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Full-Text Articles in Accounting

The Influence Of Management’S Internal Audit Experience On Earnings Management, Matthew Ege, Timothy Seidel, Mikhail Sterin, David A. Wood Jan 2022

The Influence Of Management’S Internal Audit Experience On Earnings Management, Matthew Ege, Timothy Seidel, Mikhail Sterin, David A. Wood

Faculty Publications

We examine whether firms with managers that have prior internal audit experience are less likely to manage earnings. This examination is important because the internal audit function is uniquely positioned to provide experiences that could influence future managerial behavior, including limiting the potential negative repercussions of earnings management. We find that firms with managers that have internal audit experience are associated with lower real earnings management but not accruals-based earnings management. Effects are strongest when managers with internal audit experience have greater power or currently hold financial roles, or when there are a greater number of managers with internal audit …


Evidence On Internal Audit Quality From Transitioning To Remote Audits Because Of Covid-19, Marc Eulerich, Martin Wagener, David A. Wood Jan 2022

Evidence On Internal Audit Quality From Transitioning To Remote Audits Because Of Covid-19, Marc Eulerich, Martin Wagener, David A. Wood

Faculty Publications

As in-person audits were banned by governments and by company policies due to the COVID-19 pandemic, internal auditors had to transition to remote audits to perform their work. Based on survey responses of internal auditors who have conducted both remote and in-person audits, we find that internal auditors perceive no difference in the efficiency and effectiveness of and stakeholders’ reliance on results from remote and in-person audits when considering all responses. However, we also find that perceived efficiency and effectiveness increase the more experience internal auditors have with remote audits. Supplemental analyses show that support from the auditee, but not …


Publication Benchmarking Data Based On Faculty Promoted At The Top 200 Worldwide Accounting Research Institutions, Jared S. Moon, Scott L. Summers, Nathan J. Waddoups, David A. Wood Jan 2022

Publication Benchmarking Data Based On Faculty Promoted At The Top 200 Worldwide Accounting Research Institutions, Jared S. Moon, Scott L. Summers, Nathan J. Waddoups, David A. Wood

Faculty Publications

The primary purpose of this paper is to update and extend past promotion benchmarking studies. We update prior benchmarking studies by providing publication benchmarking data for faculty promoted between 2013 and 2019, inclusive. We extend prior benchmarking studies by evaluating a larger number of institutions (the top 200 worldwide accounting institutions), using a more global journal list, and providing sensitivity analyses between journal lists. We group institutions based on rankings and report a possible minimum publication hurdle for each group in each journal category. In addition, we provide data on the mix, or percentage, of publications in each journal category …


The Status Of Robotic Process Automation, Steven A. Harrast, David A. Wood Jan 2022

The Status Of Robotic Process Automation, Steven A. Harrast, David A. Wood

Faculty Publications

Modern information technology (IT) has greatly expanded the capability of companies to coordinate activities and process large numbers of transactions. Unfortunately, large companies often support thousands of individual applications, and the data necessary for financial reporting is scattered across these applications. As applications and data proliferate, companies must link together the applications and systems, often using spreadsheets and expending significant amounts of time in manual data entry and manipulation. This manual work is slow, expensive, and error prone and lacks useful business insights. Also, the employees who must perform these tasks are often overwhelmed and unsatisfied with the mundane work. …


Internal Auditors’ Role In Organizational Innovation: A Social Network Perspective, Margaret H. Christ, Anna Eulerich, Marc Eulerich, David A. Wood Jan 2022

Internal Auditors’ Role In Organizational Innovation: A Social Network Perspective, Margaret H. Christ, Anna Eulerich, Marc Eulerich, David A. Wood

Faculty Publications

Organizations use innovations to adapt, grow their business, and differentiate themselves from their competitors. However, innovations can introduce new risks to the organization that the internal audit function (IAF) should address. We interview and survey internal auditors about how they respond to innovations, such as the use of emerging technologies, adopted by their organizations. We find that social network theory provides a useful lens through which to interpret our interview results and to guide our survey development and analysis. In particular, we find that the embeddedness of the internal auditors with management, but not with the audit committee, is a …


Earnings Virality*, Brett Campbell, Michael S. Drake, Jacob Thornock, Brady Twedt Jan 2022

Earnings Virality*, Brett Campbell, Michael S. Drake, Jacob Thornock, Brady Twedt

Faculty Publications

We examine the determinants and market consequences associated with earnings announcements going viral on social media, a phenomenon we label “earnings virality.” Using a comprehensive panel of historical Twitter data, we find that the typical earnings announcement receives relatively little social media coverage, but others go viral on social media, quickly reaching the feeds of millions of people. We find that viral earnings announcements generally have Twitter content that is more extreme in tone and contains less unique content. Further, earnings virality is positively associated with revenue surprises, investor recognition, retail investor ownership, and retail investor trading around the announcement. …


Social Media Analysts And Sell‑Side Analyst Research, Michael S. Drake, James R. Moon Jr., Brady J. Twedt, James D. Warren Jan 2022

Social Media Analysts And Sell‑Side Analyst Research, Michael S. Drake, James R. Moon Jr., Brady J. Twedt, James D. Warren

Faculty Publications

We examine how research posted by “social media analysts” (SMAs)—individuals posting equity research online via social media investment platforms—is related to research subsequently produced by professional sell-side equity analysts. Using data from Seeking Alpha, we find that the market reaction to sell-side analyst research is substantially reduced when the analyst research is preceded by the report of an SMA, and that this is particularly true of sell-side analysts’ earnings forecasts. We further find that this effect is more pronounced when SMA reports contain more decision-useful language, are produced by SMAs with greater expertise, and relate to firms with greater retail …


Brokerage House Ipos And Analyst Forecast Quality, Mark Bradshaw, Michael S. Drake, Joseph Pacelli, Brady Twedt Jan 2022

Brokerage House Ipos And Analyst Forecast Quality, Mark Bradshaw, Michael S. Drake, Joseph Pacelli, Brady Twedt

Faculty Publications

We examine how brokerage firm IPOs influence the research quality of sell-side analysts employed by the brokerage. Our main results focus on earnings forecast bias and absolute forecast errors as proxies for research quality. Using a staggered difference-in-differences analysis, we document significant decreases in forecast bias and absolute forecast error during the two-year period centered on the analysts’ brokerage house IPO. In additional analyses, we explore several potential explanations for the short-term benefits of brokerage house IPOs. We find some evidence that IPOs delay the departure of more talented analysts and that the effects are more concentrated among analysts and …


The Relevance Of Non-Income Tax Relief*, Michael S. Drake, Ryan V. Hess, Jaron H. Wilde, Braden M. Williams Jan 2022

The Relevance Of Non-Income Tax Relief*, Michael S. Drake, Ryan V. Hess, Jaron H. Wilde, Braden M. Williams

Faculty Publications

Governments regularly offer non-income tax relief to attract business investment. However, it is unclear whether or how markets impound information about the relief into security prices. We use novel data from retrospective public records to examine the information content of non-income tax relief. We predict and find that the receipt and magnitude of this relief are both strongly associated with recipients’ future accounting performance and future abnormal returns. We further find that abnormal returns associated with the relief cluster around future earnings information events. In combination, this evidence suggests that non-income tax relief is value-relevant but is incorporated into prices …


Brokerage Relationships And Analyst Forecasts: Evidence From The Protocol For Broker Recruiting, Braiden Coleman, Michael S. Drake, Joseph Pacelli, Brady Twedt Jan 2022

Brokerage Relationships And Analyst Forecasts: Evidence From The Protocol For Broker Recruiting, Braiden Coleman, Michael S. Drake, Joseph Pacelli, Brady Twedt

Faculty Publications

We offer novel evidence on how the nature of brokerage-client relationships can influence the quality of equity research. We exploit a unique setting provided by the Protocol for Broker Recruiting to examine whether relaxed broker noncompete agreement enforcement generates spillover effects on sell-side analysts. Entry into this agreement reassigns ownership of the client relationship from the brokerage to individual brokers, potentially generating a greater standard of care. Using a generalized difference-in-differences research design, we provide evidence consistent with brokers reducing pressure on analysts to produce optimistic research following protocol entry. This effect is concentrated among less experienced and non-All Star …


A Tale Of Two Index Funds: Full Replication Vs. Representative Sampling*, Travis Dyer, Nicholas Guest Jan 2022

A Tale Of Two Index Funds: Full Replication Vs. Representative Sampling*, Travis Dyer, Nicholas Guest

Faculty Publications

We examine the two approaches used by equity index funds to track their benchmark index. The first, full replication, mimics the index with exactness. The second, representative sampling, holds a subset of the index. We find that samplers trade 3-4 times more, have 30-50% higher expenses and fees, and earn 50-70 basis points lower annual returns, which is substantial given index funds’ mandate to limit tracking error to a few basis points. Besides higher expenses and transaction costs, poor stock picking also seems to contribute to samplers’ return underperformance. Overall, our analyses suggest representative sampling is associated with underperformance.


A Simple Approach To Better Distinguish Real Earnings Manipulation From Strategy Changes, Theodore E. Christensen, Adrienna Huffman, Melissa F. Lewis-Western, Kristen Valentine Jan 2022

A Simple Approach To Better Distinguish Real Earnings Manipulation From Strategy Changes, Theodore E. Christensen, Adrienna Huffman, Melissa F. Lewis-Western, Kristen Valentine

Faculty Publications

Researchers typically infer real earnings management when a firm’s operating and investing activities differ from industry norms. A significant problem with classifying deviations from industry averages as myopic earnings management is that companies can change their operating and investing decisions for strategic business reasons rather than to mislead stakeholders. Using principal components analysis, we systematically evaluate existing measures and develop a comprehensive real activities measure to better capture earnings manipulation. Our measure reflects (i) deviations from industry averages across multiple activities and (ii) other signals of manipulation. This approach is promising because, although there are many sources of abnormal activities, …


Students Coming Prepared To Class? A Review Of The Literature With A Call To Research, Melissa P. Larson, Jace Linnell Jan 2022

Students Coming Prepared To Class? A Review Of The Literature With A Call To Research, Melissa P. Larson, Jace Linnell

Faculty Publications

In this literature review, we show that little attention has been given to pre-class learning in a flipped classroom setting. To support learning, a flipped classroom shifts the learning of basic content from a classroom setting to a pre-class setting, thereby freeing up time within class for more active learning activities. Active learning activities support student-centered learning as peers collaborate with deep application of pre-class learning concepts. Thus, higher-order skills of critical thinking and lifelong learning, which are valued in the accounting education curriculum and profession, can be developed through a flipped classroom pedagogy. However, if pre-class learning is not …


Cheating For The Cause: The Effects Of Performance-Based Pay On Socially Oriented Misreporting, Jessen L. Hobson, Ryan D. Sommerfeldt, Laura W. Wang Sep 2021

Cheating For The Cause: The Effects Of Performance-Based Pay On Socially Oriented Misreporting, Jessen L. Hobson, Ryan D. Sommerfeldt, Laura W. Wang

Faculty Publications

We examine the effect of performance-based pay on misreporting intended to benefit a social mission. We show that performance-based pay decreases people’s propensity to misreport for a social mission in a not-for-profit setting (Experiment 1). We similarly show that in a for-profit setting, performance-based pay also decreases misreporting propensity for a social mission, although not for a non-social mission (Experiment 2). Finally, using a framed field experiment with participants attending a conference hosted by a real charity, we show that performance-based pay reduces actual misreporting when misreporting leads to more donations for the charity (Experiment 3). These results are consistent …


Auditing Non-Gaap Measures: Signaling More Than Intended, Spencer B. Anderson, Jessen L. Hobson, Ryan D. Sommerfeldt Aug 2021

Auditing Non-Gaap Measures: Signaling More Than Intended, Spencer B. Anderson, Jessen L. Hobson, Ryan D. Sommerfeldt

Faculty Publications

Many companies regularly disclose non-GAAP performance measures to communicate firm-specific information that does not fit within the mold of GAAP reporting. However, these non- GAAP measures may have low information content or even be misleading to investors. Thus, the question arises of whether auditors should play a larger role in the reporting of non-GAAP measures, which currently are not audited. We run an experiment to provide ex ante evidence on the effect of auditing non-GAAP measures. Specifically, we present investor-participants with a non- GAAP measure that should be used when making investment judgments (more informative) or should not be used …


Corporate Governance And Tax Avoidance: Evidence From Governance Reform, Jon Kerr, Richard Price, Francisco J. Román, Miles A. Romney Jan 2021

Corporate Governance And Tax Avoidance: Evidence From Governance Reform, Jon Kerr, Richard Price, Francisco J. Román, Miles A. Romney

Faculty Publications

Prior literature struggles to find evidence in U.S. settings to support the Desai and Dharmapala (2006) theory on how corporate governance affects tax avoidance. Most studies rely on equity incentive compensation as their governance proxy. We use a Mexican setting to examine this association and find firms with stronger governance engage in less tax avoidance. We rely on both a hand-collected governance index and governance reform to show improved corporate governance pushes tax avoidance toward a new equilibrium. Supplementary analyses show associations between governance and tax avoidance are greatest for tax-cost-sensitive familyowned firms and non-cross-listed firms with naturally weaker governance. …


Archival Evidence On The Audit Process: Determinants And Consequences Of Interim Effort*, Brant E. Christensen, Nathan J. Newton, Michael S. Wilkins Jan 2021

Archival Evidence On The Audit Process: Determinants And Consequences Of Interim Effort*, Brant E. Christensen, Nathan J. Newton, Michael S. Wilkins

Faculty Publications

Using proprietary data from a global accounting firm, we investigate the determinants of auditors’ interim effort as well as the impact of interim effort on audit quality, client disclosure timeliness, audit hours, and audit fees. Public statements from accounting firms and regulators suggest various benefits from accelerating auditor effort, but these claims remain largely untested. We find that interim effort is higher for large, complex clients that require integrated audits of both financial statements and internal control over financial reporting. With respect to consequences, we find that allocating relatively more work to the interim period is associated with a reduced …


Measuring Credit Risk Using Qualitative Disclosure*, John Donovan, Jared Jennings, Kevin Koharki, Joshua A. Lee Jan 2021

Measuring Credit Risk Using Qualitative Disclosure*, John Donovan, Jared Jennings, Kevin Koharki, Joshua A. Lee

Faculty Publications

We use machine learning methods to create a comprehensive measure of credit risk based on qualitative information disclosed in conference calls and in management’s discussion and analysis section of the 10- K. In out-of-sample tests, we find that our measure improves our ability to predict future credit events (future bankruptcies, future interest spreads, and future credit rating downgrades) relative to existing credit risk measures developed by prior research (e.g., z-score). We also find our measure based on conference calls explains within-firm variation in future credit events; however, we find little evidence that the existing measures of credit risk developed by …


New Frontiers For Internal Audit Research, Margaret H. Christ, Marc Eulerich, Ronja Krane, David A. Wood Jan 2021

New Frontiers For Internal Audit Research, Margaret H. Christ, Marc Eulerich, Ronja Krane, David A. Wood

Faculty Publications

Internal audit provides useful and valuable services to organizations and research has established its importance in improving corporate governance. However, the body of internal audit research is still small. Further, there are many new and emerging topics for which little is known and practitioners would like guidance. Based on surveys, interviews, and discussions with practitioners, we identify three broad areas for additional research: information technology, staffing and personnel development, and agile auditing. In each area, we describe the current practices and discuss the relevant accounting literature, noting gaps where additional inquiry is needed. We also provide a list of testable …


Blockchain Technology: A Survey Of Croatian Business Leaders, Dražen Zec, William G. Heninger Jan 2021

Blockchain Technology: A Survey Of Croatian Business Leaders, Dražen Zec, William G. Heninger

Faculty Publications

Blockchain or distributed ledger technology emerged over ten years ago as the underlying technology of bitcoin. Blockchain is a special kind of database with individual records or blocks linked together in a sequential list called chain of blocks. These records are validated by multiple nodes in peer-to-peer networks and they are immutable. It is a decentralized system, with no need for intermediaries where all decisions are made using different consensus mechanisms. High expectations from blockchain technology, combined with a lack of deeper knowledge about the technology are expressed in the results from the survey conducted on a sample of Croatian …


How Has The Change In The Way Auditors Determine The Audit Report Date Changed The Meaning Of The Audit Report Date? Implications For Academic Research, Steven M. Glover, James C. Hansen, Timothy Seidel Jan 2021

How Has The Change In The Way Auditors Determine The Audit Report Date Changed The Meaning Of The Audit Report Date? Implications For Academic Research, Steven M. Glover, James C. Hansen, Timothy Seidel

Faculty Publications

Archival research in accounting often relies on the audit report date to capture the constructs of audit efficiency, audit timeliness, audit effort, or audit completion. Auditors’ view of what constitutes sufficient appropriate evidence to support the audit opinion, and consequently the date of the audit report, previously coincided with the substantial completion of audit fieldwork, which would be days or weeks before a 10-K filing. However, this view has shifted to coincide with the timing of the public issuance of clients’ financial statements (i.e., the 10-K filing date) following several regulatory actions, audit practice changes, and professional standard setting changes …


Implicit Attitudes And U.S. Tax Professionals’ Reliance On Offshore Tax Professionals’ Recommendations, Brian C. Spilker, Bryan W. Stewart, David A. Wood Jan 2021

Implicit Attitudes And U.S. Tax Professionals’ Reliance On Offshore Tax Professionals’ Recommendations, Brian C. Spilker, Bryan W. Stewart, David A. Wood

Faculty Publications

Large accounting firms offshore a significant amount of tax work to professionals in India. Prior research suggests that individuals can have negative implicit attitudes toward people from different nationalities and that negative implicit attitudes can have undesired consequences. In this study, we measure a sample of U.S. tax professionals’ implicit attitudes toward Indian persons using an implicit association test (IAT) and assess whether the U.S. tax professionals respond differently to work produced by Indian versus U.S. tax professionals and whether implicit attitudes affect the U.S. professionals’ assessments of Indian tax professionals’ work product. We document that participants in our study …


The Demand For Public Information By Local And Nonlocal Investors: Evidence From Investor-Level Data*, Travis Dyer Jan 2021

The Demand For Public Information By Local And Nonlocal Investors: Evidence From Investor-Level Data*, Travis Dyer

Faculty Publications

I examine the demand for public information by local and nonlocal investors. Using novel data on institutional investors' requests for financial information from the SEC, I document that investors acquire approximately 20% more financial information for their local investments. This pattern holds after controlling for investors’ 13(f) portfolio holdings. I further demonstrate that this pattern is concentrated in stocks eliciting behavioral biases as well as among investors with strong company relationships. Consistent with public information acquisition being more beneficial to local investors, I find that local investors exhibit both enhanced timeliness in acquiring public information and superior portfolio trading decisions …


Issues Related To The Assessment Of The Effectiveness Of Management Review Controls: Roundtable Summary, Douglas F. Prawitt Jan 2021

Issues Related To The Assessment Of The Effectiveness Of Management Review Controls: Roundtable Summary, Douglas F. Prawitt

Faculty Publications

The Center for Audit Quality and the Financial Education & Research Foundation(FERF) of Financial Executives International (FEI) commissioned John Fogarty, Mark Beasley and Doug Prawitt to conduct an independent qualitative research study on Internal Control over Financial Reporting (ICFR) management review controls (MRCs), Perspectives on Management Review Controls: Challenges and Solutions (the Research Report). The research focused on subjective, judgmentbased MRCs. Through a series of detailed, semistructured interviews with preparers – in particular the control owners and control performers – the researchers gathered perspectives on how management determines what constitutes effective design, precision, implementation, execution and documentation of MRCs. The …


Beyond Borders: Uncertainty In Supragovernmental Tax Enforcement And Corporate Investment, Zackery D. Fox, Martin Jacob, Jaron H. Wilde, Ryan J. Wilson Jan 2021

Beyond Borders: Uncertainty In Supragovernmental Tax Enforcement And Corporate Investment, Zackery D. Fox, Martin Jacob, Jaron H. Wilde, Ryan J. Wilson

Faculty Publications

Amid growing globalization, many countries have offered tax incentives to attract corporate investment. Prior research studies the role such incentives play in firms’ location and investment choices. However, we have limited evidence on the role that uncertainty about the intensity of future tax enforcement plays in those decisions. In 2013, the European Commission (“E.C.”) abruptly began investigating tax ruling practices of several countries in response to allegations that certain firms received preferential tax treatment (“state aid cases”). We use this setting to study the economic consequences of increased uncertainty about future tax enforcement. We find evidence consistent with significant reductions …


How Do Team Workloads And Team Staffing Affect The Audit? Archival Evidence From U.S. Audits, Brant E. Christensen, Nathan J. Newton, Michael S. Wilkins Jan 2021

How Do Team Workloads And Team Staffing Affect The Audit? Archival Evidence From U.S. Audits, Brant E. Christensen, Nathan J. Newton, Michael S. Wilkins

Faculty Publications

We use U.S. data from a global accounting firm to investigate how two key elements of audit teams eworkloads and staffing continuity e affect the audit. We find that heavier team workloads are associated with lower audit quality, particularly when team members have lower performance ratings or have total workloads that exceed 60 h per week. In addition to finding evidence of employee burnout, we also document an incremental distraction effect. Specifically, we find that audit quality on the primary client suffers when team members spend more time during busy season on other concurrent clients. Regarding continuity, we find that …


Prepare For Takeoff: Improving Asset Measurement And Audit Quality With Drone-Enabled Inventory Audit Procedures, Margaret H. Christ, Scott A. Emett, Scott L. Summers, David A. Wood Jan 2021

Prepare For Takeoff: Improving Asset Measurement And Audit Quality With Drone-Enabled Inventory Audit Procedures, Margaret H. Christ, Scott A. Emett, Scott L. Summers, David A. Wood

Faculty Publications

Auditors increasingly employ technologies to improve audit quality. Using a design science approach, we examine whether using drones and automated counting software can improve audit quality and thereby improve financial reporting. We assess three dimensions of audit quality—efficiency, effectiveness, and quality of audit documentation. We provide evidence that auditors can perform inventory counts with these technologies much more efficiently than they can with manual techniques, decreasing count time in our study from 681 hours to 19 hours. At the same time, auditors can maintain or improve audit effectiveness with these technologies, decreasing error rates in our study from 0.15% to …


Internal Audit Stigma Impairs Internal Audit Outcomes, Marc Eulerich, Joleen Kremin, K. Kelli Saunders, David A. Wood Jan 2021

Internal Audit Stigma Impairs Internal Audit Outcomes, Marc Eulerich, Joleen Kremin, K. Kelli Saunders, David A. Wood

Faculty Publications

Prior research finds that the internal audit function (IAF) plays a critical role in organizations, yet there is still a stigma toward the profession. We examine how this stigma affects internal audit outcomes, using three different data sources: survey results from parts of Europe and the United States and an experiment. We find that when practicing internal auditors in parts of Europe and the U.S. believe there is a negative stigma about internal auditing, they report negative work outcomes, including less ability to add value, less influence in the organization, more resistance to implementing their recommendations, and more pressure to …


The Effects Of Pornography On Unethical Behavior In Business, Nathan W. Mecham, Melissa F. Lewis-Western, David A. Wood Jan 2021

The Effects Of Pornography On Unethical Behavior In Business, Nathan W. Mecham, Melissa F. Lewis-Western, David A. Wood

Faculty Publications

Pornography is no longer an activity confined to a small group of individuals or the privacy of one’s home. Rather, it has permeated modern culture, including the work environment. Given the pervasive nature of pornography, we study how viewing pornography affects unethical behavior at work. Using survey data from a sample that approximates a nationally representative sample in terms of demographics, we find a positive correlation between viewing pornography and intended unethical behavior. We then conduct an experiment to provide causal evidence. The experiment confirms the survey—consuming pornography causes individuals to be less ethical. We find that this relationship is …


Anonymous Equity Research, Travis Dyer, Eunjee Kim Jan 2021

Anonymous Equity Research, Travis Dyer, Eunjee Kim

Faculty Publications

Crowdsourced financial information platforms often allow content contributors to publish equity research anonymously. This study examines whether investors value or discount information in anonymous equity research. In the short window around research releases, we find that investors’ stock price reaction to anonymous research is muted in comparison to nonanonymous research. Consistent with credibility concerns influencing investor response, we document that this discount to anonymous research dissipates as the monitoring of content contributors intensifies and as authors develop a reputation for high-quality reporting. In addition, we perform a content analysis on the research reports and find that the muted market reaction …