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Article
Publication date: 4 March 2019

Chiungfeng Ko, Picheng Lee and Asokan Anandarajan

The purpose of this paper is to examine the association among operational risk incidents, corporate governance, credit risk and firm performance.

2018

Abstract

Purpose

The purpose of this paper is to examine the association among operational risk incidents, corporate governance, credit risk and firm performance.

Design/methodology/approach

First, the authors regress corporate credit risk on the incurrence of operating losses (driven by operational risk events) and corporate governance variables. The purpose is to test the correlation between operational risk, corporate governance and credit risk. Second, in the authors’ next regression, the authors’ dependent variable is firm performance, and the independent variable is operational risk and corporate governance to test the correlation between operational risk, corporate governance and firm performance. In this study, the authors measure corporate governance using four surrogates, focusing on CEO duality, extent of independent board members, extent of foreign ownership and board member presence ratio.

Findings

The authors’ findings indicate that the higher level of operational risk incidents is linked to higher likelihood of credit default and to poorer performance. More importantly, the authors find that higher-quality corporate governance is associated with lower levels of operational risk incidents, better performance and lower likelihood of credit fault.

Originality/value

The authors use a rigid theoretical and empirical framework to examine the association among the incidents of operational risk, credit risk, corporate governance and firm performance. The authors’ study is important because it first facilitates understanding of causes leading to operational risk, and second if and how greater financial effects of operational risk negatively influences operating performance and credit risk of nonfinancial institutions in emerging markets.

Details

International Journal of Accounting & Information Management, vol. 27 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 23 September 2020

Shuling Chiang, Gary Kleinman and Picheng Lee

This study aims to explore the relationship between audit partner and firm industry specialization and board of director independence on the decision by Taiwanese firms to…

Abstract

Purpose

This study aims to explore the relationship between audit partner and firm industry specialization and board of director independence on the decision by Taiwanese firms to use International Financial Reporting Standards (IFRS) flexibility concerning reporting interest income and expense and dividends received in different sections of the statement of cash flows. This flexibility existed in Taiwan for the first time in 2013, the year that Taiwan switched from its own generally accepted accounting principle to IFRS.

Design/methodology/approach

Using 2013 data for a sample of 1,227 firms, 354 of whom changed their reporting classification, this study examined the interaction effect of board independence and partner-level and firm-level auditor industry specialization on the cash flow reporting decision using logistic regression.

Findings

The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specializations have a complementary (but negative) relationship with board independence as to whether the firm is likely to report interest expense paid in the operating or financing activities sections.

Practical implications

An important implication is that knowing the levels of audit firm and partner specialization and how independent the board is, is useful for researchers and regulators in investigating auditor-client relationships and understanding the influences of variables investigated here on the outcome(s) of accounting policy and regulatory changes.

Originality/value

This study improved the field’s understanding of the impacts of audit partner and firm specialization, board independence and relevant interactions on cash flow reporting choices.

Details

International Journal of Accounting & Information Management, vol. 29 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 13 February 2017

Shuling Chiang, Gary Kleinman and Picheng Lee

The purpose of this paper is to examine the impact of non-staggered voting for members of the board of directors on earnings quality and the value relevance of earnings…

Abstract

Purpose

The purpose of this paper is to examine the impact of non-staggered voting for members of the board of directors on earnings quality and the value relevance of earnings and book value.

Design/methodology/approach

The authors used a sample of Taiwanese firms whose board was elected as a whole every three years from 2003 to 2013. The authors used multiple regression analysis to test whether board of directors elections and corporate governance affected earnings quality and the value relevance of earnings and book value.

Findings

The authors found that elections led to lower earnings quality, but better corporate governance led to greater earnings quality. In the presence of board elections, earnings have reduced value relevance but book value had increased value relevance. Finally, given board elections, the relative value relevance of earnings and book value on stock price was not fully moderated by strong corporate governance.

Research limitations/implications

The results presented here indicate the importance of better corporate governance in diffusing suspicions of management occasioned by the use of discretionary accruals in years in which board elections take place. Better corporate governance regimes led to a more positive relationship of discretionary accruals to earnings persistence, even in the presence of directorial elections. Similarly, better corporate governance regimes led to a more positive relationship between earnings per share and stock prices. Limitations include the restriction of the testing locale to Taiwan. That said, many companies around the globe use non-staggered board elections. Accordingly, these results suggest issues of importance to corporate governance advocates beyond Taiwan as well.

Originality/value

This study deepens the field’s understanding of the impact of corporate governance arrangements and schedules for electing board of directors’ members on issues of interest to stockholders.

Details

Review of Accounting and Finance, vol. 16 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 1 June 2005

Ya‐Fang Wang, Picheng Lee, Chen‐Lung Chin and Gary Kleinman

This study examines whether a regulation on mandatory disclosure of financial forecasts since June 1991 and further sanction imposition since March 1998 contribute to…

1353

Abstract

This study examines whether a regulation on mandatory disclosure of financial forecasts since June 1991 and further sanction imposition since March 1998 contribute to lower IPO firms’ initial and aftermarket returns, and shorten honeymoon periods. The study is based on 423 IPO firms after the regulation required them to disclose their forecasts and 53 IPO firms prior to the regulation. The findings report that initial and aftermarket returns are lower, and honeymoon periods are shorter in the post‐regulation period than those in the pre‐regulation. The findings also report that initial and aftermarket returns are relatively smaller, and the honeymoon periods are shorter after the March 1998 regulatory sanction was imposed after controlling other variables. These results document that the financial forecasts disclosure regulation evidently contributes to mitigating information asymmetry.

Details

Journal of Financial Regulation and Compliance, vol. 13 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 11 May 2015

Kam C. Chan, Samir El-Gazzar, Rudolph A. Jacob and Picheng Lee

The purpose of this paper is to investigate the impact of the US Securities and Exchange Commission (SEC) accelerated deadline on foreign firms, and the 20-F filing…

Abstract

Purpose

The purpose of this paper is to investigate the impact of the US Securities and Exchange Commission (SEC) accelerated deadline on foreign firms, and the 20-F filing practices and factors relating to the filing lags.

Design/methodology/approach

The authors identified 338 firms that file 20-F reports with the SEC during the period of 2010 and 2011. The authors then used multivariate regressions to examine the effects of the shortened deadline on foreign firms’ filing practices and the factors associated with these practices. In the regression models, the authors also control for other firm characteristics that have shown to affect the filing lags of US firms such as firm performance, size, mergers and restructures, audit firm, compliance with internal control requirements under Sarbanes Oxley Act, internal control weaknesses, going concern audit opinion and operating complexity.

Findings

Based on a sample of 338 US-listed foreign firms, the results indicate that there is a significant reduction in the filing lags and a change in their distribution for fiscal year 2011, as compared to the preceding year, and as intended by the SEC. The authors also find that 20-F filing lags are negatively related to the use of International Financial Reporting Standards (IFRS) or US-GAAP in 20-F reports and use of the English language in foreign firms’ home countries.

Practical implications

The findings of this paper are of interest to accounting regulatory bodies including the SEC, US Financial Accounting Standards Board and the International Accounting Standards Board by showing that registrants respond positively to regulations intending to promote timeliness of accounting disclosures and reporting, although many firms may oppose them in the due process stage.

Originality/value

The authors contribute to the extant literature by providing new evidence that 20-F filing lags are negatively related to the use of IFRS or US-GAAP in 20-F reports, and the use of English language in foreign firms’ home countries.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 26 June 2009

Kam Chan, Gary Kleinman and Picheng Lee

The purpose of this paper is to examine the determinants of internal control weakness remediation revealed under Sarbanes‐Oxley (SOX) section 404 reporting requirements.

1643

Abstract

Purpose

The purpose of this paper is to examine the determinants of internal control weakness remediation revealed under Sarbanes‐Oxley (SOX) section 404 reporting requirements.

Design/methodology/approach

Data on firms that reported internal control weaknesses for fiscal year 2004 are collected, and determined whether these weaknesses still existed in their 2005 filings. Logistic regression is used to examine the impact of corporate governance, resource, impediments (e.g. severity of weakness), and Big 4 auditor status on remediation completion.

Findings

Resources (e.g. size, ROA) were positively associated with remediation. Use of Big 4 auditor, more audit committee meetings, more business segments, and filing lag were negatively associated with remediation, as were number and type of internal control weaknesses.

Research limitations/implications

First, the paper sheds light on the individual firm factors that influence corporate response to the legal and social (e.g. public pressure) environment facing firms. Understanding this should better enable policy makers and regulators to foresee where potential lags in firm implementation of regulations may occur, and why. Second, it believes that the paper also sheds light on the relative value of different corporate governance structures in meeting investor concerns for proper stewardship of their investments. Finally, this paper provides information of use to other corporate governance researchers in that the results suggest the overwhelming importance of the legal and social environment in influencing corporate behavior. However, this paper does not address the contribution of national culture, financial and audit‐related reporting requirements, and differences in firm resources, to corporate behavior.

Originality/value

The paper deepens the field's understanding of the determinants of internal control weakness remediation, furthering regulators' understanding of SOX's impact.

Details

International Journal of Accounting & Information Management, vol. 17 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 7 September 2010

Asokan Anandarajan, Shuling Chiang and Picheng Lee

This paper aims to focus on helping managers understand a factor that stimulates investment in R&D, namely, the R&D tax credit.

891

Abstract

Purpose

This paper aims to focus on helping managers understand a factor that stimulates investment in R&D, namely, the R&D tax credit.

Design/methodology/approach

The paper uses a sample of firms in Taiwan; the study period is 1999‐2004. Four variables are used to categorize firms in life cycle stages, and these are ranked in a number of ways.

Findings

It is found that the R&D tax credit has an influence of operating performance and that the association of R&D tax credit with operating performance is moderated by the stage of the firm in its respective life cycle. This association is also moderated by the size of the firm.

Practical implications

Management perspective, managers of small, older firms with sales that are stagnant or declining will benefit most from the R&D tax credit. Managers of such companies should make a greater effort to negotiate tax credits as they will benefit the most.

Originality/value

The paper adds to the literature on life cycle analysis

Details

Management Decision, vol. 48 no. 8
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 3 May 2013

Chen‐Lung Chin, Yu‐Ju Chen, Gary Kleinman and Picheng Lee

The purpose of this paper is to investigate the impact of corporate internationalization, governance structures, and legal protections on the foreign earnings response…

Abstract

Purpose

The purpose of this paper is to investigate the impact of corporate internationalization, governance structures, and legal protections on the foreign earnings response coefficient (FERC). The FERC is a measure of the value‐relevance of foreign earnings.

Design/methodology/approach

Data were collected on 3,653 Taiwanese firms which had overseas investments. The authors examined the impact of the site of their overseas investments and the nature of the legal code of the investee country on the investor perceptions of firms' reported foreign and domestically‐generated earnings. Also examined was the impact of corporate governance arrangements (e.g. the difference between the owners' cash flow and voting rights) on the same components of the firms' earnings.

Findings

The empirical findings suggest that an aggressive internationalization strategy (foreign direct investment) has positive effects on the value relevance of foreign earnings, but that this strategy is impacted by the firm's own corporate governance arrangements and the target of its overseas investment efforts. While foreign investments bring about growth and profits, they expose the investors to the risk of expropriation by investee countries and corporate insiders.

Originality/value

The importance of the findings is that they should help regulatory agencies – and firms themselves – to better understand factors that can promote the global expansion of domestic enterprises.

Details

Journal of Financial Regulation and Compliance, vol. 21 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 31 October 2008

Kam C. Chan, Picheng Lee and Gim S. Seow

The purpose of this paper is to investigate the rationale for the failure of management and auditors to identify material internal control weaknesses (ICWs) in their…

1993

Abstract

Purpose

The purpose of this paper is to investigate the rationale for the failure of management and auditors to identify material internal control weaknesses (ICWs) in their initial Sarbanes‐Oxley Act of 2002 (SOX) 404 reviews, resulting in subsequent restatement of their opinions.

Design/methodology/approach

The paper focuses on the factors associated with the failure of management and auditor to identify material internal controls weaknesses in their initial SOX 404 reports. Logistic regression is run on a sample of 56 firms that reported material internal controls weaknesses in their amended internal control reports and a control group of 344 firms that reported material internal controls weaknesses (i.e. ineffective internal controls) in their initial internal control reports for 2004.

Findings

The results show that firm size, the use of a Big 4 auditor, the ratio of non‐audit to total fees, and the need for accounting restatements are positively associated with the probability to file an amended internal control report. The number of ICWs and the number of audit committee meetings are negatively associated with the probability to file an amended internal control report.

Practical implications

The paper's findings suggest that regulators and corporate boards should consider providing more guidelines on audit committee practices in addition to the audit committee structure. For example, more guidance by the board is needed to ensure that the audit committee is active in overseeing the company's auditor–client relationship and its internal audit function.

Originality/value

Empirical findings on factors associated with the failure of management and auditor to identify material ICWs in their SOX 404 review can contribute to an understanding of factors affecting the efficiency of the SOX 404 review by attributing such failure to either inherent factors such as operational complexity and industry membership or to managerial choices in auditor‐client relationship and corporate governance issues. An understanding of these factors can help companies and the Public Company Accounting Oversight Board and the Securities and Exchange Commission in their efforts to improve the effectiveness and the efficiency of the current SOX 404 process.

Details

Review of Accounting and Finance, vol. 7 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 3 August 2012

Kam C. Chan, Rudolph A. Jacob, Picheng Lee and Gim S. Seow

The purpose of this study is to examine the change in audit fees for US‐listed foreign firms in their first year of providing Section 404 auditor attestation reports for…

Abstract

Purpose

The purpose of this study is to examine the change in audit fees for US‐listed foreign firms in their first year of providing Section 404 auditor attestation reports for fiscal years ending between July 15, 2006 and July 14, 2007.

Design/methodology/approach

During the sampling time period, foreign large accelerated filers had to provide both auditor and management Section 404 reports while the foreign accelerated filers only had to provide management Section 404 reports without the auditor attestation reports. Foreign non‐accelerated filers did not have to provide any Section 404 report. This research design and sample allows the authors to control for the general market‐wide increases in audit fees. The paper examines the annual change in audit fees from the preceding year to the first year of Section 404 compliance.

Findings

It is found that foreign large accelerated filers have an average increase of 74 percent in audit fees in this first year of Section 404 compliance, while the foreign accelerated filers and non‐accelerated filers only have increases in audit fees of 33 percent and 42 percent, respectively. Since this research design and sample allow the authors to control for the general market‐wide increases in audit fees, the authors are able to conclude that foreign large accelerated filers incurred, on average, a 30 percent increase in audit fees just to comply with Section 404. It is also found that the increase in audit fees among foreign large accelerated filers is negatively associated with the strength of their home countries' legal environment.

Originality/value

Arguably, Section 404 is perhaps the most controversial aspect of Sarbanes‐Oxley Act due to its high audit fees. The results of this study would provide interesting findings to regulators and researchers.

Details

Review of Accounting and Finance, vol. 11 no. 3
Type: Research Article
ISSN: 1475-7702

Keywords

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