Business Commons^™

The Importance Of Fairness Perceptions: The Effect Of Icfr Audit Reporting Options And Focus Of Auditor Behavior On Management Defensiveness, Aubrey R. Whitfield

Doctoral Dissertations

Unlike financial statement audits, auditor reporting requirements for audits of internal control over financial reporting (ICFR) prohibit auditors from issuing a qualified opinion (i.e., only unqualified or adverse opinions are permitted). Using an experiment with experienced financial reporting managers, this study explores how managers’ perceptions of the unfairness of the ICFR reporting requirements influence their judgments when audit issues arise. Based on fairness heuristic theory, I predict that managers are more defensive when the auditor is not permitted to issue a qualified opinion on the audit of ICFR (compared to the auditor being able to issue a qualified opinion) due …

The Disparate Effects Of Non-Reliance Restatements On Retail And Institutional Investor Trading, Jason T. Bangert

Doctoral Dissertations

The SEC seeks to mandate disclosures that effectively inform retail investor decision making. To evaluate these efforts, I investigate how retail investors, relative to institutional investors, process non-reliance restatements. I find that both retail and institutional investors revise expectations about firm value and modify investment decisions following these disclosures. However, in contrast to regulator efforts, the results suggest that the costs to process non-reliance restatements are disproportionately high for retail investors. Specifically, individuals tend to disagree regarding the implications of these disclosures for firm value, whereas institutions tend to draw similar inferences. Moreover, individuals take significantly longer than institutions to …

Firm Transparency Of Risk Oversight: An Examination Of Cybersecurity Governance Disclosures, Laurie E. Ereddia

Doctoral Dissertations

In this study, I examine factors associated with firm transparency of board oversight using the setting of cybersecurity risk. The SEC requires that, to the extent cybersecurity risks are material, firms must disclose the nature of the board’s role in overseeing the management of that risk, allowing investors to assess how the board is fulfilling its risk oversight duties. Using textual analysis, I identify 2,921 firms that report material cybersecurity risk factors in their annual reports. From these firms’ 2021 proxy statement filings, I hand collect data relating to 12 different elements of cybersecurity board oversight and create an overall …

Two Essays On Using Data Manipulation To Justify Biased Reports, Cody Lu

Doctoral Dissertations

An important aspect of data-generated metrics is the degree to which they can be manipulated by users. Agents providing reports often (a) have incentive conflicts with principals and (b) have access to and an ability to manipulate data used in those reports. This study investigates how data manipulation affects advisors’ tendency to provide biased recommendations when incentives between advisors and advisees are misaligned and aligned. Drawing on theories in deception and persuasion, I posit that, when incentives are misaligned, advisors will provide a more biased recommendation when the evidence used to support their recommendation is more manipulable. I also predict …

Shareholder Beware? Examining Nol Poison Pill Adoptions, Danielle Stanley

Doctoral Dissertations

This study examines whether or not a specific and unilateral action taken by the board of directors, the adoption of a net operating loss (NOL) poison pill, promotes shareholder interests, by examining the factors that are influential in the adoption decision. NOL poison pill adoptions are unique in that the board of directors cites the need to protect a firm’s ability to use its NOL carryforwards in the future, rather than to protect the firm from a specific takeover threat. To address my research question, I examine the firm characteristics associated with NOL poison pill adoptions and find that the …

Do Big 4 Auditors Provide Higher Audit Service Quality Than Second-Tier Auditors In Small And Mid-Sized Initial Public Offerings?, Stefan K. Slavov

Doctoral Dissertations

Big 4 auditors perform most audits of companies that issue initial public offerings (IPOs). Regulators have expressed interest in increasing IPO audit market competition and a growing body of evidence suggests that Second-Tier auditors could provide IPO audit service quality comparable to that of Big 4 auditors. However, there exists limited empirical evidence on whether IPO audit service quality varies with auditor type. I investigate whether IPO audit service quality differs between Big 4 and Second-Tier auditors for a sample of small and mid-sized IPOs from 2005 through 2019. I find that Big 4 clients are associated with lower pre-IPO …

The Auditor’S Application Of Professional Judgment: Evidence From M&A-Related Critical Audit Matters, Xi Ai

Doctoral Dissertations

In this study, I examine the extent to which auditor attributes affect the auditor’s decision to communicate a Critical Audit Matter (CAM) in the expanded auditor’s report. I expect the CAM communication decision to be adversely affected by threats to independence and by auditor overconfidence. I focus on a sample of companies that completed material mergers and acquisitions because these are likely to be considered as potential CAMs by meeting the minimal requirements of a CAM (i.e., material accounts or disclosures that involve especially challenging, subjective, or complex auditor judgment). Contrary to expectations, I find that the auditor’s CAM communication …

How Does Shareholder Voting Influence Individual Investors’ Investment Decisions?, Yushi Tian

Doctoral Dissertations

Shareholder voting is an important way for investors to participate in corporate governance. In this study, I examine, as individual investors participate in shareholder voting, whether and how their investment decision is affected by the consistency between their own vote and management’s final decision on the voting issue (i.e., opinion consistency) and whether management’ final decision aligns with the majority or minority of investors (i.e., management position). Using ego-defensiveness theory and majority effect, I predict and find that when investors have stronger opinions on the voting issue, they make more positive investment decisions if management’s final decision on the voting …

He Said, She Said: Investor Reactions To Ceo Gender And Earnings Guidance Disclosure In The Presence Of Shareholder Activism, Scott C. Jackson

Doctoral Dissertations

This study addresses concerns from the SEC and examines the trend of shareholder activism and its impact on financial players. Specifically, I examine how the nature of the shareholder activism (Profitability-focused versus Environmental/Social-focused) interacts with CEO gender to create perceptions of match or mismatch within nonprofessional investors, in terms of perceived ability to address the shareholder activism. Drawing on role-congruity theory, I predict and find that when a perceived match exists, investment willingness is increased, with the greatest differences occurring when the CEO does not disclose earnings guidance information. Given recent trends that show increased disclosure of earnings guidance in …

The Impact Of Ceo Compensation Incentives On Financial Reporting Choices: Evidence From Potential Ghost Revenues Created In Mergers And Acquisitions, Jason A. Ashby

Doctoral Dissertations

When an acquirer purchases a target and assumes the target’s deferred revenue liability, accounting standards codification 805 requires that the acquirer recognize the target’s deferred revenue at its estimated fair value as of the acquisition date. If the target’s deferred revenue book value exceeds its fair value, the portion of deferred revenue written down will never be recognized as revenue for the acquirer under generally accepted accounting principles (GAAP). In this study, I investigate the impact of chief executive officers’ (CEOs’) compensation incentives on the fair value measurement of deferred revenue liabilities in acquisitions. If a larger proportion of CEO …

Determinants And Consequences Of Management Forecasts Of Key Performance Indicators: Evidence From The Airline Industry, Andrew Joseph Doucet

Doctoral Dissertations

In this study, I examine the determinants and consequences of quarterly management guidance of key performance indicators (KPIs). I use a novel dataset of 457 firm-quarter observations in the airline industry and hand-collect information on the existence and properties of quarterly KPI guidance. Specifically, I collect data on quarterly KPI guidance for three KPIs used in airline the industry: available seat miles, revenue per available seat mile, and cost per available seat mile. Consistent with managers using quarterly KPI guidance to reduce analyst uncertainty, I find that managers are more likely to provide quarterly KPI guidance when initial analyst earnings …

Narrative Feedback In Subjective Performance Evaluations: Do Ratings Change The Narrative?, Kyle Stubbs

Doctoral Dissertations

Several high-profile companies are leading the charge to remove subjective performance ratings from their performance management processes leaving only narrative evaluations. Using two experiments, I investigate the effects of the ratings on narrative evaluations supervisors provide. In chapter 1, I test theory on supervisor goal attainment to learn how simultaneously providing a performance rating affects the narrative evaluation supervisors provide to employees. In supervisors’ seeking of honesty and social cost reduction goals, I predicted the favorability of narrative evaluations to depend on the presence of ratings and the purpose of the performance evaluation. I used psychological licensing and process accountability …

Three Essays On Information Security Breaches And Big Data Analytics: Accounting And Auditing Perspective, Shariful Islam

Doctoral Dissertations

The dissertation examines two separate yet significant Information Technology (IT) issues: one dealing with IT risk and the other involving the adoption of IT. The IT risks that the dissertation focuses are information security breaches and the adoption/outsourcing of big data analytics. Using competitive dynamics theory and the theory of information transfer, the dissertation examines whether there is a spillover effect from information security breaches of breached firms to those firms’ rivals. Market reaction from spillover effects is captured from market activity and information asymmetry. The results suggest that the market of rival firms react to the focal firm’s experience …

Ceo Network Centrality And Earnings Management, Huan Qiu

Doctoral Dissertations

This study investigates the relationship between CEO network centrality, choice of earnings management, and the consequences for the period from 1998 to 2016. From our empirical analysis, we find that CEOs with higher network centrality are more likely to use accruals-based earnings management, but less likely to use real earnings management to manage earnings upward in the current year. Although the use of accruals-based earnings management normally results in bad economic consequences for firms, CEO network centrality is associated with better (at least not worse) earnings quality, after controlling the use of accruals-based earnings management. As for longterm economic performance, …

The Effects Of Pair Budget Goal Difficulty And Pair Identity On Decision-Making And Performance, Chaoping Li

Doctoral Dissertations

Mixed incentive compensation structures have been widely studied in the accounting literature (e.g., Tian et al. 2017; Dekker et al. 2012, Rothenberg 2011; Hwang et al. 2009). However, the findings in the literature as to the effectiveness of mixed incentives are not consistent. The inconsistency in the mixed incentives literature may be due to the various levels of social dilemma embedded in the research setting of the studies. Therefore, I experimentally investigated two factors that may reduce the embedded social dilemma issue and improve the effectiveness of mixed incentive compensation. In this study, student participants were assigned to pairs to …

The Impact Of Material Weakness Presentation Structure And Internal Control Terminology On Investor Perceptions, Matthew Starliper

Doctoral Dissertations

Management is required to disclose any material weaknesses discovered during its evaluation to prepare the company’s financial statements in their internal control over financial reporting (ICFR) report. Across two experiments, I examine the impact of two presentation characteristics of a material weakness made up of multiple, smaller problems— (1) the structure of the presentation of the material weakness, which is whether the material weakness is identified first, followed by descriptions of its individual parts (Top Down structure) or vice versa (Bottom Up structure) and (2) whether or not the parts of the weakness are labeled with ICFR terminology (“significant deficiencies” …

Examining The Sleeper Effect In Auditors' Evaluations Of Audit Evidence, Jennifer B. Mccallen

Doctoral Dissertations

Current auditing standards require auditors to consider qualifications of the source (e.g., credibility and competence of management) in assessing the quality (e.g., reliability) of audit evidence, especially in subjective audit areas. However, while auditing standards stress the importance of the evaluation of management, they do not prescribe how auditors should effectively identify and incorporate relevant information about the source into evidence evaluation. Psychology research highlights that credibility is multi-dimensional and, more importantly, competence is context-specific. That is, an expert in one area may lack the necessary knowledge and background in other areas. Recent research in psychology has identified a phenomenon …

When Doing Good Backfires: The Effects Of Corporate Social Responsibility Fit On The Decisions Of Long And Short-Term Investors, Chezham Sealy

Doctoral Dissertations

Investors, analysts, and news outlets have expressed concerns that corporate social responsibility (CSR) has deviated from its original altruistic purpose of improving society to a marketing ploy aimed at managing perceptions of shareholders and improving the bottom line of companies. In this study, I analyze how the fit of a company’s business operations to their CSR activities affects the investment willingness of long and short-term investors. While prior research shows numerous positive outcomes associated with CSR, I predict and find that low fit CSR activities can decrease the investment willingness of long-term investors when companies are involved in controversial “sin” …

The Effect Of Horizontal Inequity, Capacity For Budget Slack, And Severity Of Peer Overstatement On Managerial Reporting Behavior, Yiwen Li

Doctoral Dissertations

An ongoing stream of accounting research indicates that non-pecuniary factors significantly affect employees’ reporting behavior. This study investigates the behavioral effects of three non-pecuniary factors - horizontal pay inequity, capacity for budget slack, and severity of peer overstatement. The behaviors of interest are the employees’ level of honesty and whether or not they report a peer that is overstating.

In the experiment, participants acted as division managers who request funding from the owner of a fictitious company to produce certain parts. In each period, participants were paired with a different fictitious peer and were required to make two decisions under …

The Association Between Audit Committee Overboarding, Audit Committee Responses To Increased Workloads, And Financial Reporting Quality After Sox, John Kyle Castonguay

Doctoral Dissertations

The Sarbanes-Oxley Act (SOX) added a multitude of financial oversight responsibilities to the audit committee of public companies. These responsibilities increased the amount of time each audit committee member needed to devote to each committee served, leading to concerns amongst regulators and the investing community that audit committees that were overboarded and serving on multiple other board seats would be unable to effectively monitor the companies they represented. I find that these concerns are undue. More overboarded audit committees have adequately adjusted to their increased workloads in the decade since SOX to such a degree that they have lower misstatement …

Navigating The Auditor-Client Relationship During Sensitive Events: Insight On Audit Firm Practices And An Experimental Study, Mary Dodgson

Doctoral Dissertations

Maintaining a positive auditor-client relationship is critical for audit firms, particularly during sensitive events. For instance, audit firms state in transparency reports that they take steps to minimize disruption during audit partner rotations, yet it is unclear what these actions entail or the potential effects of these actions on auditor independence and audit quality. I use multiple methods to provide insight into these practices and their related effects. First, I interview 20 audit partners to learn about the process by which audit firms manage the auditor-client relationship during sensitive partner rotation events. Interviewees describe how audit firms identify appropriate partner …

The Impact Of Forecast Roundness, Forecast Uncertainty, And Managers’ Language On Investors’ Judgments, Jessica Osgood

Doctoral Dissertations

Management forecasts can have varying degrees of roundness, including sharp (e.g., a sales growth forecast of 9.73% or 10.27%), explicitly round (e.g., 10.00%), and rounded (e.g., 10%). Prior archival research indicates investors rely less upon round than sharp forecasts (Bamber, Hui, and Yeung 2010), yet it is unclear why this occurs or how contextual features of earnings forecasts moderate this effect. Moreover, this prior research has not distinguished between the effects of explicitly round versus rounded estimates. I provide evidence that the impact of forecast roundness on willingness to invest depends upon forecast uncertainty. That is, rounded sales forecasts enhance …

Implicit Taxes In Imperfect Markets, Hannah Elizabeth Smith

Doctoral Dissertations

Implicit taxes are defined as the pre-tax rate of return disadvantage earned on an investment that is taxed preferentially. Implicit tax theory predicts that implicit taxes will fully offset any benefit from preferential tax treatment leading to no benefit from lower explicit taxes; however, implicit tax theory assumes perfect market competition. This paper relaxes the assumption of perfect market competition and finds that firms in industries with lower competition bear lower implicit taxes, and firms in industries with higher competition bear higher implicit taxes. These findings are consistent with firms in industries with less competition having price setting power. Further, …

The Impact Of Increased Tax Return Reporting On Financial Statement Tax Disclosure Quality: Evidence From Irs Schedule Utp, Michelle Kim Harding

Doctoral Dissertations

This study uses the 2010 implementation of IRS Schedule UTP (Uncertain Tax Position) to examine the impact of additional tax return reporting on financial statement tax disclosure quality. Using a hand-collected sample, I find that firms reduce the quality of their Financial Accounting Standards Board Interpretation No. 48 (FIN 48) disclosures for Accounting for Uncertainty in Income Taxes in response to increased proprietary costs of disclosure following the adoption of IRS Schedule UTP. Standard setters intended FIN 48 disclosures to benefit investors. Contrary to this intended outcome, I find that as tax return reporting increases, firms reduce discretionary FIN 48 …

Follow The Crowd: How Viral Social Information And Social Identity Increase Investors’ Suboptimal Investing Decisions, Stephen Kuselias

Doctoral Dissertations

Recently enacted standards have formally allowed organizations to offer equity using the crowdfunding model. The crowdfunding model raises capital over the internet by soliciting relatively small contributions from a relatively large number of people who make up a “crowd” (Mollick 2013). Organizations using equity crowdfunding strive for the spread of viral social information to solicit investments (Belleflamme, Lambert, & Schwienbacher 2014). However, research has not yet explored how virality impacts investor decision making. In this study, I investigate whether viral social information can shift investors away from financial maximization goals, leading them to make suboptimal investing decisions. Social identity theory …

Three Essays On Auditor Liability, Jeffrey Scott Pickerd

Doctoral Dissertations

Auditor liability is an important topic of accounting research as auditors respond to a constantly changing financial reporting and regulatory environment. Through three independent essays, I intend to explore how estimate uncertainty, financial statement aggregation, audit quality indicators, a company's investor base, and the size of the alleged misstatement can impact auditor liability both in the courtroom, as determined by jurors, and in out of court settlement, as determined by attorneys. I find that jurors do hold the auditor more likely to be negligent when audit quality indicators suggest the auditors did a poor quality audit. I also find that …

The Effect Of Creative Culture On Aggressive Financial Reporting, Ryan Guggenmos

Doctoral Dissertations

Chief Executive Officers identify creativity as the leadership competency most desired in business today (IBM 2010). As companies recognize the benefits of creativity and innovation, managers are increasingly looking to build creative cultures within their organizations. However, research in psychology suggests that there may be unintended negative consequences to these attempts. In this study, I predict and find that innovative company culture primes creative thought and, in turn, leads to higher levels of real earnings management (REM) behaviors. Using construal level theories of psychological distance proposed by Trope and Liberman (2010), I design and test both a lower-level and a …

An Empirical Examination Of Gender, Political Affiliation, And Family Composition Issues Affecting Reasonable Compensation In Closely Held Corporations, Dowis W. Brian

Doctoral Dissertations

This study examines the effect of gender, political affiliation, and family composition issues on reasonable compensation in closely held corporations. It is broken down into two parts: an archival and behavioral (survey) portion. The archival part analyzes decisions made in the U.S. Tax Court spanning 1983-2014 through the use of simple regression, multiple regression/ordinary least squares, and logistic regression. Four variables were found to be significant: judge gender, tenure, number of tax years decided, and taxpayer gender. The behavioral portion investigates the current perceptions of tax practitioners through surveying Certified Public Accountants (CPAs). Analysis of variance is used in this …

Accounting Information Risk And Credit Ratings, Douglas Ray Ayres

Doctoral Dissertations

Using a sample of U.S. firms, this study explores whether accounting information risk has an impact upon corporate credit ratings, a long term measure of the cost of debt. Theory suggests that accounting information risk could impact shorter term measures of the cost of debt, but is unclear as to whether it will have measurable effects upon the long term cost of debt. This study employs SFAS 157 level three fair value disclosures as a proxy for accounting information risk. The findings suggest higher levels of accounting information risk negatively impact credit ratings. This is supported by both levels and …

Are Auditor And Audit Committee Report Changes Useful To Investors? Evidence From The United Kingdom, Lauren Carse Reid

Doctoral Dissertations

Recently, U.S. and international regulators have proposed significant changes to auditor and audit committee reporting with the stated intention of delivering more useful information to stakeholders. Whether new disclosure requirements achieve this intended benefit, however, is unknown. Exploiting the exogenous shock of the recent changes to auditor and audit committee reports in the United Kingdom, I find that information asymmetry significantly decreased following the implementation of the new disclosure regime. Furthermore, I find that reductions in information asymmetry are greater for firms with weaker information environments, suggesting that the new disclosure requirements particularly benefit investors in these firms. Additionally, I …