Accounting Commons^™

Internal Control And Operational Efficiency, Qiang Cheng, Beng Wee Goh, Jae Bum Kim

Research Collection School Of Accountancy

We examine whether effective internal control over financial reporting has implications beyond that of financial reporting to firm operational efficiency. We predict and find that operational efficiency, derived from frontier analysis, is significantly lower among firms disclosing material weaknesses in internal control relative to firms with effective control. This result exists even in the years leading up to the disclosure of material weaknesses, but disappears after remediation of the internal control problems, suggesting that the remediation of material weaknesses improves operational efficiency. Overall, our study extends the literature on the reporting effects of strong versus weak internal control, and helps …

Return Predictability And The Real Option Value Of Segments, Pingui Rao, Heng Yue, Xin Zhou

Research Collection School Of Accountancy

Theory suggests that firm value should include the value of real options; that is, firms have the option to expand more profitable businesses and liquidate less profitable businesses. In a diversified firm, each segment has its own real options. Applying real options theory to a diversified firm at the firm level neglects the value of segment-level options. If investors overlook segment-level options, mispricing will occur. Using data from 1981 to 2013, we find that a hedge portfolio buying diversified firms in the highest decile of the estimated real option value of segments (RVS) and selling those in the lowest RVS …

Research Note: Investor Perceptions Of Comparable-To-Industry Versus Higher-Than-Industry Pay Ratio Disclosures, Khim Kelly, Jean Lin Seow

Research Collection School Of Accountancy

The usefulness of the CEO-to-employee pay ratio disclosure to investors is subject to significant debate. Our experiment examines participant responses to higher-than-industry and comparable-to-industry pay ratio disclosures in a company. A prior experiment by Kelly and Seow (2016) (hereafter KS) found that incrementally disclosing a higher-than-industry pay ratio on top of higher-than-industry CEO pay had indirect negative effects on the company’s perceived investment potential, via negative perceptions about the fairness of the CEO pay and workplace climate. We find that the negative indirect effects of pay ratio disclosures on perceived investment potential in KS are replicable in our study, and …

Using Data Analytics To Raise Productivity And Profitability: 4 Key Steps For Smes, Gary Pan, Poh Sun Seow

Research Collection School Of Accountancy

It is widely believed that effective data analysis may create newbusiness opportunities as technological advancement may offercompanies greater ability to predict what their customers want.

Bridging Academic And Practice: Benefits, Challenges And Lessons Learnt From Establishing A University Wide Experiential Learning Initiative, Gary Pan, Poh Sun Seow, Grace Koh

Research Collection School Of Accountancy

The scale and complexity of challenges facing the world today are unprecedented. It is paramount that universities identify and equip students with relevant skills to meet the needs of the changing economy. Recognizing this need, Singapore Management University launched a new initiative, SMUX. In this paper we will describe SMU-X which is a paradigm shift focusing on experiential learning as opposed to teaching, characterized by 4 principles: (i) inter-disciplinary content and activities, (ii) project-based learning via an actual problem/issue faced by an organization, (iii) active student mentoring by faculty and industry, and (iv) creating a tripartite learning loop between faculty, …

Reframing The Board Diversity Issue: Set 25 By 25 Target, Themin Suwardy, Surianarayanan Gopalakrishnan

Research Collection School Of Accountancy

Studies have shown there is clear association between aboard's gender diversity and company performance. Yet Singapore has been softerthan usual in pushing the agenda. In this commentary, the authors discussed theimportance of setting an explicit hard target with a fixed deadline to reframeboard diversity in Singapore.

Reframing The Board Diversity Issue: Set 25 By 25 Target, Themin Suwardy, Surianarayanan Surianarayanan Gopalakrishnan

Research Collection School Of Accountancy

Studies have shown there is clear association between aboard's gender diversity and company performance. Yet Singapore has been softerthan usual in pushing the agenda. In this commentary, the authors discussed theimportance of setting an explicit hard target with a fixed deadline to reframeboard diversity in Singapore.

Voluntary Disclosure With Multiple Channels And Investor Sophistication, Richard M. Crowley

Research Collection School Of Accountancy

An analytical model of voluntary disclosure in which a manager can disclose through two channels with different ease of processing, and with two types of investors. The model shows that in the presence of a second channel, managers have an incentive to decrease disclosures that will be quickly processed by unsophisticated investors and to increase the disclosures that will be quickly processed by sophisticated investors. The model has implications for post Reg-FD market efficiency, as well as the efficiency of firms having multiple disclosure venues.

Local Tax Incentives And Behavior Of Foreign Enterprises: Evidence From A Large Developing Country, Jing Xing, Wei Cui, Xi Qi

Research Collection School Of Accountancy

We analyze how profit reporting and investment behavior of foreign enterprises respond to local tax incentives in China, a large developing country. Using firm-level data between 2000 and 2013 from China’s industrial enterprise survey, we first provide strong evidence for tax competition among Chinese cities (especially cities within the same province) over the average effective income tax rate. We then find that, despite stringent capital controls, both reported pre-tax profits and investment of foreign firms respond strongly to local tax incentives, suggesting that subnational tax competition in China is oriented towards both mobile profits and real resources.

Short Sellers And Corporate Disclosure, Xia Chen, Qiang Cheng, T. Luo, Heng Yue

Research Collection School Of Accountancy

We examine how short sellers affect corporate disclosures using a natural experiment. From May2005 to July 2007, the SEC implemented a pilot program by randomly selecting one third ofRussell 3000 stocks and removing the short sale price tests for these stocks (referred to as pilotfirms), leading to lower short-selling constraint, without changing the requirement for other firms(referred to as control firms). We compare the change in corporate disclosures between the pilotfirms and the control firms during this period. We find that compared to the control firms, thepilot firms are more likely to issue good news management forecasts without changing theissuance …

The Effect Of Ssap 101 On Loss Provisioning By Property-Casualty Insurers, Jiang Cheng, Travis K. Chow, Tzu-Ting Lin, Tee Yong Jeffrey Ng

Research Collection School Of Accountancy

This paper examines whether the adoption of the Statement of Statutory AccountingPrinciples (SSAP) 101, a new accounting standard that significantly limits management’sdiscretion in both the recognition and measurement of tax contingencies, affects the lossprovisions of property-casualty (PC) insurers. We find that PC insurers significantly reducetheir loss provisions after SSAP 101 adoption, particularly those with greater ex anteexposure to SSAP 101, consistent with reduced incentives to establish loss reserves for taxpurposes. Additionally, PC insurers with greater exposure to SSAP 101 show increasedearnings persistence and decreased returns on asset volatility, suggesting improved insurertransparency and an improved overall risk profile via tax avoidance …

Corporate In-House Human Capital Investment In Tax Planning, Xia Chen, Qiang Cheng, Travis K. Chow, Yanju Liu

Research Collection School Of Accountancy

In-house human capital tax investment is a significant input to a firm’s tax decisions. Yet,due to the lack of data, there is little empirical evidence on how corporate in-house taxdepartments are associated with tax planning and compliance outcomes. Using handcollected data on corporate tax employees in S&P1500 firms over the period 2009-2014, wefind that in-house tax planning investments lead to greater tax avoidance, in-house taxcompliance investments lead to lower tax risk, while general tax investments achieve bothgoals. We obtain the same inferences when controlling for endogeneity or using changespecifications. We also find that the effects of in-house tax investments are …

Advertising And Disclosure: Do Firms Time Advertising During Disclosure Periods?, Yin Wang

Research Collection School Of Accountancy

Using a large sample of monthly advertising data, I examine whether U.S. firms use advertisingstrategically during disclosure periods. I find that firms schedule some advertising to appeararound their SEC 10-K, 10-Q filings and around their earnings announcements, consistent withadvertising being used to increase visibility and attract investor attention during disclosureperiods. This effect is stronger for firms reporting good news, for firms with high individualinvestor ownership, for firms in the retail industry, and for young firms. In addition, firmsincrease their advertising through media with broad target audiences and through business-toconsumer media around their disclosures (i.e. SEC 10-K, 10-Q filings and earningsannouncements). …

The Globalisation Of Tax Good Governance, Christiana Panayi

Research Collection School Of Accountancy

This is a unique era where the international tax community, most vocally represented by developed countries mainly through the OECD/G20 is engaged in a global fight against tax evasion/avoidance. It is thought that lack of tax cooperation increases the risk of cross-border tax evasion and avoidance. Apart from the traditional notions of cooperation/assistance and exchange of information commonly viewed as instrumental in the fight against tax evasion/avoidance, another concept has emerged – that of good tax governance or tax good governance or fiscal good governance.

Notwithstanding the uncertainties surrounding tax good governance, it is acquiring increasing importance and institutional backing, …

China's "Mercantilist" Government Subsidies, The Cost Of Debt And Firm Performance, Chu Yeong Lim, Jiwei Wang, Cheng (Colin) Zeng

Research Collection School Of Accountancy

China has been adopting a “mercantilist” policy by lavishing massive government subsidies on Chinese firms. Using hand-collected subsidy data on Chinese listed companies, we find that firms receiving more subsidies tend to have a lower cost of debt. However, such firms fail to have superior financial performance. Instead, firms with more subsidies tend to be overstaffed, which demonstrates higher social performance. These results are mainly driven by non-tax-based subsidies rather than tax-based subsidies. Overall, our results suggest that the Chinese government uses non-tax-based subsidies to achieve its social policy objectives at the expense of firms’ profitability.

What Is The Cost Of Transparency? Does It Outweigh The Benefits Obtained From Greater Transparency?, Viktoria Wöhrer

Research Collection School Of Accountancy

Currently, the scope of tax transparency is increasing on a global level. Taxpayers and third parties have to provide more information to both tax authorities and the general public. Increasing transparency should hamper both tax evasion and tax avoidance. The tax transparency initiatives should contribute to providing tax administrations with useful information for assessing tax risks and specifically targeting those issues in an audit. Greater transparency does however not only contribute to the combat against tax avoidance and tax evasion but also involves an increased degree of data gathering, reporting and information exchange either from taxpayers to tax authorities or …

Objective Or Subjective – Anti-Treaty Shopping Policy In Select Asian Jurisdictions In The Post-Beps World, Andy Baik, Matthias Petutschnig

Research Collection School Of Accountancy

BEPS Action 6 proposes two distinct anti abuse measures to be incorporated into the OECD Model Convention and subsequently into the various bilateral tax treaties: A Limitation on Benefits (LoB) clause and Principal Purpose Test (PPT). While both anti abuse measures are new to the OECD Model Convention, various countries around the world have implemented either LoB or PPT clauses or both into their tax treaties. This paper analyses the treaty network of eight Asian / Pacific jurisdictions (Australia, China, Hong Kong, Japan, Malaysia, Singapore, and Taiwan) with respect to the anti-abuse measures employed in these treaties. The majority of …

The Equity-Financing Channel, The Catering Channel, And Corporate Investment: International Evidence, Yuanto Kusnadi, John K. C. Wei

Research Collection School Of Accountancy

We examine how stock market mispricing affects corporate investment in an internationalsetting. We find that investment is more sensitive to stock prices for equity-dependent firms thanfor non-equity-dependent firms in our international sample. Investment is also more sensitive tostock prices for firms located in countries with more developed capital markets (i.e., lower costsof raising capital), higher share turnover (i.e., shorter shareholder horizons), and higher R&Dintensity (i.e., more opaque assets). More importantly, the positive relation between equitydependence and the sensitivity of investment to stock prices is more pronounced for firmslocated in these same countries. These findings are consistent with the equity-financinghypothesis and …

How Do Accounting Practices Spread? An Examination Of Law Firm Networks And Stock Option Backdating, Teck Meng Junior Tan, Patricia M. Dechow

Research Collection School Of Accountancy

We hypothesize that one way that accounting practices spread is through law firm connections. We investigate this prediction by examining companies that avoided reporting compensation expense by engaging in stock option backdating. We hypothesize that executives engaged in backdating because they were desensitized to its inappropriateness when they learned through their legal counsel that other companies were engaging in this practice. We identify backdating companies through backdating-related restatements of earnings. Using network analysis, we document that backdating companies are more highly connected with other backdating companies via shared law firms. Logistic regressions indicate that the odds of a company backdating …

Commentary: Wanted - A New Generation Of Accountants, Poh Sun Seow, Gary Pan, Clarence Goh

Research Collection School Of Accountancy

Facing a new wave of automation, young accountants must redefine their role and their value-add to their company, say three Singapore Management University observers.

Heineken's Acquisition Of Asia Pacific Breweries: Accounting For Business Combinations And Ownership Interests, Pearl Hock Neo Tan, Chu Yeong Lim

Research Collection School Of Accountancy

On July 20, 2012, Heineken, a Dutch brewery offered S$5.125 billion (Singapore dollars; approximately US$4.1 billion) to buy Asia Pacific Breweries Ltd (APB; formerly, Malayan Breweries Limited) from its Singapore-based joint venture partner, Fraser and Neave, Limited. (F&N). At that point, Heineken and F&N had joint control over APB through the joint venture vehicle Asia Pacific Investments Pte Ltd (APIPL). Brewery business under the joint arrangement had moved on quite predictably from the time APB was formed in 1931. However, the calm changed to high drama when Thai Beverage, owned by one of Thailand's tycoons, made a bid for F&N …

Inside Accountancy: What It Takes To Become A Big 4 Partner, Qiang Cheng, Yang Hoong Pang, Gary Pan, Poh Sun Seow, Kwong Sin Leong

Research Collection School Of Accountancy

Reaching partnership at a Big 4 firm is regarded as the pinnacle ofachievement for any accountant. Ask any early-career employee in a Big 4 firmwhether he or she wants to make partner one day. Many of them will say yes, unequivocally.

Non-Competes, Career Concerns, And Debt Covenants, Yun Lou, Rencheng Wang, Yi Zhou

Research Collection School Of Accountancy

We study the impact of managers’ career concerns from non-competes enforcement on the design of debt covenants in private debt agreements. Using exogenous changes in the enforceability of managers’ non-compete clauses over the period of 1992-2004 across states in the United States, we show that borrowers headquartered in U.S. states with strong enforcement of non-compete clauses have fewer debt covenants compared to those headquartered in states with weak enforcement after controlling for reporting quality, risk taking, and firm performance. Our evidence is consistent with the argument that reduced job mobility and enhanced career concerns incentivize managers to ex ante avoid …

Automation And The Accounting Profession, Clarence Goh, Poh Sun Seow, Gary Pan

Research Collection School Of Accountancy

Automation poses a threat to many of the tasks that are performed by accountants today. Certainly, many emerging technologies have already begun to perform tasks that have traditionally been performed by accountants. For example, advancements in cloud-based accounting software now make it much easier for small businesses to easily and accurately enter and edit financial information on their own without the input of accountants. Looking further into the horizon, newer technologies can now turn hard-copy receipts into a machine-readable format, encrypt them,and allocate them to an account without any input from a human. Such developments will continue to reduce the …

What Does It Take To Become A Partner At An Accountancy Firm?, Qiang Cheng, Yang Hoong Pang, Gary Pan, Poh Sun Seow, Kwong Sin Leong

Research Collection School Of Accountancy

Having ‘hard’ skills are important but one cannot do without the soft skills that will advance your career.

How Singapore Investors Can Profit From Unstructured Data, Clarence Goh

Research Collection School Of Accountancy

Data that is collected in the business environment can be structured or unstructured. In general, structured data refers to information which is highly organised and which can easily be stored in rows and columns within database systems. On the other hand, unstructured data does not have a strict data structure, and is also not organised in a pre-defined manner.

The Effects Of Risk Management On Management Forecast Behavior, John L. Campbell, Sean Cao, Hye Sun Chang, Raluca Chiorean

Research Collection School Of Accountancy

Prior research examines several reasons why managers voluntarily disclose information, but provides relatively little evidence as to whether day-to-day operational decisions influence a manager’s disclosure choice. In this study, we examine whether a particular operational activity – risk management through the use of derivatives – affects whether a manager decides to issue earnings forecasts. Using a large hand-collected sample of derivatives users and non-users, we find that derivatives users are more likely to issue earnings forecasts relative to non-users. We then find that this result is stronger when the use of derivatives makes it less costly for managers to issue …

Gender And Connections Among Wall Street Analysts, Lily Hua Fang, Sterling Huang

Research Collection School Of Accountancy

We examine how alumni ties with corporate boards differentially affect male and female analysts’ job performance and career outcomes. Connection improves men’s job performance — forecasting accuracy and recommendation impact — significantly more than women’s. Controlling for performance, connection further contributes to men’s, but not women’s, likelihood of being voted by institutional investors as “star” analysts, a marker of career success. These asymmetric effects are stronger in more opaque firms and among younger analysts, but is absent from a placebo test. Our evidence indicates that men reap higher benefits from social networks than women in both job performance and subjective …

The Predictive Audit: Why Prevention Is Better Than A Cure, Clarence Goh

Research Collection School Of Accountancy

Foreseeing potential problems can save your business from long-term headaches.

The Predictive Audit: Why Prevention Is Better Than A Cure, Clarence Goh

Research Collection School Of Accountancy

Foreseeing potential problems can save your business from long-term headaches.