A Review of Big Data Research in Accounting

The impending fourth industrial revolution has enhanced the role of big data analytics in today’s business practice. Consequently, many now consider big data as the most strategic resource in business to the extent that organizations that fail to utilize it may become competitively disadvantaged. Following these developments, questions have been raised about the future of the accounting discipline, especially in terms of how it can continue to add value to organizations. While some scholars have attempted to address this question, it remains an abstract concept requiring further investigation. Therefore, this study conducts a systematic literature review to determine the status of accounting research on big data analytics and provides avenues for further studies. By conducting co-occurrence network analysis on 52 peer-reviewed articles published from 2010 to 2020, three broad themes emerged, entailing big data implications for accounting practice, education, and research design. A further examination of the themes revealed few empirical studies on the phenomenon, as conceptual research dominates the field. Although external audit implications of big data are widely discussed, other accounting domains (e.g., managerial accounting and taxation) are underexplored. Therefore, future studies may focus on the implications of big data on variables such as performance measurement, information governance, tax behavior, curriculum design, and pedagogy.     

Big Data Opportunities for Accounting and Finance Practice and Research

We examine the research opportunities for the use of ‘big data’ in accounting and finance. The purpose of the study is to present a snapshot of big data academic research in information systems, accounting and finance, and to highlight areas for further research in accounting and finance. The research question addressed in this work is: What are the major themes in existing research in big data and where are the resulting gaps in the accounting and finance literature? An analysis is presented of 47 accounting, finance and information systems journals from 2007–2016. We identify and sample the relevant literature to derive a taxonomy of themes. These themes are presented as a conceptual matrix in which the themes from the taxonomy are used as concepts, and the matrix identifies where they appear, and where there are potential areas for further research. Prior research in big data in accounting, finance and information systems falls into six themes. The six under‐researched areas of big data in accounting and finance are risk and security, data visualisation and predictive analytics, data management and data quality. Increased research in these areas will lead to improvements in industry practices, and opportunities for cross‐disciplinary research.     

Too Big to Be Efficient? The Impact of Implicit Subsidies on Estimates of Scale Economies for Banks

We examine whether “too‐big‐to‐fail” (TBTF) factors affect estimates of scale economies for large banks. From a standard model of bank production that does not control for any TBTF factors, we find evidence of scale economies for our sample of large banks. We then control for TBTF factors by using a measure of the “implicit subsidy” that emerges from a reduction in TBTF banks’ funding costs due to investor expectations of government support. We do this in two ways: first, we estimate scale economies from an augmented model of bank production that employs a proxy for the counterfactual price of debt that banks would face in the absence of any TBTF funding cost advantage; second, we estimate scale economies from a model of bank production that is estimated only for a sample of banks considered unlikely to be TBTF. After controlling for TBTF factors using either method, we no longer find evidence of scale economies for our sample of large banks. These results suggest that estimated scale economies for large banks are affected by TBTF factors.     

"大而不倒"救助政策的理论和实证研究

由于大银行倒闭的巨大破坏性,最后贷款人在救助中通常奉行"大而不倒"政策。考虑到救助成本是银行资产规模的增函数,如果救助银行是最优的,那么救助任何一个更大的银行将也是最优的,这也意味着"大而不倒"救助政策在理论上的成立。在"大而不倒"政策下,规模和风险之间存在相互影响的关系。"大而不倒"救助政策影响银行的规模选择和资产风险的组合选择,导致银行追求变得更大且更具风险。     

The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence

One of the most significant and unique features in Kahneman and Tversky's approach to choice under uncertainty is aversion to loss realization. This paper is concerned with two aspects of this feature. First, we place this behavior pattern into a wider theoretical framework concerning a general disposition to sell winners too early and hold losers too long. This framework includes other elements, namely mental accounting, regret aversion, self-control, and tax considerations. Second, we discuss evidence which suggests that tax considerations alone cannot explain the observed patterns of loss and gain realization, and that the patterns are consistent with a combined effect of tax considerations and the three other elements of our framework. We also show that the concentration of loss realizations in December is not consistent with fully rational behavior, but is consistent with our theory.     

Constructing the governable small practitioner: The changing nature of professional bodies and the management of professional accountants’ identities in the UK

This article aims at contributing to the sociology of the accountancy profession by analysing how professional organisations govern the various categories that have emerged in the professional body throughout its history. To this end, the attempt by the Institute of Chartered Accountants in England and Wales to give an institutional existence to the category of “the small practitioner” is examined. The plasticity and the polysemic nature of the notion of smallness, which refers simultaneously to physical (small/big), geographical (local/global) and moral (anonymous/notorious) characteristics, offers a particular opportunity to show how these three dimensions have been integrated into evolving organisational arrangements and discourses aimed at legitimising the professional order. It is contended that the definition of what small practitioners are, and how they should be dealt with, can only be understood as part of the broader issue of governance of the accountancy community and the nature of the professional body. The ICAEW’s efforts to problematise the nature of small practices indicates a will to integrate distant modalities of accounting expertise into a single professional space, so as to prevent the physical and geographical distance between big and small firms from becoming too conspicuous a hierarchical distinction, and thus preserve the ideal of the community of peers upon which professional bodies have been built.     

Deposit Insurance and Wealth Effects: The Value of Being “Too Big to Fail”

This paper investigates the effect on bank equity values of the Comptroller of the Currency's announcement that some banks were “too big to fail” and that for those banks total deposit insurance would be provided. Using an event study methodology, we find positive wealth effects accruing to TBTF banks, with corresponding negative effects accruing to non-included banks. We demonstrate that the magnitude of these effects differed with bank solvency and size. We also show that the policy to which the market reacted was that suggested by the Wall Street Journal and not that actually intended by the Comptroller.     

DEVELOPMENTS IN PUBLIC SECTOR PERFORMANCE MEASUREMENT: A PROJECT ON PRODUCING RETURN ON INVESTMENT METRICS FOR LAW ENFORCEMENT

This paper reports on a project concerned with developing a return on investment (ROI) performance metric for a law enforcement organisation. The paper's contributions are twofold. First, it addresses concerns in the literature about how different stakeholder interests are balanced in the development of performance measures. Second, it helps to remedy an oversight in the literature regarding the hybridisation of accounting and economic expertise, whereby cost benefit techniques and ROI combine to produce a metric of public sector achievements. By virtue of its law enforcement context the paper also discusses a further hybridisation where accounting, economics and criminology/law enforcement intersect.     

The Changing Nature of Contracting and Trust in Public‐Private Partnerships: The Case of Victorian PPP Prisons

This paper examines shifting constructions of contracting and trust that are manifest between pre‐2000 and post‐2000 public‐private partnerships (PPPs) providing prison facilities and/or services in the Australian State of Victoria. As such, this paper is significant because it outlines longitudinal insights into the nature of changing practices sustaining these PPPs. The post‐2000 period examined reflects a change of government and the policy context. Our examination is based on a range of primary and secondary documents. The primary documents comprise three pre‐2000 Prison Services Agreements and two post‐2000 Facilities Services Agreements. A number of government and other reports constitute the secondary documents consulted. While there are many substantive similarities between the contracts, we find five main areas of changed contracting practices over the period examined. These relate to: first, the objectives of the PPP prisons; second, risk management practices; third, the approach to performance measurement and reporting; fourth, the structuring of incentive and payment mechanisms; and fifth, the emphasis on collaboration. Overall, we find that the post‐2000 contracts promote a more overt development of goodwill trust and relational contracting, building on presumptions of contractual and competence forms of trust. However, quite different outcomes have been achieved from particular contractual contexts. Our study suggests that in complex PPP contracts, the influences of both the transacting parties and the transaction environment have been insufficiently recognized in the literature on PPPs.     

Too big to fail: Measures,remedies, and consequences for efficiency and stability*

This paper evaluates whether reform efforts addressing “too big to fail” actually enhance the stability of the financial system, and whether trade‐offs exist between stability and efficiency. We also present and discuss various measures of bank size and complexity since such measures are essential for implementing appropriate corrective remedies. As we will show, there are no unambiguous measures of size or complexity that can fully capture a bank's contribution to systemic risk. Their effects on efficiency are also impossible to capture with certainty. While we recognize the need for additional research and empirical evidence, we do identify weaknesses and strengths of proposed and implemented reforms that could have consequences for bank stability and efficiency.     

Mandatory IFRS Adoption and the Contractual Usefulness of Accounting Information in Executive Compensation

We examine how the mandatory adoption of International Financial Reporting Standards (IFRS) in continental Europe affects the contractual usefulness of accounting information in executive compensation, as reflected in pay‐performance sensitivity (PPS) and relative performance evaluation (RPE). The empirical evidence indicates a weak increase in accounting‐based PPS in the post‐adoption period, primarily driven by countries with large differences between IFRS and their previously adopted local accounting standards. We also document a significant increase in accounting‐based RPE using foreign peers after the adoption. Additional analysis shows that the increase in RPE is greater for firms with more foreign sales, and for those with lower availability of domestic peers of comparable size. The overall results are consistent with the compensation committees in those countries perceiving earnings after IFRS adoption to be of higher quality and comparability. Our paper highlights an important benefit of IFRS largely ignored by the literature, that is, the higher earnings quality and comparability brought by the adoption of IFRS facilitate executive compensation contracting.     

Convertible Securities and Bankruptcy Reforms: Addressing Too Big to Fail and Reducing the Fragility of the Financial System*

Eliminating too big to fail should be the first priority of any regulatory reform. But this is easier said than done. As the crisis has taught us, when the systemic risks are perceived to be large, regulators will be very reluctant to close down insolvent firms or impose losses on creditors. So how do we reduce these risks so that regulators can credibly commit to a policy of allowing financial companies to fail and not resort to rescues or bailouts? The author proposes two complementary approaches to this problem: The first is to design capital structures with corrective mechanisms that kick in when a financial firm displays signs of trouble, but still has positive economic capital. To this end, the author endorses the Squam Lake Report's proposal that encourages financial firms to issue convertible debt with an “automatic” provision for converting to equity. In contrast to the Squam Lake proposal, however, the author argues that the conversion to equity should not depend on regulators' decisions and should take place before individual banks and the financial system are in full crisis mode. The second approach is to design a resolution mechanism that will close failing financial firms when early intervention has not led to the firm's recovery. The author argues that the best model for this mechanism is bankruptcy, because of its resolution of claims according to predetermined rules rather than regulatory discretion. However, certain forms of early intervention can also help to lower the costs of permitting firms to fail. For example, the Squam Lake idea that financial institutions be required to develop living wills should make it easier to unwind these firms in an orderly fashion and provide regulators with insight into the degree of systemic risk that these firms impose. The author notes that the challenges associated with getting the executives of healthy banks to plan for their own bankruptcy may indicate that a better use of regulatory resources might be to view the living will as one of the tools of prompt corrective action for firms that become undercapitalized but are still solvent. Once a firm has been declared undercapitalized, regulators would have greater bargaining power to insist on a serious plan for bankruptcy.     

The association between characteristics of audit committee accounting experts,audit committee chairs,and financial reporting timeliness

We investigate the association between audit committee (AC) members' financial expertise and financial reporting timeliness, and extend the discussion by investigating how the source of accounting expertise (e.g., public accounting or CFO) differentially influences financial reporting timeliness. We predict and find that AC accounting financial expertise is associated with timelier accounting information. Further, we find that accounting expertise gained from public accounting experience is associated with timelier financial reporting; however, accounting expertise gained from CFO experience is not. We also find that AC chairs (ACCs) with accounting expertise from public accounting experience are significantly associated with timelier financial reporting while ACCs with CFO-sourced accounting expertise are not. Our results are important for two reasons. First, our results suggest that AC accounting financial expertise contributes to AC effectiveness by improving the timeliness of financial information. Second, our findings highlight how personal characteristics of accounting financial experts influence contributions toward AC effectiveness.     

Jurisdictional Competition Between Private and Public Sector Auditors:The Case of the Danish Certified Public Sector Auditor Qualification

Abstract: This paper explores the apparent paradox that while public sector auditors have become more powerful by claiming performance auditing expertise and linking this to New Public Management reforms, the same reforms have provided an opening for competition between private and public sector auditors. In Denmark, the competitive relation has led to a jurisdictional dispute between public and private sector auditors in which the former have developed a special qualification for public sector auditors. The paper analyses the development of this qualification using Abbott's (1988) theory of the system of professions, thus focusing on how the involved groups have attempted to build networks of support for their competing jurisdictional claims of expertise. The case contributes to knowledge about the potential for development of a distinct public sector auditor identity. The case suggests that to develop such an identity and gain professional recognition, public sector auditors need to convince parliaments, standard‐setting bodies and universities that a public sector auditing qualification serves as a solution to some of their problems, too.     

The Interbank Market after August 2007: What Has Changed,and Why?

After the onset of the financial crisis, spreads between interbank interest rates on unsecured and secured deposits for the major world currencies became exceptionally large and volatile. First, we find that the phenomenon was mainly driven by aggregate—rather than bank‐specific—factors, notably risk aversion, and accounting practices; by contrast, funding liquidity, capital shortage, and central bank interventions were not important determinants. Second, prior to August 2007, the spread was broadly insensitive to key borrower characteristics, whereas afterward it became somewhat more reactive to measures of creditworthiness. Third, conditions for big borrowers became relatively more favorable during the crisis, suggesting that moral hazard risks related to the “too‐big‐to‐fail” argument have increased. These results are discussed in the light of theories on the interbank market during a crisis.     

Commentary: Business Black Swans and the Use and Abuse of a Notion

Historical enquiry reveals how ideas mutate. This paper traces how ideas and practices underpinning initial understandings of fair value accounting (FVA) have changed as the concept drifted from the utility rate‐setting context to that of corporate financial reporting. The recall of history for the purpose of ‘learning lessons from the past’ has frequently resulted in misunderstandings of the historical record and misapplication of so‐called lessons. A more fruitful approach to recalling history is to gain insights into the development of the ideas (good and bad) that have contributed to current predicaments. Initially fair value was the basis for specific pricing calculations related to companies with a highly restricted scope of operations. Later, more by accident than design, the concept became a general purpose application used in the financial statements of highly and freely adaptive companies. The mark‐to‐market (MtM) dispute emerging in the global financial crisis (GFC) has given rise to a further mutation of the use of FVA. Discarding MtM contradicts what history tells us was the purpose of adopting fair value into accounting for adaptive companies. This analysis also highlights how conducive accounting theory and practice are subject to politicisation. Accounting is an apparently unresisting victim of interested parties’ special pleading, resulting in the corruption of its technical function – in this case primarily because it is inconvenient to have accounting data tell it how it is.     

Auditors’ Economic Incentives and the Sensitivity of Managerial Pay to Accounting Performance

The use of managerial incentives to manage earnings in order to enhance accounting performance‐based compensation is greater when auditors have economic incentives to compromise their independence. Hence, compensation committees face more difficulties in determining cash compensation when earnings quality declines. This study investigates whether boards of directors can mitigate the agency problems between managers and shareholders by being aware of the opportunistic earnings management encouraged by auditors’ economic incentives and actively adjusting performance‐based compensation for the reduced earnings quality. To this end, it examines how auditors’ economic incentives affect the sensitivity of managerial pay to accounting performance. The findings show a negative association between the client's economic importance to the auditor and the sensitivity of managerial pay to accounting performance, with this association more pronounced for firms that opportunistically inflate earnings, suggesting that boards mitigate agency problems by actively intervening to modify performance‐based compensation schemes for the reduced earnings quality. Additional analyses show that board effectiveness in determining compensation depends on its characteristics. These results suggest the urgent need to oblige companies to establish compensation committees, particularly in countries that lack such a mandatory requirement or where few companies have such committees.     

Applying the Principles of Soccer Training to the Design and Delivery of Classes in Introductory Accounting Courses

Accounting instructors face numerous challenges in structuring and teaching accounting classes. This paper describes the experience of redesigning classes in an introductory accounting course to follow the format of team training sessions in the sport of soccer. The soccer format includes six sections: warm‐up, balance/agility/coordination, skill/technique, simplified small game, game, and cooldown. We explain how the activities in each of these sections can be translated into parts of a class session. While adopting this format requires instructors to invest time in preparation and to be flexible and responsive when facilitating classes, informal results indicate that this class format is rewarding for both instructor and students and that it enhances student performance and experience. We suggest that elements of this class format could be successfully adopted for courses in other business subjects, and in nonbusiness disciplines.     

Earnings‐based Delisting Regulations and Government Subsidies

This paper examines who receives government subsidies when a firm faces delisting risk and how subsidies affect such a firm's performance in China. It focuses on the accounting‐based delisting rule issued in 1998 that relies heavily on the profitability of firms. Using the probit model, this study finds that subsidies are less likely to be granted to a firm that has a higher risk of being delisted than a healthy firm, but are more likely to be granted to such a firm if it is state‐owned. It is also found that having a political connection increases a firm's chance of receiving subsidies, but such an effect disappears when a firm faces a delisting risk. In assessing the impact of a subsidy on firm performance, this study shows that a subsidy increases a firm's valuation and profitability for firms at delisting risk.