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Article
Publication date: 26 June 2019

Erin L. Hamilton, Rina M. Hirsch, Jason T. Rasso and Uday S. Murthy

The purpose of this paper is to examine how publicly available accounting risk metrics influence the aggressiveness of managers’ discretionary accounting decisions by…

Abstract

Purpose

The purpose of this paper is to examine how publicly available accounting risk metrics influence the aggressiveness of managers’ discretionary accounting decisions by making those decisions more transparent to the public.

Design/methodology/approach

The experiment used a 2 × 3 between-participants design, randomly assigning 122 financial reporting managers among conditions in which we manipulated whether the company was currently beating or missing analysts’ consensus earnings forecast and whether an accounting risk metric was indicative of low risk, high risk or a control. Participants chose whether to manage company earnings by deciding whether to report an amount of discretionary accruals that was consistent with the “best estimate” (i.e. no earnings management) or an amount above or below the best estimate.

Findings

Aggressive (income-increasing) earnings management is deterred when managers believe such behavior will cause their firm to be flagged as aggressive (i.e. high risk) by an accounting risk metric. Some managers attempt to “manage” the risk metric into an acceptable range through conservative (income-decreasing) earnings management. These results suggest that by making the aggressiveness of accounting choices more transparent, public risk metrics may reduce one type of earnings management (income-increasing), while simultaneously increasing another (income-decreasing).

Research limitations/implications

The operationalization of the manipulated variables of interest may limit the study’s generalizability.

Practical implications

Users of accounting risk metrics (e.g. investors, auditors, regulators) should be cautious when relying on such risk metrics that may be of limited reliability and usefulness due to managers’ incentives to manipulate their companies’ risk scores by being overly conservative in an effort to prevent being labeled “aggressive”.

Originality/value

By increasing the transparency of the aggressiveness of accounting choices, public risk metrics may reduce one type of earnings management (income-increasing), while simultaneously increasing another (income-decreasing).

Details

Managerial Auditing Journal, vol. 34 no. 8
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 6 August 2018

Shihong Li

This paper aims to investigate whether the Section 404 of Sarbanes–Oxley Act (SOX 404) changed the way banks use accounting information to price corporate loans.

Abstract

Purpose

This paper aims to investigate whether the Section 404 of Sarbanes–Oxley Act (SOX 404) changed the way banks use accounting information to price corporate loans.

Design/methodology/approach

The study uses a sample of 1,173 US-listed firms that issued syndicated loans both before and after their compliance with SOX 404 to analyze the changes in loan spread’s sensitivity to some key accounting metrics such as ROA, interest coverage, leverage and net worth.

Findings

The study finds that the interest spread’s sensitivity to key accounting metrics, most noticeably for ROA, declined following the borrower’s compliance with the requirements of SOX 404. The decline was not explainable by borrowers that disclosed internal control weaknesses but concentrated among borrowers suspected of real earnings management (REM).

Originality/value

By examining the effects of SOX 404 on banks’ pricing process, this study augments the literature on SOX’s economic consequences. The findings suggest that lenders perceive little new information from SOX 404 disclosures of internal control deficiencies and are cautious about the accounting information provided by REM borrowers. It also extends the research on the use of accounting information in debt contracting. By examining loan interest’s sensitivity to accounting metrics, it broadens the concept of debt contracting value of accounting information to include accounting’s usefulness for assessing credit risk at loan inception.

Details

International Journal of Accounting & Information Management, vol. 26 no. 3
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 12 September 2016

Andreas Bühler, Carl Marcus Wallenburg and Andreas Wieland

This paper aims to investigate the role of upper management in designing performance measurement systems (PMS) that account for external turbulence of the organization and…

1391

Abstract

Purpose

This paper aims to investigate the role of upper management in designing performance measurement systems (PMS) that account for external turbulence of the organization and to show how this PMS design for turbulence impacts organizational resilience and distribution service performance.

Design/methodology/approach

Hypotheses are developed by integrating management accounting and strategic management perspectives into supply chain management and subsequently tested based on data from 431 logistics organizations (i.e. both logistics companies and internal logistics departments of manufacturing and retailing companies).

Findings

Attention focusing usage type of the PMS by the upper management fosters incorporating the element of risk into the PMS of the company. Further, PMS design for turbulence enhances organizational resilience, and, indirectly, this also leads to improved distribution service performance.

Originality/value

This paper is the first to introduce the concept of PMS design for turbulence to the literature and to show that it is relevant for supply chain risk management by fostering the capabilities and the performance of logistics organizations. Further, it is shown that a seemingly detached issue such as the general PMS use focus of the upper management impacts supply chain risk management.

Details

Supply Chain Management: An International Journal, vol. 21 no. 6
Type: Research Article
ISSN: 1359-8546

Keywords

Article
Publication date: 24 March 2020

Werner Gleißner and Cay Oertel

The purpose of this paper is the development for a conceptual framework with regard to the risk management of real estate positions as foundation for transaction…

Abstract

Purpose

The purpose of this paper is the development for a conceptual framework with regard to the risk management of real estate positions as foundation for transaction decisions. In this context, the current market environment and legal obligations are the main drivers for market participants to improve their risk management practices. Based on this environment, a practical but science backed model is outlined.

Design/methodology/approach

The paper uses a conceptual approach based on the existing literature to develop a practical decision support system. In addition, the current risk management best practices are outlined to illustrate the corporate and methodological foundation for the decision support system.

Findings

The conceptual model development reveals a clear necessity for the supplementation of price to value measures. Additional measures are derived from theoretic considerations based on Monte Carlo Simulation approaches to the risk management of property investments. These additional risk metrics support investors in order make risk-appropriate decisions.

Practical implications

The resulting decision support system can be applied to the risk management of transaction decisions. Here, the model can be applied in any investment decision to support portfolio management considerations from a comprehensive risk management perspective. Investors can implement the system as part of their transaction procedure.

Originality/value

The existing body of literature mainly focuses on macroeconomic ratios in the context of decision support. In contrast, the present paper reveals a corporate decision support system, which is supposed to foster decisions of market agents especially with regard to potential price and value divergences and tightening legal obligations.

Details

Journal of Property Investment & Finance, vol. 38 no. 3
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 11 May 2016

Dennis Caplan and Saurav K. Dutta

Recent public policy initiatives seek greater transparency in financial reporting through an honest, balanced and thorough management discussion of company performance in…

Abstract

Recent public policy initiatives seek greater transparency in financial reporting through an honest, balanced and thorough management discussion of company performance in the annual report. Management’s discussion invariably includes key performance indicators, such as financial ratios, relevant to external stakeholders. We model the impact of accounting estimates, assumptions, choices and errors on the risk of misleading financial ratios. This framework is illustrated through good and bad examples of financial reporting practices and by simulation of financial data of public companies. We provide a structured approach to inform policymakers, auditors and other stakeholders of the incremental financial reporting risk that accompanies current regulatory efforts.

Details

Journal of Accounting Literature, vol. 36 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 2 February 2015

Ray Ball and Gil Sadka

The accounting literature has traditionally focused on firm-level studies to examine the capital market implications of earnings and other accounting variables. We first…

Abstract

The accounting literature has traditionally focused on firm-level studies to examine the capital market implications of earnings and other accounting variables. We first develop the arguments for studying capital market implications at the aggregate level as well. A central issue is that diversification makes equity investors at least partially and potentially almost completely immune to several firm-level properties of earnings by holding diversified portfolios. Diversification is particularly important when assessing the welfare consequences of random errors in accounting measurement (imperfect accruals) and, to the extent it is independent across firms, of deliberate manipulation (earnings management). Consequently, some firm-level metrics of association, timeliness, value relevance, conservatism and other earnings properties do not map easily into investor welfare. Similarly, earnings-related risk manifests itself to equity investors largely through systematic earnings risk (covariation with aggregate earnings and/or other macroeconomic indicators). We conclude that the design and evaluation of financial reporting must adopt at least in part an aggregate perspective. We then summarize the literature in accounting, economics and finance on aggregate earnings and stock prices. Our review highlights the importance of studying earnings at the aggregate level.

Details

Journal of Accounting Literature, vol. 34 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 30 September 2014

Kristian Rotaru, Carla Wilkin and Andrzej Ceglowski

SCOR 10.0, released in late 2010, is the second version of the supply chain operations reference model (SCOR) to incorporate risk management processes, metrics and best…

3730

Abstract

Purpose

SCOR 10.0, released in late 2010, is the second version of the supply chain operations reference model (SCOR) to incorporate risk management processes, metrics and best practices. Given the paucity of studies that have explored the coverage and integration of supply chain risk management (SCRM) within SCOR, the analysis and suggested improvements for SCRM are designed to enhance SCOR’s collaborative and coordinated management of supply chain (SC) risks. The paper aims to dicsuss these issues.

Design/methodology/approach

Critical analysis was used to analyse the coverage and integration of SCRM within SCOR 10.0.

Findings

Discrepancies were identified in how SCRM has been incorporated into SCOR, including issues with the hierarchical representation of SCRM processes, metrics, best practices and skills. These may potentially propagate into difficulties in embedding risk management processes within other SC processes, visualizing risk metrics in a SC’s value hierarchy and reconciling SCOR’s SCRM with organizational enterprise risk management.

Research limitations/implications

This paper is limited to theoretical analysis of the coverage and integration of risk in SCOR 10.0. Once the issues identified are remedied, the subsequent suggested improvements require validation through empirical testing.

Originality/value

Despite SCOR’s wide acceptance as a reference model in managing SC operations, there has been no investigation of its approach to SCRM. The analysis addresses this lack of prior investigation by analysing SCRM in the latest version, SCOR 10.0. The paper identifies deficiencies and suggests amendments regarding SCRM’s coverage and integration of SCRM.

Details

International Journal of Operations & Production Management, vol. 34 no. 10
Type: Research Article
ISSN: 0144-3577

Keywords

Article
Publication date: 8 October 2015

Hichem Khlif and Keryn Chalmers

This study reviews the use of meta-analysis in accounting research. We categorize the meta-analytic research into five topics: financial reporting, auditing, corporate…

Abstract

This study reviews the use of meta-analysis in accounting research. We categorize the meta-analytic research into five topics: financial reporting, auditing, corporate governance and accounting quality, management accounting, and miscellaneous topics. Further, we classify the studies by the meta-analysis technique employed: Hunter et al. (1982), Hunter and Schmidt (2000), Lipsey and Wilson (2001), and Stouffer’s approach. We identify 27 meta-analytical studies over the period 1985–2014 with financial reporting (auditing) topics representing seven (six) of these studies. Our review highlights that meta-analytic methods are being applied and accepted, more frequently, to answer complex questions concerning the moderating effects of country-level variables, such as national culture, economic conditions, and institutional characteristics, on various associations of interest.

Details

Journal of Accounting Literature, vol. 35 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 29 July 2018

Max Schreder

This paper provides a quantitative review of the literature on the repercussions of idiosyncratic information on firms’ cost of equity (CoE) capital. In total, I review…

Abstract

This paper provides a quantitative review of the literature on the repercussions of idiosyncratic information on firms’ cost of equity (CoE) capital. In total, I review the results of 113 unique studies examining the CoE effects of information Quantity, Precision and Asymmetry. My results suggest that the association between firm-specific information and CoE is subject to moderate effects. First, the link between Quantity and CoE is moderated by disclosure types and country-level factors in that firms in comparatively weakly regulated countries tend to enjoy up to four times greater CoE benefits from more expansive disclosure—depending on the type of disclosure—than firms in strongly regulated markets. Second, a negative relationship between Precision and CoE is only significant in studies using non-accrual quality proxies for Precision and risk factor-based (RFB)/valuation model-based (VMB) proxies for CoE. Third, almost all VMB studies confirm the positive association between Asymmetry and CoE, but there is notable variation in the conclusions reached when ex post CoE measurers are used.

Details

Journal of Accounting Literature, vol. 41 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 11 March 2021

Camelia Delcea, Liviu-Adrian Cotfas, R. John Milne, Naiming Xie and Rafał Mierzwiak

The airline industry has been significantly hit by the occurrence of the new coronavirus SARS-CoV-2, facing one of its worst crises in history. In this context, the…

Abstract

Purpose

The airline industry has been significantly hit by the occurrence of the new coronavirus SARS-CoV-2, facing one of its worst crises in history. In this context, the present paper analyses one of the well-known boarding methods used in practice by the airlines before and during the coronavirus outbreak, namely back-to-front and suggests which variations of this method to use when three passenger boarding groups are considered and a jet bridge connects the airport terminal with the airplane.

Design/methodology/approach

Based on the importance accorded by the airlines to operational performance, health risks, and passengers' comfort, the variations in three passenger groups back-to-front boarding are divided into three clusters using the grey clustering approach offered by the grey systems theory.

Findings

Having the clusters based on the selected metrics and considering the social distance among the passengers, airlines can better understand how the variations in back-to-front perform in the new conditions imposed by the novel coronavirus and choose the boarding approach that better fits its policy and goals.

Originality/value

The paper combines the advantages offered by grey clustering and agent-based modelling for offering to determine which are the best configurations that offer a reduced boarding time, while accounting for reduced passengers' health risk, measured through three indicators: aisle risk, seat risk and type-3 seat interferences and for an increased comfort for the passengers manifested through a continuous walking flow while boarding.

Details

Grey Systems: Theory and Application, vol. 12 no. 1
Type: Research Article
ISSN: 2043-9377

Keywords

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