Emerald | Accounting Research Journal | Table of Contents

Editorial for Volume 26 issue 1

literatinetwork@emeraldinsight.com (Larelle Chapple) — Fri, 12 Jul 2013 00:00:00 +0100

Abstract

Not available.

Comparison of Propensity for Carbon Disclosure between Developing and Developed Countries: A Resource Constraint Perspective

Fri, 12 Jul 2013 00:00:00 +0100

Abstract

Purpose - This study investigates differences in voluntary carbon disclosure between developing and developed countries and the role of resource availability in explaining these differences. Design/methodology/approach - We used a sample consisting of 2045 large firms from 15 countries and representing divergent industries that released Carbon Disclosure Project (CDP) company reports in 2009. Profitability, leverage and growth were used as proxies for the degree of resource availability and the firm’s participation in the CDP was used as a proxy for carbon disclosure propensity. Findings - Consistent with our predictions, the empirical results show that the carbon disclosure propensity is correlated in the right direction with resource availability proxies; this relationship is stronger in developing nations, suggesting that the shortage of resources is one reason for the lack of commitment to carbon mitigation and disclosure in these countries. The results are robust when we control for disclosure motivation proxies. In addition, we show that firms tend to disclose carbon information if their shares are owned by CDP signatories, because it allows them to be viewed as more powerful stakeholders. This finding, which enhances the validity of stakeholder theory, previously has not been documented in the literature. Research limitations/implications - The findings are relevant to the world’s largest organisations, as determined by their market capitalisation. Thus, caution should be exercised to generalise our inferences to small or medium-sized organisations. Practical implications - The evidence suggests that resource shortages may constrain a firm management’s carbon decisions. As the regulatory environment becomes more stringent, firms, particularly those in developing countries need to take a more proactive strategy to tackle global warming challenges and balance the need to achieve financial goals and prevent carbon pollution with their limited resources. Originality/value - Although prior studies typically considered external pressures that motivated voluntary environmental disclosure, our results offer extra insight and suggest that resource restriction provides a complementary explanation—largely ignored in the existing literature—for variation in the carbon-disclosure propensity of firms.

The value of executive director share ownership and discretionary accruals

literatinetwork@emeraldinsight.com (Arifur Khan, Paul Mather) — Fri, 12 Jul 2013 00:00:00 +0100

Abstract

Purpose - The purpose of this study is to investigate the relation between the value of executive director share ownership and discretionary accrualsDesign/methodology/approach - This study uses a dataset of 1173 firm year observations drawn from 188 Australian listed companies for the period 2000-2006. The analysis is based on multivariate regression analysis and we use ordinary least square models to investigate the relation between the value of executive director ownership and discretionary accruals. We also address the issue of potential endogeneity by using a simultaneous equation system.Findings - We find a negative relation between value of executive director share ownership and discretionary accruals at lower levels of value of ownership consistent with the theorised incentive alignment that as managers commit more resources to firms, stakeholders impose less contractual constraints specified in terms of accounting numbers and managers make lower accrual adjustments. After a certain value of ownership is attained, we see a positive relation consistent with increased discretionary accrual adjustments associated with stakeholders anticipating managerial entrenchment. We also find that these results are driven by firms with income increasing, as opposed to income decreasing, discretionary accruals.Practical implications - Shares and options are forming an increasing proportion of executive remuneration that continues to be the subject of much debate amongst regulators and in the media. Showing that the value of share ownership may be an effective internal governance mechanism to help align incentives adds to the debate and has policy implications.Originality/value - Our primary contribution is finding that the value (as opposed to proportion) of share ownership, typically representing a sizeable proportion of managers’ undiversified wealth, is a potentially direct driver of theorised incentive alignment and entrenchment effects associated with share ownership.

Audit quality and overvalued equity

Fri, 12 Jul 2013 00:00:00 +0100

Abstract

Purpose - Purpose – Audit quality studies document that accruals decrease when: either the audit firm is large, the audit firm is an industry specialist, or the audit-client tenure is long. We posit that incentives related to highly valued equity mitigate these results as managers use income increasing accruals to augment earnings. Design/methodology/approach - Design and methodology – To test this assertion, we regress discretionary accruals on: controls, a highly valued equity indicator variable equal to 1 if the client’s lagged price-to-earnings ratio is in the highest P/E quintile, indicator variables equal to 1 for alternative measures of audit quality, and interaction terms between the highly valued equity indicator variable and audit quality indicator variables. Findings - Findings – Results of tests show positive and statistically significant coefficients for each of the highly valued equity-audit quality interaction terms, suggesting that when a firm is highly valued the accruals decreasing effect of high quality auditors is reduced.Originality/value - Originality and value – Beginning with Jensen’s article regarding the agency costs of overvalued equity (Jensen, 2005) a stream of research examining factors associated with highly priced firms has developed. For example, Houmes and Skantz (2010) provide evidence that high valuation increases the likelihood of earnings management. We extend these findings as well as the considerable body of audit quality studies, by examining the ability of a high quality auditor to attenuate this result.

Audit Firm Rotation and Audit Quality: Evidence from Academic Research

literatinetwork@emeraldinsight.com (David S. Jenkins, Thomas E. Vermeer) — Fri, 12 Jul 2013 00:00:00 +0100

Abstract

Purpose - This article provides a succinct overview of academic research that has examined audit firm rotation both in the United States and in other countries.Design/methodology/approach - We outline the unresolved nature of academic research on audit firm rotation, review recent literature, discuss why academics have been unable to resolve this issue and offer suggestions for improving subsequent research in the area.Findings - Overall, the collective evidence is inconclusive at best; with earlier studies generally finding mixed results and more recent studies indicating that audit quality generally goes through two distinct phases during the auditor-client relationship, the "auditor learning" and "auditor closeness" phases.Originality/value - Given the importance of the issue, this article provides an overview of academic research that has examined audit firm rotation, discusses why academics have been unable to resolve this issue, and provides suggestions on how academics and practitioners can work together to enhance the quality of future research.