Corporate Finance Commons^™

Materiality Defined: Differing Concepts Of Materiality Can Cause Confusion Among Stakeholders, Michael P. Fabrizius, Sridhar Ramamoorti

Accounting Faculty Publications

Because the term materiality arose within the context of financial reporting and statement assurance, internal auditors have been challenged in adapting or creating a definition that is relevant for themselves and their stakeholders. In the context of financial reporting, materiality is relevant to three stakeholder groups: 1) preparers of financial statements, 2) auditors, and 3) users of financial statements. Although materiality decisions are made by only two of these three groups--preparers and auditors--most internal auditors' conception of materiality likely has a user orientation. The auditor might ask, "How would a reasonably prudent investor react to the magnitude of misstatement (under- …

Social Norms And Stock Trading, Asem Alhomaidi

LSU New Orleans Theses and Dissertations

The dissertation consists of two essays. In the first essay we compare the performance of Islamic and conventional stock returns in Saudi Arabia in order to determine whether the Saudi market exhibits characteristics that are consistent with segmented markets and investor recognition effects. We sample the daily stock returns of all Saudi firms from September 2002 to 2015 and calculate important measures, including idiosyncratic volatility (Ang et al, 2006), market integration (Pukthuanthong and Roll, 2009), systematic turnover (Loughran and Schultz, 2005), and stock turnover and liquidity (Amihud, 2002). Integration tests report that Islamic stocks are more sensitive to changes in …

Internal Audit And Financial Reporting Quality In The Public Sector, Steven M. Desimone

Economics Department Working Papers

Using a unique set of hand-collected data, this study investigates the association of (1) the presence of an Internal Audit Function (IAF) and (2) the use of quality assurance programs for the IAF with financial reporting quality in public sector organizations. Specifically, I examine if the presence of IAFs and the use of quality assessments therein is associated with the presence of financial statement audit reportable conditions and restatements in municipalities in the U.S. Results indicate that both the presence of an IAF and use of external quality programs therein are positively associated with financial statement audit reportable conditions related …

Bitcoin And The Blockchain As Possible Corporate Governance Tools: Strengths And Weaknesses, Fiammetta S. Piazza

Penn State Journal of Law & International Affairs (2012 - Present)

No abstract provided.

A Strategy For Teaching Critical Thinking: The Sellmore Case, Joseph F. Castellano, Susan Lightle, Bud Baker

Accounting Faculty Publications

The importance of teaching and applying critical thinking skills is apparently matched by its difficulty in doing so. Sara Rimer, writing for the January 18, 2011, edition of The Hechinger Report, discussed a study by Richard Arum that followed several thousand undergraduates from when they entered college in fall 2005 to when they graduated in spring 2009. Arum’s research, published in his book Academically Adrift: Limited Learning on College Campuses, found that large numbers of students did not learn critical thinking, complex reasoning, and written communication skills. Arum used testing data and student surveys from 24 colleges and universities ranging …

On The Foundations Of Corporate Social Responsibility, Hao Liang, Luc Renneboog

Research Collection Lee Kong Chian School Of Business

A firm’s corporate social responsibility (CSR) practice and its country’s legal origin are strongly correlated. This relation is valid for various CSR ratings coming from several large datasets that comprise more than 23,000 large companies from 114 countries. We find that CSR is more strongly and consistently related to legal origins than to “doing good by doing well”-factors, and most firm and country characteristics such as ownership concentration, political institutions, and degree of globalization. In particular, companies from common law countries have lower level of CSR than companies from civil law countries, and Scandinavian civil law firms assume highest level …

People, Planet, Profit: Benefit And B Certified Corporations - Comprehension And Outlook Of Business Students, Arlene J. Nicholas, Samuel Sacco

Faculty and Staff - Articles & Papers

This paper is an overview of the emergence of Benefit and Certified B Corporations that aim to realize a profit and make a positive impact on society as measured by some third party standard. In this way, these corporations differ in corporate purpose from traditional C corporations. Directors and managers are accountable for that defined public benefit. Considerations of sustainable business practices have existed in many industries for several years. However, the recent growth in legislation to create a legal framework for Benefit Corporations is newly emergent. An examination of recent literature explains the rise of these socially responsible organizations, …

You Can’T Stop What You Can’T See: Complementary Risk Mitigation Through Compensation Disclosure, Matt Reeder

William & Mary Business Law Review

Section 956 of the Dodd-Frank Act requires regulators to help prevent the next financial crisis by monitoring executive compensation arrangements to prevent them from becoming excessive or leading to “material financial loss.” A now-pending rule seeks to do just this. This Article argues that the rule is well-conceived inasmuch as it limits the total portion of compensation that can be based on risk-inducing incentives, ties incentive-based compensation to longer-term performance, places a ceiling on potential incentivebased earnings, provides for downward adjustment and clawbacks, prohibits many hedging behaviors, and institutionalizes governance mechanisms and oversight policies. But, by placing a number of …

Auditing Organizational Governance: Internal Audit Has An Integral Role To Play In Improving The Organization's Strategic Performance, Sridhar Ramamoorti, Alan N. Siegfried, P. Alan White

Accounting Faculty Publications

Organizational governance is a broad concept that ensures superior strategy formulation, development, and execution in ways that balance performance, conformance, and accountability. It includes systems, controls, and associated processes that promote ethics and values, performance and accountability, and risk communication and coordination among the board, external and internal auditors, and management in meeting and exceeding stakeholder expectations. Internal audit’s role in organizational governance has always been recognized and valued, but it has become increasingly important in the wake of governance failures in financial and public sectors throughout the world. As a result, more and more boards as well as executive …

Essays In Corporate Responsibility And Finance, Mert Demir

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters:

Chapter 1: The Effects of Corporate Social Performance and Social Norms on Market Valuation of Nonfinancial Disclosures Using a novel measure of the quality of corporate social responsibility (CSR) disclosures by global companies, this paper analyzes how CSR report quality affects firm value when mediating roles of social pressure and CSR performance are considered. I find that firms operating in socially controversial industries enjoy higher valuations when they issue high-quality CSR reports. I also find that for firms with poor CSR performance, higher-quality CSR disclosure is associated with a decline in firm value, while …

The Importance Of Being An Ethical Company, Singapore Management University

Research@SMU: Connecting the Dots

Firms must fine-tune their corporate governance mechanisms to prevent unethical behaviour and take quick action once they are found, says Professor Cheng Qiang.

See the papers:

• Is the decline in the information content of earnings following restatements short-lived?
• CEO contractual protection and managerial short-termism

"What Would Peace In Vietnam Mean For You As An Investor?" Business Executives And The Antiwar Movement, 1967-75, Eric Smith

Faculty Publications & Research

On May 21, 1968, while the warring parties in Vietnam held peace talks in Paris, twenty-four business executives engaged in a heated exchange with Republican Illinois senator Everett Dirksen in his Washington, D.C., office. As described by the Chicago Daily News reporter Betty Flynn, the fifteenminute meeting began with a plea by the business delegation to a "Republican candidate not persisting in hawkish attitudes" to push for a military withdrawal from Vietnam. The delegation misjudged Dirksen's outlook. Although he was arguably a press favorite, Dirksen was also critical of congressional doves. Insisting that "whether we like it or not, this …

Why Audit Teams Need The Confidence To Speak Up, Susan Lightle, Joseph F. Castellano, Bud Baker

Accounting Faculty Publications

A climate of psychological safety is an important prerequisite for effective interpersonal relationships among audit team members and for audit teams to properly meet their fiduciary responsibilities. Audit processes can be more effective and the quality of audits can be improved if auditors understand the concept of psychological safety and its application for audit teams. The failure to create a climate of psychological safety among audit team members can have harmful effects on audit quality, but fortunately CPA firms can take steps to enhance psychological safety and enable more effective audit processes and audit work.

In Pursuit Of Good & Gold: Data Observations Of Employee Ownership & Impact Investment, Christopher Geczy, Jessica S. Jeffers, David K. Musto, Anne M. Tucker

Faculty Publications By Year

A startup's path to self-sustaining profitability is risky and hard, and most do not make it. Venture capital (VC) investors try to improve these odds with contractual terms that focus and sharpen employees' incentives to pursue gold. If the employees and investors expect the startup to balance the goal of profitability with another goal - the goal of good - the risks are likely to both grow and multiply. They grow to the extent that profits are threatened, and they multiply to the extent that balancing competing goals adds a dimension to the incentive problem. In this Article, we explore …

Restatement Vs Revision: A Case Study, Benoit Boyer, Danny A. Pannese, Alan L. Delfavero

WCBT Faculty Publications

There had been many recent cases of restatements of financial statements by US Corporations. Recently an article in the Wall Street Journal mentioned restatements by Bank of America, Nike and Alphabet among the 663 companies that filed financial revisions or restatements last year. Interestingly the frequency of these errors has more than doubled since 2002, when the Sarbanes-Oxley corporate governance law was enacted, partly to increase managerial accountability. We will also examine what are the differences between restatements and revisions. We will examine what are the most common mistakes. Over half of last year's corrections involved debt and equity, cash …

Socially Responsible Firms, Allen Ferrell, Hao Liang, Luc Renneboog

Research Collection Lee Kong Chian School Of Business

In the corporate finance tradition, starting with Berle and Means (1932), corporations should generally be run to maximize shareholder value. The agency view of corporate social responsibility (CSR) considers CSR an agency problem and a waste of corporate resources. Given our identification strategy by means of an instrumental variable approach, we find that well-governed firms that suffer less from agency concerns (less cash abundance, positive pay-for-performance, small control wedge, strong minority protection) engage more in CSR. We also find that a positive relation exists between CSR and value and that CSR attenuates the negative relation between managerial entrenchment and value.

Ceo Power, Corporate Social Responsibility, And Firm Value: A Test Of Agency Theory, Zhichuan Li

Business Publications

Purpose

The purpose of this paper is to explore whether firms with powerful chief executive officers (CEOs) tend to invest (more) in corporate social responsibility (CSR) activities as the over-investment hypothesis based on classical agency theory predicts.

Design/methodology/approach

This paper tests an alternative hypothesis that if CSR investment is indeed an agency cost like the over-investment hypothesis suggests, then those activities may destroy firm value.

Findings

Using CEO pay slice (Bebchuk et al., 2011), CEO tenure, and CEO duality to measure CEO power, the authors show that CEO power is negatively correlated with firm’s choice to engage in CSR …

Governance And Post-Repurchase Performance, Gary Caton, Jeremy Goh, Yen Teik Lee, Scott Linn

Research Collection Lee Kong Chian School Of Business

Payout policies based on share repurchase programs provide greater flexibility than do those based on cash dividends. We develop and test an empirical model in which strongly governed companies outperform weakly governed companies after announcing share repurchase programs. Our findings include positive associations between strong governance and both post-announcement adjusted operating performance and abnormal stock returns. The results are robust to sample selection bias, different sample criteria, governance measurement, and various control variables. In addition, governance strength is associated with larger post-announcement changes in CEO incentive compensation and merger and acquisition activity, both of which we argue are consistent with …

Socially Responsible Firms, Allen Ferrell, Hao Liang, Luc Renneboog

Research Collection Lee Kong Chian School Of Business

In the corporate finance tradition starting with Berle & Means (1923), corporations should generally be run so as to maximize shareholder value. The agency view of corporate social responsibility (CSR) considers CSR as an agency problem and a waste of corporate resources. Given our identification strategy by means of an IV approach, we find that well-governed firms who suffer less from agency concerns (less cash abundance, positive pay-for-performance, small control wedge, strong minority protection) engage more in CSR. We also find a positive relation between CSR and value and that CSR attenuates the negative relation between managerial entrenchment and value.

Governance Matter: Morningstar Stewardship Grades And Mutual Fund Performance, Jerry X. Cao, Aurobindo Ghosh, Jeremy Goh, Wee Seng Ng

Research Collection Lee Kong Chian School Of Business

Mutual fund investors have the arduous task of disentangling luck from ability of mutual fund managers’ performance. In this paper we investigate the role of mutual fund corporate governance (measured by Morningstar Stewardship grade) in mutual fund performance. We propose an objective data-driven corporate governance score based on principal components of Morningstar Stewardship Grades. Furthermore, we establish corporate governance scores have Granger Causality on long-term risk-adjusted returns. The findings suggest that corporate governance grades of mutual funds carry information content beyond the usual star rating measures for predicting long-term mutual fund performance and provide an effective tool for selecting funds.

Internal Governance And Real Earnings Management, Qiang Cheng, Jimmy Lee, Terry J. Shevlin

Research Collection School Of Accountancy

We examine whether internal governance affects the extent of real earnings management in U.S. corporations. Internal governance refers to the process through which key subordinate executives provide checks and balances in the organization and affect corporate decisions. Using the number of years to retirement to capture key subordinate executives’ horizon incentives and using their compensation relative to CEO compensation to capture their influence within the firm, we find that the extent of real earnings management decreases with key subordinate executives’ horizon and influence. The results are robust to alternative measures of internal governance and to various approaches used to address …

Corporate Governance And Executive Compensation For Corporate Social Responsibility, Zhichuan Li

Business Publications

We link the corporate governance literature in financial economics to the agency cost perspective of corporate social responsibility (CSR) to derive theoretical predictions about the relationship between corporate governance and the existence of executive compensation incentives for CSR. We test our predictions using novel executive compensation contract data, and find that firms with more shareholder-friendly corporate governance are more likely to provide compensation to executives linked to firm social performance outcomes. Also, providing executives with direct incentives for CSR is an effective tool to increase firm social performance. The findings provide evidence identifying corporate governance as a determinant of managerial …

The Influence Of Ethical Leadership On Managerial Performance: Mediating Effects Of Mindfulness And Corporate Social Responsibility, John J. Williams, Alfred E. Seaman

Research Collection School Of Accountancy

In a continuing world of corporate misdeeds and unscrupulous decision making, much of the management and academic literatures points to the incomplete knowledge of the consequences of ethics leadership. One of the bastions of ethics gatekeeping in the firm is the CFO but remarkably scant information can be found on their perceptions concerning ethics leadership. This study addresses this void by examining mindfulness and corporate social responsibility (CSR) initiatives as new mediating linkages in comprehending the influence of ethics leadership on managerial performance. Findings reveal that ethical leadership is positively associated with CSR initiatives which, in turn, operate to enhance …

The Downside Of The Network Ties Between Ceo/Cfos And Auditors Through External Directorships: Evidence From Auditor Selection And Subsequent Audit Quality, Jaeyoon Yu, Byungjin Kwak, Myung Seok Park, Yoonseok Zang

Research Collection School Of Accountancy

This study examines whether the professional ties of Chief Executive Officers/Chief Financial Officers (CEO/CFOs) to auditors through external directorships affect auditor selection and subsequent audit quality. Professional ties to auditors arise when the CEO/CFO of a firm (referred to as the home firm) serves as an outside director of another firm that hires an auditor (a connected auditor). Using a sample of firms with auditor switches over the period 2003-2012, we find that home firms are more likely to appoint connected auditors. Furthermore, utilizing a difference-in-differences approach, we find that home firms appointing connected auditors experience a significant decline in …

Public Corruption: Causes, Consequences & Countermeasures, Victor Hartman, Sridhar Ramamoorti

Accounting Faculty Publications

The article discusses the cause and consequences of public corruption in the U.S. It mentions several countermeasures against public corruption which include strengtening the organizational commitment, behaviour, and emphasizing code of ethics. The article also mentions the conflict of interests, challenges on law enforcement, and asset misappropriation.

Promoting And Supporting Effective Organizational Governance, Sridhar Ramamoorti, Alan N. Siegfried

Accounting Faculty Publications

Internal audit’s role in organizational governance has become increasingly important in the wake of the recent global financial crisis and the continuing spate of governance failures in both financial and public sectors throughout the world. Informed observers and commentators have asked initially, “Where were the external auditors?” then “Where was the audit committee?” and finally, “Where was internal audit in all this?” This report draws on survey responses from internal auditors in 166 countries to take stock of the current role of internal audit in the governance process and learn how internal audit can better position itself to contribute to …

Keynote Address, Regulating Corporate Governance In The Public Interest: The Case Of Systemic Risk, Steven L. Schwarcz

Faculty Scholarship

There’s long been a debate whether corporate governance law should require some duty to the public. The accepted wisdom is not to require such a duty—that corporate profit maximization provides jobs and other public benefits that exceed any harm. This is especially true, the argument goes, because imposing specific regulatory requirements and making certain actions illegal or tortious can mitigate the harm without unduly impairing corporate wealth production. Whether that is true in other contexts, this paper—delivered as the keynote address at the June 2016 National Business Law Scholars Conference at The University of Chicago Law School—questions if it’s true …

Taxation As It Relates To Politics, Small Business & Corporate America, Elizabeth Assaf, Rebecca Wuorio

Honors Theses and Capstones

No abstract provided.

Locked In: The Competitive Disadvantage Of Citizen Shareholders, Anne M. Tucker

Faculty Publications By Year

In this Essay, I challenge the conventional corporate law wisdom that unhappy mutual fund investors paying high fees don’t need litigation or regulation to protect their interests because they should simply exit a fund and reinvest elsewhere. The exit solution, advanced by Professors John Morley and Quinn Curtis in Taking Exit Rights Seriously provided an elegantly simply solution to the problem of unhappy indirect investors (e.g., mutual fund investors) given that they are often low-dollar, low-incentive, rationally-apathetic investors facing enormous information asymmetries and collective action problems. According to their view, competition produced by exit, or the threat of exit, is …

National Culture Dimensions And Consumer Digital Piracy: A European Perspective, Irena Vida, Monika Kukar-Kinney, Mateja Kos Kokli, James Reardon

Atlantic Marketing Association Proceedings

Digital piracy as a ubiquitous phenomenon affects a number of stakeholders, such as consumers, enterprises, and governments. Considering its global nature, it has been of particular interest to consumer researchers. Hence, a large body of digital piracy literature sheds light on the demand side and illuminates various predictors of digital piracy behavior (Harris & Daunt, 2011). Despite these efforts, very little attention has been devoted to applying international perspective in investigating digital piracy across different countries (Ki, Chang, & Khang, 2006). This study aims to fill this void by examining the digital piracy behavior in three EU countries. In addition, …