Showing papers in "Accounting and Finance in 2019"
TL;DR: In this paper, the authors examined the association between corporate social responsibility (CSR) performance and financial distress and additionally the moderating impact of firm life cycle stages on that association.
Abstract: This study examines the association between corporate social responsibility (CSR) performance and financial distress and additionally the moderating impact of firm life cycle stages on that association. Based on a sample of 651 publicly listed Australian firm-years’ data covering the 2007–2013 period, our regression results show that positive CSR activity significantly reduces financial distress of the firm. In addition, the negative association between positive CSR performance and financial distress is more pronounced for firms in mature life cycle stages. Our results are robust to alternative proxy measures of financial distress, CSR performance and life cycle stages.
123 citations
TL;DR: In this article, the authors examined the relationship between the level of voluntary carbon disclosure and carbon emission performance and how the institutional context influences this relationship and found that there is a negative relationship between voluntary disclosure and Carbon emission performance.
Abstract: This article examines the relationship between the level of voluntary carbon disclosure (VCD) and carbon emission performance and how the institutional context influences this relationship. Using a sample of Global 500 firms participating in the Carbon Disclosure Project (CDP) over the period 2008–2015, the evidence shows a negative relationship between voluntary carbon disclosure and carbon emission performance, which is consistent with the legitimacy theory that VCD may be undertaken for the purposes of legitimation. However, stringent carbon institutions appear to restrict legitimation attempts and help better reflect underlying performance.
116 citations
TL;DR: In this article, the impact of economic policy uncertainty on stock price crash risk using data from China was studied and a new index was developed to measure Chinese economic policy uncertainties and the results showed that the positive effect of policy uncertainty has a remarkable positive effect on stock prices crash risk.
Abstract: This paper studies the impact of economic policy uncertainty on stock price crash risk using data from China. We develop a new index to measure Chinese economic policy uncertainty and find that economic policy uncertainty has a remarkable positive effect on stock price crash risk. However, the effect reverses later. The results also indicate that the positive effect of economic policy uncertainty on stock price crash risk is more prominent for state‐owned enterprises. Moreover, this effect is more prominent for firms with higher information asymmetry and firms with greater disagreement among investors, indicating that economic policy uncertainty affects crash risk through two mechanisms: managers’ concealment of bad news and investors’ heterogeneous beliefs.
106 citations
TL;DR: In this article, the authors apply institutional and board capital theory to examine whether women on boards are associated with disclosure and quality of corporate greenhouse gas (GHG) emissions related reporting, and find that companies with multiple female directors make GHG emissions related disclosures that are of higher quality.
Abstract: We apply institutional and board capital theory to examine whether women on boards are associated with disclosure and quality of corporate greenhouse gas (GHG) emissions related reporting. We examine the research problem in Australia in a period when no requirements existed for listed companies to appoint female directors or to report GHG emissions. This environment allows us to examine the association between women on boards and GHG emissions related disclosure in annual and sustainability reports in a voluntary setting. We find that companies with multiple female directors make GHG emissions related disclosures that are of higher quality.
105 citations
TL;DR: In this paper, the authors explore both risk tolerance and risk perception in the investment decision-making context and reveal that risk tolerance influences risky-asset allocation directly and indirectly through risk perception.
Abstract: The increasing complexity of the investment environment has accelerated the need for better quality financial advice services. Central to quality advice is advisers’ accurate assessment of their clients’ risk characteristics. Typically a client's risk characteristic is assessed by measuring the client's risk tolerance but not risk perception. To assess whether this practice fails to fully capture the client's risk profile, we explore both risk tolerance and risk perception in the investment decision‐making context. Using Australian online survey data of financial adviser clients (n = 364), our results reveal that risk tolerance influences risky‐asset allocation directly and indirectly through risk perception. These results thus clarify the joint role of both risk constructs in the investment making decision and highlight the importance of assessing both in the provision of client financial advice services. Importantly, our results validate a new comprehensive risk perception measure applicable in the financial advice context.
57 citations
TL;DR: The authors argue that qualitative studies are well suited to studying complex interconnections and relationships without reducing the complexity to simple numbers or variables, and that qualitative researchers are interested in these exceptions and often examine them in-depth in order to develop better understandings and generate new theories on how accounting develops, functions, and influences behaviour.
Abstract: This article deals with some common misconceptions about qualitative research. Qualitative studies are well suited to studying complex interconnections and relationships without reducing the complexity to simple numbers or variables. Rather than excluding outliers from a dataset, qualitative researchers are interested in these exceptions and often examine them in-depth in order to develop better understandings and generate new theories on how accounting develops, functions, and influences behaviour. New understandings and theory allow qualitative research to advance recommendations, extend the boundaries of accounting research, and make important contributions to both accounting theory and practice.
56 citations
TL;DR: A new supervised text mining approach named naive collision algorithm is proposed to analyse the textual risk disclosures, which can more accurately identify bank risk factors compared with the typical unsupervised textmining approach.
Abstract: This paper aims to comprehensively uncover bank risk factors from qualitative textual risk disclosures reported in financial statements, which contain a huge amount of information on bank risks. We propose a new semi‐supervised text mining approach named naive collision algorithm to analyse the textual risk disclosures, which can more accurately identify bank risk factors compared with the typical unsupervised text mining approach. We identified 21 bank risk factors in total, which is far more than identified in previous studies. We further analyse the importance of each bank risk factor and how the importance of each risk factor changes over time.
52 citations
TL;DR: In this paper, the authors investigated whether integrated reporting (IR) is achieving its intended purpose by focusing on its usefulness as perceived by sell-side analysts, and found that IR has not connected with analysts' practice of firm assessment.
Abstract: This paper investigates whether integrated reporting (IR) is achieving its intended purpose by focusing on its usefulness as perceived by sell-side analysts. The main data comes from twenty-three analysts who covered companies participating in the Pilot Programme Business Network of the International Integrated Reporting Council as of 2013. We find that IR has not connected with analysts’ practice of firm assessment. The improvements resulting from the adoption of integrated reports are not relevant to analysts, as the reports do not provide the information required by analysts in sufficient detail or a preferred format.
46 citations
TL;DR: This paper evaluated the impact of financial literacy, financial attitudes and financial behavior intentions of a semester unit in personal finance delivered to undergraduates at an Australian university, carefully controlling for confounding effects in the analysis.
Abstract: Financial literacy education features prominently among the policy options available to improve personal financial decision-making. Notwithstanding calls to expand delivery of financial literacy units at university level, such offerings are relatively rare with little evaluation. We provide an evaluation of the impact on financial literacy, financial attitudes and financial behaviour intentions of a semester unit in personal finance delivered to undergraduates at an Australian university, carefully controlling for confounding effects in the analysis. We report increases in objective and subjective financial literacy and an additional gender effect. Contrary to previous speculation, we do not find overconfidence as an associated outcome.
44 citations
TL;DR: Li et al. as mentioned in this paper investigated the effect of politically connected independent directors on a firm's likelihood of committing fraud in China and found that independent directors with local political backgrounds significantly reduce the likelihood of a firm committing fraud.
Abstract: This study investigates the effect of politically connected independent directors on a firm's likelihood of committing fraud in China. We classify the political backgrounds of independent directors into three categories based on their employment histories: local background, central background, and local and central background. Using corporate fraud data from 2000 to 2014, we find that independent directors with local political backgrounds significantly reduce the likelihood of a firm committing fraud. Further analysis shows that locally connected independent directors are more likely to have both employment experience in regulatory agencies and financial/accounting/law expertise.
42 citations
TL;DR: In this paper, the authors investigate the association between board gender diversity and firms' reputation risk and financial risk using S&P data from 1997 to 2013 and find that gender diversity is negatively associated with tax avoidance, suggesting firms with gender-diverse boards are more cautious about potential reputation risks associated with aggressive tax strategies.
Abstract: We study whether board gender diversity (BGD) affects corporate risk strategies. Specifically, we investigate the association between BGD and firms’ reputation risk and financial risk. Using S&P data from 1997 to 2013, we find that BGD is negatively associated with tax avoidance, suggesting firms with gender-diverse boards are more cautious about potential reputation risks associated with aggressive tax strategies. However, we find that BGD is positively associated with firms’ financial risk. The combined findings illustrate that BGD aligns a firm's risk exposure closer to risk-neutral shareholders’ preferences by reducing reputation risk exposure while enabling necessary financial risk exposure.
TL;DR: In this article, the authors measure financial literacy of elderly Australians using Item Responses Theory and find that younger, married males with higher income and greater net wealth are more likely to be financially literate.
Abstract: Financial illiteracy is widespread amongst the elderly. Financially illiterate people are more likely to experience asset loss and outlive their savings after retirement. This paper measures financial literacy of elderly Australians using Item Responses Theory. Using a Lasso regression, we find that younger, married males with higher income and greater net wealth are more likely to be financially literate. Better financial literacy is also associated with good health, higher educational attainment, better occupation and outright home ownership. Our findings suggest policy‐makers take action and we make informed and practicable policy recommendations.
TL;DR: The authors investigated whether management's cognitions, values and perceptions are associated with fraud for Chinese listed firms from 2000 to 2014 and found that fraudulent financial reporting is higher when CFOs are younger, male, and have lower education backgrounds.
Abstract: We investigate whether management's cognitions, values and perceptions are associated with fraud for 18 863 firm-years for Chinese listed firms from 2000 to 2014. Demographic characteristics of the chief financial officer (CFO) are used as proxies for management's cognitions, values and perceptions. We find that fraudulent financial reporting is higher when CFOs are younger, male, and have lower education backgrounds. An analysis of inflated earnings, fictitious assets, material omissions and other material misstatements provide similar results, with the exception that CFOs with higher education levels are associated with more inflated earnings.
TL;DR: In this paper, a case study of two New Zealand charities was conducted to examine their performance accountability reporting practices and potential implications for public trust, and the findings surface the day-to-day agency of charity actors in shifting performance accountability practices towards modes of disclosure that are relevant and accessible to the public.
Abstract: Charities rely on public trust to exist. However, that trust has diminished, with a perceived lack of accountability seen as a key reason. This study draws on case studies of two New Zealand charities to examine their performance accountability reporting practices and potential implications for public trust. The findings surface the day‐to‐day agency of charity actors in shifting performance accountability practices towards modes of disclosure that are relevant and accessible to the public. This paper contributes to the literature by extending understandings of how charities produce accountability information that can enhance public trust and, thus, support their mission achievement.
TL;DR: The authors found that mandatory CSR disclosure reduces firms' dividend payouts significantly, and that the negative relation is more pronounced for firms with weaker corporate governance mechanisms, where shareholders lack of effective tools to protect themselves against pressures from stakeholders, and a shift of relative power towards stakeholders is more likely to occur.
Abstract: Employing the enactment of a regulation that mandates a subset of firms to disclose their corporate social responsibility (CSR) activities as a quasi‐natural experiment, we find that mandatory CSR disclosure reduces firms’ dividend payouts significantly. Further analyses indicate that the negative relation is more pronounced for firms with weaker corporate governance mechanisms, where shareholders lack of effective tools to protect themselves against pressures from stakeholders, and a shift of relative power towards stakeholders is more likely to occur. Our paper provides a specific channel through which mandatory CSR disclosure benefits stakeholders at the expense of shareholders.
TL;DR: In this paper, the authors examined the effect of institutional investors' investment horizons on firms' innovation activities and found that the presence of long-term institutional investors mitigates managerial myopia, prompting firms to generate greater corporate innovation outputs.
Abstract: This article examines the effect of institutional investors’ investment horizons on firms’ innovation activities. We conjecture that the presence of long-term institutional investors mitigates managerial myopia, prompting firms to generate greater corporate innovation outputs. Using data on patents and patent citations for US firms, we find that institutions’ investment horizons are positively related to the number of patents and patent citations. We also document that long-term (short-term) institutional ownership is positively (negatively) related to the innovation outputs. This article makes an additional contribution to the corporate innovation literature by addressing the positive role of long-term institutional investors.
TL;DR: Wang et al. as mentioned in this paper investigated the impact of corporate social responsibility (CSR) on corporate financial fraud in China and found that CSR scores are negatively associated with fraudulent financial activities.
Abstract: This paper investigates the impact of corporate social responsibility (CSR) on corporate financial fraud in China. We find that CSR scores are negatively associated with fraudulent financial activities, suggesting that CSR firms are less likely to engage in financial fraud. The results also indicate that the negative relation is more significant for CSR performance than CSR disclosure. Additionally, we demonstrate that the negative effect of CSR is more pronounced for firms with voluntary CSR practices, continuous CSR engagements, financial pressure and internal control weaknesses. Overall, we find that CSR is an ethical behaviour that reduces financial misconduct.
TL;DR: In this article, the impact that political connections have on Mergers and Acquisitions (MA) is examined and it is shown how political connections in non-SOEs help bidders to integrate vertically and obtain external financing support.
Abstract: This study examines the impact that political connections have on Mergers and Acquisitions (MA instead, political connections in non-SOEs help bidders to integrate vertically and obtain external financing support.
TL;DR: In this article, the authors extend behavioural research in investment and retirement savings to insurance, by investigating factors that may influence individuals' insurance decision making, such as financial literacy, specialist education, and some behavioural biases.
Abstract: We extend behavioural research in investment and retirement savings to insurance, by investigating factors that may influence individuals’ insurance decision making. These factors include financial literacy, specialist insurance education and some behavioural biases. Based on a definition of insurance literacy that requires both having, and applying insurance knowledge, we find from a survey of postgraduate students that financial literacy does not necessarily translate to insurance literacy, whereas more specialised education can improve insurance literacy. Results also indicate specialist education potentially reduces susceptibility to anchoring effects.
TL;DR: Wang et al. as discussed by the authors investigated the effects of CEO hometown ties on corporate tax avoidance and found that hometown ties as an important political resource can facilitate connected private firms to obtain more economic resources from government.
Abstract: This study investigates the effects of CEO hometown ties on corporate tax avoidance. The results show that CEO hometown ties to local government officials have a significantly positive impact on tax avoidance for private firms in China. We also find that the hometown ties effect is more pronounced in cities with weak public governance and in cities whose municipal Party committee secretaries are promoted from the same city, whereas the effect is weak in cities whose municipal Party committee secretaries are transferred from other places. In summary, our results suggest that hometown ties as an important political resource can facilitate connected private firms to obtain more economic resources from government.
TL;DR: In this article, the authors examined the stock price crash risk for a sample of firms that disclosed internal control weaknesses (ICW) under Section 404 of the Sarbanes-Oxley Act (SOX).
Abstract: This study examines the stock price crash risk for a sample of firms that disclosed internal control weaknesses (ICW) under Section 404 of the Sarbanes-Oxley Act (SOX). We find that in the year prior to the initial disclosures, ICW firms are more crash-prone than firms with effective internal controls. This positive relation is more pronounced when weakness problems are associated with a firm's financial reporting process. More importantly, we find that stock price crash risk reduces significantly after the disclosures of ICWs, despite the disclosure itself signalling bad news. The above results hold after controlling for various firm-specific determinants of crash risk and ICWs. Using an ICW disclosure as a natural experiment, our study attempts to isolate the presence effect of undisclosed ICWs from the initial disclosure effect of internal control weakness on stock price crash risk. In so doing, we provide more direct evidence on the causal relation between the quality of financial reporting and stock price crash risk.
TL;DR: In this article, a case study of an entrepreneurial company that rapidly scaled its business was used to examine the management controls that emerged to become a package of controls, highlighting the importance of the management control package remaining in balance.
Abstract: The dilemma faced by founders of entrepreneurial companies is how to scale their business while staying in control. While the accounting literature has found that financial controls are important to rapidly scale a business, we do not know how these controls emerge in entrepreneurial companies in relation to other management controls. Using a case study of an entrepreneurial company that rapidly scaled its business, this study examines the management controls that emerged to become a package of controls. We highlight the importance of the management control package remaining in balance, with controls working together interdependently in a complementary fashion.
TL;DR: Wang et al. as mentioned in this paper investigated whether Chinese cryptocurrency investors show confirmatory bias when processing authority-related news, which is defined as news that is related to government authority (including central bank) policies or talk.
Abstract: We investigate whether Chinese cryptocurrency investors show confirmatory bias when processing authority‐related news. Authority‐related news is defined as news that is related to government authority (including central bank) policies or talk. By using data from the largest cryptocurrency exchange in China, we find that investors’ response to authority‐related news is negative and significant in general. Moreover, we find that the abnormal trading volume and standard deviation of abnormal trading volume are significantly higher for authority‐related news with higher readability, suggesting investors respond to the more readable authority‐related news with more trading behaviour.
TL;DR: The examination of public and private not-for-profit sector financial reporting has been a topic of interest on a cyclical basis in Australia over the last 30 years and the opportunities for undertaking impactful research in these and related areas are increasing.
Abstract: The examination of public and private not‐for‐profit sector financial reporting has been a topic of interest on a cyclical basis in Australia over the last 30 years. Traditional topics have included examinations of the intended and unintended consequences of specific standards, the accountability value of financial reports, transaction neutrality, compliance with the accounting standards, and more recently, the prospective implications of new, differently focused reporting standards considering such issues as income measurement and outcomes reporting. With increased recent attention from standard setters and regulators, and greater data availability, the opportunities for undertaking impactful research in these and related areas are increasing. In this paper, we focus on research that has examined the following questions: (i) Which private and public NFPOs lodge financial reports and what is reported; (ii) Who are the users and what are their information needs? (iii) Which private and public NFPs should lodge financial reports and what should be included in them; and (iv) How should the accounting frameworks for NFP sector reporting be set? For each of these issues, we identify the research gaps and opportunities for further research.
TL;DR: This paper explored whether strategic performance measurement systems (SPMSs) are linked to managers' creativity through two mediating variables (organisational learning and psychological empowerment) and found that organizational learning is both directly related to creativity and indirectly related to psychological empowerment.
Abstract: This study explores whether strategic performance measurement systems (SPMSs) are linked to managers' creativity through two mediating variables—organisational learning and psychological empowerment. Using data collected from 92 senior production managers in Australian manufacturing organisations, the study tests these links using a partial least squares structural model. The results from the structural model indicate that SPMSs are indirectly related to the managers' creativity through organisational learning and psychological empowerment. The study also finds that organisational learning is both directly related to creativity, and indirectly related to psychological empowerment. Further, the potential implications for empirical research are discussed.
TL;DR: Li et al. as discussed by the authors examined how short selling affects internal control quality in listed firms and found that firms that are eligible for short selling significantly improve their internal control after they are designated as underlying securities.
Abstract: Based on pilot margin trading in China, this study examines how short selling affects internal control quality in listed firms. Using the difference‐in‐differences approach, we find that compared with control firms, firms that are eligible for short selling significantly improve their internal control after they are designated as underlying securities. We consider the effects of state ownership and external auditors. The improvement in internal control is only significant for non‐state‐owned firms and firms audited by non‐Big 4 auditors. These findings indicate that short selling can improve firms’ internal control and play a role in their corporate governance.
TL;DR: The authors used a survey to explore relations between teaching and research of accounting and finance academics in Australia and New Zealand (ANZ) and found that research-active faculty see little merit in integrating research with teaching, while more junior and teaching-oriented faculty do.
Abstract: This article uses a survey to explore relations between teaching and research of accounting and finance academics in Australia and New Zealand (ANZ). Previous research on the relationship between research and teaching is inconclusive. Two recent studies consider research–teaching relations in the accounting discipline in South Africa and the United Kingdom (UK). This investigation extends work undertaken in the UK to ANZ. Contrary to expectations, research-active faculty see little merit in integrating research with teaching, while more junior and teaching-oriented faculty do. In addition, the empirical model underlying the teaching–research Gestalt is remarkably similar to both ANZ and the UK.
TL;DR: In this paper, the authors investigated the signalling effect of discretionary accruals (DAC) on contemporaneous stock returns and found that income-increasing discretionary accumulations of GAAP-complying growth firms are significantly and positively related to contemporaneous returns.
Abstract: We investigate the signalling effect of discretionary accruals (DAC). Although we find that discretionary accruals are insignificantly related to contemporaneous stock returns, we uncover that income-increasing discretionary accruals of GAAP-complying growth firms are significantly and positively related to contemporaneous stock returns. Furthermore, we find that this positive effect is stronger among firms with better corporate governance mechanisms, such as Board of Directors Independence, Audit Committee Independence and Large Shareholders’ Ownership. In addition to contemporaneous stock returns, we also find similar results with the future increase in dividends. Our findings are consistent with the argument that corporate governance can enhance the signalling effect of reported earnings of GAAP-complying growth firms.
TL;DR: In this paper, the authors examined whether the removal of short-selling constraints affects corporate payout decisions and found that companies pay higher cash dividends but do not repurchase more shares in response to the relaxation of short selling constraints.
Abstract: Using a random sample of US companies affected by a regulatory experiment (i.e. the Regulation SHO adopted by the SEC in 2004), this thesis examines whether the removal of short-selling constraints affects corporate payout decisions. We find that companies pay higher cash dividends but do not repurchase more shares in response to the relaxation of short-selling constraints. The response of increased cash dividends is concentrated in small firms. Our finding is consistent with the literature that paying cash dividends can be used to deter short-selling activities as a more costly and hence a more reliable signal of stock undervaluation than share repurchases. Our result shows that short-selling activity has a causal effect on corporate payout decisions.
TL;DR: In this paper, the authors examined the probability of survival of online peer-to-peer (P2P) lending platforms in China and found that shareholders' background, platforms' risk management and institutional environment are three major factors that influence the probability for survival of P2P platforms.
Abstract: This study examines the probability of survival of online peer‐to‐peer (P2P) lending platforms in China. Our empirical findings show that shareholder's background, platforms’ risk management and institutional environment are three major factors that influence the probability of survival of P2P platforms in China. In addition, the effects of risk control and institutional environment are less pronounced in state‐owned P2P platforms. We also show that platforms that die from abscondence of owners tend to be more short‐lived than others, while platforms that die from liquidity problems are usually due to lack of high‐quality risk management techniques.