Asian Review of Accounting

Momin, Mahmood Ahmed; Ahmed, Zahir Uddin; Liu, Renhe

2023 Asian Review of Accounting

doi: 10.1108/ara-04-2022-0078

The purpose of this research is to investigate the use of visuals in communicating symbolic sustainability information by the New Zealand Stock Exchange (NZX) listed companies through their standalone sustainability reports.Design/methodology/approachUsing the impression management theoretical framework and Barthes' conceptions of denotation and connotation, the study seeks to examine the way visuals, such as photos, tables and figures, are used to convey symbolic sustainability messages and information. The content analysis method was used to analyse 1,064 visuals from 20 New Zealand Stock Exchange listed companies' standalone sustainability reports for 2017.FindingsThe authors observe variations in the use of visuals to convey messages about sustainability and the appeal of these visuals to readers in the process of creating a symbolic sustainability message. While photos focus on emotions as their main method of impression management, tables and figures focus on the logical link between readers and a positive sustainability message.Research limitations/implicationsThe study adds to the impression management theory work that companies use a combination of photos, tables and figures in communicating symbolic positive sustainability messages. The insights inform the corporate culture of the use of visuals and the effect of future reporting practices regarding sustainability information in New Zealand and globally.Originality/valueUnlike other studies on sustainability reporting, we contend that a company uses a combination of visuals to create impressions that include not only positive but also negative and neutral sustainability messages.

Guedrib, Mouna; Marouani, Ghazi

2023 Asian Review of Accounting

doi: 10.1108/ara-03-2022-0052

The purpose of this study is to examine the interactive impact of tax avoidance and tax risk on the firm value.Design/methodology/approachThis study covers 290 observations on non-financial corporations listed on the Tunisian Stock Exchange for the period ranging from 2008 to 2020, using the multiple linear regression technique.FindingsThe results show that tax avoidance positively affects the firm value while tax risk has a negative influence on the company value. More importantly, tax risk moderates the positive impact of tax avoidance on the firm value. Accordingly, tax avoidance must be considered in conjunction with tax risk when studying the effect on the firm value. The findings of additional analyses indicate that when tax avoidance is associated with a high level of tax risk, it negatively affects the firm value. Thus, investors negatively rate the high-risk tax avoidance.Research limitations/implicationsThe major limitation of this study is that it focuses only on Tunisian listed companies since their financial statements are publicly available. Although the sample is relatively small due to the problem of data availability, it is satisfactory owing to the twelve-year sampling period (from 2008 to 2020). Research implications- The results obtained are of great interest to researchers as they should be more careful in simply using effective tax rates as a measure of risky or aggressive tax avoidance.Practical implicationsThe findings may signal the need for Tunisian firm managers to consider spillovers when adopting risky tax avoidance strategies and to implement a tax risk management policy within the firm. They are also substantial for Tunisian regulators to create requirements for reporting risky tax avoidance practices in the company annual reports to protect the investors’ rights and the society interest in general. The results are also useful for the investors who would like to make good decisions with respect to tax planning strategies. It is not enough to rely on the Effective Tax Rate (ETR) to judge whether or not tax planning is risky. Volatile ETRs, as a proxy of the tax risk, can be useful for them in decision-making.Social implicationsThe results also highlight that risky tax avoidance decreases the firm value, and thus confirm the negative repercussions that such behavior can have not only on the firm, but also on the society in general, as the corporate tax contributes to covering the State public expenditure. Hence, it is considered a general concern.Originality/valueThe present study differs from others in the existing literature. In fact, it examines the joint effect of tax avoidance and tax risk on the firm value for Tunisian listed companies which are characterized by the predominance of agency conflicts between major shareholders and minor ones. Therefore, the authors seek to investigate if small shareholders can penalize risky tax avoidance practices by decreasing the firm value.

Alharasis, Esraa Esam; Prokofieva, Maria; Clark, Colin

2023 Asian Review of Accounting

doi: 10.1108/ara-03-2022-0050

This paper investigates the application of the product differentiation and shared efficiency approaches to understand the impact of the auditor industry specialisation (IS) on audit fees in relation to Fair Value Disclosures (FVD).Design/methodology/approachThe study uses 1,470 firm-year observations for the period 2005–2018 and is focused on Jordanian financial firms. Two competing theoretical approaches of IS proxied by audit fee-based measures were employed: firstly, the product differentiation approach measured using Market Share-based (MS) measure and secondly, the shared efficiency approach measured using Portfolio Share-based (PS) measure. The paper employs the Ordinary Least Squares regression to test the association between the proportion of fair-valued assets (using fair value hierarchy inputs) and audit fees.FindingsThe results suggest that the association between the proportion of fair-valued assets and audit fees is strengthened (weakened) when the client hires specialist auditors identified by MS (PS). This association varied across the fair value inputs. Level 1 assets were found to be only moderated by both scenarios positively (negatively) for MS (PS) experts. The results are robust after controlling the endogeneity of auditor self-selection.Practical implicationsThe results provide valuable insights for policymakers into challenges of auditing FVD. These insights present a valuable input for the development of FVD policies and practices as well as providing guidance for updating auditor prices. Additionally, the results provide a foundation for policymakers and regulators to introduce and update fair value auditing practices. The current findings are generalisable to other countries, including the Middle East and North Africa, and are particularly beneficial for those countries which have adopted the fair value model.Originality/valueThis study contributes to the theory by demonstrating the impact of the auditor industry expertise on post-implementation costs of FVD. The novelty of the study lies in introducing principle-based standards requirements of FVD to test the relationship. This approach is based on the IFRS disclosure requirements using data from the Jordanian financial sector to examine this relationship.

Lau, Chee Kwong

2023 Asian Review of Accounting

doi: 10.1108/ara-05-2022-0126

This study proposes an alternative perspective on why firms issue convertible debt, to supplement the largely theoretical motives identified in the existing literature. It hypothesises that the separate presentation of convertible debt into its equity and liability components has economic consequences and advantage that explain why firms issue convertible over non-convertible debt, consistent with the debt covenant hypothesis. The purpose of this paper is to address the proposed perspective and hypothesis.Design/methodology/approachData on convertible debt, gearing (debt assets and debt equity), debt issuance and retirement, etc. were collected for a sample of 1,104 firms listed on Bursa Malaysia. Regression analyses were then used to assess the hypotheses on how gearing affects the use of convertible debt and the impacts of its use on changes in gearing over the financing cycle.FindingsFirms with higher gearing, and possibly those close to violating debt covenants, are more likely to issue convertible than non-convertible debt. In addition, the use of convertible rather than non-convertible debt both reduces the increase in gearing when debts are issued and leads to a larger decrease in gearing during debt retirements via conversion.Practical implicationsThese effects on gearing provide firms with additional financial flexibility and enhance firms' capacity to borrow more from other sources, a lower-debt advantage.Originality/valueThis study demonstrates the informational role of financial reporting in addressing the stewardship emphasis, as part of the decision usefulness objective of financial reporting in the Conceptual Framework for Financial Reporting.

Lin, Guoyu; Brown, Anna Bergman; Lin, Eric; Xu, Chunhao

2023 Asian Review of Accounting

doi: 10.1108/ara-04-2022-0107

Unionization is generally thought to improve employee welfare through higher compensation and benefits. However, managers of unionized firms have incentives to manage earnings downward to avoid sharing rents with unionized workers, which may explain why empirical findings on the association between unionization and employee compensation are mixed. This paper develops an analytical model incorporating earnings management into the relationship between newly unionized firms and employee compensation.Design/methodology/approachThe authors develop an analytical model that relies on Nash bargaining theory and signal jamming (Stein, 1989; Fischer and Verrecchia, 2000; Dye and Sridhar, 2004) and model a setting where newly unionized workers' collective bargaining power increases substantially. The authors' model analyzes the relationship between newly unionized firms and employee wages and benefits while incorporating firms' incentives to engage in earnings management.FindingsThe authors find that newly unionized firms are more likely to engage in income-decreasing earnings management to avoid paying higher salaries and wages to workers. Further, the authors find that this association is more pronounced when (1) the correlation of firms' earnings across periods is higher, (2) the cost of earnings management is lower and (3) firms' earnings are more volatile.Originality/valueThis is the first paper to analytically model the effect of new unionization on firms' earnings management and workers' welfare. The authors' model offers new cross-sectional predictions that have not been tested in the prior literature. Specifically, the authors show that newly unionized firms are more likely to engage in income-decreasing earnings management; when earnings are more highly correlated, the cost of earnings management is lower and earnings are more volatile. The authors' findings may be relevant to regulators and policymakers.

Lim, Hyoung Joo; Mali, Dafydd

2023 Asian Review of Accounting

doi: 10.1108/ara-07-2022-0178

REM models infer abnormal levels of cashflow from operations (AbCFO), selling, general and admin (AbSGA) and production expenses (AbProd) are opportunistic, based on the supposition that engaging in real activities to meet current earnings targets (t) will negatively influence future performance (t+1). However, from a firm productivity perspective, cost reduction (via AbCFO, AbProd and AbSGA) is interpreted as an efficiency enhancing business strategy. This study therefore differentiates between (1) firms with ineffective management that have engaged in AbCFO, AbProd and AbSGA to achieve an optimal resource-cost mix to generate sales (REMF) and (2) firms with effective management that have not (OEF).Design/methodology/approachUsing a sample of Korean listed firms over the 2000–2016 sample period, the study utilizes data envelopment analysis to capture the capability of management to generate sales from resources that are directly under their control. The study then compares the incremental effect that managerial decision making can have on real earnings management (REM) and future firm performance (period t+1 to t+5).FindingsThe study makes two important contributions. First, consistent with the efficiency/productivity literature, but contrary to seminal REM studies, empirical results shows that AbCFO, AbProd and AbSGA improve firm performance in period t and t+1 (to t+5), demonstrating “REM” is not opportunistic by default. Second, OEF have higher financial performance compared to REMF, in periods t and t+1.Originality/valueThe study therefore invokes resource-based theory and data envelopment analysis to integrate managerial effectiveness (human capital) into REM modelling. The study therefore extends the basic REM residual model.

Rakshit, Bijoy; Bardhan, Samaresh

2023 Asian Review of Accounting

doi: 10.1108/ara-05-2022-0124

The primary purpose of this study is to investigate the effects of bank competition on SMEs' access to finance in selected Indian states. Using 9,281 firm-level observations from World Bank Enterprises Survey (WBES), this study tests the market power hypothesis versus the information hypothesis to determine whether bank competition promotes access to finance for financially constrained firms.Design/methodology/approachThe authors measure state-level bank competition using two structural indicators: the Herfindahl Hirschman Index (HHI) and three bank concentration ratios (CR3). The authors apply simple probit regression, probit model with sample selection (PSS) and two-stage least squares (2SLS) to examine the effects of bank competition on firms' financing constraints.FindingsThe results obtained through PSS and 2SLS indicate that bank competition alleviates firm's financing constraints and positively impacts its need for a bank loan and the decision to apply for bank credit. However, the prevalence of bank competition in promoting access to finance is more pronounced for small and medium-sized firms than for large firms. Higher bank competition also alleviates the credit constraints faced by female entrepreneurs.Practical implicationsReserve Bank of India (RBI) and other government stakeholders should ensure bank competition without hampering the agenda of bank consolidation to facilitate access to credit for SMEs. Regulators should also identify and monitor the financial institutions that make an insignificant contribution to promoting competitiveness in the financial system.Originality/valuePrevious studies primarily investigate the effect of bank competition on a firm's access to finance from advanced and cross-country perspectives. This study contributes to the literature on bank competition by examining its role in promoting access to finance from an emerging economy standpoint. Measurement of bank competition indicators at the state level is an additional contribution.