Earnings Conservatism, Litigation and Contracting: The Case of Cross‐Listed Firms

Abstract:   We compare earnings conservatism of UK companies cross‐listed in the US to that of UK companies without a US‐listing. We expect that conservatism will be more pronounced for cross‐listed firms than for firms with a UK listing only, because the cross‐listed firms face a stricter enforcement regime. Furthermore, cross‐listed firms may use a listing on a US exchange to signal high‐quality reporting to investors. Using a matched‐pairs research design, we find that earnings of UK cross‐listed firms are significantly more conservative than earnings of UK firms without a US listing. Moreover, cross listed firms display particularly high levels of conservatism during the early years of their cross‐listing. This indicates that firms use earnings conservatism to commit to highly demanding reporting requirements and in doing so communicate a perception of investor care.     

Methodological Issues in the Design of Online Surveys for Measuring Unethical Work Behavior: Recommendations on the Basis of a Split-Ballot Experiment

In recent years, there has been an increasing interest in unethical work behavior. Several types of survey instruments to collect information about unethical work behavior are available. Nevertheless, to date little attention has been paid to design issues of those surveys. There are, however, several important problems that may influence reliability and validity of questionnaire data on the topic, such as social desirability bias. This paper addresses two important issues in the design of online surveys on unethical work behavior: the response scale for questions regarding the frequency of certain types of unethical work behavior and the location of the background questions in an online survey. We present the results of an analysis of a double split-ballot experiment in a large sample (n = 3,386) on governmental integrity. We found that, when comparing response scales that have labels for all categories with response scales that only have anchors at the end, the latter provided answers with higher validity. The study did not provide support for the conventional practice of asking background questions at the end.     

Small Entrepreneurs and Shifting Identities: The Case of Tourism in Puerto Plata (Northern Dominican Republic)

This article focuses on the way small entrepreneurs in the tourism industry of the Puerto Plata region try to cope with contextual changes caused by the development of (mass) tourism. These entrepreneurs struggle with all sorts of problems, mainly resulting from the dominance of the large, multinational, all-inclusive resorts in the tourism industry. With the introduction of these large resorts in the early 1980s, the local entrepreneurs were hoping to obtain a substantial part of the income-growth derived from this new industry. As a result many locals shifted from their previous jobs to professions in the tourism industry. Nearly 30 years later, most of them are disappointed with the results, but because of the region's dependence on tourism they feel they have no way out. The Puerto Plata case is used to further explore the impact of tourism on the culture and identity of the small entrepreneurs.     

Accounting educators'' problem-solving style and their pedagogical perceptions and preferences

The problem-solving style exhibited by accounting educators may affect their propensity to implement innovative pedagogical and curriculum changes. This study used Adaption-Innovation Theory as a framework to investigate the problem-solving style of accounting educators. The sample consisted of 82 accounting educators from Missouri and Tennessee. More participants were found to be adaptive than innovative problem solvers though not to the extent found in prior research with accounting students. Faculty problem-solving style was found to be associated with preferences for certain pedagogical methodologies in the education process.     

A Wealth-Based Explanation for Earnings Conservatism

This study extends research on earnings conservatism – the degree to which the accounting system recognizes bad news regarding future cash flows in a more timely manner than good news – by arguing that heterogeneous executives' risk attitudes will influence the degree of conservatism. Prior research has demonstrated that differences in earnings conservatism are mainly the result of differences in institutional factors (Basu (1997) and Ball et al. (2000a)). We hypothesize that more risk-averse managers, who demand a risk premium that offsets the effects of the variance in their compensation, will report more conservative earnings. Earnings conservatism will temper expectations among stakeholders about the future cash flows to be distributed thereby diminishing the likelihood of disappointing outcomes and potential litigation or threats for executives of being fired. The more risk-averse manager would be more inclined to reduce such conflicts, since they will have a destabilizing effect on his future compensation. The empirical results for a sample of Dutch companies over the period of 1983 to 1995 confirm our hypothesis: more risk-averse managers report earnings more conservatively than do less risk-averse managers.     

Measuring Group Work; Findings and Lessons from a European Survey

Data from the EPOC-mail survey among managers in 10 European countries are used to fill the gap in our knowledge about the incidence of group work. Two variables were used to demarcate 'group-based' establishments. An attempt is made to compare the European data with American findings.     

Auctions as a Means of Creating a Market for Public Goods from Agriculture

The paper looks at the possibility of creating a market for environmental goods and services in the countryside by awarding conservation contracts to farmers on the basis of competitive bidding. Auctions have several theoretical advantages over alternative allocation mechanisms (such as standard-rate payments) because they allow the participants to deal with informational asymmetries and the uncertainty about the value of the (non-market) goods being traded. A formal model of bidding behaviour in ‘green auctions’ shows that bidding strategies are determined by the individual farmers' costs of implementing the conservation contracts and their beliefs about the maximum acceptable payment level, making the auction an imperfect cost revelation mechanism. Auctions can reduce the information rents accruing to farmers and can increase the cost-effectiveness of public goods provision. Strategic bidding behaviour in multiple-signup auctions as well as high transaction costs are potential sources of reduced efficiency.     

The Effect of Auditor Style on Reporting Quality: Evidence from Germany

This paper examines whether the ‘style’ of individual auditors influences financial reporting quality in Germany. Audit quality in Germany should be uniformly high, because of strong reputational needs, strict controls on operating procedures, and quality enforcement mechanisms. An audit partner's style should not affect this quality level. However, our results do not support this expectation. Exploiting a unique dataset comprising the names of the audit engagement and review partners of listed German companies, we find that audit engagement partners in Germany have a significant influence on audit quality, beyond firm‐ and office‐level factors. In contrast, audit review partners do not have a consistent significant influence on audit quality. We measure audit quality by the level of a firm's abnormal accruals and its propensity to meet or beat an earnings target. We also find that the 2005 adoption of a new audit quality enforcement system that includes ‘naming and shaming’ does not reduce the influence of audit partner style on financial reporting quality.