Accounting quality, accounting performance, and firm survival: an empirical investigation of Thai-listed firms.

• Author: Waroonkun, Satha
• Position: Report

1. INTRODUCTION

   Recently, accounting scandal and fraud have reduced trust in corporate financial statement. The doubts extended beyond such as the case of Xerox, Rite Aid, Waste Management, Enron Corporation, WorldCom, Tyco, and Parmalat have misled stakeholders by financial report. In addition, the collapse of Enron has caused about US$70 billion lost in market capitalization which is devastating for significant numbers of investors, employees and pensioners. The WorldCom collapse, caused by alleged financial statement fraud, is the biggest bankruptcy in the United States history. Loss of market capitalization resulting from the reported financial statement fraud committed by Enron, WorldCom, Qwest, Tyco, and Global Crossing is estimated about US$460 billion (Cotton, 2002). Moreover, the financial crisis affected not only the United States but also Asian countries that have the same problem such as the case of Roy net, Alfatech, Picnic, and SK Group in Thailand. Financial problems are to blame for the inadequate quality in accounting information and financial disclosures have led cause of the Asian crisis. The comparative study of five East Asian countries affected by the crisis found that most of the companies in these countries did not follow International Accounting Standards (IAS)(Rahman, 1998). The noncompliance of financial statements with International standards, the firms' disclosure deficiencies and the lack of rigorous monitoring by external auditors are among the leading causes for the financial crisis in Korea (Choi, 2002). In the aftermath of the Asian financial crisis, many Asian countries have undertaken accounting reforms to strengthen the quality of financial reporting that rebuild the trusted from stakeholder. The majorities of publicly traded companies have been responsible for their unreliable financial reporting process and through continuous improvements enhance their accounting quality.

   Accounting quality is relatively recent and important in the financial report and accounting information. It identifies major issues that need to be considered to improve reliability, transparency, and uniformity of the financial reporting process that allows investors to make intelligent decisions. Capital markets participants (e.g. investors, creditors, analysts) make investment decisions based on financial information disseminated to the market by corporations. The importance of financial information to the efficiency of securities markets is repeatedly noted in speeches given by Securities and Exchange Commission (SEC) commissioners. For example, "Audited financial statements provide the foundation for our securities markets. Audited financial statements allow investors to make decisions on whether to buy, hold, or sell a particular security" (SEC, 2002a). "Accurate information also improves the quality of markets by allowing markets to discover the true price at which specific securities trade" (SEC, 2002b). Thus, the quality, reliability, and transparency of accounting quality are essential to the efficient allocation of resources in the economy that make market participants assess lower information risk associated with high quality financial reports. This lower perceived information risk will make capital markets more efficient; it induces lower cost of capital and higher securities prices.

   The reason that interests firm to practices their accounting with high quality has been gaining recognition in many Asian countries. First of all, as companies face increasingly competitive environment, the access to capital becomes essential for firms' survival and growth. If firms have low quality financial information reporting, they could face high hurdles in securing the capital resources they need. Secondly, as globalization deepens, the expansion of international trade makes it increasingly necessary to have a common set of accounting standards that will provide a level playing field for all companies worldwide. The International Accounting Standards Committee (IASC) has been actively promoting the use of a single set of accounting standards that will ultimately be acceptable to all countries as the basis for cross-border financial transactions (Bushman and Smith 2001). Finally, rapid economic growth in many Asian countries has enabled these countries to focus on the development of human resources necessary for strengthening financial reporting.

   The framework for preparation and presentation of financial statement specifies the quality of accounting which includes relevance, reliability, comparability and consistency. Here, in this research, accounting quality is an independent variable which consists of accounting standard compliance, regulation-related accounting practices, best accounting method concerns, and public expectation mindset. Accounting standard compliance is defined as accounting practice that follows accounting standards that include using standards for definitions of assets and liabilities, implementation guidance, and allowing is exceptions/ alternative applications (Kohlbeck and Warfield, 2010). Regulation-related accounting practices is defined as accounting practice that follows regulations and laws that affect accounting statements and information disclosure. Best accounting method concerns is defined as the judgment by management, thus, selecting accounting policy that correlation between accounting information and underlying economics activity. Public expectation mindset refers to building of public trust that is primary administrative values by enhancing transparency, cost efficiency, effectiveness, and policy participation (Moon, 2003).

   The main objectives of this research are as follows: (1) To investigate the role of governance vision, accounting morality, and stakeholder forces on each dimension of accounting quality, (2) To investigate the effects of each dimension of accounting quality on financial report efficiency, information transparency, information valuables, and accounting performance, (3) To investigate the effects of financial report efficiency on information transparency and information valuables, (4) To investigate the effects of financial report efficiency, information transparency, and information valuables on accounting performance, (5) To investigate the effect of accounting performance on corporate stability and firm survival, (6) To investigate the effect of corporate stability on firm survival, (7) To examine the moderating effects of accounting learning on the governance vision, accounting morality, and stakeholder forces-accounting quality relationships, (8) To test the moderating effects of accountant experience on each dimension of accounting quality-financial report efficiency, information transparency, information valuables relationships, (9) To examine the moderating effects of accounting experience on financial report efficiency, information transparency, and information valuables-accounting performance relationships, (10) To examine the moderating effects of stakeholder-corporate relationships on accounting performance-firm survival relationships, and (11) To examine the moderating effects of stakeholder-corporate relationships on corporate stability-firm survival relationships.

   The key research question of this research is how each dimension of accounting quality has an impact on firm survival. Moreover, the specific questions are as follows: (1) how do governance vision, accounting morality, and stakeholder influence each dimension of accounting quality?, (2) how does each dimension of accounting quality influence financial report efficiency, information transparency, information valuables, and accounting performance?, (3) how does financial report efficiency influence information transparency and information valuables?, (4) how do financial report efficiency, information transparency, and information valuables influence accounting performance?, (5) how does accounting performance influence corporate stability and firm survival?, (6) how does corporate stability influence firm survival?, (7) how does accounting learning moderate governance vision, accounting morality, and stakeholder - each dimension of accounting quality relationship?, (8) how does accounting experience moderate each dimension of accounting quality-financial report efficiency, information transparency, information valuables relationships?, (9) how does accounting experience moderate financial report efficiency, information transparency, and information valuables-accounting performance relationships?, (10) how does stakeholder-corporate moderate accounting performance-firm survival relationships?, and (11) how do stakeholder-corporate relationships moderate corporate stability-firm survival relationships?.

   This research generates both theoretical and managerial contributions. In the theoretical contribution, this research provides important extension on previous knowledge and relevant literature of accounting quality. Moreover, this research focuses on the dimensions of accounting quality that can enhance the quality of financial report, information transparency, information valuables, accounting performance, and firm survival. In managerial contribution, the findings of this research provide information for managers of accounting department to identify and justify key component of accounting quality in order to gain stability and survival in the more competitive environment of capital markets.

   The remainder of the paper is organized as follows. The first part provides theoretical foundation. The second provides a brief literature review and links to hypothesis development. The third provides research methods including, sample and data collection procedure, the variable measurements of each construct, the instrument verification, the statistics, and equations to test the hypotheses are provided. The fourth provides the results and discussion. The fifth provides...