The decision to present comparative financial statements in a mandatory IFRS adoption setting

Purpose

This study analyzes the factors behind the decisions made by the largest listed Chilean companies that mandatorily adopted the International Financial Reporting Standards (IFRS) in 2009 to present comparative IFRS financial statements that year. The authors focus on the role of the expected impact of the change in the accounting standards on a company's financial position as a determinant of this decision.

Design/methodology/approach

The sample comprises 105 nonfinancial companies, of which 57 decided to present comparative IFRS financial statements (full adoption) and 48 did not (proforma adoption). Logistic regression is employed to model the decision of interest.

Findings

The decision for full adoption is positively associated with the company's expectation that the change in the accounting standards would improve its financial position, albeit only up to a certain threshold, as evidenced by their inverse U-shaped association.

Originality/value

IFRS adoption in Chile creates a unique scenario that allows us to contribute to the literature on the determinants of voluntary disclosure by focusing on a specific case in which the decision to disclose comparative financial statements is associated with mandatory IFRS adoption. The present study provides evidence that opportunistic behavior influences this decision.

Corporate going-concern report in early pandemic situation: Evidence from Indonesia

A going-concern report (GCr) in the audit opinion adds value and ensures that the firm's sustainability is secured. This study sheds light on this relationship of listed infrastructure, utility, and transportation firms in Indonesia as the most affected firms by Covid-19. Data were collected from published audited annual reports and extracted from 73 firms as a sample. Logistic regression was employed to test the hypotheses. The results show the importance of leverage, audit quality, prior opinions, and dividend policy in ensuring corporate GC. In contrast, audit committee and institutional holder as corporate governance indicators are unrelated to GCr. Beyond its contribution to the literature, this study offers valuable feedback for regulatory bodies to consider the enforcement of corporate governance implementation and assists investors in making better-informed decisions. Furthermore, due to a pandemic crisis, a postponed dividend payment has not caused the firm to accept a GCr.

A dataset on corporate sustainability disclosure

Enterprises, as key emitters, play a vital role in promoting sustainable development. Corporate sustainability disclosure provides a key channel for stakeholders to gain insights into a company's sustainability progress. However, few studies have been conducted to measure sustainability disclosure at the firm level. In this study, we apply the machine learning techniques to listed companies' management discussion and analysis (MD&A) documents and construct a dataset on corporate sustainability disclosure, including the Corporate Sustainability Disclosure Index (CSDI), CSDI_Economic Dimension (CSDI_ECO), CSDI_Environmental Dimension (CSDI_ENV), and CSDI_Social Dimension (CSDI_SOCI). The dataset will be updated annually. To the best of our knowledge, this is the first sustainability disclosure dataset constructed at the firm level. Our dataset reflects corporate managements' sustainability attitudes and promotes the implementation of corporate sustainability strategies and subsequent sustainable economic and social outcomes.

Peer-to-Peer (P2P) Lending Risk Management: Assessing Credit Risk on Social Lending Platforms using Textual Factors

Peer-to-peer (P2P) lending platforms offer Internet users the possibility to borrow money from peers without the intervention of traditional financial institutions. Due to the anonymity on such social lending platforms, determining the creditworthiness of borrowers is of high importance. Beyond the disclosure of traditional financial variables that enable risk assessment, peer-to-peer lending platforms offer the opportunity to reveal additional information on the loan purpose. We investigate whether this self-disclosed information is used to show reliability and to outline creditworthiness of platform participants. We analyze more than 70,000 loans funded at a leading social lending platform. We show that linguistic and content-based factors help to explain a loan's probability of default and that content-based factors are more important than linguistic variables. Surprisingly, not every information provided by borrowers underlines creditworthiness. Instead, certain aspects rather indicate a higher probability of default. Our study provides important insights on information disclosure in the context of peer-to-peer lending, shows how to increase performance in credit scoring and is highly relevant for the stakeholders on social lending platforms.

Founder or descendant CEOs, tax avoidance and firms' future risks: the Indonesian evidence

Purpose

This study aims to examine the impact of founder or descendant chief executive officers (CEOs) on the relationship between tax avoidance and firms' future risk. This issue is important because of an ongoing debate about founder and descendant CEOs' impacts, contributions and implications for firms.

Design/methodology/approach

This study uses a sample of publicly listed nonfinancial Indonesian firms in 2012–2019, most of which are family firms and adhere to a two-tier governance system that was understudied in previous studies. The authors use panel-random effect data regression for the statistical analysis.

Findings

The results demonstrate that founder or descendant CEOs do not affect the positive relationship between tax avoidance and firms' future risks.

Research limitations/implications

This research supports the upper-echelon theory, arguing that top management teams affect firms' strategic policies and outcomes.

Practical implications

CEOs play weaker roles in countries with a two-tier governance system than in a one-tier one. Additionally, in relation to Hofstede's cultural dimensions, Indonesia has collective and feminist characteristics that emphasize elements of togetherness and group so that firms reflect the firms' top management teams and not only CEOs.

Originality/value

This research fills a research gap on the role of founder and descendant CEOs in the relationship between tax avoidance and firms' future risks by analyzing firms in Indonesia, a country with a two-tier governance system and collective and feminine cultural characteristics.

IFRS adoption, firms’ investment efficiency and financial reporting quality: a new empirical assessment of moderating effects from Saudi listed firms

Purpose

Under a gradual long-term plan of the Saudi Stock Market (TADWUAL) from 2016, Saudi Arabia decided to work with International Financial Reporting Standards (IFRS) board to fully adopt its accounting standards. Saudi Arabia has undergone several reforms in governance and standards of internal controls are changing rapidly. This study aims to assess whether IFRS adoption has any moderator role in the relationship between disclosure quality and firm-specific characteristics in the Saudi Stock Market.

Design/methodology/approach

This study assesses whether IFRS adoption has any moderator role in the relationship between disclosure quality and firm-specific characteristics in the Saudi Stock Market. The key research hypotheses postulate that compared to IFRS status, after adoption, several independent variables influence the disclosure level. The analysis covers a local sample of 184 Saudi listed firms over the period 2016 to 2020. Using an in-depth content analysis technique, the voluntary disclosure and number of annual report pages are measured manually and year by year to capture levels and unique characteristics. The authors apply cross-sectional regression, first difference method, Pooled OLS and feasible general least square estimations. The mean of disclosure level increases from 33.03% in 2016 to 56.14% in 2020.

Findings

The results reveal that the vast majority of firm-specific characteristics were significant in pre-IFRS adoption period. First difference analysis shows a significant impact of firm size and non-executive composition on the disclosure level. The authors confirm that IFRS adoption plays a critical role in the quality of firms’ financial reports and supports to create a conducive economic environment in Saudi Arabia.

Practical implications

First, the implementation of IFRS adoption should impact the Saudi accounting information and disclosure quality in Saudi context markedly. Second, firm-specific characteristics align with corporate governance are the main determinants of accounting information and transparency; therefore, focusing on this angle enables regulators and policymakers to mitigate uncertainty and asymmetric information. Third, the findings of this research state that there is a negative relationship between disclosure quality and board meetings. This encourages policymakers to reconsider the number of board meetings in firms that was not as high as in the developed markets. Notwithstanding all previous implications, it is recommended that future research undertake a various quasi-experimental design such as a difference-in-difference approach to estimate the causal effect of corporate governance mechanisms on IFRS 7 mandatory disclosure requirements on in Saudi Arabia context.

Social implications

There is a lack of studies on this realm and such as these studies will enrich the understanding of aspects of IFRS adoption and contribute to the prior empirical literature. Importantly, the extend of this sample into other Gulf Cooperation Council countries and exhibition the difference effect can be very useful to enrich the knowledge of IFRS adoption aspects in corporate disclosure and accounting information quality.

Originality/value

Saudi Arabia has undergone several reforms in governance, and their standards of internal controls are changing rapidly. This has been attributed to the importance of providing guidelines, practices and regulations for listed companies. One of the major turning points of financial reporting quality in Saudi listed firms was adoption of IFRSs. This adoption deems to be necessity in ensuring the highest level of transparency and information reliability. Based on the findings of this research, the present investigations set up a platform and furnish many implications for policymakers, companies’ board of directors, financial analysts and other related authorities. The results should provide policymakers with greater insight of the relationship between disclosure quality and corporate-specific characteristics throughout the IFRS adoption periods. Thus, the results derived from this study can be effective and useful for the IFRS adoption committee in the Saudi Organization for Certified Public Accountants (SOCPA). According to the best of the authors’ knowledge and based on official secondary information sourced from the SOCPA website, there are several standards that are subject to difficulties in measurement and are modified from time to time, such as: IFRS1, IFRS8, IFRS12, IFRS16 and IFRS18.

The materiality of identified misstatements by auditors and earnings management

Purpose

Auditors should realize misstatements and communicate to managers for adjustments. Managers usually modify the misstatements, but they have motivations, like earnings management, for not altering the misstatements. The auditor expects to identify the misstatements’ earnings management, inform the managers and reduce earnings management by proposing adjustments. This study aims to determine whether identified and adjusted misstatements cause a decline in earnings management. Is the increase in the materiality of identified and adjusted misstatements associated with a reduction in earnings management?

Design/methodology/approach

The identified and adjusted misstatements are obtained from the difference between nonaudited financial statements and audited ones. Earnings management is computed using the adjusted Jones model, and the quantitative materiality threshold has also been calculated based on the Iranian auditors’ guidelines. These variables and other required information were gathered for 159 listed firms on the Tehran Stock Exchange during 2014–2019 and examined by the regression models.

Findings

The results show a negative relationship between identified and modified misstatements of total assets and earnings management and a positive and significant relationship between identified and adjusted misstatements of total liabilities and earnings management. However, the positive relationship between identified and adjusted misstatements of net income with earnings management is not significant. Besides, the relationship between the materiality difference and an absolute value of identified and adjusted misstatements (materiality minus the absolute value of misstatements) of total assets and earnings management is positive and significant, but the negative association between materiality difference and the absolute value of identified and adjusted misstatements of total assets and earnings management is not significant. The relationship between materiality difference and the absolute value of identified and adjusted net income and earnings management misstatements is negative and significant. These results indicate that the more material the identified and adjusted misstatements, the less earnings management.

Research limitations/implications

The difference between nonaudited and audited financial statements represents identified and adjusted misstatements (audit adjustments). The client probably made some adjustments, but separating these adjustments from the auditor’s identified items was impossible with the available data.

Practical implications

The results show that significant audit adjustments decline earnings management. Paying more attention to a high-quality audit performed by the audit firms, auditors, managers and users and, consequently, discovering misstatements and adjusting or reporting them would decline the earnings management’s unfavorable impacts.

Social implications

The unfavorable consequences of earnings management can cause the inappropriate transfer of wealth in the capital market and some investors’ loss to others’ benefit. These consequences can cause a loss of trust and leave unfavorable psychological effects on the capital market and society. Identifying and adjusting significant misstatements can lead to the decline of such impacts.

Originality/value

The previous studies assessed the relationship between identified and adjusted misstatements (audit adjustments) and earnings quality or earnings management. However, this study focuses on audit adjustments’ materiality to assess the impact of significant adjustments on earnings management.

Choosing Beyond Compliance Over Dormancy: Corporate Response to India's Mandatory CSR Expenditure Law

This article examines whether firms engaged in high levels of voluntary CSR (corporate social responsibility) alter their strategic choices in response to detrimental public policy – specifically India's Companies Act (2013) that mandates qualifying firms to spend 2% of their three-year average net profits on CSR. Drawing on the concept of organizational dormancy, we argue that firm capabilities, political awareness, exposure to political pluralism, and ownership identity may explain choice heterogeneity among these firms. Our key and non-intuitive finding is that even in the absence of discretionary choice in determining optimal CSR expenditure, firms are less likely to choose dormancy and instead embrace and even surpass the stipulations of the law in their CSR contributions. Also, politically aware firms are more likely to opt for dormancy over compliance. Managerial and policy implications are discussed.

The impact of corporate social responsibility decoupling on financial performance: the role of customer structure and operational slack

Purpose

Corporate social responsibility (CSR) decoupling indicates a misalignment between how firms report CSR and what firms actually practice with respect to CSR. The purpose of this paper is to examine the relationship between CSR decoupling and financial performance and the factors affecting this relationship.

Design/methodology/approach

This paper collects and combines secondary panel data from multiple sources of Chinese listed firms from 2008 to 2020 to test the direct impact of CSR decoupling on firms’ financial performance and the moderating role of customer structure and operational slack.

Findings

This paper finds that CSR decoupling is negatively associated with firms’ financial performance. These findings further suggest that the negative relationship can be suppressed by customer stability and operational slack, but amplified by customer concentration. These conclusions remain robust to alternate measures of independent and dependent variables and narrower samples.

Originality/value

In the literature, the effect of CSR on firms’ financial performance is inconclusive. This is the first study to examine the impact of CSR decoupling on firms’ financial performance and the factors affecting this relationship. This paper contributes to the CSR decoupling literature from an operations and supply chain management perspective.

Value relevance of voluntary intellectual capital disclosure: a meta-analysis

Because mandatory disclosure of intellectual capital (IC) is restricted by accounting regulations, companies invest in voluntary IC disclosure (ICD) to reduce information asymmetries and support an adequate firm valuation by investors and other stakeholders. So far numerous studies analysing the value relevance of voluntary ICD have been published revealing mixed results. Thus, it is the purpose of this paper to statistically integrate and to explain the heterogeneity of results by applying a meta-analysis with 122 effects of 40 primary studies. Our results mainly support the value relevance of voluntary ICD resulting in higher market value, lower cost of equity, and higher accounting performance. We identify weak moderating effects for legal origin, different IC categories and journal ranking. For further improving of disclosure quality, standard setters should develop disclosure standards for voluntary ICD. To reduce the heterogeneity of future studies a standardised scale for the measurement of voluntary ICD should be developed and applied.

Board diversity on firm performance from resource-based view perspective: new evidence from Pakistan

Purpose

This study aims to investigate the impact of extensive board diversity on firm performance from the perspective of resource-based view (RBV) theory in the context of Pakistan.

Design/methodology/approach

The analyses are made using a panel random-effects model and generalized method of moment (GMM) across 188 non-financial firms listed in the Pakistan Stock Exchange (PSX) over the period of 2009–2020. The robustness of findings is checked through alternative measurements of the variables and alternative estimation techniques.

Findings

The results show that board members' nationality, ethnicity and educational level diversities are significantly positively related to firm performance. In contrast, age and educational background diversities negatively affect firm performance. However, gender and tenure diversities have an insignificant relationship with firm performance.

Research limitations/implications

This study is conducted in the context of Pakistani firms; thus, the findings may not be generalizable to other economies because different economies have different institutional settings and governance structures.

Practical implications

The policy-makers should encourage the inclusion of board members' nationality, ethnicity and educational level diversities having relevant educational backgrounds to improve firms' competitive performance. The suggested structure of the corporate board may improve firm performance by attracting multiple stakeholders and fulfilling their expectations.

Social implications

The appointment of a director should be based on merit rather than on political connections or personnel relationships to improve social welfare and avoid their negative impact on firm competitive performance.

Originality/value

To the best of the authors' knowledge, this is the first study that investigates the impact of board diversity on firm accounting-based performance and market-based performance in the emerging economy of Pakistan. This study uses RBV theory to provide a unique corporate governance structure based on board diversity, particularly in Pakistan.

Greenhouse gas emissions and corporate social responsibility in USA: A comprehensive study using dynamic panel model

This study addresses the issues of Greenhouse Gas Emission and corporate social responsibility of firms in USA. This paper estimates various econometrics estimations varying from multivariate regression, static panel modes and dynamic panel models. Finally, to control the endogeneity problem dynamic panel model is preferred to capture the relationship of greenhouse gas emissions and corporate social responsibility. The result of the study shows a positive and significant relationship between greenhouse gas emission and corporate social responsibility. Further, it is also observed that firms with better corporate social responsibility performance can reduce greenhouse gas emissions. This is the first research that attempts to explore two-way relationships between greenhouse gas emission and corporate social responsibility by using various estimation techniques varying from multivariate, OLS to dynamic panel GMM. From a policy point of view, corporate social responsibility plays an important role in managing and reducing greenhouse gas emissions, ultimately creating a secure environment for all parties while improving business performance. Policymakers should create policies to control greenhouse gas emissions and enhance corporate social responsibility.

Does managerial short-termism always matter in a firm's corporate social responsibility performance? Evidence from China

Using data on Chinese A-share listed firms from 2008 to 2017, we explore how corporate social responsibility (CSR) performance is affected by managerial short-termism and what factors influence the association between the two. First, by employing text analysis in conjunction with machine learning, we construct a new managerial short-termism indicator. Using panel fixed models, we find that managerial short-termism has an adverse impact on CSR performance, and the results are consistent in a series of robustness checks. The heterogeneous test results show that the negative effect is significant only for firms with lower internal corporate governance, for firms in less competitive industries, for firms with less analyst attention, and for state-owned enterprises (SOEs). Additionally, a better institutional environment weakens the negative impact of managerial short-termism on CSR performance. The findings shed light on policy implications for emerging countries.

Pension accounting information and firm value: An analysis of FTSE 100 companies

This study is among the first to take known results in pension accounting and use a sample of UK listed FTSE 100 companies to show that the results are mostly the same as in previous research (on the US companies) into associations between pension accounting information and firm value. We investigate the association between published pension accounting information and the market value of a sample of UK listed FTSE 100 companies in the ten-year period 2006 to 2015. We analyse UK listed firms that report under the IFRS accounting framework (IAS 19), which is a contribution to earlier literature that concentrated on US listed firms that report under the US (FASB) accounting framework that has significantly different pension accounting rules to the IFRS accounting framework. Moreover, the analysis is conducted on a sample of firms that used the method of immediate recognition of actuarial gains and losses in other comprehensive income (or the 'Fair Value OCI method') even before mandatory adoption of this method from 2013. We employ a static panel regression analysis on a sample of 70 companies. Empirical findings suggest that there is an association between pension accounting information and firm value, but in some cases, there is less association than there is between other types of accounting information and firm value. Core earnings are value relevant but overall pension earnings (net) are not value relevant although pension costs, pension interest expense and pension income have an association with firm value. Balance sheet numbers have less association with firm value than is the case for core earnings, pension costs, pension interest expense or pension income.

How do accounting records affect corporate financial performance? Empirical evidence from the Indonesian public listed companies

Previous studies demonstrate that accounting choices could, directly and indirectly, affect firm performance. We investigate whether accounting choices and financial ratios could affect firm performance. We extend the financial ratio variables by adding accounting choice and interaction variables. Based on the panel random effect regression analysis of 100 Indonesian public listed firms, we report that activity ratio, leverage, and depreciation method choice tend to be associated with firm profitability. We conclude that higher assets and leverage tend to be associated with higher efficiency and fewer monitoring costs. However, there is a difference in direction between equity and asset for the leverage variable. This may be explained by the existence of premiums (or discounts) in the equity component, but not in the asset component.

Investigating Accounting Factors through Audited Financial Statements in Businesses toward a Circular Economy: Why a Sustainable Profit through Qualified Staff and Investment in Technology?

This study examines the investigation of accounting factors through audited financial statements in businesses by analyzing the qualified staff and investment in technology for sustainable profit. Therefore, the main goal is to analyze whether qualified staff and investment in technology affect the sustainability of profit in businesses through the investigation of accounting factors in the audited financial statements toward a circular economy, more specifically in these financial items: total assets (TASS), and intangible assets (IASS), total liabilities (TLIA), total income (TREV), and net financial income (NFI), based on questions about which financial items businesses should take care of, as well as businesses that do not invest in technologies and skilled staff: does this hinder profit sustainability? Therefore, for this study, data are collected from the financial statements (balance sheet and income statement) of (N = 800) businesses according to their activity (manufacturing businesses = 256, service businesses = 192, and distribution businesses = 353) during the period (2020–2022). The results show that each of the variables and factors had a significant impact on sustainable profit through the circular economy in (N = 800) businesses. However, to have a sustainable profit in business, it is strongly recommended to pay attention to these findings: businesses should (a) be careful with total liabilities, (b) increase the performance of total assets, (c) increase the performance of net financial income, (d) increase the performance of total business income, and (e) increase and develop the skills of workers, as well as improve technology (equipment, machinery, etc.). With implications and limitations, it was difficult to access some of the financial statements; there are only a limited number of variables, so the same models can be analyzed for other businesses, variables, and countries.

Cognitive bias and how to improve sustainable decision making

The rapid advances of science and technology have provided a large part of the world with all conceivable needs and comfort. However, this welfare comes with serious threats to the planet and many of its inhabitants. An enormous amount of scientific evidence points at global warming, mass destruction of bio-diversity, scarce resources, health risks, and pollution all over the world. These facts are generally acknowledged nowadays, not only by scientists, but also by the majority of politicians and citizens. Nevertheless, this understanding has caused insufficient changes in our decision making and behavior to preserve our natural resources and to prevent upcoming (natural) disasters. In the present study, we try to explain how systematic tendencies or distortions in human judgment and decision-making, known as “cognitive biases,” contribute to this situation. A large body of literature shows how cognitive biases affect the outcome of our deliberations. In natural and primordial situations, they may lead to quick, practical, and satisfying decisions, but these decisions may be poor and risky in a broad range of modern, complex, and long-term challenges, like climate change or pandemic prevention. We first briefly present the social-psychological characteristics that are inherent to (or typical for) most sustainability issues. These are: experiential vagueness, long-term effects, complexity and uncertainty, threat of the status quo, threat of social status, personal vs. community interest, and group pressure. For each of these characteristics, we describe how this relates to cognitive biases, from a neuro-evolutionary point of view, and how these evolved biases may affect sustainable choices or behaviors of people. Finally, based on this knowledge, we describe influence techniques (interventions, nudges, incentives) to mitigate or capitalize on these biases in order to foster more sustainable choices and behaviors.

Causality of the satisfaction–performance relationship: A task experiment

Despite the common belief among practitioners that a happy worker is a productive worker, researchers have been struggling to understand the causality between satisfaction and performance for decades. This study attempts to bring clarity to current understanding through an experiment with repeated measures of satisfaction and performance. A total of 143 participants repeatedly performed a task based on the Stroop test, with their objective performance and task satisfaction measured each time. Two different types of feedback (high/low performance) were randomly assigned to participants in order to manipulate perceived performance. The data were analyzed using a path analysis. The results support the hypothesized influence of task satisfaction on task performance and of perceived task performance on task satisfaction.

Do SEC filings indicate any trends? Evidence from the sentiment distribution of forms 10-K and 10-Q with FinBERT

Purpose

This study quantified companies' views on the COVID-19 pandemic with sentiment analysis of US public companies' disclosures. The study aims to provide timely insights to shareholders, investors and consumers by exploring sentiment trends and changes in the industry and the relationship with stock price indices.

Design/methodology/approach

From more than 50,000 Form 10-K and Form 10-Q published between 2020 and 2021, over one million texts related to the COVID-19 pandemic were extracted. Applying the FinBERT fine-tuned for this study, the texts were classified into positive, negative and neutral sentiments. The correlations between sentiment trends, differences in sentiment distribution by industry and stock price indices were investigated by statistically testing the changes and distribution of quantified sentiments.

Findings

First, there were quantitative changes in texts related to the COVID-19 pandemic in the US companies' disclosures. In addition, the changes in the trend of positive and negative sentiments were found. Second, industry patterns of positive and negative sentiment changes were similar, but no similarities were found in neutral sentiments. Third, in analyzing the relationship between the representative US stock indices and the sentiment trends, the results indicated a positive relationship with positive sentiments and a negative relationship with negative sentiments.

Originality/value

Performing sentiment analysis on formal documents like Securities and Exchange Commission (SEC) filings, this study was differentiated from previous studies by revealing the quantitative changes of sentiment implied in the documents and the trend over time. Moreover, an appropriate data preprocessing procedure and analysis method were presented for the time-series analysis of the SEC filings.

Casting votes of antecedents play a key role in successful sequential decision-making

Aggregation of opinions often results in high decision-making accuracy, owing to the collective intelligence effect. Studies on group decisions have examined the optimum weights for opinion aggregation to maximise accuracy. In addition to the optimum weights of opinions, the impact of the correlation among opinions on collective intelligence is a major issue in collective decision-making. We investigated how individuals should weigh the opinions of others and their own to maximise their accuracy in sequential decision-making. In our sequential decision-making model, each person makes a primary choice, observes his/her predecessors' opinions, and makes a final choice, which results in the person's answer correlating with those of others. We developed an algorithm to find casting voters whose primary choices are determinative of their answers and revealed that decision accuracy is maximised by considering only the abilities of the preceding casting voters. We also found that for individuals with heterogeneous abilities, the order of decision-making has a significant impact on the correlation between their answers and their accuracies. This could lead to a counter-intuitive phenomenon whereby, in sequential decision-making, respondents are, on average, more accurate when less reliable individuals answer earlier and more reliable individuals answer later.

Optional Verification and Signaling in Online Matching Markets: Evidence from a Randomized Field Experiment

Online matching platforms could lack common informational mechanisms, such as ratings and reviews, that serve to reduce information asymmetry in transactional platforms. The lack of verified information about participants further exacerbates issues of information asymmetry in such markets. Our study focuses on a novel role of verification in such matching markets—its ability to serve as a credible signal for a user, when such verification is made optional and visible to other users. In collaboration with a leading online dating platform with no reputation mechanisms and where most of the information is self-disclosed, we design and conduct a randomized field experiment to examine not only who chooses to verify but also, the effectiveness of such optional verification for different types of users. We identify that a simple-to-implement mechanism, such as phone verification, when made optional can take on additional significance in platforms that lack alternate reputation and transaction-assurance mechanisms, especially for those in early years or those that lack other credible mechanisms to verify important information about participants. Our findings also provide insights into how optional verification has heterogeneous impacts on different platform users and can also facilitate desirable matching and benefit the platform as a whole, paving the way for examining other similar verification mechanisms.

The impact of gender diversity on corporate social responsibility knowledge: empirical analysis in European context

Purpose

The Covid-19 pandemic has exacerbated social risks around the world, highlighting inequalities and eroding social cohesion in and between nations. The challenges posed by this global crisis to world governments can be overcome with cooperation between the public and private sectors. Several studies support the importance of external corporate social responsibility (CSR) activities in sharing knowledge with citizens and external stakeholders, with benefits for the company and for society. Few studies have investigated the relationship between knowledge management (KM) and sustainability. This work aims to investigate the influence of the gender variable in the sharing of CSR knowledge, focusing on the area of human rights.

Design/methodology/approach

The panel regression analysis was performed on a sample of 660 European companies listed over the years 2017–2020. The hypotheses tested in panel regression were then corroborated by a further test.

Findings

The results show a positive influence of women directors in the external disclosure of human rights. Evidence would assign a positive role to gender in sharing knowledge.

Practical implications

The findings offer new insights into the role of gender on KM and sharing. The results show that gender can be a factor that stimulates CSR knowledge. The presence of women directors can be a useful tool to increase the relational capital of the companies and to share knowledge outside the company.

Originality/value

The study contributes to the poor literature between knowledge sharing and sustainability. Evidence would assign a positive role to gender in sharing knowledge.

Situational Factor Determinants of the Allocation of Decision Rights to Edge Computers

Internet of Things (IoT) designers frequently must determine whether action-oriented decisions should be made by edge computers or whether they should be made only by central servers combining input from all edge computers. An important example of this design problem occurs in fire protection IoT where individual edge computers attached to sensors might be empowered to make decisions (have decision rights) about how to manage the fire. Alternately, decision rights could be held exclusively by a central server isolated from the fire, because the designer is concerned damage to edge computers could cause them to act unreliably. This research models this allocation of decision rights to identify the relative influence of various decision factors. We first model the allocation of decision rights under the following assumptions (1) the central server cannot make an error the edge computer cannot make, (2) the central server cannot update the edge computer with its information in a timely manner, and (3) the central server cannot reverse an action initiated by the edge computer to explore the factors impacting decision rights conferral. We then relax each of these three assumptions. We show how relaxing each assumption radically changes the factors impacting decision rights conferral. We also show that allowing the central server to update information on the edge computer or reverse the edge computer's decision making can result in overall lower system performance. We then perform a series of numerical experiments to understand how changing various parameters affect the problem. We show for the general real-world scenario, the key factor influencing the decision is the ability of the edge computer to detect false alarms. We also show magnitude of loss and ratio of real to false incidents have a linear and logarithmic relationship to the reliability of the edge computer.

On interim performance evaluations and interdependent period outcomes

Performance feedback is an integral element of an accounting system, and firms provide this feedback at varying frequencies to their employees. This paper explicates the impact of an interim performance evaluation on the principal’s surplus using a dynamic two-period agency model. Two settings are discussed: single-purpose use, wherein accounting information is used solely for control purposes, and dual-purpose use, in which accounting information is used for production and control. Results demonstrate that the optimality of interim performance evaluations depends on the use of information and the interdependence of period outcomes. Furthermore, neither setting entails strict dominance with regard to carrying out interim evaluations or not. It implies that an interim evaluation can be optimal even if the optimal course of action does not depend on it. It further suggests that refraining from the interim review can be optimal even if that information is required to determine the optimal effort level.

The Golden Tax Project III and green innovation: evidence from heavily polluting enterprises in China

Using Golden Tax Project III in China as a quasi-natural experiment, we investigate the influence of tax enforcement on green innovation based on the panel data of China's heavily polluting enterprises from 2012 to 2020. Our baseline results show that the Golden Tax Project III negatively affects green innovation, and the impact still exists after a battery of robustness and endogeneity tests. Mechanism analyses reveal that increasing financial constraints contributes to less green innovation. Furthermore, heterogeneity analyses show that the negative relationship is more prominent in non-state-owned enterprises, enterprises with fewer analyst coverage, enterprises with lower institutional shareholding, non-high-tech enterprises, and enterprises located in eastern region. Our research reveals a previously under-explored adverse consequence of the Golden Tax Project III, its hindrance to green innovation. Some implications are put forward to mitigate the negative effect of Golden Tax Project III on corporate green innovation.

Does the CFO serving as the secretary of the board affect the financial statement comparability?-evidence from China

One person serving as both CFO and board secretary is a unique institutional feature in China. Individuals in this senior executive role are responsible for not only the preparation of financial statements but also the coordination of information disclosure. We investigate the relation between a CFO serving as board secretary and financial statement comparability. We find that a CFO serving as board secretary improves the comparability of a firm's financial statements in additional analysis. This positive effect is more significant when the CFO is female or middle-aged, or has a Bachelor's degree or higher or a financial background. This paper enriches the theoretical research on CFO's employment characteristics and the quality of financial reports, and provides reference value for improving the quality of financial reports.

Determining audit fees: evidence from the Egyptian stock market

Purpose

This paper aims to empirically examine the determinants affecting audit fees in the Egyptian context concerning different organizational forms and governance mechanisms.

Design/methodology/approach

This study adopts financial and non-financial data from 62 Egyptian firms listed on the Egyptian Stock Exchange from 2015 to 2020. The proposed audit fees model is developed by adopting panel data analysis to examine the effect of auditee, auditor and engagement attributes on audit fees. The validity of the proposed equation for determining audit fees on an annual basis was established by applying the fixed effect model results for the year 2020.

Findings

The results revealed that the most significant determinants that affect audit fees are liquidity, audit committee independence, audit report lag and the status of the audit firm. Audit fees of 95.7% are determined by these factors. The validation test proved that the proposed model was more accurate and closer to the estimated data at nearly 90.2%.

Practical implications

The results of this paper would send early signals to audit firms, stakeholders and regulators regarding the determinants of audit fees, and provide an objective standard for fee-setting to be used by stock market regulators and professional bodies, in determining a minimum amount of audit fees that ensure a reasonable level of audit quality.

Originality/value

To the best of the authors’ knowledge, for the first time, this paper empirically examines the determinants of audit fees in an emerging market like Egypt and presents evidence for a period of six years.

Does investment committee mitigate the risk of financial distress in GCC? The role of investment inefficiency

Purpose

The purpose of this study is to empirically examine how the voluntary formation of a specialised investment committee (IC) and IC characteristics affect financial distress risk (FDR) and whether such impact is influenced by the level of investment inefficiency.

Design/methodology/approach

The authors use a large sample of Gulf Cooperation Council (GCC) non-financial companies during 2006–2016. A principal component analysis is done to aggregate and derive a factor score for IC characteristics (i.e. independence, size and meeting) as a proxy for the effectiveness of IC. This study also uses three measurements of FDR to corroborate the findings and partitions sample firms into overinvesting and underinvesting companies to examine the potential impact of investment inefficiency on the IC–FDR nexus.

Findings

Using feasible generalised least square estimation method, the authors document that the likelihood of financial distress occurrence decreases for firms with separate ICs. The authors also find that firms with effective ICs enjoy lower FDR. In other words, the probability of financial distress minimises if the IC is large, meets frequently and has a high number of independent directors. However, the authors find neither any moderation nor any mediation effect of investment inefficiency for the impact of IC and IC attributes on FDR. The additional analysis indicates the expected benefits of an actively performing IC are amplified for firms with risk of both over- and underinvestment. These findings are robust to alternative measures of FDR and investment inefficiency, sub-sample analysis and endogeneity concerns.

Originality/value

This study, to the best of researchers’ knowledge, is the first to provide evidence in GCC firms’ perspective, suggesting that the existence of an effective IC is associated with a lower risk of financial distress, and to some extent, the economic benefits of IC are aggrandised for companies with a high probability of over- and underinvestment problems. These results are unique and contribute to a small but growing body of literature documenting the need for effective ICs and their economic consequences on investment efficiency in the FDR environment. The findings of this study carry valuable practical implications for regulatory bodies, policymakers, investors and other interested parties in the GCC region.

How does corporate social responsibility affect financial distress? The moderating role of corporate governance

Purpose

This study aims to investigate the impact of corporate social responsibility (CSR) on the financial distress (FD) of firms listed on the Pakistan Stock Exchange (PSX). Furthermore, the moderating effect of corporate governance (CG) on the CSR–distress relationship is investigated in this study.

Design/methodology/approach

The final sample of the study includes 117 companies from 2008 to 2021. The sample firms' CSR engagement is assessed using a multidimensional financial approach, and the likelihood of FD is determined using Altman's Z-score. The governance level is measured using the governance index, which includes 29 governance provisions. To achieve the research objectives, the system generalized method of moments estimator is used. Furthermore, several tests are performed to assess the robustness of the study's findings. The analysis was carried out using STATA software version 15.

Findings

The authors find that CSR is significantly inversely related to FD. The governance mechanism was discovered to be inversely related to FD. Furthermore, corporate governance strengthens the negative relationship between CSR and FD. In addition, the authors find that CSR is significantly inversely related to FD in firms with strong CG mechanisms but has no effect on FD in firms with weak CG mechanisms.

Practical implications

The findings of this study provide policymakers, business managers, regulators and investors with a better understanding of the relationship between the quality of CSR investments and the likelihood of FD in Pakistani firms, as well as the role of CG in this context.

Originality/value

This study contributes to our understanding of the role of CG in the CSR-distress relationship in an emerging market. This suggests that policymakers should prioritize CG quality while anticipating the impact of CSR on corporate FD.

Do Taxes Still Affect Earning Persistence?

While financial statements are the primary source of information about a firm, they tend to be under earnings management practices, namely to avoid paying tax. Therefore, we aim to examine whether taxes still affect earning persistence in an era of prevalent digital information. For that purpose, we use book–tax differences considering the deductible temporary differences and the taxable temporary differences. In addition, we analyze which of the two earnings components are more affected by taxes, specifically cash flow or accruals. We estimate econometric regressions using panel data to test our hypotheses. Through a sample of 421 small- and medium-sized (SME) Portuguese firms, between 2016 and 2020, we found empirical evidence that earning persistence tends to be lower when deductible temporary differences increase, while taxable temporary differences produce no statically significant effect. Furthermore, our results suggest that cash flow component increases more earning persistence than accruals. Therefore, deductible temporary difference may be an indicator of earnings management activities in these firms. These results are relevant, given the potential negative consequences of earnings management for the efficient decision making of stakeholders and even more because SMEs represent a substantial number of firms in European countries, particularly in Portugal.

Limited Effectiveness of IT/IS Investments in an Emerging Economy

The business value of investments in information technology/information system (IT/IS) has been the subject of active research over several decades. Even though a plethora of similar studies analyzing the impact of promised IT/IS investments on firm performance exists, the results, largely inconclusive, mostly concentrate on the developed countries. In this backdrop, and with an expected manifold rise in IT/IS investments in India in the coming years, an assessment of the relationship between investments and firm performance can be noteworthy. The study explores this important issue by analyzing the impact of IT/IS investments on the firm's performance in India based on data of around 6500 IT/IS investments during 2000-2016. We deploy a series of univariate and multivariate analyses and complement those with several robustness tests. Our principal findings indicate that IT/IS investments on the average in India have been mostly unsuccessful in impacting firm performance positively, in line with "productivity paradox" phenomenon previously documented in the U.S. and other markets. We substantiate our principal results using several robustness tests. We offer several possible explanations of our results spanning across both IS as well as finance literature and discuss the implications of future investment prospects for firms. The results highlight the need for adoption of caution by firms operating in emerging economies like India while considering future IT/IS investment decisions. These suggestions are likely to serve as a good reference point in other emerging economies as well.

Optimal Ratcheting in Executive Compensation

Recent empirical studies point out that the firms do not fully incorporate the managers’ past performance when revising future contractual terms. This study offers a theoretical perspective on the firm’s executive compensation strategy that supports such latest empirical findings. Using a two-period principal-agent model, we examine firm’s compensation schemes with ratchet principle taking into account key factors such as informational rent, capability uncertainty, and performance noise. After characterizing the optimal incentive rates for a given degree of ratcheting, we examine the efficacy of ratcheting contract in executive compensation. We also explore the optimal degree of ratcheting that strikes a fine balance between informational rent and ratchet effect. We find that the capability gap-performance noise ratio plays a critical role in determining the optimal degree of ratcheting.

Funding: I. Hwang and M. K. Lim acknowledge support from the Institute of Management Research at Seoul National University.

Supplemental Material: The online appendix is available at https://doi.org/10.1287/deca.2023.0467 .

Equity incentive contract characteristics and company operational performance-An empirical study of Chinese listed companies

Equity incentive, as an institutional arrangement for the coordination of the interests of shareholders and managers, has been widely implemented by public companies in developed capital markets throughout Europe and America. However, does it work and/or when might it be more effective in emerging market economies such as China? We aimed to understand the effects of equity incentive plans implemented by listed companies in China and the potential influence of the general characteristics of contracts on the effectiveness of equity incentive plans. Based on behavioral decision theory, this paper adopts a multivariate linear regression model to analyze the 1695 equity incentive plans implemented in Chinese listed companies between 2010 and 2018 with their two-year lagged performance data. The empirical results show that the operational performance of companies after implementing equity incentive plans shows a trend of polarization. In the 95% confidence interval, the effect of restrictive stock incentive and exercise-constrained variables is not significant, while the validity period has a significant positive correlation and incentive intensity has a significantly negative correlation with the company's operational performance. Furthermore, the negative effects mentioned above become more obvious with a longer plan implementation period. Based on these conclusions, we suggest that companies could adopt equity incentive plans with a relatively longer validity period and more reasonable incentive intensity. Additionally, it would be better for companies to select non-restricted stocks as incentive tools if there is no obvious preference.

A Text-Based Competition Network

This paper utilizes nonfinancial information disclosure to develop a measure of text-based competition network. Using the data of China's listed firms, the authors adopt the textual analysis method to identify a unique group of competitors for the focal firm and construct the text-based competition network. In the whole network, leading firms receive increasing attention from competitors, and they play a vital role for the dynamic changes in the whole market. Moreover, the interactions between the focal firm and competitors in the text-based competition network are shown by some financial indicators. The characteristics of the text-based competition network have a significant impact on the future performance of the focal firm. Finally, economic links in the competition network are discussed by varying the number of competitors, which shows the impact of various competitors on economic similarities. The text-based competition network shows the relative importance of competitors for the focal firm and explains firms' decision-making from the perspective of dynamic competition.

Infectious diseases, dividend policy, and independent directors: Evidence from textual analysis

We investigated the effect of uncertainty associated with infectious diseases on corporate dividend policy. We used a unique text-based measure of infectious diseases that includes not only the Covid-19, but also other important diseases, such as SARs, MERs, and Ebola. Based on a sample of 287,151 firm-year observations across four decades (from 1985 to 2021), our results show that a higher level of uncertainty associated with infectious diseases significantly reduce dividends. Interestingly, we also found that having more independent directors on the board mitigates the negative effect of uncertainty associated with infectious diseases on dividends which implies that the reduction in dividends was partly driven by agency conflicts. We performed several robustness checks which confirm that our findings are unlikely to be affected by endogeneity issues.

Central bank digital currency and bank earnings management using loan loss provisions

Purpose

This paper aims to analyse the role of central bank digital currency (CBDC) in bank earnings management and focus on how CBDC activity might influence banks to engage in accrual earnings management using loan loss provisions (LLPs) and the implications for earnings quality.

Design/methodology/approach

The paper used conceptual discourse analysis to explain the role of CBDC in bank earnings management.

Findings

Banks will use accruals, such as LLPs, to manage earnings when CBDC-induced bank disintermediation leads to a reduction in bank deposits, a reduction in bank lending and a likely reduction in reported earnings. Bank managers will mitigate the reduction in reported earnings by lowering discretionary LLPs to increase reported earnings.

Originality/value

The recent emergence of CBDC in the digital currency universe has led to increased research interest on the role of CBDC in corporations and society. This study contributes to the literature by focusing on banks, and examining the effect of CBDC on bank earnings management.

Assessing psychological and environmental factors influencing the long-term orientation of TMTs

Purpose

This study identifies and examines psychological and environmental factors that influence the long-term orientation of top management teams (TMTs).

Design/methodology/approach

Data on S&P 500 companies from 2011 to 2020 are collected from the Compustat database. Additional variables were measured through content analysis of earnings conference calls. This study used two-stage least squares regression with fixed effects to analyze the data and test the hypotheses. Appropriate diagnostic tests were conducted to ensure validity and eliminate endogeneity.

Findings

The results indicate that a chief executive officer’s (CEO) promotion focus positively and significantly influences the TMT's long-term orientation. However, the influence of prevention focus is statistically insignificant. Furthermore, the results indicate that environmental hostility moderates both relationships.

Practical implications

The TMT's long-term orientation can be improved through the insights provided by this study.

Originality/value

To the authors’ knowledge, this is the first study to examine the collective effects of psychological and task environmental factors on the long-term orientation of the TMT. Additionally, this study sheds light on the internal dynamics of the top-management team.