Journal of Corporate Accounting & Finance

Publisher:: Wiley
Publication date:: 2021-02-01

ISBN:: 1044-8136

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Issue Information
Commodity price risk, profits, and value creation
Impact of technology in financial reporting: The case of Amazon Go
Since the beginning of the 21st century, there is no doubt that humanity has made a huge step forward in the field of robotics. In the next 20 years, financial reporting will see a stronger change thanks to machine learning, artificial intelligence, block chain, and big data usage. With the convergence of artificial intelligence and block chain, it is now clear that in the near future the work of the accounting profession will be supported by automation. Thus, the aim of the study to introduce the effects of technological changes and transformations on the future of financial reporting. The study first introduces technological tools and provides an overview of the advantages and threats of technological changes to financial reporting. Then, the study provides a case of Amazon Go to display the transformation of financial reporting with the technological changes.
Is yield curve predicting a US recession in 2020?
The yield curve spread has predicted every US recession. As of mid‐2019, the inverted yield curve spread is flashing a warning sign about a possible US recession in 2020. This article explains the yield curve spread, and discusses the possible 2020 recession triggers.
Real options with endogenous convenience yield
Traditional real options theory highlights the impact of risk on the timing of investment decisions. However, in practice, corporate projects often involve a preliminary exploratory stage, incurring a running cost and convenience yield. By analogy with commodity futures theories, we model such multistage corporate projects in a feedback‐control framework, with a dynamic aggregate convenience yield/running cost that interacts with the decisions to enter or exit the preliminary stage. We provide a closed‐form solution for this compound options model. The solution provides insight and quantifies of the optimal strategy for prevalent corporate projects with a preliminary exploration stage.
Data‐driven auditing: A predictive modeling approach to fraud detection and classification
This article develops and empirically tests a predictive model for audit of fraud detection with practical applications for audit operations. By analyzing real‐life accounting data, the proposed model can identify anomalous transactions and directly focus on exceptions for further investigation in real time, thus offering a significant reduction in manual intervention and processing time in audit operations. Our approach is a highly desirable supplement to the existing rule‐based models, given the growing use of information technology for analytics in auditing. The proposed approach is based on classification. Following the tenets of the principal agency theory, we discuss how our approach can help to reduce monitoring and contracting costs, disincentivize fraud, improve auditor efficiency and independence, and increase audit quality. We contribute to the current literature by discussing the implications of data‐driven audit on the moderating role of auditors in principal‐agent relationships and providing practical insights into the operational aspects of financial reporting and auditing, modeling of fraud‐detection classification models, and benefits, barriers, and enablers of implementing data driven audit in companies.
Management quality and acquisition performance: New evidence based on firm profitability
Using corporate accounting profitability measures to proxy for management quality, we report evidence that acquisitions made by higher quality acquirers create greater shareholder value. More profitable acquirers earn better stock returns over the long term, although no consistent relationship is found between announcement‐period abnormal returns and firm profitability. More profitable acquirers also preserve shareholder value by reducing the likelihood of paying stock for acquisitions or overpaying the targets. Overall, our results provide new support for the hypothesis that better acquirers make better acquisitions. Our results also convey a clear message to corporate accounting and financial executives, outside investors, and other professionals. When firms with poor accounting profitability make acquisitions, it is usually not good news.
Measuring life cycles using binomial option pricing: The pharmaceutical industry
This study examines the N computed using an American Binomial Option Pricing Model to address issues in evaluating firms which may be difficult to value such as new pharmaceutical firms. New pharmaceutical products can take up to 12 years to bring a new product to market. This study uses a sample of 15 pharmaceutical initial public offerings (IPOs) brought to market in 2,000. The current study uses a firm's excess market value as a measure of valuable growth opportunities. The study attempts to estimate how much remaining investment in research and development (R&D) is required for potential market success. The study solves for N in an American Binomial Option Pricing Model. The resulting N represents a number which when multiplied by R&D, results in an implied estimated amount of remaining investment in R&D, which the stock market has priced into the value of growth opportunities. The option valuation model uses the firm's excess market value as a call option on the firm's market value, and R&D times N, as the strike price. N is computed for each firm and year observation. The results of the current study suggest that the N, computed in the option‐pricing model, is negatively and highly associated with a firm's future performance and future productivity of investment in R&D.
The effect of insured liabilities on the demand for external audits: The case of privately‐held United States banks
We examine the relationship between government insurance for bank deposits and bank management's voluntary audit choice for a set of privately‐held U.S. banks. Unlikely publicly‐traded banks, U.S. regulations do not require private banks to obtain annual audits. However, all U.S. banks have the feature of insurance on customer deposits that is provided by the Federal Deposit Insurance Corporation—these insured customer deposits comprise a significant portion of the debt of most banks. Consistent with prior research we find that the voluntary choice to be audited is positively related to agency costs as measured by the size of bank assets. Our results show a negative association between a bank's insured deposits and the choice to be audited but (consistent with prior literature) a positive association with uninsured liabilities. In addition, we hypothesize and find that the bank's voluntary audit choice is positively related to the bank's growth rate and related to the bank's primary federal regulator. Taken together, these findings are consistent with the notion that audits create value primarily for uninsured depositors and have implications for bank managers, their customers, and regulators.
Effects of regulation on audits: A Canadian example
The increase in regulation has caused the number of publicly traded Canadian public companies to decline. This study analyzes audit fee data from Audit Analytics from 2002 through 2015 for Canadian companies to determine if they have moved away from using Big 4 auditors. Charts and regression are used to analyze the data. Results show that there is a decline in the number of public audits from 2002 to 2015 that seems to correspond to the decline of Canadian public companies due to increased regulation. In spite of the decline in the number of publicly traded companies, the results of this study show that, of the total audits, the proportion done by Big 4 auditors is increasing, possibly due to the need for higher audit quality and more experienced auditors for the companies to be listed on stock exchanges. This leads to higher audit fees. As a result, many executives have decided to fund their companies with private equity. This decline in the number of publicly traded companies is not healthy for the Canadian market. Perhaps more incentives can be given to attract more public issuers, which will give investors more opportunities to invest, and thus, further strengthen the economy.