Jamie L. Hoelscher and Scott E. Seavey
– The purpose of this study is to examine the effects of higher-quality auditors on corporate risk-taking.
Abstract
Purpose
The purpose of this study is to examine the effects of higher-quality auditors on corporate risk-taking.
Design/methodology/approach
Agency theory suggests that managers have incentives to avoid risk in the interests of perquisite consumption and self-preservation, while investors prefer that managers invest in all projects with a positive net present value, i.e. projects that generally increase corporate risk. Empirical literature finds that managerial risk-aversion is mitigated (and firm value enhanced) when investor protection is higher. The authors examine whether higher-quality auditing is one such mechanism to encourage shareholder-focused corporate risk-taking. They model measures of corporate risk as a function of whether a firm is audited by an industry specialist or not, controlling specifically for accounting quality. They then examine the incremental effect of higher-quality audits on other forms of external monitoring (analyst coverage and institutional holdings) for corporate risk.
Findings
Using a sample from 2003 to 2007, the authors document a positive relationship between local-level audit industry specialization and both the standard deviation of annual stock returns and research and development expenditures (their measures of corporate risk-taking). They then find the effect is mitigated when firms have alternative external monitoring, in the form of either higher analyst coverage or greater institutional holdings.
Research limitations/implications
Given the nature of the question the authors ask, particularly in the context of the auditor–client relationship, a potential limitation is the difficulty in assigning causation. Nonetheless, this study underscores the importance of auditors as an effective mechanism for monitoring corporate managers.
Originality/value
This study provides novel evidence that auditors affect managerial decision making beyond a simple effect on financial statements, and should be of interest to boards of directors, regulators and investors.
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This paper examines job satisfaction and participation in decision making in three home health aide facilities with different organizational structures (worker-owned for-profit…
Abstract
Purpose
This paper examines job satisfaction and participation in decision making in three home health aide facilities with different organizational structures (worker-owned for-profit, for-profit with no participation or ownership by workers, and nonprofit).
Design/methodology/approach
More than 600 surveys were completed by home health aides across the three facilities. The author also engaged in participant observation during training sessions and other meetings and conducted a small number of interviews with caregivers and agency management.
Findings
Home health aides at the worker-owned, participative decision making organization were significantly more satisfied with their jobs than those at the other agencies. Results for the other agencies were not significantly distinguishable from one another.
Research limitations/implications
This study involved respondents from one of each type of business. A study across several of each type of organization would allow more focus on the effects of the structural characteristics of the organizations.
Practical implications
In the United States, the work that home health aides perform provides a valuable service to society. On behalf of caregivers and those for whom they provide care, conditions of the work need improvement. If participative democratic workplaces provide better outcomes, they should receive more attention from lawmakers, the business community, and researchers.
Social implications
This research highlights the working conditions of the people (primarily women) who perform this work. The poor compensation received is a reminder of inequality in opportunity for some workers and of the value placed on this type of caring labor.
Originality/value
This research is unique in its focus on work environment and outcomes in home health care across nonprofit, for-profit, and worker-owned for-profit organizations. The findings of different job satisfaction outcomes from the others in the worker-owned organization and similar outcomes in the nonprofit and conventional for-profit organizations are also unique.
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Zabihollah Rezaee, Mohammad Alipour, Omid Faraji, Mehrdad Ghanbari and Babak Jamshidinavid
The purpose of this article is to investigate the relationship between environmental disclosure quality (EDQ) and risk and to further examine whether corporate governance (CG…
Abstract
Purpose
The purpose of this article is to investigate the relationship between environmental disclosure quality (EDQ) and risk and to further examine whether corporate governance (CG) practices moderate this relationship.
Design/methodology/approach
This study uses a set of unique, hand collected data (from 2011 to 2016) to measure EDQ for a sample of 762 firm-years Iranian listed companies. Ordinary least squares regression analysis is performed in testing hypotheses after controlling for a variety of firm, industry and year effects. Moreover, several analyses are performed to establish the robustness of the findings.
Findings
The results indicate a negative association between EDQ and firm risk. While board independence moderates this relationship, other CG practices such as CEO duality and board size do not show any effects on the relationship between EDQ and risk. The results remain robust after performing sensitivity tests and under various specifications, including the fixed-effects panel data and Heckman two-stage regressions.
Research limitations/implications
Results are from a sample of firms from one country.
Practical implications
The results have implications for policymakers, legislators and corporate executives, as environmental initiatives are gaining more attention worldwide.
Social implications
Sustainability initiatives in the areas of environmental and social performance and disclosure are gaining global attention. This study addresses the link between firm risk and EDQ.
Originality/value
This study contributes to the literature by shedding light on the relationship between corporate risk-taking and EDQ in the context of a developing economy.
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The purpose of this study was to examine the moderating role of institutional ownership on the relationship between board gender diversity and earnings management (EM) among…
Abstract
Purpose
The purpose of this study was to examine the moderating role of institutional ownership on the relationship between board gender diversity and earnings management (EM) among listed firms in East African Community (EAC) partner states.
Design/methodology/approach
The study used a sample of 71 firms listed in the EAC partner states over 2011–2020. Data were handpicked from the individual firm's audited annual financial reports. Based on the results of the Hausman test, the study used the results of the fixed-effect regression model to test the hypotheses. To test the robustness of the results, the study employed an alternative measure of EM and two additional econometric techniques, including the pooled ordinary least squares (OLS) and the system generalized method of moments (GMM).
Findings
The empirical findings revealed that female directors improve the board's effectiveness in monitoring managerial roles. Specifically, the results showed a significantly negative relationship between the proportion of women in the corporate board and EM (as measured by discretionary accruals (DAs)). The findings further revealed an inverse relationship between the proportion of institutional ownership and EM. Finally, the results further demonstrated that institutional ownership enhances the role of board gender diversity in mitigating EM among listed firms in the EAC.
Practical implications
The findings of this study may be useful to managers, investors and regulators in assessing the role of institutional ownership and women's participation on corporate boards as a strategy for alleviating unethical manipulation of earnings.
Social implications
The findings of this study contribute to the growing concern on gender inequality, especially the marginalization of women from the paid labor force and decision-making. The findings highlight the importance of having more women in the corporate board since this may help in mitigating corporate fraud. Similarly, the findings highlight the importance of institutional ownership as a corporate governance (CG) tool.
Originality/value
Previous studies have reported mixed empirical results on whether board gender diversity mitigates EM. To the best of the author's knowledge, this is the first paper to fill the existing gap by exploring whether institutional ownership moderates the relationship between board gender diversity and EM among listed firms in the EAC.
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Mahdi Salehi, Hossein Miri and Grzegorz Zimon
This paper aims to investigate the relationship between the proprietary costs of financial reporting and the comparability of financial statements with the interactive role of…
Abstract
Purpose
This paper aims to investigate the relationship between the proprietary costs of financial reporting and the comparability of financial statements with the interactive role of information asymmetry.
Design/methodology/approach
Data were selected from the information of all the listed companies on the Tehran stock exchange from 2011 to 2021, based on 781 observations. A multiple regression model is used to analyze data.
Findings
Results convey a significant relationship between proprietary costs of financial reporting and comparability of financial statements. Furthermore, information asymmetry has a significant impact on the relationship between proprietary costs of financial reporting and the comparability of financial statements.
Originality/value
Unlike previous studies, this study applies future dependent variables and the residual of dependent and independent variables in the additional analyses, which support the primary hypotheses.
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Michael Eric Bradbury and Oksana Kim
The study examines the changes in audit market concentration, auditor choice and audit quality in Russia following International Financial Reporting Standards (IFRS) adoption…
Abstract
Purpose
The study examines the changes in audit market concentration, auditor choice and audit quality in Russia following International Financial Reporting Standards (IFRS) adoption. Scholars have called for further examination of the effects of IFRS adoption on auditors, with an emphasis on the importance of analyzing emerging markets that are characterized by enforcement challenges and lack of proper infrastructure. It focuses on a unique feature of Russian companies – dual audits under Russian Accounting Standards (RAS) and IFRS – and investigates changes in audit concentration and audit quality for the two audit markets.
Design/methodology/approach
The authors rely on the audited financial statements of Russian public companies and perform pre-/post-IFRS adoption estimation using a logit regression to ascertain whether public firms change auditors from local firms with limited IFRS expertise to those with global reputation, namely Big 4 audit firms. Further, they examine whether the change in audit market concentration post-2012 affects audit quality as proxied by companies' propensity to receive a modified audit opinion and discretionary accruals. Auditor attributes were hand-collected from audited financial statements and matched with financial variables from Datastream.
Findings
The IFRS audit market was dominated by the Big 4 audit firms prior to 2012, and there is strong evidence that audit market share (concentration) increases for IFRS reports but not for RAS reports. In addition, companies are more likely to choose a Big 4 audit firm for an RAS audit, conditional upon a Big 4 firm conducting the IFRS audit. The authors do not find evidence of decrease in the probability of audit firms issuing a modified audit opinion under either RAS or IFRS, indicating that, in the Russian setting, increased auditor concentration post-IFRS adoption does not lead to enhanced risk or decline in audit quality. Moreover, they find that discretionary accruals decline post-2012. Overall, the findings indicate that the concern of global regulators regarding audit market concentration is not justified.
Research limitations/implications
The Russian reporting environment is unique and generally characterized by significant agency problems, and the study’s estimation sample is not large, compared to prior studies conducted predominantly in Western jurisdictions. Nevertheless, the authors shed light on the audit concentration phenomenon within emerging markets, for which empirical evidence is scarce. Future research could explore the impact of other capital market events and exogenous shocks, not limited to IFRS adoption, on the characteristics of Russia's audit market.
Practical implications
The IFRS reporting regime is commonly associated with enhanced reporting quality and improved information transparency among public companies. Yet, impairment of audit quality as a result of IFRS-driven increase in audit market share of Big 4 can potentially negate these capital market effects. This study shows that the concerns of global regulators are not valid and that audit quality does not change with increased share of Big 4 post-IFRS adoption.
Originality/value
Dual audits, whereby companies must prepare two sets of financial statements per the IFRS mandate, are not unique to Russia, and the evidence of IFRS reporting on the structural changes in the audit market and implications for audit quality under a dual regime is scarce. Accordingly, the study's findings are important and timely and are expected to aid regulators of countries that have announced or are contemplating the adoption of IFRS for public reporting purposes.
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Kimberly Dunn, Mark Kohlbeck and Brian Mayhew
This paper aims to evaluate policymakers’ concerns about the lack of competition in highly concentrated markets for public company audits by examining the association between…
Abstract
Purpose
This paper aims to evaluate policymakers’ concerns about the lack of competition in highly concentrated markets for public company audits by examining the association between audit fees and the inequality of Big 4 market shares at both the USA national-industry and city-industry levels.
Design/methodology/approach
Using publicly available data, this paper uses regression analysis to examine publicly available data to test research hypotheses related to the association between audit market inequalities and audit fees at both the USA national-industry and city-industry levels.
Findings
The findings support a U-shaped association between national-industry inequality and audit fees. As inequality initially increases, fees decrease; however, as inequality becomes increasingly large fees increase. The city-industry level analysis shows the opposite pattern. The results are consistent with capacity constraints at the national-industry level that are less binding at the city-industry level.
Research limitations/implications
This study provides evidence that market inequality has a non-linear association with audit price and contributes to the limited findings in industrial organization research on the importance of market share inequality in highly concentrated markets.
Originality/value
This study provides new insights into the growing body of research on audit market structure by documenting that national-industry and city-industry analysis provides different insights into the market structure. In addition, the sample period for this study (2004-2017) addresses the General Accounting Office (GAO) concern about the lack of a stable audit market in the period it examined (GAO, 2008, p. 94) and finds evidence of market structure effects not present in the earlier GAO studies (GAO, 2003, 2008).
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Mahdi Salehi, Mahdi Saravani and Safoura Rouhi
This study aims to study the relationship between audit components and collusion in the audit market.
Abstract
Purpose
This study aims to study the relationship between audit components and collusion in the audit market.
Design/methodology/approach
The statistical population of the study includes 130 listed firms on the Tehran Stock Exchange from 2012-2017. The data tested using multivariate regression.
Findings
The findings of the study indicate that there is a positive and significant relationship between Rank A audit firms, competition and audit fees and audit market adaptability. The relationship standard fees and audit market adaptability, however, is negative and significant. Moreover, the results of the study show that there is no significant relationship between opinion shopping, type of audit report, audit market concentration, and agency costs with audit market adaptability.
Originality/value
The current study fills the gap in this area, and the results of the study may give direction to researchers and policy makers.
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Rosemond Desir, Patricia A. Ryan and Lumina Albert
The study aims to investigate market reactions associated with the JUST 100 rankings published by JUST Capital, a non-profit organization, as well as differences in financial…
Abstract
Purpose
The study aims to investigate market reactions associated with the JUST 100 rankings published by JUST Capital, a non-profit organization, as well as differences in financial reporting quality and performance between selected firms and their industry peers.
Design/methodology/approach
This study uses a sample of 431 firms selected as the 100 America’s Most Just Companies between 2016 and 2020 by JUST Capital. This study performs both an event study to determine whether the rankings are useful to investors and cross-sectional regression analyses on the characteristics of selected firms compared to their peers.
Findings
This study finds that investors react positively to selected firms around the time of the release of the JUST 100 rankings, suggesting that the rankings are decision-useful. This study also finds that selected firms exhibit higher accounting quality and financial performance than their peers.
Research limitations/implications
Rankings may not be free from bias because of JUST Capital’s ownership of an exchange-traded fund.
Social implications
The findings validate the rankings as well as the methodology used by JUST Capital, as they show market participants value firms that engage in socially responsible actions through their commitment to positively impact five key stakeholder groups: employees, customers, communities, environment and shareholders.
Originality/value
To the best of the authors’ knowledge, this is the first study that shows the importance of the JUST 100 rankings for investment decisions. Considering the growing push for companies to disclose environmental, social and governance (ESG) activities, this study provides evidence to support ESG disclosure regulations.
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Lexis Alexander Tetteh, Cletus Agyenim-Boateng, Amoako Kwarteng, Paul Muda and Prince Sunu
The study uses social cognitive career theory (SCCT) to explore the driving and restraining factors that students consider in selecting auditing as a career.
Abstract
Purpose
The study uses social cognitive career theory (SCCT) to explore the driving and restraining factors that students consider in selecting auditing as a career.
Design/methodology/approach
Considering the aim of this study, a qualitative research was preferred with the objective of gathering in-depth and enriched empirical data; hence, semi-structured interviews were conducted with seventy-five fourth-year undergraduate accounting students of six top-ranked universities in Ghana that offer accounting programmes.
Findings
The findings of the current study unearth the constructs of the SCCT that students' decision to consider a career in audit is driven by outcome expectations (high earnings/monetary incentives and social prestige associated with the job), as well as self-efficacy belief (possession of ethical values). Further, the study finds that self-efficacy beliefs (job stress and accounting stereotype) were the factors restraining students from considering auditing as a career. The results finally show that the students who would choose auditing as a career in future are in one way or the other, preparing for the achievement of their goals.
Research limitations/implications
The SCCT framework utilized focuses on the three main constructs: self-efficacy, outcome expectations and goals. There are a number of related factors that may influence students' career choice decisions. These may include personal characteristics and contextual influences; a change of the theoretical framework may help discover other important personal and contextual factors that this current study could not unearth.
Practical implications
The study indicates, on the contrary, that students have negative perceptions about auditing as a career option; they consider the career as stressful, tedious and monotonous. These misconceptions make it less likely for a student to pursue auditing as a career. Educators can aid students in their decision to pursue a study in accounting and become auditors by displaying and reinforcing the positive outcomes that come with the position of an auditor.
Originality/value
The findings of this study add to the existing literature by delving deeper into the self-selection factors that influence a student's desire to become an auditor. Furthermore, the current research is exceptional in that it applies the SCCT to the aim of becoming an auditor. Although other research studies have looked into factors that may influence a student's decision to pursue a profession as an accountant, these studies have mostly been quantitative, limiting the students' ability to explain why those factors encourage or dissuade them.