Does Mandatory Adoption of IFRS Improve Accounting Quality? Preliminary Evidence

We provide evidence on the preliminary effects of mandatory adoption of International Financial Reporting Standards (IFRS) on accounting quality for a relatively broad set of firms from 20 countries that adopted IFRS in 2005 relative to a benchmark group of firms from countries that did not adopt IFRS matched on the strength of legal enforcement, industry, size, book‐to‐market, and accounting performance. Relative to these benchmark firms, we find that IFRS firms exhibit significant increases in income smoothing and aggressive reporting of accruals, and a significant decrease in timeliness of loss recognition; however we do not find significant differences across IFRS and benchmark firms in meeting or beating earnings targets. Our findings contrast with findings in earlier studies which suggest that IFRS adoption leads to increased accounting quality. Our findings primarily hold for firms in strong enforcement countries, which suggests that enforcement mechanisms in these countries were not able to counter the initial effects of greater flexibility in IFRS relative to domestic GAAP.     

Can Audit Committee Expertise Increase External Auditors' Litigation Risk? The Moderating Effect of Audit Committee Independence

This study examines whether the perceived independence and financial expertise of audit committee members affect external auditors' exposure to legal liability. We use an experiment in which potential jurors make judgments about auditor independence and legal liability for a case involving an audit failure. We find that perceptions of audit committee independence from management are positively associated with judgments of auditor independence and negatively associated with auditor liability. However, financial expertise of audit committee members can be a double-edged sword. Our experiment finds that judgments of auditor liability are higher when the audit committee is perceived to have higher financial expertise but lower independence from management. In assessing litigation risk of current and prospective clients, auditors may want to carefully consider the independence of audit committee members from management, particularly when audit committee members have financial expertise. In the event of an audit failure, the financial expertise of nonindependent audit committee members can negatively affect jurors' perceptions of auditor independence and liability.     

Does Audit Market Concentration Harm the Quality of Audited Earnings? Evidence from Audit Markets in 42 Countries*

Audit regulators around the world have expressed concern over market dominance by Big 4 accounting firms and the potential adverse effect it may have on the quality of audited financial statements. We use cross‐country variation in the audit market structure of 42 countries to examine two separate aspects of Big 4 dominance: (1) Big 4 market concentration as a group relative to non–Big 4 auditors; and (2) concentration within the Big 4 group in which one or more of the Big 4 firms is dominant relative to the other Big 4 firms. We find that in countries where the Big 4 (as a group) conduct more listed company audits, both Big 4 and non–Big 4 clients have higher quality audited earnings compared to clients in countries with smaller Big 4 market shares. In contrast, in countries where there is a greater concentration within the Big 4 group, we find that Big 4 clients have lower quality audited earnings compared to countries with more evenly distributed market shares among the Big 4. Thus concentration within the Big 4 group appears to be detrimental to audit quality in a country and of legitimate concern to regulators and policymakers. However, Big 4 dominance per se does not appear to harm audit quality and is in fact associated with higher earnings quality, after controlling for other country characteristics that potentially affect earnings quality.     

Does Immigration Help to Explain Intra-Industry Trade? Evidence for Spain

This paper argues and provides evidence that the stock of immigrants in a country has a positive effect on the share of its bilateral intra-industry trade (IIT). The paper links the literatures about immigration and trade and about IIT determinants. The key is that immigration contributes to trade transaction costs reduction and this would benefit the trade in differentiated products, i.e. IIT, more than the trade in homogeneous products, i.e. inter-industry trade. We test this hypothesis using Spanish data and departing from the models developed by Helpman. Results are robust to different IIT measures, estimation methods and specifications. JEL no. F10, F22, F14     

Does School Quality Matter? Evidence from the Hong Kong Experience

This paper analyses the differential returns to education and to language ability of natives and Chinese immigrants in Hong Kong. The large difference in quality between Hong Kong schools and Chinese schools provides a natural experiment for evaluating the effect of school quality on students' performance in the labor market. We show that the rate of return to schooling is more than three times higher among local-born workers than among Chinese immigrants to Hong Kong. Our analysis also suggests that English language education is one important component of the success of the Hong Kong education system.     

Does religion matter to corruption? Evidence from China

There is a growing interest in understanding how religion affects corruption. Using provincial-level panel data from 1998 to 2009, this paper investigates the effect of religious beliefs on bureaucratic corruption in China. The empirical results show that, bureaucratic corruption is negatively associated with local religious heritage, implying that religious culture plays a positive role in restraining official's corruption since religion has influence on political preference and work ethic. We also find that the negative association between religion and corruption is weaker in provinces with stronger law enforcement, which identifies the substitution effect between religious ethic and legal supervision in curbing corruption. Our findings also reveal that, among the different religions, the anti-corruption effects of China's native religions (i.e., Taoism and Buddhism) are more significant than those of foreign religions (i.e., Christianity and Islam). These conclusions are consistent and robust to various measures of main variables and a variety of robustness checks. Given the very few studies and limited data resources in the context of China, this paper as a tentative study provides new evidences of the relationship between religion and corruption.     

Do Accounting Firm Consulting Revenues Affect Audit Quality? Evidence from the Pre‐ and Post‐SOX Eras

In recent years, public accounting firms have experienced a steady increase in the proportion of their revenues generated from consulting services. Although growth in consulting revenue following the Sarbanes‐Oxley Act (SOX) has been generated primarily from services provided to nonaudit clients, regulators have expressed concerns about the potential implications of this increase for audit quality. In contrast, accounting firms assert that the expertise developed by their consulting professionals helps them to provide better quality audits. We examine the relation between the proportion of accounting firm consulting revenue to total revenue and audit quality and investor perceptions of audit quality. Because SOX drastically altered the source of consulting revenues for public accounting firms, we also separately examine these relations in the pre‐ and post‐SOX eras. We find evidence suggesting that before SOX, higher proportions of audit firm consulting revenues negatively impacted both audit quality and investor perceptions of audit quality. However, we do not find a statistically significant association between audit firm consulting revenues and either audit quality or investor perceptions of audit quality following SOX. Our analyses suggest that even if these relations exist following SOX, the potential economic magnitude of the effect is small.     

Does the Identity of Engagement Partners Matter? An Analysis of Audit Partner Reporting Decisions

This study examines the persistence and economic consequences of variations in reporting style across audit partners in individual engagements. Our results show that both aggressive and conservative audit reporting, measured by the pattern of prior Type 2 and Type 1 audit reporting error rates in auditor‐specific clienteles, persist over time and extend to other clients of the same partner. Analyses of abnormal accruals and persistence of client firms’ accrual estimates corroborate this finding, and hold both for private and publicly listed companies. Further, our results also show that the market penalizes client firms susceptible to aggressive audit partner reporting decisions. In particular, we find that our proxies for aggressive audit reporting are related to higher interest rates, worse credit ratings and less favorable forecasts of insolvency for private client companies, and a lower Tobin's Q for publicly listed client companies. Collectively, these results imply that audit partner aggressive or conservative reporting is a systematic audit partner attribute and not randomly distributed across engagements.     

Does religion belief matter to self-employment of rural elderly? Evidence from China

There is a growing interest in understanding the economic consequences of religious belief. Using a unique dataset collected from thousands of villages, this research investigates the effect of religious beliefs on rural elderlies’ self-employment choice in China. The empirical results show that, self-employment is positively associated with religious beliefs after controlling for village characteristics, which implying that religion plays a significantly positive role in promoting self-employment of rural elderly. We also find that, the self-employment promoting effects are more significant in Christians and Buddhists. This result is consistent and robust after using instrumental variable approach, propensity score matching approach and controlling for the alternative hypothesis variables. Furthermore, elderly religious believers who are female, over 70 years old, living in a village where the secondary industry is dominant and soybeans/potatoes the main crops are more likely to became self-employees. Mechanism analysis shows economic rationality rather than value rationality that religious belief influence self-employment which confirms economic compensation channel. Given the few studies and limited dataset resources in the context of rural revitalization in China, this paper put effort to provides new evidences of the relationship between religious belief and self-employment.