Earnings Management and Investor Protection: An International Comparison

This study explains the challenges associated with the Heckman (1979) procedure to control for selection bias, assesses the quality of its application in accounting research, and offers guidance for better implementation of selection models. A survey of 75 recent accounting articles in leading journals reveals that many researchers implement the technique in a mechanical way with relatively little appreciation of important econometric issues and problems surrounding its use. Using empirical examples motivated by prior research, we illustrate that selection models are fragile and can yield quite literally any possible outcome in response to fairly minor changes in model specification. We conclude with guidance on how researchers can better implement selection models that will provide more convincing evidence on potential selection bias, including the need to justify model specifications and careful sensitivity analyses with respect to robustness and multicollinearity. Data Availability: Data used...

Selection models in accounting research

We review recent literature on the role of financial reporting transparency in reducing governance-related agency conflicts among managers, directors, and shareholders, as well as in reducing agency conflicts between shareholders and creditors, and offer researchers some suggested avenues for future research. Key themes include the endogenous nature of debt contracts and governance mechanisms with respect to information asymmetry between contracting parties, the heterogeneous nature of the informational demands of contracting parties, and the heterogeneous nature of the resulting governance and debt contracts. We also emphasize the role of a commitment to financial reporting transparency in facilitating informal multi-period contracts among managers, directors, shareholders, and creditors.

/pdf/the-role-of-information-and-financial-reporting-in-corporate-50nxv9rcoq.pdf

The Role of Information and Financial Reporting in Corporate Governance and Debt Contracting

https://repository.upenn.edu/cgi/viewcontent.cgi?article=1025&context=accounting_papers

The role of information and financial reporting in corporate governance and debt contracting

Earnings Management to Avoid Earnings Decreases and Losses

Does religion matter in corporate decision making in America

We examine how corporate culture influences firms' behaviors and, more specifically, how the level of religiosity in a firm's environment affects its investment decisions. We focus on one country (the U.S.) to minimize differences in legal and economic environments. Prior research suggests a positive link between individual religiosity and risk aversion. We find that this relation also influences organizational behavior. Specifically, firms located in counties with higher levels of religiosity display lower degrees of risk exposure as measured by variances in equity returns or in returns on assets. In turn, such firms require a higher internal rate of return before investing. They exhibit a lower rate of investment either in tangible capital or in R&D but generate a more positive market reaction when they announce new investments. Their long-term growth is also lower. Finally, we document that CEOs are more likely to join firms with similar religious environment as their last firm when they switch employers. All results are both economically and statistically significant. They are robust to many alternative specifications that minimize the risk of omitted variables or endogenous relations.

https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=1284329

Does Religion Matter in Corporate Decision Making in America

We argue that a firm’s suppliers and customers prefer it to account more conservatively due to information asymmetry and these stakeholders’ asymmetric payoffs with respect to the firm’s performance. We predict that a firm meets this demand for accounting conservatism when suppliers or customers have bargaining advantages over it that enable them to dictate terms of trade or whether trade occurs at all. We show that when a firm’s suppliers or customers have greater bargaining power, the firm recognizes losses more quickly. Our findings provide insights into how a firm’s powerful suppliers and customers are associated with its accounting practices and also support the contracting explanation for accounting conservatism.

Corporate Suppliers and Customers and Accounting Conservatism

http://media.terry.uga.edu/socrates/publications/2011/12/JAE_2012_Hui_Klasa_Yeung.pdf

Kai Wai Hui

Papers

Does religion matter in corporate decision making in America

Does Religion Matter in Corporate Decision Making in America

Corporate Suppliers and Customers and Accounting Conservatism

Corporate suppliers and customers and accounting conservatism

Does Religion Matter in Corporate Decision Making in America