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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.

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.

This study examines whether US effective tax rates on foreign income of US multinationals (MNCs) vary according to the favorability of US macroeconomic conditions relative to those of non-US countries. We use the pre-Tax Cuts and Jobs Act of 2017 regime as our setting and present evidence that US effective tax rates on foreign earnings are higher (lower) in periods when macroeconomic conditions in the US are favorable (unfavorable) relative to those elsewhere in the world. These results imply that firms seek to maximize after-tax returns when making asset allocation decisions, even when faced with US repatriation tax costs. We provide further evidence indicating that our primary results vary predictably according to certain firm characteristics, namely the ability to acquire funds for investment through less expensive means than repatriation of foreign profits, high intangible asset intensity, and tax aggressiveness. Finally, we show that economic uncertainty in the US counters the positive effects of favorable US macroeconomic conditions on US effective tax rates on foreign earnings. Our findings have implications for the policy debate around the US taxation of foreign earnings and provide a (partial) explanation for the observed lower-than-expected levels of repatriation activity following the implementation of the Tax Cuts and Jobs Act of 2017.

This study aims to provide insights into US and Australian analysts' views regarding the relative importance of disclosing the direct method (DM) or indirect method (IM) statement of cash flows and forecasting firm performance.

Evidence is collected from responses to 104 surveys and 52 interviews completed by US and Australian analysts from 2017 to 2022. The survey and interview questions are developed with reference to the literature.

US and Australian analysts believe that the DM format provides incremental benefits compared to the IM for (1) confirming the reliability of earnings; (2) improving earnings confidence; (3) more accurate ex ante forecasts of operating cash flow and earnings; and (4) identifying opportunistic accruals manipulation. Analysts view that DM disclosure can lower firm-level cost of equity, although US interviewees more uniformly expect lower costs of equity under DM disclosure when firms yield low earnings quality. DM disclosure is also more important during unstable economic periods, as proxied by COVID-19.

Limited research currently exists regarding disclosure of the DM or IM and its impact on analysts' forecasting accuracy, earnings quality, economic uncertainty and cost of equity. Previous research has relied on archival research to examine differences between the DM and IM methods and are limited by data availability. Our findings are particularly relevant to the US market with few US firms reporting the DM format.

The United States (US) sugar program protects domestic sugar farmers from unrestricted imports of heavily-subsidized global sugar. Sugar-using firms (SUFs) criticize that program for causing US sugar prices to be higher than world sugar prices. This study examines the financial performance of publicly traded SUFs to determine if they are performing at an economic disadvantage in terms of accounting profitability, risk and economic profitability compared to other industries.

Firm-level financial accounting and market data from 2010 to 2019 were utilized to construct financial metrics for publicly traded SUFs, agribusinesses and general US firms. These financial metrics were analyzed to determine how SUFs compare to their agribusiness peer group and general US companies. The comprehensive financial analysis in this study covers: (1) accounting profit rates, (2) drivers of profitability, (3) economic profit rates, (4) trend analysis and (5) peer comparisons. Quantile regression analysis and Wilcoxon–Mann–Whitney statistics are employed for statistical comparisons.

Regarding various profitability and risk measures, SUFs outperform their agribusiness peers and the general benchmark of all US firms in terms of accounting profit rates, risk levels and economic profit rates. Furthermore, compared to other US industries using the 17 French and Fama classifications, SUFs have the highest return on investment and economic profit rate―measured by the Economic Value Added® margin―and the second-lowest opportunity cost of capital, measured by the weighted average cost of capital.

This study finds nothing to suggest that the US sugar program hinders the financial success of SUFs, contrary to recent claims by sugar-using firms. Notably in this analysis is the evaluation of economic profit rates and a series of robustness techniques.

The authors investigate how market quality diverges between foreign firms and domestic firms on the US stock market in response to the Russia–Ukraine conflict.

With an event study approach, the authors compare foreign firms with domestic firms in their market responses over the three-day window around the outbreak of the war. Further, with Difference-in-Difference (DID) analyses, the authors study the change in foreign firms' market quality upon this outbreak in comparison with their domestic counterparts. Finally, the authors compare the foreign firms across firm specific characteristics and home country characteristics.

The authors find that foreign stocks listed in the US experience more severe market quality deterioration compared to the stocks' domestic counterparts. This effect is especially strong for companies from countries considered friendlier towards Russia and companies that are not cross-listed. The authors' findings are consistent with the information asymmetry hypothesis concerning market quality. Moreover, US market investors have more concerns over political risks with non-US-aligned political standings during war times.

The authors' findings are consistent with the information asymmetry hypothesis concerning market quality. Moreover, US market investors have more concerns over political risks over non-US-aligned political standings during war time.

Since both countries in the conflict are in Europe, the US stock market, to a certain degree, becomes a safe haven for capital from Europe and other countries. In the meantime, American Depository Receipts (ADRs) have been important for US investors to create a globally diversified portfolio, and the knowledge regarding ADRs' vulnerability to international geopolitical events is valuable. The author' results are informative for stock market investors to understand the market dynamics for international and domestic companies during this extremely uncertain time.

This is the first study that examines the market quality divergence between foreign firms and domestic firms on the US stock market in response to the Russia–Ukraine conflict. The authors provide novel evidence on the change in ADRs' market quality associated with significant political uncertainty. The authors show that ADRs' market quality is more vulnerable to international geopolitical risks relative to otherwise comparable domestic firms.

The purpose of this paper is to investigate whether US regulatory actions around reverse mergers (RM) have exerted any spillover effects on the Chinese firms listed in China and whether Chinese firms have exhibited lower financial reporting quality than their US counterparts.

To test the possible spillover effect, this paper calculates three-day cumulative average abnormal returns (CAAR) and the aggregate CAAR for a series of US regulatory actions in 2010 and 2011. The study then compares the accrual quality, conditional conservatism, and information content of accruals of Chinese firms and US firms.

The paper documents a spillover effect of US actions around RM on Chinese stocks listed in China. Overall results do not support the perception that Chinese firms have lower financial reporting quality than their US counterparts.

While this study provides evidence consistent with investors perceiving poor financial reporting quality among Chinese firms, that perception is not justified by empirical evidence.

Investors need not be overly concerned about the financial reporting quality among the Chinese firms when they make asset allocation decisions.

A reality check is important given that perceptions may be outdated, biased, misleading, and costly.

This study puts the financial reporting quality of Chinese firms into perspective helping global investors assess information risk for optimal resource allocation.

This paper aims to increase understanding of the (time‐varying) relationship between exchange rates and stock prices at the individual firm level. Rather than analyzing the impact of exchange rate movements on firm value by regressing multinationals’ stock returns on exchange rate changes, it is proposed to examine the impact of increased exchange rate variability on the stock return volatility of US multinationals by focusing on the 1997 Asian financial turmoil.

In a first step, it is investigated whether the enhanced uncertainty about the future performance of US multinationals active in Asia resulted in an increased stock return variability. The second step separates the impact of increased exchange rate variability on the stock return volatility of US multinationals into systematic and diversifiable risk.

It is found that the stock return variability of US multinationals increases significantly in the aftermath of the financial turmoil. In conjunction with this increase in total volatility, there is also an increase in market risk (beta) for US multinationals. Moreover, trade‐ and service‐oriented industries appear to be particularly sensitive to these changing exchange rate conditions.

If the additional risk imparted to exposed firms from increased exchange rate variability is systematic in nature, it will affect the required rate of (equity) return (i.e. investors demand higher returns for holding the firm's shares). Consequently, this effect of exchange rate fluctuations increases the cost of (equity) capital for US multinationals with real foreign operations in the crisis countries.

This paper demonstrates the impact of increased exchange risk on stock return volatility and market risk.

The purpose of this study is to examine the impact of the 2020 COVID-19 lockdown on the audit fees and audit delay of audit client firms located in 52 countries and audit firm offices located in 40 countries.

Using archival audit data from Audit Analytics in the fiscal year 2020, this study examines the impact of the length of COVID-19 lockdown and other public health restrictions, measured by the stringency index (Hale et al., 2021), on audit fees and audit delay using a multivariate regression analysis.

Based on a sample of 2,726 US firms and 718 non-US firms from 51 different countries outside the USA and audit firm offices in 40 countries during the fiscal year 2020, the authors find that the COVID-19 lockdown and public health restrictions increase audit fees and audit delay. However, non-US firms experience longer audit delay because of the lockdown than their US counterparts. In addition, longer lockdown and greater restrictions increase the audit fees and audit delay of non-US firms with high audit risk at a greater rate than those of US firms with high audit risk.

The results of this study suggest that auditors increase audit fees and have longer audit delay when facing more COVID-19 restrictions. Increased audit fees and audit delay are likely to result from higher perceived audit risk and, consequently, additional audit effort to design new procedures, train staff to use the new procedures and implement them amid the pandemic restrictions. The impact of COVID lockdown and restrictions on audit fees and audit delay are more pronounced for non-US firms with greater audit risk. The results of this study suggest that audit firms should quickly adapt to the evolving audit, risk and financial landscape created by the pandemic.

Using archival audit data and large sample size, this study provides the first empirical evidence of the impact of lockdown and public health restrictions during the first wave of COVID-19 outbreak on audit processes as measured with audit fees and audit delay.

This paper aims to explore internationalisation strategies of service firms in sectors where markets become increasingly globalised while resource environments still remain distinctively shaped by national institutions.

A theoretical framework is proposed that suggests that the more firms expand their business activities across borders by building up offices abroad or merging with firms from other countries, the more likely they are to embrace recombinant strategies to blend elements of different societal legacies. Subsequently, a comparative case study of internationalisation strategies, governance modes and organisational forms of European and US law firms is presented to illustrate the value of the framework, followed by the analysis of a novel data set on multi‐jurisdictional qualifications of partners in these international law firms.

By virtue of their integrative organisational model and mobilisation of versatile legal competences, large pan‐European law firms are challenging the dominance of US law firms in international legal markets, while the latter in response are revising their own previous export‐oriented internationalisation strategy.

The present study provides a starting point for further research on internationalisation in service industries.

The framework is useful to expand effect societal analysis to dynamic international environments.