Robert Bricker and Nandini Chandar
The purpose of this study is to assess the pricing effects of financial reporting decision usefulness in terms of its constituent elements of relevance and reliability. Although…
Abstract
Purpose
The purpose of this study is to assess the pricing effects of financial reporting decision usefulness in terms of its constituent elements of relevance and reliability. Although it has long been intuitively appealing to believe in the decision usefulness of more relevant and reliable disclosures, they have been troublesome to demonstrate empirically. The mixed results have often been attributed to the richness of operating company settings.
Design/methodology/approach
This study addresses that problem by using 363 firm years of data from US market‐priced mutual funds (termed closed end funds in some countries and investment trusts in others), whose assets are comprised almost entirely of investment securities.
Findings
The results are consistent with the principal hypotheses – both relevance and reliability are valued by the market.
Practical implications
Overall, these findings provide a basis not only for reconciling prior, conflicting results, but in adding to our understanding of how disclosure characteristics are valued by investors, a particularly pertinent topic given the IASB's and the FASB's projects in this area.
Originality/value
The simplicity and elegance of the market‐priced mutual fund setting facilitates development of a model that simultaneously distinguishes between the relevance and reliability. Cost (less relevant) and fair‐value (more relevant) disclosures are gathered for both restricted (less reliable) and unrestricted (more reliable) securities for each firm year. Both levels and returns type methods are used to assess the effects of these separate elements of decision usefulness on securities valuation.
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Cathy Beaudoin, Nandini Chandar and Edward M. Werner
The purpose of this paper is to examine whether the significant clustering of defined benefit (DB) pension plan freeze announcements during 2001‐2006 is motivated at least in part…
Abstract
Purpose
The purpose of this paper is to examine whether the significant clustering of defined benefit (DB) pension plan freeze announcements during 2001‐2006 is motivated at least in part by accounting concerns due to the Financial Accounting Standards Board's pending adoption of Statement of Financial Accounting Standards No. 158 (SFAS 158).
Design/methodology/approach
Using logistic regression models, the paper compares 147 “freeze firms” with a matched sample of firms that did not announce a DB plan freeze. Empirical models control for other DB plan motives including as a response to stricter contribution requirements under the Pension Protection Act of 2006 and improving the firm's competitive position.
Findings
The potential SFAS 158 impact is significantly associated with firms' decisions to freeze their DB plans. Firm profitability is also significantly associated with the freeze decision. However, there is no significant association between cash flow positions or pension plan contributions and the freeze decision.
Research limitations/implications
It is possible that economic conditions adversely affecting the funded status of DB plans also motivate the freeze decision. While this study controls for the economic environment, economic factors could exacerbate the potential effect of SFAS 158.
Originality/value
This paper considers potential effects of accounting policy by examining its influence on real management actions and has consequences for a variety of stakeholders including investors, creditors, and, importantly, pension beneficiaries and workers, as DB plans represent implicit contracts between firms and their employees.
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Nandini Chandar, Hsihui Chang and Xiaochuan Zheng
The purpose of this paper is to examine whether audit committee members of the board prove to be better monitors if they are also on the compensation committee, as they would be…
Abstract
Purpose
The purpose of this paper is to examine whether audit committee members of the board prove to be better monitors if they are also on the compensation committee, as they would be more attuned to compensation related earnings management incentives.
Design/methodology/approach
The paper uses archival data on a sample of nonfinancial S&P 500 firms representing 1,032 firm years over the period 2003‐2005, and discretionary accruals as a proxy for financial reporting quality.
Findings
Firms with overlapping audit and compensation committees have higher financial reporting quality than those without such overlap. In addition, there is an inverted U‐shaped relationship between overlapping magnitude and financial reporting quality, suggesting that there are costs as well as benefits to overlapping committees.
Practical implications
The findings on this paper have implications for recent policy deliberations on the composition of board committees in general and audit committees in particular, as they clarify the benefits of overlapping committee members.
Originality/value
Understanding the costs and benefits of the board committee structure is particularly important as boards typically operate through the use of committees. This paper contributes to this area by considering the effect of overlapping memberships on two of the most active and important board committees – the compensation and audit committees – on the monitoring effectiveness of the audit committee.