18 Other Accounting Issues

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    The Dark Side of CEO Networks: Evidence from Real Activities Management
    ( 2019-09-03) Griffin, Paul ; Hong, Hyun ; Ryou, Ji Woo
    Abstract We examine the relation between CEO network size and the level of real activities management (RAM). Using the number of social connections to outside executives, directors, and others in similar positions to measure network size, we find that well-connected CEOs associate with higher levels of RAM. Social science theory suggests that this occurs because well-connected CEOs can acquire more information from their social networks to implement RAM effectively. The power and influence and labor market insurance from a large network also reduces the private cost of RAM. Supporting these two channels, we find a stronger positive relation between RAM and CEO network size when the CEO connects with more informed and influential persons and has more reputation to protect in the labor market. In addition, the positive relation concentrates in firms with low CEO share ownership, where a more severe misalignment of interests can occur. We also show that higher but not extreme levels of RAM from a large CEO network degrades the firm’s long-term operating performance, suggesting that large CEO networks have a darker side for firm value.
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    Opportunistic earnings management or performance-related effects? Evidence from dividend-paying firms
    ( 2019-08-31) Espahbodi, Reza ; Liu, Nan ; Weigand, Rob
    We propose that much of the variation in standard accruals and real-activities earnings management metrics can be explained by firms' performance trajectories. We test our proposition using dividend change as a natural setting that distinguishes high from low performance trajectory firms. Consistent with our proposition, we find that standard earnings management metrics have a stronger relation with performance trajectories than unexpected earnings at which firms' earnings management activities are supposedly targeted. Additionally, we find that firms with higher values of earnings management metrics, i.e., firms that appear to manage earnings to a greater extent, are more likely to increase their dividends; and standard earnings management metrics are unimportant in explaining changes in firm value around dividend change announcements. These results are consistent with the notion that applying standard earnings management metrics without taking performance trajectories into account can result in researchers mistaking managers' efforts to increase firm value with evidence of earnings management.
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    Capital Structure of Special-Purpose Entities
    ( 2019-08-30) Hermis, Judith ; Eger, Robert
    A novel integration of public and corporate financial theory is used to model capital structure in governmental special purpose organizations. The expectation is that given observed similarities to corporate structure, including managerial objectives, these organizations will display evidence of an intergovernmental pecking order approach to capital structure. The censored probit method suggests that special purpose entities follow an intergovernmental pecking order of capital structure, with correct classification in excess of eighty-nine percent. The results support a direct link between intergovernmental revenue and the capital structure of the organization, providing insight into the tie between managerial costs and benefits for these governmental organizations.
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    Geographic Location and Accounting Choices: Evidence from Managers’ Earnings Management Decisions
    ( 2019-08-30) Huang, Xuerong ; James, Hui ; Tiras, Samuel
    This study investigates the relation between firm geographic location, i.e., urban vs. rural, and managers’ earnings management choices. Adopting multiple definitions of urban and rural firms, we consistently find that compared to rural firms, urban firms are less likely to use production-related real earnings management while more likely to use accrual earnings. In addition, we find that firms’ urban location reduces the positive impact of both firm complexity and Sarbanes-Oxley (SOX) on managers’ decisions of using real earnings management. Overall, this study suggests that urban firm managers reduce the use of value-destroying real earnings management because (1) investors possess greater familiarity towards urban firms, and (2) more investors are readily accessible to urban firms’ soft information. In additional tests, we focus on a subsample of earnings management suspect firms and find that managers’ tradeoff decision of these two earnings management strategies is conditional on firms’ geographic locations.
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    How to Identify Effective Supervisors: The Validity of Rating Discrimination for Measuring Supervisory Skills
    ( 2019-08-30) Judith Künneke
    This study develops and validates a theory-based measure of supervisory skills. Supervisors are the linking pin between the firm and its employees, and therefore play an important role for organizational performance and success. Clarifying performance standards, monitoring subordinate performance, and providing accurate performance evaluation enable effective supervision that is beneficial to the subordinate, and eventually organizational performance. I argue that rating discrimination, that is, the variation in the ratings a supervisor provides, reflects the extent to what a supervisor is able to fulfil her supervisory responsibilities effectively, or in short, her supervisory skills. By validating this measure in different contexts, I enable research and practice to use an easily comprehensible and measurable proxy for supervisory skills for research and personnel-decision purposes.
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    Foreign Corrupt Practices Act: Bribery in the Cultural Context.
    ( 2019-08-29) Williams, Tomeika
    From as early as 1977 we have witnessed the progression of corruption within corporations and even more significant progress in the combat against corruption with the enactment of multiple legislation's such as the Sarbanes-Oxley Act of 2002 and more relative to this study, The Foreign Corrupt Practices Act of 1977. FCPA compliance has several issues within multi-national corporations ranging from import and export issues, lack of transparency in international trade laws and bribery with improper payments to government officials, employees, and third-party professionals. Beginning with summarizing the literature about the concept of bribery, the scope, and factors of the Foreign Corrupt Practices Act of 1977, there is focus on the current compliance enforcement metrics from the start of enactment to the present day. In the next section, the theoretical framework outlines moral relativism and how it is more definitive of describing corruption. This paper includes a summary of trends in FCPA violations as reported by the Securities Exchange Commission and the United States Department of Justice over the last five years since the Bribe payers index in 2011. The countries that are included in the index and match the Corruption and Bribe Payers Index and how the enforcement should exist in the future are assessed. The purpose of this paper is to define bribery and connect cultural context to the FCPA cases in violation from 2014 to 2018.
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    Marijuana: Legalization and Sin Taxes; Opinions of US Accountants
    ( 2019-08-27) Stanley, Charles
    ABSTRACT As 2016 marked a political election year in the United States and major elections are approaching in 2020, the topic of the legalization of cannabis (also known as marijuana) is a major political theme. Although some states have already legalized the drug, it still has not been federally legalized. Currently, thirty-three states have legalized the drug for medical purposes, while only four states had permitted the recreational use of it (State Marijuana Law Maps) prior to the 2016 election. The first four states include Alaska, Colorado, Oregon, and Washington. Since the 2016 election, six more states have passed resolutions by the voters to legalize marijuana for recreational use, including California. As speculations about the potential outcomes of permitting usage of the drug become more outwardly expressed, people will create their own beliefs on the matter. In addition, proponents for the legalization of marijuana have touted it as a sustainable agricultural product. However, there are also some serious political, social, and economic sustainability issues that continue to plague the product. People have different viewpoints on the legalization of marijuana. It is not a topic that is easily discussed. However, it is a practical discussion to have. In addition, as acceptance of marijuana continues to grow, sustainability becomes an important component of the discussion Legalization will only happen if people voted in favor of the legalization of marijuana. College aged students, 18-25 year olds, make up approximately 15.5 percent of the voting community (McDonald). This voting block becomes important for upcoming elections as candidates are trying to pull in voters with their stance on certain policies. In the 2016 U.S. election primaries, Democrat candidate Bernie Sanders mounted a very strong president campaign. Much of his support came from college students. If candidates knew how to effectively appeal to the college student population, they would be able to attract more votes. However, it is the older voters that will ultimately decide the issue. The purpose of this study is to determine how US accountants feel about the legalization of marijuana and the sustainability issues of marijuana. In order to determine how these US accountants feel about marijuana legalization and sustainability, a survey of AICPA members was used. This survey was mailed to a random sample of AICPA members. The responses indicate that many millennials are more accepting of marijuana, or 'pot', than previous generations and see some of the sustainability advantages that marijuana offers. However, the responses do indicate that these accountants cannot be treated as a single group but has much diversity. In addition to the above, this paper will look at the potential benefits of revenues generated through marijuana if the drug were legalized as well as the costs of the legalization of marijuana. In turn, these benefits and costs associated with marijuana also affect the sustainability issues that surround marijuana. Besides the political issues involving marijuana sustainability, there are issues that are social, environmental, medical and marketing.
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    Is Accounting a Miserable Job?
    ( 2019-08-26) Madsen, Paul ; Piao, Jeffery
    Popular culture portrays accounting as a miserable job. Accounting research evaluating the boring “beancounter stereotype” argues that it is wrong and costly because it reduces the appeal of accounting to high quality students and exacts a psychological toll on accountants who are thus stereotyped. In this study, we empirically test the basic question: is accounting a miserable job? We use data from a variety of sources that enable us to measure workplace misery and model it as a function of work tasks and personal characteristics of workers across occupations. We find that accounting work is particularly sedentary, rigid, repetitive, constrained, and rules-centric; characteristics that are consistent with the accounting stereotype and that prior work outside of accounting has shown are associated with workplace misery. However, we find that accounting is not a miserable job. In univariate and multivariate tests, we find that accounting has misery values that are either near the average or are better than average for comparison jobs. This apparent paradox could be a positive consequence of accounting stereotypes, which may facilitate the matching of potentially miserable work with people who are most prepared to tolerate it. Indeed, we present longitudinal evidence suggesting that accounting attracts people with personalities suited to repetitive and rules-centric work and who have psychosocial histories that make them robust to stress. Workplace misery is costly to workers, employers, and society and accounting stereotypes have value if they facilitate informed career selection.
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    A Content Based Assessment of the Relative Quality of Leading Accounting Journals
    ( 2019-08-25) Cready, William ; Liu, Bo ; Wang, Di
    This analysis advances faithful representation of statistical evidence as a substantive basis for assessing accounting journal research quality. The analysis builds upon recent work by Cready et al. (2019) indicating that accounting research articles commonly misrepresent null outcomes in their abstracts. Our analysis exploits this reporting deficiency to objectively assess journal reporting quality. The analysis determines misrepresentation rates for five leading general interest academic accounting journals based on direct review of article abstract contents. While all five of these journals commonly publish articles containing such misrepresentations, the relative frequencies with which they do so differ considerably. Moreover, the resulting rankings vary from those commonly reported in existent accounting journal quality and impact assessments. The analysis also finds that financial and archival studies are less prone to statistical evidence misrepresentation while audit and experimental studies are more prone to engaging in such misrepresentation.
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    The Relevance of Sustainability Reporting and Assurance: A Global Perspective
    ( 2019-08-25) Rezaee, Zabihollah ; Homayoun, Saeid
    This paper examines the factors and determinants of sustainability reporting and assurance (SRA) worldwide. We perform descriptive and regression analyses in determining the trends in quality and quantity of SRA and determinants of SRA using the Global Reporting Initiative database from 2005-2016. We find: (1) the quantity and quality of SRA have significantly increased worldwide in the past decade; (2) a positive association between the quality and quantity of SRA and sustainability disclosure, and the United Nations Sustainable Development Goals (SDGs); (3) sustainability reporting quantity and quality are significantly associated with legal, social, ethical and environmental factors. Our results provide insight to both factors and determinants of SRA, which shed light in identifying the nature and benefits of SRA in the voluntary disclosure literature. Our findings are relevant to current debates among global policymakers, regulators, standard-setters, the business community, and the accounting profession in improving the quantity and quality of SRA.