Shunyao Jin , Michael D. Kimbrough , Isabel Yanyan Wang
{"title":"Privileged information access, analyst consensus building, and stock return volatility: Evidence from the JOBS Act","authors":"Shunyao Jin , Michael D. Kimbrough , Isabel Yanyan Wang","doi":"10.1016/j.adiac.2023.100729","DOIUrl":"https://doi.org/10.1016/j.adiac.2023.100729","url":null,"abstract":"<div><p><span>This study examines whether allowing select analysts private access to management before an IPO affects analyst consensus building and subsequently post-IPO stock return volatility. The 2012 Jumpstart Our Business Startups (JOBS) Act creates many exemptions to reduce the cost of going public for smaller issuers that qualify as an Emerging Growth Company (EGC). One set of provisions allows analysts affiliated with an EGC's underwriters to communicate privately with management and potential investors before the IPO. Using a sample of IPOs during 2001–2022, we find that the dispersion in affiliated analysts' initiation forecasts is significantly higher for EGCs than similar IPOs in the pre-JOBS period. A </span>path analysis reveals that the JOBS Act indirectly contributes to the heightened post-IPO stock return volatility through the mediating role of forecast dispersion among affiliated analysts. Our exploratory analyses suggest that more significant variations in affiliated analysts' social connections and their workload tend to be associated with higher forecast dispersion. Overall, our findings indicate that having privileged access to management could reduce consensus among analysts, which can increase post-IPO stock return volatility in EGCs.</p></div>","PeriodicalId":46906,"journal":{"name":"Advances in Accounting","volume":"64 ","pages":"Article 100729"},"PeriodicalIF":1.6,"publicationDate":"2024-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139406434","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Discussion of “Impact of Audit Committee Social Capital on the Adoption of COSO 2013”","authors":"Kathleen Rupley","doi":"10.1016/j.adiac.2023.100724","DOIUrl":"https://doi.org/10.1016/j.adiac.2023.100724","url":null,"abstract":"<div><p>I organize my discussion of “Impact of Audit Committee Social Capital on the Adoption of COSO 2013” by Farah, Islam, Tadesse & McCumber (2023) around the following themes: the use of board interlocks vs. comprehensive board social connectiveness ties in prior literature, the use of other methodologies (i.e. survey, interviews) to augment findings and provide a source of issues where audit committee members confer with their social networks, and lastly how future studies can use a similar framework to examine the role that audit committee network ties have in disseminating information.</p></div>","PeriodicalId":46906,"journal":{"name":"Advances in Accounting","volume":"64 ","pages":"Article 100724"},"PeriodicalIF":1.6,"publicationDate":"2024-01-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139111636","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Clients' strategic change and auditor behavior: Evidence from audit adjustments and audit fees","authors":"Bin Wu , Anqi Li , Wen Zhang","doi":"10.1016/j.adiac.2023.100721","DOIUrl":"https://doi.org/10.1016/j.adiac.2023.100721","url":null,"abstract":"<div><p>Using data on audit adjustments, this study examines the relation between Chinese listed companies' strategic change and their auditor's behavior. We find that levels of audit clients' strategic change are positively associated with the magnitude of audit adjustments and audit fees, suggesting that auditors exert greater effort, and propose larger audit adjustments, on these audits. We argue that during a client’ strategic change, auditors rely less on prior experience with the client, and increase their perceived risk of the audit. Further results show a positive correlation between clients' strategic change and the experience level of auditors assigned to the client by the audit firm. We also find evidence that levels of strategic change are negatively associated with pre-audit financial reporting quality, indicating that auditors' perceived risk for clients undergoing strategic change is consistent with clients' real financial reporting risk. Evidence on regulatory sanctions suggests that audit adjustments mitigate the positive association between clients' strategic change and the likelihood of those clients' being sanctioned. Taken together, these results suggest that auditors incorporate clients' strategic change into their assessment of client risk and implement appropriate responses to that risk, and that audit adjustments help companies avoid regulatory sanction.</p></div>","PeriodicalId":46906,"journal":{"name":"Advances in Accounting","volume":"64 ","pages":"Article 100721"},"PeriodicalIF":1.6,"publicationDate":"2024-01-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139099869","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Financial analysts' information discovery: A study of manager-analyst interactions in conference calls","authors":"Chuong Do","doi":"10.1016/j.adiac.2023.100727","DOIUrl":"https://doi.org/10.1016/j.adiac.2023.100727","url":null,"abstract":"<div><p>This paper analyzes analysts' questions in conference calls to make inferences about how analysts acquire information. Using two complementary techniques, I develop several measures of the specificity of analysts' questions. I predict and find that analysts ask more specific questions if they enter the call with poor information. The firm's information environment improves after a call in which most analysts ask specific questions. Additional analyses show that managers respond defensively to specific questions and attempt to deemphasize these questions by putting them later in the calls. Furthermore, investors react negatively to calls in which most questions are specific. Overall, this study provides insights into the roles of conference calls in analysts' processes and offers a method to analyze interactions between managers and analysts.</p></div>","PeriodicalId":46906,"journal":{"name":"Advances in Accounting","volume":"64 ","pages":"Article 100727"},"PeriodicalIF":1.6,"publicationDate":"2024-01-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139099870","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Hui Xia (Harry) , Shu Lin , Shuo Li , Indranil Bardhan
{"title":"The effect of audit committee financial expertise on earnings management tactics in the post-SOX era","authors":"Hui Xia (Harry) , Shu Lin , Shuo Li , Indranil Bardhan","doi":"10.1016/j.adiac.2023.100725","DOIUrl":"10.1016/j.adiac.2023.100725","url":null,"abstract":"<div><p><span>To restore investor confidence and promote the integrity of financial accounting information provided to investors, following the passage of the Sarbanes-Oxley Act (SOX), the SEC adopted two new rules for public firms in early 2003, requiring the disclosure of audit committee financial expertise (ACFE) per SOX 407 and the reconciliation of non-GAAP financial measures to those most comparable in GAAP (Regulation G) per SOX 401(b). Using quarterly filing data in the post-SOX era from March 2003 to December 2016, this study examines the impact of these requirements, with a focus on the effect of ACFE on the main earnings manipulation tactics used to just meet or beat analyst expectations (JUSTMBE). Our study investigates the effects of overall ACFE and its components on three key earnings management tactics, namely, discretionary accruals, real activities management, and non-GAAP financial disclosures. We observe that firms with a higher level of ACFE, particularly accounting and </span>finance expertise, exhibit a lower propensity to JUSTMBE. Furthermore, we posit that two upward earnings manipulations, accrual-based and real activities management, are significantly mitigated by ACFE through a complementary effect of its accounting and supervisory expertise components. However, we identify a clear strategic shift in which non-GAAP financial disclosures with unexpected exclusions become a popular alternative tactic for managers to JUSTMBE under the increasing presence of ACFE. This study provides empirical evidence with implications for regulators to consider more rigorous intervention and regulation on non-GAAP disclosures and to refine the requirement of audit committee financial experts with an emphasis on the complement of accounting and non-accounting financial expertise to effectively curtail earnings manipulation.</p></div>","PeriodicalId":46906,"journal":{"name":"Advances in Accounting","volume":"64 ","pages":"Article 100725"},"PeriodicalIF":1.6,"publicationDate":"2023-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139065925","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A.F.M. Mainul Ahsan , Sudipta Bose , Muhammad Jahangir Ali
{"title":"Does Islamic religiosity influence professional accountants' judgments? Evidence from global convergence of IFRS","authors":"A.F.M. Mainul Ahsan , Sudipta Bose , Muhammad Jahangir Ali","doi":"10.1016/j.adiac.2023.100723","DOIUrl":"10.1016/j.adiac.2023.100723","url":null,"abstract":"<div><p>We examine the influence of religiosity on professional accountants' judgments towards global convergence of financial reporting using, as an example, the Islamic religiosity context of Bangladesh. Professional accountants' judgments, in relation to the global convergence of the International Financial Reporting Standards (IFRS), is measured using Gray's (1988) accounting values (professionalism vs. statutory control, uniformity vs. flexibility, conservatism vs. optimism and secrecy vs. transparency), with Islamic religiosity measured using the Sahin–Francis Scale of Attitude towards Islam. We find that professional accountants in Bangladesh who have higher levels of Islamic religiosity values are supportive of statutory control, conservatism, uniformity, and secrecy. These findings suggest that professional accountants in Bangladesh are less likely to be supportive of principles-based financial reporting standards such as IFRS. The findings have implications for global accounting standard setters, international accounting firms, and multinational companies, particularly in Islamic countries. Our study findings may be useful to regulators in Bangladesh and other Islamic countries in improving the quality of the convergence of IFRS.</p></div>","PeriodicalId":46906,"journal":{"name":"Advances in Accounting","volume":"64 ","pages":"Article 100723"},"PeriodicalIF":1.6,"publicationDate":"2023-12-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0882611023000822/pdfft?md5=856d0827baba0a931d89d34e1d7c505c&pid=1-s2.0-S0882611023000822-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139057153","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Detecting accounting fraud in family firms: Evidence from machine learning approaches","authors":"Md Jahidur Rahman , Hongtao Zhu","doi":"10.1016/j.adiac.2023.100722","DOIUrl":"https://doi.org/10.1016/j.adiac.2023.100722","url":null,"abstract":"<div><p>The primary objective of this research is to detect accounting fraud in Chinese family firms through the utilization of imbalanced ensemble learning algorithms. It serves as the first endeavor to predict fraud in family firms using machine learning algorithms, thus addressing the gap in machine-learning modeling for family business research. The findings of this study demonstrate that the ensemble learning models exhibit superior effectiveness in identifying accounting fraud compared to the logistic regression approach. Moreover, the imbalanced ensemble learning classifiers outperform the conventional models. Significantly, among all the studied fraud classifiers, the CUSBoost classifier consistently attains the best overall performance. This research contributes to the field of accounting fraud detection in family firms by shifting the focus from conventional causal inference methods (such as regression) to machine-learning-based predictive techniques. Additionally, it extends existing literature on accounting fraud detection by emphasizing the issue of data imbalance in fraud datasets and demonstrating the superiority of imbalanced machine learning algorithms over conventional approaches in detecting accounting fraud.</p></div>","PeriodicalId":46906,"journal":{"name":"Advances in Accounting","volume":"64 ","pages":"Article 100722"},"PeriodicalIF":1.6,"publicationDate":"2023-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138713335","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Tone of narrative disclosures and earnings management: UK evidence","authors":"Tamer Elshandidy , Hany Kamel","doi":"10.1016/j.adiac.2023.100710","DOIUrl":"https://doi.org/10.1016/j.adiac.2023.100710","url":null,"abstract":"<div><p>This paper investigates whether a relationship exists between the tone of narrative disclosures and engagement in earnings management activities. Using FTSE all-share nonfinancial firms, our estimates show a significant association between the tone of narrative disclosure (measured by the percentage of positive words, negative words, and net tone) and the prevalence of earnings management. The results also suggest that manipulating firms, which represent extreme cases of earnings management, are more likely to use less negative tone to conceal their fraudulent practices. In contrast, non-manipulating firms tend to use more positive tone to mask their involvement in managing earnings. Additionally, the paper examines the market reaction to both earnings management and the tone of narrative disclosure. The findings reveal that earnings management and net tone are positively associated with abnormal market returns for non-manipulating firms, but have no significant association for manipulating firms. Overall, the paper highlights the important role of the tone of narrative disclosures in providing clarity to the numbers presented in annual reports.</p></div>","PeriodicalId":46906,"journal":{"name":"Advances in Accounting","volume":"64 ","pages":"Article 100710"},"PeriodicalIF":1.6,"publicationDate":"2023-11-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138439480","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Do competitive markets encourage tax aggressiveness?","authors":"","doi":"10.1016/j.adiac.2023.100702","DOIUrl":"10.1016/j.adiac.2023.100702","url":null,"abstract":"<div><p>We investigate whether industry-level product market competition and firm-level market leadership affect firms' tax<span> aggressiveness. Studying competition from both current market participants and potential entrants, and using a market share-based measure of market leadership, we find that firms facing higher competition from current market participants engage in more tax aggressiveness. We further find that market-following firms — rather than market‑leading firms — engage in relatively more tax aggressiveness within these higher competition settings. Our results contrast with most political and regulatory anecdotes that target market‑leading firms for aggressive tax behaviors, and add to the ongoing policy debates on tax incidence. Our main findings and additional tests are consistent with the view that market‑leading firms in imperfectively competitive product markets are able to pass on tax costs to customers, while market-following firms in crowded industries are pressured to engage in tax aggressiveness because they cannot pass on tax costs.</span></p></div>","PeriodicalId":46906,"journal":{"name":"Advances in Accounting","volume":"66 ","pages":"Article 100702"},"PeriodicalIF":1.2,"publicationDate":"2023-10-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136093273","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Auditor's financial stress: An inconspicuous determinant of audit outcomes","authors":"Robert Felix , Amanda L. Wilford","doi":"10.1016/j.adiac.2023.100701","DOIUrl":"10.1016/j.adiac.2023.100701","url":null,"abstract":"<div><div><span>The relation between personnel-related factors and office-level audit quality has not received much attention in the audit literature. To examine this further, we investigate the relationship between an auditor's financial stress and audit quality. We proxy financial stress with negative equity, when a home's market value is less than its mortgage, which is gathered from the real estate website Zillow from 2011 through 2017. More specifically, we aggregate the average values of negative equity for homes in the same city as our sample's audit offices. The results indicate that firms with auditor offices in areas with higher levels of negative equity experience higher levels of audit failure. Our results are robust when we control for median </span>accountant salary and foreclosure rates in areas surrounding the home audit office. Overall, our findings provide important initial evidence on a potential relation between auditor-level financial stress and audit quality.</div></div>","PeriodicalId":46906,"journal":{"name":"Advances in Accounting","volume":"67 ","pages":"Article 100701"},"PeriodicalIF":1.2,"publicationDate":"2023-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134995537","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}