Publication Search Results

Now showing 1 - 5 of 5
  • (2022) Wang, Jun
    Two recent changes in corporate reporting involve the inclusion of both GAAP and non-GAAP earnings in the annual report and the inclusion of Key Audit Matters (KAMs) in the auditor's report. Managers have discretion in determining the excluded items in non-GAAP reporting. The frequently excluded items in non-GAAP earnings, such as goodwill impairment loss, are also frequent items discussed in KAMs. The research on non-GAAP earnings excluding a KAM item helps us understand how the auditor's report can impact investors' use of non-GAAP measures. This dissertation provides evidence on how investors react to managers' non-GAAP reporting and auditors' KAM disclosures through two studies. In Study One, I conduct a 2×2 between-subjects experiment to investigate the joint effect of excluding a KAM item relating to goodwill impairment loss from non-GAAP earnings and investor position on investor judgments. Drawing on motivated reasoning theory, I predict and find that for investors holding a long (short) position, investors perceive management to be more (less) credible when non-GAAP earnings exclude a KAM item than when non-GAAP earnings do not exclude a KAM item. In addition, lower management credibility assessments result in higher impairment loss estimates (i.e., less favourable earnings-related judgments). These findings inform regulators and managers on the impact of KAM disclosures on investors' reactions to non-GAAP reporting. Study Two holds constant the investor position as long investors, and the non-GAAP earnings with a KAM item excluded. I conduct a 1×4 between-subjects experiment. The four conditions are the high awareness of management discretion in non-GAAP earnings condition, the high auditor scepticism implied in the KAM disclosures condition, the audit outcome presence in the KAM disclosures condition, and a control condition without any treatment. I find that when investors have a higher awareness of management discretion in non-GAAP reporting, their earnings-related judgments are more favourable than those who have lower awareness of management discretion in non-GAAP earnings (i.e., the control condition). The level of scepticism implied in the description of how the KAM was addressed in audits and including the outcome of the auditor's procedures in the KAM disclosures do not significantly affect long investors' earnings-related judgments.

  • (2023) Han, Miaodi
    This thesis examines whether non-client companies’ online disclosures serve as an external information source for auditors and whether auditors’ searches for such information facilitate their audit process and influence the outcomes in various important corporate event settings, including regulatory reviews by the U.S. Securities and Exchange Commission (SEC) and mergers and acquisitions (M&A). Specifically, I exploit the clickstream data from the SEC’s EDGAR system, which allows me to track audit firms’ access to public firms’ electronic filings to investigate the effects of auditors’ information searches on the outcomes of regulatory reviews and M&A. The first study examines the usefulness of non-client industry peer companies’ financial filings for auditors to resolve the SEC’s review process on their clients. I hypothesize and find that audit firms can facilitate the resolution of the SEC’s comment letters for their clients through the disclosure benchmarking strategy against their client’s industry peers. Further analyses suggest that this benchmarking effect on the resolution of the regulatory process operates through two economic channels related to regulatory risk and information endowment. In addition, I find a positive association between the auditor’s disclosure benchmarking of peer firms in the regulatory process and their client’s future financial reporting quality. These findings highlight the usefulness of industry peer firms’ filing information to auditors in the SEC review process and provide significant implications for managers, regulators, and auditors with regard to the review process. The second study investigates the effect of information search effort by the acquirer’s auditor on post-M&A audit quality. I predict and find greater M&A-related information search effort by the acquirer’s auditor through accessing the target firm’s filings is associated with better post-acquisition audit quality. This effect is more pronounced when the acquirer’s auditor has less M&A experience, when the target firm has a lower analyst following, and when the deal value is greater. Further evidence also shows the auditor information search effort is associated with better audit efficiency. These findings inform managers, audit firms, and other stakeholders by showing that the information search effort on the target firm’s filings by the acquirer’s auditor improves post-M&A audit quality, which has been an issue of concern to these stakeholders.

  • (2023) Lin, Fangbin
    Algorithms are being increasingly used by organisations to support managers’ performance evaluation judgments and improve the quality of feedback provided to employees. However, there is limited understanding of how managers and employees respond to the use of algorithms for performance evaluation and feedback purposes. This dissertation comprises two studies, which examine how managers use algorithms to evaluate employees’ performance (Study One) and how employees respond to performance information generated by algorithms (Study Two). Study One investigates the extent to which managers’ willingness to use an algorithm-advised rating to evaluate subordinate performance is influenced by the valence of the advised rating and managers’ decision rights to adjust the algorithm. The study finds that managers are less willing to use the algorithm-advised rating to evaluate subordinate performance when the rating indicates below-average rather than above-average performance of the subordinate. When the rating indicates subordinate performance is below-average, allowing managers to adjust how the algorithm computes the advised rating increases their willingness to use it, compared with allowing them to adjust the final advised rating. Study Two examines whether and how providing employees with the forecasts of their individual performance (i.e., forecast performance) improves their acquisition of skills that are critical for future work roles (referred to as “distal skills”). The study also investigates the extent to which this effect depends on the forecast source and its past accuracy. The study finds that the provision of employees’ forecast performance increases their willingness to acquire distal skills. This benefit, however, decreases if the forecast source is an artificial intelligence (AI)-based performance evaluation system (PES), rather than a human advisor. Further, the negative effect of having an AI-based PES as the forecast source is amplified when the forecast source displayed a higher accuracy in predicting employees’ performance in the past. This dissertation extends the extant accounting literature investigating the use of algorithms for performance evaluation. Additionally, it offers organisational advice on how to increase managers’ willingness to use algorithmic advice when evaluating employees’ performance. Further, it provides practical suggestions on how to implement algorithms to provide performance feedback to facilitate employees’ skill-acquisition decisions.

  • (2023) Qin, Ling
    The thesis explores the consequences of information acquisition. Specifically, it investigates whether and how auditors and companies acquire, analyze, and integrate information from public filings and the impacts of this information acquisition on audit quality and corporate innovation. In the first study, I examine the relation between auditor information acquisition along the supply chain and audit quality. Auditors accumulate client-related knowledge during information acquisition, and this knowledge assists them with planning and performing the audit. After controlling for auditor-specific and client-specific variables, I find that auditor information acquisition along the supply chain has a positive association with audit quality. The positive relation is more pronounced with lower information processing costs, greater economic bonds between the client and its customers, or greater auditor supply chain knowledge. My results are robust to alternative measures of information acquisition, different time windows, misclassification issues, falsification tests, and removing observations with common auditors. Collectively, my study contributes to the literature on the audit process and audit quality. In the second study, I examine the consequences of companies’ information acquisition of peers’ corporate disclosures in terms of innovation spillovers. Due to the high information asymmetry stemming from the innovation process, managers have strong incentives to acquire information from corporate disclosures. More importantly, companies can learn from the acquired information and adopt peers’ innovative practices in their organization. As such, I expect that companies’ information acquisition can facilitate innovation spillovers. After controlling an array of relation-specific and innovation-specific variables, I find a positive relation between companies’ information acquisition and innovation spillovers. The positive relation is more pronounced when the firm pursues an exploratory strategy, the acquired information has stronger business prospects, the searching firm and searched firm have greater knowledge synergy, and innovation followers acquire information from innovation leaders. My results are robust to a battery of robustness tests. Moreover, I demonstrate that information acquisition not only promotes information spillovers but also facilitates corporate innovation. The study contributes to the literature on information acquisition and furthers the understanding of whether and how companies exert real efforts to enhance innovation.

  • (2023) Li, Jingduan
    My thesis examines changes in the use of private debt covenants associated with adopting international accounting standards. Specifically, this thesis examines (1) the impact of mandatory International Financial Reporting Standards (IFRS) adoption on debt covenant violations, (2) the impact of mandatory IFRS adoption on the debt covenant use in late-adopting countries (that adopted IFRS after 2005), and (3) the impact of a single accounting standard adoption (i.e., lease standard) on debt covenant use. The first study examines whether mandatory adoption of IFRS in 2005 increases debt covenant violations. My study focuses on covenant violation changes and aims to provide more evidence regarding IFRS adoption in debt markets. I find accounting debt covenant violations increase after IFRS adoption in 2005, and this increase is more pronounced in countries with high government effectiveness and high regulatory quality. These results provide new evidence to support the view of reduced contractibility following IFRS adoption. The second study investigates the impact of mandatory IFRS adoption on debt covenant use in late-adopting countries and IFRS’s long-term (after five years) impact on early-adopting countries (that adopted IFRS in 2005). I find the use of accounting covenants increases in late-adopting countries after IFRS adoption, and this increase only occurs in low-enforcement countries. I also find accounting covenant use in high-enforcement early-adopting countries decreases in the first five years (2005–2010) and becomes insignificant later, whereas, in low-enforcement early-adopting countries, accounting covenant use does not change in the first five years but increases significantly later. My results suggest the level of enforcement plays an important role in determining the use of accounting covenants. I find an insignificant result for the non-accounting covenant use in late-adopting countries. The third study explores the impact of single standard adoption – ASC 842 – on lessees’ use of debt covenants. I find adopting the new lease accounting standard has an insignificant impact on both accounting and non-accounting covenant use among lessees, indicating that one standard change has a minor impact on debt covenant use. In additional analyses, I test the impact of the COVID-19 pandemic on the use of debt covenants. My results show the use of accounting covenants decreases significantly during the pandemic period.