Haiyan Huo, Fauziah Sh. Ahmad and Bryan Teoh
This study aims to identify the key factors that influence the intention and behavior of Chinese consumers toward purchasing organic food. The extended theory of planned behavior…
Abstract
Purpose
This study aims to identify the key factors that influence the intention and behavior of Chinese consumers toward purchasing organic food. The extended theory of planned behavior (TPB) model is adopted as the underlying theory to explore the relationship between attitudes (ATT), subjective norms (SN) and perceived behavioral control (PBC) on consumers’ intention and behavior to buy organic food. Trust (TR) and the moderating role of short food supply chain preferences (SFSCPs) were integrated to address the research gap.
Design/methodology/approach
Three hundred three questionnaire responses were received from organic food buyers in China using a convenience sampling method. Structural equation modeling was used to analyze the data and to examine the relationship between the various constructs.
Findings
The results demonstrated that the purchase intention (PI) of Chinese consumers correlates positively with ATT, SN, PBC and TR. Additionally, the results show that consumers’ SFSCPs positively moderate the relationship between PI and purchase behavior (PB).
Practical implications
The findings of this study provide valuable insights for marketers to develop compelling messages that evoke positive ATT, establish consumer TR and integrate short food supply chains to drive PB. The study can also be useful to policymakers and other supply chain participants.
Social implications
An increased understanding of the factors influencing Chinese organic food consumption can contribute to promoting healthier food choices, supporting sustainable agriculture and fostering environmentally friendly consumption habits.
Originality/value
This research contributes to the existing pool of knowledge by incorporating TR into the conventional TPB. The study also introduces SFSCP as a moderating variable on the relationship between PI and PB.
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Ferdinand T. Siagian and Elok Tresnaningsih
The purpose of this paper is to investigate whether independent directors and audit committees that are chaired by an independent director as required by the Jakarta Stock…
Abstract
Purpose
The purpose of this paper is to investigate whether independent directors and audit committees that are chaired by an independent director as required by the Jakarta Stock Exchange (JSX) affect the quality of reported earnings.
Design/methodology/approach
The paper uses both total discretionary accruals (DA) and earnings response coefficient (ERC) as the proxies for earnings quality. It runs multivariate regressions to examine the improvements in earnings quality after the firms meet the JSX requirements.
Findings
It is found that both DA and ERC improve significantly after firms acquire independent directors and independent audit committees. Lower DA occurs in the first and second years after the firms meet the JSX requirements. There is an improvement in ERC in the first years after firms meeting the requirements.
Research limitations/implications
The results suggest that independent directors and audit committees do improve earnings quality.
Originality/value
This is the first paper that compares the quality of earnings before and after firms acquire independent directors and independent audit committees. This methodology allows us to examine the impact of meeting JSX independence requirements on earnings quality. The findings contribute to the literature by showing the importance of having independent directors and an independent audit committee in order to improve earnings quality. These findings are specifically important for the capital market regulatory bodies, the shareholders, and the boards of directors, and for other users of financial reports in general.
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Shihui Fan and Yan Zhou
This study aims to investigate the impact of earnings predictability and truthfulness on nonprofessional investors’ investment willingness.
Abstract
Purpose
This study aims to investigate the impact of earnings predictability and truthfulness on nonprofessional investors’ investment willingness.
Design/methodology/approach
Earnings predictability is captured by quarterly earnings autocorrelation, and earnings truthfulness is indicated by real earnings management (REM). The average of investment attractiveness and willingness measures investment willingness. The authors use experiments to isolate the impact of quarterly earnings autocorrelation and REM on investors’ investment behaviors.
Findings
From the 2 × 2 design, the authors observe that investors weight more on earnings predictability than earnings truthfulness.
Research limitations/implications
The generalization of the findings may be constrained for the following reasons. First, the authors use only one proxy, REM, to measure earnings truthfulness. In addition, the authors provide the participants, Amazon Mechanical Turk, with earnings predictability. Results may no longer hold if each participant has different understanding and analysis of earnings predictability.
Practical implications
In periods of unprecedented and severe financial uncertainty (i.e. the COVID-19 pandemic), investors rely more on earnings predictability than on earnings truthfulness. The study assists managers to strategically emphasize the predictability of earnings to attract investors, especially when firms face financial challenges or uncertainty.
Social implications
This study contributes to understanding investor behavior and the critical role of earnings predictability and truthfulness in shaping investment decisions.
Originality/value
This paper contributes to the literature of earnings properties in financial reporting, particularly by shedding light on the nuanced interplay between earnings predictability and earnings truthfulness. The research also demonstrates that elevated earnings autocorrelation indirectly stimulates investment willingness by enhancing the investors’ perception of earnings persistence of targeted firms.
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Jui‐Chin Chang and Huey‐Lian Sun
The Sarbanes‐Oxley Act (SOX) mandated a variety of corporate governance mechanisms to improve the transparency of financial reporting quality. This paper's aim is to investigate…
Abstract
Purpose
The Sarbanes‐Oxley Act (SOX) mandated a variety of corporate governance mechanisms to improve the transparency of financial reporting quality. This paper's aim is to investigate whether SOX's recently mandated disclosure of corporate governance structures affects the market's perception of earnings informativeness and firms' earnings management.
Design/methodology/approach
Since the first compliant disclosure of the Act would be found in firms' 2002‐2003 financial reports, the authors retrieve the post‐SOX data (pre‐SOX data) from the 2002 to 2003 (2001‐2002) period. Further, the study adopts Anderson et al.'s model to test the relations between earnings informativeness, audit committee independence, and other corporate governance variables. A similar mode is used by Chang and Sun in their study of cross‐listed foreign firms. To measure the discretionary accruals, the authors adopt Kothari et al.'s model and use the two‐digit SIC code in the cross‐sectional regression.
Findings
It is found that the market valuation of earnings surprises is significantly higher for firms which disclose stronger corporate governance functions. It is also found that the effectiveness of corporate governance in monitoring earnings management is improved after the mandated disclosure.
Originality/value
The empirical evidence shows that the quality of accounting earnings is increased after the SOX's mandated disclosure, which strengthens the link between financial reporting and corporate governance functions.
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The purpose of this paper is to examine the effects of audit failure on Big 4 audit firm monitoring activities. The paper analyzes changes in discretionary accruals (DAs) among…
Abstract
Purpose
The purpose of this paper is to examine the effects of audit failure on Big 4 audit firm monitoring activities. The paper analyzes changes in discretionary accruals (DAs) among clients of firms implicated in audit failure events and examines whether these DAs decline in the period following the event.
Design/methodology/approach
The paper uses archival data and regression analyses to test whether DAs for clients of implicated audit firms decline in the period following the audit failure as compared to clients of other Big 4 firms. Audit failures are identified during the years 1996‐2004 based on significant lawsuit settlements. The paper focuses on an office‐level analysis to control for audit quality differences which may vary across firm geographic locations as suggested by recent research.
Findings
Empirical results indicate that auditor response to audit failure has changed over time. Auditors implicated in audit failure events occurring in the post‐Enron and Sarbanes‐Oxley period enforce more conservative accounting choices in the year following the event. Specifically, clients of the implicated firm's office report a significant decline in discretionary accounting accruals relative to clients of other auditors in the same city location. However, a significant change in client discretionary accounting accruals is not found following audit failures that occurred prior to 2001, the year of the Enron bankruptcy.
Originality/value
The results of this paper extend the knowledge of the effects of litigation pressure on audit quality. Additionally, this paper helps address the question of how large‐scale audit failures witnessed at the beginning of the century have impacted audit firm conservatism.
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Robert Pinsker and Eileen Taylor
Nonfinancial information is becoming more readily available to investors, and thus, relative to annual financial reports, is having an increasing influence on investors' stock…
Abstract
Nonfinancial information is becoming more readily available to investors, and thus, relative to annual financial reports, is having an increasing influence on investors' stock pricing decisions. Using Hogarth and Einhorn's (1992) belief-adjustment model, we examine how task familiarity (high, medium, and low) influences nonprofessional investor stock price decisions when these investors are presented with a stream of both positive and negative nonfinancial news. We find that task familiarity negatively correlates with reaction size for both positive and negative information, which creates arbitrage opportunities for those with more task familiarity. However, we find that assurance mitigates this effect, leveling the playing field for less task-familiar investors in most cases. These findings are important as the volume and variety of information types increase, and as more nonfinancial information enters the marketplace in discrete sound bites (e.g., social media, press releases, daily reports). Findings suggest that assurance is one way to lessen the biases exhibited by investors with less task familiarity. These results enhance our understanding of nonprofessional investor behavior through the lens of belief revision.
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Mahdi Moardi, Mahdi Salehi, Simin Poursasan and Homa Molavi
The purpose of this paper is to investigate the relationship between earnings management and chief executive officers’ (CEOs) compensation. Owing to the fact that earnings…
Abstract
Purpose
The purpose of this paper is to investigate the relationship between earnings management and chief executive officers’ (CEOs) compensation. Owing to the fact that earnings management does not have only opportunistic effects, but signaling effects, this study focuses on accruals quality to examine earnings management incentives. Thus, accruals quality is described against future cash flow. The empirical evidences suggest that a positive relationship between discretionary accruals and future cash flow provides predictive elements for earnings management, whereas a negative relationship between discretionary accruals and future cash implies to opportunistic elements for earnings management. Should there is no significant relationship between discretionary accruals and future cash flow, there will be no earnings management, and such a result suggests that incentives and managers’ performance in these firms differ.
Design/methodology/approach
The statistical population of this research consists of all listed companies on the Tehran Stock Exchange during 2009–2016. Panel data method is applied in order to estimate the research model.
Findings
Findings of the study show that there is no significant relationship between discretionary accruals and future cash flow in pharmaceutical and food industries, thus they have neither predictive nor opportunist earnings management, while the results evidence a negative significant relationship between discretionary accruals and future cash flow in machineries, automobile, mineral and chemical industries. Furthermore, it can be alleged that there is no significant difference between CEOs’ compensation in firms with opportunistic earnings management (OEM) and other types of earnings management. It shows that firms do not have appropriate plans for CEOs’ compensation. Moreover, the relationship between earnings management and stock return has been investigated in this study. We document that stock return is influenced by accruals quality and its components. In other words, stock return significantly differs in firms with OEM and firms without any kind of earnings management.
Research limitations/implications
The authors’ findings provide contributions; for managers, it is noticeable that stock markets have sufficient comprehension about financial statements and the undertaken procedures on them, resulting in a higher return base on fair information. For investors and regulators, using the findings, may have deeper understanding to distinguish between industries that are recognized as opportunistic and non-opportunistic, which, in turn, results in better decision and regulation.
Originality/value
Previous studies have been mostly investigated OEM, while the current study examines both signaling and opportunistic aspects of earnings management.
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This aim of this paper is to check whether the incentive role of executive stock options (ESO) depends on their level.
Abstract
Purpose
This aim of this paper is to check whether the incentive role of executive stock options (ESO) depends on their level.
Design/methodology/approach
The study is based on data from a sample of 538 American firms over 11 years (1994 to 2004). Using regression analysis, the degree of association between earnings management and the percentage stock options in total compensation for different levels of the stock options granted is determined.
Findings
The study finds that ESO decreases the earning management and represents an additional control mechanism. When considering the level of ESO, a long‐term alignment of interests is found at low levels. However, at high levels, ESO becomes an additional source of agency conflict in the short and long runs.
Research limitations/implications
The results confirm the coexistence of both the contractual and the managerial power hypotheses.
Practical implications
This study suggests that the executive compensation strategy and particularly its stock option component should be reviewed.
Originality/value
This study contributes to previous research by underlining the incentive impact of the level of stock options on the role of further incentive compensation.