The Effects of Managers’ Compensation and Board Quality on Non-GAAP Reporting Decisions

Despite concerns that profit-sharing plans might have a detrimental effect on audit quality, there is little empirical evidence on this issue. We examine the effects of the type of profit-sharing plan, level of client importance, and auditor reinforcement sensitivity (joint sensitivity to rewards and punishments) on auditor reporting decisions. By relying on agency theory and reinforcement sensitivity theory, we posit that the joint effects of profit sharing and client importance on auditors' decisions are contingent on reinforcement sensitivity. In an experiment with 450 audit partners and managers, we manipulate type of profit-sharing plan and client importance, and measure extroversion and neuroticism. We find the highest audit quality when profit sharing is based on firm performance, client importance is low, and reinforcement sensitivity is high. Thus, instead of just modifying the type of profit-sharing plans, it is the mix of economic incentives and personality traits that affect audit quality.

Download Full-text

Does Investors' Desire to Punish Misreporting Affect Their Litigation Decisions and Managers' and Investors' Welfare?

Behavioral Research in Accounting ◽

10.2308/bria-51559 ◽

2016 ◽

Vol 29 (1) ◽

pp. 57-75 ◽

Cited By ~ 1

Author(s):

Jason L. Brown ◽

Donald V. Moser

Keyword(s):

Financial Incentives ◽

Financial Incentive ◽

Securities Markets ◽

Corporate Managers ◽

Experimental Markets ◽

Welfare Benefits ◽

Reporting Decisions ◽

Legal Fees ◽

Financial Penalty ◽

Do So

ABSTRACT Shareholder litigation is an important part of the regulation of securities markets that can influence corporate managers' reporting behavior. Prior research shows that conventional economic factors affect investors' litigation decisions. We use experimental markets to examine whether investors engage in costly litigation even without a direct financial incentive to do so and whether this affects managers' reporting decisions and managers' and investors' welfare. We find that investors frequently litigate when they can impose a financial penalty on managers for misreporting even though they cannot recover their legal fees or receive restitution for their losses. Moreover, this deters managers' shirking and misreporting and improves managers' and investors' welfare almost as effectively as when investors can recover their legal fees and receive restitution for their losses. Overall, our results indicate that, in addition to financial incentives, investors' desire to punish misreporting plays an important role in their litigation decisions, and that may yield substantial welfare benefits.

Download Full-text

Environmental key performance indicators: the role of regulations and stakeholder influence

Environment Systems & Decisions ◽

10.1007/s10669-021-09825-z ◽

2021 ◽

Author(s):

Ewelina Zarzycka ◽

Joanna Krasodomska

Keyword(s):

Performance Indicators ◽

Key Performance Indicators ◽

Environmental Indicators ◽

Business Strategies ◽

Proactive Approach ◽

Stakeholder Influence ◽

Corporate Decisions ◽

Study Results ◽

Reporting Decisions

AbstractEnvironmental protection is of vital importance and needs to be considered in the context of business strategies, including companies’ reporting decisions. This paper aims to investigate the importance of stakeholders for environmental key performance indicators (KPIs) and the significance of different types of environmental KPIs to various stakeholders. The study is based on a content analysis of the disclosures provided by large public interest companies operating in Poland. The data were processed to produce descriptive statistics as well as classification and regression trees (C&RTs). According to the study results, the sample companies provide a variety of environmental indicators, with a total of 735 KPIs identified. The research confirms the importance of stakeholders interested in environmental issues for corporate decisions regarding environmental KPI disclosure. The study contributes to the extant literature by providing new insights into the importance of different stakeholder groups for the disclosure of environmental KPIs. It may serve as an incentive for standard setters and practitioners to take a proactive approach in further developing and improving environment-related reporting regulations.

Download Full-text

Does Wrongdoer Reputation Matter? Impact of Auditor-Wrongdoer Performance and Likeability Reputations on Fellow Auditors' Intention to Take Action and Choice of Reporting Outlet

Behavioral Research in Accounting ◽

10.2308/bria-50022 ◽

2011 ◽

Vol 23 (2) ◽

pp. 207-234 ◽

Cited By ~ 34

Author(s):

Jesse C. Robertson ◽

Chad M. Stefaniak ◽

Mary B. Curtis

Keyword(s):

Two Dimensions ◽

Data Availability ◽

Good Performer ◽

Reporting Decisions ◽

Prior Literature ◽

Reporting Channel ◽

Channel Preferences ◽

Main Effects ◽

The Impact ◽

Selection Of

ABSTRACT We investigate the effects of auditor-wrongdoer reputations for performance and likeability on fellow auditors' intentions to take action in response to a questionable audit act. We also use this context to explore auditor selection of reporting outlets, when they do choose to take action. In an experiment with 181 auditors, main effects suggest that likeability reputation is a significant determinant of intention to take action, while performance reputation is marginally significant. As expected, interaction results indicate that auditors have the greatest intention to take action against less likeable, poor performers. Contrary to expectations, intention to take action against a more likeable, good performer is no lower than the mixed conditions. Thus, the influence of the two dimensions of reputation is complex. Additionally, we find auditors are more likely to whistle-blow internally than externally, and through non-anonymous outlets than anonymous outlets. Our contributions include exploring the impact of reputation on the actions of third parties, and advancing prior literature by considering the influence of wrongdoer attributes on reporting decisions and auditors' reporting channel preferences. Data Availability: Data are available from the first author upon request.

Download Full-text

Fraud Reporting within an Organization and the Use of the Internal Audit Function as a Training Ground for Management

Behavioral Research in Accounting ◽

10.2308/bria-2020-015 ◽

2021 ◽

Author(s):

Alisa G. Brink ◽

C. Kevin Eller ◽

Karen Y. Green

Keyword(s):

Internal Audit ◽

Management Training ◽

Third Party ◽

Internal Auditors ◽

Internal Audit Function ◽

Management Accountants ◽

Reporting Behaviors ◽

Reporting Decisions ◽

Willingness To Report ◽

Sense Of Urgency

This study examines the effects of using the internal audit function as a management training ground (MTG) and fraud magnitude on internal fraud reporting decisions. Two experiments examine (1) internal auditors’ reporting behaviors, and (2) other employees’ willingness to report directly to internal audit. In the first experiment, experienced internal auditors indicate that the use of internal audit as a MTG may negatively impact fraud reporting likelihood by internal auditors to the Chief Audit Executive (CAE). Further, using the internal audit function as a MTG inhibits the sense of urgency internal auditors feel to report large fraudulent acts. The second experiment compares management accountants’ preferences for reporting to an anonymous third-party hotline versus reporting directly to internal audit. The results indicate a preference for the hotline that increases with a MTG. This preference is fully mediated by the perceived trustworthiness of internal audit, which is negatively impacted by a MTG.

Download Full-text