Accounting Commons^™

Designing A More Efficient And Fairer Tax System, Knowledge@Smu

Knowledge@SMU

A competent tax system should meet an economy's fiscal needs, but that cannot exist without a tax design that understands, pre-empts, and ultimately shapes human behaviours. Drawing from the UK's Mirrlees Review, Richard Blundell, research director at the London-based Institute of Fiscal Studies, delivered a lecture at Singapore Management University's School of Economics on the principles of the tax reform, and the challenges that await governments in formulating a coherent and economically efficient tax structure.

Supporting Global Metals Markets: The Role Of The London Metals Exchange, Knowledge@Smu

Knowledge@SMU

Most people would expect automobiles and electronics, comprised of many important metal parts, to be sold at relatively stable prices. Little do consumers appreciate, however, the backend market mechanisms that keep these prices stable. A prospective car buyer does not have to monitor his or her dream car's daily price fluctuations, for example, precisely because the parts that go into its manufacture maintain steady prices. This is, in part, the doing of metal exchanges that regulate the demand and supply of metals. Liz Milan, managing director of the London Metals Exchange Asia, explained this and more at a seminar organised …

In Search Of A Different Accounting Graduate: Entry-Point Determinants Of Students’ Performance In An Undergraduate Accountancy Degree Programme In Singapore, Poh Sun Seow, Pan, Gary, Siok Wan Joanne Tay

Research Collection School Of Accountancy

This study investigates the association of prior academic achievement, admission interview, critical thinking, mathematical aptitude, gender and age with successful academic performance in an undergraduate accountancy degree programme at a Singapore university. The purpose of revisiting the determinants of academic performance is twofold: firstly, university accounting education in Singapore has changed greatly since Koh and Koh’s earlier study (1999), so this study examines if determinants previously identified as significant continue to be so in the new setting; secondly, the study tests the usefulness of admission interview in identifying applicants who achieve subsequent academic success. All the data on students’ performance …

The Effect Of Information Quality On Liquidity Risk, Jeffrey Ng

Research Collection School Of Accountancy

I investigate whether information quality affects the cost of equity capital through liquidity risk. Liquidity risk is the sensitivity of stock returns to unexpected changes in market liquidity; recent asset pricing literature has emphasized the importance of this systematic risk. I find that higher information quality is associated with lower liquidity risk and that the reduction in cost of capital due to this association is economically significant. I also find that the negative association between information quality and liquidity risk is stronger in times of large shocks to market liquidity.

Predictions For Protection: A System To Measure And Detect Asset Bubbles, Knowledge@Smu

Knowledge@SMU

Millions of lives can be ruined with the bursting of economic bubbles. Just in the past two decades alone, the world has had the misfortune of witnessing two such incidents; first with the dot-com burst, and then most recently, with the housing and sub-prime crisis that led to a global recession. While there is reportedly no cure for the greed, economists have made strides to identify and predict bubbles – thereby paving the way for institutional stopgaps that could well prevent a financial crisis.

Board Reputation And Financial Reporting Quality, Dan Segal

Research Collection School Of Accountancy

This study uses a new measure of board reputation that is based on the market value of other companies on which board members serve, and examines whether board reputation has a causal effect on monitoring as reflected in financial statement reporting quality. A negative causal effect is expected if reputable directors are ineffective monitors because they are too busy or they choose to cater to management, whereas a positive causal effect is expected if reputable directors are more experienced and subject to significant reputation penalties in the case of a financial reporting failure. An alternative explanation is that reputation does …

A Visualization Of Teaching The Indirect Method For Computing Cash From Operations, Poh Sun Seow

Research Collection School Of Accountancy

The Statement of Cash Flows (SCF) complements the Statement of Financial Position and the Statement of Comprehensive Income by explaining where the cash came from (cash receipts) and how the cash was spent (cash payments) (Harrison Jr. et al. 2011; Powers and Needles Jr. 2010). International Accounting Standard (IAS) 7 requires companies to classify cash flows during the accounting period according to operating, investing and financing activities (International Accounting Standards Board 2010). IAS 7 also requires companies to report net cash flows from operating activities using either the direct method or the indirect method (International Accounting Standards Board 2010).

Most …

The Impact Of Ifrs On Accounting Quality In A Regulated Market: An Empirical Study Of China, Chunhui Liu, Lee J. Yao, Nan Hu, Ling Liu

Research Collection School Of Computing and Information Systems

As more countries consider the adoption of International Financial Reporting Standards (IFRS) that are based on practices prevalent in the English-speaking countries with free markets, it’s increasingly important to understand the impact of IFRS on countries of different institutional, economic, and political environments. This article reports a study that examines the impact of IFRS on accounting quality in a regulated market, China, where new substantially IFRS-convergent accounting standards became mandatory for listed firms in 2007. Accounting quality is examined for the period 2005 to 2008 with only firms mandated to follow the new standards. The empirical results generally indicate that …

How The Mindless Growth Mantra Of Modern Economics Is Failing Us, Knowledge@Smu

Knowledge@SMU

As the world ponders the possibility of yet another global recession, one economist has offered up, instead, a critical view of the fundamental flaws within a system so caught up with consumption that a second wave recession would seem more intentional than unnerving. In 'The End of Progress: How modern economics has failed us', author Grame Maxton takes readers through a re-examination of 'the invisible hand' and puts forth several radical ideas for how the world economy may repair itself.

Cfos Versus Ceos: Equity Incentives And Crashes, Jeong-Bon Kim, Yinghua Li, Liandong Zhang

Research Collection School Of Accountancy

Using a large sample of U.S. firms for the period 1993-2009, we provide evidence that the sensitivity of a chief financial officer's (CFO) option portfolio value to stock price is significantly and positively related to the firm's future stock price crash risk. In contrast, we find only weak evidence of the positive impact of chief executive officer option sensitivity on crash risk. Finally, we find that the link between CFO option sensitivity and crash risk is more pronounced for firms in non-competitive industries and those with a high level of financial leverage.

The Role Of Reputable Auditors And Underwriters In The Design Of Bond Contracts, Yun Lou, Florin. Vasvari

Research Collection School Of Accountancy

The authors empirically test the certification hypothesis by studying the roles of reputableauditors and bank underwriters in the design of bond contracts. The certification hypoth-esis suggests that reputable capital market intermediaries can credibly communicate insideinformation to outside investors, thereby helping improve financing terms for firms thatraise external funding. Consistent with this hypothesis, the authors provide evidence thatreputable auditors and underwriters help corporate bond issuers obtain lower bond yields.The effect of reputable auditors on the yields is greater than that of reputable underwritersin terms of economic magnitude and significance, consistent with auditors’ multiple roles asinformation intermediaries, monitors, and insurance providers. The …

Exposure Draft On Revenue Recognition: Tax Compliance Costs, Teng Aun Khoo, Kai Guan Tan

Research Collection School Of Accountancy

Effect of ED on Revenue Recognition on Tax Compliance Costs

Building Structured Products: Like Manufacturing A Complex, Abstract Car, Knowledge@Smu

Knowledge@SMU

The inner workings of structured financial products and the structured products industry might seem complicated to outsiders looking in. After all, regulatory restrictions, quantitative financial modelling, and foreign exchange options are not exactly universally understood commonplace terms. Industry insiders at a Lee Kong Chian School of Business Public Lecture say, however, that an appreciation for this seemingly complex domain is more about attitude than aptitude.

Access To Cpd Opportunities And Resources To Assist Professional Accountants To Meet Their Commitment To Life Long Learning: Evidence From The Asia Pacific Region, Themin Suwardy, P De Lange, Beverley Jackling

Research Collection School Of Accountancy

This project sought to investigate the accounting practitioners’ perceptions on the effectiveness of the delivery of Continuing Professional Development (CPD) in the Asia Pacific Region 1. The study aims to inform the International Federation of Accountants (IFAC) and its associated member bodies of the most appropriate range of delivery methods that enhance the quality of learning outcomes from participation in mandatory CPD. The Asia Pacific region was selected as it is experiencing rapid economic expansion and a growing demand for professional accounting services together with an expectation that those working in the financial services industry keep abreast of change and …

Effects Of National Culture On Earnings Quality Of Banks, Chee Yeow Lim, Kanagaretnam Kiridaran, Gerald J. Lobo

Research Collection School Of Accountancy

We examine the relation between four dimensions of national culture and earnings quality of banks using a sample of banks from 39 countries. Our main analysis, which focuses on the pre-financial crisis period 1993–2006, indicates that banks in high individualism, high masculinity, and low uncertainty avoidance societies manage earnings to just-meet-or-beat the prior year's earnings. In tests of income smoothing through loan loss provisions, we find that banks in high individualism, high power distance, and low uncertainty avoidance societies report smoother earnings. Our exploratory analysis of the effects of national culture on accounting outcomes during the financial crisis period 2007–2008 …

Conflict Of Interest Reforms And Analysts’ Research Biases, Hai Lu, Hai Lu, Yuyan Guan

Research Collection School Of Accountancy

This study examines the consequences of the series of reforms targeting investment-banking-related conflicts of interest. We compare and contrast optimism biases in analysts’ stock recommendations and earnings forecasts across different types of analyst firms in the post-reform period 2004–2007 versus the pre-reform period 1998–2001. We document a significant reduction in the relative optimism of sanctioned investment bank analysts’ stock recommendations, but not their earnings forecasts. Moreover, we find little change in the profitability of their stock recommendations, but detect a drop in the accuracy of earnings forecasts made by investment bank analysts. In sum, the reforms achieve the objective of …

Unregulated Stock Markets In Second Life, Robert Bloomfield, Young Jun Cho

Research Collection School Of Accountancy

SLCapex is a stock exchange owned and operated by “residents” of the online virtual world Second Life. Despite its almost complete lack of regulation and legal protections against fraud or insider trading, issuers were able to raise approximately US$145,000 from investors, which grew to US$900,000 in market value before plummeting, resulting in overall investor returns of −71%. Investors in large issuances lost more than investors in small issuances, and small investors experienced more severe losses relative to large investors when more money was at stake, indicating that the market did a poor job of protecting investors from issuers and of …

Executive Equity Compensation And Earnings Management: A Quantile Regression Approach, Chih-Ying Chen, Ming-Yuan Li

Research Collection School Of Accountancy

Prior research has investigated the association between executive equity compensation and earnings management but the evidence is not conclusive. We investigate this question using the quantile regression approach which allows the coefficient on the independent variable (equity compensation) to shift across the distribution of the dependent variable (earnings management). Based on a sample of 18,203 U.S. non-financial firm-year observations from 1995 to 2008, we find that chief executive officer (CEO) equity compensation is positively associated with the absolute value of discretionary accruals at all quantiles of absolute discretionary accruals, but the association becomes weaker as the quantile decreases. The association …

Corporate Tax Avoidance And Stock Price Crash Risk: Firm-Level Analysis, Jeong-Bon Kim, Yinghua Li, Liandong Zhang

Research Collection School Of Accountancy

Using a large sample of U.S. firms for the period 1995-2008, we provide strong and robust evidence that corporate tax avoidance is positively associated with firm-specific stock price crash risk. This finding is consistent with the following view: Tax avoidance facilitates managerial rent extraction and bad news hoarding activities for extended periods by providing tools, masks, and justifications for these opportunistic behaviors. The hoarding and accumulation of bad news for extended periods lead to stock price crashes when the accumulated hidden bad news crosses a tipping point, and thus comes out all at once. Moreover, we show that the positive …

Back To Basics: The Little Book That Still Beats The Market, Knowledge@Smu

Knowledge@SMU

Investment theories and principles can be complex and befuddling for many. Yet, one man has devised a formula so simple that it could speak to novices and children. In The Little Book That Still Beats the Market, Columbia University lecturer Joel Greenblatt explains, in large fonts, how he derived what has been termed "the magic formula" and provides some examples as proof of its wizardry. As for weather-beaten investors with no latitude left for "magic", Greenblatt offers a humorous revision of the fundamentals.

China’S Red Capitalism: A Gravity-Defying Economy Built On A Foundation Of Sand?, Knowledge@Smu

Knowledge@SMU

With more than US$3 trillion in foreign exchange reserves, the clutch of four big banks and dozens more internationally-listed state-owned enterprises, there is not much doubt that China has some serious economic muscle. Yet, as authors Carl E. Walter and Frasier J.T. Howie explained in their book, 'Red Capitalism: The fragile financial foundation of China’s extraordinary rise', not all is as it seems in the labyrinth that is China's financial system.

Filling Stomachs Worldwide With Agriculture Risk Transfer Solutions, Knowledge@Smu

Knowledge@SMU

A confluence of factors, such as weather, energy and growing demand, has given rise to a volatile food supply situation worldwide. With few investors willing to take the plunge with this industry, supply and production problems perpetuate. Speaking at a recent seminar at the Singapore Management University, Roman Hohl, an expert in this field with Swiss Re, explains how this issue can be addressed with some help from the insurance industry in the form of risk transfer products. --------------------------------------------------------------------------------

Roubini On Global Economic Risks: “Dr Doom” Or “Dr Realist”?, Knowledge@Smu

Knowledge@SMU

Renowned as the brutally frank commentator that correctly predicted the 2008 financial crisis, New York University's economics professor Nouriel Roubini has made a reputation for himself as the prophet of doom. What does 'Doctor Doom' make of all the fuss about Asia's tiger and dragon economies? He shares his take at a lecture organised by SMU's Sim Kee Boon Institute for Financial Economics while informing audiences that he prefers to be known as 'Doctor Realist'.

Value Investment And Market Timing: Opportunities In Times Of Crises, Knowledge@Smu

Knowledge@SMU

Luminary 'small-cap king' Dr Tan Chong Koay sees opportunities in crises. After all, this industry stalwart's most prolific performances have been during the periods of global economic meltdowns. Beyond financial gains, those who survive these crises would have gained much confidence, he believes. Sharing his investment philosophies at SMU's Centre for Asset Securitisation and Management in Asia, Tan, founder of Pheim Asset Management, explains what he sees as the art and science of investing.

Internal Controls And Conditional Conservatism, Beng Wee Goh, Dan Li

Research Collection School Of Accountancy

This study examines the relation between internal controls and conditional conservatism (“conservatism”), also referred to as timely loss recognition. Using a sample of firms that disclose material weaknesses (MWs) in internal controls under the Sarbanes-Oxley Act (SOX), we find a positive relation between internal control quality and conservatism. Specifically, firms with MWs exhibit lower conservatism than firms without such weaknesses. Further, firms that disclose MWs and subsequently remediate these weaknesses exhibit greater conservatism than firms that continue to have MWs. Overall, these results are consistent with strong internal controls acting as a mechanism that facilitates conservatism. Our study contributes to …

Accounting Quality, Stock Price Delay And Future Stock Returns, Hai Lu, Jeffrey Callen, Mozaffar Khan

Research Collection School Of Accountancy

ln frictionless capital markets with complete information and rational investors, stock prices adjust to new information instantaneously and completely. However, a substantial body of research studies information imperfections such as asymmetric information and incomplete information. Information imperfections potentially hinder timely price discovery and are likely associated with delayed stock price adjustment to information. Our first research question therefore is whether the quality of accounting information (or ”accounting quality”) is one such information imperfection that is associated with cross-sectional variation in stock price delay. We define accounting quality as the precision with which financial reports convey information to equity investors about …

A "Glittering" Bubble: Where Is Gold, At A Record High, Heading Next?, Knowledge@Smu

Knowledge@SMU

Since 2000, the price of gold has surged more than four times to an all time high of more than US$1,400. Is it purely speculative demand that is driving this unprecedented, multi-year surge, or are there other factors at play? With gold at such a high level, is it time for investors to bet that it will drop? Tarun K. Tandon, CEO of FLS Corporation, shares his thoughts at a recent International Trading Institute@SMU seminar.

After The Year Of Two Halves: Outlook, Risks And Opportunities For 2011, Knowledge@Smu

Knowledge@SMU

The post-Lehman Brothers recovery in global financial markets may not have been as reassuring as investors hoped. Meanwhile, conflicts and natural disasters continue to cloud the overall outlook. Through it all, which are the sectors and asset classes to watch in 2011? Senior portfolio fund manager Ong Guat Cheng shares her personal take at SMU's Centre for Asset Securitisation and Management in Asia.

Divining The Merits And Pitfalls Of Dividends, Knowledge@Smu

Knowledge@SMU

Capital gains on stock investments are not always a given, but many companies make it a point to give their shareholders a steady flow of returns that do not require a sell. While such payouts are not as exciting as hitting that 'multi-bagger', here’s something more certain: over time, patient shareholders have more to reap. In 'The Little Book of Big Dividends', author Charles Carlson draws readers' attention to the merits and red flags of investing for dividends.

Equity Incentives And Earnings Management: Evidence From The Banking Industry, Qiang Cheng, Terry Warfield, Minlei Ye

Research Collection School Of Accountancy

We examine the relationship between equity incentives and earnings management in the banking industry. By focusing on this regulated industry and using industry-specific earnings management proxies, we provide evidence on the impact of regulation on earnings management arising from chief executive officers' equity incentives. We find that bank managers with high equity incentives are more likely to manage earnings, but only when capital ratios are closer to the minimums required by regulators. This finding indicates that, in the banking industry, potential regulatory intervention induces, rather than mitigates, earnings management arising from equity incentives.