The purpose of this paper is to examine the relationship between discretionary accruals (DAs) and audit fees and whether this relationship is affected by the chief financial…
Abstract
Purpose
The purpose of this paper is to examine the relationship between discretionary accruals (DAs) and audit fees and whether this relationship is affected by the chief financial officer's (CFO) compensation structure.
Design/methodology/approach
Using a large sample of cross‐sectional firms over the period 2000‐2006, multiple ordinary least square regression models are estimated.
Findings
The paper finds that there is a positive and significant association between DAs and audit fees. Evidence shows that this relationship is significantly higher as CFO's bonuses increase and that this relationship is moderated as CFO's salaries increase. It is also found that income‐increasing DAs are positively and significantly related with audit fees and that increase in CFO's bonuses signifies this positive relationship.
Research limitations/implications
Results may change during the current financial crisis (i.e. 2007‐present) due to the increased regulatory scrutiny of executive compensation.
Practical implications
The study has regulatory implications because of the recent calls to require a mandate regulating executive compensation practices. The results support these calls as data show that increased bonuses are associated with higher discretionary accruals and thus higher audit fees. There is also a call to limit executive compensation to fixed amounts and data support that increase in salaries moderates the positive association between discretionary accruals and audit fees. These results can also be used by independent auditors when assessing risks and thus the results have practical audit implications.
Originality/value
The paper uses a large sample of public firms in years leading to the current financial crisis and contributes to the literature in executive compensation and audit practice.
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Fatima Alali, Zhou (Daniel) Chen and Yue (Laura) Liu
The study examines sustainability reporting in the government and not-for-profit organizations (GNFPs). Using a descriptive approach, data from the Global Reporting Initiative…
Abstract
The study examines sustainability reporting in the government and not-for-profit organizations (GNFPs). Using a descriptive approach, data from the Global Reporting Initiative (GRI) are utilized to identify GNFP’s sustainability reporting trends and incentives over the period from 2001 to 2016. The study shows improvement in the GNFPs’ sustainability reporting over the analysis period, especially by larger organizations. In specific, results show that the number of GNFPs that reported has increased over the analysis period, and the number of social, economic, and environmental issues that are reported on has also increased although fragmentally across different GNFPs. In addition, a few GNFPs integrate their sustainability report with their financial report or obtain external assurance. The study shows that GNFPs’ sustainability reporting is motivated by meeting stakeholders’ needs and achieving business goals. Based on these findings, the study identifies future reporting opportunities for GNFPs to improve informativeness and reliability of sustainability reporting with the ultimate goals of improving transparency and accountability. The data used in this study capture only the GNFPs that reported or registered in the GRI database. Thus, future studies may use other data sets or conduct field and case analyses to obtain further insights into the process of adopting and reporting on sustainability and the roles that different stakeholders play in pursuing such efforts. In addition, the study identifies other future research opportunities. The study contributes to the extant literature on sustainability and social responsibility during periods of changing regulatory framework in less-researched organizations that contributes significantly to society.
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Gerry H. Grant, Karen C. Miller and Fatima Alali
The purpose of this paper is to examine information technology (IT) control deficiencies and their affect on financial reporting.
Abstract
Purpose
The purpose of this paper is to examine information technology (IT) control deficiencies and their affect on financial reporting.
Design/methodology/approach
This study examines 278 companies reporting IT control deficiencies in the first three years of the SOX 404 requirements (2004‐2006). Using quantitative analysis, the study evaluates the impact of IT deficiencies on financial reporting and determines significant differences between companies that report IT deficiencies and companies that do not report IT deficiencies.
Findings
Four accounting errors: revenue recognition issues; receivables, investments and cash issues; inventory, vendor and cost of sales issues; and financial statement, footnote, US GAAP, and segment disclosures issues stand out as common financial reporting problems in companies reporting weak IT controls. This study also suggests that companies with IT control deficiencies report more internal control (IC) deficiencies, are smaller, pay higher audit fees, and are typically audited by smaller accounting firms.
Research limitations/implications
This research is limited in scope since only SOX accelerated filers are included in the analysis. As of this study, smaller, non‐accelerated filers are not required to report IC control weaknesses under SOX.
Originality/value
As of this research, no analysis exists to support or refute the relationship of IT controls and accounting errors. This study re‐affirms the widespread impact that deficient IT controls can have on the overall IC structure of the business. Our study reveals some of the important issues associated with IT in the financial reporting process. The role of IT in financial reporting systems is destined to escalate. Studies, like ours, can help managers and auditors identify IT problems that affect financial reporting and take remedial steps to correct these weaknesses.
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Although prior research documents that analysts sometimes herd their forecasts, very few studies investigate how investors’ judgments are influenced by their perceptions of the…
Abstract
Although prior research documents that analysts sometimes herd their forecasts, very few studies investigate how investors’ judgments are influenced by their perceptions of the likelihood of analyst herding. I conduct an experimental study to investigate the conditions under which investors’ assessments of uncertainty about future earnings are influenced by their perceptions of the likelihood of analyst herding. As expected, and consistent with motivated reasoning, the results show that the temporal order of analyst forecasts influences investors’ estimates of the likelihood of analyst herding and investors’ uncertainty judgments when analyst forecasts are preference-inconsistent but not when analyst forecasts are preference-consistent. This study provides a potential explanation for the mixed findings of prior research in regard to investors’ reactions to the likelihood of analyst herding. In addition, this study extends research on investors’ credulity by providing evidence that motivated reasoning and skepticism may serve as a mechanism that contributes to that credulity.
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The use of social networking websites by companies to disclose corporate news and by investors to collect information for investment purposes is increasing rapidly. However, the…
Abstract
Purpose
The use of social networking websites by companies to disclose corporate news and by investors to collect information for investment purposes is increasing rapidly. However, the role of investors’ affective reactions to corporate disclosures on social networking websites is under-researched. This paper aims to examine how the disclosure platform (disclosing news on a company’s Facebook Web page or the corporate investor relations Web page) and news valence (positive or negative) jointly influence investors’ affective reactions to corporate news and stock price change judgments.
Design/methodology/approach
The authors conduct an experimental study using 364 participants from Amazon’s Mechanical Turk website as a proxy for reasonably informed investors.
Findings
Results show that the disclosure platform influences investors’ affective reactions and stock price change judgments when the corporate news is negative, but not when the corporate news is positive. In addition, investors’ affective reactions mediate the influence of the disclosure platform on investors’ stock price change judgments when the corporate news is negative rather than positive.
Originality/value
This paper extends the theory on affective reactions to a social networking context by showing that differences in disclosure platforms and news valence influence investors’ affective reactions to corporate news. In addition, the study’s theory and findings have significant implications for researchers, company managers and public relations specialists, capital market participants, regulators and investor education organizations and users of social networking websites.
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Kalsoom B. Sumra, Humayra Siddique, Seema Afzal and Abroon Qazi
This paper aims to address the need to adopt circular economy models in the urban development and infrastructure of Gulf Cooperation Council (GCC) countries – Bahrain, Kuwait…
Abstract
Purpose
This paper aims to address the need to adopt circular economy models in the urban development and infrastructure of Gulf Cooperation Council (GCC) countries – Bahrain, Kuwait, Oman, Qatar, UAE and Saudi Arabia. The purpose is to provide insights into the progress, challenges and potential benefits of transitioning from a linear to a circular economic model in response to the environmental challenges posed by rapid economic development and population growth in the GCC region. The study emphasizes the relevance of this research in fostering economic diversification, mitigating ecological concerns and attracting sustainable investments.
Design/methodology/approach
The study adopts a qualitative approach to investigate the adoption of circular economy principles in each GCC country’s urban development and infrastructure. It details the specific strategies and initiatives undertaken by Bahrain, Kuwait, Oman, Qatar, UAE and Saudi Arabia. The research methodology includes a Systematic Literature Review (SLR), thematic, comparative and individual analysis of their goals, progress and the unique approaches employed. Additionally, a SWOT analysis is conducted to identify strengths, weaknesses, opportunities and threats associated with adopting circular economy models in the GCC region.
Findings
The case studies reveal each GCC country’s diverse approaches and progress in adopting circular economy models. Bahrain aims for carbon neutrality by 2060, Kuwait prioritizes sustainability in urban development, Oman focuses on waste reduction, Qatar integrates circular economy principles into its Vision 2030 initiative and Saudi Arabia explores closed-loop material flows. Whereas, the UAE focuses on infrastructure development with unique technological advancements in the near future. Despite common challenges such as traditional linear models and economic obstacles, the benefits of transitioning to circular economies in the GCC region are substantial. These include social, environmental and economic advantages, emphasizing sustainable growth, resource efficiency and enhanced environmental protection.
Originality/value
This paper contributes original insights into the adoption of circular economy models in the GCC region, providing a clear and succinct case for its value. The research underscores this transition’s economic, environmental and social benefits. It emphasizes the significance of sustainable resource management and economic opportunities while acknowledging challenges such as implementation obstacles and potential business impacts. The study invites reflection on future research steps, fostering a balanced and fair analysis of the value of the results. It positions the adoption of circular economy models as a crucial step toward achieving economic diversification, and environmental sustainability and attracting green investments in the GCC region.
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The purpose of this paper is to examine the linkages between audit committees’ (AC) effectiveness, audit quality and corporate voluntary disclosure quality (VDQ).
Abstract
Purpose
The purpose of this paper is to examine the linkages between audit committees’ (AC) effectiveness, audit quality and corporate voluntary disclosure quality (VDQ).
Design/methodology/approach
Empirical tests address 144 firm-year observations drawn from Ghanaian listed companies during 2013–2016.
Findings
The results document a substitute and complementary effect between the presence of Big Four auditor and effective AC in increasing quality voluntary disclosure.
Originality/value
This study is one of the few that have examined the effect of AC effectiveness and audit quality on corporate VDQ. The findings lend credence to the belief that AC effectiveness and Big Four auditors complement each other to enhance quality of voluntary information disclosure.
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Berna Aydoğan, Gülin Vardar and Caner Taçoğlu
The existence of long memory and persistent volatility characteristics of cryptocurrencies justifies the investigation of return and volatility/shock spillovers between…
Abstract
Purpose
The existence of long memory and persistent volatility characteristics of cryptocurrencies justifies the investigation of return and volatility/shock spillovers between traditional financial market asset classes and cryptocurrencies. The purpose of this paper is to investigate the dynamic relationship between the cryptocurrencies, namely Bitcoin and Ethereum, and stock market indices of G7 and E7 countries to analyze the return and volatility spillover patterns among these markets by means of multivariate (MGARCH) approach.
Design/methodology/approach
Applying the newly developed VAR-GARCH-in mean framework with the BEKK representation, the empirical results reveal that there exists an evidence of mean and volatility spillover effects among Bitcoin and Ethereum as the proxies for the cryptocurrencies, and stock markets reviewed.
Findings
Interestingly, the direction of the return and volatility spillover effects is unidirectional in most E7 countries, but bidirectional relationship was found in most G7 countries. This can be explained as the presence of a strong return and volatility interaction among G7 stock markets and crypto market.
Originality/value
Overall, the results of this study are of particular interest for portfolio management since it provides insights for financial market participants to make better portfolio allocation decisions. It is also increasingly important to understand the volatility transmission mechanism across these markets to provide policymakers and regulatory bodies with guidance to eliminate the negative impact of cryptocurrency's volatility on the stability of financial markets.