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Article
Publication date: 23 July 2019

KiKyung Song and Eunyoung Whang

Typical accounting firms offer three types of accounting services to their clients: accounting and auditing (AA), tax (TAX) and management advisory services (MAS). Each…

Abstract

Purpose

Typical accounting firms offer three types of accounting services to their clients: accounting and auditing (AA), tax (TAX) and management advisory services (MAS). Each accounting service has a different revenue persistence. Moreover, revenue persistence is affected by exogenous events such as new regulations (e.g. Sarbanes-Oxley Act [SOX] in 2002) and market conditions (e.g. the financial crisis of 2008). This paper aims to examine the revenue persistence of accounting services and how it is affected by SOX and the financial crisis.

Design/methodology/approach

Using 742 firm-year observations from 100 of the largest US accounting firms from 1999 to 2015, this paper examines whether revenue from AA, TAX and MAS has different degrees of persistence and how SOX and the financial crisis in 2008 change the revenue persistence of each accounting service.

Findings

This paper finds that MAS generates more persistent revenue than AA and TAX. SOX enhances the revenue persistence of MAS. The financial crisis makes revenue from AA less persistent than during the pre-financial crisis period.

Originality/value

This paper contributes to the understanding of the revenue persistence of accounting services and the impact of exogenous events such as SOX and the financial crisis of 2008.

Details

Pacific Accounting Review, vol. 31 no. 3
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 14 September 2010

Ahsan Habib

The paper aims to examine the value relevance of alternative accounting performance measures in Australia. It also documents the relative and incremental value relevance…

Abstract

Purpose

The paper aims to examine the value relevance of alternative accounting performance measures in Australia. It also documents the relative and incremental value relevance of revenue vis‐à‐vis earnings and the longitudinal changes in such value relevance. Finally, the impact of certain firm characteristics including firm life cycle on the value relevance of revenue and earnings information is investigated.

Design/methodology/approach

The paper utilises data on Australian listed companies from 1992 to 2005 on the level of and changes in seven alternative accounting performance measures. Standard ordinary least square regression is conducted.

Findings

Results reveal that: the coefficient estimates on all the performance measures are much higher for large firms compared to their small firm counterpart; the explanatory power of incremental revenue in explaining stock returns has declined significantly over the sample period; and life cycle analysis shows that the combined coefficients for both revenue and earnings are significant in the growth and maturity stages of the firm life cycle.

Practical implications

When making equity valuation decisions investors consider firms' fundamentals as reflected in financial statements. However, which line item is more important for equity valuation is an important consideration. From a regulatory perspective, this stream of research is quite relevant because standard setters will have evidence from an investor viewpoint about whether certain line items, subtotals, and totals should be defined in standards and required to be displayed in financial statements.

Originality/value

The paper adds to the existing capital market research in Australia by documenting differential persistence of alternative performance measures.

Details

Accounting Research Journal, vol. 23 no. 2
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 9 June 2020

Afsheena P. and Shijin Santhakumar

The asymmetric effect of conservatism on earnings and its other components serves as a contrivance to incorporate transparency and timeliness in financial reporting. This…

Abstract

Purpose

The asymmetric effect of conservatism on earnings and its other components serves as a contrivance to incorporate transparency and timeliness in financial reporting. This study aims to explore cash flow-return association, which provides insight into the accruals’ contribution that traverses through conservatism-earnings persistence liaison and its associated effects on stock returns.

Design/methodology/approach

The study used asymmetric timeliness (AT) model and two firm-year measures, namely, C-Score and conservatism ratio, to capture conservatism. The firm-year measures of conservatism, in addition to the AT measure, facilitate a better understanding of the persistence of reported earnings that branch out the study from the existing literature. Further, the study used panel regression analysis to evaluate the timeliness and persistence of earnings under the conservative approach with a sample of Indian corporate data from 2000 to 2017.

Findings

The findings of the study reveal that conservative earnings are less persistent and the accruals recognize bad news timelier than good news. The unfavorable change in earnings shows a lower earnings response coefficient in contrast to favorable earnings variations. However, the appropriate loss recognition nature of conservative reporting has little or no influence on stock returns in an emerging market such as India.

Research limitations/implications

Accounting conservatism is a captivating feature accounting information, especially pertinent to many decision-makers. Thus, the study has implications for the investors while evaluating the adverse and positive changes in accounting earnings; also, the results are helpful for the standard setters in ongoing debate related to accounting conservatism vs fair evaluation. The present study focuses exclusively on ex-post conservatism, while the ex post and ex ante conservatism are having a significant role in accounting practices. Future research on the differential effects of ex post and ex ante conservatism on accounting information in an emerging market, is worth promising.

Originality/value

The study reveals the first Indian evidence on accounting conservatism and earnings persistence relationship, which would bring a different dimension to investors’ perception in evaluating the characteristic variations of reported earnings. The findings add value to the accounting standard setters concerning the asymmetric verification as Indian Accounting standards are on the verge of convergence with International Financial Reporting Standards (IFRS).

Details

Journal of Financial Reporting and Accounting, vol. 18 no. 3
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 1 March 2001

Rahul De, Biju Mathew and Dolphy M. Abraham

Examines issues related to the successes and failures of Internet businesses. Recent literature has stressed the value of microeconomic models of markets to analyze…

Abstract

Examines issues related to the successes and failures of Internet businesses. Recent literature has stressed the value of microeconomic models of markets to analyze e‐business models and strategy. The concepts of transaction costs, switching costs, network externalities and product versioning are especially useful in understanding business strategy in the new information economy. These concepts are reviewed and analyzed. A deeper assessment of Internet‐based businesses, both successes and failures, reveals a number of other constructs that are relevant for analysis, viz. infrastructure investment models, user experience models and models of revenue generation. These constructs reveal the inherent complexity of the electronic medium for conducting business and point to the subtle issues that determine success or failure. Case studies and examples are used to illustrate the usefulness of these constructs.

Details

Logistics Information Management, vol. 14 no. 1/2
Type: Research Article
ISSN: 0957-6053

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Article
Publication date: 16 May 2008

Rick Francis

The purpose of this paper is to generate empirical evidence that facilitates our understanding of the market pricing for cash flows and accruals.

Abstract

Purpose

The purpose of this paper is to generate empirical evidence that facilitates our understanding of the market pricing for cash flows and accruals.

Design/methodology/approach

The study is empirical in nature, and utilizes and archival methodology.

Findings

The evidence in this study supports the primary hypothesis that the market valuations for the receivable accrual are greater than the valuations for other current accruals. Additionally, the results suggest that market valuations for cash flows are not monotonically greater than the valuations for accruals.

Research limitations/implications

Overall, the results of this study suggest that inferences about the market's valuation of cash flows and accruals must consider multiple sources of variation in a concurrent fashion.

Practical implications

Models for equity valuation used by financial analysts, institutional investors, etc. should allow the various components of accruals to act independently.

Originality/value

This study contributes to the literature by synthesizing various aspects of capital markets research in accounting to enhance our understanding of the role that cash flows and accruals maintain for equity valuation.

Details

Review of Accounting and Finance, vol. 7 no. 2
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 14 August 2007

Patricia Mui‐Siang Tan and Chee Yeow Lim

This paper seeks to address the value relevance of summary accounting measures and fundamental income statement variables in the market valuation of biotech firms.

Abstract

Purpose

This paper seeks to address the value relevance of summary accounting measures and fundamental income statement variables in the market valuation of biotech firms.

Design/methodology/approach

A biotech firm's stock price was related to its underlying financial accounting variables. Using the Ohlson model, the linear function of book value and earnings was employed, and the basic model was augmented with additional accounting variables. These accounting variables may provide information relevant for forming an approximation on the present value of expected future abnormal earnings.

Findings

Results show non‐linearities in the pricing of accounting variables Both book value and earnings are value relevant, but positive earnings are positively priced while negative earnings are negatively priced. R&D spending and selling, general and administrative expenses are also priced as assets for loss‐reporting firms, and as expenses for profit‐reporting observations. Including analysts’ forecasts of future earnings and long‐term growth rate in the model results in an insignificant increase in the explanatory power of the regressions.

Research limitations/implications

Future research could attempt to examine the role of non‐financial variables which can proxy for the soft variables and intangibles like strategic alliances and product pipeline. Decomposing revenue into product sales, interest income and collaborative research revenue may further enhance our understanding on the determinants of the market value of biotech stocks.

Originality/value

This paper provides insights into the valuation of biotechnology stocks. Results show non‐linearities in the pricing of summary accounting measures and fundamental income statement variables.

Details

Review of Accounting and Finance, vol. 6 no. 3
Type: Research Article
ISSN: 1475-7702

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Book part
Publication date: 9 July 2010

Jo-Ellen Pozner, Mary Kate Stimmler and Paul M. Hirsch

One of the lessons learned from the recent financial-sector crisis is that institutions may sometimes sow the seeds of their own destruction. We offer a two-tiered…

Abstract

One of the lessons learned from the recent financial-sector crisis is that institutions may sometimes sow the seeds of their own destruction. We offer a two-tiered analysis of how the diffusion of innovative practices – in this case, issuing and securitizing subprime mortgages – can lead to an unanticipated breakdown of established institutions. At the institutional level, we demonstrate that the lack of effective external regulatory presence, the emergence of new norms through the introduction of a new institutional logic, and intense mimetic and competitive pressures may lead organizational actors to exploit a suboptimal innovation. At the organizational level, we argue that over-embeddedness of central actors within relatively closed networks and superstitious learning processes can exacerbate the biases to which decision makers are susceptible, leading to the institutionalization of a suboptimal organizational practice. These two parallel sets of processes led to severe consequences at the institutional level, which we label “terminal isomorphism.” We end by discussing consequences for institutional theory, future research directions, and recommendations for policy makers.

Details

Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part A
Type: Book
ISBN: 978-0-85724-205-1

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Article
Publication date: 1 January 1999

K.C. Roy and J.C.H. Chai

Increased economic insecurity helps to spur individuals to work harder and be more efficient according to the theory of work incentive. However, in a civilised society…

Abstract

Increased economic insecurity helps to spur individuals to work harder and be more efficient according to the theory of work incentive. However, in a civilised society, the society has a moral obligation to provide basic needs and social safety nets for its poor and unfortunate members who, due to factors beyond their own control, have not been able to earn a living. This paper analyses the trade‐off between economic reforms and economic and social security in India and China. The findings show that both countries’ attempts to minimise the social costs of economic reforms have not been successful. The policy implications are also discussed.

Details

International Journal of Social Economics, vol. 26 no. 1/2/3
Type: Research Article
ISSN: 0306-8293

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Book part
Publication date: 30 September 2019

Abstract

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78973-370-9

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Article
Publication date: 1 June 1993

Colin Talbot

Looks at how radical some of the “Thatcherite” reformsin public management have been, and explores the structural changes topublic sector organizations. Briefly examines…

Abstract

Looks at how radical some of the “Thatcherite” reforms in public management have been, and explores the structural changes to public sector organizations. Briefly examines the introduction of executive agencies in central government; the quasi‐market into the health service and competitive tendering in local government, together with privatization of utilities and the impact of European integration. Focusing on public “human services”, reviews a model of such organizations which has been used to underpin a successful postgraduate programme aimed at human services professionals and managers. Using the notion of domains – of policy, management and services – the programme has sought to integrate both practitioner experience and academic disciplines. Concludes by arguing that a diversity of management programmes are needed to cater for diverse experiences of public management and that recent trends in the UK to strait‐jacket management education within a single generic framework are counter‐productive.

Details

International Journal of Public Sector Management, vol. 6 no. 6
Type: Research Article
ISSN: 0951-3558

Keywords

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