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We develop and empirically test a trade-off model for the analysis of leverage changes in mergers and acquisitions. This study extends prior findings of a post-merger increase in leverage for the acquiring firm by linking this leverage increase to merging firms that are less correlated, create significantly larger growth options, have lower bankruptcy costs and lower volatility. Specifically, we show that acquiring firms are more likely to finance diversifying acquisitions with debt as equity holders exploit the increased debt capacity with higher leverage resulting in total merger gains that are positively associated with financial synergies. This study further corroborates recent theoretical evidence of a U-shaped relationship between growth options and leverage theoretically and empirically in the context of mergers.
The purpose of this study is to consolidate the existing body of knowledge on the materiality of nonfinancial information, particularly environmental, social and governance (ESG or sustainability) disclosures, by reviewing the theoretical and empirical evidence on this topic drawing from the academic literature in accounting, economics, finance, law, and management. The paper discusses the theoretical foundations of the concept of materiality and presents evidence on the changing views on the materiality of nonfinancial disclosures from the perspective of the securities and disclosure regulation in the U.S. It relates the arguments for the materiality of nonfinancial information to the stakeholder theory of the corporation. Building on the conceptual foundations the study then reviews the theoretical and empirical evidence in the management literature on corporate social responsibility, the accounting literature on sustainability disclosures and the economics and finance literature on responsible investing. This study reconciles and extracts new insights from the existing evidence in these various fields in order to inform the academic debate on the materiality of nonfinancial disclosures and to open new avenues for research.
This paper examines the size-effect in the German stock market and intends to address several unanswered issues on this widely known anomaly. Unlike recent evidence of a reversal of the size anomaly we document a conditional relation between size and returns. We also detect strong momentum across size portfolios. Our results indicate that the marginal effect of firm size on stock returns is conditional on the firm’s past performance. We use an instrumental variable estimation to address Berk’s critique of a simultaneity bias in prior studies on the small firm effect and to investigate the economic rationale behind firm size as an explanatory variable for the variation in stock returns. The analysis in this paper indicates that firm size captures firm characteristic components in stock returns and that this regularity cannot be explained by differences in systematic risk.
Our analytical description of how banks’ responses to asset price changes can result in procyclical leverage reveals that for banks with a binding regulatory leverage constraint, absent differences in regulatory risk weights across assets, leverage is not procyclical. For banks without a binding constraint, fair value and bank regulation both can contribute to procyclical leverage. Empirical findings based on a large sample of US commercial banks reveal that bank regulation explains procyclical leverage for banks relatively close to the regulatory leverage constraint and contributes to procyclical leverage for those that are not. Fair value accounting does not contribute to procyclical leverage.
We develop a general equilibrium model to investigate the adverse effects of liquidity risk on price discovery and to examine the interaction of (externally or internally imposed) solvency requirements for financial institutions with the accounting measurement for financial assets in markets under stress. The model develops liquidity demand and supply curves generating two types of general equilibria: liquid and illiquid. We then investigate the adverse feedback effects in the illiquid equilibrium in response to banks selling risky assets to satisfy solvency requirements. Our model captures negative externalities of other banks responding to a liquidity shock with precautionary hoarding and predicts that the potential of bank runs reduces the motivation to hoard. Model results further suggest that applying mark-to-market accounting in the illiquid equilibrium can lead to loss spirals transforming a bank’s illiquidity problem to one of insolvency. We discuss several policy implications for the role of fair value accounting in linking liquidity and solvency problems of banks during times of market stress.
This paper is concerned with the allegation that fair value accounting rules have contributed significantly to the recent financial crisis. It focuses on one particular channel for that contribution: the impact of fair value on actual or potential failure of banks. The paper compares four criteria for failure: one economic, two legal and one regulatory. It is clear from this comparison that balance sheet valuations of assets are in two cases crucial in these definitions, and so the choice between “fair value” or other valuations can be decisive in whether a bank fails; but in two cases fair value is irrelevant. Bank failures might arise despite capital adequacy and balance sheet solvency due to sudden shocks to liquidity positions. Two of the most prominent bank failures cannot, at first sight, be attributed to fair value accounting: we show that Northern Rock was balance sheet solvent, even on a fair value basis, as was Lehman Brothers. The anecdotal evidence is augmented by empirical tests that suggest that mark-to-market accounting does not increase the perceived bankruptcy risk of banks.
We provide evidence on the benefits and costs of voluntary earnings forecasts by bidding firms during acquisitions, shedding light on the motives and capital market consequences of voluntary disclosures. Specifically, we find a higher propensity of forecast disclosure when the acquisition is made with stock and during periods of high bidder valuations, when target shareholders are concerned about receiving overvalued shares. These forecasts are associated with a higher likelihood of deal completion, expedited deal closing, and with a lower acquisition premium. Our results are most consistent with forecast disclosure positively affecting the value perceptions of target shareholders. The evidence, however, also suggests that the benefits of forecast disclosure only accrue to bidders that have built a credible forecasting reputation prior to the acquisition. Furthermore, we document that merger forecasts attenuate the generally negative investor reaction to acquisition announcements. Explaining why not all bidders forecast, we provide evidence on high forecasting costs, particularly higher likelihood of post-merger litigation.
This paper attempts to tease out some of the reasons why the history of M&A accounting has been so fraught. It compares the different M&A accounting regimes which have been tried over time in UK, US and international standards. It illustrates the quantitative impact of alternative accounting regimes on financial statements. It asks whether the resulting numbers make any difference to decisions and behaviour. It charts the rising scale of M&A expenditures which have accompanied the different accounting regimes. And it suggests that a number of historical developments have intensified the challenges posed by accounting for M&A – developments in firms’ investment choice between M&A or new tangibles, in the role of intangibles, in means of payment for M&A, in stock market price movements, in the synergies created by M&A, and in “creative accounting.”
Using survey data from a sample of senior investment professionals from mainstream (i.e. not SRI funds) investment organizations we provide insights into why and how investors use reported environmental, social and governance (ESG) information. The primary reason survey respondents consider ESG information in investment decisions is because they consider it financially material to investment performance. ESG information is perceived to provide information primarily about risk rather than a company’s competitive positioning. There is no one size fits all, with the financial materiality of different ESG issues varying across sectors. Lack of comparability due to the lack of reporting standards is the primary impediment to the use of ESG information. Most frequently, the information is used to screen companies with the most often used method being negative screening. However, negative screening is perceived as the least investment beneficial while full integration into stock valuation and positive screening considered more beneficial. Respondents expect negative screening to be used less in the future, while positive screening and active ownership to be used more.
This paper investigates whether and how financial restatements affect the market for corporate control. We show that firms that recently filed financial restatements are significantly less likely to become takeover targets than a propensity score-matched sample of non-restating firms. For those restating firms that do receive takeover bids, the bids are more likely to be withdrawn or take longer to complete than those made to non-restating firms. Finally, there is some evidence that deal value multiples are significantly lower for restating targets than for non-restating targets. Our analyses suggest that the information risk associated with restating firms is the main driver of these results. Overall, this study finds that financial restatements have profound consequences for the allocation of economic resources in the market for corporate control.
Because managers hold a status in society similar to that of doctors and lawyers, it is natural to think of business as a profession--and of business schools as professional schools. But, argues Barker, a professor at Cambridge University's Judge Business School, that can lead to inappropriate analysis and misguided perceptions. We turn to professionals for advice, he writes, because they have knowledge that we don't. We trust their advice because they've been guaranteed by professional associations that establish the boundaries of the field and reach consensus on what body of learning is required for formal training and certification. These associations make a market for professional services feasible. Although business schools might be able to reach consensus on what they should teach, the proper question is whether what they teach qualifies students to manage. After all, successful businesses are commonly run by people without MBAs. Managers' roles are inherently general, variable, and indefinable; their core skill is to integrate across functional areas, groups of people, and circumstances. Integration is learned in the minds of MBA students, whose experiences and careers are widely diverse, rather than taught in the content of program modules. Thus business education must be highly collaborative, with grading downplayed, and learning must differ according to the stage of a student's career. Business schools are not professional schools. They are incubators for business leadership.
The argument in this paper is that financial accounting is inherently conservative, in that a neutral application of the International Accounting Standards Board (IASB's) definition of (net) assets leads to book value being less than economic value. There are both conceptual and practical reasons for this outcome, neither of which is explained by an intention to be conservative, by an asymmetry or bias that is designed to lead to a conservative outcome. Financial accounting is not a system for the neutral measurement of economic value. Book value and economic value are instead conceptually different, with conservatism resulting from that difference. This inherent conservatism seems to have been overlooked both by the IASB and by its critics. The IASB has sought to remove prudence from its framework and has attracted criticism from the academic and practitioner communities for doing so. Yet the challenges to the framework implied by adopting an agency-based, contracting demand for prudent accounting are criticisms of a problem that for the most part does not exist.
This paper examines analysts' use of earnings information and draws implications for the stock market role of the financial reporting regulator. Evidence from participant observation and from interview research suggests that: first, analysts treat the announcement of earnings with immediacy and importance and, further, they make use of the components of FRS3 in extracting a measure of ‘normalised' earnings; second, analysts do not, however, have a rational economic incentive to regard accounting information as their exclusive (or even their primary) focus of interest, and therefore financial statement analysis is not necessarily their core competence; third, analysts’ interpretation and use of earnings information is rather superficial, and there is limited understanding of underlying issues of recognition and measurement, and also of the interactions between earnings and the balance sheet. Overall, the analysis suggests an important role for the financial reporting regulator in compensating for analysts' inherent ‘disinterest’ in accounting. Financial reporting standards must be designed such that their actual content is consistent with the analysts' (uninformed) expectations of this content, otherwise the analysts' limited understanding will generate false assumptions and, thereby, unintended real effects on share prices.
The article discusses the corporate shift toward global financial reporting standards, and what that change will mean to United States businesses. The article states that by 2005, there will likely be only two accounting boards with a dominating influence on global reporting: the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board (IASB). In addition, the article remarks that, as per an agreement reached in 2002, the IASB and the FASB will increasingly work to align their standards.
The theoretical distinction between information efficiency and fundamental efficiency suggests an important question for accounting research, which is whether (and to what extent) there exists an equilibrium mechanism whereby fund managers investment decisions can be fully informed. This question is approached in this paper by means of developing a grounded theory of the market for information. The theory is derived from a (mostly interview-based) empirical analysis of the economic incentives of finance directors, analysts and fund managers with respect to stock market information flows. The evidence suggests a two-part theory. First, it is argued that ‘raw’ data flowing directly from companies is of considerably greater importance to fund managers than ‘processed’ data generated by analysts. Second, analysts are nevertheless argued to play an important role in the market for information, as both mechanisms of information efficiency and as providers of benchmarks for consensus valuation. This theory implies that the research literature has paid insufficient attention to the role of accounting information in direct communication between companies and fund managers and, related to this, that the role of analysts in share price determination has been overstated and only superficially understood.
This paper makes two contributions. First, it demonstrates that income and expenses are incorrectly defined in the IASB's conceptual framework, and it proposes alternative definitions. Second, the paper identifies that, in part as a consequence of these incorrect definitions, and in part because there are two, conflicting concepts of profit in IFRS, there is, first, no definition of profit in the Framework and, second, inconsistency and needless complexity in the concept of profit in IAS 1. The issues raised in this paper contribute to the current IASB projects on the conceptual framework and on financial statement presentation.
This paper addresses an important issue of presentation in the financial statements, namely the distinction between, on the one hand, the obligations and associated flows arising from the provision of finance to an entity ('financing') and, on the other hand, all other activities of the entity ('operating'). This operating‐financing distinction has been wellestablished in the finance literature since the work of Miller and Modigliani (1958, 1961) and is ubiquitous and of considerable importance in practice in financial markets (e.g. Koller et al., 2005; CFA Institute, 2005; Penman, 2006). Yet accounting standards are underdeveloped in this area, and there are gaps and inconsistencies in both IFRS and US GAAP. Drawing upon the distinction between nature and function in the presentation of financial statement information, the paper contributes, first, to enhance our theoretical understanding of the operating‐financing distinction, which is currently defined in different and unreconciled ways in the literature and, second, to propose a practical basis for accounting standard‐setters to determine requirements for the reporting of financing activity in the financial statements.
Income, expenses, gains, and losses with similar informational properties can, in principle, be aggregated and presented as subsets of comprehensive income without losing information. Of particular importance is the splitting of comprehensive income into earnings and all other items. Earnings is typically conceptualized as an aggregation that excludes items that are nonoperating, nonrecurring, or outside management's control. This paper analyzes the concept of earnings and finds that it cannot be defined satisfactorily for the purposes of an accounting standard. The paper proposes an alternative approach to the reporting of financial performance, which provides a useful disaggregation of comprehensive income without attempting to define earnings. This approach is based upon the separate presentation, in a matrix format, of remeasurements, which are amounts resulting from revisions to the carrying amounts of assets and liabilities. This approach is shown to parallel the concept of earnings in its predictive and feedback properties, yet it is also shown to have additional benefits. In particular, the proposed approach has a relatively objective, consistently applied measurement basis, it displays clearly the effects of the mixed attribute accounting model, and it facilitates analysis of the effects of measurement subjectivity on reported financial performance. The analysis in this paper has been discussed extensively by the IASB and is expected, in due course, to form part of an IASB public consultative document.
Asserts that valuation models are not used exclusively to value shares, but that variables such as dividend yield are preferred by analysts to the dividend discount model. Surveys 42 questionnaires from financial analysts, 40 semi-structured interviews with finance directors, 32 with analysts, 39 with fund managers, and undertakes one month's participant observation in an analyst's firm, between 1994 and 1996. Finds out what models they use and what financial ratios. Identifies important information sources for analysts and fund managers, and asks financial directors why they decide on a particular dividend value. Concludes that decisions are short-term and information is used which has a certain payoff; while each group plays games with the others.
Prior research has shown that analysts’ preferred valuation models are the price-earnings (PE) ratio and the dividend yield. This paper presents strong evidence that the relative importance of these two models varies according to stock market sector. Companies in the services, industrials and consumer goods sectors are shown to be ‘PE-valued’ while financials and utilities companies are shown to be ‘yield-valued’. These findings are derived from survey research and then tested in a market-based model. This use of independent, mutually reinforcing research methods contributes to the robustness of the findings.
Problems in financial reporting are often blamed on the rules. In trying to outlaw the system of “smoothing” which covered up many sins the rule-makers have been accused of simply making figures more volatile and less understandable. The author looks at the idea of performance measurement based on the simplicity of a single income statement and explains how it will transform financial reporting.
A symposium at the European Accounting Association (EAA) Annual Meetings on Friday 23 May 2014 in Tallinn, organised by Accounting in Europe and the EAA's Financial Reporting Standards Committee (FRSC), brought together leading respondents to the Discussion Paper and the International Accounting Standards Board to debate the issues surrounding the new Conceptual Framework. This paper reproduces the presentations from the panellists: Mario Abela, Leader, Research and Development, International Federation of Accountants (IFAC); Richard Barker, Saïd Business School, Oxford University & EAA FRSC; Rasmus Sommer, Senior Technical Manager, European Financial Reporting Advisory Group (EFRAG); and Alan Teixeira, Senior Director – Technical Activities, International Accounting Standards Board (IASB). The panel was chaired by Paul André, ESSEC Business School & Editor Accounting in Europe.
We summarise the response of the EAA's FRSC to Towards a Disclosure Framework for the Notes, a Discussion Paper (DP) issued jointly by EFRAG, ANC and FRC. While supportive of much of the DP, and in particular of the underlying aim to place disclosures on a sounder conceptual foundation, we identify two broad themes for further development. The first concerns the DP's diagnosis of the problem, which is that the existing financial reporting is characterised by, on the one hand, disclosure overload and, on the other hand, an absence of a conceptual framework for organising and communicating disclosures. Our review of the literature suggests much greater support for the second of these two factors than for the first. The second broad theme is the purpose of the proposed DF, and the principles that are derived from this purpose. Here, we stress the need for the framework to better accommodate the context within which financial statement disclosures are used. In practice, this context is characterised by variation in information, incentives and enforcement, each of which has a considerable effect on the appropriate disclosure policy and practice in any given situation.
Conventional economic theory, applied to information released by listed companies, equates ‘useful’ with ‘price-sensitive’. Stock exchange rules accordingly prohibit the selective, private communication of price-sensitive information. Yet, even in the absence of such communication, UK equity fund managers routinely meet privately with the senior executives of the companies in which they invest. Moreover, they consider these brief, formal and formulaic meetings to be their most important sources of investment information. In this paper we ask how that can be. Drawing on interview and observation data with fund managers and CFOs, we find evidence for three, non-mutually exclusive explanations: that the characterisation of information in conventional economic theory is too restricted, that fund managers fail to act with the rationality that conventional economic theory assumes, and/or that the primary value of the meetings for fund managers is not related to their investment decision making but to the claims of superior knowledge made to clients in marketing their active fund management expertise. Our findings suggest a disconnect between economic theory and economic policy based on that theory, as well as a corresponding limitation in research studies that test information-usefulness by assuming it to be synonymous with price-sensitivity. We draw implications for further research into the role of tacit knowledge in equity investment decision-making, and also into the effects of the principal–agent relationship between fund managers and their clients.
In this paper we use interview data to explore the 'new shareholder activism' of mainstream UK institutional investors. We describe contemporary practices of corporate governance monitoring and engagement and how they vary across institutions, and explore the motivations behind them. Existing studies of shareholder activism mainly assume that it is motivated by a desire to maximise shareholder value, and we find some evidence both of this and of alternative political/moral motivations related to ideas of responsible ownership. We conclude, however, that in the current situation both these act primarily as rationalisations rather than as genuine motivators. The main driving force behind the new shareholder activism is the institutions' own profit maximisation and the need to position themselves against competitor institutions in the context of political and regulatory changes that have significantly changed the non-financial expectations of their clients.
This paper examines sell‐side analysts’ perceptions of ‘earnings quality’. Prior research suggests that analysts’ stock recommendations, price targets, earnings forecasts and written reports are relevant to share price formation. One of the main inputs in analysts’ forecasting and valuation models is earnings, and analysts’ perceptions of earnings quality are therefore important. There is, however, little direct evidence in the literature on what these perceptions are and on what role they have in decision‐making. This paper seeks first to understand earnings quality as interpreted by analysts, and it then tests this interpretation against its actual usage in analysts’ research reports. An inductive approach is used that combines interview data with content analysis, and the findings are interpreted in the light of findings from market‐based and other research. We find that the concept of earnings quality is both accounting‐based (relating to notions of core or sustainable earnings, cash and accrual components of earnings, and accounting policies) and non‐accounting‐based (relating to information drawn from outside the financial statements). We find more non‐accounting than accounting references to earnings quality, and that (relatively subjective) non‐accounting references are especially widely used where analysts express positive or negative opinions about earnings quality. It is relatively unusual for an analyst's opinion to be both negative and accounting‐ based. If, however, an analyst does express negative, accounting‐based views on earnings quality, then he or she is highly unlikely to be positive in other respects. We interpret this evidence to be consistent with analysts’ economic incentives to generate trading volume yet to be favourably biased towards companies, while seeking to use value‐relevant information relating to earnings. We also conclude that the importance of accounting‐based information relating to earnings quality is more important than it might seem, and that it exerts a significant influence on the analysis and recommendations in analysts’ reports.
The European Accounting Association (EAA) Financial Reporting Standards Committee (FRSC) provided a response to the International Accounting Standards Board's (IASB's) 2013 Discussion Paper (DP) on completing and revising its Conceptual Framework. The response consisted of a literature-based discussion of the issues raised in the IASB paper and responses to the questions asked. The following paper has omitted the responses to specific questions but otherwise sets out the arguments made to the IASB, together with introductory material to indicate the context. The FRSC paper follows the order of the IASB DP.
Government has been pressing one group in civil society - financial institutions - to regulate the behavior of another group - the companies in which they invest. We consider the implications of this and assess the prospects for success, drawing on evidence obtained in our recent study of the preparation, conduct and consequences of regular face to face meetings between fund managers and senior executives.
Fair value measurement (FVM) in IFRS calls for a market-oriented representation of economic ‘reality’, whereby the values attributed to rights (assets) and obligations (liabilities) are in principle determined from the perspective of the ‘market participant’ rather than that of the reporting entity. We argue, however, based upon Searle’s analysis of institutional reality, that such rights and obligations exist and are knowable only under certain conditions, that when those conditions hold FVM is not distinctive, and that when they do not hold the requirements of FVM are wishful and incoherent. Based upon this analysis, and using case study data, we explore how FVM is applied in practice to non-financial assets. We find, for a predominance of core operating assets, that fair value is unknowable, because of the absence of the institutional reality on which the FVM idea implicitly depends. In these cases, actors’ representations of fair value were found to be expedient, unstable and ultimately in direct contradiction of the market participant’s perspective that is ‘wished-for’ in IFRS.
Why discuss accounting in Socio-Economic Review?’
‘Because accounting constructs socio-economic reality.’
‘Theoretically speaking, there should be many ways of doing “account-ing” — an act of explaining business realities to multiple stakeholders of socio-economies. Practically speaking, however, the current trend is to use “Fair Value Accounting” which is considered to be useful particularly for investors, and this is now being globally standardized.’
‘What are the impacts of such new accounting on wider stakeholders and on the socio-economy at large?’
‘Many aspects of our life may have been undemocratically administrated without being noticed, because the Fair Value Accounting is presumed to be fair, while it is not.’
In order to promote discussions over how our socio-economies should be accounted for, this paper introduces, in a reader-friendly manner, problems of the International Accounting Standards (IAS) and the International Financial Reporting Standards (IFRS)1, and calls for diverse perspectives of future research.
We draw on a series of in-depth interviews with senior managers from institutional investors and large listed corporations to explore how different conceptualizations of institutional investors, their role in the corporate governance process, and their interactions with corporate management, are reflected in the accounts of the actors concerned. We find that the conceptualizations in terms of ownership and agency that dominate both academic and popular discourses are marginal to the actors’ accounts. Rather, both fund managers and company managers conceptualize institutional investors primarily as financial traders who happen, as a result of their trading, to control key resources, but whose interests are effectively divorced from those of long-term share owners. Our analysis suggests that far from being mitigated by the large share blocks of institutional investors, as some commentators have suggested, the separation of ownership from control has been compounded in the UK by a separation of accountability from responsibility, with the interests of the institutions holding managers accountable being quite different from those of the owner-beneficiaries to whom they feel responsible. This raises significant challenges for corporate governance policy as well as new issues for research into the governance process.
Purpose - To find out how UK investment analysts use valuation models.
Design/methodology/approach - Cites prior studies using residual income and discounted cash flow (DCF) models, while proposing to interview analysts. Combines content analysis of 98 equity reports by investment bank analysts between 2000 and 2003, and 35 structured interview responses (in the form of Likert scales) about what models they use, why they use them and how.
Findings - Finds that analysts prefer DCF to accruals-based methods, and combine it with price to earnings ratios. Notes they have many reasons for choosing this model, but it is most heavily used on IT and media firms. Adds a distinct preference for DCF among buy-side analysts.
Research limitations/implications - Proposes setting up the discipline of 'sociology of financial accounting'. where sell-side analysts interact with fund managers.
Originality/value - Uses a direct approach to the questgion of how accounts are used by third parties.
Purpose ‐ The purpose of this paper is to explore the relationship between management controls and the work-life balance (WLB) of junior accountants working in four multinational accounting firms using semi-structured interviews. Design/methodology/approach ‐ The authors interviewed junior accountants, asking them about their firms' time budgeting process, their views on organisational culture and their experience of WLB. Findings ‐ Time budgeting controls and the dominant discourses of "efficiency" and "career" form a web of control within these firms that sustain the long-hours culture. Drawing on the work of Foucault, the authors argue that the web of control is particularly strong because it is not imposed externally by a clearly identifiable source of power. Instead, the interviews revealed how junior accountants actively produce the web of control in order to secure their identity. This is particularly apparent when they speak of their career. Research limitations/implications ‐ This research sheds light on the relationship between management controls and WLB. Management controls are effective in large multinational accounting firms because they work through the emergent identity of young professionals. Originality/value ‐ The link between management control systems and WLB has received little attention from accounting academics. This research offers important insights into the way management control systems and organisational culture may impact the lived experience of WLB within multinational accounting firms.
Purpose - To explore the effects of meetings between company executives and fund managers.
Design/methodology/approach - Recognizes the increasing importance of these face-to-face meetings, reviews relevant research and draws on information from interviews with finance directors and investor relations managers from 13 FTSE 100 companies (part of a larger study) and observations of meetings to assess their effects. Applies Foucault's ideas on the indivisibility of the power/knowledge nexus to look at information and control impacts of these meetings on investors and directors.
Findings - Meetings are an exercise of disciplinry power and acknowledge the rights of shareholders to monitor managers' performance and to hold them accountable. Executives see them as an opportunity to influence investors' perceptions, take great care to prepare for them and focus mainly on explaining company strategy. They may be forced to symbolize shareholder value but this gives them added power to speak for the shareholder within the business and thus affect strategy. This is reinforced by the increased use of performance-related pay and options.
Research limitations/implications - More work is needed and promised on the influence of fund managers.
Originality/value - Reflects on the personal and corporate impact of company/fund manager meetings.
Using a sample of listed French firms in 2005, the year of mandatory IFRS adoption in the European Union (EU), we investigate the determinants of disclosure compliance of stock option expenses under IFRS 2, Share-based Payment. Stock options are a popular means of executive compensation in France relative to other EU countries. Prior to 2005, French accounting standards and corporate governance regulations did not require recognition of option expense amounts and required minimal supplementary disclosures. There was also a perception that enforcement was imperfect, in particular with respect to IFRS 2. Given this setting, we explore what factors influence the willingness of firms to follow compulsory IFRS requirements in a weak regulatory setting. We find that overall compliance with IFRS 2 disclosure requirements increases with U.S. and U.K. institutional ownership, U.S. cross-listing, provision of English language statements, and decreases with CEO and family ownership of the firm. We also investigate how stock market prices are affected by the recognition and disclosure of stock option expenses according to IFRS 2 in this regulatory setting and find that investors value option expenses positively, particularly when accompanied by high-disclosure compliance. Our findings have implications for other jurisdictions in the process of adopting or converging to IFRS.
This paper analyzes whether fund valuations produced by private equity managers are biased predictors of future discounted cash flows (DCF). Our research is based on an extensive set of timed cash flows and reported net asset values (NAVs) that relates to 483 funds spanning 1988-2011. Using an ex ante lens, we find that, on average, reported NAVs converge on the future DCF early in the life of the fund. This result is particularly interesting to investors for whom unbiased asset valuations are important in keeping portfolios optimally allocated. In addition, findings indicate that although NAVs generally are more conservative in the first half of our sample period, NAVs for venture capital funds tend to overstate economic value after 1999 following the bursting of the tech bubble. We also find some evidence that private equity managers of funds that perform less well use their discretion over asset valuations to keep asset values high during fundraising periods, as well as at the end of the fund life, which can result in higher management fees.
This research describes the findings from an interpretive case study that explores the interplay between social computing (SC) and enterprise systems (ES). A fundamental shift is evident in how organisations become more effective through the adoption of SC capabilities. As process centric ES continues to pose challenges, an SC inspired, people-centric ES has become a medium for efficient interaction and collaboration across the divisions of an organisation. In this organisational reality, we explore the role of virtual co-presence of users on collaboration in ES.
Our findings indicate that virtual co-presence enabled interactions, when focused and sustained over time, could facilitate collaboration for sharing of knowledge. An understanding of how users interact in mediated encounters contributes to our knowledge of how focused interactions may enable collaborations in ES. By drawing on the findings, the research seeks to outline some implications for the practice of a collaborative ES for the contemporary organisations.
This paper investigates the impact of social media interactions on the use context of enterprise systems (ES) at a global telecommunications company based in Europe. We conducted a detailed field study of users in three countries who execute tasks collectively using social media capabilities within their ES. The findings provide rich insights into these social media interactions, their influence on ES users' sense of ‘presence’ and their impact on the completion of tasks. Our key research contribution is to introduce the idea of ‘virtual co-presence’ as a means of understanding the digitally mediated presence of ES users. In addition, we demonstrate how virtual co-presence and the relationships afforded by social media shape ES users' interactions and collective completion of tasks in a dispersed work context. Drawing on the insights gained from the effect of virtual co-presence on ES users, the paper outlines some implications for the theory and practice of collective work in ES use.
This is a case study of the dissemination of internationally standardized accounting to a nation where standardized accounting was hitherto only loosely practised under domestic conditions. Soon after World War II, a growing interest in socio-economic management, rather than microeconomic or corporate financing, accelerated the implementation of standardized accounting in Japan. In order to make unintelligible delineations of the economy and its constituent firms comprehensible, official and governable, both national and corporate accounting came to occupy an important position as a formal mode of economic data and management. The actors were the officials of the Allied Powers, economic statisticians and academic accountants; whose motives, political manoeuvres and consequences are here reconstructed based on the primary archives of, and interviews with, those who were directly involved in this revolution. The revolution
directed new courses of the Japanese economy and firms through the development of ‘‘statistical habits of
thought’’. In order to clarify the relevance of this history to today’s international accounting issues, a few comparative references are also made to the recent development and implementation process of International Accounting Standards and International Financial Reporting Standards (IAS/IFRS).
The new accounting research has been devoted to illuminating the social and constitutive aspects of accounting. This has been done, however, in many cases, in the setting of micro managerial accounting. The effects of financial and macroeconomic accounting on modern economic society have not been examined in depth from an epistemological and critical viewpoint. This article attempts to develop a hypothesis that financial accounting (particularly, that of macro economic entities) has been centrally implicated in the process through which economic ideas and economic management have become ubiquitous in modern society. Accounting's power and the reason for its steady growth are sought in its various formalities rather than its representational capacity. Several factors that are considered to constitute the formalities form a self-perpetuating apparatus that facilitates the prevalence of accounting in modern economic society.
A variety of Impact of International Financial Reporting Standards (IFRS) was analysed in 140 pages
Despite the fact that the concept of the “macroeconomy” first emerged after the 1930s, only becoming prevalent after the 1950s, macroeconomic terms are ubiquitous today. Historians refer to the Keynesian Revolution as the origin of the macroeconomic revolution. This paper addresses the revolution from an accounting point of view, and argues that the prevalence of the notion of the macroeconomy and the widespread of economic management of modern society originate partly from the movement of accounting expressionism that is the social construction of official economic reality in an accounting framework. The development history of British national accounting is of central importance to the development of macroeconomics. This paper integrates the abstract theme of social constructivism with concrete evidence from recently available archives of Keynes, Stone, Meade and Bray.
Immediately after WWII, unlike statisticians’ reforms, accountants failed to establish the Cabinet-controlled
Accounting Committee and Accounting Law which were originally envisaged as the key to successful “Accountics”: the management of the socio-economy through standardized accounting (Part I). Nevertheless, July 1948 is regarded as the beginning of Japan’s accounting revolution, as academic accountants accomplished a series of fundamental reforms.
Part II examines the process through which micro financial systems were swiftly developed as a microfoundation of the
new “democratic” socio-economy. First, academics implemented new accounting for large companies in order to dilute the Zaibatsu- and Imperial-centred regime; followed by censored and standardized accounting education for SMEs and the public in order to change the public perception of the roles of businesses in society. The foci of examination are the political manoeuvres of reformers, the consequences of new accounting, and pragmatic philosophy of the academics in action. Towards the end of the paper, some implications of this history are considered in relation to the impacts of the IAS/IFRS on today’s international socio-economy.
Financial reporting often creates new realities rather than merely reflecting reality. How, then, would the globalization of International Financial Reporting Standards (IFRS), as a specific mode of presenting reality, affect our markets? Drawing on fair value accounting instead of traditional historical cost accounting, IFRS makes the business realm and society amenable to financialisation. This process of converting real markets into tradable components, particularly by the private sector, may not contribute to sustainable market growth. This paper introduces three case studies to illustrate the significant impact IFRS makes on real sector markets. These consequences would in turn affect financial markets in the long term.
This paper aims at understanding the recent evolution of Chinese accounting standards while focusing on accounting for business combinations as a case of reference. A comprehensive comparative analysis between the standards of the International Accounting Standards Board and Chinese accounting standards is provided, based upon a dualistic approach towards two opposing perspectives of accounting, static (fair value) and dynamic (matching based). The comparison casts doubt on the ultimate convergence of Chinese and international accounting standards. Main differences remain and are explained by taking into account: (i) the special Chinese context, (ii) the massive industrial development experienced by business enterprises in China and (iii) the dynamic accounting perspective that leading accounting theorists and Chinese regulatory authorities agree with and wish to encourage.