Smith (2003) responded to the Sarbanes‐Oxley Act by suggesting that government rules and regulations cannot preserve a profession where people lack integrity. He suggests that…
Abstract
Smith (2003) responded to the Sarbanes‐Oxley Act by suggesting that government rules and regulations cannot preserve a profession where people lack integrity. He suggests that leaders in the profession and academe “call individuals to excellence” and “inculcate in practitioners and students ethical behaviour and personal integrity”. This study investigates whether auditors’ attitudes towards creative accounting are associated with ethical judgement, their evaluation of the quality of financial reporting and their perceptions of factors that influence preparers of financial statements to use aggressive accounting techniques. The results of this study reveal a significant relationship between auditors’ assessments of the relevance and reliability (but not ethical judgement) of reported information and their attitudes to creative accounting. Some insight is gained into auditors’ perceptions of the factors that influence preparers to use creative accounting in South Africa.
Details
Keywords
Mohammad Badrul Muttakin, Dessalegn Mihret, Tesfaye Taddese Lemma and Arifur Khan
Although proponents of integrated reporting (IR) advocate that this emerging practice has the potential to transform corporate reporting, the eventuation of this expectation would…
Abstract
Purpose
Although proponents of integrated reporting (IR) advocate that this emerging practice has the potential to transform corporate reporting, the eventuation of this expectation would depend on the incentive IR provides to firms. This study aims to examine whether IR is associated with cost of debt and whether IR moderates the relationship between financial reporting quality and cost of debt.
Design/methodology/approach
Based on insights drawn from information asymmetry and agency theories, the authors develop models that link IR and financial reporting quality with a firm’s cost of debt. The authors analyze 847 firm-year observations drawn from non-financial firms traded on the Johannesburg Stock Exchange, for the period between 2009 and 2015.
Findings
The authors find that firms that provide integrated reports tend to have a lower cost of debt than those do not provide IR. The authors also find an inverse association between financial reporting quality and cost of debt, and that integrated reports accentuate this association. The findings suggest that the debt market perceives value in the information presented in integrated reports beyond what is furnished in financial reports.
Originality/value
To the best of the authors’ knowledge, this study is the first to document evidence suggesting that the debt market perceives value in the information presented in integrated reports, beyond what is furnished in financial reports.
Details
Keywords
This chapter conducts a systematic comparison of behavioral economics’s challenges to the standard accounts of economic behaviors within three dimensions: under risk, over time…
Abstract
This chapter conducts a systematic comparison of behavioral economics’s challenges to the standard accounts of economic behaviors within three dimensions: under risk, over time, and regarding other people. A new perspective on two underlying methodological issues, i.e., inter-disciplinarity and the positive/normative distinction, is proposed by following the entanglement thesis of Hilary Putnam, Vivian Walsh, and Amartya Sen. This thesis holds that facts, values, and conventions have inter-dependent meanings in science which can be understood by scrutinizing formal and ordinary language uses. The goal is to provide a broad and self-contained picture of how behavioral economics is changing the mainstream of economics.
Details
Keywords
Elizabeth Mey and Marna de Klerk
– The purpose of this paper is to examine whether Chartered Accountants South Africa (CAs(SA)) as Chief Executive Officers (CEOs) have an association with accruals quality.
Abstract
Purpose
The purpose of this paper is to examine whether Chartered Accountants South Africa (CAs(SA)) as Chief Executive Officers (CEOs) have an association with accruals quality.
Design/methodology/approach
The theoretical base of this paper is the link between accounting expertise and accruals quality. The sample consists of 812 observations of Johannesburg Stock Exchange (JSE)-listed firms between 2010 and 2013. The association is tested by regressing the CA(SA) as CEO interest variable and control variables on accruals quality, using three metrics of abnormal accruals.
Findings
The overall results suggest that less accruals management and estimation error is present when the CEO is a CA(SA).
Originality/value
This is the first study to test the association between having a CEO with a professional accounting qualification, such as CA(SA), and accruals quality. The findings will be of interest to shareholders and top executives when evaluating the appointment of a CEO.
Details
Keywords
Glenn W. Harrison and J. Todd Swarthout
We take Cumulative Prospect Theory (CPT) seriously by rigorously estimating structural models using the full set of CPT parameters. Much of the literature only estimates a subset…
Abstract
We take Cumulative Prospect Theory (CPT) seriously by rigorously estimating structural models using the full set of CPT parameters. Much of the literature only estimates a subset of CPT parameters, or more simply assumes CPT parameter values from prior studies. Our data are from laboratory experiments with undergraduate students and MBA students facing substantial real incentives and losses. We also estimate structural models from Expected Utility Theory (EUT), Dual Theory (DT), Rank-Dependent Utility (RDU), and Disappointment Aversion (DA) for comparison. Our major finding is that a majority of individuals in our sample locally asset integrate. That is, they see a loss frame for what it is, a frame, and behave as if they evaluate the net payment rather than the gross loss when one is presented to them. This finding is devastating to the direct application of CPT to these data for those subjects. Support for CPT is greater when losses are covered out of an earned endowment rather than house money, but RDU is still the best single characterization of individual and pooled choices. Defenders of the CPT model claim, correctly, that the CPT model exists “because the data says it should.” In other words, the CPT model was borne from a wide range of stylized facts culled from parts of the cognitive psychology literature. If one is to take the CPT model seriously and rigorously then it needs to do a much better job of explaining the data than we see here.
Details
Keywords
Jade Wong, Andreas Ortmann, Alberto Motta and Le Zhang
Policymakers worldwide have proposed a new contract – the ‘social impact bond’ (SIB) – which they claim can allay the underperformance afflicting not-for-profits, by tying the…
Abstract
Policymakers worldwide have proposed a new contract – the ‘social impact bond’ (SIB) – which they claim can allay the underperformance afflicting not-for-profits, by tying the private returns of (social) investors to the success of social programs. We investigate experimentally how SIBs perform in a first-best world, where investors are rational and able to obtain hard information on not-for-profits’ performance. Using a principal-agent multitasking framework, we compare SIBs to inputs-based contracts (IBs) and performance-based contracts (PBs). IBs are based on a piece-rate mechanism, PBs on a non-binding bonus mechanism, and SIBs on a mechanism that, due to the presence of an investor, offers full enforceability. Although SIBs can perfectly enforce good behaviour, they also require the principal (i.e., government) to relinquish control over the agent’s (i.e., not-for-profit’s) payoff to a self-regarding investor, which prevents the principal and agent from being reciprocal. In spite of these drawbacks, in our experiment SIBs outperformed IBs and PBs. We therefore conclude that, at least in our laboratory test-bed, SIBs can allay the underperformance of not-for-profits.
Details
Keywords
This essay is a review of the recent literature on the methodology of economics, with a focus on three broad trends that have defined the core lines of research within the…
Abstract
This essay is a review of the recent literature on the methodology of economics, with a focus on three broad trends that have defined the core lines of research within the discipline during the last two decades. These trends are: (a) the philosophical analysis of economic modelling and economic explanation; (b) the epistemology of causal inference, evidence diversity and evidence-based policy and (c) the investigation of the methodological underpinnings and public policy implications of behavioural economics. The final output is inevitably not exhaustive, yet it aims at offering a fair taste of some of the most representative questions in the field on which many philosophers, methodologists and social scientists have recently been placing a great deal of intellectual effort. The topics and references compiled in this review should serve at least as safe introductions to some of the central research questions in the philosophy and methodology of economics.
Details
Keywords
Glenn W. Harrison and Don Ross
Behavioral economics poses a challenge for the welfare evaluation of choices, particularly those that involve risk. It demands that we recognize that the descriptive account of…
Abstract
Behavioral economics poses a challenge for the welfare evaluation of choices, particularly those that involve risk. It demands that we recognize that the descriptive account of behavior toward those choices might not be the ones we were all taught, and still teach, and that subjective risk perceptions might not accord with expert assessments of probabilities. In addition to these challenges, we are faced with the need to jettison naive notions of revealed preferences, according to which every choice by a subject expresses her objective function, as behavioral evidence forces us to confront pervasive inconsistencies and noise in a typical individual’s choice data. A principled account of errant choice must be built into models used for identification and estimation. These challenges demand close attention to the methodological claims often used to justify policy interventions. They also require, we argue, closer attention by economists to relevant contributions from cognitive science. We propose that a quantitative application of the “intentional stance” of Dennett provides a coherent, attractive and general approach to behavioral welfare economics.