’ earnings management). The dissertation is motivated from the recent recommendation of the U.S. Treasury’s Advisory Committee on Auditing Profession (ACAP) regarding the submission of auditor selection for shareholder ratification votes. The ACAP suggests that this practice may improve the competition in the audit market; yet, there is no empirical evidence supporting the ACAP’s recommendation. My dissertation attempts to fill the gap in the literature on an issue of current interest to the auditing profession. I find that firm size, CEO-Chair duality, insider ownership and institutional ownership are associated with the submission of auditor selection for shareholder ratification vote. However, I do not find an association between audit committee variables and the submission of auditor selection for shareholder ratification vote. The second essay investigates the association between auditor ratification and audit fees. Audit fees are higher in firms that submit auditor selection for shareholder ratification. The finding is not consistent with the increased price competition predicted by the ACAP. The third essay of my dissertation examine whether the submission of auditor selection for shareholder ratification is associated with earnings management. I find that firms that submit auditor selection for shareholder ratification are more likely to have lower level of earnings management. Overall, the results suggest that the same factors that are associated with higher quality monitoring also may be associated with the submission of auditor selection for shareholder ratification vote. The results call into question the one-size-fits-all approach recommended by the ACAP.

Small farmer market knowledge and specialty coffee commodity chains in Western Highlands Guatemala

For producers motivated by their new status as self-employed, landowning, capitalist coffee growers, specialty coffee presents an opportunity to proactively change the way they participate in the international market. Now responsible for determining their own path, many producers have jumped at the chance to enhance the value of their product and participate in the new "fair trade" market. But recent trends in the international coffee price have led many producers to wonder why their efforts to produce a certified Fair Trade and organic product are not generating the price advantage they had anticipated. My study incorporates data collected in eighteen months of fieldwork, including more than 45 interviews with coffee producers and fair trade roasters, 90 surveys of coffee growers, and ongoing participant observation to understand how fair trade certification, as both a market system and development program, meets the expectations of the coffee growers. By comparing three coffee cooperatives that have engaged the Fair Trade system to disparate ends, the results of this investigation are three case studies that demonstrate how global processes of certification, commodity trade, market interaction, and development aid effect social and cultural change within communities. This study frames several lessons learned in terms of (1) socioeconomic impacts of fair trade, (2) characteristics associated with positive development encounters, and (3) potential for commodity producers to capture value further along their global value chain. Commodity chain comparisons indicate the Fair Trade certified cooperative receives the highest per-pound price, though these findings are complicated by costs associate with certification and producers' perceptions of an "unjust" system. Fair trade-supported projects are demonstrated as more "successful" in the eyes of recipients, though their attention to detail can just as easily result in "failure". Finally, survey results reveal just how limited is the market knowledge of producers in each cooperative, though fair trade does, in fact, provide a rare opportunity for producers to learn about consumer demand for coffee quality. Though bittersweet, the fair trade experiences described here present a learning opportunity for a wide range of audiences, from the certified to the certifiers to the concerned public and conscientious consumer.

Strategic positioning of Taiwan in the outsourcing market: Evidence from information technology services and electronic manufacturing outsourcing to China

In outsourcing relationships with China, the Electronic Manufacturing (EM) and Information Technology Services (ITS) industry in Taiwan may possess such advantages as the continuing growth of its production value, complete manufacturing supply chain, low production cost and a large-scale Chinese market, and language and culture similarity compared to outsourcing to other countries. Nevertheless, the Council for Economic Planning and Development of Executive Yuan (CEPD) found that Taiwan's IT services outsourcing to China is subject to certain constraints and might not be as successful as the EM outsourcing (Aggarwal, 2003; CEPD, 2004a; CIER, 2003; Einhorn and Kriplani, 2003; Kumar and Zhu, 2006; Li and Gao, 2003; MIC, 2006). Some studies examined this issue, but failed to (1) provide statistical evidence about lower prevalence rates of IT services outsourcing, and (2) clearly explain the lower prevalence rates of IT services outsourcing by identifying similarities and differences between both types of outsourcing contexts. This research seeks to fill that gap and possibly provide potential strategic guidelines to ITS firms in Taiwan. This study adopts Transaction Cost Economics (TCE) as the theoretical basis. The basic premise is that different types of outsourcing activities may incur differing transaction costs and realize varying degrees of outsourcing success due to differential attributes of the transactions in the outsourcing process. Using primary data gathered from questionnaire surveys of ninety two firms, the results from exploratory analysis and binary logistic regression indicated that (1) when outsourcing to China, Taiwanese firms' ITS outsourcing tends to have higher level of asset specificity, uncertainty and technical skills relative to EM outsourcing, and these features indirectly reduce firms' outsourcing prevalence rates via their direct positive impacts on transaction costs; (2) Taiwanese firms' ITS outsourcing tends to have lower level of transaction structurability relative to EM outsourcing, and this feature indirectly increases firms' outsourcing prevalence rates via its direct negative impacts on transaction costs; (3) frequency does influence firms' transaction costs in ITS outsourcing positively, but does not bring impacts into their outsourcing prevalence rates, (4) relatedness does influence firms' transaction costs positively and prevalence rates negatively in ITS outsourcing, but its impacts on the prevalence rates are not caused by the mediation effects of transaction costs, and (5) firm size of outsourcing provider does not affect firms' transaction costs, but does affect their outsourcing prevalence rates in ITS outsourcing directly and positively. Using primary data gathered from face-to-face interviews of executives from seven firms, the results from inductive analysis indicated that (1) IT services outsourcing has lower prevalence rates than EM outsourcing, and (2) this result is mainly attributed to Taiwan's core competence in manufacturing and management and higher overall transaction costs of IT services outsourcing. Specifically, there is not much difference between both types of outsourcing context in the transaction characteristics of reputation and most aspects of overall comparison. Although there are some differences in the feature of firm size of the outsourcing provider, the difference doesn't cause apparent impacts on firms' overall transaction costs. The medium or above medium difference in the transaction characteristics of asset specificity, uncertainty, frequency, technical skills, transaction structurability, and relatedness has caused higher overall transaction costs for IT services outsourcing. This higher cost might cause lower prevalence rates for ITS outsourcing relative to EM outsourcing. Overall, the interview results are consistent with the statistical analyses and provide support to my expectation that in outsourcing to China, Taiwan's electronic manufacturing firms do have lower prevalence rates of IT services outsourcing relative to EM outsourcing due to higher transaction costs caused by certain attributes. To solve this problem, firms' management should aim at identifying alternative strategies and strive to reduce their overall transaction costs of IT services outsourcing by initiating appropriate strategies which fit their environment and needs.

The market value implications of pension asset allocation

Pension funds have been part of the private sector since the 1850's. Defined Benefit pension plans [DB], where a company promises to make regular contributions to investment accounts held for participating employees in order to pay a promised lifelong annuity, are significant capital markets participants, amounting to 2.3 trillion dollars in 2010 (Federal Reserve Board, 2013). In 2006, Statement of Financial Accounting Standards No.158 (SFAS 158), Employers' Accounting for Defined Benefit Pension and Other Postemployment Plans, shifted information concerning funding status and pension asset/liability composition from disclosure in the footnotes to recognition in the financial statements. I add to the literature by being the first to examine the effect of recent pension reform during the financial crisis of 2008-09. This dissertation is comprised of three related essays. In my first essay, I investigate whether investors assign different pricing multiples to the various classes of pension assets when valuing firms. The pricing multiples on all classes of assets are significantly different from each other, but only investments in bonds and equities were value-relevant during the recent financial crisis. Consistent with investors viewing pension liabilities as liabilities of the firm, the pricing multiples on pension liabilities are significantly larger than those on non-pension liabilities. The only pension costs significantly associated with firm value are actual rate of return and interest expense. In my second essay, I investigate the role of accruals in predicting future cash flows, extending the Barth et al. (2001a) model of the accrual process. Using market value of equity as a proxy for cash flows, the results of this study suggest that aggregate accounting amounts mask how the components of earnings affect investors' ability to predict future cash flows. Disaggregating pension earnings components and accruals results in an increase in predictive power. During the 2008-2009 financial crisis, however, investors placed a greater (and negative) weight on the incremental information contained in the individual components of accruals. The inferences are robust to alternative specifications of accruals. Finally, in my third essay I investigate how investors view under-funded plans. On average, investors: view deficits arising from under-funded plans as belonging to the firm; reward firms with fully or over-funded pension plans; and encourage those funds with unfunded pension plans to become funded. Investors also encourage conservative pension asset allocations to mitigate firm risk, and smaller firms are perceived as being better able to handle the risk associated with underfunded plans. During the financial crisis of 2008-2009 underfunded status had a lower negative association with market value. In all three models, there are significant differences in pre- and post- SFAS 158 periods. These results are robust to various scenarios of the timing of the financial crisis and an alternative measure of funding.

An empirical analysis of the global audit market: International Financial Reporting Standards-related changes and differences within the Big 4 global networks

Ongoing debates within the professional and academic communities have raised a number of questions specific to the international audit market. This dissertation consists of three related essays that address such issues. First, I examine whether the propensity to switch between auditors of different sizes (i.e., Big 4 versus non-Big 4) changes as adoption of International Financial Reporting Standards (IFRS) becomes a more common phenomenon, arguing that smaller auditors have an opportunity to invest in necessary skills and training needed to enter this market. Findings suggest that clients are relatively less (more) likely to switch to (away from) a Big 4 auditor if the client's adoption of IFRS occurs in more recent years. ^ In the second essay, I draw on these inferences and test whether the change in audit fees in the year of IFRS adoption changes over time. As the market becomes less concentrated, larger auditors becomes less able to demand a premium for their services. Consistent with my arguments, results suggest that the change in audit service fees declines over time, although this effect seems concentrated among the Big 4. I also find that this effect is partially attributable to a differential effect of the auditors' experience in pricing audit services related to IFRS based on the period in which adoption occurs. The results of these two essays offer important implications to policy debates on the costs and benefits of IFRS adoption. ^ In the third essay, I differentiate Big 4 auditors into three classifications—Parent firms, Brand Name affiliates, and Local affiliates—and test for differences in audit fee premiums (relative to non-Big 4 auditors) and audit quality. Results suggest that there is significant heterogeneity between the three classifications based on both of these characteristics, which is an important consideration for future research. Overall, this dissertation provides additional insights into a variety of aspects of the global audit market.^

Development of New Structural Health Monitoring Techniques

During the past two decades, many researchers have developed methods for the detection of structural defects at the early stages to operate the aerospace vehicles safely and to reduce the operating costs. The Surface Response to Excitation (SuRE) method is one of these approaches developed at FIU to reduce the cost and size of the equipment. The SuRE method excites the surface at a series of frequencies and monitors the propagation characteristics of the generated waves. The amplitude of the waves reaching to any point on the surface varies with frequency; however, it remains consistent as long as the integrity and strain distribution on the part is consistent. These spectral characteristics change when cracks develop or the strain distribution changes. The SHM methods may be used for many applications, from the detection of loose screws to the monitoring of manufacturing operations. A scanning laser vibrometer was used in this study to investigate the characteristics of the spectral changes at different points on the parts. The study started with detecting a load on a plate and estimating its location. The modifications on the part with manufacturing operations were detected and the Part-Based Manufacturing Process Performance Monitoring (PbPPM) method was developed. Hardware was prepared to demonstrate the feasibility of the proposed methods in real time. Using low-cost piezoelectric elements and the non-contact scanning laser vibrometer successfully, the data was collected for the SuRE and PbPPM methods. Locational force, loose bolts and material loss could be easily detected by comparing the spectral characteristics of the arriving waves. On-line methods used fast computational methods for estimating the spectrum and detecting the changing operational conditions from sum of the squares of the variations. Neural networks classified the spectrums when the desktop – DSP combination was used. The results demonstrated the feasibility of the SuRE and PbPPM methods.

Development of New Structural Health Monitoring Techniques

During the past two decades, many researchers have developed methods for the detection of structural defects at the early stages to operate the aerospace vehicles safely and to reduce the operating costs. The Surface Response to Excitation (SuRE) method is one of these approaches developed at FIU to reduce the cost and size of the equipment. The SuRE method excites the surface at a series of frequencies and monitors the propagation characteristics of the generated waves. The amplitude of the waves reaching to any point on the surface varies with frequency; however, it remains consistent as long as the integrity and strain distribution on the part is consistent. These spectral characteristics change when cracks develop or the strain distribution changes. The SHM methods may be used for many applications, from the detection of loose screws to the monitoring of manufacturing operations. A scanning laser vibrometer was used in this study to investigate the characteristics of the spectral changes at different points on the parts. The study started with detecting a load on a plate and estimating its location. The modifications on the part with manufacturing operations were detected and the Part-Based Manufacturing Process Performance Monitoring (PbPPM) method was developed. Hardware was prepared to demonstrate the feasibility of the proposed methods in real time. Using low-cost piezoelectric elements and the non-contact scanning laser vibrometer successfully, the data was collected for the SuRE and PbPPM methods. Locational force, loose bolts and material loss could be easily detected by comparing the spectral characteristics of the arriving waves. On-line methods used fast computational methods for estimating the spectrum and detecting the changing operational conditions from sum of the squares of the variations. Neural networks classified the spectrums when the desktop – DSP combination was used. The results demonstrated the feasibility of the SuRE and PbPPM methods.

Shareholder Ratification of The Auditor and Audit Market Competition

In my dissertation, I examine factors associated with firms’ submission of auditor selection for shareholder ratification and test if shareholder ratification of auditor selection is associated with the extent of price competition in the audit market (as measured by audit fees) and audit quality (as measured by clients’ earnings management). The dissertation is motivated from the recent recommendation of the U.S. Treasury’s Advisory Committee on Auditing Profession (ACAP) regarding the submission of auditor selection for shareholder ratification votes. The ACAP suggests that this practice may improve the competition in the audit market; yet, there is no empirical evidence supporting the ACAP’s recommendation. My dissertation attempts to fill the gap in the literature on an issue of current interest to the auditing profession. I find that firm size, CEO-Chair duality, insider ownership and institutional ownership are associated with the submission of auditor selection for shareholder ratification vote. However, I do not find an association between audit committee variables and the submission of auditor selection for shareholder ratification vote. The second essay investigates the association between auditor ratification and audit fees. Audit fees are higher in firms that submit auditor selection for shareholder ratification. The finding is not consistent with the increased price competition predicted by the ACAP. The third essay of my dissertation examine whether the submission of auditor selection for shareholder ratification is associated with earnings management. I find that firms that submit auditor selection for shareholder ratification are more likely to have lower level of earnings management. Overall, the results suggest that the same factors that are associated with higher quality monitoring also may be associated with the submission of auditor selection for shareholder ratification vote. The results call into question the one-size-fits-all approach recommended by the ACAP.

A study of the top executive conference centers in the United States and an examination of the corresponding corporate meetings market

Introduction: The United States today has become "meeting-conscious." The complexity of conducting business has led to the need for sophisticated coordination of decision-making processes on all levels of the organization. Company meetings have played an increasingly important role in the success and future of many companies. Strategies and decisions are developed at meetings that can determine future policies of crucial importance. Executive training can mean the difference in whether the company will even survive. Large and growing companies have increased their off-premise meeting budgets annually in spite of the state of the economy. however, the rising costs of travel and lodging have made management monitor these budgets more closely than ever. Thus, the need to use every dollar efficiently has compelled companies to examine newer methods of running meetings and alternatives to the usage of typical off-premise meeting facilities. The importance of off-premise meetings in the United States economy has greatly increased due to the billions of dollars spent annually. These factors make it vital to explore the effectiveness of time and monetary expenditures. Up until the mid-1960's, company meetings were held in facilities of various design and purpose, none of which were specifically designed for the small to medium corporate meeting. Upon gathering information concerning the meetings market and the corporate meeting planner, certain individuals endeavored to change the situation. This study is designed to investigate this new concept, which will hereafter be referred to as "conference center." For the purpose of this study, the following two definitions will be used. 1. Conference center - that meeting facility primarily marketing its facilities for the small to medium-sized corporate meeting. The center is operated by specialists aware of market needs in as much detail as are those people working for the company involved. On-premise sleeping rooms are not mandatory provided such facilities are within easy access. 2. Meeting planner - that person within an organization who has primary responsibility for arranging off-premise meetings and all other related items necessary for meeting effectiveness. This person may spend anywhere from 10 to 100l of his time in this capacity. The conference center has effectively satisfied the need for specialized corporate meeting facilities. This study will show the depth of the corporate meetings market and trace the growth and development of this relatively new conference center concept. Information will also be compiled on the top centers in the country. It is hoped that by presenting this research meeting planners will become more aware of the nature and location of these centers, especially for use by the small to medium-sized company. Such exposure of the centers will hopefully increase existing demand and enable the construction of new, innovative centers.