http://repub.eur.nl/res/concept/jel-M41/ Recent publications classified by JEL Code M41 en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/37373/ 2012-10-05T00:00:00Z Management accountants are choice architects: they provide information that is used in managerial decision making and they have considerable influence on the monetary and non-monetary incentives that drive managers’ decision-making processes. Over the past two decades, our know - ledge of how people make economic decisions has increased tremendously. However, this has had only very little impact on the design of management accounting and control systems in organizations. Consequently, management accounting is (again) at risk of becoming irrelevant. To secure its relevance, management accountants need to become aware of their role as choice architects and need to develop into professionals whose core competence is to provide insight into quantitative information as a product of human decision making and, vice versa, to explain and predict decision-making behavior as a response to quantitative information. Academic management accounting research should facilitate this development. How this can be done is illustrated using three examples of practically relevant research areas: subjective performance evaluation, internal transparency and the design of the control function in organizations. Maas, V.S. http://repub.eur.nl/res/pub/34710/ 2012-07-11T00:00:00Z Earnings forecasts can be useful for investment decisions. Research on earnings forecasts has focused on forecast performance in relation to firm characteristics, on categorizing the analysts into groups with similar behaviour and on the effect of an earnings announcement by thefirm on future earnings forecasts. In this paper we investigate the factors that determine the value of the forecast and also investigate to what extent the timing of the forecast can be modeled. We propose a novel methodology that allows for such an investigation. As an illustration we analyze within-year earnings forecasts for AMD in the period 1997 to 2011, where the data are obtained from the I/B/E/S database. Our empirical findings suggest clear drivers of the value and the timing of the earnings forecast. We thus show that not only the forecasts themselves are predictable, but that also the timing of the quotes is predictable to some extent. Bruijn, B. de Franses, Ph.H.B.F. http://repub.eur.nl/res/pub/37375/ 2012-06-29T00:00:00Z Is Financial Accounting too practical for research? I was recently asked this question during an interview, and it surprised me. Why would it be too practical for research? Can we only conduct research on topics that are not related to practice? Or is it not clear what Financial Accounting is really about, and that it is more than bookkeeping? Using examples of recent research, I show why Financial Accounting is certainly not too practical for theory. The question whether Financial Accounting research is too theoretical for practice is a more challenging question. Can we do quality research within the field of financial reporting and is this research relevant to business? Does our research have any societal relevance in the current dynamic environment? I conclude that Financial Accounting research is certainly relevant, but that the accounting professional active in the business community only benefits to a very limited extent. In addition, I discuss two initiatives, namely the Ernst & Young Academic Network and the Erasmus Marketing & Accounting Research Center that will prevent us from conducting research that is too theoretical for practice. Pronk, M. http://repub.eur.nl/res/pub/31986/ 2012-06-01T00:00:00Z This paper examines the effect of Sarbanes-Oxley provisions on 10-K filing delays. We find that tightened filing deadlines for accelerated and large accelerated filers are not associated with changes in the incidence of late filing. While Section 404 compliance does not affect filing timeliness for firms with effective internal controls, we find that about half the firms disclosing internal control weaknesses are late filers. As a consequence, many Section 404 material weakness firms experience negative abnormal returns around late filing notifications before filing the 10-K. Lastly, we find that market reactions to late filing notifications are more negative when management provides no meaningful explanation for the delay, consistent with managers' incentives to withhold bad news. Impink, J. Lubberink, M. Praag, B. van Veenman, D. http://repub.eur.nl/res/pub/32160/ 2012-01-27T00:00:00Z We use earnings forecasts from a cross-sectional model to proxy for cash flow expectations and estimate the implied cost of capital (ICC) for a large sample of firms over 1968-2008. The earnings forecasts generated by the cross-sectional model are superior to analysts' forecasts in terms of coverage, forecast bias, and earnings response coefficient. Moreover, the model-based ICC is a more reliable proxy for expected returns than the ICC based on analysts' forecasts. We present evidence on the cross-sectional relation between firm-level characteristics and ex ante expected returns using the model-based ICC. Hou, K. Dijk, M.A. van Zhang, Y. http://repub.eur.nl/res/pub/31571/ 2011-11-01T00:00:00Z Customer‐centric strategy firms need to focus on forward‐looking indicators and ensure a synergistic relationship between decision rights, performance measurement, and reward systems. Bonacchi, M. Perego, P.M. http://repub.eur.nl/res/pub/32937/ 2011-10-21T00:00:00Z Fair value estimates of debt and equity securities play an increasingly important role in the economy. For example, International Financial Reporting Standards require companies to report many of their investments at fair value on the balance sheet or to use fair values in goodwill impairment tests. Further, the funding status of pension plans is typically assessed as the difference between the fair values of pension plan assets and pension plan commitments. In many of these situations the use of fair value estimates results in economic decisions being dependent on valuation. That is, fair value adjustments to the carrying amounts of banks’ investment portfolios affect their regulatory capital, forcing them to restructure their assets and liabilities in some extreme cases. Similarly, the fair value of pension assets affects decisions on pension funding, premiums and payouts. Although the exact use and implications of fair values may vary across these examples, what they have in common is that they stress the importance of having available accurate fair value estimates. Commonly, regulators and standard setters such as the International Accounting Standards Board express a strong preference for using quoted market prices as the basis for fair value, seemingly focusing on the reliability of fair value estimates. In this inaugural address, I discuss such use of market prices in measuring fair values and benchmark the price-based approach against fundamental valuation approaches, such as multiples-based and full-information-based valuation. I also reflect on the dominance of market prices and returns in business risk measurement, as used, for example, in practical applications of the capital asset pricing model, and discuss why a risk measurement approach that makes use of fundamental (accounting) information could serve as a useful alternative or complement. Peek, E. http://repub.eur.nl/res/pub/22199/ 2010-12-01T00:00:00Z This study examines the liability hedging characteristics of both direct and indirect real estate with the advent of fair value accounting obligations for pension funds. We explicitly model pension obligations as being subject to interest and inflation risk to analyze the ability of real estate investments in hedging the fair value of pension liabilities and to quantify its role in an asset liability management (ALM) portfolio. We find that the portfolio composition differs depending on the definition of liability return. When liability returns solely follow actuarial changes, the mean-variance efficient portfolio allocations toward direct real estate and fixed income decrease compared to the asset-only optimization. When accounting for nominal liability obligations, real estate offers hedging benefits against interest rates for short holding periods but not for long-term institutional portfolios. The inclusion of inflation risk renders a limited role for direct real estate in an ALM portfolio, while indirect real estate obtains no allocation. Inflation is at the heart of the discrepancy between reported and predicted pension plan allocations. Once accounting for inflation, the projected allocations come close to reported ones. Brounen, D. Porras Prado, M. Verbeek, M.J.C.M. http://repub.eur.nl/res/pub/20739/ 2010-09-01T00:00:00Z This discussion provides several explanations for the evidence presented in Balachandran and Mohanram (2010) that are consistent with efficient contracting. I also show that—contrary to the suggestion of the title—CEOs do not benefit from value destroying growth in earnings. Finally, I argue that there is no conclusive evidence that corporate investments destroy value. Dittmann, I. http://repub.eur.nl/res/pub/21587/ 2010-09-01T00:00:00Z The practice of reporting earnings measures that deviate from generally accepted accounting principles (non-GAAP measures) has received negative attention in the media. In a period of increased regulatory concern for these reporting practices, we explore whether there has been a shift away from the use of non-GAAP metrics. This study focuses on the Dutch situation, where regulators responded conservatively (‘light’) to the accounting scandals. This contrasts with the U.S., where regulators intervened with a radical (‘heavy’) reform of regulation. We analyse a sample of earnings press releases published in the period 2000–05 from companies listed at Euronext Amsterdam. Our findings indicate that Dutch companies report non-GAAP measures frequently and prominently. However, companies' reporting behaviour changes after a peak in negative media attention for non-GAAP reporting. The magnitude of the adjustments to GAAP earnings becomes smaller and companies seem to have different reasons to report non-GAAP measures. The effect of the media attention is stronger when companies have been criticized for their non-GAAP reporting in the press. Investors seem to have become more hesitant towards the use of non-GAAP measures for their decision-making after negative media attention. Together, these findings suggest that the negative media attention for non-GAAP measures has influenced the decisions of investors and managers Koning, M. Roosenboom, P.G.J. Mertens, G.M.H. http://repub.eur.nl/res/pub/17700/ 2010-01-04T00:00:00Z Several management accounting studies have investigated the behavioural impact of evaluative style, a concept that generally refers to the manner in which supervisors use accounting information to evaluate the performance of subordinates. Although most studies study this behavioural impact at the individual level of the subordinate, the term “evaluative style” suggests that evaluative behaviours and attitudes of single supervisors will show (some) consistency across subordinates. This paper investigates whether “evaluative styles” exist by examining within-group and between-group agreement in evaluative behaviours by subordinates reporting to the same supervisor. The findings from two empirical studies indicate that evaluative behaviours in both organisations show both within-group and between-group variability. These findings suggest that evaluative behaviours of supervisors are more appropriately analysed at the level of individual subordinates than at the level of groups, although a dyadic level of analysis should be considered as well. An implication of these findings is that the concept of “evaluative style” is misleading. A suggestion is made to use the term “evaluatorship” instead as an umbrella concept to refer to evaluative behaviours and attitudes of supervisors at different levels of analysis in future research. Noeverman, J. http://repub.eur.nl/res/pub/31623/ 2010-01-01T00:00:00Z Abstract: We examine financial analysts’ views on corporate financial reporting issues by means of a survey among 306 analysts and interviews among 21 analysts and compare their views with that of CFOs. Since CFOs believe that meeting or beating analysts’ forecasts and managing earnings to achieve this benchmark can enhance firm value, examining analysts’ perspectives on these actions improves our understanding on whether CFOs’ beliefs are rational or heuristic. Our findings suggest that CFOs’ beliefs tend to be rational regarding their focus on earnings and their views on earnings management and smoothing. The main reason is that analysts have difficulty in unraveling certain types of earnings management in a specific firm even though they anticipate earnings management in general. Yet, CFOs are heuristic in their optimism about the consequences of managing earnings, which potentially has negative implications for the value of their firm. Jong, A. de Mertens, G.M.H. Poel, A.M. van der Dijk, R. van http://repub.eur.nl/res/pub/33057/ 2010-01-01T00:00:00Z Abstract: We investigate management forecasts by Dutch firms in relation to cross listings by these firms in the US or the UK. Cross listings are associated with legal and reputational bonding, since firms with a cross listing in the US or the UK face greater legal liability exposure and closer scrutiny by financial intermediaries than do non-cross-listed firms. As a result, after obtaining the cross listing, these firms face greater potential costs of misrepresenting information. Our findings suggest that cross listing in a stricter environment influences management forecasts in terms of management forecast specificity, accuracy, and conservativeness in two opposite directions: although cross-listed firms make smaller forecast errors, their forecasts are less precise and more conservative. Our analysis of shareholder wealth effects shows that the net effect of the cross listing is positive upon the announcement of a management forecast. Jong, A. de Mertens, G.M.H. Poel, A.M. van der http://repub.eur.nl/res/pub/17346/ 2009-11-26T00:00:00Z Earnings management to avoid earnings decreases and losses implies that the time series properties of the last quarter in the fiscal year differ from those of the other three quarters. We propose a simple parametric methodology to diagnose such differences. Application to a random sample of 390 firms in the Compustat database gives strong evidence of earnings management. Fok, D. Franses, Ph.H.B.F. http://repub.eur.nl/res/pub/16098/ 2009-06-16T00:00:00Z The primary objective of financial statements is to provide capital market participants with information that enables them to make informed decisions. They also serve to alleviate the so-called ‘agency problem’ – through true and fair disclosures, financial statements contribute to keeping the interest of outsiders (shareholders) aligned with those of the insiders (executives). Material errors, however, will render these financial statements unreliable and can cause great uncertainties to investors and other stakeholders. Subsequent correction of these errors – restatements – often leads to the following question: Can management still be trusted? And subsequently: Where were the gatekeepers? The avalanche of accounting scandals a few years ago, coupled with the current global credit crises, reiterate that our knowledge of corporate governance failures needs continuous upgrading. This dissertation contributes to understanding why the watchdogs did not bark, and also dissects how common human biases affect the mechanisms of corporate monitoring roles, in particular during restatement crises. Three connected studies were conducted. A first qualitative study develops a model for gauging restatement severity and provides insight into the forces blurring the 20/20 vision on restatement situations. A second quantitative study is the first study to comprehensively elicit analysts’ perceptions of CEO pressures and behaviours during restatements. A third study corroborates our findings through in-depth interviews with analysts. Combined the studies show that bounded awareness and common human biases heavily influence functioning of executives and gatekeepers in safeguarding corporate reputation during restatements. Gertsen, H.F.M. http://repub.eur.nl/res/pub/16097/ 2009-06-12T00:00:00Z This dissertation aims to contribute to the literature about the quality of accounting information by investigating its interaction with institutional factors (i.e., their external environment) in which firms operate, such as industry and stock exchange. The research topics of this dissertation include the motivation of earnings management (chapter 2), the consequence of accounting frauds on the failure rate of IPO firms (chapter 3) and the effectiveness of actions taken by standard setters to improve the quality of accounting information (Chapter 4). Chapter 2 focuses on firms’ industry environment and investigates whether industry valuation impacts management’s decision to manage earnings. Chapter 3 has been devoted to examine the consequence of large scale earnings management or accounting scandals on the firm’s external environment. Chapter 4 examines whether the uniform adoption of IFRS by EU countries in 2005 improves the quality of accounting information by investigating the changes in the quality of analyst forecasts. Jiao, T. http://repub.eur.nl/res/pub/15654/ 2009-02-24T00:00:00Z This study assesses the influence of client gender and auditor gender on auditors' judgments. In an experimental task, a client offers unverified explanations as to why the auditor's initial proposed adjusting journal entry (AJE) to lower the inventory value should not be recorded. The design includes one randomly manipulated variable (client gender: male or female) and one measured variable (auditor gender: male or female). The dependent variable assesses the influence of the client's explanations on the auditor's final proposed AJE recommendation. The results indicate that both male and female auditors exhibited a male favorability; that is, they were persuaded more by a male than female client to change their initial AJE recommendation. Furthermore, female auditors were more influenced by a male client and less influenced by a female client than male auditors. Using an expert panel's consensus opinion as a benchmark for the “best” solution, the male auditors were more accurate than female auditors, irrespective of client gender. Additional research will aid in substantiating, determining the limits, and generalizing the findings. Gold-Nöteberg, A.H. Hunton, J.E. Gomaa, M.I. http://repub.eur.nl/res/pub/11687/ 2008-03-17T00:00:00Z We investigate how the strictness of a requirement to consult on potential client fraud affects auditor assessments of fraud risk and the propensity to consult with firm experts. We test two specific forms of guidance about fraud consultations: (1) relatively strict (i.e., mandatory and binding) and (2) relatively lenient (i.e., advisory and non-binding). We predict that a strict consultation requirement will lead to greater propensity to consult and higher fraud risk assessments. We further investigate potentially amplifying effects of a client attribute (underlying fraud risk) and an engagement attribute (deadline pressure). Results from two experiments with 208 Dutch audit managers and partners demonstrate that fraud risk and the consultation propensity are both assessed higher under a strict consultation requirement. For near-partners and partners, this effect is compounded when a client exhibits significant red flags; for managers, it is compounded when deadline pressure is tight. This study demonstrates that the formulation of a standard, such as the consultation requirement, may create adverse incentives that bias risk assessment, which should be considered by regulators and audit firms when developing, formulating and implementing such procedures. Gold-Nöteberg, A.H. Knechel, W.R. Wallage, P. http://repub.eur.nl/res/pub/10869/ 2007-12-21T00:00:00Z Organisations develop and implement performance measurement and performance evaluation systems to motivate employees to take actions that -in the end- improve organisational (financial) performance. But do these systems really influence employee behaviour as intended? This thesis shows that to answer that question not only the design of the system should be considered, but also the manner in which managers within an organisation use the system. This book describes a study on the influence of evaluative style of leaders on subordinates’ behaviour. Evaluative style refers to the manner in which a leader evaluates the performance of subordinates, controlling for the specific design of the performance evaluation system and the broader organisational context. This study improves our understanding of the concept of evaluative style by defining evaluative style, similar to leadership style, as a (behavioural) characteristic of leaders. The study also improves our understanding of the influence of evaluative style on subordinates’ behaviour. A literature review first reveals six topics that help improve this understanding. Subsequently, these six topics are investigated in an empirical study at Van den Bergh Netherlands (VDBN) that involves twelve leaders and their subordinates. The findings show that different evaluative styles exist within VDBN. These styles influence subordinate’s trust in superior and perceived fairness of evaluation, but no effect is found on functional (learning) or dysfunctional behaviour. These findings are context-specific and cannot be generalised outside the context of VDBN. However, the six topics and the way in which these topics have been investigated within a specific organisational context can be generalised and are relevant for future research. Noeverman, J. http://repub.eur.nl/res/pub/10608/ 2007-10-25T00:00:00Z This paper investigates whether industry valuation impacts firms’ earnings management decisions. Existing accounting literature assumes that industry valuation has a constant impact on this decision. We argue that a higher industry valuation increases the perceived benefits of earnings management at a time when the negative consequences associated with accrual reversal and the probability of detection are believed to be lower. Using a sample of quarterly data of U.S. firms from 1985 to 2005, we find that the four-quarter lagged industry valuation has a positive relationship with industry aggregate (current) discretionary accruals. More specific, one standard deviation increase in the aggregate industry valuation is associated with a significant increase of 2.4 cents in quarterly earnings per share. Our results are robust after controlling for several factors, including bubble years, size, leverage and performance. Jiao, T. Mertens, G.M.H. Roosenboom, P.G.J.