USING A PROPORTIONAL ODDS MODEL TO ANALYSE THE FACTORS THAT INFLUENCE ACCOUNTING STANDARD SETTING LOBBYING IN AUSTRALIA

The primary aim of this study was to test the hypothesis that, when making written submissions to the accounting standard setting bodies, lobbyists place the same level of importance, on: 1) the ASRB Release 100 accounting standard evaluative criteria, 2) differential reporting, 3) the ‘relevance’ of the proposed financial reporting disclosures, and 4) the ‘reliability’ of those disclosures to general purpose financial statement users. The secondary aim was to determine if these qualitative factors are afforded different levels of importance by different lobbying groups, viz., public practitioners, corporate accountants, government accountants, and academics/individuals. The responses to a survey of formal lobbyists were examined using a proportional odds model which utilises the ordinal nature of the responses and employs an analysis of deviance between responses. The results showed that the sampled lobbyists, as a whole, considered the four qualitative factors of ‘evaluative criteria’, ‘differential reporting’, ‘relevance’, and ‘reliability’ of financial information, to be of equal importance to their lobbying position. In addition, the ranking in importance was not consistent across the different lobbying groups. That is, company and government accountants rated the ‘reliability’ of the proposed reporting disclosures as the most important factor influencing the nature of their lobbying submissions, while the public practitioner and academic groups perceived the ‘relevance’ of the proposed disclosures as the most important. Testing the effects of the financial reporting issues underlying each of these four factors on the relative importance of those factors, revealed 1) a concern by all lobbyists that the thrust of an Exposure Draft matches the lobbyists' views on the ‘relevance’ of the disclosures proposed, and 2) a desire by all lobbyists that the proposed financial reports faithfully represent the underlying transactions of the entity.     

Evaluation of psychosocial and organizational factors in offshore safety: a comparative study

This study compares UK and Norwegian offshore workers' evaluations of social and organizational factors that can have an impact upon safety on offshore installations. A total of 1138 Norwegian (87% response rate) and 622 UK workers (40% response rate) responded to a self-completion questionnaire, which was distributed to 18 installations in February/March 1994. The questionnaire contained six scales that were suitable and relevant for the purposes of comparison. These scales measured ‘risk perception’, ‘satisfaction with safety measures’, ‘perceptions of the job situation’, ‘attitudes to safety’, ‘perceptions of others' commitment to safety’ and ‘perceptions of social support’. The data show clear differences in how UK and Norwegian workers evaluate various social and organizational factors that can have an impact upon safety, however, eta² analysis indicated that for most of the scales ‘installation’ explained a greater percentage of the variance than sector. The exceptions to this were scales measuring ‘safety attitudes’ where both sector and installation contributed equally to the effects. Although the results from the ‘safety attitudes’ scales should be interpreted with caution (due to low internal reliability), it is possible that they are tapping into more deeply held beliefs about the nature of safety, e.g. ‘fatalism’ and the ‘causes of accidents’. In contrast, the other scales are measuring factors directly related to the working environment such as perceptions of risk and satisfaction with safety measures on the installation. These may reflect the prevailing ‘safety climate’ or ‘atmosphere’ on the installations surveyed, whereas constructs such as ‘fatalism’, etc. may be reflections of underlying ‘cultural’ values. Recognizing the existence of different ‘safety cultures’ and understanding the processes which lie behind them could have implications for safety management in an industry which is highly international in nature and in which workers' are often required to work in foreign countries for varying periods of time.     

Disruption and transformation: The organisational evolution of an NGO

This paper explores how and why Non-Governmental Organisation (NGO) governance was disrupted by changes in an organisation's internal and external environment. A detailed single case study of a large NGO operating in Sri Lanka is conducted. Data collection consists of semi-structured interviews, document analysis and participant and non-participant observation. Laughlin’s (1991) model of organisational change provides the theoretical foundation on which changes in the case NGO's interpretive schemes, design archetypes and organisational sub-systems are discussed. The changing of interpretive schemes and organisational sub-systems, in our case, was easier than changing design archetypes. Consequently, our paper introduces ‘protective reconfiguration’ as a new change pathway to Laughlin's (1991) model of organisational change. The findings suggest that the NGO's governance systems and processes are being moulded in ways that may not achieve the overall purpose of these organisations. Greater attention to evolving design archetypes is necessary in order to create more deliberative, fluid and less organisation-centric governance structures for NGOs operating in the policy-advocacy space.     

Developing performance-measurement systems as enabling formalization: A longitudinal field study of a logistics department

This paper reports on a developmental approach to performance-measurement systems (PMS). In particular, we look at characteristics of a development process that result in the PMS being perceived by employees as enabling of their work, rather than as primarily a control device for use by senior management. We will refer to such a PMS as “enabling PMS”. The theoretical part of the study builds on ideas of enabling versus coercive formalization [Adler, P. S., & Borys, B. (1996). Two types of bureaucracy: Enabling and coercive. Administrative Science Quarterly 41 (March), 61–89]; on notions of organizational learning (e.g., [Zollo, M., & Winter, S. G. (2002). Deliberate learning and the evolution of dynamic capabilities. Organization Science 13(3), 339–351]); and on awareness of the incompleteness of performance measures (e.g., [Chapman, C. S. (1997). Reflections on a contingent view of accounting. Accounting, Organizations and Society 22, 189–205; Lillis, A. M. (2002). Managing multiple dimensions of manufacturing performance—An exploratory study. Accounting, Organizations and Society 27, 497–529]). The empirical context entails a mixed-method, 3-year longitudinal study of the logistics department of a medium-sized company in the beverage manufacturing industry. Qualitative data were gathered through interviews, participation in meetings, action research, and review of company documents. We also analyzed two waves of quantitative survey data, gathered from a panel of 42 employees. We find that a development process that is experience-based contributes to the enabling nature of the PMS, as it builds on existing skills, local practices, and know-how on performance measurement to enrich the PMS step-by-step over time. Also, experimentation with specific performance measures was found to enhance the enabling nature of the PMS: testing, reviewing, and refinement of conceptualizations, definitions, data, and presentations of new performance measures. Professionalism was significantly related to positive attitude toward performance measures in our survey data. The results also illustrate that transparency of the PMS itself is key to enabling PMS.     

Straddling between paradigms: A naturalistic philosophical case study on interpretive research in management accounting

This paper analyses interpretive research in management accounting from the perspective of naturalistic philosophy of science. We focus on the relation of interpretive research to the subjective/objective dichotomy appearing in the methodological literature of the social sciences. In management accounting research, it is often routinely assumed that interpretive studies, following the reasoning by Burrell and Morgan [Burrell, G., & Morgan. G. (1979). Sociological paradigms and organisational analysis. London: Heinemann], are based on subjectivism only. The major purpose of this paper is to give flesh to the existing debates around the nature of interpretive research with the help of in depth analysis of one example of such research in management accounting. Since abstract and general philosophical arguments are often used merely to cloud more relevant case specific issues concerning the focus of explanation and the nature of empirical evidence offered, our analysis aims at providing conceptual tools for articulating with greater precision what is being asserted in a given study. The specific target of the examination is the interpretive study by Dent [Dent, J. F. (1991). Accounting and organisational cultures: A field study of the emergence of a new organisational reality. Accounting, Organisations and Society, 16, 693–703], which is one of the highly appreciated and extensively quoted pieces of research picked from the interpretive management accounting literature. Our analysis indicates that though there certainly are, and needs to be, unique subjectivist features in interpretive studies as compared to more ‘objectivist’ approaches, there are also important similarities, and that the view of sociological paradigms as necessarily mutually exclusive does not hold water. Hence interpretive research straddles between paradigms. As we argue that interpretive studies, in addition to including subjectivist elements, also encompass objectivist features, we invert the typical social theory critique of ‘scientific’ (management) accounting research that it cannot be an objective ‘mirror of reality’ by claiming that interpretive studies cannot be exclusively subjectivist and still they remain theoretically relevant. Our philosophically tuned analysis explicates how concepts from different paradigms, such as interpretations, understanding meanings, and causality, can successfully co-exist and co-operate within a single study.     

Deconstructing the future of management: Pharmakon,Gary Hamel and the impossibility of invention

There has been a growing tendency to argue that the practice of management must be reinvented in the future in order to energize the creative potential of employees. However, the discourse on ‘management innovation’ attributes a curious dual function to the concept of management. On the one hand, management is portrayed as the ‘toxin’ that can impede innovation. But on the other hand, management is portrayed the ‘cure’ that will heal the defects that prevents innovation. Informed by Derrida's reflection upon the dual meaning of pharmakon, a word that means both ‘remedy’ and ‘poison’, the paper engages with Hamel's popular management handbook The Future of Management. Although Hamel attempts to establish a clear-cut distinction between those principles of management that obstruct and those that facilitate innovation, one is ultimately left uncertain whether management is a cure or a poison for innovation. This ambivalence points to an underlying paradox of contemporary post-managerial thinking that is characterized by incorporating transgression into its productive logic.     

Do firms that wish to be acquired manage their earnings? Evidence from major European countries

In this paper, we examine whether findings on downward accrual-based earnings management for firms publicly ‘seeking a buyer’ from the US can be extrapolated outside of the US context, given that past research has indicated that the function of the Merger and Acquisition (M&A) markets is highly dependent on the degree of competition in a country. We test for the existence of earnings management (EM) around such events for firms listed in the largest European stock exchanges between 2000 and 2009, and get evidence that downward earnings management around ‘seeking buyer’ announcements more strongly holds for the country with the most competitive market for corporate control in our sample, that is the UK. We consider this finding indicative of the fact that a competitive M&A environment may induce earnings management-prone behavior. We further testify significantly positive abnormal returns around ‘seeking buyer’ announcements for firms from the UK, but limited such evidence for the other countries, a finding we also attribute to differences in competition and uneven split of benefits among bidders and targets in M&A markets. Finally, we find that EM positively affects abnormal returns around ‘seeking buyer’ announcements, indicating that market participants tend to compensate for upward EM, regardless of the degree of competition of the M&A market of a country.     

The persistence of the ‘peso problem’ when policy is noisy

The ‘peso problem’, the market's belief that a discrete event may occur, has frequently been blamed for the persistence of on-average mistaken forecasts of macroeconomic variables. This paper demonstrates how beliefs that a policy process may have switched can induce apparent ex post biased forecasts of exchange rates even after the switch has occurred . Furthermore, during this ‘peso problem’ period, exchange rates may appear to contain a speculative bubble component since they will systematically deviate from the levels implied by observing fundamentals ex post; and the conditional variance of exchange rates will exceed the variance implied by observing fundamentals.     

Discretion in accounting for pensions under IAS 19: using the ‘magic telescope’?

We use a panel data set of UK-listed companies over the period 2005–2009 to analyse the actuarial assumptions used to value pension plan liabilities under IAS 19. The valuation process requires companies to make assumptions about financial and demographic variables, notably discount rate, price inflation, salary inflation and mortality/life expectancy of plan members/beneficiaries. We use regression analysis to analyse the relationships between these key assumptions (except mortality, where disclosures are limited) and company-specific factors such as the pension plan funding position and duration of pension liabilities. We find evidence of selective ‘management’ of the three assumptions investigated, although the nature of this appears to differ from the findings of US authors. We conclude that IAS 19 does not prevent the use of managerial discretion, particularly by companies whose pension plan funding positions are weak, thereby reducing the representational faithfulness of the reported pension figures. We also highlight that the degree of discretion used reflects the extent to which IAS 19 defines how the assumptions are to be determined. We therefore suggest that companies should be encouraged to justify more explicitly their choice of assumptions.     

Management control systems and strategy: A resource-based perspective

The aim of this study is to examine, from a resource-based perspective, the relationships between the use of management control systems (MCS) and organizational capabilities. More specifically, the study focuses on the diagnostic and interactive uses of one important aspect of MCS, namely performance measurement systems (PMS), and four capabilities leading to strategic choices (i.e., market orientation, entrepreneurship, innovativeness, and organizational learning). Three research questions are investigated in this study: (i) to what extent do the diagnostic and interactive uses of MCS contribute specifically to the creation and maintenance of capabilities leading to strategic choices? (ii) To what extent do the diagnostic and interactive uses of MCS act in combination to produce dynamic tension which contributes to the creation and maintenance of these capabilities? (iii) To what extent does the use of MCS contribute to organizational performance? The results suggest that an interactive use of PMS fosters the four capabilities by focusing organizational attention on strategic priorities and stimulating dialogue. Also, by creating constraints to ensure compliance with orders, the diagnostic use of PMS exerts negative pressure on these capabilities. Furthermore, some evidence suggests the influence of dynamic tension resulting from the balanced use of PMS in a diagnostic and interactive fashion on capabilities and performance.     

Performance,stock selection and market timing of the German equity mutual fund industry

We investigate the performance of the German equity mutual fund industry over 20 years (monthly data 1990–2009) using the false discovery rate (FDR) to examine both model selection and performance measurement. When using the Fama–French three factor (3F) model (with no market timing) we find that at most 0.5% of funds have truly positive alpha-performance and about 27% have truly negative-alpha performance. However, the use of the FDR in model selection implies inclusion of market timing variables and this results in a large increase in truly positive alpha funds. However, when we use a measure of “total” performance, which includes the contribution of both security selection (alpha) and market timing, we obtain results similar to the 3F model. These results are largely invariant to different sample periods, alternative factor models and to the performance of funds investing in German and non-German firms — the latter casts doubt on the ‘home-bias’ hypothesis of superior performance in ‘local’ markets.     

Income Shifting in the Spanish Dual Income Tax*

Based on a model of behavioural response to taxes, and using the Taxpayers Panel from the Instituto de Estudios Fiscales for the period 1999–2009, we analyse whether the dual nature of the Spanish personal income tax (PIT), reinforced by the 2007 reform, has influenced taxpayers’ behaviour, causing them to convert part of their ‘general income’ (from labour, real estate or economic activities) into ‘savings income’ (from movable capital or capital gains). We also extend the analysis of income shifting and study whether Spanish taxpayers also responded to the different tax treatments given to the two types of savings income (from movable capital and capital gains) until 2007, transforming savings income from one type to the other. The results of our study demonstrate three facts. First, Spanish taxpayers did respond to the different tax rates, shifting income from the general base to different forms of savings, especially capital gains. The highest‐income individuals and the self‐employed and business owners are the groups where this behaviour was most marked. Second, the self‐employed and business owners also turned income from movable assets into capital gains, guided by their different tax rates. And third, we find signs of ‘anticipation’ and ‘learning’ effects caused by the 2007 tax reform. We believe that the results obtained will enrich the growing literature on income shifting.     

The effect of comprehensive performance measurement systems on role clarity,psychological empowerment and managerial performance

This study examines how comprehensive performance measurement systems (PMS) affect managerial performance. It is proposed that the effect of comprehensive PMS on managerial performance is indirect through the mediating variables of role clarity and psychological empowerment. Data collected from a survey of 83 strategic business unit managers are used to test the model. Results from a structural model tested using Partial Least Squares regression indicate that comprehensive PMS is indirectly related to managerial performance through the intervening variables of role clarity and psychological empowerment. This result highlights the role of cognitive and motivational mechanisms in explaining the effect of management accounting systems on managerial performance. In particular, the results indicate that comprehensive PMS influences managers’ cognition and motivation, which, in turn, influence managerial performance.     

Emerging themes in management control: A review of recent literature

This review starts from the lines of enquiry suggested by Otley et al. [Otley, D.T., Broadbent, J.M., Berry, A.J., 1995. Research in management control: an overview of its development. British Journal of Management 6, S31–S34] and develops these themes in the light of more recently published research. Hence this review is structured around the following emerging themes; Decision making for Strategic Control; Performance Management for Strategic Control; Control Models for Performance Management and Measurement; Management Control and New Forms of Organisation; Control and Risk; Culture and Control; and Practice and Theory.Whilst research has been evident in all of these areas, relatively little attention has been paid to information and communication technologies and its impact upon control system design and capability, nor did we find much literature on control and gender, or on control and sustainability. Further there has been relatively little research on control and risk or upon control and culture. The limitations of overarching frameworks are noted and we conclude that it seems essential to place more emphasis on research which attends to the relationship of control practices and theory which will require more embedded and collaborative research processes.     

Public pension fund ownership and firm performance

Equity ownership by public pension funds (PPFs) is widely used in the literature (see, e.g., Cremers and Nair 2005; Dittmar and Mahrt-Smith 2007) as a measure of the strength of shareholder monitoring/governance. This paper raises caution on such practices by illustrating an inverted-U shape relationship between PPF ownership and firms’ future performance, measured by stock returns and operating performance: during 1985–2005, future performance first increases, then declines in aggregate equity ownership by PPFs. Our results suggest that PPFs’ presence is consistent with shareholder value maximization when they have moderate influence on firm management, whereas excessive PPF ownership may facilitate PPF managers’ pursuits of political interests and destroy shareholder value. Therefore, it is important to impose an upper bound to PPF ownership when measuring the strength of shareholder monitoring/governance.     

Deviations from Fundamentals in US and EU Stock Markets: A Comparative Analysis

Abstract

A ‘two-stage growth’ discounted cash flow (DCF) model is built to test whether changes in the underlying market fundamentals help to explain movements in stock prices. Empirical results on two samples of US and EU stocks show that the ‘fundamental’ earning price ratio (E/P) explains a significant share of cross-sectional variation of the observed E/P, this impact being stronger in the US market. It is also found that: (i) the fundamental component of the E/P has superior explanatory power than simpler measures of expected earnings growth; (ii) ‘non-fundamental’ components, interpreted as signals reducing asymmetric information (such as firm size, the number of forecasts and the chartist momentum), mitigate the role of the fundamentals; (iii) current deviations from the fundamentals are affected by ex post adjustment of publicly available information in the EU sample. It is argued that differences in regulatory environments and in the composition of investors between the US and EU financial systems may help to explain these comparative findings. Results appear consistent with the ‘market integrity hypothesis’ postulating that reliance on publicly observable fundamentals is higher when insider trading is lower.     

Duration of equity overvaluation and managers’ choice to use aggressive underlying earnings disclosure and accrual-based earnings management: Australian evidence

This paper examines whether equity overvaluation duration influences managers’ choice of different earnings management mechanisms and how corporate governance and the Australian Securities and Investment Commission’s underlying earnings disclosure guidelines influence managers’ choices. The study samples Australian Securities Exchange 200 firms from 2009 to 2016. Findings show that on average, firms more likely engage in accrual-based earnings management in the early overvaluation stage. In later stages, firms more likely disclose underlying earnings aggressively to sustain overvaluation. Additionally, firms with a high proportion of independent directors on the board prefer to disclose underlying earnings aggressively to sustain the equity overvaluation; firms with a low proportion of independent directors prefer both accrual-based earnings management and aggressive underlying earnings disclosure to sustain the overvaluation. Moreover, firms that conform to the Commission’s underlying earnings disclosure guidelines use neither accrual-based earnings management nor aggressive underlying earnings disclosure to sustain overvaluation, but non-conforming firms use both mechanisms.     

Performance measurement systems in higher education: How levers of control reveal the ambiguities of reforms

This paper focuses on the introduction of new performance measurement system (PMS) for measuring teaching performance in Universities. The adoption of such PMS should prompt significant changes in existing control processes, but the goals of reform do not automatically translate into the desired organisational responses. Given the impact of PMS on management controls, the nature of such ambiguities may be better investigated using a framework that allows management control systems (MCS) to be taken in account. This paper investigates key actors' perceptions regarding the introduction of PMS through the lens of the levers of control (Simons, 1995, 2000). A qualitative analysis is conducted on interviews held with Italian university teaching managers and heads of programmes to examine the ambiguities arising from the implementation of a PMS.Several ambiguities emerge, both within and between the levers analysed, suggesting some reasons for the (partial) ineffectiveness of PMS reforms. In particular, the belief systems lever is crucial in making reforms acceptable, bureaucratic procedures are important in the diagnostic control systems lever, and performance indicators operate as a boundary system lever. Our findings show that administrative and academic actors perceive the interactive control capacity of PMS differently.