The impact of auditor independence regulations on established and emerging firms.

Purpose – The purpose of this paper is to study whether auditor independence reforms introduced in 2004 led to an enhancement in earnings quality in the post-reform era. Design/methodology/approach – This study predicts that as the cost of compliance will vary based on a firm's existing corporate governance regime and the level of external scrutiny (monitoring) it faces, we compare the earnings quality of a sample of “established” (S&P/ASX 100) to a sample of “emerging” (S&P/ASX Small Ordinaries Index) firms. The paper examines the reporting behaviour of the two groups of listed entities, covering the regulatory change period 2003-2006. The paper uses regression modelling to test the associations between increased audit independence, earnings quality and corporate governance mechanisms over the pre- and post-regulatory period. Findings – The paper's results confirm that earnings quality for the established firms was enhanced in the post-reform period; while this was not the case for emerging firms. The evidence also suggests that corporate governance mechanisms of board independence and board financial skill are associated with higher earnings quality; while the higher the concentration of insider firm ownership is associated with lower earnings quality. Practical implications – This study provides policy makers with evidence as to changes in reporting behaviour following law reform aimed at strengthening auditor independence. Originality/value – The studies on earnings quality are informed by the US market practices. Australia provides a unique setting through its auditor independence reforms to examine the impact of reform choices. This study also investigates two specific subsets of the market: established firms and emerging firms.

Making climate change manageable : how accounting constructs new power-knowledge regimes

This paper examines the modern power of accounting to permeate new spheres and create new objects by examining how climate change becomes a new category for accounting’s attention. It outlines the socio-political problem space where accounting and climate change connect by tracing the emergence of the UK’s Climate Change Act (2008) to a specifically modern calculating attitude described here as ‘managing by the numbers’. It suggests the intersection of accounting and climate change was made possible by accounting’s role in tying disciplinary subjectivities and objectivities together whilst operating simultaneously at the level of individuals, organisations and government. Such that when faced with new unknowns we revert to previous ways of managing we have come to know and experienced throughout our formative years in schools, hospitals, firms and government departments. In this way, accounting’s emergence in the domain of managing climate change implies a transformation that cannot be explained merely as a practical response to a global warming problem, but rather as an example of a new power-knowledge regime that makes possible the management and control of a new organisational phenomenon called climate change.

Audit pricing and product differentiation in small private firms : evidence from Thailand

Purpose – There is limited evidence on how differences in economic environments affect the demand for and supply of auditing. Research on audit pricing has mainly focused on large client markets in developed economies; in contrast, the purpose of this paper is to focus on the small client segment in the emerging economy of Thailand which offers a choice between auditors of two different qualities. Design/methodology/approach – This paper is based on a random stratified sample of small clients in Thailand qualifying for audit exemption. The final sample consists of 1,950 firm-year observations for 2002-2006. Findings – The authors find evidence of product differentiation in the small client market, suggesting that small firms view certified public accountants as superior and pay a premium for their services. The authors also find that audit fees have a positive significant association with leverage, metropolitan location and client size. Audit risk and audit opinion are not, however, significantly associated with audit fees. Furthermore, the authors find no evidence that clients whose financial year ends in the auditors’ busy period pay significantly higher audit fees, and auditors engage in low-balling on initial engagements to attract audit clients. Research limitations/implications – The research shows the importance of exploring actual decisions regarding audit practice and audit pricing in different institutional and organizational settings. Originality/value – The paper extends the literature from developed economies and large/listed market setting to the emerging economy and small client market setting. As far as the authors are aware, this is the first paper to examine audit pricing in the small client market in an emerging economy.

Women in leadership: An analysis of the gender pay gap in ASX-listed firms

This study provides evidence that after several decades of fighting for equal pay for equal work, an unexplained gender pay gap remains amongst senior executives in ASX-listed firms. After controlling for a large suite of personal, occupational and firm observables, we find female senior executives receive, on average, 22.58 percent less in base salary for the period 2002–2013. When executives are awarded performance-based pay, females receive on average 16.47 percent less in cash bonus and 18.21 percent less in long-term incentives than males. The results are robust to using firm fixed effects and propensity-score matching. Blinder–Oaxaca decomposition results show that the mean pay gap cannot be attributed to gender differences in attributes, including job titles. Instead, the results point to differences in returns on firm-specific variables, in particular firm risk.

Assessing the Transaction Costs of Firms in the EU ETS: Lessons form Ireland

Until now, there has been little empirical evidence that EU Emissions Trading Scheme (ETS) transaction costs are incurred at firm level. The transaction costs (internal costs, capital costs, consultancy and trading costs) incurred by Irish firms under the EU ETS during its pilot phase (2005-2007) were measured and analysed. Evidence for the sources of transaction costs, their magnitude and the distribution of costs shows that these were mainly administrative in nature. Considerable variation in costs was found due to economies of scale, as the costs per tonne of CO2 were lower for participants with larger allocations. For the largest firms - accounting for over half the emissions - average transaction costs were €0.05 per tonne. However, for small firms, average transaction costs were €2.02 - over 18% of the current allowance price. This supports the concerns that transaction costs are excessive for smaller participants. The immediate policy implication is that additional attention will be needed to address different sizes of firms, number of installations per firm, and the size of the initial allocations.

Firms and Innovative Conflict Management Systems in Ireland

This article examines the practices adopted by firms in the Republic of Ireland to manage conflict involving groups of employees, focusing in particular on the uptake of 'alternative dispute resolution practices'. The article reveals that conflict management practices take the form of 'systems', and it estimates the incidence of innovative conflict management systems, incorporating alternative dispute resolution (ADR) practices, as involving about 30 per cent of firms. A series of influences are shown to be associated with innovative, ADR-based conflict management systems, especially commitment-oriented HRM practices and whether unions are recognized. © Blackwell Publishing Ltd/London School of Economics 2010.

Accounting accruals and information asymmetry in Europe

We investigate whether the positive relation between accounting accruals and information asymmetry documented for U.S. stock markets also holds for European markets, considered as a whole and at the country level. This research is relevant because this relation is likely to be affected by differences in accounting standards used by companies for financial reporting, in the traditional use of the banking system or capital markets for firm financing, in legal systems and cultural environment. We find that in European stock markets discretionary accruals are positively related with the Corwin and Schultz high-low spread estimator used as a proxy for information asymmetry. Our results suggest that the earnings management component of accruals outweighs the informational component, but the significance of the relation varies across countries. Further, such association tends to be stronger for firms with the highest levels of positive discretionary accruals. Consistent with the evidence provided by the authors, our results also suggest that the high-low spread estimator is more efficient than the closing bid-ask spread when analysing the impact of information quality on information asymmetry.

Accounting for Human Rights Violations Risk: Conflict Minerals Mandatory Disclosures under the Dodd Frank Act

This paper examines the equity market response to firms’ disclosure of human rights violation risk with regard to conflict mineral usage as required by Section 1502 of the Dodd-Frank Act (the Act). This paper assesses the aggregate equity market response to regulatory events leading to the passage of the Act, the equity market reaction to voluntary early disclosures and mandatory disclosures of conflict mineral information in Form SD, as well as the determinants of the equity market response. Using a sample of 4,399 US registrants from January 1, 2008 to September 30, 2014, we document a significant negative stock market reaction to the passage of the Act and to conflict minerals disclosures on Form SD. The equity market reaction is more negative and limited to companies that source their minerals from conflict zones, companies with human rights violations, and companies with ambiguous disclosures. Taken together, the results of this study provide an economic justification for companies with poor conflict minerals practices to improve in order to avoid high costs that will arise if firms are forced to disclose human rights abuses. This paper also provides preliminary evidence that Form SD is successful in reducing the governance gap that exposes investors to unnecessary sanction, litigation and reputation risk from firms’ activities in conflict minerals usage.

Small towns as 'sub-poles' in English rural development: Investigating rural-urban linkages using sub-regional social accounting matrices

This paper uses spatial economic data from four small English towns to measure the strength of economic integration between town and hinterland and to estimate the magnitude of town-hinterland spill-over effects. Following estimation of local integration indicators and inter-locale flows, sub-regional social accounting matrices (SAMs) are developed to estimate the strength of local employment and output multipliers for various economic sectors. The potential value of a town as a 'sub-pole' in local economic development is shown to be dependent on structural differences in the local economy, such as the particular mix of firms within towns. Although the multipliers are generally small, indicating a low level of local linkages, some sectors, particularly financial services and banking, show consistently higher multipliers for both output and employment. (c) 2007 Elsevier Ltd. All rights reserved.

Accounting information systems as institutional carriers: a case study of regulatory compliance in UK asset management houses

Previously, governments have responded to the impacts of economic failures and consequently have developed more regulations to protect employees, customers, shareholders and the economic wellbeing of the state. Our research addresses how Accounting Information Systems (AIS) may act as carriers for institutionalised practices associated with maintaining regulatory compliance within the context of UK Asset Management Houses. The AIS was found to be a strong conduit for institutionalized compliance related practices, utilising symbolic systems, relational systems, routines and artefacts to carry approaches relating to regulative, normative and cultural-cognitive strands of institutionalism. Thus, AIS are integral to the development and dissipation of best practice for the management of regulatory compliance. As institutional elements are clearly present we argue that AIS and regulatory compliance provide a rich context to further institutionalism. Since AIS may act as conduits for regulatory approaches, both systems adopters and clients may benefit from actively seeking to codify and abstract best practices into AIS. However, the application of generic institutionalized approaches, which may be applied across similar organizations, must be tempered with each firm’s business environment and associated regulatory exposure. A balance should be sought between approaches specific enough to be useful but generic enough to be universally applied.

Earnings management in firms seeking to be acquired

Empirical evidence regarding accrual-based earnings management around mergers and acquisitions has been setting-specific as far as target firms are concerned. This might be due to the fact that target firms cannot always anticipate an acquisition proposal, and thus lack the motive and the time necessary to manage their earnings in order to facilitate or impede the deal. In this paper, we provide clear evidence of downward earnings management by a sample of target firms that have both time and motive to engage in such actions. These are firms that publicly announce their intention to be acquired. Publicly ‘seeking a buyer’ represents a rather unusual corporate event, and we find that these firms engage in downward earnings management in the years surrounding the ‘announcement year’. To some extent, this result is explained by overrepresentation of low performance and growth among these firms, and it can be interpreted under alternative explanations. Furthermore, we show that such downward earnings management negatively affects the probability for a ‘seeking buyer’ firm to secure an acquisition within a reasonable amount of time, a possible indication of efficient diligence by prospective buyers having a preference for firms ‘seeking buyer’ with no informationally obscure earnings.

What if firms adjust their debt-equity ratios toward a target range?

We estimate optimal target-ranges of capital structure controlling for a series of firmspecific characteristics and accounting for the serial correlation that arises from the dynamic component of the leverage choice. Then, we empirically examine if firms adjust their leverages toward the estimated optimal ranges. Our analysis suggests that the observed behavior of firms is consistent with the notion of range-adjustment.

Productivity differences in Brazilian manufacturing firms, by industrial sector: school bullying and academic achievement

Includes bibliography