Rachana Kalelkar and Emeka Nwaeze
The authors analyze the association between the functional background of the compensation committee chair and CEO compensation. The analysis is motivated by the continuing debate…
Abstract
Purpose
The authors analyze the association between the functional background of the compensation committee chair and CEO compensation. The analysis is motivated by the continuing debate about the reasonableness of executive pay patterns and the growing emphasis on the role of compensation committees.
Design/methodology/approach
The authors define three expert categories—accounting, finance, and generalist—and collect data on the compensation committee (CC) chairs of the S&P 500 firms from 2008 to 2018. The authors run an ordinary least square model and regress CEO total and cash compensation on the three expert categories.
Findings
The authors find that firms in which the CC chair has expertise in accounting, finance, and general business favor performance measures that are more aligned with accounting, finance, and general business, respectively. There is little evidence that CC chairs who are CEOs of other firms endorse more generous pay for the host CEO; the authors find some evidence that CC chairs tenure relative to the host CEO's is negatively associated with the level of the CEO's pay.
Research limitations/implications
This study suggests that firms and regulators should consider the background of the compensation committee chair to understand the variations in top executive.
Practical implications
Companies desiring to link executive compensation to particular areas of strategy must also consider matching the functional background of the compensation committee chair with the target strategy areas. From regulatory standpoint, requiring compensation committees to operate independent of inside directors can reduce attempts by inside directors to skim the process, but a failure to also consider the impact of compensation committees' discretion over the pay-setting process can distort the executives' pay-performance relation.
Originality/value
This is the first study to examine the effects of the functional background of the compensation committee chair on CEO compensation.
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Wael Aguir, Linxiao Liu and Emeka Nwaeze
The purpose of this paper is to examine the relationship between the intensity of accruals and auditor industry specialization. It investigates whether a client firm’s accruals…
Abstract
Purpose
The purpose of this paper is to examine the relationship between the intensity of accruals and auditor industry specialization. It investigates whether a client firm’s accruals intensity is a factor associated with the firm being audited by an industry specialist auditor.
Design/methodology/approach
This paper employs an empirical archival methodology using publicly available data. The sample consists of client firms that switched auditors from 2004 to 2014.
Findings
The results show that accruals intensity is positively associated with the choice of an industry specialist auditor, measured both at the national and the city levels. These findings imply that companies with high levels of accruals choose an industry specialist auditor to signal the quality of their accruals and to gain more credibility for their financial reporting.
Originality/value
This paper provides original empirical evidence of the association between accruals intensity and the choice of an industry specialist auditor. This link is new to the literature. Extant literature shows that firms with high levels of accruals are regarded as risky and suffer from reduced credibility in financial markets. This study contributes to the literature by showing that these firms choose an industry specialist auditor to alleviate investors’ credibility concerns about the high levels of accruals. These findings provide insightful information to audit firms, to managers of firms that inherently display high levels of accruals and to the capital markets participants in general.
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Carlos E. Jiménez-Angueira, Emeka Nwaeze and Sung-Jin Park
Prior studies document a positive relation between stock prices and tax-related contingent liability, unrecognized tax benefits (UTBs) and interpret the finding as evidence that…
Abstract
Purpose
Prior studies document a positive relation between stock prices and tax-related contingent liability, unrecognized tax benefits (UTBs) and interpret the finding as evidence that investors reward tax aggressiveness. The purpose of this paper is to explore the nature of this puzzle finding by considering a link between UTBs and financial reporting strategy and propose that financial reporting conservatism may explain the positive association between UTBs and stock prices.
Design/methodology/approach
To estimate the incremental valuation weights on UTBs, the authors employ the Ohlson (1995) valuation model and regress stock prices on UTBs and its interactions with the proxies for financial reporting conservatism and tax aggressiveness. Further, the authors adopt a UTB estimation model to decompose its balance into the predicted and unpredicted components.
Findings
The authors find that the reporting conservatism has a positive effect on the market valuation of UTBs. The authors also find some evidence that tax aggressiveness increases the valuation weight of UTBs. When UTBs are decomposed into predicted and unpredicted components, the authors find that the effect of financial reporting conservatism is more pronounced for the market valuation of predicted UTBs. Collectively, the evidence suggests that conservative financial reporting is a major driver of the positive valuation of UTBs and that tax aggressiveness plays a less significant role in investors' valuation decisions.
Originality/value
While prior studies focus on how UTBs are associated with stock prices, this paper is the first attempt to explain why UTBs are positively valued by investors.
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Saturday U. Omeluzor, Gloria O. Oyovwe-Tinuoye and Uche Emeka-Ukwu
This study aimed to assess the rural libraries and information services for rural development in Delta State, Nigeria.
Abstract
Purpose
This study aimed to assess the rural libraries and information services for rural development in Delta State, Nigeria.
Design methodology/approach
The study adopted both descriptive and exploratory research designs. Questionnaire, observation and structured interview guide were the major instruments for data collection. Total enumeration was used to gather data from respondents in 16 functional rural libraries in Delta State.
Findings
The study revealed the challenges that surround the rural people in accessing information in rural libraries. It showed that only 16 rural libraries were established and functional in 16 communities within the 25 local government areas. Findings also showed that the rural libraries were not able to fulfil their roles. It was evident that the information needs of the rural people which made them to access the library were not adequately met because of some hindrances such as inadequate up-to-date information materials, lack of awareness, illiteracy, language barrier, inadequate skilled personnel and inadequate infrastructure and facilities.
Practical implications
The important finding in this study is that rural libraries are the most relevant institution to disseminate information about government policies, inculcating reading habits and developing skill and knowledge of people. Therefore, underdevelopment of rural libraries and inadequate information sources and facilities will hinder access to information and development of the people who need them.
Originality value
This research is the first of its kind to assess rural libraries and information services for the development of rural people in the 16 rural libraries in Delta State of Nigeria.
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The authors investigate whether the different tenure phases of executives have a differential effect on audit pricing. Two alternate views – career concern and power – can explain…
Abstract
Purpose
The authors investigate whether the different tenure phases of executives have a differential effect on audit pricing. Two alternate views – career concern and power – can explain the effect of executives’ tenure on audit pricing. This paper aims to determine, which viewpoint dominates in explaining the relationship between audit pricing and executive tenure phases.
Design/methodology/approach
Using a sample of 11,198 firm-year observations from 2007 to 2016, the authors adopt an ordinary least squares regression model to assess the impact of the middle and long phases of executives’ tenure on audit fees.
Findings
Audit fees are significantly lower when executives enter the middle and long phases of tenure. The reduction in audit fees is greatest as both chief executive officers and chief financial officers enter the long tenure phase. Although audit fees gradually decrease as executive tenure is extended, they start increasing two years before the end of executive tenure. Furthermore, the negative association between the executive tenure phase and audit fees is greater when the executive is appointed externally. Finally, the long phase of executive tenure also mitigates the positive relationship between audit fees and internal control weaknesses.
Research limitations/implications
This study is based on US data. Future research may extend this study to other countries.
Practical implications
The findings are important to firms, practitioners and academicians, particularly, as the length of tenure of top executives has increased in recent years. By documenting that executives’ middle and long tenure phases reduce audit fees, the findings highlight the importance of maintaining executives in the firm. Finally, the findings have implications for investors, policymakers and auditors to identify companies with high audit risk.
Originality/value
This study is the first to document the impact of executives’ middle and long tenure phases on audit fees.
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This paper aims to address three questions: Does the abnormal delay in the audit process signal poor earnings quality? Is this information about earnings quality incremental to…
Abstract
Purpose
This paper aims to address three questions: Does the abnormal delay in the audit process signal poor earnings quality? Is this information about earnings quality incremental to that contained in earnings report delay? Does the market use this information about earnings quality in valuing the firm?
Design/methodology/approach
Data are obtained from four databases: Compustat, Audit Analytics, Compact-Disclosure and I/B/E/S. Complete data are available for 5,298 firms for 22,492 firm-years. The paper uses a two-stage model. In the first stage, a detailed model using determinants from extant research tries to explain the audit delay. In the second stage, the unexplained delay from the first stage is used in the association tests with earnings quality.
Findings
The paper presents evidence that abnormal delays in the audit process are inversely associated with earnings quality. When the market values a dollar of reported earnings, it appears to discount the valuation by the extent of abnormal audit delay.
Originality/value
The current paper contributes to existing research in several ways. First, it establishes a comprehensive model to explain audit delays and provides a tool to measure abnormal audit delays. Second, it provides evidence of inverse association between abnormal audit delay and seven proxies of earnings quality. Finally, the paper shows that abnormal audit delay creates skepticism among investors about earnings quality and they value the disclosed earnings after discounting for such delay.
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This paper aims to examine whether high equity incentives motivate executives to avoid issuing convertible debt and/or to design convertible debt issues as anti-dilutive to…
Abstract
Purpose
This paper aims to examine whether high equity incentives motivate executives to avoid issuing convertible debt and/or to design convertible debt issues as anti-dilutive to earnings-per-share (EPS).
Design/methodology/approach
Tests are conducted using the Heckman two-step probit model to control for potential self-selection bias between firms that issue straight debt and those that issue convertible debt. Further, analyses are conducted separately and jointly for the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) to assess the differential impact of CEOs’ and CFOs’ equity incentives on convertible debt issuance and design decisions.
Findings
Firms are more likely to design convertible debt issues as anti-dilutive to EPS when CFOs have high levels of equity incentives, but only when the firm stock price is sensitive to diluted EPS. High CEOs’ equity incentives have limited impact of convertible debt issuance and design decisions.
Research limitations/implications
The main limitation of this study is the generalizability of the findings and implications of this study due to the smaller sample size of convertible debt issues.
Originality/value
Prior research has shown that bonus incentives influence CEOs with disincentive for EPS dilution and motivate them to make anti-dilutive financing decisions. Further, there is evidence that high equity incentives motivate CEOs to manage earnings to boost short-term prices. This study extends prior literature by showing that high equity incentives provide executives with disincentive for EPS dilution and motivate CFOs to design convertible debt issues as anti-dilutive to EPS possibly to avoid reduced stock prices. Further, this study shows that CFOs have greater influence over convertible debt design choices than CEOs do.
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Imran Sharif Chaudhry, Zulkornain Yusop and Muzafar Shah Habibullah
Financial inclusion is a critical component of financial development, which disseminates accessible financial services to benefit all parts of society and consequently promotes…
Abstract
Purpose
Financial inclusion is a critical component of financial development, which disseminates accessible financial services to benefit all parts of society and consequently promotes economic growth. The study explores the dynamic common correlated effects of financial inclusion on economic growth in Organization of Islamic Cooperation (OIC) countries.
Design/methodology/approach
The conventional econometric techniques overlook heterogeneity and cross-sectional dependence and provide false results. Hence, a unique methodology, ‘Dynamic Common Correlated Effects (DCCE)’, is used, which can efficiently tackle the above-mentioned issues.
Findings
The DCCE estimation indicates a positive and significant impact of financial inclusion on economic growth in overall and higher-income OIC economies. Moreover, in the lower-income OIC group, financial inclusion is inversely correlated with economic growth, which converts into a positive linkage by including an interaction term of financial inclusion and institutional quality.
Practical implications
Based on the research outcomes, it is recommended that policymakers and governments of OIC economies seek to increase financial inclusion to achieve sustainable, optimal and inclusive economic growth.
Originality/value
The DCCE technique in this study considers heterogeneity and cross-sectional dependence among countries and thus provides robust findings.
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Gildas Dohba Dinga, Dobdinga Cletus Fonchamnyo and Nges Shamaine Afumbom
This study examines the effect of external debt and domestic capital formation on economic development in Sub-Saharan African (SSA) economies.
Abstract
Purpose
This study examines the effect of external debt and domestic capital formation on economic development in Sub-Saharan African (SSA) economies.
Design/methodology/approach
Using the Dynamic Common Correlation Effects (DCCE) technique and the Driscoll and Kraay fixed-effect technique, this paper conducts a multidimensional assessment of external debt and domestic investment on economic development across a panel of 35 SSA countries from 1995 to 2018. The data utilized are sourced from the World Development Indicators (2021) and the United Nations Development Program (UNDP) database (2021).
Findings
The results reveal that domestic investment has a positive impact on economic development in SSA countries, consistent across all three dimensions of the human development index (income, education and life expectancy). However, external debt exhibits an adverse effect on economic development, consistently yielding negative outcomes for life expectancy, education and income.
Practical implications
Based on these findings, the authors recommend that SSA economies implement appropriate policies, such as reducing bureaucratic requirements and addressing corruption, to enhance domestic capital investment. Additionally, efforts should be directed toward channeling contracted debt into productive sectors like road construction and electricity provision.
Originality/value
This study is among the first to assess the impact of domestic investment and external debt on the three dimensions of human development outlined by the UNDP. Furthermore, it employs a robust econometric method that considers cross-sectional dependence (CD).
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Oludayo Tade and Oluwatosin Adeniyi
This paper aims to investigate automated teller machine (ATM) fraud in southwest Nigeria, as extant studies have not examined the unintended consequences of ATM subscription…
Abstract
Purpose
This paper aims to investigate automated teller machine (ATM) fraud in southwest Nigeria, as extant studies have not examined the unintended consequences of ATM subscription particularly the effect of the identity of fraudsters and the strategies for defrauding.
Design/methodology/approach
Using sequential exploratory strand of mixed method, data were collected from both ATM users and victims of ATM fraud using multi-stage sampling procedure. This involved purposive selection of Lagos and Oyo states.
Findings
Results showed that fraudsters were typically lovers, friends, relatives and sometimes children of victims. Strategies for defrauding included card cloning, swapping of cards and physical attacks at ATM galleries.
Research limitations/implications
Because of the size of the sample which is small, the research results may lack generalizability. More expansive works are needed across Nigeria in this regard.
Practical implications
The paper includes implications for policy initiative concerning the deployment and use of payment systems such as ATM in Nigeria.
Social implications
The paper reveals the limits of trust in cashless policy. It raises salient policy issues concerning the need for the governance of trust to engender adoption.
Originality/value
The paper characterizes fraudsters and their strategies for defrauding.