Audit quality, media coverage, environmental, social, and governance disclosure and firm investment efficiency

2019 ◽  
Vol 28 (1) ◽  
pp. 45-72 ◽  
Author(s):  
Ahmad Hammami ◽  
Mohammad Hendijani Zadeh
Keyword(s):  
Media Coverage ◽  
Audit Quality ◽  
Economic Effect ◽  
Media Exposure ◽  
Least Square ◽  
Investment Efficiency ◽  
Firm Level ◽  
Content Type ◽  
Public Media ◽  
The Impact

Purpose The purpose of this study is twofold: first, to introduce two determinants of environmental, social and governance (ESG) disclosure transparency, namely, audit quality and public media exposure; and second, to investigate the impact of ESG transparency on firm-level investment efficiency. Design/methodology/approach Ordinary least square (OLS) regressions are applied to explore the relationship between the two variables of interest (audit quality and public media exposure) and ESG transparency on a sample of publicly listed Canadian firms during the period 2008 to 2017. Then, an econometric model is used to investigate the association between ESG transparency and investment efficiency under two identified scenarios, under-investment and over-investment. Findings Results show that audit quality and public media exposure are two main drivers of ESG transparency, hence, commitment to high-quality audits and exposure to high public media coverage drive firms to disclose more extensive and transparent ESG information. The authors also find a negative association between ESG transparency and firm-level investment inefficiency. Thus, ESG transparency generates influential incremental information that helps mitigate the information asymmetry between firms and stakeholders while fostering better resource allocation through investment efficiency. Originality/value This study contributes to the corporate social responsibility (CSR) and ESG literature by identifying audit quality and public media exposure as two determinants of ESG transparency; and by noting that higher ESG transparency has a significant economic effect on capital investment decisions through higher firm-level investment efficiency.

Financial reporting quality, family ownership, and investment efficiency

2019 ◽  
Vol 45 (4) ◽  
pp. 513-535 ◽  
Author(s):  
Faisal Shahzad ◽  
Ijaz Ur Rehman ◽  
Sisira Colombage ◽  
Faisal Nawaz
Keyword(s):  
Financial Reporting ◽  
Family Firms ◽  
Emerging Market ◽  
Reporting Quality ◽  
Least Square ◽  
Financial Reporting Quality ◽  
Family Ownership ◽  
Investment Efficiency ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to empirically investigate the impact of two monitoring mechanisms: family ownership (FO) and financial reporting quality (FRQ) on investment efficiency (IE) over the period of 2007–2014 for listed firms on the Pakistan Stock Exchange. Design/methodology/approach The authors employ two-dimensional pooled OLS cluster at the firm and year level, two-stage least square regression and feasible generalized lease square regression regression methods. Findings The findings suggest that higher FRQ and FO are associated with higher IE. Further, the authors report that higher FRQ and FO mitigate over- and under-investment. The impact of FRQ on IE is stronger (weaker) for family-controlled businesses. The results for these particular estimates are robust for alternative estimation techniques and measures of FRQ and FO. Originality/value The study draws on both agency and behavioral agency theories and therefore contributes to the literature in the following ways. First, the authors examine a relationship between FRQ and IE. Second, the authors test the impact of FO on IE. Third, the authors test the moderating impact of FO on the relationship between FRQ and the IE of family and non-family firms in relatively less regulated emerging market.

Firm-level agreements, employment strategies and temporary workers

2020 ◽  
Vol 42 (1) ◽  
pp. 194-212
Author(s):  
Saverio Minardi
Keyword(s):  
Fixed Effects ◽  
Selection Process ◽  
Temporary Employment ◽  
Least Square ◽  
Temporary Workers ◽  
Firm Level ◽  
Data Set ◽  
Content Type ◽  
Collective Agreements ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of two-tier firm-level collective agreements on firms’ propensity to use temporary employment, accounting for the process of self-selection of firms into different bargaining levels in the Italian context. It further examines which firm-level characteristics drive this process of selection. Design/methodology/approach The empirical analysis uses a panel data set of Italian firms for the years 2005, 2007, 2010 and 2015. Estimations are produced and compared through ordinary least square regression, random-effects and fixed-effects models. Findings Results show that enterprises adopting two-tier firm-level agreements (TTFA) are associated with lower levels of temporary workers. However, a longitudinal analysis suggests that introducing a TTFA does not impact firms’ propensity to employ temporary workers. This novel finding highlights the presence of a selection process based on firm-level time-constant characteristics. The paper argues that these characteristics refer to management orientation toward high-road rather than low-road employment strategies. Further evidence is brought in support of this claim, showing that firms’ propensity toward the provision of training for their labor force partially explain the process of selection. Originality/value The study is the first to analyze the impact of secondary-level collective agreements on firms’ reliance on temporary employment, offering new evidence on the causes of the expansion of temporary employment. It further highlights the relevance of employers’ strategies in shaping the impact of the bargaining structure.

Company reputation and auditor choice: evidence from fortune 1000 companies

2018 ◽  
Vol 31 (2) ◽  
pp. 232-248 ◽  
Author(s):  
Xuan Huang ◽  
Fei Kang
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Planning Process ◽  
Practical Implication ◽  
Least Square ◽  
Content Type ◽  
Auditor Choice ◽  
Company Reputation ◽  
Auditor Selection ◽  
The Impact

Purpose The purpose of this paper is to investigate how companies’ reputation affects their selection of auditors. Design/methodology/approach This paper measures company reputation using the reputation scores from Fortune’s “America’s Most Admired Companies” list. Multivariate analysis is performed to examine the impact of company reputation on public companies’ auditor choice. Robustness checks include conducting Heckman procedures and instrumental-variable two-stage least square regressions to control for self-selection bias and using alternative measures to proxy for company reputation and auditor industry expertise. Findings This paper finds that companies with higher reputations are more likely to hire industry-specialist auditors than their counterparts. The results suggest that because of reputation concerns, high-reputation companies have strong incentives to maintain and signal their financial reporting quality, which in turn increase their demand for audit quality. Practical implication This paper suggests that company reputation constitutes an important determinant of auditor selection and, therefore, has both policy and practical implications for the demand of audit services. The paper provides policy-makers and practitioners with insights into critical factors influencing companies’ complex decision process of auditor selection. Originality/value The findings of this paper on the empirical link between company reputation and auditor choice contribute to the auditing literature by enhancing the understanding of the effects of different company-level characteristics in financial reporting and audit planning process. This paper also adds to the growing literature on the influence of company reputation on corporate behavior by documenting the important role that company reputation plays in the managerial decision-making process.

Stakeholder group influence on media reputation in crisis periods

2016 ◽  
Vol 21 (3) ◽  
pp. 322-332 ◽  
Author(s):  
Daniel Vogler ◽  
Mario Schranz ◽  
Mark Eisenegger
Keyword(s):  
Media Coverage ◽  
Driving Forces ◽  
Single Item ◽  
Content Type ◽  
Crisis Period ◽  
The Public ◽  
Stakeholder Groups ◽  
Public Media ◽  
Media Reputation ◽  
The Impact

Purpose – The concept of media reputation is a well-documented field in communication research. However, it often remains unclear how the process of reputation formation takes place exactly. The purpose of this paper is to analyze which stakeholder groups are the driving forces in the process of reputation constitution of the Swiss banking industry and how it was affected by the financial crisis in 2008. Design/methodology/approach – Given that mass media are the main source of information about an organization in crisis for the public, media reputation serves as a valuable concept for analyzing the effects of crises on organizations. This study is therefore based on a content analysis of Swiss newspapers published between 2004 and 2010. Findings – Data shows that the influence of political stakeholder groups on media reputation of Swiss banks is higher in times of crisis. In addition the focus in media coverage changes from economic topics in pre-crisis period to social topics in crisis period. The increased importance of political stakeholder groups and social topics in crisis lead to a more negative and less controllable media reputation. Originality/value – This study aims at a better understanding of the impact of stakeholder groups on corporate media reputation in crises. Instead of defining reputation as a single item this approach allows a more differentiated analysis of the process of reputation constitution.

scholarly journals The puzzle of internal audit function budget toward specialist auditor choice and audit fees

2019 ◽  
Vol 34 (2) ◽  
pp. 208-243 ◽  
Author(s):  
Adel Ali AL-Qadasi ◽  
Shamharir Abidin ◽  
Hamdan Amer Al-Jaifi
Keyword(s):  
Audit Quality ◽  
Internal Audit ◽  
Positive Association ◽  
Audit Fees ◽  
Least Square ◽  
Family Ownership ◽  
Content Type ◽  
Internal Audit Function ◽  
The Impact ◽  
Industry Specialist

PurposeThis study is motivated by the lack of internal audit function (IAF) research and by the call for research on the impact of dominant owners such as family shareholders on audit fees and the demand for audit quality. This study aims to examine the impact of the IAF budget on the selection of industry-specialist auditors and on audit fees, particularly in companies with family-controlled shareholders, a feature unique to Malaysia.Design/methodology/approachData of Malaysian-listed companies during the period 2009-2012 are used. To examine the relationships, logit and ordinary least square regressions are used. Several additional analyses are conducted to assess the robustness of the main results, including alternative measures of specialist auditor and family ownership, endogeneity problems and self-selection bias.FindingsThe results show that the IAF budget is positively related to hiring industry-specialist auditors and audit fees. However, family companies are less likely to support the positive association between IAF costs and engage specialist auditors than non-family companies. In addition, a complementary association between the costs of IAF and audit fees for both family and non-family companies was found. Finally, the results show that there is a negative association between family ownership and the ratio of IAF costs to audit fees, suggesting that family companies rely more upon external auditing than internal auditing.Originality/valueThe contribution of this study is to provide an empirical evidence about the tradeoff between IAF and both industry-specialist auditors and audit fees with considering the moderating impact of family-ownership shareholdings. This issue is yet to be examined, and it provides implications for policymakers and practitioners, as it offers insights into the importance of investing in IAF toward hiring industry-specialist auditors and pricing the audit services.

scholarly journals The effect of auditor type on audit quality in emerging markets: evidence from Egypt

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohamed M. El-Dyasty ◽  
Ahmed A. Elamer
Keyword(s):  
Audit Quality ◽  
Least Square ◽  
Advanced Technology ◽  
Content Type ◽  
Auditor Choice ◽  
Big 4 ◽  
Audit Firms ◽  
Alternative Measures ◽  
Ordinary Least Square Regression ◽  
The Impact

Purpose Although a number of studies suggest that big audit firms provide higher audit quality in strict legal environments, empirical evidence remains inconclusive. As little is known about the effect of auditor type on audit quality in less strictly legal environments, this study aims to investigate the impact of auditor type on audit quality in the Egyptian market. Design/methodology/approach Data of Egyptian-listed companies during the period 2011–2018 are used. To examine the impact of auditor type on audit quality, ordinary least square regression and robust standard errors clustered at year and industry level are used. This study uses discretionary accruals as a proxy for audit quality. Several additional analyzes are conducted to assess the robustness of the main results, including alternative measures of audit quality and auditor type. Findings The results show that audit firms tend to provide higher audit quality when they are affiliated with a foreign audit firm. However, Big 4 auditors do not provide higher audit quality compare to their counterparts. Additionally, the governmental agency, accountability state authority, that monopolize audit function in state-owned companies do not appear to be associated with higher audit quality. Finally, local audit firms have a negative association with audit quality. This may be their strategy to secure future clients that seek low-quality audits. Research limitations/implications This study suggests that affiliation with foreign audit firms will help the Egyptian firms to develop their abilities by using advanced technology and techniques and transfer rare expertize to the Egyptian auditors. This study also shows that the strategy adopted by many Egyptian audit firms to affiliate with foreign auditors reflects the desire of these firms to be included in one tier alongside Big 4 audit firms to increase their market share under a claim of providing a higher audit quality. Originality/value This study adds to the rare but growing body of literature by investigating how auditor type affects audit quality in the context of less strictly legal environments. The results are important, as investors, standards-setters and regulators have growing concerns over audit quality since the Enron scandal. The findings suggest that audit quality depends on auditor type. These findings have important implications for investors, standards-setters and auditors interested in auditor oversight, audit quality and auditor choice.

Firms' compliance with the disclosure requirements of IFRS for goodwill impairment testing

2014 ◽  
Vol 10 (1) ◽  
pp. 116-149 ◽  
Author(s):  
Md Khokan Bepari ◽  
Sheikh F. Rahman ◽  
Abu Taher Mollik
Keyword(s):  
Audit Quality ◽  
Global Financial Crisis ◽  
Annual Reports ◽  
Significant Determinant ◽  
Firm Level ◽  
Cross Sectional ◽  
Industry Effects ◽  
Content Type ◽  
Goodwill Impairment ◽  
The Impact

Purpose – This study aims to examine the impact of the 2008-2009 global financial crisis (GFC) on Australian firms' compliance with IFRS 36/AASB 136 for goodwill impairment testing. It also examines the factors associated with the cross-sectional variations in the compliance levels. Design/methodology/approach – Based on a survey of disclosure notes in companies' annual reports, firm-level compliance scores were developed and further analysed applying quantitative statistical methods. Findings – The findings suggest that firms' compliance has increased during the GFC compared to the PCP. There was no significant intra-period change in the compliance levels during the PCP. Firms belonging to goodwill intensive industries show greater compliance levels than firms in other industries. Audit quality is also a significant determinant of firms' compliance with IFRS for goodwill impairment testing. Goodwill intensity is a significant determinant of firms' compliance level during the GFC but not during the PCP. Firm size is associated with the compliance levels when the industry effects are not controlled for. When the industry effects are controlled for, the effect of size on firms' compliance levels disappears. Profitability is also associated with firms' compliance with IFRS for goodwill impairment testing. However, firms' leverage ratio is not significantly associated with compliance levels. Originality/value – This is the first known study to examine the issue of compliance with IFRS for goodwill impairment testing in the context of the GFC and the PCP.

The influence of financial reporting quality and audit quality on investment efficiency

2019 ◽  
Vol 27 (4) ◽  
pp. 600-614 ◽  
Author(s):  
Faisal Shahzad ◽  
Ijaz Ur Rehman ◽  
Waqas Hanif ◽  
Ghazanfar Ali Asim ◽  
Mushahid Hussain Baig
Keyword(s):  
Agency Theory ◽  
Financial Reporting ◽  
Audit Quality ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Investment Efficiency ◽  
Reverse Causality ◽  
Resource Based View ◽  
Content Type ◽  
The Impact

Purpose This study aims to empirically investigate the effect of financial reporting quality (FRQ) and audit quality (AQ) on the investment efficiency (IE) for the firms listed on the Pakistan Stock Exchange during the period 2007-2014. Design/methodology The authors use pooled ordinary least squares (OLS) regression which cluster at the firm and year level to test the hypotheses. For sensitivity check, the authors also account for reverse causality and cross-sectional dependence by using the GMM and FGLS regression methods. Furthermore, the authors built their theoretical arguments based on alignment hypothesis of the agency theory and resource-based view of the firm. Findings The findings suggest that higher FRQ and AQ are associated with higher IE. The results for these particular estimates are robust when tested using alternative estimation techniques. Overall, the outcomes of this study are in line with the arguments presented by the alignment hypothesis of the agency theory and resource-based view of the firm. Practical implications This study is fruitful for policymakers’ and investors. This study finds that the audit done by the Big 4 also reduces the information gap and, thus, reduces the moral hazard and adverse selection problems, thereby enhancing the IE. Originality The authors extend the debate on determinates of IE and highlight two monitoring mechanisms: FRQ and AQ. The authors further extend the literature on the economic consequences of AQ in terms of IE, as proposed by Francis (2011). For the first time, this study investigates the impact of AQ on IE in a setting where minority shareholder risk of exploitation is high relative to other markets in Asia.

Role of corporate governance in constraining earnings management practices: a study of select Indian and Chinese firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Aprajita Pandey ◽  
J.K. Pattanayak ◽  
Prakash Singh
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Management Practices ◽  
Audit Quality ◽  
Least Square ◽  
Real Earnings Management ◽  
Chinese Stock Market ◽  
Content Type ◽  
Country Level ◽  
The Impact

Purpose The purpose of this paper is to investigate the effect of corporate governance on both accrual-based and real earnings management practices in select firms of the two world's largest economies, i.e. India and China. Design/methodology/approach The study has implemented a feasible generalized least square regression (FGLS) method to analyse the effect of corporate governance on accrual-based and real earnings management. Findings The study exhibits the significant contribution of large board sizes and independent boards in constraining the use of both accruals as well as real earnings management practices. However, audit quality had an impact on accrual earnings management only. The study also documents that accrual earnings management practices are controlled when the government’s potential to develop and enactment of policies increases. Practical implications The findings of the study provide insights to analysts, prospective investors and regulators to evaluate the effectiveness of the board in a new issue firm and help the firm to enhance its corporate governance policies. Originality/value Unlike previous studies who mostly examined the impact of corporate governance factors on accrual earnings management, the present study has, first, considered both accruals as well as real earnings management. Second, the present study has used the unique sample of new issue firms listed on the Indian and Chinese stock market, and third, the study did an additional analysis to examine the impact of country-level governance factors on accrual earnings management.

Consolidation of off-balance sheet entities and investment efficiency

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Fang Zhao ◽  
Abhijit Barua ◽  
Jung Hoon Kim
Keyword(s):  
Financial Reporting ◽  
Balance Sheet ◽  
Control Sample ◽  
Investment Efficiency ◽  
Financial Accounting Standards Board ◽  
Firm Level ◽  
Exogenous Shock ◽  
Content Type ◽  
Variable Interest Entities ◽  
The Impact

Purpose The purpose of this study is to examine the effect of consolidating off-balance sheet entities on firm-level investment efficiency. Financial Accounting Standards Board Interpretation No. 46, consolidation of variable interest entities – an Interpretation of ARB No. 51 (FIN 46) is used as a quasi-exogenous shock to financial reporting in this study. Design/methodology/approach The authors empirically test the change of investment efficiency for a sample of firms affected by FIN 46 in the post-FIN 46 periods. In the regression, a group of matched pairs selected from unaffected firms is used as the control sample and firm characteristics are used as control variables. Findings The authors find that firms affected by FIN 46 experience improvement in investment efficiency after adopting the standard compared to unaffected firms. The authors also document that FIN 46 firms’ level of investment decreases after FIN 46 compared to unaffected firms. These empirical results suggest that the improvement in investment efficiency is likely to be achieved by the reduction in over-investment. Further analyses show that amongst the affected firms, firms consolidating off-balance sheet special purpose entities (SPEs) improve investment efficiency mainly by reducing over-investment, whereas firms avoiding the consolidation of SPEs do not display such tendency. Originality/value This study contributes to the literature on the relation between financial reporting and investment efficiency, as well as the literature on the impact of FIN 46. To the best of the authors’ knowledge, this study is the first to examine the relation between the consolidation of off-balance sheet entities and investment efficiency.

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