Jun Hao, Minghe Sun and Jennifer Yin
The purpose of this paper is to examine the relationship between regional institution and accounting quality.
Abstract
Purpose
The purpose of this paper is to examine the relationship between regional institution and accounting quality.
Design/methodology/approach
This study investigates whether and to what extent the convergence to International Financial Reporting Standards (IFRS) improves Chinese firms’ accounting quality. It also examines the role regional institutions play in this process. The focus is on two aspects of accounting quality: the accrual aggressiveness and the timely loss recognition. Specifically, the study tests: whether the convergence to IFRS significantly lowers the accrual aggressiveness proxied by the magnitude of discretionary accruals (DA); whether the convergence to IFRS significantly enhances the timely loss recognition proxied by the likelihood of reporting large negative net income; and whether the effects of convergence to IFRS on accounting quality vary with the quality of regional institutions.
Findings
The findings show that convergence to IFRS generally was accompanied by increases in DA and decreases in timely loss recognition for Chinese firms. Further analysis on the development of regional institutions reveals that both changes in accrual aggressiveness and timely loss recognition are more pronounced for firms located in regions with a lower level of development in the legal environment.
Originality/value
This study contributes to the accounting literature in several ways. First, it extends the accounting literature regarding institutional factors by examining the association between regional institutions and accounting quality. Second, by adopting a within-country setting, the study avoids such problems of cross-country comparisons as confounding factors caused by country-specific accounting rules and regulations, differences in infrastructure and culture, and other potential endogeneity problems (Chan et al., 2010). Third, the attention paid to the European and US application of IFRS overshadows the application and effects of IFRS in emerging markets. By examining China, the world largest emerging economy in the process of economic transition, this study sheds light on the effect of convergence to IFRS on accounting quality for emerging or transitional economies.
Details
Keywords
Jose G. Vega, Jan Smolarski and Jennifer Yin
The purpose of this paper is to examine restrictions placed by the Troubled Asset Relief Program (TARP) on executive compensation during the financial crisis. Since it remains…
Abstract
Purpose
The purpose of this paper is to examine restrictions placed by the Troubled Asset Relief Program (TARP) on executive compensation during the financial crisis. Since it remains unclear if TARP restored public confidence in financial institutions, the authors also analyze what effect such regulations had on investors’ confidence in the information provided by earning with respect to executive compensation during this critical period.
Design/methodology/approach
To test the assertions, the authors employ an Earnings Response Coefficient model, which captures the association between firms’ earnings surprise (ES) and perceived earnings informativeness. The authors implement both a long- and short-window test to obtain a better understanding of the effects of TARP on financial institutions’ earnings informativeness. The authors use the long-window approach to gather evidence about whether and how financial institutions’ ES are absorbed into security prices conditional on both their participation in TARP and their compliance with TARP’s compensation restrictions. The authors attempt to establish a stronger causal link by also using a short-window approach.
Findings
The authors find that firms paying their CEOs above the TARP threshold show higher earnings informativeness. Financial institutions that paid their CEOs above the TARP threshold achieved better performance during their participation in TARP. The authors also find that a decrease in total compensation while participating in TARP is associated with improved earnings informativeness. Lastly, separating total compensation into its cash and stock-based components, the authors find that firms improve earnings informativeness when they increase (decrease) cash (performance) compensation during TARP. However, overall earnings informativeness decreases during and after TARP relative to the pre-TARP period.
Practical implications
The research suggests that executive compensation incentives affect earnings informativeness and that tradeoffs are made between direct and indirect costs in retaining executives. The results have implications for policy makers, investors and researchers because the results allow policy makers and regulators to improve on how they design and implement accounting, market and finance regulations and reforms. Investors may potentially use the results when evaluating firm experiencing financial and, in some case, political distress. It also helps firms and offering optimal compensation contracts to create proper incentives for executives and ensure that managerial actions result in successful firm performance.
Social implications
The study shows how firms react to changing regulations that affect executive compensation and earning informativeness. The results of the study allow regulators to potentially design more effective regulations by targeting certain aspects of firms’ operation such excessive risk-taking behavior and rent extraction opportunities.
Originality/value
There are very few studies that deal with how firms react to regulation that affect executive compensation. The authors provide evidence regarding what effect TARP and its compensation restrictions had on financial institutions’ earnings informativeness. The evidence in the study will further regulators’ understanding of whether TARP improved investors’ confidence in financial institutions. The paper also contributes to the understanding in how changes in executive compensation in times of high political scrutiny affect investors’ perceptions of firm performance.
Details
Keywords
This chapter examines the sensitivity of executive incentive compensation to market-adjusted returns and changes in earnings for high-tech (HT) firms vis-à-vis firms (NHT) in…
Abstract
This chapter examines the sensitivity of executive incentive compensation to market-adjusted returns and changes in earnings for high-tech (HT) firms vis-à-vis firms (NHT) in other industries. Consistent with the hypotheses, this chapter uncovers the following evidence: First, the sensitivity of executive bonus compensation to market-adjusted returns is weaker and more symmetric for HT firms than for NHT firms (a control group), which implies that the problem of ex post settling up, documented in Leone et al. (2006), may be far less serious in HT firms than in NHT firms. Second, the sensitivity of executive incentive compensation to earnings changes is generally more symmetric for HT firms than for NHT firms, which is consistent with the view that HT firms engage in more conservative financial reporting than NHT firms. Third, the sensitivity of executive equity-based compensation to market-adjusted returns is significantly negative for HT firms compared to NHT firms when bad earnings news is announced. The results imply that HT firms, with a strong motive to attract and retain their highly talented executives, judiciously use both short-term and long-term incentive compensation schemes by compensating for a reduction of short-term incentive pay with an increase in long-term incentive pay. The issue of executive compensation has been a longstanding one in the United States and Canada, and the issue of executive compensation-performance sensitivity for HT firms is also relevant in this era of the information technology (IT) revolution, especially when prior research has shown that HT firms differ from NHT firms in their market-valuation process.
Details
Keywords
Jennifer A. Harrison, Janet A. Boekhorst and Yin Yu
The purpose of this paper is to apply insights from the moral legitimacy theory to understand how climate for inclusion (CFI) is cultivated at the individual and collective…
Abstract
Purpose
The purpose of this paper is to apply insights from the moral legitimacy theory to understand how climate for inclusion (CFI) is cultivated at the individual and collective levels, thereby highlighting the influence of employee perceptions of inclusion-oriented high-performance work systems (HPWS) on CFI.
Design/methodology/approach
A multi-level conceptual framework is introduced to explain how employee perceptions develop about the moral legitimacy of inclusion-oriented HPWS and the subsequent influence on CFI.
Findings
CFI is theorized to manifest when employees perceive inclusion-oriented HPWS as morally legitimate according to four unit-level features. Employees with a strong moral identity will be particularly attuned to the moral legitimacy of each of the unit-level HPWS features, thereby strengthening the perceived HPWS and CFI relationship at the individual level. The convergence of individual-level perceptions of CFI to the collective level will be strongest when climate variability is low for majority and minority groups.
Practical implications
Organizations seeking to develop CFI should consider the role of HPWS and the perceived moral legitimacy of such systems. This consideration may involve policy amendments to include a broadened scope of HPWS.
Originality/value
This paper explores how employee perceptions of the moral legitimacy of HPWS can help or hinder CFI, thereby offering a novel framework for future inclusion and human resource management research.
Details
Keywords
Sharad Asthana and Rachana Kalelkar
This paper's purpose was to examine the impact of geomagnetic activity (GMA) on the timing and valuation of earnings information disclosed by firms every quarter.
Abstract
Purpose
This paper's purpose was to examine the impact of geomagnetic activity (GMA) on the timing and valuation of earnings information disclosed by firms every quarter.
Design/methodology/approach
The authors start the analyses with a sample of 112,669 client firms from 1989 to 2018. To analyze the impact of GMA on the earnings response coefficient (ERC), the authors use the three-day cumulative abnormal returns and cumulative abnormal returns for the extended post-earnings announcement window [2, 75] as the dependent variables. The authors interact unexpected earnings (UE) with the C9 Index, an index commonly used to measure GMA and study how GMA affects the pricing of new public information. To examine the effect of GMA on the timing of disclosure of earnings news, the authors regress a variant of the GMA index on the propensity to disclose bad earnings news.
Findings
The authors find significantly lower earnings response coefficients during periods of high GMA. This effect is permanent and stock prices do not correctly incorporate the implications of earnings information over time. The authors also show that managerial behavior is affected by GMA as well and the managers are more (less) likely to release bad (good) news during periods of higher activity. Finally, the authors also find that in situations where stakeholders are likely to rely on modern technology that depends minimally on humans, the adverse impact of GMA on the pricing of earnings information is mitigated.
Originality/value
The literature on the effect of GMA on the capital market is very limited and focuses primarily on stock returns, while the behavioral finance literature focuses on circumstances like weather, temperature and sporting outcome to study how the investors' mood affects their capital market behavior. The authors add to both the literature by investigating how GMA influences investors' and managers' behaviors in the capital market.
Details
Keywords
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.
Details
Keywords
Jennifer Grafton, Anne M. Lillis and Habib Mahama
The purpose of this paper is to set the scene for this special issue by synthesising the vast array of literature to examine what constitutes mixed methods research, and the…
Abstract
Purpose
The purpose of this paper is to set the scene for this special issue by synthesising the vast array of literature to examine what constitutes mixed methods research, and the associated strengths and risks attributed to this approach.
Design/methodology/approach
This paper takes the form of a literature review. The authors draw on extensive methods research from a diverse range of social science disciplines to identify and explore key definitions, opportunities and risks in mixed methods studies. They review a number of accounting studies that adopt mixed methods research approaches. This allows the authors to analyse variance in how mixed methods research is conceptualised across these studies and evaluate the perceived strengths and limitations of specific mixed methods design choices.
Findings
The authors identify a range of opportunities and challenges in the conduct of mixed methods research and illustrate these by reference to both published studies and the other contributions to this special issue.
Originality/value
With the exception of Modell's work, there is sparse discussion of the application and potential of mixed methods research in the extant accounting literature.
Details
Keywords
Zhenxing Gong, Jian Zhang, Yujia Zhao and Lei Yin
Burnout among first-line police in China is high. The purpose of this paper is to examine the relationship between feedback environment, feedback orientation, psychological…
Abstract
Purpose
Burnout among first-line police in China is high. The purpose of this paper is to examine the relationship between feedback environment, feedback orientation, psychological empowerment, and burnout as related to the police work.
Design/methodology/approach
An empirical study was conducted with a sample of 437 basic-level policemen and policewomen in the Shandong province of China. Participants completed a series of questionnaires including the supervisor feedback environment scale, feedback orientation scale, psychological empowerment scale, and the Maslach Burnout Inventory.
Findings
The results indicate that police supervisor feedback environment is negatively related to burnout. The relationship between the supervisor feedback environment and burnout is perfectly mediated by psychological empowerment and significantly moderated by feedback orientation. The mediation effect of psychological empowerment is significantly influenced by feedback orientation.
Originality/value
The findings have contributed to answering several recent questions in the feedback-burnout literature. The authors stress that leaders should strive to build a supportive feedback environment for employees.
Details
Keywords
This article details a qualitative descriptive case study of affective factors of effective decision-making of one local government organization in the United States of America…
Abstract
Purpose
This article details a qualitative descriptive case study of affective factors of effective decision-making of one local government organization in the United States of America. The specific problem was that many elected American local government representatives lack effective decision-making strategies. This research focus indicated a lack of qualitative research on the real-world experience of factors that were taken into consideration during decision-making within American local government organizations.
Design/methodology/approach
Using a local government organization in southwest Illinois, elected representatives were interviewed and observed. The interviews and observations surfaced how the representatives made decisions. Data were analyzed using manual coding and theming to determine themes and patterns.
Findings
The results produced six themes about factors, including emotional intelligence, which impacted decision-making. They are: (1) remembering the past, (2) communication and respect, (3) spurring economic growth and development, (4) fairness, (5) recognizing and removing emotions and bias and (6) accountability.
Research limitations/implications
Being a single case study, this research is limited in generalization. The research was limited to the identification of current, real-world experience of elected local government representatives.
Practical implications
The findings of this research can be used to create more effective decision-making practices for local government organizations of similar size.
Originality/value
This is the first study to review, in-depth, the decision-making and emotional intelligence factors of local government organizations in the United States of America. The conceptual background, discussion, implications to local government organizations, limitations and recommendations for future studies are discussed.