How and why auditors’ social exchange relationships influence their attitudes and behaviors: Implications for audit quality

External auditors regularly interact with various parties at work, such as their accounting firms, engagement team members, and clients. These interactions can help shape the nature of auditors’ social exchange relationships with these entities, which in turn may influence their behavior toward these targets. This installment of Accounting Matters draws from recently published research by Herda and colleagues to (1) explain how constructive auditor-target connections can develop and lead to beneficial outcomes like reduced auditor burnout and turnover intentions, as well as more citizenship behavior, and (2) discuss how these upshots might ultimately affect audit quality. This topic is important because audit quality translates into improved financial reporting, which helps stakeholders who rely on audited financial statements to make informed business decisions. Specifically, we underscore the key role auditors’ perceptions of fair treatment from a relationship partner play in fostering a strong psychological bond with the target via perceived support. We further consider how auditors’ consequent commitment to the target can result in favorable organizational outcomes, including enhanced audit and financial reporting quality. We also discuss practical implications for accounting firms.     

Determinants of China's bilateral trade balance in global value chains

This paper identifies the determinants of China's bilateral trade balance using a new measure based on international input–output data, the so-called ‘trade in value-added’ (TiVA), which can prevent double counting in the estimation of bilateral trade balance. Our results show that using a measure based on gross exports, rather than TiVA, causes relatively large overestimation of the impact of the RMB exchange rate on China's bilateral trade balance. This overestimation is mainly because that the increasing production of exports may require increasing intermediate imports as a consequence of international fragmentation of production in global value chains. In addition, our results also show that the impact of FDI inflows on China's bilateral trade balances depends on the position and role of China and its trading partners in GVCs.     

In the Bear’s Shadow? Russia’s International Image and Its Influence on Investments of Russian Companies in Post-Socialist Europe

The paper examines Russia’s international image and its influence on investment by Russian companies in post-socialist Europe. Findings are based on the cases of Gazprom’s South Stream Pipeline project, and Sberbank’s acquisition of Volksbank’s Central and Eastern European assets in Hungary and Serbia. The paper demonstrates that international positions and economic interests of two countries determinate decisions regarding investments of Russian companies, while Russia’s image to some extent accelerates these decisions in Serbia. The paper is based on the results of interviews with representatives of business communities conducted in Hungary and Serbia in 2012–2017, professional reports, and official documents.     

Counting the cost: the reserve price scheme for wool 1970‐2001

This paper provides a policy commentary on the collapse in 1991 of the Australian Reserve Price Scheme for wool. A key cause of the collapse in the Scheme was a change in the RPS's governance arrangements, which led to increased political pressures to raise prices to unsustainable levels. In addition, in this paper an estimation has been made of the direct, upfront costs of the operation of the scheme, drawing on the financial accounts of the various agencies operating the RPS and subsequent wool stockpile. This was undertaken to determine the scale of the policy failure.     

Bertrand versus Cournot competition in a downstream mixed oligopoly with foreign ownership

Focusing on foreign ownership in the private firm, we examine the Cournot-Bertrand comparison in a mixed oligopolistic market with vertical market structure. We have found that if public and private firms were charged with uniform price for their inputs, then Cournot-Bertrand ranking in market outcomes confirms those obtained by Ghosh and Mitra (2010). This implies that under uniform pricing in the upstream sector, the vertical market structure does not have substantial influences on Cournot-Bertrand ranking. However, if discriminatory pricing is adopted, firm's profits, output, and social welfare are often reversed to those obtained from uniform pricing in the upstream sector. Given the closeness of products, if the share of foreign ownership is sufficiently low, social welfare in Cournot competition can exceed that of Bertrand competition, contrasting with the standard welfare ranking that Bertrand welfare is strictly higher than Cournot. This implies that Cournot competition can be more socially desirable than Bertrand in mixed oligopoly with vertical market structure if discriminatory pricing scheme is adopted by foreign upstream monopolists.     

An Empirical Assessment of the Swedish Bullionist Controversy*

In the 18th century, a fierce political debate broke out in Sweden about the causes of an extraordinary depreciation of the currency. More specifically, the deteriorating value of the Swedish currency was blamed arbitrarily on monetary causes (e.g., the overissuing of banknotes) and on non-monetary causes (such as balance-of-payments deficits). This paper provides a comprehensive empirical assessment of this so-called “Swedish Bullionist Controversy”. The results of vector autoregressions suggest that increasing amounts of paper money did give rise to inflation and a depreciation of the exchange rate. Conversely, non-monetary factors were probably less important for these developments.     

Institutional distance and Turkey’s outward foreign direct investment

This study empirically examines the relation between institutional distance (ID) and Turkey’s outward foreign direct investment (TODI). The empirical results use panel data from 2002 to 2016 to show that TODI is attracted to countries with better institutional quality. We also find that host country political stability, government effectiveness, control of corruption, and rule of law attract TODI. We also document that TODI is positively related to cultural distance (CD) and ID is not moderated by CD.     

Death spiral PIPEs: a reconsideration of the evidence

We challenge the view that PIPEs lead to unfavourable outcomes for issuing firms. We show that structured PIPEs do not have significant negative CARs when a matched firm benchmark is used for computing CARs and when sample selection bias is taken into account. Indeed, structured PIPEs have significantly higher positive skewness, indicating superior optionality, consistent with the real option argument. We also show that the 2002 intervention by the Securities and Exchange Corporation (SEC) has led to unintended consequences, with the substitution of ‘mom and pop’ investors for hedge fund investors in the structured PIPE market.     

中国木质家具出口贸易与汇率波动关系研究

木质家具是我国最重要的出口林产品之一。人民币汇率改革后,人民币总体呈升值趋势,这一趋势提高了国产木质家具的出口价格,会产生阻碍出口的作用;与此同时其也会使进口原材料价格相对降低、促进原材料的进口,二者相互作用会共同影响木质家具出口额。通过建立回归模型,研究人民币汇率波动对中国木质家具出口贸易额的影响,结果表明人民币汇率与中国木质家具出口额呈负相关,但是通过人民币贬值来促进出口的策略并不明智。     

Was It Possible to Stabilise the Price of Wool? Organised Wool Marketing 1916 to 1970

Wool is the only Australian commodity for which there has been an attempt to organise price stability through a buffer stock scheme (1970–91). Growers pressed for the introduction of a scheme since the early 1920s. We test the veracity of claims that the sale of the stockpiles optimised growers' returns. We also simulate the likely outcomes of the reserve price schemes (RPS) proposed in 1925 and 1952, respectively. Our findings are that post-war stockpile disposals did not optimise wool growers' incomes, the undercapitalised proposed RPS of the 1920s would have collapsed in the depression, and that the post-1952 RPS would have been in considerable difficulty.