The effect of audit firm attributes on audit delay in the presence of financial reporting complexity

Purpose This study aims to examine the effects of audit firm attributes on audit delay associated with financial reporting complexity (FRC). Design/methodology/approach The authors use regression models with a sample of public firms with distinct monetary eXtensible Business Reporting Language tags to test the research hypotheses. Findings The authors find that two audit firm attributes (audit firm tenure and non-audit services performance) moderate the effect of FRC on audit delay. Practical implications The study provides insights to regulators, practitioners and investors into how firms may reduce audit delay from FRC by keeping their long-tenured auditors and allowing their auditors to gain more knowledge about the firms by providing non-audit services. The results, therefore, have implications for mandatory audit firm rotation. Originality/value To the best of the knowledge, this study conducts the first comprehensive analysis of this topic, exploring the impact of three audit firm attributes on audit delay caused by FRC. It attempts to illustrate the impact of external audit firms on reducing the adverse consequences of FRC.

Three Essays on Corporate Governance in China

<p>This thesis consists of three empirical papers on corporate governance in Chinese listed firms. The first essay examines the influence of director characteristics and ownership structure on director compensation. Over the period 2005 through 2015, we find that director compensation in Chinese listed firms is influenced by both director characteristics and ownership structure. We measure director compensation by both the propensity to be paid and the level of compensation. For independent directors, we find that director busyness, tenure, and ownership concentration positively influence and state-ownership negatively influences director compensation. For non-independent directors, we find that tenure positively influences and that both state-ownership and related directors negatively influence director compensation. Lastly, our evidence suggests that women directors in China are not underpaid. The second essay examines the influence of rookie independent directors on board functions and firm performance in Chinese public companies from 2008 to 2014. We find that rookie independent directors attend more board meetings than seasoned independent directors. Independent directors with higher board meeting attendance are more likely to remain in the firm in the following year (lower turnover rate). This influence of board attendance on re-appointment is stronger for rookie independent directors. Further, we find that boards with more rookie independent directors tunnel less to controlling shareholders, suggesting that rookie independent directors are efficient monitors. Lastly, we find that firms with more rookie independent directors are associated with higher accounting returns. In the third essay, we investigate the influence of board networks on directors’ career outcomes in Chinese public firms from 2005 to 2014. We find that board connections increase compensation for independent directors. We find that board connections are positively associated with director turnover for non-related directors, but negatively associated with director turnover for related directors. Further, we find that board connections lead to additional future directorships. Overall, we find that board connections both directly lead to higher compensation and indirectly through labor mobility and additional board seats.</p>

Three Essays on Corporate Governance in China

<p>This thesis consists of three empirical papers on corporate governance in Chinese listed firms. The first essay examines the influence of director characteristics and ownership structure on director compensation. Over the period 2005 through 2015, we find that director compensation in Chinese listed firms is influenced by both director characteristics and ownership structure. We measure director compensation by both the propensity to be paid and the level of compensation. For independent directors, we find that director busyness, tenure, and ownership concentration positively influence and state-ownership negatively influences director compensation. For non-independent directors, we find that tenure positively influences and that both state-ownership and related directors negatively influence director compensation. Lastly, our evidence suggests that women directors in China are not underpaid. The second essay examines the influence of rookie independent directors on board functions and firm performance in Chinese public companies from 2008 to 2014. We find that rookie independent directors attend more board meetings than seasoned independent directors. Independent directors with higher board meeting attendance are more likely to remain in the firm in the following year (lower turnover rate). This influence of board attendance on re-appointment is stronger for rookie independent directors. Further, we find that boards with more rookie independent directors tunnel less to controlling shareholders, suggesting that rookie independent directors are efficient monitors. Lastly, we find that firms with more rookie independent directors are associated with higher accounting returns. In the third essay, we investigate the influence of board networks on directors’ career outcomes in Chinese public firms from 2005 to 2014. We find that board connections increase compensation for independent directors. We find that board connections are positively associated with director turnover for non-related directors, but negatively associated with director turnover for related directors. Further, we find that board connections lead to additional future directorships. Overall, we find that board connections both directly lead to higher compensation and indirectly through labor mobility and additional board seats.</p>

Empirical Analysis of the Effects of Ownership Model (Public vs. Private) on the Efficiency of Urban Rail Firms

The discussion over public vs. private management in the operation of public transport has been on the research agenda for the past decade. Several studies have analyzed the benefits of private management; however, no study has analyzed the effects of the management model while controlling for other external factors such as economic crises and political factors. This study intends to focus on the impact of the ownership model (public vs. private) of urban rail firms on their efficiency, while expanding the existing literature by controlling for economic and political factors. The methodology consisted of the calculation of DEA scores and subsequent use of regression analysis to identify the main determinants. We used a data set of four Portuguese rail firms during the period 2009–2018 along with five distinct efficiency scores. The results show that privately managed firms tend to be more efficient, but with distinct behavior depending on the economic cycle. In periods of growing GDP, private firms lose their potential superiority over public firms. The results also show that election years and unemployment rate also play a role in understanding the efficiency scores of these firms.

How Does Family Involvement Affect Environmental Innovation? A Socioemotional Wealth Perspective

The purpose of this study was to examine how family involvement affects the environmental innovation of firms. While prior studies have shown that family involvement can enhance environmental performance, these environmental performances have been portrayed as firm activities to prevent environmental issues, such as air pollution, CO2 emissions, etc. We maintain that environmental performance should be more proactive and enable firms to transform their activities more fundamentally towards environmental protection. In this sense, we consider environmental innovation, i.e., technological development to address environmental issues, as a proactive measure enacting firm activities to address environmental issues. Furthermore, we determine whether and how family involvement can motivate firms to develop technologies for environmental performance. To illuminate this relation, we utilized a socioemotional wealth perspective, which provides useful insights into how family-controlled firms behave differently in comparison to non-family firms. Building on this socioemotional wealth approach, we suggest that family involvement helps firms engage in environmental innovation. In this study, we also explore how the positive link between family involvement and environmental innovation is dependent on family interlocks—the circumstance wherein a firm’s family directors are affiliated with the boards of directors of other firms. Specifically, we suggest that an increase in a firm’s family interlocks would strengthen the positive relationship between family involvement and environmental innovation. To test our ideas, we used a sample of 623 US public firms ranging from 1996 to 2010, which yielded 5047 firm-year observations. We find that family involvement facilitates the environmental innovation of firms. We also find that family interlocks intensify the positive effect of family involvement on environmental innovation. Finally, we discuss the theoretical and empirical implications of our results.

Private or Public Equity? The Evolving Entrepreneurial Finance Landscape

The U.S. entrepreneurial finance market has changed dramatically over the last two decades. Entrepreneurs raising their first round of venture capital retain 30% more equity in their firm and are more likely to control their board of directors. Late-stage startups are raising larger amounts of capital in the private markets from a growing pool of traditional and new investors. These private market changes have coincided with a sharp decline in the number of firms going public--and when firms do go public, they are older and have raised more private capital. To understand these facts, we provide a systematic description of the differences between private and public firms. Next, we review several regulatory, technological, and competitive changes affecting both startups and investors that reveal how the trade-offs between going public and staying private have changed. We conclude by listing several open research questions.

The idiosyncratic risk during the Covid-19 pandemic in Indonesia

Conservatism in the CAPM and L-CAPM standards often emphasizes systematic risk to explain the phenomenon of the risk-return relationship and ignores idiosyncratic risk with the assumption that the risk can be diversified. The effect of the Covid-19 outbreak raises the question of whether the idiosyncratic risk can still be ignored considering that the risk has a close relationship to firm-specific risk. This study sets a portfolio consisting of 177 active public firms in the Indonesia Stock Exchange before and after the Covid-19 pandemic. On portfolio set, idiosyncratic risk is estimated by the standard CAPM and L-CAPM in the observation range from January 2, 2019, to June 30, 2021. The results of the analysis show that L-CAPM and CAPM produce significantly different idiosyncratic risks. Empirical evidence shows that the highest firm-specific risk is in the third period and has a stable condition since the fourth period. This condition is confirmed by regression results that idiosyncratic risk together with systematic risk positively affects stock returns in the fourth period as suggested by the efficient market hypothesis. Uniquely, both systematic risk and idiosyncratic risk based on L-CAPM do not show a significant effect on stock returns in the fifth period, so it is a strong indication that liquidity is an important factor that must be considered in making investments.

Is childcare cost a barrier to women managers' retention and progress at large firms?

PurposeThe impact of childcare cost and childcare responsibilities has generally negatively impacted women in workforce. There has been lack of research on the impact of childcare on women managers in larger US public firms. The purpose of this paper is to determine how childcare costs impact the number of women managers in S&P 500 firms.Design/methodology/approachThe paper employs Driscoll–Kraay panel regression model using childcare data for ten years and the percent of women managers at S&P 500 firms.FindingsThe results show that increase in childcare cost leads to decrease in percent of women in management positions when the child is an infant. Interestingly, but plausibly the results also show that for preschool-age children as the cost of childcare increases, there is an increase in percent of women in management. Furthermore, childcare costs are still an impediment to careers of women managers, specifically when the child is an infant. The effect is much less when the child grows from an infant to preschool age.Research limitations/implicationsOne limitation of this research paper is that the childcare cost data is not directly from the S&P 500 firms. The percent of women management data used is limited to the largest S&P 500 firms. Also, there is no agreement as to definition of a manager at these firms. Moreover, not only childcare cost, but the quality and availability of childcare are factors that also play a role in decision to work and/or use of childcare.Originality/valueThis paper adds to the existing literature by providing evidence that childcare cost impedes women managers' career growth. This finding is more worrisome given that Covid-19 has had a very disproportionate impact on women with child(dren) in the workforce.

Strategic procurement collaboration for the common good: private and public procurement relationship duringa pandemic

Purpose This study aims to highlight and validate the importance of strategic procurement and its value to both public and private firms. This study discusses a collaborative private-public partnership (PPP), supply chain advisory committee (SCAC), established during the coronavirus (COVID-19) pandemic to acquire personal protective equipment (PPE) and other critical supplies for a donation center in Toledo, Ohio, USA. This center serves the community and small businesses. This paper discusses the strategies, process and framework that were created to procure the needed items under a short lead time. The process of the partnership and outcomes are transferable and capable of being used by others to benefit society. Design/methodology/approach The case study methodology was used to investigate and summarize the actions and events of the SCAC. The case presented was tracked from the initial call to action from a local emergency response organization, Lucas County Emergency Operation Center (EOC), through the first six months of the committee’s work. Data collection was completed through a triangulation of sources. Findings The findings of this study reveal that public firms are vulnerable in a crisis. A crisis exposes the inequities in the supply chain and the need for public and private collaboration to use innovative procurement strategies. This study suggests that PPP procurement professionals benefit from working together. Both can learn from the limitations and benefits of collaborating. Practical implications This study offers a framework on how PPPs can be established to procure PPE during a crisis. This study has practical implications for private and public firms seeking to collaborate for the good of society. Social implications The findings of the study reveal that public firms are vulnerable in a crisis, which exposes the inequities in their supply chains. Private-public partnership (PPP) procurement professionals mutually benefit from working together as both can learn from each whether it is procuring PPE during a crisis or seeking to team up for the good of society. Society benefits when these organizations share solutions to problems rather than compete against one another during a crisis-situation such as a global pandemic. Supplies get to those who need them the most and information flows amongst the organizations to ensure equity in the availability of the supplies. Originality/value This study contributes to the growing body of literature that argues that public procurement must be innovative and strategic to contribute to socially responsible solutions. Government regulations require public procurement to use competitive bidding for accountability, cost reduction and to reduce fraud. However, emergency situations require innovative procurement strategies. The use of innovative procurement strategies is typical in private procurement. During a crisis, supplier relationships, lead-time management and shared and transfer of knowledge must be leveraged to acquire critical items in a timely manner. A lack of innovative public procurement strategies constrains the public and small under resourced businesses, rendering them inoperable. This paper provides a case study of an effective PPP during the COVID-19 pandemic. This paper highlights the strategies, process and framework for future research and collaborations.

The Effects of Stock-Based Incentives on Inventory Management

Classic inventory theories typically focus on the operational trade-offs to optimize inventory decisions. However, managers of public firms who obtain stock-based incentives may alter inventory operations to influence the stock price. We develop a stylized model, which shows that, in the presence of an interest in the stock price, managers over-install inventory when it can either inflate sales or deflate the reported cost of goods sold even if the market anticipates such actions. We analyze the joint and marginal effects of the stock-based incentives and the cost of using inventory to manage earnings, which may provide useful implications for the detection of inventory distortion and the design of management incentive plans. We then conduct an empirical analysis based on the financial data of U.S. publicly listed retailers and manufacturers. We find positive (negative) correlation between firms’ abnormal excess inventory and the stock-based incentives of their top executives (the inventory manipulation cost). Moreover, the marginal effect of the stock-based incentives on the abnormal excess inventory is the strongest when the inventory manipulation cost is intermediate. Our empirical analysis also shows that this effect becomes statistically weaker after the passage of the Sarbanes–Oxley Act. This is in line with the prediction of our analytical model about the effect of the accuracy of financial reporting. This paper was accepted by Vishal Gaur, operations management.