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Article
Publication date: 14 February 2023

Sharad Asthana and Rachana Kalelkar

This paper's purpose was to examine the impact of geomagnetic activity (GMA) on the timing and valuation of earnings information disclosed by firms every quarter.

Abstract

Purpose

This paper's purpose was to examine the impact of geomagnetic activity (GMA) on the timing and valuation of earnings information disclosed by firms every quarter.

Design/methodology/approach

The authors start the analyses with a sample of 112,669 client firms from 1989 to 2018. To analyze the impact of GMA on the earnings response coefficient (ERC), the authors use the three-day cumulative abnormal returns and cumulative abnormal returns for the extended post-earnings announcement window [2, 75] as the dependent variables. The authors interact unexpected earnings (UE) with the C9 Index, an index commonly used to measure GMA and study how GMA affects the pricing of new public information. To examine the effect of GMA on the timing of disclosure of earnings news, the authors regress a variant of the GMA index on the propensity to disclose bad earnings news.

Findings

The authors find significantly lower earnings response coefficients during periods of high GMA. This effect is permanent and stock prices do not correctly incorporate the implications of earnings information over time. The authors also show that managerial behavior is affected by GMA as well and the managers are more (less) likely to release bad (good) news during periods of higher activity. Finally, the authors also find that in situations where stakeholders are likely to rely on modern technology that depends minimally on humans, the adverse impact of GMA on the pricing of earnings information is mitigated.

Originality/value

The literature on the effect of GMA on the capital market is very limited and focuses primarily on stock returns, while the behavioral finance literature focuses on circumstances like weather, temperature and sporting outcome to study how the investors' mood affects their capital market behavior. The authors add to both the literature by investigating how GMA influences investors' and managers' behaviors in the capital market.

Details

Asian Review of Accounting, vol. 31 no. 3
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 20 October 2021

Rachana Kalelkar and Qiao Xu

The authors investigate whether the different tenure phases of executives have a differential effect on audit pricing. Two alternate views – career concern and power – can explain…

Abstract

Purpose

The authors investigate whether the different tenure phases of executives have a differential effect on audit pricing. Two alternate views – career concern and power – can explain the effect of executives’ tenure on audit pricing. This paper aims to determine, which viewpoint dominates in explaining the relationship between audit pricing and executive tenure phases.

Design/methodology/approach

Using a sample of 11,198 firm-year observations from 2007 to 2016, the authors adopt an ordinary least squares regression model to assess the impact of the middle and long phases of executives’ tenure on audit fees.

Findings

Audit fees are significantly lower when executives enter the middle and long phases of tenure. The reduction in audit fees is greatest as both chief executive officers and chief financial officers enter the long tenure phase. Although audit fees gradually decrease as executive tenure is extended, they start increasing two years before the end of executive tenure. Furthermore, the negative association between the executive tenure phase and audit fees is greater when the executive is appointed externally. Finally, the long phase of executive tenure also mitigates the positive relationship between audit fees and internal control weaknesses.

Research limitations/implications

This study is based on US data. Future research may extend this study to other countries.

Practical implications

The findings are important to firms, practitioners and academicians, particularly, as the length of tenure of top executives has increased in recent years. By documenting that executives’ middle and long tenure phases reduce audit fees, the findings highlight the importance of maintaining executives in the firm. Finally, the findings have implications for investors, policymakers and auditors to identify companies with high audit risk.

Originality/value

This study is the first to document the impact of executives’ middle and long tenure phases on audit fees.

Details

Review of Accounting and Finance, vol. 20 no. 5
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 14 September 2023

Rachana Kalelkar and Emeka Nwaeze

The authors analyze the association between the functional background of the compensation committee chair and CEO compensation. The analysis is motivated by the continuing debate…

Abstract

Purpose

The authors analyze the association between the functional background of the compensation committee chair and CEO compensation. The analysis is motivated by the continuing debate about the reasonableness of executive pay patterns and the growing emphasis on the role of compensation committees.

Design/methodology/approach

The authors define three expert categories—accounting, finance, and generalist—and collect data on the compensation committee (CC) chairs of the S&P 500 firms from 2008 to 2018. The authors run an ordinary least square model and regress CEO total and cash compensation on the three expert categories.

Findings

The authors find that firms in which the CC chair has expertise in accounting, finance, and general business favor performance measures that are more aligned with accounting, finance, and general business, respectively. There is little evidence that CC chairs who are CEOs of other firms endorse more generous pay for the host CEO; the authors find some evidence that CC chairs tenure relative to the host CEO's is negatively associated with the level of the CEO's pay.

Research limitations/implications

This study suggests that firms and regulators should consider the background of the compensation committee chair to understand the variations in top executive.

Practical implications

Companies desiring to link executive compensation to particular areas of strategy must also consider matching the functional background of the compensation committee chair with the target strategy areas. From regulatory standpoint, requiring compensation committees to operate independent of inside directors can reduce attempts by inside directors to skim the process, but a failure to also consider the impact of compensation committees' discretion over the pay-setting process can distort the executives' pay-performance relation.

Originality/value

This is the first study to examine the effects of the functional background of the compensation committee chair on CEO compensation.

Details

Asian Review of Accounting, vol. 32 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 6 February 2017

Rachana Kalelkar

Recent studies document that approximately two-thirds of sample firms have at least one audit committee member serving on their compensation committee (Liao and Hsu, 2013). Prior…

1318

Abstract

Purpose

Recent studies document that approximately two-thirds of sample firms have at least one audit committee member serving on their compensation committee (Liao and Hsu, 2013). Prior studies on overlap membership document that presence of audit committee members on compensation committee affects the reporting quality. Since auditors’ audit risk is affected by reporting quality. The purpose of this paper is to examine how the auditors perceive the overlap of audit and compensation committee members when pricing audit fees.

Design/methodology/approach

The author use a sample from 2007 to 2012 and run an OLS regression.

Findings

The author find a negative association between overlap membership and audit fees. The results are robust after controlling for selection bias, alternate measurement of overlap membership, and an alternate pre- and post-overlap membership test. Additional tests show that the negative relationship between overlap membership and audit fees is explained by lower audit risk and not by lower brand premium of non-Big4 auditors and that the benefit of overlapping membership increases when the audit committee size is large.

Practical implications

The findings suggest that firms with large audit committee can improve their reporting and lower their audit fees by having audit committee members on compensation committee.

Originality/value

The findings contribute to the literature on the consequences of overlap membership and on the ongoing debate about the extent that common membership enhances audit committee monitoring. It also adds to the limited literature on audit committee and audit pricing.

Details

Asian Review of Accounting, vol. 25 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

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