CEO Employment Contract Horizon and Financial Reporting Discretion

2020 ◽  
Author(s):  
Guojin Gong ◽  
Juan Wang ◽  
Hyun Jung (JoAnn) Lee
Keyword(s):  
Economic Theory ◽  
Firm Performance ◽  
Financial Reporting ◽  
Managerial Discretion ◽  
Employment Contract ◽  
Value Of Firm ◽  
Contract Termination ◽  
Informational Value ◽  
Over Time

We examine the effect of employment contract horizon on managers' discretion in financial reporting. During the contract horizon, the board learns about a new CEO's ability from realized firm performance and uses this information to determine whether to renew or terminate the CEO's contract. Economic theory suggests that the informational value of firm performance to the board's learning declines over time as the board's estimate of the CEO's ability becomes more precise; this motivates a CEO to overstate earnings more aggressively during the earlier stage of the contract horizon. Consistently, we find more (less) aggressive earnings overstatement during the earlier (later) stage of the first contract horizon. This finding is stronger for CEOs who have greater concerns over contract termination and CEOs who have greater flexibility to manipulate earnings. Our evidence suggests that the CEO employment contract horizon has a significant impact on managerial discretion in financial reporting.

Interim Reporting Frequency and the Mispricing of Accruals

2018 ◽  
Vol 32 (3) ◽  
pp. 29-47
Author(s):  
Shou-Min Tsao ◽  
Hsueh-Tien Lu ◽  
Edmund C. Keung
Keyword(s):  
Financial Reporting ◽  
Stock Prices ◽  
Data Availability ◽  
Financial Reports ◽  
Regulatory Changes ◽  
Sample Composition ◽  
Reporting Frequency ◽  
Over Time ◽  
Jel Classifications ◽  
Accrual Mispricing

SYNOPSIS This study examines the association between mandatory financial reporting frequency and the accrual anomaly. Based on regulatory changes in reporting frequency requirements in Taiwan, we divide our sample period into three reporting regimes: a semiannual reporting regime from 1982 to 1985, a quarterly reporting regime from 1986 to 1987, and a monthly reporting regime (both quarterly financial reports and monthly revenue disclosure) from 1988 to 1993. We find that although both switches (from the semiannual reporting regime to the quarterly reporting regime and from the quarterly reporting regime to the monthly reporting regime) hasten the dissemination of the information contained in annual accruals into stock prices and reduce annual accrual mispricing, the switch to monthly reporting has a lesser effect. Our results are robust to controlling for risk factors, transaction costs, and potential changes in accrual, cash flow persistence, and sample composition over time. These results imply that more frequent reporting is one possible mechanism to reduce accrual mispricing. JEL Classifications: G14; L51; M41; M48. Data Availability: Data are available from sources identified in the paper.

scholarly journals Rethinking Non-Financial Reporting: A Blueprint for Structural Regulatory Changes

2020 ◽  
Vol 10 (2) ◽  
Author(s):  
David Monciardini ◽  
Jukka Tapio Mähönen ◽  
Georgina Tsagas
Keyword(s):  
Financial Reporting ◽  
Final Section ◽  
Thematic Issue ◽  
Revision Process ◽  
The Past ◽  
Regulatory Changes ◽  
Collective Effort ◽  
Key Points ◽  
Structural Failures ◽  
Over Time

AbstractThe article introduces the thematic issue of Accounting, Economics, and Law: A Convivium dedicated to the regulation of non-financial reporting. It provides the reader with an overview of the varying approaches and frameworks that have emerged over time in relation to the reporting of non-financial information. In particular, the article focuses on the European Non-Financial Reporting Directive. We maintain that to date this latter initiative has failed to deliver on its intended objectives. In the context of the ongoing revision process of this initiative, the present paper outlines five key areas to be improved drawing on the lessons learnt from the past as well as from key points raised by the papers in the present thematic issue. What emerges from this collective effort is a renewed agenda that highlights some of the structural failures of the current reporting regime and a blueprint for future reforms. The final section summarises the various contributions of articles included in this thematic issue.

scholarly journals Persisting inequality: A case of probabilistic drive towards divergence

2017 ◽  
Vol 67 (2) ◽  
pp. 215-234 ◽  
Author(s):  
Robin Maialeh
Keyword(s):  
Economic Theory ◽  
Market Economy ◽  
Empirical Studies ◽  
Market Forces ◽  
Global Inequality ◽  
Economic Disparities ◽  
Multi Level ◽  
Over Time

The aim of the study is to prove that agents organised by market forces tend to create and even more so deepen economic disparities over time. Empirical studies do not reliably describe the trend and causes of interpersonal global inequality in recent decades. Hence, the attention is turned to general economic theory with inspiration from Schumpeterian and neoclassical theories. The results indicate that pure market economy logic will tend to lead to multi-level divergence.

scholarly journals Western-style capital market reforms in Russia: Implications for market efficiency and firms’ financing decisions

2020 ◽  
Vol 10 (3) ◽  
pp. 62-74
Author(s):  
Oksana Kim
Keyword(s):  
Financial Reporting ◽  
Capital Market ◽  
Weak Form ◽  
Foreign Direct Investments ◽  
Informational Efficiency ◽  
Russian Government ◽  
Public Firms ◽  
Financing Decisions ◽  
Russian Stock Market ◽  
Over Time

Over the past decade, the Russian government implemented numerous reforms aimed at attracting investor capital and improving the capital market conditions. These reforms included adoption of stringent listing regulations and governance norms, revisions in the tax and ownership laws, restructuring of the major stock exchanges, and more importantly, adoption of International Financial Reporting Standards (IFRS) in 2011. We employ an adaptive market hypothesis (AMH) perspective formulated by Lo (2004, 2005) to examine whether the informational efficiency of the market changed over time as a result of these reforms. While we report that the Russian stock market is still not weak-form efficient, as it was before the reforms, we find the evidence of improvement in efficiency over time. Next, we find that financing decisions of Russian public firms changed following adoption of IFRS when financial statements became more transparent and better aligned with informational needs of local and foreign investors. Particularly, Russian companies that adopted IFRS were more likely to raise finance via issuance of equity rather than debt instruments, whereas for non-adopters there was no change in the firm capital structure. Finally, we report that there was an increase in the inflow of foreign direct investments (FDI) in the post-reform period, suggesting that the above noted reforms conferred significant benefits to the entire Russian economy.

CEO outsiderness and firm performance in an emerging economy: The moderating role of managerial discretion

2018 ◽  
Vol 26 (5) ◽  
pp. 798-814
Author(s):  
Aylin Ataay
Keyword(s):  
Firm Performance ◽  
Chief Executive ◽  
Emerging Economy ◽  
Managerial Discretion ◽  
Ceo Succession ◽  
Direct Impact ◽  
And Performance ◽  
Succession Events ◽  
Moderating Role

AbstractInconsistent findings from prior research on the performance consequences of new Chief Executive Officer (CEO) origin led us to study the moderating effect of managerial discretion on the link between CEO outsiderness and firms’ post-succession performance. Data from 75 CEO succession events from an emerging economy show that new CEO outsiderness, without managerial discretion context influences, has no direct impact on post-succession performance. Further, our findings emphasise the moderating impacts of managerial discretion, stemming from factors in a company’s external and internal contingencies, which either strengthen or weaken the association between new CEO outsiderness and post-succession firm performance. It is found that market complexity, but not munificence, provides CEOs with more discretion in the Turkish context, thus strengthening the positive associations between CEO origin and firm performance. Firms inertia weakens both managerial discretion level and the association between CEO outsiderness and firm performance. The results show that internal corporate governance also matters. Finally, when a CEO assumes the dual role of both the chairman and the CEO, the link between CEO outsiderness and performance of the firm becomes stronger.

Prior Audit Experience and CFO Financial Reporting Aggressiveness

2021 ◽  
Author(s):  
Eric R. Condie ◽  
Kara M. Obermire ◽  
Timothy A. Seidel ◽  
Michael S. Wilkins
Keyword(s):  
Financial Reporting ◽  
Audit Fees ◽  
Chief Financial Officers ◽  
Public Accounting ◽  
Reporting Behavior ◽  
High Level ◽  
Time Away ◽  
Over Time

In this study, we investigate the financial reporting behavior of chief financial officers (CFOs) with significant prior audit experience. Our tests indicate that, on average, CFOs who were former audit managers or partners report less aggressively than CFOs without prior audit experience. Thus, the mindset that auditors develop during their time in public accounting – which should value objective, transparent, and conservative financial reporting – appears to persist when auditors take high-level positions in industry. However, we also find that the reporting behavior of prior-auditor CFOs becomes more aggressive over time as the salience of their audit experience decays. Further, we find that audit fees are lower for clients with prior-auditor CFOs but increase as the CFOs’ time away from auditing increases. Overall, our study offers important insights regarding how audit experience is associated with the financial reporting behavior of CFOs.

Developing a Government Reporting Taxonomy

2016 ◽  
Vol 30 (2) ◽  
pp. 49-81 ◽  
Author(s):  
Neal M. Snow ◽  
Jacqueline L. Reck
Keyword(s):  
Financial Reporting ◽  
Municipal Government ◽  
Financial Statements ◽  
Bond Market ◽  
Empirical Approach ◽  
Municipal Bond ◽  
Data Accessibility ◽  
Public Companies ◽  
Private Investors ◽  
Over Time

ABSTRACT The municipal bond market is a $3.7 trillion market with approximately 75 percent of the market held by private investors (SEC 2012). Municipal bondholders and potential buyers do not have the same level of information as those investors choosing to invest in public companies. This inequity is, in part, the result of poor data accessibility. Frequently the data provided are in a format that does not allow easy comparison across governments or over time. To increase comparability and consistency in government reporting we build a government financial reporting taxonomy using the empirical approach. The completed taxonomy has 194 terms that cover financial statements filed by municipalities. Expert analysts and preparers in government reporting reviewed the completed taxonomy. This study has implications for the municipal reporting market and those entities that regulate them by providing a validated municipal government financial reporting taxonomy.

scholarly journals Exploring the Effects of Trust and Its Outcomes in B2B Relationship Stages: A Longitudinal Study

2020 ◽  
Vol 12 (23) ◽  
pp. 9937
Author(s):  
Hong-Youl Ha
Keyword(s):  
Firm Performance ◽  
Social Exchange ◽  
Social Exchange Theory ◽  
Temporal Dynamics ◽  
Start Up ◽  
B2b Relationships ◽  
The Impact ◽  
Business To Business ◽  
Positive Effect ◽  
Over Time

Temporal dynamics in business-to-business (B2B) relationships are the evolution of B2B relationship stages. This study offers new insights in examining the impact of the temporal dynamics on firm performance during the B2B relationship stages. Drawing on B2B stage models, social exchange theory and the evolution of trust, the results show that the link between trust and firm performance weakens when a relationship between two parties reaches a particular stage. trust has a positive effect on firm performance in the same period; however, this positive effect decreases over time. Thus, the impact of trust on firm performance is insignificant in subsequent relationship stages in the start-up context. The impact of trust on firm performance is unstable and decreases over time. This study offers new theoretical and managerial insights regarding the temporal dynamics in B2B relationships.

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