Corporate profit and impression management in developing markets

In this study, we examine how organisations in Fiji communicate or legitimise their profit. We base the need for understanding this phenomenon on the following premise. Organisations are part of a wider society, and in competition for scarce resources. Organisations obtain the rights to consume resources upon conception, but must continually legitimise their rights of existence and the need to access the resources. Legitimacy is the ability to continue to justify one’s authority to exist in a society. Organisations rights to resources are contractual, and have a moral obligation to act in a responsible manner and justify their outcomes, actions, and activities to external stakeholders. Such justifications would be an attempt at legitimizing their existence by some form of impression management. Impression management refers to the process by which individuals attempt to influence the impression of others (Melo et al. 2009). In corporate reporting, impression management occurs when management selects, display, and presents that information in a manner that distorts readers’ perceptions of corporate achievements (Neu 1991; Patten 2002), and is managed best through disclosures (O’Donovan 2002). In developing economies, there is significant Government protection that creates near-monopoly sectors and industries. The rendered protection permits organisations to provide essential services to the community at reasonable costs. Organisations in these sectors and industries have an ominous need to legitimise their position and actions. The bond between the organisations and the society is much stronger, making organisations devote more effort in communicating their activities. Protection permits organisations to make reasonable profits to sustain their operations. Society may not accept abnormal profits from operational efficiencies. Profit is fundamental to the society’s perception of an organisation, amplifying the need for the firm to justify a level of profit. Abnormal profit for organisations construes bad news, and organisations would make relevant disclosures to manage stakeholder impressions on profit (Patten 2002). Organisations can manage impressions by disclosing information in a particular way. That is, organisations would want to put the impression that the abnormal profit is justified and the society will obtain its benefits in future. Such form of impression management requires unambiguous disclosure of information. The readability of corporate disclosures is an important indicator of organisational abnormal profit-related legitimacy efforts in developing economies.

Collaborative organisational structures : implications for the accounting profession

The IT systems drive the financial reporting processes in modern business environments. The result is an integrative system of initialing, authorizing, recording, and processing of financial transactions. This IT-related change inextricably links to the overall financial reporting process, requiring a deeper level of understanding and commitment. Firm’s IT governance initiatives provide this commitment by enforcing controls to IT components to ensure compliance to overall financial reporting requirements. The IT governance institute (ITGI) and other authorities have developed a number of frameworks and guidelines (e.g., COBIT) to help management in managing IT-intensive processes.

XBRL : the future of financial reporting and a catalyst for capital market development

There has never been a better time to strengthen financial reporting in Fiji. With increased interest shown by prospective companies in capital market participation, the pressing problems in the public sector reporting and accountability and global emphasis on the increasing need to strengthen the corporate governance structure, this is perhaps the opportune time to consider the potential of XBRL.

Creating and evaluating IT-related business value in developing markets : part 1

There is no doubt that information technology (IT) resources are important for organisations in any jurisdiction to manage their processes. Organisations consume considerable financial resources to acquire and manage their IT resources with various IT governance structures. Investment in IT, thus, is a strategic necessity. IT resources, however, do not contribute fully to business value on their own. Business value considers performance impacts of resources at various organisational levels (e.g., processes and firm levels). ITs are biased resources in that they require some form of manipulation to attain their maximum value. While we know that IT resources are important, a deeper understanding on two aspects of use of IT resources in organisations is important. First, is how to leverage the IT resources to attain its maximum value, and second, is where to evaluate IT-related business value in the organisation’s value chain. This understanding is important for organisation to sustain their operations in an ever-changing business environment. We address these issues in two parts. This paper discusses the first aspect of ways in which organisations can create and sustain their IT-related business value.

Creating and evaluating IT-related business value in developing markets - Part 2

A deeper understanding on two aspects of use of IT resources in organisations is important to ensure sustainable investment in these IT resources. The first is how to leverage the IT resources to attain its maximum value. We discussed this aspect of use of IT resources in part 1 of this series. This discussion suggested a complementary approach as a first stage of IT business value creation, and dynamic capabilities approach to secure sustainable IT-related business value from the IT resources. The second important aspect of IT business value is where to evaluate IT-related business value in the organisations value chains. This understanding is important for organisations to ensure appropriate accountability of the investment and management of IT resources. We address this issue in this second part of the two part series.

Profit and organisational legitimacy in an emerging market

While there is common acknowledgement that the main aim of organisations is to maximise shareholder wealth, firms also have the obligation to manage the needs of a broader group of stakeholders as these firms are a product of social creation. In this study, we test the notion that the concept, profit, is fundamental to society’s perception of the firm in an emerging market, and the need for a firm to legitimise a level of profit. We evaluate the relationship between the readability of various components of corporate annual reports and the level of profit, and we also take into account the nature of disclosure (mandatory and non-mandatory), the size of the firm and the nature of setup (public enterprises and publicly listed companies). Our findings suggest that, as with developed markets, in emerging markets profit is indeed an important determinant of the nature of operations of a firm, and that firms consider readability of their disclosures in attempting to legitimise a level of profit.

Comments on the Australian Accounting Research Foundation's Legislation Policy Discussion Paper NO.4 (A framework for financial reporting by incorporated associations)

The Australian Accounting Research Foundation (AARF) recently issued Legislative Policy Discussion Paper No.4 which proposes a framework for financial reporting by Australian incorporated associations.This paper comments on both the merits and deficiencies of the proposal. In particular it notes that the proposal simply advocates that the application of differential reporting, accounting standards, and the conceptual framework be imposed on incorporated associations by amended statutes. It is noted that in light of long experience in the corporate sector, he espoused benefits of such a move may not eventuate. Further, concern is expressed that the proposal is a blank cheque one because of the inadequacy of existing relevant accounting standards and the proposal to introduce new relevant standards. Another major defect in the proposal is that it emanates from accountants who acknowledge in their conceptual framework, the need for external reports to report on performance through both financial and non-financial reporting methods. Despite that acknowledgment, the standard set of external reports prepared by accountants do not measure performance as defined in their own conceptual framework (SAC 2) and in their auditing pronouncements (AUP 33), and they have restricted their domain to financial reporting (SAC 2). Accordingly the proposal appears to be seriously deficient and it is suggested that it be rejected and a new proposal be prepared by a multi-party group free from vested interests.

Valuation of family firms : the limitations of accounting information

This conceptual paper explores the extent to which reported accounting information captures unique family firm decision-making and intangible asset factors that impact financial value. We review the family firm valuation-relevant literature and identify that this body of research is predicated on the assumption that accounting information reflects the underlying reality of family firms. This research, however, fails to recognise that current accounting technology does not fully recognise the family firm factors in the book value of the firm or the implications for long run persistence of earnings. Thus, valuation models underpinning the extant empirical research, which are predicated on reported accounting information, may not fully reflect the intrinsic value of family firms. We present propositions on the interaction between accounting information, family factors and valuation as a road map for future empirical research with a discussion of appropriate methodologies.

Business research in virtual worlds : possibilities and practicalities

Purpose – It is predicted that virtual business and related research possibilities will expand significantly. In this context, the aim of this paper is to use insights from a virtual research project to present a theoretically-informed toolbox of practical suggestions to guide the conduct of virtual world business research. Design/methodology/approach – Archival evidence is presented, and data from a study conducted in Second Lifew in 2007 is interpreted through Llewellyn’s framework (physical, structural, agential, cultural and mental dimensions). Findings – With the burgeoning of virtual business applications, appropriate systems that encompass the dynamics of both the real and the virtual will need to be developed by and for accountants, auditors and business professionals. Researchers of virtual business activities will need to adapt to the physical, structural, agential, cultural and mental dimensions unique to virtual worlds. Research limitations/implications – While based on reflections from a single study in Second Life, this paper identifies possibilities for future virtual research on issues of accountability and accounting relating to virtual worlds. Practical implications – The practical toolbox will assist virtual researchers to deal with the possibilities and practicalities of conducting research in virtual worlds. Originality/value – Despite the proliferation of virtual worlds, predictions of virtual business applications, and consequent accountability and accounting implications, there is a paucity of academic literature on conducting business research in virtual settings. This prescient paper develops a conceptual framework to guide the conduct of research in virtual worlds, and identifies the unique opportunities and challenges they present.

Securities market regulators’ use of the ‘please explain’ queries sanction and its power of compliance

The aim of this study is to investigate the compliance impact of price queries issued by a securities market operator to its participating firms. Market operators in Australia and New Zealand, such as the Australian Securities Exchange and the New Zealand Securities Exchange, have the regulatory power in their rules to issue queries to its market participants to explain unusual fluctuations in trading price or volume in the market. The operator will issue a price query where it believes that the market has not been fully informed as to price relevant information. Responsive regulation has informed much of the regulatory debate in securities laws in our region. We posit that price queries are one strategy that a market operator can use in communicating its enforcement expectations to its stakeholder. However, whilst responsive regulation informs regulatory choices, an alternate view seeks to explain why participants respond to these regulatory strategies, and we use disclosure behaviour after price queries to test compliance behaviour

Corporate governance and risk management : the role of risk management and compensation committees

This paper examines the role of compensation and risk committees in managing and monitoring the risk behaviour of Australian financial firms in the period leading up to the global financial crisis (2006–2008). This empirical study of 711 observations of financial sector firms demonstrates how the coordination of risk management and compensation committees reduces information asymmetry. The study shows that the composition of the risk and compensation committees is positively associated with risk, which, in turn, is associated with firm performance. More importantly, information asymmetry is reduced when a director is a member of both the risk and compensation committees which moderate the negative association between risk and firm performance for firms with high risk.

Gender-diverse boards and properties of analyst earnings forecasts

Using a sample of 2,200 US listed firm year observations (2001-2007)this study shows a positive (negative) relation between female participation in corporate boards and analysts' earnings forecast accuracy (dispersion), after controlling for earnings quality, corporate governance, audit quality, stock price informativeness and potential endogeneity. Our findings are important as they suggest that board diversity adds to the transparency and accuracy of financial reports such that earnings expectations are likely to be more accurate for these firms.