Terrance R. Skantz

Bio: Terrance R. Skantz is an academic researcher from University of Texas at Arlington. The author has contributed to research in topics: Earnings & Audit. The author has an hindex of 12, co-authored 31 publications receiving 765 citations. Previous affiliations of Terrance R. Skantz include Florida Atlantic University & University of Houston–Clear Lake.

Audit and Nonaudit Fees and the Market's Reaction to Earnings Announcements

Abstract: Effective February 05, 2001, publicly traded companies are required to disclose audit and nonaudit fees paid to their external auditors. These fee data have been used to test whether auditor independence is impaired when the external auditor provides nonaudit services to a client, usually by examining whether certain earnings characteristics are related to nonaudit fees in ways that suggest impairment. This paper follows in that tradition by testing whether the earnings response coefficient (ERC), a proxy for earnings quality, is associated with engagement profitability. Residual fees derived from a two‐stage regression model that prices audit and nonaudit services simultaneously are used to proxy for engagement profitability. If the market perceives abnormally profitable engagements as a threat to auditor independence, then we would expect the ERC to be lower for firms with positive fee residuals. The paper examines the residual fee‐ERC relation for annual earnings announcements immediately before and af...

House Prices and a Flood Event: An Empirical Investigation of Market Efficiency

Abstract: In this study, house-price reactions to a first-time disastrous flood are investigated Conventional wisdom predicted prices would decline and later regain lost value as the market forgot the flood

Highly Valued Equity and Discretionary Accruals

Abstract: Overvalued equity provides a strong incentive for managers to report earnings that do not disappoint the market ( Jensen, 2005). We find that this can be extended to highly valued equity more generally. In the year following the classification as highly valued and compared to firms with less extreme valuations, highly valued firms have significantly higher discretionary accruals and exhibit a more pronounced positive association between discretionary accruals and proxies for the likelihood of failing to meet earnings targets. These findings are consistent with the use of discretionary accruals to manage earnings in support of extreme valuation. Because highly valued equity will likely result in CEOs with valuable stock and stock option portfolios, we test whether and show that the overvalued equity incentive is incremental to a CEO's equity portfolio incentive. One implication is that directors and audit committees should be especially on guard for possible earnings management when a firm has extremely high valuation multiples and when the CEO has a lot of equity at risk.

Auditor tenure, auditor specialization, and information asymmetry

Abstract: Purpose – The purpose of this paper is to examine the relation between a company's bid‐ask spread, a proxy for information asymmetry, and auditor tenure and specialization.Design/methodology/approach – The tests use clustered regression for a sample of 31,689 company‐years from 1992 to 2001 and control for factors known to impact bid‐ask spread in cross‐section.Findings – The findings suggest that the market's perception of disclosure quality is higher and private information search opportunities are fewer for companies engaging industry specialist auditors. In addition, the paper finds that information asymmetry has a U‐shaped relation to auditor tenure. This U‐shaped relation holds for both specialists and non‐specialists; however, the bid‐ask spread for specialists tends to fall below that of non‐specialists at all tenure intervals.Research limitations/implications – The findings may directly result from auditor tenure and specialization or it may be that those auditor‐related characteristics are a sub...

CEO Pay, Managerial Power, and SFAS 123(R)

Abstract: This study presents evidence that option expensing, whether voluntary under SFAS 123 or mandatory under SFAS 123(R), is associated with changes in CEO compensation that are beneficial to shareholders. I find that the reporting benefits of aggregate-employee option grants under SFAS 123 are associated with the change in the mix of CEO option grants and stock grants that occurs after SFAS 123(R), suggesting that reporting benefits of option grants may have influenced some CEO compensation decisions. Additionally, I find that the reduction in CEO pay after SFAS 123(R) is greater when shareholders have more power to act in their own best interest and when there is evidence of pre-expensing CEO compensation rents. The findings suggest that SFAS 123 may have encouraged inefficient, CEO-preferential pay practices and that SFAS 123(R) may have contributed to a reduction in CEO compensation inefficiencies. Data Availability: All data are publicly available.

A Review of Archival Auditing Research

Abstract: We define higher audit quality as greater assurance of high financial reporting quality. Researchers use many proxies for audit quality, with little guidance on choosing among them. We provide a framework for systematically evaluating their unique strengths and weaknesses. Because it is inextricably intertwined with financial reporting quality, audit quality also depends on firms’ innate characteristics and financial reporting systems. Our review of the models commonly used to disentangle these constructs suggests the need for better conceptual guidance. Finally, we urge more research on the role of auditor and client competency in driving audit quality.

Empirical Research on Accounting Choice

Abstract: We review research from the 1990s that examines the determinants and consequences of accounting choice, structuring our analysis around the three types of market imperfections that influence managers? choices: agency costs, information asymmetries, and externalities affecting noncontracting parties. We conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge. We discuss opportunities for future research, recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters.

The Production and Distribution of Knowledge in the United States.

Abstract: by Fritz Machlup. Princeton, New Jersey: Princeton University Press, 1962. Pp. xx+416. $7.50. In this book Professor Machlup has twice defined knowledge as \"any human (or human-induced) activity designed to create, alter, or confirm in a human mind-one's own or anyone else's-a meaningful apperception, awareness, cognizance, or consciousness of whatever it may be.\" Though the term \"distribution\" appears in his title, it is in fact subsumed under knowledge production; Machlup is using \"distribution\" in the sense of knowledge transmission or diffusion as a process, which becomes part of \"production\" in economic analysis through exactly the same logic that identifies retailing, for example, as an economically \"productive\" activity. Knowledge production is thus defined to include many types of activities: transporting (e.g., postal services), transforming, data-processing, interpreting, and analyzing, as well as the original creation of new knowledge by discovery or invention. Machlup's concern is with three tasks: 1. A reasoned introductory presentation of concepts and types of knowledge. This analysis provides the broad framework and criteria for selection of what is to be included as knowledge-producing. 2. The measurement of the components of knowledge production and its share in gross national product or national income. This task occupies the bulk of the book. 3. The presentation of a program of school reform. Although the definition of knowledge cuts an exceedingly wide swath, Machlup narrows his task to manageable proportions by