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Article
Publication date: 1 July 2005

Kamran Ahmed, A. John Goodwin and Kim R. Sawyer

This study examines the value relevance of recognised and disclosed revaluations of land and buildings for a large sample of Australian firms from 1993 through 1997. In…

Abstract

This study examines the value relevance of recognised and disclosed revaluations of land and buildings for a large sample of Australian firms from 1993 through 1997. In contrast to prior research, we control for risk and cyclical effects and find no difference between recognised and disclosed revaluations, using yearly‐cross‐sectional and pooled regressions and using both market and non‐market dependent variables. We also find only weak evidence that revaluations of recognised and disclosed land and buildings are value relevant.

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Pacific Accounting Review, vol. 17 no. 2
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 9 November 2020

Rick C. Warne

This paper examines the impact that fair-value recognition of non-financial assets has on the judgments of commercial lenders.

Abstract

Purpose

This paper examines the impact that fair-value recognition of non-financial assets has on the judgments of commercial lenders.

Design/methodology/approach

Commercial lenders, who were attending a national banking conference, participated in a controlled experiment.

Findings

The experimental results show that commercial lenders incorporate fair values into their judgments but only when this information is recognized (vs disclosed) on the financial statements. Additionally, lenders assigned the highest loan interest rates when recognized fair values increased net income, and they assign the lowest loan amounts when recognized fair values decreased net income.

Research limitations/implications

Typical limitations regarding behavioral experiments are acknowledged in the paper. For example, the commercial lenders in this study could not request additional information. In addition, because of the difficulty in obtaining these participants, the sample size is relatively small.

Practical implications

US Generally Accepted Accounting Principles (GAAP) does not allow the fair-market valuation for most non-current assets while International Financial Reporting Standards (IFRS) require such valuations. The article adds to our understanding about how a significant user group of financial statements, commercial lenders, view GAAP and IFRS accounting.

Social implications

This article provides insights regarding how commercial lenders' decisions may change based on accounting principles related to asset valuation. Obtaining credit through loans has significant implications for society.

Originality/value

This article is unique because it examines commercial lenders' judgments using different asset valuations on the financial statements.

Details

Asian Review of Accounting, vol. 29 no. 1
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 17 April 2019

Ana Isabel Lopes and Laura Reis

This paper aims to examine pricing differences regarding contingencies presented in statements of financial position or notes, which are considered an area for creative accounting.

Abstract

Purpose

This paper aims to examine pricing differences regarding contingencies presented in statements of financial position or notes, which are considered an area for creative accounting.

Design/methodology/approach

The authors have chosen two countries with different cultural environments to test the exploratory study. The sample includes companies using the International Accounting Standard (IAS) 37, which requires recognition of provisions while contingent liabilities are only disclosed, implying different impacts from underlying judgement related with contingencies. The authors apply a regression model based on the Ohlson equity-valuation framework.

Findings

The most important conclusion is that market participants in both countries follow different patterns when incorporating information about provisions and contingent liabilities. More precisely, the results suggest that provisions are value-relevant, but incrementally less negative in Portugal. Contingent liabilities seem to have no value relevance. However, an exception exists for Portuguese companies having a risk committee board, in which case a significant market valuation of contingent liabilities is found and discounted in share prices. The existence of a risk committee corroborates the value relevance of this board, which is positively valued by market participants in both national cultures.

Practical implications

The findings may make a contribution to the IASB research project on the IAS 37 and possible amendments to it (suspended until the revisions to the conceptual framework are finalized) and to the IASB prioritization of communication effectiveness of financial statements to all users.

Originality/value

Value relevance of contingencies differentiating countries from two different national cultures and firms with a risk committee on the board of directors.

Details

Meditari Accountancy Research, vol. 27 no. 2
Type: Research Article
ISSN: 2049-372X

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Article
Publication date: 1 October 2004

Z.Y. Sacho and H.C. Wingard

This paper investigates the debate as to whether employee share options (ESOs) should be expensed in an entity’s financial statements as required by the IASB’s IFRS 2 …

Abstract

This paper investigates the debate as to whether employee share options (ESOs) should be expensed in an entity’s financial statements as required by the IASB’s IFRS 2 – Share‐based payment (2004). The paper presents arguments for and against expensing ESOs, demonstrating that compensation of employees via ESOs is a bona fide expense in terms of the recognition and measurement criteria of the IASB Framework. It concludes that, the substance of an ESO transaction is that the entity pays an employee for his services, albeit with a different financial instrument. Consequently, the accounting treatment of such compensation should be the same as for any other payment of services of an employee.

Details

Meditari Accountancy Research, vol. 12 no. 2
Type: Research Article
ISSN: 1022-2529

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Article
Publication date: 22 November 2011

Hong Nee Ang and Matthew Pinnuck

The purpose of this paper is to address the concern about the impact of accounting regulatory change pertaining to employee share options (ESOs) on earnings management…

Abstract

Purpose

The purpose of this paper is to address the concern about the impact of accounting regulatory change pertaining to employee share options (ESOs) on earnings management. Following Australia's adoption of International Financial Reporting Standards (IFRS) in 2005, companies are required to recognise the fair value of ESOs as expenses. Due to inherent imprecision in the estimate of ESO's fair value, the regulatory change from disclosure to recognition was widely claimed to potentially give rise to an alternative mechanism to manage earnings. This study provides empirical evidence on whether the regulatory change leads to earnings management problems.

Design/methodology/approach

This study uses the regulatory change in accounting for ESOs to provide a direct test of earnings management between disclosed versus recognised regimes for the same sample of firms. The sample consists of Australian firms from S&P/ASX300 for the period from 2003 to 2006.

Findings

The results show that, although the accounting regulatory change from disclosure to recognition may provide an alternative earnings management vehicle, there is no evidence of this occurring. There could be several reasons for this finding. First, the statistical tests lack power. Second, there are stricter audit tests on recognised amounts than on disclosed amounts. Third, given the concern of excessive pay and the close scrutiny of compensation, managers may have already understated ESO values in the disclosure regime. Finally, managers have limited time and resources and the effort involved in the adoption of IFRS in 2005 could have restricted the time available to manage earnings via the ESO reporting channel.

Originality/value

This study adds to the limited research on whether a change in accounting regulation for employee share options from disclosure to recognition gives rise to greater scope for earnings management. One reason for the lack of empirical evidence in the research is due to the problem of designing a test. Bernard and Schipper suggest that within‐firm studies have limitations for comparing the effects of recognition versus disclosure when the change is driven by an estimate becoming more reliable. A cross‐sectional study is also problematic due to self‐selection bias if firms can choose between disclosure versus recognition. This study circumvents potential design problems raised by Bernard and Schipper by setting a test using regulatory change which allows the test to be compared directly using the same company.

Details

Pacific Accounting Review, vol. 23 no. 3
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 1 November 2011

Maik Lachmann, Arnt Wöhrmann and Andreas Wömpener

The International Accounting Standards Board and the Financial Accounting Standards Board allow fair value measurement of liabilities. Previous findings from the…

Abstract

Purpose

The International Accounting Standards Board and the Financial Accounting Standards Board allow fair value measurement of liabilities. Previous findings from the literature on recognition versus disclosure indicate that recognition of fair value information better serves investors' needs, because it is more likely to facilitate the incorporation of the information into their judgment. In cases of credit risk changes for own liabilities, however, many authors doubt that fair value measurement is beneficial due to its potential counter‐intuitiveness. The purpose of this paper is to gain insight into non‐professional investors' processing of fair value information for liabilities.

Design/methodology/approach

A between‐subjects laboratory experiment was employed. Subjects received financial information on three different companies. The authors manipulated the accounting treatment of liabilities between the three groups. Subjects ranked three companies according to their economic performance. The authors then compared these rankings to the companies' actual performance.

Findings

The results of the experiment indicate that non‐professional investors are less likely to acquire the information of credit risk changes when liabilities are not measured at fair value. Additionally, evidence was found that fair value measurement is to some extent counter‐intuitive for non‐professional investors.

Research limitations/implications

A main limitation is that our experiment concentrates on liabilities and abstracts from interactions of both sides of the balance sheet.

Originality/value

This is the first study to analyze in detail non‐professional investors' information processing of liabilities measured at fair value.

Details

Review of Accounting and Finance, vol. 10 no. 4
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 16 July 2020

Dimu Ehalaiye, Mark Tippett and Tony van Zijl

The purpose of this paper is to investigate whether levels-classified fair values of US banks based on SFAS 157: Fair Value Measurements, as recognised in the quarterly…

Abstract

Purpose

The purpose of this paper is to investigate whether levels-classified fair values of US banks based on SFAS 157: Fair Value Measurements, as recognised in the quarterly financial statements of the banks over the period from 2008 until 2015, have predictive value in relation to the banks’ future financial performance measured by operating cash flows and earnings over a three-quarter horizon period. In addition, we consider whether the global financial crisis (GFC) impacted the relationship between SFAS 157–based levels‐classified fair values and bank future financial performance.

Design/methodology/approach

We develop hypotheses connecting the net levels-classified bank fair values based on SFAS 157 with banks’ future financial performance. We test the hypotheses by estimating three-period quarters’ ahead forecasting models. We also use these models to test for the impact of the GFC on the relationship between the fair values and future financial performance.

Findings

Our findings suggest that the levels-classified net fair values based on SFAS 157 have predictive value in relation to future cash flows for banks. There is significant variation, across the levels, in the predictive value of levels-classified net fair values for future performance. Our findings indicate that the GFC has limited impact on the predictive value for cash flows, but the GFC had a significant adverse impact on earnings, and, with allowance for the effect of the GFC, the Level 2 net fair values have predictive value for the future earnings.

Originality/value

The study provides the first direct empirical evidence on the relationship between the SFAS 157 levels-classified quarterly bank fair values recognised in publicly available financial statements and banks’ future performance. Our results are consistent with the findings from earlier research (Ehalaiye et al., 2017) using annual data disclosed in the supplementary notes to the financial statements of US banks based on SFAS 107. The study, makes a significant contribution to the question of frequency of reporting and to the disclosure vs recognition debate. The study has implications for policy makers, regulators and accounting standards setters such as the Securities and Exchange Commission and the Financial Accounting Standards Board in evaluating the use of fair value measurement in financial reporting.

Details

International Journal of Accounting & Information Management, vol. 28 no. 4
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 27 January 2020

Parker J. Woodroof, Katharine M. Howie, Holly A. Syrdal and Rebecca VanMeter

The purpose of this paper is to examine the impact of the type of disclosure used by social media influencers on consumer evaluations of influencer transparency, product…

Abstract

Purpose

The purpose of this paper is to examine the impact of the type of disclosure used by social media influencers on consumer evaluations of influencer transparency, product performance expectations and how those factors ultimately influence purchase intentions.

Design/methodology/approach

An experiment was conducted with 321 participants recruited from MTurk to test a moderated serial-mediation model.

Findings

The results indicate that when consumers become cognizant that an influencer’s branded promotional post may have been motivated by an underlying financial relationship, they evaluate the influencer as significantly less transparent if a more ambiguous disclosure is used relative to a clearer disclosure. Transparency perceptions of the influencer impact consumers’ perceptions of product efficacy as well as purchase intentions.

Originality/value

Social media influencers are rapidly emerging as a popular marketing tool for brand managers, but consumer response to this form of promotion is not well understood. To the best of the authors’ knowledge, this is the first study to investigate how the type of endorsement disclosure used by a social media influencer impacts consumer perception of influencer transparency, product efficacy and purchase intentions. Further, this research demonstrates the applicability of the persuasion knowledge model in the domain of influencer marketing.

Details

Journal of Product & Brand Management, vol. 29 no. 5
Type: Research Article
ISSN: 1061-0421

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Article
Publication date: 2 November 2010

Cathy Beaudoin, Nandini Chandar and Edward M. Werner

The purpose of this paper is to examine whether the significant clustering of defined benefit (DB) pension plan freeze announcements during 2001‐2006 is motivated at least…

Abstract

Purpose

The purpose of this paper is to examine whether the significant clustering of defined benefit (DB) pension plan freeze announcements during 2001‐2006 is motivated at least in part by accounting concerns due to the Financial Accounting Standards Board's pending adoption of Statement of Financial Accounting Standards No. 158 (SFAS 158).

Design/methodology/approach

Using logistic regression models, the paper compares 147 “freeze firms” with a matched sample of firms that did not announce a DB plan freeze. Empirical models control for other DB plan motives including as a response to stricter contribution requirements under the Pension Protection Act of 2006 and improving the firm's competitive position.

Findings

The potential SFAS 158 impact is significantly associated with firms' decisions to freeze their DB plans. Firm profitability is also significantly associated with the freeze decision. However, there is no significant association between cash flow positions or pension plan contributions and the freeze decision.

Research limitations/implications

It is possible that economic conditions adversely affecting the funded status of DB plans also motivate the freeze decision. While this study controls for the economic environment, economic factors could exacerbate the potential effect of SFAS 158.

Originality/value

This paper considers potential effects of accounting policy by examining its influence on real management actions and has consequences for a variety of stakeholders including investors, creditors, and, importantly, pension beneficiaries and workers, as DB plans represent implicit contracts between firms and their employees.

Details

Review of Accounting and Finance, vol. 9 no. 4
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 1 June 2021

Susanna S. Lee, Huan Chen and Yu-Hao Lee

The purpose of this study is to understand how perceived micro-celebrity-product image congruency and product type affect native advertising effectiveness on Instagram…

Abstract

Purpose

The purpose of this study is to understand how perceived micro-celebrity-product image congruency and product type affect native advertising effectiveness on Instagram. Additionally, the study aims to understand how advertising skepticism and persuasion knowledge affect the effectiveness of native advertising featuring micro-celebrity.

Design/methodology/approach

This study was administered online using a 2 (product type: high self-expressive vs low self-expressive) × 2 (micro-celebrity and product congruity: congruent vs incongruent) between-subjects factorial design to test the hypotheses. A total of 186 participants, all Instagram users living in the USA, were recruited using an Amazon Mechanical Turk (MTurk). After screening out 14 respondents who were not Instagram users or did not fully answer the questions, a total sample of 172 valid and complete responses were included for hypotheses testing.

Findings

The results revealed that when native advertising featured highly self-expressive products and micro-celebrities with good product image fit, consumers had a more positive attitude toward the ad and the brand, higher source credibility and higher electronic word-of-mouth intention. In addition, advertising skepticism was found to moderate the effect of micro-celebrity-product fit on source credibility.

Originality/value

This study is the first to examine the effect of micro-celebrity and product congruence on native advertising effectiveness. Moreover, the study provides a better understanding of the advertising skepticism and its influence on source credibility. It discusses why a micro-celebrity’s image is a critical factor in shaping attitudes toward native advertising. This study contributes to both the native adverting and influencer marketing literature.

Details

Journal of Product & Brand Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1061-0421

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