Journal of Corporate Accounting & Finance

Publisher:
Wiley
Publication date:
2021-02-01
ISBN:
1044-8136

Latest documents

  • Bank corporate governance in Australia: Is there a conflict between the existing corporate culture and the Anglo‐Saxon model of corporate governance?

    This article identifies bank governance deficit as a contributor to the misconduct identified in the recent Banking Royal Commission into misconduct in banks, superannuation, and financial services in Australia. Literature review has been conducted to identify the key issues of theory, frameworks, sources of corporate governance (CG), CG models, board skills, and age as factors in CG. The analysis finds that some of the governance requirements are well in place in Australia, the apparent failure of CG not being able to constrain misconduct in banks remains a puzzle. We question whether Anglo‐Saxon model of short‐termism has permeated bank organization culture beyond fixation. We suggest various opportunities for further research to try to narrow the gap between governance deficit and conduct in the banking sector.

  • Employee stock options and the flawed use of the Black–Scholes option pricing model

    This article studies a well‐known, and flawed, use of the Black–Scholes model in reporting. It achieves two principal goals. First, it reports our critical analysis into the topic resulting from the combination of our fields’ expertise in it. Second, we report our study into an as‐yet undocumented example of that flaw. The flawed use of Black–Scholes leads to mark‐to‐model measurements errors in reporting, most notably in Earnings. Our analysis covers the major sources of the resulting mis‐measurement: the mismatch between the parametrization of Black–Scholes models versus the legal formulation of ESO contract terms; and the alteration of the models’ inputs mandated by regulators. These regulators asserted that the unavoidably incorrect values would be “sufficient” for reporting. Our study examines the infrequently studied “risk‐free rate” input to demonstrate that resulting mis‐measurements are readily quantifiable. We expect to continue this research into our fields’ disagreements on the use of the Black–Scholes class of option pricing models for reporting.

  • Advanced financial reporting—The French approach to the disclosure problem

    Sound decision‐making depends on an appropriate level of relevant information. This topic is on the agenda of international standard setters in order to increase the decision usefulness of financial disclosures for the addressees of corporate reporting. A look at France demonstrates how a unique recommendation on financial market communication initiated by the Financial Supervisory Authority, which goes beyond legal requirements, can help solve the problem. The resulting advanced disclosures not only provide a clear picture of the origin and magnitude of, for example, financial risks but also of the extent to which the company has reduced or increased the risk with derivative instruments. Such unprecedented transparency could raise the inhibition threshold for speculation. In addition, we illustrate that the enhanced data granularity could benefit various stakeholders through more meaningful competitive or benchmarking analyses.

  • Issue Information
  • The role of directors with multiple board seats and earnings quality: A Singapore context

    This article explores whether multiple directorships has an influence on earnings management for Singaporean publicly listed firms. This article attempts to determine whether boards with multiple directorships are effective monitors and able deterrents of earnings management activities. Drawing on resource dependence theory, the results suggest that directors with multiple board seats will be able to tap on external resources for information, skills, and financial resources using their board connectedness. Data analysis is based on publicly listed firms on Singapore Stock Exchange (SSE) with a final pooled sample of 1,404 firm‐year observations from 2015 to 2018. Findings of this study show that with a higher level of multiple directorships, there is a significant negative relationship with the level of earnings management, where earnings management is measured by Dechow et al. (The Accounting Review, 1995, 70, 193–225) Modified Jones model and the Kothari et al. (Journal of Accounting and Economics, 2005, 39, 163–197) performance‐adjusted model. We also find that firms in Singapore that have a higher number of multiple directorships on its board, will have a lower level of tolerance on income‐increasing earnings manipulation. Notable secondary findings of this study include a significant negative relationship between the proportion of female directors on the board with the level of earnings management (income‐increasing manipulations). Additionally, it is found that the engagement of Big Four auditors has no significant relationship with the level of earnings management in the context of Singaporean firms. This study has significant implications and contributions to the theoretical applications and policy reforms, specifically pertaining to the Singapore Code of Corporate Governance on the issue of multiple directorships.

  • The determinants of residential property prices in Japan: Analyses of different monetary policy regimes

    Residential property prices in three regions in Japan are influenced by stock price, but not by interest rate, in the first period of sample period, from April 2008 to March 2013 The wealth effect from stock to the real estate market holds. The sensitivity of interest rates to residential property markets is not confirmed. Furthermore, the monetary policy adopted by the Bank of Japan (BOJ) is not as strong in the second period. Residential property prices are influenced both by stock price and interest rate in the second period, from April 2013‐ to August 2019. The wealth effect from stock to the real estate market holds. The aggressive non‐traditional monetary policy enacted by the BOJ flattens the yield curve of long‐term interest rates. Comparing the impact of stock price and interest rate in the three regions under study, Tokyo enjoys the greatest effects.

  • Debt maturity structure and cost stickiness

    This paper investigates the association between debt maturity structure and cost stickiness. One view in the cost stickiness literature suggests that managers deliberately continue to expand resources for their own private benefit, despite a decrease in the activity level. We examine whether short‐maturity debt constrains such opportunistic cost stickiness. We find evidence supporting this hypothesis. We further document that availability of free cash flows, earnings management incentive, and the structure of executive compensation all exacerbate the agency problem‐induced cost stickiness, but that short‐maturity debt constrains those sources of cost stickiness. We contribute to the scant body of empirical research that explores the potential factors that could attenuate cost stickiness.

  • How cost of capital is changing: The effect of accounting information

    The main objective of this paper is to explore the effects of information on the costs of capital. The study will offer insights on how firms can make use of information to manipulate the costs of capital to achieve the desired goals. It offers divergent view on the effects of information on the costs of capital. Moreover, it examines the effect on the capital costs of the firm's accounting information by taking earnings quality as a proxy. The analytical results suggest that all of the accounting information components have an effect on the capital cost of the firm. The further finding of this paper is that the quality and quantity of information have an effect on the capital cost in a firm. Importantly, information has different effects on the informed and uninformed investors. This paper offers new insights on the role of private and public information on affecting the costs of capital on both informed and the uninformed investors.

  • Tax avoidance and over‐investment: The role of the information environment

    We investigate whether the association between tax avoidance and over‐investment is moderated by a firm's information environment. Prior research (Blaylock, 2016) finds no association between tax avoidance and over‐investment, but the study did not consider the impact of financial reporting quality (FRQ). It seems likely that FRQ is a moderating variable because Balakrishnan, Blouin, and Guay (2012) find that a firm's information environment is affected by tax planning while Biddle and Hilary (2006) find that FRQ is negatively associated with investment. We find that tax avoidance is positively associated with over‐investment when the information environment is weak, and that having a richer information environment mitigates this association. Our results are robust across multiple measures of tax avoidance and multiple proxies for the quality of the information environment. In addition, our results hold after propensity score matching, controlling for governance and the firm's internal resources, partitioning on managerial ability, and in a change analysis. These findings highlight the important role of financial information in corporate investment behavior and enhance our understanding of the link between tax avoidance and agency costs.

  • How does corporate social responsibility decrease serious misstatement likelihood?

    In this article, we offer two explanations for the observed negative association between corporate social responsibility (CSR) performance and the likelihood of serious misstatements being detected (PSMD). We find that CSR significantly decreases the probability of engagement in a serious misstatement (PE) in general, whereas it increases the detection probability (PD) only when there are salient indicators of misstatement engagement. The asymmetrical impact of CSR on the engagement probability and detection probability provides the first explanation for the lower PSMD in CSR firms. Second, we provide evidence that CSR indirectly affects PSMD by attenuating the materiality and magnitude of misstatements. A path analysis suggests that the indirect path accounts for 33.3% of the total impact of CSR on serious misstatement likelihood. These findings advance our understanding of the mechanism through which CSR reduces PSMD.

Featured documents

  • Board tenure: A review

    This article reviews the existing academic research on the determinants and consequences of board tenure. Primarily, this article focuses specifically on international empirical studies. We find that different corporate governance characteristics determine board tenure. In addition, our review...

  • COSO Embraces Enhanced Fraud Risk Management

    COSO—the Committee of Sponsoring Organizations of the Treadway Commission—has updated its internal control guidelines. The problem of internal control is now seen as one of analysis and synthesis, rather than detecting covert perils from rogue employees or others. The new guidelines include...

  • Material Weaknesses in Internal Control in Relation to Derivatives and Hedge Accounting

    We examined 173 internal control reports containing material weaknesses (MW) in internal control over financial reporting related to derivatives and hedge accounting issues (FASB codification ASC 815). We found that a majority of the companies (122) did not properly implement the ASC 815 accounting ...

  • What Do We Know About Corporate Cash Holdings? A Systematic Analysis

    Cash holdings play an important role at the heart of firms' policies. Researchers have devoted considerable attention to the dramatic increase in cash reserves despite alternative instruments such as debt, derivatives, and credit lines. The finance literature discusses the antecedents and...

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  • The role of directors with multiple board seats and earnings quality: A Singapore context

    This article explores whether multiple directorships has an influence on earnings management for Singaporean publicly listed firms. This article attempts to determine whether boards with multiple directorships are effective monitors and able deterrents of earnings management activities. Drawing on...

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  • How does corporate social responsibility decrease serious misstatement likelihood?

    In this article, we offer two explanations for the observed negative association between corporate social responsibility (CSR) performance and the likelihood of serious misstatements being detected (PSMD). We find that CSR significantly decreases the probability of engagement in a serious...

  • Earnings management and agency costs: Is China different?

    In this article, we investigate the link between agency costs (AC) and earnings management (EM) in China. We find a significant and positive relationship between AC and EM based on the static model that suggests opportunistic EM in China. However, we find an insignificant relationship between AC...

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