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This study focuses on a survey of chief financial officers (CFOs) in public firms in Japan concerning the following six points: the importance of the definition earnings quality; higher quality earnings; the determinants of earnings quality; prevalence, magnitude, and motivation of earnings management; accounting that influences earnings quality; and misrepresenting of earnings. The results are following: first, Japanese CFOs define earnings quality as earnings accurately reflecting economic reality, earnings accurately reflecting the results of operations, and earnings backed by cash flows, earnings sustainability, recurring, and consistent, and earnings reflecting long-term trend importance. Second, Japanese firms consider earnings that reflect consistent reporting choices over time as higher quality. They do not consider that earnings having accruals that are eventually realized as cash flow as higher earnings quality. Third, Japanese CFOs indicate that 30% of earnings quality is impacted by firm characteristics such as firm’s business model, industry, and macroeconomic conditions. Surprisingly, the influence of the board of directors is greater than the impact of their internal controls. Fourth, as for the determinants of earnings quality, CFOs consider that more than 70% of Japanese CFOs do not allow the discretion and that accounting standards limit their ability to report higher earning quality. Fifth, Japanese CFOs consider that higher earnings are influenced by accounting principles such as policies that match expenses with revenues and policies that rely on fair value accounting as much as possible. Sixth, CFOs themselves predict that 50% of Japanese firms use discretions and that they use 20% of earnings per share (EPS). Since there is inside and outside pressure to hit earnings benchmarks, Japanese firms possess the motivation to use earnings to misrepresent economic performance, Japanese managers see a red flag when generally accepted accounting principle’s earnings do not correlate with cash flow from operations.

We document three new facts about gender differences in executive compensation. First, female executives receive lower share of incentive pay in total compensation relative to males. This difference accounts for 93% of the gender gap in total pay. Second, the compensation of female executives displays lower pay-performance sensitivity. A $1 million dollar increase in firm value generates a $17,150 increase in firm-specific wealth for male executives and a $1,670 increase for females. Third, female executives are more exposed to bad firm performance and less exposed to good firm performance relative to male executives. We find no link between firm performance and the gender of top executives. We discuss evidence on differences in preferences and the cost of managerial effort by gender and examine the resulting predictions for the structure of compensation. We consider two paradigms for the pay-setting process, the efficient contracting model and the “managerial power” or skimming view. The efficient contracting model can explain the first two facts. Only the skimming view is consistent with the third fact. This suggests that the gender differentials in executive compensation may be inefficient.

Purpose – This research presents empirical evidence on which performance measures are perceived as short-term oriented and long-term oriented by company executives, and on whether any perceived performance measure-related time orientation affects the time orientation of these executives. In addition, the study explores which measures impact executive time orientation, regardless of how these measures are perceived.

Methodology/approach – A survey was used to collect the perceptions of chief financial officers (CFOs) in 109 companies listed in the Nasdaq OMX, the Nordic Stock Exchange. Performance measures include: stock price, earnings, returns, cash flow, success of development programs, EVA™, sales, and balanced scorecard, and the method employed was multiple regression.

Findings – First, the CFOs perceived returns, sales, EPS, and stock price to have long time orientation. Second, the use of returns, stock price, and success of development programs as major performance measures encourage the CFOs toward long-term behavior, whereas the use of cash flow encourages short-term behavior. Third, stock price, earnings, and EPS are measures whose perceived time orientation affects the time orientation of executives. It is most likely due to this influence, that they have received major attention in public debates on the short time orientation of executives at the expense of other, more “silent” measures that also impact executive time orientation. Contextual factors strongly affect the results.

Practical implications – The study assists in designing executive performance measurement systems that encourage desired time orientation.

Originality/value – This study contributes to the fields of performance measurement and time orientation by recognizing the multidimensionality of the construct of time orientation and by showing how performance measures and their perceived time orientation influence executive time orientation.

This paper investigates the impact of the Sarbanes-Oxley (SOX) Act on top executive compensation and empirically examines the changes in relationship between top executive compensation and corporate performance expectations.

A theoretical framework is presented based on previous literature and testable hypotheses are proposed. The Pearson correlation is calculated to examine the inter-correlation among various measures of performance and compensation variables. The Ordinary Least Square (OLS) Regression was conducted to test the hypotheses.

The results show that in the pre-SOX period CEO compensation is strongly related to market-based performance measures while in the post-SOX period accounting-based performance measures showed a significant positive relationship with CEO compensation. The results confirm the impact of the SOX Act where it requires stronger internal control systems and reliable financial reporting. The board relies heavily on accounting-based performance measures in determining top executive compensation in the post-SOX period.

This paper shows the composition and level of CEO compensation have changed following the SOX Act and provide important evidence in explaining changes in the relationship between top executive compensation and firm performance expectation in the post-SOX period.

This study attempts to analyze the role of governance mechanisms in municipal bankruptcy, which appears to be a neglected area of research. The analysis considers both the organizational level (micro) and the regulatory system (macro).

We use a relevant case of municipal bankruptcy in Italy to discuss the influence of governance characteristics, such as the political and management structure, interaction, and behaviors. The issues related to the accounting system and external audits are also considered. The data for this study are obtained from secondary sources such as audited budgetary reports, public documents, and reports from the Supreme Audit Institution.

The study indicates that the spoils system can favor the politicians’ exercise of power over public managers and undermine the capacity to prevent and manage financial distress. Poor accounting and weak control systems may facilitate this process. The high turnover of top management throughout a mayor’s term in office may reflect political pressure to force accounting rules and achieve flexibility to obtain the expected results or to correct poor financial performance.

To avert municipal bankruptcies, regulations should consider enforcing ex ante control by external oversight bodies, forbidding risky operations and limiting the spoils system for financial management positions and internal auditors.

Municipal defaults around the world have indicated that regulations and audits are ineffective to prevent local governments from failing. A full understanding of complex mutual interactions between the mechanisms of governance and the behaviors of politicians and managers can provide valuable insights to prevent local governments from failing.

Krull (2004) finds that US multinational corporations (MNCs) increase amounts designated as permanently reinvested earnings (PRE) to maximize reported after-tax earnings and meet earnings targets. We extend this research by examining the relationship between executive equity compensation and the opportunistic use of PRE by US MNCs, and the market reaction to earnings management using PRE designations. Firms use equity compensation to incentivize executives to strive for maximum shareholder wealth. One unintended consequence is that executives may engage in earnings management activities to increase their equity compensation. In this study, we examine whether the equity incentives of management are associated with an increased use of PRE. We predict and find strong evidence that the changes in PRE are positively associated with the portion of top managers' compensation that is tied to stock performance. In addition, we find this relationship to be strongest for firms that meet or beat forecasts, but only with the use of PRE to inflate income, suggesting that equity compensation incentivizes managers to opportunistically use PRE, especially to meet analyst forecasts.

Further, we provide evidence that investors react negatively to beating analysts' forecasts with the use of PRE, suggesting that investors find this behavior opportunistic and not fully convincing. This chapter makes an important contribution to what we know about the joint effects of tax policy, generally accepted accounting principles, and incentive compensation on the earnings reporting process.

Purpose – The purpose of this paper is to examine the extent to which potential factors affect the use of activity-based costing (ABC) in a service context.

Design/methodology/approach – An empirical survey was conducted on a sample of 112 leading hotels enterprises in Greece.

Findings – Results show that the use of ABC is positively associated with business strategy and with chief financial officer's (CFO) educational background. In addition, ABC is negatively associated with CFO age. No association was found between the use of ABC and the quality of information technology, membership of multinational chain, and CFO tenure.

Research limitations/implications – This research was limited to the Greek hotel sector. Cross-sectional studies as the work presented here can establish associations, but not causality.

Originality/value – This paper adds to the limited body of knowledge of the design of cost systems in a service context (service cost system design). Specifically, this paper adopted a contingency approach and used empirical analysis to identify the influence of specific organizational variables and CFOs characteristics on the use of ABC in service firms. The operational homogeneity of hotels enables powerful tests of the research hypotheses.

This study investigates whether or not accounting and legal decision-makers at publicly traded US firms exhibit a professional affiliation bias with respect to their selection of business service providers. Executives at NYSE or NASDAQ firms who were affiliated with the accounting profession, the legal profession, or neither profession indicated their likelihood of using one of three randomly assigned types of firms (i.e., a CPA firm, a law firm, or a firm with both CPA and attorney partners) to provide five selected business services. The five business services represent the range of accounting and legal services that firms often outsource: audit, tax representation, mergers and acquisitions, trade regulation/interstate commerce, and litigation. We find that executive level decision-makers at publicly traded US firms do exhibit a professional affiliation bias in the selection of business service providers and that this professional affiliation bias is stronger in attorneys than in CPAs. The fact that all respondents were NYSE or NASDAQ executives, rather than students or another surrogate population, provides additional relevance and generalizability to our findings. Identifying this bias can help executives avoid suboptimal initial selection decisions and/or inaccurate performance evaluations of external business service providers.

We examine the interactive effects of organizational culture and structure on the success of implementing activity-based costing (ABC) in Chinese manufacturing firms.

We applied contingency theory of management accounting and used a questionnaire survey of 106 respondents.

The results indicate that a formalized organizational structure significantly affects the success of implementing ABC. The organizational culture factors, outcome orientation and attention to detail, were significantly associated with the success of implementing ABC. Further, interactions between centralization and outcome orientation and formalization and innovation were associated with success in implementing ABC.

While this study is constrained to Chinese manufacturing firms, its findings have ramifications for organizations in both developed and less-developed economies as the study demonstrated that organizational structure and culture interact with each other to affect the implementation success of a management accounting system.

This paper presents the first attempt to demonstrate the interactive effect of organizational culture and structure on the success of implementing ABC in organizations.

This paper takes a unique approach to provide additional insight into the agency view of tax avoidance. We directly investigate the association between the presence of agency conflicts and corporate tax avoidance. Using a measure of CEO centrality, developed by Bebchuk, Cremers, and Peyer (2011), we identify settings in which agency conflicts are likely to be high. In contrast to prior literature, our primary tests do not rely on the inferences of market participants regarding tax avoidance. We find that CEO centrality is positively and significantly associated with tax avoidance. Additionally, we analyze the mediating role of monitoring by institutional investors in our setting. We find that the relation between tax avoidance and the existence of agency conflicts is strongest for firms with low levels of CEO monitoring. We also add to prior literature by investigating the implications of our setting on future accounting performance and future firm value.