Showing papers in "Accounting and Finance in 1992"

Voluntary disclosure of financial segment data: new zealand evidence

Abstract: This paper reports on the voluntary financial disclosure of segment data by New Zealand companies and relates the extent of quantified segment disclosure to firm-specific characteristics. The extent of voluntary segment disclosure varies across a sample of 29 firms listed on the New Zealand Stock Exchange. The extent of quantified segment disclosure is significantly related to firm size, financial leverage, but not to assets in place, earnings volatility or a the importance of foreign funding to the firm.

The Chairman's Statement and Corporate Financial Performance

Abstract: Agency theory and signalling theory both suggest that firms are motivated to disclose excellence of financial performance in an unambiguous manner We might expect, therefore, that good financial performance is associated with a clear and readable Chairman's narrative and poor performance with an obscure or misleading message Extant work linking corporate performance with clarity of executive narrative fails to distinguish sample cases by industry or financial status This paper seeks to overcome the consequences of such deficiencies explicitly, by conducting a systematic analysis of the relationship between narrative complexity and alternative measures of financial performance, for a matched sample of failed/non‐failed companies across common industries This study employs separate measures of the readability and the understandability of the chairman's narrative and finds them to be significantly related to overall financial performance and individual measures of performance, most notably liquidity Poor readability is strongly associated with poor financial performance and ease of readability with relative financial success The implication is that firms actively signal good news while obscuring, perhaps deliberately, messages which convey bad news

Dividend policy and capital structure under the imputation tax system: some clarifying comments

Abstract: This paper analyses the effects of the imputation and capital gains taxes on the dividend and financing decisions of Australian companies. We develop a framework, consistent with Miller's [1977] approach, in which interactions between dividend and financing decisions can be explored. The significance of these interactions depends on both corporate dividend policy and on the relationship between personal and corporate income tax rates. We conclude that under imputation, dividend decisions are more important relative to capital structure decisions, than under the classical tax system. © 1992 Accounting and Finance Association of Australia and New Zealand

Further Evidence on Empirical Relationships Between Earnings and Cash Flows

Abstract: Recently in Australia, regulations have been proclaimed requiring companies to make cashflow disclosures in addition to earnings disclosures from 30 June 1992. This paper provides evidence on relationships between earnings and cash flow measures and in so doing examines the external validity of a U.S.A. study of these relationships by Bowen, Burgstahler and Daley [1986]. We also extend their study through an industry analysis of the relationships. Evidence is presented first that shows low correlations between traditional cash flow measures (i.e., net income plus depreciation and amortisation; and working capital from operations) and a more refined cash flow measure (with additional adjustments for changes in non-cash current assets and current liabilities). Second, traditional cash flow measures exhibit high correlations with earnings, while the more refined cash flow measure has a lower correlation with earnings. Finally, traditional cash flow measures better predict future cash flows than models based on earnings or a more refined cash flow measure. The industry evidence, albeit on small sample sizes, shows that the results on the first two issues, but not the latter issue, are generalisable across industry categories.

Reactions to regulation of accounting for goodwill

Abstract: Regulations designed to achieve “uniformity in practice” in Australian firms' reporting of goodwill were first adopted in 1985 with the introduction of AAS18. Because of the requirement to amortise purchased goodwill, a number of firms either did not comply or took evasive actions to mitigate the effects of the standard. This paper documents and explains the pre-regulation cross-sectional variation in accounting practices. Reactions to the set of regulations introduced between 1985 and 1989 are then described and explained through a longitudinal study of accounting policy choice. We develop hypotheses which explain why the goodwill accounting rules reversed relations between the accounting methods adopted by firms and both the earnings effect of compliance and the market value of the firm's goodwill. The results are confirmatory.

Multivariate cointegration testing of the efficiency of australia's spot forex market

Abstract: Efficiency in Australia's spot FOREX market is tested using daily, weekly and four‐weekly data subsequent to the floating of the dollar in 1983. Earlier research using pairwise cointegration tests of currency markets has suggested little evidence of market inefficiencies. However, multivariate cointegration tests carried out in the paper, based on canonical transformation of the exchange rate data, suggest the existence of long run equilibrium relationships among the spot rates, implying the existence of market inefficiency in the FOREX market.

An investigation of auditor judgments of the effect of preliminary analytical procedures on the extent of substantive testing

Abstract: A major type of substantive testing procedure performed during the audit examination are analytical procedures. The use of analytical procedures (APs) in the preliminary stages of the audit examination is required for both United States (U.S.) and international audits. Despite this requirement, neither international (International Auditing Guideline 12 and Australian Statement of Auditing Practice 17) nor U.S. (Statement on Auditing Standards No. 56) auditing standards provide guidance concerning the use of preliminary APs for specific account balances or in specific circumstances. This research represents a descriptive examination of auditor judgments concerning the use of preliminary APs in the audit engagement. Our results indicate that auditors believe that performing preliminary APs generally results in a significant reduction in the need for substantive tests of details; however, the reduction in substantive testing varied according to which APs were performed. The high levels of judgment consensus noted in this research indicate that, while specific guidance for preliminary APs has not been provided by U.S. auditing standards, it appears that firms examined in this study have developed structured approaches with respect to the use of preliminary APs. Finally, the higher level of consensus noted for the judgments of senior accountants and staff accountants compared to those of audit managers may reflect either the structured nature of the task examined in this study or the greater degree of senior and staff accountant familiarity with the use of preliminary APs.

The effects of managerial roles on the relation between budgetary participation and job satisfaction

Abstract: This study examines the extent to which managerial roles moderate the relation between budgetary participation and job satisfaction. Managerial roles, defined in terms of line versus staff, may serve as a situational variable that assists in explaining the equivocal results found in studies for the association between budgetary participation and job satisfaction. The findings of this study suggest that the link between budgetary participation and job satisfaction is dependent on the role a manager undertakes in an organization. The relation between budgetary participation and job satisfaction was found to be significantly more effective for line managers than for staff managers.

The role of time series analysis in studies of accounting policy choice: a comment

Abstract: The study by Anderson and Zimmer [1992] of goodwill accounting policies uses a pooled time series experimental design. This approach can add substantially to our understanding of accounting policy choices, but not in the manner used by Anderson and Zimmer. Where accounting policy choices are believed to be independent from one period to the next, then a time series approach can greatly enhance our ability to capture the influence on such policy choices of changing circumstances, more so than a simple cross-sectional test. Conversely, if accounting policy choices are not independent between periods, pooling over time can overstate significance levels of statistical tests. The nature of Anderson and Zimmer's data makes the impact indeterminate. However, even under an extreme assumption, pre-regulation evidence remains significant at conventional levels.

Time series analysis of accounting policy choice: reply

Abstract: Taylor (1992) argues that accounting policy choices in any year are not assessed independently of policy choices adopted in previous years. This independence assumption is a maintained hypothesis of Anderson and Zimmer (1992). Although Taylor acknowledges that our results remain robust to his suggested adjustments for non‐independence, we argue in this reply that such adjustments are unnecessary because temporal independence of accounting policy choices is consistent with the implications of costly contracting between the firm and its claimholders. We develop the arguments that (1) accounting choices are temporally independent and our research design is therefore, appropriate (2) to the extent that there is an independence problem of the type proposed by Taylor (1992) it also applies to cross‐sectional studies of accounting policy choice.

The role of componential and integrative knowledge in accounting education

Abstract: This study examines the role of componential knowledge, i.e., generally accepted accounting principles, and integrative knowledge, i.e., performing LIFO and FIFO inventory analysis, in solving complex accounting problems. This study predicts a dynamic, interactive process among componentiai knowledge, integrative knowledge and problem solution. Accounting students were given training in inventory methods, and then they were given inventory problems. The results support the prediction that there is a dynamic, interactive process between componential knowledge, integrative knowledge, and problem solving. The results provide several useful new directions for accounting pedagogy research and practice.

A multivariate test of the generalised mean‐lower partial moment asset pricing model: australian evidence

Abstract: This paper tests the Mean‐Lower Partial Moment (MLPM) model of asset pricing, using the Gibbons (1982) multivariate methodology, as developed by Hariow and Rao (1989). The MLPM model specifies risk to be a measure of the downside deviations of return relative to a prespecified and exogenous target rate of return. The MLPM model of Hariow and Rao is a new model which has only been tested once, using US data. Therefore, further tests using independent data will help to assess whether the model deserves more serious consideration as a possible alternative to the Capital Asset Pricing Model (CAPM). In general, tests in this paper using Australian data confirm the results of Hariow and Rao (1989). The MLPM model cannot be rejected against an unspecified alternative, nor can it be rejected against the zero‐beta CAPM. Conditional on the MLPM model's validity, the optimal target rate appears to be more closely related to mean market returns than either to a risk‐free return or to a zero return. In addition, there is some evidence to support an intertemporally constant target rate of around 3 percent per month, over the 30 year period examined.