UNT Theses and Dissertations - 83 Matching Results

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The Impact of Contextual Variables on Internal Auditors' Propensity to Communicate Upwardly
The author examined whether contextual variables impact internal auditors' self-assessed likelihood of whistleblowing. The author synthesized a theoretical framework and developed research hypotheses that predict relationships between the self-assessed likelihood of whistleblowing and (1) magnitude of the consequences (2) channels of communication and (3) type of wrongdoing. To test these hypotheses, the author provided internal auditors (n=123) with a scenario and asked them to self-assess the likelihood of reporting evidence of a malfacation to their internal audit director even though their audit manager told them to ignore the wrongdoing.
The Impact of Counter-Rumor Strategy and Source on Non-Professional Investors' Judgments over Social Media
Non-professional investors often rely on information obtained from social media to make investment decisions. Extant literature has not examined the most effective strategy for the target company to counter the rumors so that investors will be more willing to continue investing in the target firm. Drawing on source credibility theory and the moral intensity model, I propose that the most effective strategy would vary given different agents who are selected to counter the rumor. After conducting a 2 x 3 (counter-rumor source x counter-rumor strategy) experiment with 272 non-professional investors recruited from Amazon Mechanical Turk, my study shows that when an internal agent (e.g., the CEO) acts as a counter-rumor source, shareholders are more willing to invest in the company when the internal agent utilizes a denial strategy rather than a reassociation or a questioning strategy. In contrast, when an external agent (e.g., a famous food blogger) serves as the counter-rumor source, the external agent can also use a questioning strategy in addition to a denial strategy to motivate shareholders to be more willing to invest in the company; however, the external agent still needs to avoid from engaging a reassociation strategy. Moderated serial-mediation analysis shows that the persuasiveness of the counter-rumor information and investors' perceived rumor intensity serially mediate the effect of counter-rumor source on investors' willingness to invest, and this effect is conditioned on the different strategy used to counter the rumor. Overall, the main effect of counter-rumor source suggests that external agents are perceived as more persuasive, which leads investors to perceive less rumor intensity, making them more willing to invest in the target company. The results of my paper can thus inform companies' social media policy.
The Impact of Social Learning and Social Norms on Auditor Choice
The purpose of this dissertation is to explore the influences of industry dynamic factors (e.g., peer selections) on a client’s subsequent decision to select the type of auditor (e.g., Big N versus non-Big N), following auditor turnover. More specifically, drawing on social norms and social learning theories, I develop testable implications and investigate whether and how industry dynamics have an incremental power in explaining auditor choice beyond traditional firm-specific variables documented in prior research. Using a large sample from years 1988 – 2012, I find that clients are more likely to imitate their industry peers’ prior selections to select the type of their succeeding auditors, consistent with the implications of social learning theory. I also find that clients in industries with stronger industry norms, as measured by a greater proportion of clients audited by Big N auditors in an industry, are more likely to select Big N auditors as their succeeding auditors, consistent with the implications of social norms theory. To my best knowledge, this is the first study to explore the impact of social dynamics measured at the industry level on auditor selection and provide large-sample evidence on the relations between industry dynamics and auditor selection at the firm level. Findings of this study provide insights into the dynamic process of auditor selection in which companies do not make auditor-selection decisions in isolation of one another as often posited in existing literature, contribute to the research on the determinants of auditor choice by incorporating industry dynamics into an agent-principal model, and provide a more comprehensive view of the phenomenon of auditor selection.
The Impact of the 1986 and 1987 Qualified Plan Regulation on Firms' Decision to Switch from Defined Benefit to Defined Contribution for Plans Larger than 100 Participants
The purpose of this research was to examine the United States population of plans with over 100 participants to determine the extent of the reaction away from defined benefit plans resulting from the 1986 and 1987 legislation.
The Impact of the Ceiling Test Write-off on the Security Returns of Full Cost Oil and Gas Firms
This study examined the impact of the ceiling test write-off on the stock prices of affected full cost (FC) oil and gas firms.
Income Tax Evasion and the Effectiveness of Tax Compliance Legislation, 1979-1982
The federal income tax system in the United States depends upon a high degree of voluntary compliance. The IRS estimates that the voluntary compliance level is declining and that this tax compliance gap cost the government an estimated $90.5 billion in 1981. Between 1979 and 1982, Congress made several changes in the tax laws designed to improve tax compliance. Extensive data was collected by the IRS for 1979 and 1982 through the random sample audits of approximately 50,000 taxpayers on the Taxpayer Compliance Measurement Program (TCMP), which is conducted every three years. During the period 1979 through 1982, Congress lowered the marginal tax rates, added some fairly severe penalties, for both taxpayers and paid return preparers, and increased information reporting requirements for certain types of income. In this research, it was hypothesized that voluntary compliance should increase in response to lower marginal rates, a higher risk of detection due to additional reporting requirements, and increased penalties. Multiple regression analysis was employed to test these hypotheses, using 1979 and 1982 TCMP data. Because of the requirements for taxpayer confidentiality, it was necessary for the IRS to run the data and provide the aggregate data results for the research. The results provided insight into the effectiveness of tax compliance legislation. While the overall voluntary compliance level (VCL) increased from 1979 to 1982 by 1.53 per cent, the VCL increase for taxpayers in high marginal rates was much smaller (.42 percent) than the overall increase. This is very inconsistent with the notion that high marginal rates are driving noncompliance, and suggests that marginal rates may not be strong determinants of compliance. Probably other factors, such as opportunity for evasion, may be more important. There was little change from 1979 to 1982 of the compliance of returns done by paid return preparers. Because of …
Information Content of Non-GAAP Earnings of Cross-Listed Companies
To supplement earnings reported under generally accepted accounting principles (GAAP), public companies often voluntarily report alternative measures of earnings called non-GAAP earnings (NGE). These companies assert that NGE exclude the effect of non-recurring transactions, thereby helping users of financial information to better assess the company's past performance and prospects. Because NGE measures are not well defined, managers can exploit the inherent discretion in calculating NGE to mislead users. Prior studies provide arguments and evidence on the informative as well as opportunistic use of NGE. However, the studies have examined the characteristics and informativeness of NGE with a focus on U.S. companies. The results of studies that consider the NGE disclosure by U.S. companies may not be generalizable to the cross-listed companies because foreign financial reporting standards are different from the U.S. GAAP. Further, prior studies report a difference in earnings quality of U.S. firms and cross-listed firms, which can also result in a difference in the informativeness of their NGE. To fill this gap in literature, I examine whether the informativeness of NGE of cross-listed companies is different from that of U.S. companies. This study contributes to the debate on the informativeness of NGE. It provides evidence that in general, NGE are equally informative for U.S. and foreign companies but foreign companies are more opportunistic in excluding recurring items from NGE. The results of this study are of potential interest to investors, regulators, and academics who are interested in and interact with cross-listed companies.
The Information Content of Supplemental Reserve-Based Replacement Measures Relative to that of Historical Cost income and its Cash and Accrual Components of Oil and Gas Producing Companies
This study examined whether three reserve-based quantity replacement measures and three reserve-based value replacement measures have incremental information content beyond that of historical earnings and its cash and accrual components. This study also examined whether the cash and accrual components of earnings have incremental information content beyond that of earnings.
An investigation of the effects of SFAS No.121 on asset impairment reporting and stock returns
Prior to Statement of Financial Accounting Standards No.121 (SFAS No.121): Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of, managers had substantial discretion concerning the amount and timing of reporting writedowns of long-lived assets. Moreover, the frequency and dollar amount of asset writedown announcements that led to a large “surprise” caused the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) to consider the need for a new standard to guide the recording of impairment of long-lived assets. This study has two primary objectives. First, it investigates the effects of SFAS No.121 on asset impairment reporting, examining whether SFAS No.121 reduces the magnitude and restricts the timing of reporting asset writedowns. Second, the study compares the information content (surprise element) of the asset impairment loss announcement as measured by cumulative abnormal returns (CAR) before and after the issuance of SFAS No.121. The findings provide support for the hypothesis that the FASB's new accounting standard does not affect the magnitude of asset writedown losses. The findings also provide support for the hypothesis that SFAS No. 121 does not affect the management choice of the timing for reporting asset writedowns. In addition, the findings suggest that the market evaluates the asset writedown losses after the issuance of SFAS No. 121 as good news for “big bath” firms, while, for “income smoothing” firms, the market does not respond to the announcements of asset writedown losses either before or after the issuance of SFAS No. 121. The findings also suggest that, for “big bath” firms, the market perceives the announcement of asset impairment losses after the adoption of SFAS No. 121 as more credible relative to that before its issuance. This could be because the practice of reporting asset writedowns after the issuance of SFAS No. …
Investment decisions: Influence of an Internet stock message board.
The Internet provides many sources of financial information that investors can use to help with investment decisions and in interpreting companies' accounting information. One source of information is Internet stock message boards such as those at Yahoo! Finance. This source allows for anonymous postings and information exchange. Despite the possibility of the information being incorrect many individuals visit these message boards. The purpose of this study is to investigate Internet stock message boards and address the primary question: From an individual investor perspective, do message boards, which contain accounting information, influence investment decisions? The question is addressed using psychology rumor literature and attitude theories. Message board postings are a type of rumor, since not all the information is verified and is usually intended to persuade a belief or influence a decision. Further, the messages may influence an investor by causing a change in attitude about the investment. Using an experiment, message board influence on an investment decision and attitude was tested. The results indicated that individuals that received negative message board postings did have a significantly higher change in investment amount as compared to a control group that did not receive any message postings. The positive message board group and the control group were not significantly different in their amount of investment change. The results of the study also show that message board postings influenced attitude, those that received negative (positive) postings had a negative (positive) attitude about the investment. It was further found that those with a negative (positive) attitude decreased (increased) their investment. Finally, contrary to expectations, investment experience did not lead to an individual being less influenced by message board postings. This study contributes to the accounting literature by investigating an additional source of Internet financial reporting that may or may not contain correct information. The SEC …
Loyalty and Fairness: A Study of the Influence of Moral Foundations on Auditors' Propensity to Subordinate their Judgment
Subordination of judgment is a fundamental threat to auditor objectivity. Subordination of judgment occurs when auditors agree with their superiors either in spite of or without forming their own independent judgments. Many audit procedures rely on independent, critical thinking at every level of the audit team; however, a number of studies suggest that auditors tend to agree with superiors even when a superior's views clearly run contrary to generally accepted accounting principles. While there is general agreement among scholars that subordination of judgment is "bad," very little attention has been given to moral biases that might influence an auditor's tendency to subordination of judgment, or to potential remedies that could mitigate an auditor's tendency to subordinate judgment. Moral Foundations Theory suggests that individuals tend to make intuitive, normative evaluations of situations based upon a set of personal moral biases or preferences called "moral foundations." Two specific moral foundations could influence subordination of judgment in divergent ways. The moral foundation of loyalty-respect may make agreement with a superior's views seem more acceptable than would disagreement. Meanwhile, the moral foundation of fairness may make an auditor more sensitive to the observance of rules, resulting in less subordination of judgment when a superior's views run contrary to professional rules. Social Identity Theory suggests that in-group favoritism may exacerbate subordination of judgment in general; however, strengthening an auditor's professional identity salience (PIS) could strengthen an auditor's objectivity. PIS is the temporary, heightened awareness of an auditor's identity as a professional and their role as guardian of professional rules. As a result, PIS may interact with an auditor's innate sense of fairness, resulting in less subordination of judgment than when professional identity is less salient. Results supported the hypothesis that auditors tend to subordinate their judgment to that of a superior, but not that PIS …
Market valuation of the translation process under SFAS No. 52: Further evidence
This research investigates the information content of the translation information resulting from exchange rate fluctuations. Two hypotheses are examined. The dollar movement hypotheses investigate whether there is a positive relationship between security valuation and the translation information and whether the market assigns different weights to translation gains and losses in both the depreciating and appreciating exchange rate environments. The geographic concentration hypothesis tests whether the market's response to the translation information is geographically sensitive. Prior research on SFAS No. 8 and SFAS No. 52 has concentrated on the price and trading volume responses to the deliberations and issuance of these two accounting statements. Soo and Soo (1994) examine the long-term effect of the disclosure requirement under SFAS No. 52 on MNEs' security prices from 1981 to 1987. However, they fail to address two important issues pertinent to the MNE research--the effects of exchange rate changes and the geographic concentration. The dollar movement hypotheses provide strong evidence that under both the appreciating and depreciating exchange rate environments, a positive relationship exists between security returns and the translation information when MNEs disclose translation losses in stockholders' equity. The findings also provide evidence for a positive or at least non-negative relationship between security returns and the translation information when MNEs disclose translation gains. The findings provide evidence that the positive relationship is greater in appreciating than in depreciating exchange rate environment for losses, but no evidence of such a difference exists for gains. The evidence also indicates that the market reacts more to the translation information when translation losses are reported than when translation gains are reported in both exchange rate environments. The examination of the impact of the geographic concentration of MNEs' foreign operations provides limited evidence to support the geographic concentration hypothesis. One possible explanation for the weak findings is that …
Monitoring or moral hazard? Evidence from real activities manipulation by venture-backed companies.
Prior literature suggests two competing theories regarding the role of venture capitalists (VCs) in their portfolio companies. The VC monitoring hypothesis argues that VCs effectively resolve the managerial agency problem through close monitoring and restraining managers' earnings management behavior. The VC moral hazard hypothesis argues that VCs aggravate the private benefits agency problem by exerting influence over managers to artificially inflate exit stock price through earnings management. Using a sample of IPO firms between 1987 and 2002, after controlling for the magnitude of accruals manipulation (AM), I compare the magnitude of real activities manipulation (RM) between venture-backed and non-venture-backed companies. I find that relative to non-venture-backed companies, venture-backed companies show significantly less RM in the first post-IPO fiscal year. The results are robust after controlling for the VC selection endogeneity. The finding supports the VC monitoring hypothesis that VCs restrain managers' RM behavior. Furthermore, I document that venture-backed companies exhibit a significant difference from non-venture-backed companies only in the first post-IPO fiscal year. The difference between the two groups in either the IPO year or the second post-IPO fiscal year is not significant, or at best, is weak. This finding is consistent with the argument that VCs tighten their control during the lockup expiration period when insiders such as managers or founders have strong incentives to inflate earnings. By the end of the second post-IPO fiscal year when VCs exit the portfolio companies, their impact on portfolio companies' RM decreases dramatically which makes the difference between the two groups less significant. In addition, using a sample of venture-backed IPOs from 1987 to 2002, I find that companies backed by high-reputation VCs show significantly less RM than those backed by low-reputation VCs in the first post-IPO fiscal year. The results are robust to alternative VC reputation proxies. This finding is consistent …
A Process Analysis of Lenders' Use of FAS 95 Cash Flow Information
This study uses concurrent verbal protocol analysis to examine the decision processes of lenders as they evaluate the financial information of a loan applicant. Of specific interest is the lenders' use of Statement of Financial Accounting Standards Board No. 95 (FAS 95), Statement of Cash Flows, in that decision process.
Professional Commitment, Organizational Commitment, and Organizational-Professional Conflict in the Internal Audit Function Model: Development and Test
This dissertation is a descriptive, exploratory examination of professional commitment, organizational commitment, and conflict between those commitments in the internal audit profession. That conflict has been suggested in prior studies as the source of dysfunctional outcomes such as increased role stress, high turnover, decreased job satisfaction, and the exercise of improper judgment leading to audit failures. The descriptive aspect of this study deals with the development of a more comprehensive structural model of the factors and relationships involved in commitment and conflict than has been developed by previous research dealing with accountants. The exploratory aspect deals with the testing and refinement of the developed model utilizing the internal audit profession as the field of examination. The model developed in this study is derived from the synthesis of factors suggested by role theory, the concept of side bets, the cosmopolitan-local construct, and the concept of commitment as a process. This research utilizes a questionnaire administered to 205 practicing internal auditors in order to test 30 hypothesized relationships. Path analysis is used to determine the significant direct relationships between variables with a process of theory trimming being conducted in order to produce more parsimonious structural models. Indirect relationships between significant variables are identified and their redundant or suppressive nature determined. Explanations of these suppressive or redundant relationships are provided based on the theoretical considerations identified above. Such a determination and explanation of the redundant and suppressive indirect relationships involved in the commitment-conflict relationship has not been accomplished in earlier studies of the subject. Although the procedures used here do not support causal conclusions, the findings of this study indirectly provide evidence that conflict between the two commitments in the internal audit area is not to be considered inherent. The findings also suggest a possible undesirable relationship between organizational formalization and professional commitment.
A Reexamination of the Dilution of Auditor Misstatement Risk Assessments: An Experimental Study of the Impact of Client Information Type, Workload, and PCAOB Guidance on Dilution
Many external parties such as investors, creditors, and regulatory agencies, use a company’s financial statements in their decision-making. In doing so, they rely on audit opinions on whether financial statements are fairly stated. However, evidence suggests that there are factors in the audit environment that influence auditor judgments. For example, nondiagnostic client information dilutes auditor judgments when compared to judgments based on diagnostic information alone, especially for less experienced auditors (Hackenbrack 1992; Hoffman and Patton 1997; Glover 1994; Shelton 1999). High time pressure conditions mitigate this effect by refocusing auditor attention toward relevant client information, therefore reducing the impact of nondiagnostic information (Glover 1994, 1997). This research study examines other common audit environment factors to determine if they too influence audit judgment results. An online questionnaire of 149 auditors, CPAs and other accounting professionals indicate that the inclusion of nondiagnostic client information results in a significant change in auditor judgments. The direction of this change follows a theorized pattern; risk assessments that were initially high are reduced, while those that were initially low are increased. Significance was not consistently found for a workload and PCAOB effect on auditor judgment. However, a comparison of the absolute value of dilution effect means across conditions reveals some trending for the proposed unwanted effect of high workload, and the beneficial effect of PCAOB guidance. These results have important implications for auditing research and practice. It extends previous archival research on workload effects and uses a unique questionnaire design to reexamine workload pressures in a behavioral setting. The results of hypothesis testing on workload pressure and PCAOB guidance, although lacking consistent statistical significance; exhibit trends that agree with proposed theoretical relationships. Tests on the effects of nondiagnostic information show strong statistical support for previous studies in the area of psychology and audit. This study’s greatest …
Regulation and Political Costs in the Oil and Gas Industry: An Investigation of Discretion in Reporting Earnings and Oil and Gas Reserves Estimates
This study investigates the use of discretion by oil and gas companies in reporting financial performance and oil and gas reserve estimates during times of high political scrutiny resulting from increases in energy prices. Hypotheses tested in prior literature state that companies facing the risk of increasing taxes or new regulations reduce reported earnings to reduce this risk. This study uses a measure of high profitability (rank order of return on assets relative to industry peers) to identify oil and gas companies more likely to manage earnings during the period from 2002 to 2008. Two measures of discretionary accruals (total and current discretionary accruals), and a measure of discretionary depreciation, depletion, and amortization (DDA) were used as indicators of discretion exercised in reporting earnings. Data on oil and gas reserve disclosures was also hand-collected from Forms 10-K to investigate whether managers use reserve estimate revisions to reduce reported earnings through increasing the annual depletion expense. Results suggest that both oil and gas refining and producing firms use negative discretionary accruals to reduce reported earnings. Results also indicate that profitability is an important determinant of the use of negative discretionary accruals by these companies regardless of the time period examined. There is also evidence that oil and gas producing firms opportunistically revise their oil and gas reserve estimates to increase depreciation, depletion, and amortization expense during periods of high oil prices.
The Relationship between Privatization, Culture, Adoption of International Accounting Standards, and Accounting in Egypt
This study explores how the Egyptian socioeconomic factors impacted the implementation of International Accounting Standards (IASs) in Egypt. Prior research concluded that developing nations have special needs when it comes to accounting and financial reporting and recommended nation-specific analysis. The author adapts Gray's (1988) model, which connects Hofstede's cultural dimensions with accounting practice, to fit the Egyptian environment.
The Role of Accounting Information in Investor Assessments of Corporate Takeovers
The objective of this research is to assess whether the financial markets impute motives to bidding firm managers in setting the new equilibrium share price at the time a tender offer is announced.
Small world, not small competition: does spatial distance among audit partners matter?
The purpose of my dissertation is to examine whether competition among audit partners affects audit quality. While prior research on audit market competition focuses on audit firm-level or office-level analyses, I argue that audit partners, as the primary decision makers in providing audit services, are likely to engage in competitive actions in the audit market. Further, I use spatial distance among audit partners to measure partner-level competition. I conjecture that spatial distance could better reflect the dynamics of audit market competition than the Herfindahl index, the traditional proxy for competition used in most extant studies. Drawing on the spatial economics theory and the social comparison theory, I hypothesize a negative association between competition measured by spatial distance and the quality level delivered by the incumbent audit partner. Using newly available data of U.S. audit partners, this study provides evidence that audit quality is higher (lower) when the spatial distance between the incumbent partner and the closest competing partner is larger (smaller). In addition, the results reveal that the effects of competition measured by spatial distance on audit quality is mainly a partner-level phenomenon rather than an office-level one. Overall, this study highlights the importance of studying competitive dynamics among audit partners.
Stable Book-Tax Differences, Prior Earnings and Earnings Persistence
This study resolves divergent prior findings relating book-tax differences to future earnings, determines whether prior literature has missed relationships between different types of book-tax differences and pre-tax and/or after-tax income, and investigates prior earnings as a factor contributing to the observed relationships. As past research has found that some firms have large book-tax differences over several years, this study separates these firms with large stable book-tax differences from others with large book-tax differences (non-stable) when investigating the link between large book-tax differences and future earnings. Finally, this study investigates whether the relationship between book-tax differences and future earnings reflects information about prior earnings and finds that prior earnings growth explains much of the lower persistence found for firms with large book-tax differences.
A Study of Firm Location to Examine Disclosures and Governance Using a Dual Approach: Quantitative Analysis Based Upon the Sarbanes-Oxley Act of 2002 and Qualitative Analysis of the Annual Report’s Management Discussion and Analysis
The purpose of this dissertation is to investigate the effect of U.S. firms’ geographic location, whether urban or rural, on their corporate disclosure and governance practices. An “urban” firm is one that is headquartered in a large metropolitan area; whereas, a “rural” firm is one that is headquartered some distance from any metropolitan area. Specifically, the study examines whether there are different stock market reactions to urban and rural firms around key event dates relative to the enactment of the Sarbanes-Oxley Act (SOX) on July 30, 2002. Also, the readability and linguistic style in the Management Discussion and Analysis (MD&A) section of public company’s annual reports (Form 10-K) to the Securities and Exchange Commission (SEC) are investigated to determine whether urban and rural firms communicate information differently to investors.
Tax Compliance in a Social Setting: the Influence of Norms, Perceptions of Fairness, and Trust in Government on Taxpayer Compliance
Many taxing authorities, including those in the United States (U.S.), rely on voluntary tax compliance and continually search for ways to increase tax revenues. Most of these methods are costly and labor intensive, such as audits and penalties for noncompliance. Prior tax compliance research has heavily investigated the influence that economic factors, such as tax rates and penalties, have on individual compliance intentions. However, economic models fail to fully predict individual tax compliance. Psychology literature suggests that social factors may also play an important role in individual tax compliance decisions. The purpose of this study is to examine the influence that social and psychological factors have on individuals' tax compliance intentions. Specifically, a model of taxpayer compliance is hypothesized that suggests that norms, perceived fairness of the tax system, and trust in government have a significant influence on compliance intentions. Results of a survey of 217 U.S. taxpayers found support for the influence of social factors on tax compliance. This research concludes that social norms have an indirect influence on compliance intentions through internalization as personal norms. Specifically, as the strength of social norms in favor of tax compliance increase, personal norms of tax compliance also increase, and this leads to a subsequent increase in compliance intentions. This dissertation also finds that trust in government and the perceived fairness of the tax system have a significant influence on compliance intentions. Supplemental analyses indicate that trust in government fully mediates the relationship between perceived fairness of the tax system and compliance intentions. This research offers several contributions to accounting literature and provides valuable insight for taxing authorities. First, this study examines taxpayer compliance from a psychological, rather than an economics driven, perspective. The suggested model of taxpayer compliance posits that social norms have a significant influence on compliance intentions. This information …
Taxpayer compliance from three research perspectives: a study of economic, environmental, and personal determinants.
Tax evasion is a serious issue that influences governmental revenues, IRS enforcement strategies, and tax policy decisions. While audits are the most effective method of enforcing compliance, they are expensive to conduct and the IRS is only able to audit a fraction of the returns filed each year. This suggests that audits alone are not sufficient to curb the billions of dollars of tax evaded by taxpayers each year and that a better understanding of factors influencing compliance decisions is needed to enable policymakers to craft tax policies that maximize voluntary compliance. Prior research tends to model compliance as economic, environmental, or personal decisions; however, this study models it as a multifaceted decision where these three perspective individually and interactively influence compliance. It is the first to decompose perceived detection risk into two dimensions (selection risk and enforcement risk) and investigates how these two dimensions of risk, decision domains (refund or tax due positions), and three personal factors (mental accounting, narcissism, and proactivity) influence taxpayers’ compliance decisions. I conducted a 2x2 fully crossed experiment involving 331 self-employed taxpayers. These taxpayers have opportunities to evade that employed taxpayers do not. For example, they can earn cash income that is not reported to the IRS by third parties. For self-employed taxpayers (especially those wanting to evade), perceived selection and enforcement risks may be distinctly different depending on a taxpayer’s situation, what they believe they can control, and what risk they are willing to accept. For example, selection risk may be perceived as the greatest risk for those with unreported items on their return, while enforcement risk may be more prominent for those perceiving certain levels of selection risk. Thus, I believe self-employed taxpayers are the most appropriate population to sample from and are likely have reasonable variation in the three personal factors …
Team performance: Using financial measures to evaluate the effect of support systems on team performance.
Organizations invest in team-based systems in order to generate innovative practices that will give them a competitive edge. High-performing teams require training and other support systems to gain the skills they need as well as to create and maintain an environment conducive to their success. The challenge for managers is to make resource allocation decisions among investment alternatives to maximize team effectiveness and still ensure a financial return for company investors. This study has three objectives. The first objective is to investigate whether there is a positive relationship among organizational environment, team potency (the team's collective belief it will succeed) and team performance. Results indicate that the presence of four organizational support systems influences team potency and performance. These support systems are the Design and Measurement, Rewards, Training and Communications Systems. In addition, results indicate that team potency is a mediating variable between the Design and Measurement and Communications Systems and team performance. These results suggest that companies are able to influence team performance by investing in environmental support systems. The second objective is to examine whether team members and managers view the organizational environment differently. Results indicate that managers view the Training and Communications Systems as more important, while teams perceive the Design and Measurement System and the Rewards System to be more important to their success. Since the systems that team managers view as important may influence their investment decisions, these differences may suggest a resource alignment issue. Third, a measure of team effectiveness based on financial measures is introduced. Published literature emphasizes attitudinal, behavioral and operational measures of performance. A financial measure offers a method of evaluating performance that is similar to methods used in capital budgeting and may be consistently applied across different types of teams with different purposes. The data collection process was performed by …
A Test of Alfred Chandler's Theory of Corporate Control
Alfred Chandler, in Scale and Scope: The Dynamics of Industrial Capitalism (1990), suggests that the acquisition of targets is an alternative to direct investment in research and development (R&D). Chandler suggests that the failure of accounting to recognize investment in R&D as an asset may have made R&D less attractive. This study focuses on the relationship between investment in R&D and capital expenditures and a set of partitions based on Chandler's three technology types ("hightech," "stable-tech," and "low-tech") and three possible merger activity classes (acquirer next year, target next year, and neither acquirer nor target next year). Chi-square contingency tables are used to test the independence of merger class and technology type, a frequency test. Regression is used to test the relationship between R&D and sales and between capital expenditures and sales, with the sample partitioned by technology type and by merger class in a 3-by-3 research design. The sample is 23,146 firm years from 1974-1988 for 2,659 firms categorized into industry groups based on Chandler's criteria. The financial data are from COMPUSTAT data files. The frequency of being an acquirer is the same for high-tech and stable-tech firms (11.2 versus 11.5 percent of firm years) and higher for low-tech firms (13.9 percent of firm years). High-tech firms that are acquirers next year have 79% lower investment in R&D (.044 of sales versus .056 of sales) and 77% lower investment in capital expenditures (.071 of sales versus .092 of sales) than "high-tech" firms that are neither acquirers nor targets next year ("baseline" firms) as measured by the estimated slope coefficient in regression. "Stable-tech" acquirers are similar to "stable-tech" baseline firms in R&D investment (.016 of sales versus .016 of sales) and in capital expenditures investment (.072 of sales versus .080 of sales). "High-tech" targets have higher R&D investment (0.062 of …
Three Essays on the Effects of Executives' Informal Networks on Shareholder Value, Financial and Tax Reporting Outcomes
Prior literature suggests that CEOs capitalize on their position within the hierarchy of all business executives, resulting in various – both positive and negative – firm outcomes. Using a novel data set on golf outings to measure the quality of a CEO's informal (vs. formal) network, as measured by the CEO's network centrality, this study examines whether well-connected CEOs generate private gains through insider trades. Results suggest that, among golfing CEOs, CEOs with higher quality informal networks generate significantly higher insider trading profits on sales of their firms' stock, consistent with more famous, powerful, and influential CEOs possessing superior information. The paper continues by delineating a channel through which private information flow to network participants by documenting significantly different golf patterns of CEOs during the two weeks before material firm events become public while showing that CEOs generate noticeably higher insider trading profits from stock trades executed during the two weeks following these golf outings. This study highlights a setting in which shareholders are at risk of wealth transfer and illustrates the potential limitations of regulation concerning insider trading.
Two Essays on Non-GAAP Reporting
This dissertation investigates the interrelationships between a client's non-GAAP earnings disclosures, financial health (profit and loss status), and the external auditor's assessment of the client's going concern status. This dissertation comprises two essays. Essay 1 examines the informativeness and the quality of non-GAAP earnings disclosures in profit and loss firms separately. Using a large sample of non-GAAP earnings voluntarily disclosed by managers, I find that the informativeness and the quality of non-GAAP earnings vary in firms cross-classified by GAAP loss status and non-GAAP loss status. I also find that loss firms have higher quality non-GAAP exclusions relative to profit firms, although the expenses excluded by both profit and loss firms are associated with firms' future performance. Further, I posit and find that profit firms which voluntarily disclose non-GAAP losses have high-quality exclusions, while other non-GAAP reporting profit firms have low-quality exclusions. Having found that non-GAAP earnings in loss firms is opportunistic to some extent, I next study, in Essay 2, whether auditors understand the implications of low-quality non-GAAP reporting in these firms. Specifically, I examine 1) whether non-GAAP earnings disclosures are associated with the propensity of the auditor's going concern issuance to loss firms, and 2) whether non-GAAP earnings disclosures affect the accuracy of the auditor's going concern assessment. This is important because auditors often conduct audits of loss firms that disclose non-GAAP earnings, and the consequences of issuing wrong audit opinions can be severe. I find that the propensity of the auditor's going concern issuance is negatively associated with the magnitude of expense exclusions in loss firms, after controlling for determinants of going concern opinions that are derived from GAAP earnings. This finding suggests that auditors take into account information embedded in non-GAAP earnings when assessing clients' going concern status. Using bankruptcy outcome as a benchmark, I find that …
Unveiling Hidden Problems: A Two-Stage Machine Learning Approach to Predict Financial Misstatement Using the Existence of Internal Control Material Weaknesses
Prior research has provided evidence that the disclosure of internal controls material weaknesses (ICMWs) is a powerful input attribute in misstatement prediction. However, the disclosure of ICMWs is imperfect in capturing internal control quality because many firms with control problems fail to disclose ICMWs on a timely basis. The purpose of this study is to examine whether the existence of ICMWs, including both the disclosed and the undisclosed ICMWs, improves misstatement prediction. I develop a two-stage machine learning model for misstatement prediction with the predicted existence of ICMWs as the intermediate concept; my model that outperforms the model with the ICMW disclosures. I also find that the model incorporating both the predicted existence and the disclosure of ICMWs outperforms those with only the disclosure or the predicted existence of ICMWs. These results hold across different input attributes, machine learning methods, and prediction periods, and training-test samples splitting methods. Finally, this study shows that the two-stage models outperform the one-stage models in predictions related to financial reporting quality.
The Use of Data Analytics in Internal Audit to Improve Decision-Making: An Investigation of Data Visualizations and Data Source
The purpose of this dissertation was to examine how managers' judgments from an internal auditor's recommendation are influenced by some aspects of newer data sources and the related visualizations. This study specifically examined how managers' judgments from an internal auditor's recommendation are influenced by the (1) supportiveness of non-financial data with the internal auditor's recommendation and (2) evaluability of visual representations for non-financial data used to communicate the recommendation. This was investigated in a setting where financial data does not support the internal auditor's recommendation. To test my hypotheses, I conducted an experiment that uses an inventory write-down task to examine the likelihood that a manager agrees with an internal auditor's inventory write-down recommendation. This task was selected as it requires making a prediction and both financial and newer non-financial data sources are relevant to inform this judgment. The study was conducted with MBA students who proxy for managers in organizations. Evaluability of visual representations was operationalized as the (1) proximity of financial and non-financial graphs, and (2) type of non-financial graph as requiring a length judgment or not. This dissertation contributes to accounting literature and the internal auditing profession. First, I contribute to recent experimental literature on data analytics by providing evidence that newer non-financial data sources will be integrated into managers' judgments even when financial data is inconsistent. However, I also identified that the effectiveness of appropriate agreement with an internal auditor's recommendation depends on the evaluability of the visualizations for non-financial data. Second, I expand on the literature that examines managers' agreement with recommendations from internal auditors by examining an unexplored yet relevant context of using newer non-financial data sources and communicating these results. Specifically, I identified how the evaluability of visual representations for non-financial data interacts with the supportiveness of non-financial data with the internal auditor's …
Venture Capital Investment and Protocol Analysis
This study used protocol analysis to identify key variables in the venture capital investment decision-making process. The study used a fictional business plan which was based on six actual business plans. This fictional business plan was presented to ten venture capitalists who were asked to review it to decide whether to interview the investee. The protocols obtained from these subjects were analyzed to determine patterns within the subjects' review. The sections of the business plan which were commonly reviewed first were the deal structure, the executive summary, and the management section. The management section was used by the greatest number of subjects. The market section was used the greatest number of times. The data were also organized by type of operators used in each subject's protocols. Information Search/Retrieval operators were most common, followed by Task Structuring/Set Goal operators. When classified into the four major categories of Task Structuring/Set Goal, Information Acquisition, Analytical/ Inferential, and Choice operators, Analytical/Inferential operators were used most frequently. Choice operators were least used. The phrases were analyzed by the relevant section in the business plan. The market received the greatest number of references, followed by references to the product and to management. However, when references to the income statement and balance sheet were combined as phrases relevant to the financial statements, the financial statements were referred to more frequently than the product or the people. The subjects appeared to use an unidentified choice program within which certain models could be identified as subroutines. The subjects used an elimination-by-aspects model to screen the business plan. If the business plan met the criteria within the elimination-by-aspects model of the subject, the subject used an additive/nonlinear model for the remainder of the review. The results of this study indicate that financial statements provide information important in the venture capital …
What Did the Client Say? Auditor Memory of a Client Inquiry: a Study of Encoding Style and Note Taking
Client inquiry is a fundamental procedure for gathering audit evidence. Since inquiries are not audio- or video-recorded in practice, auditor memory is vital to the accuracy of evidence gathered in this manner. Due to the potential for error during memory encoding and retrieval, the effect of memory on judgment, and the cognitive complexity of conducting a face-to-face inquiry, examining factors affecting auditor memory of client inquiries is important. In this dissertation, I examine two factors likely to affect auditor memory of a client inquiry. First, encoding style is a low-level cognitive function representing how much stimuli an individual perceives before applying prior knowledge (schemata) to assist with encoding to long-term memory, affecting information noticed and remembered. Differences in auditors’ encoding style may explain variance in memory accuracy of evidence gathered from a client inquiry. Second, audit professionals often make hand-written or typed notes during client inquiries, and subsequently review the notes, which may affect memory. To address these issues, I first gather interview evidence from six professional auditors to determine how practicing auditors plan, prepare for, conduct, and document evidence from client inquiries. I then develop and execute a video-based experiment with 33 senior auditor participants, 23 masters-level accounting students, and 47 undergraduate-level accounting students to investigate whether encoding style and note taking affect auditor memory accuracy of, and audit judgments resulting from, a client inquiry. I find multiple significant results. First, I find that encoding style affects memory accuracy such that auditors quickly utilizing prior knowledge during an inquiry results in greater memory accuracy than auditors slowly utilizing prior knowledge. This finding suggests that quickly utilizing prior knowledge helps auditors to manage the cognitive complexity of a client inquiry. Second, I find that participants who take notes during an inquiry, and subsequently review his or her notes taken, have …
Who Makes the Decision? Managerial Influence on Corporate Boards and Auditor Selection, Change, and Compensation
This dissertation examines whether managers influence corporate boards of directors in their auditor selection, change, and compensation decisions. This topic is important because it addresses concerns that the Sarbanes-Oxley Act of 2002 (SOX) is not effective in eliminating managerial influence over auditor engagement decisions and that it may provide a false sense of security to investors. These concerns are based on the implicit assumption that managers prefer weaker governance oversight and lower audit quality. However, empirical research testing associations between managerial influence and audit-related decisions post-SOX is scarce and generally guided by agency theory. Incorporating agency, stewardship, and resource dependence perspectives, I find that managerial preferences for auditor selection are not aligned. Specifically, CEOs positively influence the selection of higher quality auditors, whereas CFOs have the opposite effect. Further, CEOs who hold powerful roles as chairs of their companies' boards of directors appear to mitigate the negative influence of CFOs and inside directors on audit quality. CEOs serving in dual roles also oppose auditor turnover when lower earnings quality prompt higher demand for audit effort. Finally, my study provides some evidence that management exercises downward pressures on audit fees, suggesting that managers utilize their authority beyond the regulations established by SOX to negotiate auditor compensation.
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