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Article

Mahmud Hossain, Barry R. Marks and Santanu Mitra

The ownership structure of a corporation can alleviate the agency problem that arises between shareholders and managers of a corporation, which implies that the ownership…

Abstract

The ownership structure of a corporation can alleviate the agency problem that arises between shareholders and managers of a corporation, which implies that the ownership composition of a firm may infl uence the level of voluntary disclosure. This study investigates whether the ownership structure of U. S. based multinational corporations affects the managerial decision to voluntarily disclose quarterly foreign segment data. The empirical results show that the three ownership variables of interest, institutional stock ownership, managerial stock ownership and outside blockholder stock ownership are inversely related to the level of voluntary disclosure of quarterly foreign segment data. Therefore, it is inferred that an increase in the proportion of outstanding common stock held by these ownership groups is accompanied by a decrease in the probability that a U.S. multinational firm voluntarily discloses quarterly foreign segment data.

Details

Multinational Business Review, vol. 14 no. 3
Type: Research Article
ISSN: 1525-383X

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Article

Mahmud Hossain, Santanu Mitra and Zabihollah Rezaee

This study aims to examine the incremental valuation implication of excess realized tax benefit under Statement of Financial Accounting Standard (SFAS) No. 123R…

Abstract

Purpose

This study aims to examine the incremental valuation implication of excess realized tax benefit under Statement of Financial Accounting Standard (SFAS) No. 123R: share‐based payment (123R excess tax benefit), which is required to be reported as a component of financing cash flows by the publicly traded corporations.

Design/methodology/approach

The sample comprises of Standard and Poor's (S&P); large‐, mid‐ and small‐cap firms who adopted SFAS No. 123(R) on January 1, 2006. The study covers a time period of the first and second quarters of 2006.

Findings

The multivariate regression analyses indicate that the capital market evaluates the SFAS 123R excess tax benefit in presence of accruals, and operating, investing and other financing cash‐flow components at different rates in pricing equity securities.

Research limitations/implications

The primary results, however, are mostly restricted to large‐ and mid‐cap S&P firms. No incremental valuation consequence of SFAS 123R excess tax benefits for small‐cap S&P firms is observed.

Originality/value

The findings suggest that the 123R excess tax benefit reported as a financing cash‐flow component is incrementally informative in equity valuation but the timing and extent of its market valuation is impacted by firm size, its visibility and information environment, and the magnitude of the excess realized tax benefit in dollar terms.

Details

International Journal of Accounting & Information Management, vol. 19 no. 2
Type: Research Article
ISSN: 1834-7649

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Article

Santanu Mitra and Mahmud Hossain

The purpose of this paper is to examine the association between corporate governance attributes in the form of board and ownership characteristics and the remediation of…

Abstract

Purpose

The purpose of this paper is to examine the association between corporate governance attributes in the form of board and ownership characteristics and the remediation of internal control material weaknesses (ICMW) reported under Section 404 of the Sarbanes‐Oxley Act (SOX) of 2002.

Design/methodology/approach

The paper employs multivariate logistic regression models for a sample of 528 firms having ICMW as per their auditors' attestation reports during the fiscal periods of 2004, 2005 and 2006 to investigate the empirical relationships between board and ownership characteristics, and remediation of control weaknesses in subsequent fiscal years.

Findings

The board diligence, CEO‐independent board, and managerial, institutional and dominant shareholdings are all positively and significantly associated with the ICMW remediation of the sample firms in the presence of other firm‐specific variables in the analysis. The results also suggest that, in general, the ownership characteristics play a greater role in the firms' remediation action than the board‐related factors except board diligence. The separate sub‐sample tests demonstrate that board diligence and several stock ownership characteristics are positively and significantly associated with a firm's action to remediate both the systematic and non‐systematic internal control weaknesses though the results are more robust for non‐systematic control weaknesses.

Research limitations/implications

A useful extension is to conduct a detailed analysis of the effect of audit committee characteristics in conjunction with board and ownership characteristics on firms' remediation action in a setting where ICMW firms take such action at a differential pace that may continue over two or more fiscal periods. Further, the present study examines the empirical associations between variables of interest, and does not, by virtue of its results, establish any cause‐and‐effect relationship between governance attributes and timeliness in ICMW remediation. Finally, this research can be extended to a detailed analysis of the types of systematic and non‐systematic control weaknesses, their probable effect on firms' financial reporting process and the role of corporate governance in timeliness of management's remediation action for different types of internal control problems.

Originality/value

The paper adds to the existing literature on corporate governance and financial reporting quality by documenting the association between a firm's board and ownership characteristics and management's immediate action to remediate internal control problems that ultimately impacts the quality of reported accounting information. The study complements prior studies on ICMW remediation and accrual quality by demonstrating that the effective monitoring by board and large, sophisticated shareholders as well as greater alignment of manager‐shareholder interests ensures more timeliness in remediation of internal control weaknesses and improves financial reporting quality.

Details

Review of Accounting and Finance, vol. 10 no. 1
Type: Research Article
ISSN: 1475-7702

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Article

Santanu Mitra, Donald R. Deis and Mahmud Hossain

The purpose of this paper is to examine the empirical association between expected and unexpected audit fees and reported earnings quality for a sample of Big 4(5) client…

Abstract

Purpose

The purpose of this paper is to examine the empirical association between expected and unexpected audit fees and reported earnings quality for a sample of Big 4(5) client companies over a period from 2000 to 2005.

Design/methodology/approach

The paper employs a cross‐sectional multiple regression model for a sample of 1,142 firms (6,852 firm‐years) covering a time period of six years comprising 2000 to 2005 to evaluate the relationship between both expected and unexpected audit fees and performance‐adjusted discretionary accruals that are estimated from the extended version of the modified Jones model.

Findings

The paper finds that both expected and unexpected audit fees are associated with an increase in earnings quality, as indicated by the reduction of both absolute and signed discretionary accrual adjustments. Furthermore, in some analyses these associations are found to persist into the post‐Sarbanes‐Oxley Act (SOX) period. The main results hold in sensitivity tests that involve using both the absolute and signed unexpected audit fees as independent variables and in tests that use both the absolute and signed current accruals as dependent variables of interest.

Research limitations/implications

The results suggest that audit efforts consistent with client‐specific business attributes and reflected in expected audit fees mitigate financial reporting biases, the effect of which is incrementally observable to some extent in the post‐SOX period as well. Unexpected audit fees, a proxy for fee surprise arising out of auditor‐client‐specific contractual situations, are also associated with an increase in earnings quality. The association is, in some analyses, significant for the post‐SOX years. The test results do not exhibit any evidence of auditor independence problems associated with high expected and unexpected audit fees; a result that supports the “reputation protection” argument for auditors' reporting decisions.

Originality/value

In a time period surrounding the introduction of SOX when nonaudit consulting services have severely been restricted, and the audit fee growth for publicly traded companies have been dramatic, an analysis of this nature potentially produces valuable insights into the auditors' fee decision, audit efforts, and auditor independence issue. The study looks into a new perspective concerning the relationship between audit fees and financial reporting practice over the two regulatory regimes, pre‐ and post‐SOX.

Details

Review of Accounting and Finance, vol. 8 no. 3
Type: Research Article
ISSN: 1475-7702

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Article

Ahsan Habib, Rong Gong and Mahmud Hossain

The purpose of this research note is to examine the association between overvalued equities and audit fees in the USA.

Abstract

Purpose

The purpose of this research note is to examine the association between overvalued equities and audit fees in the USA.

Design/methodology/approach

The paper employs a standard audit fee regression model incorporating proxies for overvalued equities and controls for other known determinants of audit fees. Three proxies for overvaluation are used in this paper. These are: a lagged price‐earnings‐based overvaluation measure; a lagged price‐to‐book‐based overvaluation measure; and finally, a lagged abnormal‐return‐based overvaluation proxy measure.

Findings

Findings show that auditors charge higher audit fees for clients posing increased audit risks because of equity overvaluation, that this relationship did not change during and after the global financial crisis period, and is more pronounced for firms prone to aggressive earnings management.

Practical implications

This finding should assure investors about audit quality, since the positive finding potentially implies that auditors exert extra audit effort in auditing financial statements of firms that have been identified as overvalued. This finding should also provide some evidence to audit regulators that the audit profession incorporates audit risk into audit pricing. However, since no test has been conducted to identify the association between clients' business risk and audit effort, the positive association between equity overvaluation and audit fees should be interpreted in light of this limitation.

Originality/value

Jensen cautions that firms with overvalued equities suffer substantial agency costs. Although empirical research has documented managerial responses to overvaluation, there exists scant empirical evidence on auditors' response to the increased risk emanating from equity overvaluation. Since external auditors perform a significant role in ensuring the credibility of financial statements, it is important to understand whether auditors efficiently price this risk while determining audit fees.

Details

Managerial Auditing Journal, vol. 28 no. 8
Type: Research Article
ISSN: 0268-6902

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Article

Santanu Mitra, Mahmud Hossain and Barry R. Marks

The purpose of the paper is to examine the association between the corporate ownership characteristics and the timely remediation of internal control weaknesses over…

Abstract

Purpose

The purpose of the paper is to examine the association between the corporate ownership characteristics and the timely remediation of internal control weaknesses over financial reporting under Section 404 of the Sarbanes‐Oxley Act (SOX) of 2002.

Design/methodology/approach

The paper employs both ordered and binary logistic regression models for a sample of 695 US firms who reported internal control weaknesses for the first time, pursuant to SOX Section 404, and evaluates the impact of the stock ownership characteristics on the timeliness in remediation of their control weaknesses.

Findings

The test results show that the corporate ownership characteristics, as a part of governance mechanism, play an incrementally critical role to influence firms' decisions to promptly remediate their internal control problems and improve the reliability of financial information. In addition, it was also found that a corporate board independent of its CEO is effective in monitoring timely remediation of control problems. Sub‐sample analyses for the company‐level and account‐specific internal control weaknesses produce similar results in support of the effect of corporate stock ownership characteristics on the timely remediation of internal control weaknesses.

Originality/value

First, the paper adds to the literature by demonstrating the incremental effect of the stock ownership characteristics on a firm's timeliness in remediation of control weaknesses, even after controlling the effect of audit committee and board characteristics in the analysis. Second, the paper shows that even in the post‐SOX years with enhanced regulatory oversight in corporate affairs, the effect of corporate ownership attributes as a part of governance is incrementally observable in a situation that calls for prompt managerial action to ensure the reliability of financial information. Third, for the first time, the study makes a separate detailed analysis on the association between the stock ownership attributes and the remediation of company‐level and account‐specific control weaknesses. The results provide valuable insights into the ownership governance effect on the remediation of the two types of control weaknesses that have different rigor, auditability (more or less auditable), and effects (pervasive or non‐pervasive) on financial reporting quality. Fourth, the study further enhances one's understanding of several important governance factors that help achieve a sound financial reporting system and restore investors' confidence in the system.

Abstract

Details

Corporate Fraud Exposed
Type: Book
ISBN: 978-1-78973-418-8

Content available
Article

Abstract

Details

Managerial Auditing Journal, vol. 22 no. 1
Type: Research Article
ISSN: 0268-6902

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Article

Sameh E Ahmed, Hakan F. Öztop and Khaled Al-Salem

The purpose of this paper is to investigate the effects of magnetic field and viscous dissipation on mixed convection heat transfer, fluid flow and entropy generation in a…

Abstract

Purpose

The purpose of this paper is to investigate the effects of magnetic field and viscous dissipation on mixed convection heat transfer, fluid flow and entropy generation in a porous media filled square enclosure heated with corner isothermal heater.

Design/methodology/approach

Finite volume method has been used to solve governing equations. A code is developed by FORTRAN and entropy generation is calculated from the obtained results of velocities and temperature. Results are presented via streamlines, isotherms, local and mean Nusselt number for different values of Richardson number (0.001=Ri=100), Hartmann number (0.001=Ha=100), Darcy number (0.001=Da=0.1), length of heaters (0.25=hx=hy=0.75) and viscous dissipation factors (10−4=ε=10−6).

Findings

It is observed that entropy is generated mostly due to lid-driven wall and right side of the heater. Entropy generation decreases with increasing of Hartmann number and heat transfer increases with decreasing of viscous parameter.

Originality/value

The originality of this work is to application of magnetic field and viscous dissipation on entropy generation in a lid-driven cavity with corner heater. Here, both corner heater and the external forces are original parameters.

Details

International Journal of Numerical Methods for Heat & Fluid Flow, vol. 26 no. 5
Type: Research Article
ISSN: 0961-5539

Keywords

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Article

Hakan F. Oztop, Kolsi Lioua, Borjini Mohamad Naceur and Khaled Al-Salem

The main purpose of this paper is to conduct on three-dimensional buoyancy and thermocapillary convection in an enclosure. Entropy generation is obtained from the…

Abstract

Purpose

The main purpose of this paper is to conduct on three-dimensional buoyancy and thermocapillary convection in an enclosure. Entropy generation is obtained from the calculated values of velocities and temperatures.

Design/methodology/approach

As numerical method, the vorticity-vector potential formalism allows, in a three-dimensional configuration, the elimination of the pressure, which is a delicate term to treat. The control volume finite difference method is used to discretize equations. The central-difference scheme for treating convective terms and the fully implicit procedure to discretize the temporal derivatives are retained. The grid is uniform in all directions with additional nodes on boundaries. The successive relaxation iterating scheme is used to solve the resulting non-linear algebraic equations.

Findings

Results are presented via entropy generation due to heat transfer, entropy generation due to fluid friction and total entropy generation. It is found that Marangoni number becomes more effective parameter on total entropy generation for lower values of Rayleigh numbers.

Practical implications

In any thermal system under buoyancy induced and thermocapillary flow.

Originality/value

It is believed that this is the first paper on three-dimensional solution of entropy generation in a cubical cavity under thermocapillary buoyancy flow.

Details

International Journal of Numerical Methods for Heat & Fluid Flow, vol. 24 no. 1
Type: Research Article
ISSN: 0961-5539

Keywords

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