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The purpose of this paper is to investigate the association between bargain purchase gains (BPGs) booked by the acquirer and smoothing of acquirers’ earning performance across time.

The authors use a sample of 122 bargain purchase acquisitions in non-financial industries from 2009 to 2012 and a pair-match control group of 122 goodwill acquisitions.

The authors find that BPGs, and in particular, the Level-3 fair value estimates of intangible assets acquired, have consistently been used to smooth earnings but that such smoothing activities are not associated with long-term market returns.

This study is the first one to investigate bargain purchase acquisitions in a broad range of non-financial industries and suggests that managers are using the valuation of intangibles to avoid unfavorable earnings even though these valuations are not credible to investors.

The purpose of this paper is to examine whether the expected rate of return (ERR) management is related to disclosure of pension asset allocation. FAS 132R(1), which requires firms to disaggregate the detailed categories of pension asset allocation, provides a natural experiment setting for investigating the effect of enhanced transparency on firm behavior.

The authors focus on the variation of voluntary disclosure and its effect on ERR management under the two different reporting regimes. The authors measure the variation of voluntary disclosure of the pension asset allocations in the pre-period of FAS 132R(1), by using the self-constructed disclosure score.

First, firms create flexibility in their choice of ERR through opaque disclosure of pension asset allocation. Next, firms with poor disclosures are more likely to adjust ERR downward when accounting standards require greater transparency, implying that, for firms with poor disclosures, mandated transparency in pension asset allocation plays a vital role in reducing the ERR management.

The authors directly illustrate the impact of FAS 132R(1) on ERR management. The authors find that the impact of mandated transparency is not uniform across firms. Next, this study highlights the importance of disclosure in restricting managers’ earnings management motivation.

The authors hand collect the asset allocations under pre-FAS 132R(1) period from the 10-K pension footnotes for all S&P 500 firms, which allows the authors to identify the disclosure variation amongst the firms. Based on the variation of disclosure, the authors construct the ordinal measure of disclosure scores on which the testing indicator variables are built.

Auditing may be viewed as an arrangement for reducing inefficiencies arising from the fundamental market conflict between a seller who wants as high a price as possible and a buyer who wants to pay as low a price as possible. In more general terms, sellers prefer policies that boost the stock price in the short run whereas buyers would prefer the price to peak when they are ready to sell some time in the future. By framing audited financial reports within this context, the purpose of this paper is to provide some insights regarding both audit institutions and audit regulation.

This paper relies on conceptual arguments and a simple analytical model.

The basic findings are that a unique definition of audit quality is not compatible with the economics of a market where there are conflicts across traders as well a possibility that some traders hold superior information to others. Even an identification of quality with accuracy fails in this setting of conflict. The inference is that audit quality should be approached from a multi-dimensional perspective rather than a unique measure.

While the paper points out difficulties in constructing measures of audit quality extant in the literature, it does not provide any clear empirical suggestions for better measures.

The paper brings back into focus issues from information economics that form the bedrock for the study of audited financial statements in equity markets. While the paper is partially a survey and synthesis of some of the latest empirical findings, it describes them within the context of a rational economic market where traders may possess private information. Within such a market, the paper outlines both the conflicts and the benefits inherent to the current institutional arrangements where auditors are paid by incumbent shareholders and overseen by regulators.

This study aims to investigate whether accounting-related litigation is associated with a break in the client’s earnings string and the auditor’s response to a break in the earnings string.

The authors use regression models on a sample of publicly-traded USA companies with earnings strings.

The authors find that clients’ earnings string breaks are associated with increased accounting litigation risk and audit fees. The results are more prevalent for larger breaks.

The findings suggest auditors anticipate string breaks by clients which implies that audit fee research should consider earnings string characteristics in the fee models.

The auditor’s access to private information allows them to anticipate string breaks and potential increase in litigation risk.

An earnings string break represents a convergence of concerns highly relevant to the auditor: more users relying on the financial statements with greater expectations, increased likelihood of losses to those users, an environment where the likelihood of misstatement may increase, and explicitly stated professional responsibilities in response to the latter. Despite that, and a rich earnings string literature, prior studies have not directly examined auditors’ response to a client’s string break.

The purpose of this paper is to examine whether managers of bankrupt firms are more or less conditionally conservative in their financial reporting relative to non-bankrupt firms. The study further examines the cross-sectional differences in conditional conservatism among bankrupt and non-bankrupt firms.

The study employs a sample of US firms to investigate conditional conservatism in firms that experience financial distress and go bankrupt relative to non-stressed non-bankrupt firms. The study also uses switching regression models to identify the drivers of the cross-sectional difference in conditional conservatism among bankrupt and non-bankrupt firms.

Empirical results show that bankrupt firms are timelier in recognizing bad news than good news when compared to non-bankrupt firms. The higher level of conditional conservatism in bankrupt firms is mainly driven by their higher levels of leverage and tax-reduction incentives. The cross-sectional analyses show that these results largely hold for more leveraged firms and firms with higher tax costs. Taken together, these results suggest that the conservative tendency of managers of bankrupt firms can stem from the agency problem between lenders and managers and from tax-decreasing motivations.

The novelty of the authors’ research stands in studying the drivers of the cross-sectional differences in conditional conservatism between bankrupt and non-bankrupt firms and specifically, the demonstration that taxation also induces conditional conservatism in the setting of ex post bankrupt firms.

This paper examines the employment relations (ERs) scenario in Indian organisations. The investigation is based on a questionnaire survey of 137 Indian firms in the manufacturing sector. The analysis of existing literature highlights the role of three key actors (management, unions, and the state) in the management of ERs in Indian organisations. It also shows the significant impact of the competitive pressures created by the liberalisation of the Indian economy in the changing nature of ERs in Indian firms. The study has key implications both for academicians and for practitioners.