Pacific Accounting Review

Hioki, Koichi; Suematsu, Eiichiro; Miya, Hiroshi

doi: 10.1108/par-04-2018-0034pmid: N/A

This study aims to investigates the appropriate number and kinds of accounting measures managers should use in their decision-making.Design/methodology/approachThe authors apply an experimental method with 54 participants who work for a utility company in Japan.FindingsThis study suggests that under information overload, in which many measures are handled simultaneously, managers who have a high Need for Cognition (NFC) can no longer use either financial or customer perspective measures effectively, while when there is no information overload, they can use those measures. Managers with low NFC do not use customer perspective measures even when information overload does not occur.Practical implicationsThis study concludes that we need to pay careful attention to differences in managers’ NFC as well as how many and what kind of measures should be provided to managers when designing multi-measures for performance evaluation.Originality/valueThis paper sheds light on the relationships among the number of measures, the characteristics of measures, and managers’ cognitive style when designing a management accounting system.

Ongsakul, Viput; Jiraporn, Pornsit; Kim, Young Sang

doi: 10.1108/par-09-2019-0110pmid: N/A

This study aims to investigate whether shareholders are convinced by earnings management. This study also explores how board gender diversity (the presence of female directors on the board) may influence the extent to which shareholders are convinced by earnings management.Design/methodology/approachThe authors estimate the stock market reactions to the September 11 terrorist attack using the standard event study methodology. The authors then run a cross-sectional analysis to investigate whether the market reactions are influenced by the extent of earnings management. Furthermore, the authors test how board gender diversity affects the degree to which earnings management influences the stock market reactions.FindingsThe study results show that the market reactions to the attack are substantially mitigated for firms that exercise more upward discretionary accruals, implying that earnings management is successful in convincing shareholders. Additional analysis corroborates the results, including propensity score matching, instrumental variable analysis and using Oster’s (2019) method for testing coefficient stability. Crucially, the authors find that board gender diversity helps shareholders see through earnings management better. The presence of female directors significantly weakens the extent to which shareholders are persuaded by earnings management.Originality/valueThis study is the first to explore the effect of earnings management on shareholder wealth using the September 11 terrorist attack. The research design is less vulnerable to endogeneity and is thus much more likely to show a causal effect of accounting accruals on shareholder wealth.

Al-Mulla, Mazen; Bradbury, Michael E.

doi: 10.1108/par-10-2018-0076pmid: N/A

This paper is motivated by the Financial Markets Authority’s (FMA) investigation into reporting delays of New Zealand issuers. The purpose of this paper is to provide regulators with systematic evidence on firm specific characteristics associated with reporting delay. The paper examines the audit report lag (ARL), the financial report lag and the corresponding interim report lags for a large sample of New Zealand listed firms.Design/methodology/approachBecause of the small sample we report bivariate correlations. Together with OLS regression, we examine the association between reporting delay and firm characteristics (e.g., size, complexity, governance) that capture the supply and demand for timely audited financial reports. We choose a period immediately prior to the FMA enforcement of reporting delays to capture the voluntary choice of reporting timeliness by managers.FindingsThe audit lag (i.e. balance date to preliminary announcement to the NZX) is longer than the report lag (i.e. preliminary announcement date to the issuance of the report to the NZX). We find that audit risk factors (leverage and finance firms) and busy reporting period are associated with longer audit lag. Whereas, having a Big 4 auditor and an interim review reduces annual audit lag. Investor demand factors are associated with a shorter report lag. Firms with a loss and more segments have a shorter report lag, while firms with high market to book ratio have a longer report lag. These are consistent with agency and proprietary cost explanations. The interim report lag is only seven days shorter than the annual lag. The determinants of annual report lag provide weak explanations for the interim report lags.Research limitations/implicationsAlthough all listed companies are sampled, the small sample size reduces the power of the analysis and may limit finding significant results at conventional levels.Practical implicationsThe factors associated with reporting delays could be used by regulators as red flags to identify abnormal reporting delays. Interim reporting lags appear excessively relative to annual report lags. Therefore, regulators should investigate the reasons for the lack of timeliness of interim reports.Social implicationsReport timeliness is an important, but often overlooked, component of accounting quality. The major social implication is that timely reporting reduces information asymmetry between managers and shareholders and other stakeholders. Making better, timelier decisions ought to increase the wealth and welfare of investors and other stakeholders.Originality/valueThere are many studies on reporting delay. However, prior evidence on reporting delay in New Zealand is pre-IFRS and pre-recent regulatory reforms (such as the formation of the FMA). Hence, our contribution is to provide more contemporary-relevant evidence. We also distinguish between ARL and the financial report lag and found that different firm characteristics drive these lags. We also examine the interim reporting lag.

Tsunogaya, Noriyuki; Hellmann, Andreas

doi: 10.1108/par-01-2019-0003pmid: N/A

This study aims to examine the (overt) arguments and (covert) myths the Business Accounting Council (BAC) members have used to lobby over controversial accounting issues, such as the application of fair value accounting (FVA) and the adoption of International Financial Reporting Standards (IFRS) in Japan.Design/methodology/approachThe authors used a content analysis to examine 85 statements included in multiperiod BAC meeting minutes and 68 articles prepared by International Accounting Standards Board (IASB) representatives from Japan.FindingsThe results reveal that together with the arguments, myths were created and amplified by opponents of FVA and the Financial Services Agency to hide the latter’s strong regulatory power. They created these myths, using covert stories of the importance of manufacturing activities and tax accounting (for small- and medium-sized enterprises [SMEs]), to oppose mandatory IFRS adoption in Japan and, thus, to maintain vested rights in preparing the Japanese generally accepted accounting principles and Japanese accounting standards for SMEs.Originality/valueFirst, this study contributes to the lobbying literature by focusing on the coalition (network) effect of influential stakeholder groups. Second, although lobbying activities have been investigated mostly using comment letters, this study reviews multiperiod BAC meeting minutes and articles prepared by IASB representatives from Japan. Third, the study examines both overt arguments and covert myths, both of which are important in unmasking the fundamental structures of power within influential organizations, such as government agencies and standard-setters.

Kamarudin, Khairul Anuar; Mohamad Ariff, Akmalia; Wan Ismail, Wan Adibah

doi: 10.1108/par-10-2018-0083pmid: N/A

This paper aims to investigate the joint effect of product market competition (PMC) and institutional environment on accrual quality.Design/methodology/approachThe sample covers a large data set of 52,138 firm-year observations from 35 countries over the period of 2011-2015. Using the weighted least square regression, the study estimates PMC and institutional environment on accrual quality. The study measures PMC based on Herfindahl-Hirschman index, anti-director rights index (ADRI) based on the revised and updated La Porta et al.'s (1998) and accrual quality using the modified Dechow and Dichev (2002) model proposed by McNichols (2002). The study also uses a series of specification tests using alternative measures for each variable.FindingsThe study finds that highly intensified PMC relates to a lower quality of accruals. The results also show that accrual quality is better in countries with stronger institutional environment, specifically countries with higher ADRI, investor protection, judicial independence, protection of minority shareholders’ interests, protection of property rights, strength of the auditing and reporting standards, efficacy of corporate boards and corporate ethics. The findings suggest that institutional factors weaken the negative impact of PMC intensity on accrual quality, hence suggesting that institutional environment has a significant role to enhance accrual quality among firms in highly intensified industries.Practical implicationsThe findings provide additional insights to policymakers and regulators on the importance of strong institutional and industry environment that can provide incentives and extra governance mechanisms besides the conventional firm-level corporate governance.Originality/valueThis study contributes in understanding the impact of intensity of PMC on accrual quality internationally and subsequently highlights the role of institutional environment as significant country-level governance in determining financial reporting quality, particularly accrual quality.