Changing gender domination in a Big Four accounting firm: Flexibility, performance and client service in practice

Traditionally, accounting has been described as a gendered profession. Recently, accounting firms, and especially the Big Four, have made very public commitments to promote greater gender equality. Yet they struggle to retain women, especially at more senior levels. Drawing on a recent empirical field study of managers in one of the Big Four accounting firms (pseudonym Sky Accounting), we explore the effects of a flexible work initiative that was developed with the aim of creating “the best professional workplace for women”. The paper addresses the flexibility program as a key organizational practice that was specifically designed to enhance the progression and retention of talented women at senior levels. We show how the initiative that was designed to challenge the status quo was, in practice, translated into a mechanism that actually reinforced gender barriers. In order to theorize our findings, we draw on contemporary theoretical approaches to gender from both accounting and organization theory and suggest several critical reflections on the dynamics of bringing about change in relation to gender inequality.     

Managerial Incentives and Stock Price Manipulation

We present a rational expectations model of optimal executive compensation in a setting where managers are in a position to manipulate short‐term stock prices and the manipulation propensity is uncertain. We analyze the tradeoffs involved in conditioning pay on long‐ versus short‐term performance and show how manipulation, and investors' uncertainty about it, affects the equilibrium pay contract and the informativeness of prices. Firm and manager characteristics determine the optimal compensation scheme: the strength of incentives, the pay horizon, and the use of options. We consider how corporate governance and disclosure regulations can help create an environment that enables better contracting.     

Accounting practices and professional power dynamics during a crisis

This paper examines how changes in accounting practices during a crisis can affect organisational dynamics between hospital managers and clinicians. Our theoretical framework applies a multi-dimensional concept of power (Hardy, 1996) – which distinguishes power over resources, processes and meaning – to a longitudinal case study of a public university hospital during a budgetary crisis. Based on interviews with managers and clinicians, three successive time intervals with distinct power constellations are identified. Initially, we identify a pre-crisis phase where management formally controls resources, which seems to have limited effects on clinician dominance because managers lack ‘processual power’ and ‘power of meaning’. Next, an implantation phase emerges whereby the introduction of mandated budget cuts triggers shifts in the distribution of power, such that managers acquire power by securing the collaboration of clinicians – a phenomenon which has tangible benefits in terms of enabling budget compliance and increased service provision. Finally, the third phase may be conceptualized as a fiscal pressure regimen whereby, when budgetary pressures intensify further, management's newly gained ‘power of meaning’ is eroded because management are now seen to pursue unrealistic demands. Drawing on research insights gleaned during each phase, our analysis contributes to extant literature in at least three ways. First, we present novel findings regarding the impact of crises-related applications of accounting practices on intra-organisational power constellations. Second, our work highlights how accounting practices help shape the understanding of crisis, which, in turn, impacts the distribution of organizational power and influences intra-organizational patterns of collaboration. Third, we find that awareness of the meaning power of accounting practices can help shape strategic action in crisis situations.     

EVIDENCE ON THE COMPENSATION OF PORTFOLIO MANAGERS

We surveyed 396 portfolio managers about the structure of their compensation. Overall, more compensation packages are subjective/discretionary than objective/formula based. Firm success factors such as firm profitability have more effect on bonuses than do client success factors such as investment performance. Differences in the structure of compensation across firms, clients, job types, and manager characteristics reflect likely differences in the underlying contracting environments, especially differences in the difficulty of monitoring performance and exerting control.     

Fairness in performance evaluation and its behavioural consequences

A recent paper in Accounting and Business Research by Lau et al. (2008) offers systematic evidence to explain whether managers’ perceptions on fairness of performance evaluation procedures affect attitudes such as job satisfaction; and if it does, the different behavioural processes involved. Our paper re‐examines Lau et al.’s model and hypotheses to assess the external validity of their findings, based on a very different sample of managers. Drawing on recent organisational justice literature, it further develops the model and examines the potential interaction effects of fairness of performance evaluation procedures and other variables on job satisfaction. Finally, it extends the outcome variable to include manager performance. Using survey responses from 165 managers, supported by 24 interviews, drawn from three major organisations in the manufacturing and financial services sectors, we find that Lau et al.’s results on the indirect effects of fairness of performance evaluation procedures on job satisfaction are generalisable to other organisational settings and managerial levels. However, using their model we do not find support for the outcome‐based effects through distributive fairness. Developing a revised model we observe that the effects of distributive fairness on job satisfaction are indirect via organisational commitment. When the model is further developed to incorporate performance as the outcome variable, we observe similar findings.     

The duties of a receiver/manager in Nigeria and Ghana

This paper critically examines the duties of receiver/managers in Nigeria and Ghana with a view to determining their adequacy or otherwise. The paper distinguishes between a receiver/manager appointed pursuant to ownership or management dispute and a receiver/manager appointed pursuant to the realization of security. With respect to the former the paper concludes that the persons appointed thereby are better described as managers and suggests a more detailed elaboration of their duties. To determine the duties of receiver/managers appointed to realize security the paper examines the meaning of the receiver/managers; the capacity to be appointed to that office and the duties of a receiver/manager appointed by the court as well as those appointed out of court by the security holders. The paper also considers the consequences of a breach of duty and concludes that the law on receivership is largely the same in Nigeria and Ghana even though there is more litigation in Nigeria. Furthermore the paper suggests the importance of appointing professionals as receiver/managers; the need for the clarity of rules to enable the receiver/managers effectively discharge their duties to enable an assessment of the adequacy of the duties. In this regard the paper recommends a comprehensive reform of insolvency law in Nigeria and Ghana. Copyright © 2005 John Wiley & Sons, Ltd.     

US oil companies’ earnings management in response to hurricanes Katrina and Rita

This study examines earnings management by US-based oil companies in the period immediately after the impact of hurricanes Katrina and Rita. We show that large petroleum refining firms – but not the smaller crude oil and natural gas production companies – recorded significant abnormal income-decreasing accruals in the fiscal quarter immediately after the impact of hurricanes Katrina and Rita (Q4 of 2005). In addition, we show that these results are driven by abnormal current accruals. Prior studies show that some firms respond to periods of heightened political scrutiny by recording abnormal income-decreasing accruals (e.g. [Cahan, S., 1992. The effect of antitrust investigation on discretionary accruals: a refined test of the political cost hypothesis. The Accounting Review 67 (1), 77–96; Han, J., Wang, S., 1998. Political costs and earnings management of oil companies during the 1990 Persian Gulf Crisis. The Accounting Review 73 (1), 103–118]). Our results add to this stream of research by examining a political cost-increasing event that occurred after the passage of the Sarbanes–Oxley Act (SOX) of 2002. The results suggest that in the post-SOX period managers continue to engage in income-decreasing earnings management during periods of heightened political cost sensitivity, at least in the case of large petroleum refining firms.     

What impact does a change of fund manager have on mutual fund performance?

Using a unique database of UK fund manager changes over the period from 1997 to 2011, we examine the impact of such changes on fund performance. We find clear evidence to suggest that a manager change does affect the benchmark-adjusted performance of UK mutual funds. In particular we find a significant deterioration in the benchmark-adjusted returns of funds that were top performers before the manager exit and, conversely, a significant improvement in the average benchmark-adjusted returns of funds that were poor performers before the manager exit. Our use of the Carhart's (1997) four-factor model reveals that the improvement in average post manager exit performance is accompanied by a reduction in market risk, a slight reduction in exposure to small cap stocks, and an increase in exposure to value and momentum stocks. Overall, our results suggest that UK fund management companies have been relatively successful in replacing bad managers with better managers, but relatively unsuccessful at finding equivalent replacements for their top performing managers. We believe that regulators should therefore try to ensure that all efforts are made by fund management companies to inform all of their investors about a change in management.     

The relation between equity incentives and misreporting: The role of risk-taking incentives

Prior research argues that a manager whose wealth is more sensitive to changes in the firm?s stock price has a greater incentive to misreport. However, if the manager is risk-averse and misreporting increases both equity values and equity risk, the sensitivity of the manager?s wealth to changes in stock price (portfolio delta) will have two countervailing incentive effects: a positive “reward effect” and a negative “risk effect.” In contrast, the sensitivity of the manager?s wealth to changes in risk (portfolio vega) will have an unambiguously positive incentive effect. We show that jointly considering the incentive effects of both portfolio delta and portfolio vega substantially alters inferences reported in prior literature. Using both regression and matching designs, and measuring misreporting using discretionary accruals, restatements, and enforcement actions, we find strong evidence of a positive relation between vega and misreporting and that the incentives provided by vega subsume those of delta. Collectively, our results suggest that equity portfolios provide managers with incentives to misreport when they make managers less averse to equity risk.     

Becoming the boss

Even for the most gifted individuals, the process of becoming a leader is an arduous, albeit rewarding, journey of continuous learning and self-development. The initial test along the path is so fundamental that we often overlook it: becoming a boss for the first time. That's a shame, because the trials involved in this rite of passage have serious consequences for both the individual and the organization. For a decade and a half, the author has studied people-particularly star performers-making major career transitions to management. As firms have become leaner and more dynamic, new managers have described a transition that gets more difficult all the time. But the transition is often harder than it need be because of managers' misconceptions about their role. Those who can acknowledge their misconceptions have a far greater chance of success. For example, new managers typically assume that their position will give them the authority and freedom to do what they think is best. Instead, they find themselves enmeshed in a web of relationships with subordinates, bosses, peers, and others, all of whom make relentless and often conflicting demands. "You really are not in control of anything, says one new manager. Another misconception is that new managers are responsible only for making sure that their operations run smoothly. But new managers also need to realize they are responsible for recommending and initiating changes-some of them in areas outside their purview-that will enhance their groups' performance. Many new managers are reluctant to ask for help from their bosses. But when they do ask (often because of a looming crisis), they are relieved to find their superiors more tolerant of their questions and mistakes than they had expected.     

Strategic Asset Allocation in Money Management

This paper analyzes the dynamic portfolio choice implications of strategic interaction among money managers who compete for fund flows. We study such interaction between two risk‐averse managers in continuous time, characterizing analytically their unique equilibrium investments. Driven by chasing and contrarian mechanisms when one is well ahead, they gamble in the opposite direction when their performance is close. We also examine multiple and mixed‐strategy equilibria. Equilibrium policy of each manager crucially depends on the opponent's risk attitude. Hence, client investors concerned about how a strategic manager may trade on their behalf should also learn competitors' characteristics.     

Managing by commitments

What makes a great manager great? Despite differences in their personal attributes, successful managers all excel in the making, honoring, and remaking of commitments. Managerial commitments take many forms, from capital investments to personnel decisions to public statements, but each exerts both immediate and enduring influence on a company. A leader's commitments shape a business's identity, define its strengths and weaknesses, establish its opportunities and limitations, and set its direction. Executives can all too easily forget that commitments are extraordinarily powerful. Caught up in the present, managers often take actions that, while beneficial in the near term, impose lasting constraints on their operations and organizations. When market or competitive conditions change, they can find themselves unable to respond effectively. Managers who understand the nature and power of their commitments can wield them more effectively throughout a company's life cycle. Entrepreneurs can avoid taking actions that imprint a new venture with a dysfunctional character. Managers in established enterprises can buttress past commitments that retain their currency and learn to recognize when commitments have become roadblocks to needed changes. The manager can then replace those roadblocks with new, rejuvenating commitments. That doesn't mean you should try to anticipate all the long-run consequences of every commitment--and it certainly doesn't mean you should shy away from making commitments. But it does mean that before making important decisions about, say, operating processes or partnerships, you should always ask yourself: Is this a process or relationship that we can live with in the future? Am I locking us into a course that we'll come to regret?     

Accounting for People: A real step forward or more a case of wishing and hoping?

In principle, the Accounting for People initiative announced by the UK government in January 2003 held out the possibility of a real step forward in promoting the interests of employees. Despite its distinctly managerialist discourse, the initiative acknowledged that having now recognised that ‘people are our greatest asset’, employers should begin to consider how to report on their people management activities in financial statements. After more than three and a half years of consultation, debate and deliberation, larger UK quoted companies are now charged with providing only a minimal level of general information on their employees. Whatever promise may have been evident to wishful thinkers in the early months of the initiative, this outcome confirms that there is little possibility for progressively ‘accounting for people’ as long as such practices are shaped by powerful sectional interests. The purpose of this paper is to subject the initiative to critical scrutiny. The paper seeks to document how the Accounting for People initiative was quickly and effectively emasculated as a consequence of the power and influence wielded by the UK accountancy profession, identified as a key agent of capital. Additionally, attention is drawn to a number of contemporary developments, largely and perhaps knowingly ignored in the course of the Accounting for People debate, that may yet inform and energise a more radical approach to accounting for people.     

The Role of Auditing Firms in the Implementation of New Accounting Standards: Evidence from China

This paper explores the impact of auditing firms on the implementation of the new Chinese Accounting Standards for Enterprises 22 (new CAS 22), which converges with IFRS 9. We find that the Big4 firms focus on fair value measurement and application of the expected credit loss (ECL) impairment model, whereas the LocalTop6 firms primarily focus on the classification of financial assets. The results indicate that effective implementation of the new standards mainly depends on standardized procedures and professional techniques of auditing firms, as the Big4 firms exhibit better implementation of the new standards in terms of items that generate greater risk and uncertainty than do local large auditing firms in China. In addition, we further test how cross-listing affects the role of auditing firms in implementing the new standards and find that the Big4 firms play a more significant role for A-share only companies than A + H companies. The findings reveal the challenges associated with implementation of IFRS 9-based new CAS 22 in China.     

Association between Big 4 auditor choice and cost of equity capital for multiple‐segment firms

Prior studies document a negative association between Big 4 auditor choice and the implied cost of equity capital, suggesting that Big 4 auditors mitigate information asymmetry (IA) between shareholders and managers. This study extends this line of research and reports that the negative association is more pronounced in multiple‐segment firms, where IA is more severe than in single‐segment firms. We also find that the association between Big 4 auditor choice and the cost of equity capital becomes more negative as the number of segments increases. Taken together, our findings suggest that the role of Big 4 auditors in reducing the cost of equity capital becomes more significant when greater IA exists.     

The impact of manager philosophy on knowledge management systems

This paper analyses how information about managers and technology can be used to provide those managers with a system that is congruent with their needs. In particular, using McGregor's Theories X and Y philosophies, managerial needs are elicited and then contemporary knowledge management technologies, including intelligent agents, and the way they are implemented, are analysed to determine how they meet those manager needs. Different knowledge management technologies are found to be important to manifesting the requirements of particular management philosophies. For example, ‘Theory X’ appears consistent with use of intelligent agents to ‘monitor’ behaviour. This leads to the concept of ‘technology congruence’, where the choice of the technology ultimately is tied to which view of the world the manager employs. Copyright © 2010 John Wiley & Sons, Ltd.     

In the mirror of the market: The disciplinary effects of company/fund manager meetings

This paper draws upon empirical qualitative research with Finance Directors and Investor Relations managers to examine the disciplinary consequences of their meetings with institutional investors. These ‘private’ meetings have increased both in frequency and importance in the last decade, but, when compared to public disclosure, they are relatively under researched. Existing studies have focussed on the role that the meetings play either in the market for information, or as a mechanism for corporate governance. By contrast, in this paper we draw upon Foucault’s analysis of power/knowledge to explore how the meetings shape executive subjectivity. The meetings take place in the context of a proliferation of techniques through which corporate performance is disclosed, modelled, compared and ranked. Such visibility makes possible processes of executive subjection which the paper traces firstly in the anticipatory self-discipline of executive’s extensive rehearsals for the meetings, and secondly in the rituals of face-to-face scrutiny of the meetings themselves where the body of the executive is understood to represent the company. The paper then explores the ways in which subjection to investors enables executives to speak on behalf of the investor within the business and effect its restructuring in the name of shareholder value. We suggest that these neglected disciplinary effects of company/fund manager meetings have been all too potent in recent years.     

Internal auditors’ use of interpersonal likability,arguments, and accounting information in a corporate governance setting

Internal auditors play an important role in influencing managers’ judgments. Yet, the practitioner literature indicates that, because internal audit lacks the client services incentives of external audit, internal auditors often adopt a “policeman approach” that can lead to negative interpersonal relationships with managers. We investigate three variables fundamental to internal auditors’ ability to influence managers: (1) internal auditors’ interpersonal likability, (2) the information used to support their positions, and (3) whether they present that information in a thematically organized argument. We find that managers agree more with an internal auditor who is both likable and uses a thematically organized argument. We find further that this joint effect occurs regardless of whether the internal auditor’s information is relatively supportive or unsupportive of his position. Overall, our theory and findings suggest that an internal auditor can achieve agreement from managers on important corporate governance issues with this fairly straightforward presentation tactic, even when the underlying information is relatively unsupportive and managers otherwise tend not to agree with the internal auditor’s position. Our study contributes to accounting, psychology, and writing and discourse theories with new evidence of the effects of an argument structure (holding the underlying information constant) on users’ judgments, and how those effects depend on the likability of the source of information. Our findings have important implications for internal auditors, managers, external auditors, and others interested in corporate governance.     

The Predictability of Managerial Heterogeneities in Mutual Funds

Using a sample of Chinese mutual funds, we empirically assess how managerial heterogeneity affects mutual fund performance. We find that funds with higher manager fixed effects outperform those with lower manager fixed effects by 2% per year. We also note that fund performance improves after managers with higher fixed effects are hired. The results are consistent with the notion that manager fixed effects are associated with managerial innate ability. Finally, we find that investors pay attention to managerial attributes beyond the traditional performance measures, providing supporting evidence for the rational explanation of convex flow‐performance sensitivity in the literature.     

Words versus Deeds: Evidence from Post‐Call Manager Trades

We examine the impact of conference call tones on the direction and magnitude of subsequent manager trades. Our univariate results show that corporate insiders buy company shares following negative‐tone conference calls and sell shares following positive‐tone conference calls. This inverse call tone–trading pattern holds for both managers’ introductory sessions and subsequent question‐and‐answer (Q&A) sessions. Our multivariate results confirm the univariate call tone–trading patterns and show that contrarian manager trades are mostly driven by managerial selling activity. In contrast to the consistent and strong evidence of managers trading in the opposite direction of their call tones, we find no evidence of managers trading in the same direction of their call tones. We also examine the impact of analyst Q&A challenges on post‐call manager trades. Our findings suggest that managers learn from analyst feedback and adjust their post‐call trades accordingly.