bluuebunny/crossref_metadata_2025_split huggingface dataset:
A Laboratory Investigation of Verification and Reputation Formation in a Repeated Joint Investment Setting*
Authors: Schwartz Steven T. , Young Richard A. 
Published: November 2003

AbstractThis paper describes an experiment in which subjects, acting as division managers, exchanged privately held information before making intrafirm investment decisions. Social efficiency required that managers honestly disclose their private information, but managers had individual incentives to send biased messages. These features of the model created an important role for ex post verification, the main manipulation in the experiment. The matching protocol was also manipulated, using both random and continuous matching of subjects. This second manipulation was intended to examine whether an important institutional attribute — the frequency of interaction — would affect the usefulness of verification. The results of the experiment indicate that verification significantly increased the relative frequency of honest messages and the level of social efficiency. However, the improvements from verification were greater in settings where subjects did not interact repeatedly. The data also indicate that, in the continuous matching treatments, responses depended on the history of behavior of the message sender. However, this behavior was not observed in the random matching treatments. Thus, both the efficacy of verification and the extent of reputation formation depended on the institutional setting.
Earnings Management to Avoid Losses and Earnings Decreases: Are Analysts Fooled?*
Authors: Burgstahler David C. , Eames Michael J. 
Published: November 2003

AbstractThis paper explores whether analyst forecasts impound the earnings management to avoid losses and small earnings decreases documented in Burgstahler and Dichev 1997, whether analysts are able to identify which specific firms engage in such earnings management, and the implications for significant forecast error anomalies at zero earnings and zero forecast earnings. We use data from Zacks Investment Research 1999 and find that analysts anticipate earnings management to avoid small losses and small earnings decreases. Further, analysts are much more likely to forecast zero earnings than firms are to realize zero earnings, and analysts are unable to consistently identify the specific firms that engage in earnings management to avoid small losses. This latter inability contributes to significant forecast pessimism associated with zero reported earnings and significant forecast optimism associated with zero earnings forecasts.
Board Characteristics and Audit Fees*
Authors: Carcello Joseph V. , Hermanson Dana R. , Neal Terry L. , Riley Richard A. 
Published: November 2003

AbstractThis paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance, which requires more audit work) than the Big 6 audit firms normally provide. The audit fee increases as the auditor's additional costs are passed on to the client, such that we expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee “quality” are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees.
Undetected Deviations in Tests of Controls: Experimental Evidence of Nonsampling Risk*
Authors: JOHNSTON HEATHER , LINDSAY W. DARYL , PHILLIPS FRED 
Published: November 2003

ABSTRACTThe objective of the study was to examine the effects of three independent variables ‐ accountability, audit workpaper structure, and type of control deviations ‐ on auditors' detection failure rates during control tests in a purchases, payables, and payments cycle. The experimental design used a between‐subjects manipulation of accountability and workpaper structure, and a within‐subjects manipulation of deviation type. Consistent with prior research, we observed an alarmingly high detection failure rate of 42.3 percent. This failure rate was not affected by levels of accountability or workpaper structure, although postexperiment evidence suggests that these variables were successfully manipulated. Failure rates did depend on the type of seeded control deviation, with nonmonetary deviations being overlooked most frequently. In addition to replicating prior research, our study makes two further contributions. First, we provide empirical evidence that supports Hirst's (1992) speculation that successful manipulations of accountability may not affect auditor performance because auditors may self‐induce levels of accountability that create a ceiling effect on auditor performance. Second, we observe that although auditors perceived that highly structured workpapers allowed them to be more effective and efficient when performing tests of controls, their actual audit performance was not more effective and, on average, was less efficient.
The Influence of Affect on Managers' Capital‐Budgeting Decisions*
Authors: Kida Thomas E. , Moreno Kimberly K. , Smith James F. 
Published: November 2003

AbstractIn this paper, we propose that affective reactions are integral to accounting decision contexts like capital budgeting, and that researchers must jointly consider affect and cognition to better understand accounting decision makers' behavior. We argue that interpersonal relationships are characteristic of many capital‐budgeting contexts, and that these relationships can lead to emotional affective reactions. For example, reactions such as frustration and anger may result if a manager is treated unfairly by another individual involved in a capital project. Drawing on relevant work in neurobiology and psychology, we then predict that these affective reactions can influence managers' capital‐budgeting decisions. We report on four experimental scenarios that demonstrate the impact of affective reactions on capital‐budgeting decisions. Consistent with our predictions, the results indicate that managers consider both financial data and affective reactions when evaluating the utility of an investment alternative. Our results suggest that researchers should consider both affect and cognition to more fully understand decision making in accounting contexts.
Audit Strategies and Multiple Fraud Opportunities of Misreporting and Defalcation*
Authors: Patterson Evelyn , Noel James 
Published: November 2003

AbstractWe examine how an auditor assesses the risk of fraud and formulates an audit plan when the auditee has the opportunity to commit various types of fraud. Unlike previous studies, the audi‐tee can misappropriate assets (defalcation), misreport financial information (fraudulent financial reporting), or misreport financial information in combination with defalcation. Our results identify four possible equilibria whose characteristics depend on the auditee's relative rewards and penalties from the various types of fraud, the cost of audit effort, and expectations about the auditee‐firm's performance. When the cost of audit effort is sufficiently small, fraud risk assessment depends on the auditee's rewards and penalties associated with each type of fraud, but not on the auditor's beliefs about firm performance. The auditor develops an audit plan that focuses on the type of fraud the auditee is most motivated to commit, and in turn, the audit plan deters all other types of fraud.
The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs*
Authors: KLASSEN KENNETH J. , MAWANI AMIN 
Published: November 2003

AbstractThis study explores the effects of financial and tax reporting incentives on options granted to chief executive officers in Canada. Extant studies with a similar objective (Yermack 1995; Matsunaga 1995) explore predominantly nonqualified U.S. option grants that are deductible to the extent that the options are in the money at the time of exercise. In contrast, Canadian firms do not get a tax deduction for their stock option grants at any time. In both countries, no expense is recorded for financial reporting purposes. As a result, the financial reporting and tax reporting trade‐off is more pronounced in the Canadian setting of this study compared with the U.S. setting. We measure option granting behavior as the ratio of the Black‐Scholes value of stock option grants to the sum of cash compensation and the value of stock option grants. Using a sample of 806 firm‐year observations during the period 1993‐95, we find that observed option grants are significantly correlated with proxies for short‐run financial reporting incentives. We also find evidence that option granting behavior is correlated with proxies for tax incentives.
Improving Jurors' Evaluations of Auditors in Negligence Cases*
Authors: Kadous Kathryn 
Published: November 2003

AbstractPrior research indicates that individuals acting as jurors experience outcome effects in audit negligence litigation. That is, jurors evaluate auditors more harshly in light of negative outcomes, even when audit quality is constant. I posit that outcome effects in this setting are caused by jurors using their negative affect (i.e., feelings) resulting from learning about negative audit outcomes as information relevant to auditor blameworthiness. I tested this hypothesis in an experiment in which I manipulated audit quality, outcome information, and provision of an attribution instruction. The attribution instruction was designed to discredit negative affect as a cue to auditor blameworthiness. Consistent with expectations, attribution participants' evaluations of auditors exhibited less reliance on outcome information and more reliance on audit quality information than did evaluations made by control participants. In fact, outcome effects were eliminated for attribution participants. Courts may be able to improve the quality of jurors' decisions in such cases by employing an attribution instruction.
The Effects of Labour on Accounting Choice in Canada
Authors: CULLINAN CHARLES P. , BLINE DENNIS M. 
Published: November 2003

ABSTRACTThis study examines the effects of labour considerations on accounting choice in Canada. Two potential labour‐related incentives are considered: ability to pay and employee attraction and retention. Measures of these incentives are developed based on Canadian data: unionization for ability‐to‐pay incentives, and labour intensity and the percentage of white‐collar employees for the attract and retain incentives. Our results indicate that ability‐to‐pay incentives, measured by unionization, are not associated with depreciation policies in Canada. In contrast, the findings provide mixed support for the attract‐and‐retain perspective, because labour intensity was significantly correlated with these choices, while the percentage of white‐collar employees was marginally significant.
Auditor Conservatism, Asymmetric Monitoring, and Earnings Management*
Authors: Kim Jeong‐Bon , Chung Richard , Firth Michael 
Published: November 2003

AbstractIn this paper, we investigate whether, and how, audit effectiveness differentiation between Big 6 and non‐Big 6 auditors is influenced by a conflict or convergence of reporting incentives faced by corporate managers and external auditors. In so doing, we incorporate into our analysis the possibility that managers self‐select both external auditors and discretionary accruals, using the two stage “treatment effects” model. Our results show that only when managers have incentives to prefer income‐increasing accrual choices are Big 6 auditors more effective than non‐Big 6 auditors in deterring/monitoring opportunistic earnings management. Contrary to conventional wisdom, we find Big 6 auditors are less effective than non‐Big 6 auditors when both managers and auditors have incentives to prefer income‐decreasing accrual choices and thus no conflict of reporting incentives exists between the two parties. The above findings are robust to different proxies for opportunistic earnings management and different proxies for the direction of earnings management incentives.
Do Institutional Investors Prefer Near‐Term Earnings over Long‐Run Value?*
Authors: Bushee Brian J. 
Published: November 2003

AbstractThis paper examines whether institutional investors exhibit preferences for near‐term earnings over long‐run value and whether such preferences have implications for firms' stock prices. First, I find that the level of ownership by institutions with short investment horizons (e.g., “transient” institutions) and by institutions held to stringent fiduciary standards (e.g., banks) is positively (negatively) associated with the amount of firm value in expected nearterm (long‐term) earnings. This evidence raises the question of whether such institutions myopically price firms, overweighting short‐term earnings potential and underweighting long‐term earnings potential. Evidence of such myopic pricing would establish a link through which institutional investors could pressure managers into a short‐term focus. The results provide no evidence that high levels of ownership by banks translate into myopic mispricing. However, high levels of transient ownership are associated with an over‐ (under‐) weighting of near‐term (long‐term) expected earnings, and a trading strategy based on this finding generates significant abnormal returns. This finding supports the concerns that many corporate managers have about the adverse effects of an ownership base dominated by short‐term‐focused institutional investors.
Productivity in “Top‐Ten” Academic Accounting Journals by Researchers at Canadian Universities*
Authors: MATHIEU ROBERT , McCONOMY BRUCE J. 
Published: November 2003

ABSTRACTWe examine the research productivity of academic accountants at Canadian universities for the 11‐year period 1990‐2000. Our analysis is based on the “top‐ten” ranked refereed journals in accounting, auditing, and taxation, as documented by Brown and Huefner (1994). We first provide an overview of the importance of publishing in highly ranked accounting journals for individual academics, departments, and business faculties. We then provide details of the proportion of articles published in each of these journals by academics from Canadian universities; the type of research published in each journal (auditing, financial accounting, managerial accounting, and taxation); and details of editorial board service. Our results indicate that even at the most productive Canadian university (in terms of “top‐ten” publications), faculty members publish (on average) approximately one article every seven years. Six Canadian universities have faculty members with, on average, more than one article in “top‐ten” journals every 10 years. We also provide results of analyses that rank each Canadian university, after controlling for the relative quality of each journal, using impact factors published by the Social Science Citation Index. In addition, statistics are provided with regard to the 15 most productive researchers, in terms of “top‐ten” publications, in the 11‐year period. Finally, in conjunction with the 25th anniversary of the Canadian Academic Accounting Association, we examine the productivity of academic accountants at Canadian universities over the past 25 years by combining our results with those reported by Richardson and Williams (1990).
Competition and Big 6 Brand Name Reputation: Evidence from the Ontario Municipal Audit Market*
Authors: BANDYOPADHYAY SATI P. , KAO JENNIFER L. 
Published: November 2003

AbstractThe 1991 amendment to the auditor appointment requirement of section 86 of the Ontario Municipal Act removes certain barriers to entry into the Ontario municipal audit market. The purpose of this study is to provide evidence that the amendment has enhanced competition in this market. The results indicate that there is a general reduction in the real municipal audit fees compared with the pre‐amendment levels, and that the market has become more contestable following the amendment. Notwithstanding the heightened competition, the Big 6 audit firms continue to command audit fee premiums over the non‐Big 6 audit firms. This suggests that Big 6 audit fee premiums possibly reflect brand name reputation rather than monopoly/oligopoly rents.
Impact of Competition and Taxes on Responsibility Center Organization and Transfer Prices*
Authors: NARAYANAN V. G. , SMITH MICHAEL 
Published: November 2003

AbstractWe show that a firm can use its decentralized organizational structure and transfer price as commitment devices to obtain strategic advantage in the product market only when there are nonstrategic reasons to decentralize and to distort transfer prices away from marginal costs, such as the sales office's local knowledge about market conditions and the presence of tax rate differentials across the two tax jurisdictions. Surprisingly, an increase in the sales office's tax rates may help a firm increase overall profits. An increase in the sales office's tax rates causes the firm to increase its transfer price, which in turn dampens the sales office's competition and may more than offset the effect of increased tax rates on the firm's overall profits.
Inferring Transactions from Financial Statements*
Authors: ARYA ANIL , FELLINGHAM JOHN C. , GLOVER JONATHAN C. , SCHROEDER DOUGLAS A. , STRANG GILBERT 
Published: November 2003

AbstractIn this paper, we embed the double entry accounting structure in a simple belief revision (estimation) problem. We ask the following question: Presented with a set of financial statements (and priors), what is the reader's “best guess” of the underlying transactions that generated these statements? Two properties of accounting information facilitate a particularly simple closed form solution to this estimation problem. First, accounting information is the outcome of a linear aggregation process. Second, the aggregation rule is double entry.
Competition and Cost Accounting: Adapting to Changing Markets*
Authors: Krishnan Ranjani , Luft Joan L. , Shields Michael D. 
Published: November 2003

AbstractThe relation of competition and cost accounting has been the subject of conflicting prescriptions, theories, and empirical evidence. Practitioner literature and textbooks argue that higher competition generally requires more accurate product costing. Theoretical economic analysis, in contrast, predicts that the optimal level of product‐costing accuracy is sometimes higher at lower levels of competition. Results of survey research are inconsistent, suggesting a need for further identification of conditions under which higher competition leads to more accurate product costing. This study shows experimentally that individuals' choices of the level of product‐costing accuracy depend not only on the current level of competition but also on the previous level of competition — that is, on an interaction between market structure (monopoly, duopoly, and four‐firm competition) and market history (increasing versus decreasing competition). In the experiment, subjects decide on the quantity of data to collect at a pre‐set price per datum to support more accurate product‐cost estimates. Subjects collect the most cost data (i.e., choose the most accurate product costing) in monopoly, collect the least in duopoly, and an intermediate amount in the four‐firm market, consistent with the pattern of optimal cost‐data collection in Hansen's 1998 model. The process of convergence to the optimum differs significantly across market types and market histories, however. Subjects who begin in four‐firm competition adapt more successfully to change than those who begin in monopoly. The lowest levels of decision performance occur when ex‐monopolists face their first competitor: they overreact to this first encounter with competition and overspend on cost data.
Audit‐Firm Tenure and the Quality of Financial Reports*
Authors: Johnson E. , Khurana Inder K. , Reynolds J. Kenneth 
Published: November 2003

AbstractThis study examines whether the length of the relationship between a company and an audit firm (audit‐firm tenure) is associated with financial‐reporting quality. Using two proxies for financial‐reporting quality and a sample of Big 6 clients matched on industry and size, we find that relative to medium audit‐firm tenures of four to eight years, short audit‐firm tenures of two to three years are associated with lower‐quality financial reports. In contrast, we find no evidence of reduced financial‐reporting quality for longer audit‐firm tenures of nine or more years. Overall, our results provide empirical evidence pertinent to the recurring debate regarding mandatory audit‐firm rotation — a debate that has, to date, relied on anecdotal evidence and isolated cases.
Why Do Large Firms' Prices Anticipate Earnings Earlier than Small Firms' Prices?*
Authors: AYERS BENJAMIN C. , FREEMAN ROBERT N. 
Published: November 2003

AbstractThis paper presents evidence that the positive association between firm size and price leads of earnings is not solely a function of private search incentives for firm‐specific information. Specifically, we find that small‐firm prices also lag large‐firm prices with respect to industry‐wide information. Our empirical analysis extends Collins, Kothari, and Rayburn 1987 and Freeman 1987, who document that security‐price leads of earnings are positively associated with market capitalization. In particular, we examine the association between firm size and the timing of security returns for two components of annual earnings changes: the average change for a firm's industry and the firm's idiosyncratic change. We find that large firms' prices have a longer lead than small firms' prices with respect to both components. Large firms' early lead on industry‐wide earnings suggests that returns of large firms predict returns of same‐industry small firms. To test this implication, we construct a portfolio of long (short) positions in small firms when the prior month's returns of large firms in their industry are above (below) average for large firms in other industries. This zero investment portfolio earns 4.5 percent over 12 months.
A Discussion of “Audit Review: Managers' Interpersonal Expectations and Conduct of the Review”
Authors: Peecher Mark E. 
Published: November 2003

AbstractGibbins and Trotman's study both explores reviewer attributes that auditors judge to influence review quality and replicates earlier, largely experimental findings about preparer and reviewer decision behavior. Such exploration and intra‐method replication create opportunities to refine theory and better design future experimental and nonexperimental studies. Naturally, as with any study, the opportunities that this study creates are not without bounds. To help in thinking about these bounded opportunities, this discussion raises four topics that I have entitled “retro‐spective biases”, “stylization perceptions”, “manager styles”, and “real‐time review complexities”. After discussing these topics in turn, I end with a short summary.