Earnings management using estimates and the timing of adoption of accounting standards: An empirical examination of pensions

This study investigates the relationship between adoption timing of Statement of Financial Accounting Standards 87 and earnings management after adoption. Earnings management, defined consistent with Schipper (1989), is tested through hypotheses using (1) a portfolio approach and (2) pension rates. One Hypothesis uses a Modified Jones (1991) Model as a proxy for discretionary accruals and the other uses pension rate estimates.^ Statistically significant relationships are found between adoption timing and (1) discretionary accruals and (2) estimated rate-of-return (ROR) on pension plan assets. Early adopting firms tend to have lower discretionary accruals after adoption than on-time adopters. They also tend to use higher ROR estimates which are not supported by higher actual returns. Thus, while early adopters may be using ROR to manage income, this tends to not result in higher discretionary accruals. ^

An examination of accounting and auditing issues related to strategic environmental initiatives

Although corporate environmental accountability is receiving unprecedented attention in the United States from policy makers, the capital market, and the public at large, extant research is limited in its examination of the implications of strategic corporate environmental initiatives on accounting and auditing. The purpose of my dissertation is to address these implications by examining the association between firm environmental initiatives and audit fees, capital expenditures, and earnings quality using multivariate regression analysis. I find that firms engaged in more strategic environmental initiatives tend to have significantly higher audit fees and capital expenditures, and significantly lower levels of earnings manipulation measured using discretionary accruals. These results support the notion that auditors do recognize the importance of environmental initiatives when conducting the year-end financial statement audit, an idea that positively reflects upon the auditor’s monitoring role. The results also demonstrate the increased amount of capital resources required to participate in strategic environmental initiatives, an anecdotal notion that had yet to be empirically supported. This empirical support provides valuable insights on how environmental initiatives materially impact corporate financial statements. Finally, my results extend the extant literature by demonstrating that the superior financial performance reported by environmentally active firms is less likely driven by earnings manipulation by management, and by implication, more likely a result of real economic gains. Taken together, my dissertation establishes a strong and timely foundation for current and future research to explore corporate environmental initiatives in the United States and globally, a topic increasingly gaining momentum in today’s more eco-conscious world.^

Essays on audit report lag

Audit reporting lag continues to remain an issue of significant interest to regulators, financial statement users, public companies, and auditors. The SEC has recently acted to reduce the deadline for filing annual and quarterly financial statements. Such focus on audit reporting lag arises because, as noted by the Financial Accounting Standards Board, relevance and reliability are the two primary qualities of accounting information; and, to be relevant, information has to be timely. In my dissertation, I examine three issues related to the audit report lag. The first essay focuses on the association between audit report lag and the meeting or beating of earnings benchmarks. I do not find any association between audit report lag and just meeting or beating earnings benchmarks. However, I find that longer audit report lag is negatively associated with the probability of using discretionary accruals to meet or beat earnings benchmarks. We can infer from these results that audit effort, for which audit report lag is a proxy, reduces earnings management. The second part of my dissertation examines the association between types of auditor changes and audit report lag. I find that the resignation of an auditor is associated longer audit report lag compared to the dismissal of an auditor. I also find a significant positive association between the disclosure of a reportable event and audit report lag. The third part of my dissertation investigates the association between senior executive changes and audit report lag. I find that audit report lag is longer when client firms have a new CEO or CFO. Further, I find that audit report lag is longer when the new executive is someone from outside the firm. These results provide empirical evidence about the importance of senior management in the financial reporting process.

Certificação de qualidade versus qualidade da informação financeira: estudo para empresas portuguesas

O presente estudo tem como objetivo analisar se as empresas que têm implementado um Sistema de Gestão da Qualidade, certificadas segundo a norma da International Organization for Standardization (ISO) 9001, apresentam também uma boa qualidade da informação financeira. Neste sentido, pretende-se testar a expectável relação positiva entre a certificação de qualidade de uma empresa e a qualidade da sua informação financeira. Para isso, identificaram-se as empresas que possuem certificação do Sistema de Gestão de Qualidade, segundo a norma ISO 9001, enquanto a qualidade da informação financeira foi aferida utilizando como proxy os accruals discricionários estimados através do modelo Jones (1991). Utiliza-se um modelo logit para testar a relação pretendida, tendo como variável dependente a variável binária relativa à certificação de qualidade e como principal variável explicativa a qualidade da informação financeira. Com base nos resultados obtidos foi possível verificar a existência de uma relação positiva e estatisticamente significativa entre certificação de qualidade das empresas e a sua qualidade da informação financeira.

Employee work motivation and discretionary work effort

The focus of this thesis is discretionary work effort, that is, work effort that is voluntary, is above and beyond what is minimally required or normally expected to avoid reprimand or dismissal, and is organisationally functional. Discretionary work effort is an important construct because it is known to affect individual performance as well as organisational efficiency and effectiveness. To optimise organisational performance and ensure their long term competitiveness and sustainability, firms need to be able to induce their employees to work at or near their peak level. To work at or near their peak level, individuals must be willing to supply discretionary work effort. Thus, managers need to understand the determinants of discretionary work effort. Nonetheless, despite many years of scholarly investigation across multiple disciplines, considerable debate still exists concerning why some individuals supply only minimal work effort whilst others expend effort well above and beyond what is minimally required of them (Le. they supply discretionary work effort). Even though it is well recognised that discretionary work effort is important for promoting organisational performance and effectiveness, many authors claim that too little is being done by managers to increase the discretionary work effort of their employees. In this research, I have adopted a multi-disciplinary approach towards investigating the role of monetary and non-monetary work environment characteristics in determining discretionary work effort. My central research questions were "What non-monetary work environment characteristics do employees perceive as perks (perquisites) and irks (irksome work environment characteristics)?" and "How do perks, irks and monetary rewards relate to an employee's level of discretionary work effort?" My research took a unique approach in addressing these research questions. By bringing together the economics and organisational behaviour (OB) literatures, I identified problems with the current definition and conceptualisations of the discretionary work effort construct. I then developed and empirically tested a more concise and theoretically-based definition and conceptualisation of this construct. In doing so, I disaggregated discretionary work effort to include three facets - time, intensity and direction - and empirically assessed if different classes of work environment characteristics have a differential pattern of relationships with these facets. This analysis involved a new application of a multi-disciplinary framework of human behaviour as a tool for classifying work environment characteristics and the facets of discretionary work effort. To test my model of discretionary work effort, I used a public sector context in which there has been limited systematic empirical research into work motivation. The program of research undertaken involved three separate but interrelated studies using mixed methods. Data on perks, irks, monetary rewards and discretionary work effort were gathered from employees in 12 organisations in the local government sector in Western Australia. Non-monetary work environment characteristics that should be associated with discretionary work effort were initially identified through a review of the literature. Then, a qualitative study explored what work behaviours public sector employees perceive as discretionary and what perks and irks were associated with high and low levels of discretionary work effort. Next, a quantitative study developed measures of these perks and irks. A Q-sorttype procedure and exploratory factor analysis were used to develop the perks and irks measures. Finally, a second quantitative study tested the relationships amongst perks, irks, monetary rewards and discretionary work effort. Confirmatory factor analysis was firstly used to confirm the factor structure of the measurement models. Correlation analysis, regression analysis and effect-size correlation analysis were used to test the hypothesised relationships in the proposed model of discretionary work effort. The findings confirmed five hypothesised non-monetary work environment characteristics as common perks and two of three hypothesised non-monetary work environment characteristics as common irks. Importantly, they showed that perks, irks and monetary rewards are differentially related to the different facets of discretionary work effort. The convergent and discriminant validities of the perks and irks constructs as well as the time, intensity and direction facets of discretionary work effort were generally confirmed by the research findings. This research advances the literature in several ways: (i) it draws on the Economics and OB literatures to redefine and reconceptualise the discretionary work effort construct to provide greater definitional clarity and a more complete conceptualisation of this important construct; (ii) it builds on prior research to create a more comprehensive set of perks and irks for which measures are developed; (iii) it develops and empirically tests a new motivational model of discretionary work effort that enhances our understanding of the nature and functioning of perks and irks and advances our ability to predict discretionary work effort; and (iv) it fills a substantial gap in the literature on public sector work motivation by revealing what work behaviours public sector employees perceive as discretionary and what work environment characteristics are associated with their supply of discretionary work effort. Importantly, by disaggregating discretionary work effort this research provides greater detail on how perks, irks and monetary rewards are related to the different facets of discretionary work effort. Thus, from a theoretical perspective this research also demonstrates the conceptual meaningfulness and empirical utility of investigating the different facets of discretionary work effort separately. From a practical perspective, identifying work environment factors that are associated with discretionary work effort enhances managers' capacity to tap this valuable resource. This research indicates that to maximise the potential of their human resources, managers need to address perks, irks and monetary rewards. It suggests three different mechanisms through which managers might influence discretionary work effort and points to the importance of training for both managers and non-managers in cultivating positive interpersonal relationships.

Cities in the airports 'shadow' : underlying interests and discretionary power in airport-region development

The previously distinct boundary between airports and their cities has become increasingly blurred as new interests and actors are identified as important stakeholders in the decision making process. As a consequence airport entities are more than ever seeking an integrated existence with their surrounding regions. While current planning strategies provide insights on how to improve and leverage land use planning in and around airports, emerging challenges for implementing and protecting these planning ideals stem from the governance shadows of development decisions. The thesis of this paper is that improving the identification, articulation and consideration of city and airport interests in the development approval process (between planning and implementation) can help avoid outcomes that hinder the ability of cities and their airports to meet their separate/mutual long-term objectives. By applying a network governance perspective to the pilot case study of Brisbane, analysis of overlapping and competing actor interests show how different governance arrangements facilitate (or impede) decision making that protects sustainable ‘airport region’ development. ---------- Contributions are made to airport and city development decision makers through the identification and analysis of effective and ineffective decision making pathways, and to governance literature by way of forwarding empirically derived frameworks for showing how actors protect their interests in the ‘crowded decision making domain’ of airport region development. This work was carried out through the Airport Metropolis Research Project under the Australian Research Council’s Linkage Projects funding scheme (LP0775225).

Distinguishing forced versus discretionary replacements in new product diffusion models

In many product categories of durable goods such as TV, PC, and DVD player, the largest component of sales is generated by consumers replacing existing units. Aggregate sales models proposed by diffusion of innovation researchers for the replacement component of sales have incorporated several different replacement distributions such as Rayleigh, Weibull, Truncated Normal and Gamma. Although these alternative replacement distributions have been tested using both time series sales data and individual-level actuarial “life-tables” of replacement ages, there is no census on which distributions are more appropriate to model replacement behaviour. In the current study we are motivated to develop a new “modified gamma” distribution by two reasons. First we recognise that replacements have two fundamentally different drivers – those forced by failure and early, discretionary replacements. The replacement distribution for each of these drivers is expected to be quite different. Second, we observed a poor fit of other distributions to out empirical data. We conducted a survey of 8,077 households to empirically examine models of replacement sales for six electronic consumer durables – TVs, VCRs, DVD players, digital cameras, personal and notebook computers. This data allows us to construct individual-level “life-tables” for replacement ages. We demonstrate the new modified gamma model fits the empirical data better than existing models for all six products using both a primary and a hold-out sample.

Discretionary use of open briefings in the Australian continuous reporting environment

The Australian Securities Exchange (ASX) listing rule 3.1 requires listed companies to immediately disclose price sensitive information to the market via the ASX’s Company Announcements Platform (CAP) prior to release through other disclosure channels. Since 1999, to improve the communication process, the ASX has permitted third-party mediation in the disclosure process that leads to the release of an Open Briefing (OB) through CAP. An OB is an interview between senior executives of the firm and an Open Briefing analyst employed by Orient Capital Pty Ltd (broaching topics such as current profit and outlook). Motivated by an absence of research on factors that influence firms to use OBs as a discretionary disclosure channel, this study examines (1) Why do firms choose to release information to the market via OBs?, (2) What are the firm characteristics that explain the discretionary use of OBs as a disclosure channel?, and (3) What are the disclosure attributes that influence firms’ decisions to regularly use OBs as a disclosure channel? Based on agency and information economics theories, a theoretical framework is developed to address research questions. This theoretical framework comprises disclosure environments such as firm characteristics and external factors, disclosure attributes and disclosure consequences. In order to address the first research question, the study investigates (i) the purpose of using OBs, (2) whether firms use OBs to provide information relating to previous public announcements, and (3) whether firms use OBs to provide routine or non-routine disclosures. In relation to the second and third research questions, hypotheses are developed to test factors expected to explain the discretionary use of OBs and firms’ decisions to regularly use OBs, and to explore the factors influencing the nature of OB disclosure. Content analysis and logistic regression models are used to investigate the research questions and test the hypotheses. Data are drawn from a hand-collected population of 1863 OB announcements issued by 239 listed firms between 2000 and 2010. The results show that types of information disclosed via an OB announcement are principally on matters relating to corporate strategies and performance and outlook. Most OB announcements are linked with a previous related announcement, with the lag between announcements significantly longer for loss-making firms than profitmaking firms. The main results show that firms which tend to be larger, have an analyst following, and have higher growth opportunities, are more likely to release OBs. Further, older firms and firms that release OB announcements containing good news, historical information and less complex information tend to be regular OB users. Lastly, firms more likely to disclose strategic information via OBs tend to operate in industries facing greater uncertainty, do not have analysts following, and have higher growth opportunities are less likely to disclose good news, historical information and complex information via OBs. This study is expected to contribute to disclosure literature in terms of disclosure attributes and firm characteristics that influence behaviour in this unique (OB) disclosure channel. With regard to practical significance, regulators can gain an understanding of how OBs are disclosed which can assist them in monitoring the use of OBs and improving the effectiveness of communications with stakeholders. In addition, investors can have a better comprehension of information contained in OB announcements, which may in turn better facilitate their investment decisions.

Horsham Properties Group Ltd v Clark: possession - mortgagee's right or discretionary remedy?

Comments on the Chancery Division decision in Horsham Properties Group Ltd v Clark on whether a mortgagee's exercise of its contractual right, on the mortgagor falling into arrears, to appoint receivers such that the property could be sold and possession obtained without triggering the court's discretionary powers pursuant to the Administration of Justice Act 1970 s.36 infringed the mortgagor's rights under the European Convention on Human Rights 1950 Protocol 1 art.1. Considers the implications of proposed reforms recasting the mortgagee's right to possession as a discretionary remedy. [From Legal Journals Index]

Accruals accounting in the public sector: A road not always taken

The move from cash to accruals accounting by many governments is viewed as an aspect of an ongoing New Public Management agenda designed to achieve a more business-like and performance-focused public sector. Proponents argue that accruals accounting provides more appropriate information for decision makers and ultimately leads to a more efficient and effective public sector. The transition from cash to accruals accounting for UK central government departments was announced in the early 1990s and was embedded within approximately ten years. At that time there were clear indications that analogous changes, following a similar timeline, would occur in the Republic of Ireland (RoI). In reality, the changes were significantly less extensive. Utilising document analysis and interviews with key actors, this paper considers why a functioning accruals system was established in the UK whereas in the RoI the change to accruals accounting was a ‘road not taken’.