The role of the paid preparer in nonprofit reporting quality

The purpose of this paper is to examine whether the preparer of the Form 990 influences the Form 990 reporting quality. Currently, the Form 990 is the only widely available source of governance and financial information for nonprofit organizations. The leading rater of nonprofit organizations, Charity Navigator, relies primarily on information from the Form 990 in developing their ratings. We identify misreporting by utilizing five measures of reporting quality. We find organizations that hire an outside accounting firm to prepare the Form 990 report higher quality financial information than organizations that choose to prepare the Form 990 in house. Interestingly, the size of the accounting firm is not associated with the quality of Form 990 reporting with the exception that paid preparers who are sole proprietors are more likely to misreport. Further exploration reveals that paid preparers who file more returns are less likely to misreport indicating that specialization is associated with more accurate reporting on Form 990. Our study contributes to the literature by using multiple reporting measures to examine the impact of paid preparers on the reporting quality of 990s. Furthermore, our study is the first to consider how specialization affects the accuracy of 990 returns.     

Information effect of entry into credit ratings market: The case of insurers' ratings

The paper analyzes the effect of competition between credit rating agencies (CRAs) on the information content of ratings. We show that a monopolistic CRA pools sellers into multiple rating classes and has partial market coverage. This provides an opportunity for market entry. The entrant designs a rating scale distinct from that of the incumbent. It targets higher-than-average companies in each rating grade of the incumbent's rating scale and employs more stringent rating standards. We use Standard and Poor's (S&P) entry into the market for insurance ratings previously covered by a monopolist, A.M. Best, to empirically test the impact of entry on the information content of ratings. The empirical analysis reveals that S&P required higher standards to assign a rating similar to the one assigned by A.M. Best and that higher-than-average quality insurers in each rating category of A.M. Best chose to receive a second rating from S&P.     

An empirical test of spatial competition in the audit market

This study empirically examines the effects of competition through differentiation on audit pricing. Based on prior economic theory on differentiated-product markets (e.g., Hotelling, 1929, Tirole, 1988), we hypothesize that audit fees are affected by an auditor's relative location in a market segment. We define audit markets per industry segment and U.S. Metropolitan Statistical Area and specify an auditor's industry location relative to the client (auditor–client industry alignment) and relative to the closest competitor (industry market share distance to closest competitor). We find that audit fees increase in both auditor–client industry alignment and industry market share distance to the closest competitor.     

An empirical test of the efficiency of the ADR market

This study examines the weak form efficiency of foreign equities — American Depository Receipts — traded in the U.S. The results of serial correlation and runs tests on a sample of listed and NASDAQ ADRs for the years 1974–1978 were consistent with weak form efficiency.     

The role of generally accepted reporting methods in the public sector: An empirical test

This study explores the role of standard or generally accepted accounting and reporting methods in the public sector. It differs from prior studies that address public sector accounting issues in that it considers more directly how the political process influences decisions to report financial information. The primary contention is that adopting standard reporting methods reduces costs to public officials that arise from factors that characterize political markets. Empirical evidence based on data from the state governments is consistent with this contention, but theoretical and methodological problems restrict our ability to ascertain which specific factors are relevant.     

The Japanese stock market and the macroeconomy: An empirical investigation

We investigate the relationship between macroeconomic variables, such as the industrial production index, interest rate and inflation rate, and the stock market, using Toda and Yamamoto (1995)'s vector autoregressions (VAR) specification. The major findings are: (1) macroeconomic variables do Granger cause the stock market variable, while reverse is not so clear. (2) The lagged stock market variable affects its current value but its impact tend to diminish in the long-run. Policy implication we draw is that the price keeping operation by the Japanese government would not work, but appropriate macroeconomic policies would benefit not only the real market but also the stock market.     

An empirical investigation of investor expectations in the currency market

Using a new theoretical model of investor expectations in the foreign exchange market, this research finds investor forecasts to be rational. For instance, expectations are not characterized by fat-tailed distributions that might reflect optimistic bubbles and panic. They are also found to rationally predict a correlation between exchange rates and political factors such as modeled “pain” indexes and currency bands. Most importantly, the model detects an ex-ante investor prediction of a small probability of a large currency change that empirically explains ex-post forecasting biases.     

Referral as a determining factor for changing auditors in the Belgian auditing market: An empirical study

Traditional research on auditor choice and auditor switching focuses on company and audit (or) characteristics such as size and reputation, level of fees, or audit opinion. These studies seek causal relationship between changes in these characteristics and changes in auditor. This article claims that the conclusions of existing research have limited application to smaller companies in a small open economy like Belgium. We see a need to supplement the research model to reflect the fact that the decision to choose or switch auditors in subsidiary companies often occurs at the parent level and is determined by group characteristics rather than local characteristics of the subsidiary. In this article, we show that “referral,” the situation whereby the subsidiary—encouraged by the parent company—appoints the same auditor as the parent company, must be considered as an explanatory variable to understand audit-switching behavior in Belgium.     

保险中介市场风险状况及监管对策

当前,随着保险中介市场的快速发展,市场风险状况不容乐观,一般性风险普遍存在,个别机构因严重违法造成的风险已相当严重,同时,因保险中介经营模式创新引发的风险也不容忽视。这些风险如不能采取有效的监管措施加以控制,势必对保险中介市场平稳健康发展带来严重冲击。为此,应加快完善监管法律法规和制度,严格市场准入并建立有效的市场退出制度,强化保险公司对代理机构和保险营销员的管理责任,改革现行个人保险营销体制,细化从业人员资格考试,实行从业人员分级管理,充分发挥行业协会的自律职能。     

The price discovery role of day traders in futures market: Evidence from different types of day traders

Using proprietary account-level transaction data in the futures market where day traders are self-declared ex ante, this study investigates whether day traders enhance price discovery at the market level. From a natural classification of day traders, we find that heterogeneous day traders have differential effects on price discovery. Self-declared day traders, who benefit from low margin requirement, do not improve price discovery measured by information share. In contrast, non-declared traders, who are not self-declared as day traders, improve price discovery. Their positive impacts on price discovery are particularly significant during periods of high volatility and arrival of new information. Overall, a margin stimulating policy may encourage more day trading, but may also attract overconfident investors, especially inexperienced ones, and who do not enhance price discovery.     

Announcement effects of convertible bond loans and warrant-bond loans: An empirical analysis for the Dutch market

This study investigates the announcement effects of offerings of convertible bond loans and warrant-bond loans using data for the Dutch market. The event study analysis shows that announcement effects of convertible bonds are associated with positive but insignificant abnormal returns and that announcements of warrant-bonds are associated with significant positive abnormal returns. These findings are similar to the results for Japanese hybrid debt, as reported by Kang et al. (1995) (Kang, J.K., Kim, Y.C., Park, K.J., Stulz, R.M., 1995. Journal of Financial and Quantitative Analysis, pp. 257–270) and Kang and Stulz (1996) (Kang, J.K., Stulz, R.M., 1996. Review of Financial Studies, pp. 109–139), but they contrast with studies for the United States that generally find significant negative abnormal returns for convertible bond loans and insignificant negative abnormal returns for warrant-bond loans. Our results cannot be attributed to differences in the corporate governance structures of the Netherlands and the United States. We find that the positive abnormal returns for the warrant-bond loans are caused by the packaging of the announcements with other (good) firm-specific news.     

The proposed elimination of full cost accounting in the extractive petroleum industry: An empirical assessment of the market consequences

On July 15, 1977, the Financial Accounting Standards Board (FASB) issued an Exposure Draft of Statement 19 in which a proposal was set forth to establish the uniform usage of successful efforts accounting and to eliminate full cost accounting in the extractive petroleum industry. This study addresses the question of whether the proposed elimination of full cost accounting had an adverse effect on the security returns of full cost versus successful efforts firms. The evidence presented in this study suggests that the proposal to eliminate full cost accounting was associated with a significant negative difference in risk-adjusted rates between full cost firms and successful efforts firms whose financial reports remained unaffected by the proposed change. This observed difference was found to be sustained over an eight month period including confirming events and disclosures associated with the initial proposal. We do not attribute this difference to market inefficiencies but, rather, to the anticipated consequences which this mandated accounting change is likely to have on managerial behavior and to increased costs that will have to be borne by the affected companies.     

Distortion effects and extreme observations in empirical research: An analysis of the incremental information content of cash flows

Linear regression models are used in a number of studies examining the presence or absence of incremental information content in cash flows. The results of these studies are not consistent. This paper provides evidence of the impact that extreme observations can exert on parameter estimates in a regression model. Two techniques commonly used to address the problem of extreme observations are considered. These techniques, winsorising the data and trimming the data, are compared to a regression diagnostic technique, Cook's distance. The comparison of these techniques provides evidence that the choice of technique can determine the significance or otherwise of regression results. This paper concludes that the inconsistency in reported results examining the incremental information content in cash flows may be attributed to the techniques adopted to address the issue of extreme observations.     

The role of market devices in addressing labour exploitation: An analysis of the Australian cleaning industry

This study examines how the risk of labour standards noncompliance can be rendered calculable and commensurable through a market device. We present a case study of the Cleaning Accountability Framework (CAF), an industry certification scheme, which seeks to address labour exploitation in the Australian contract cleaning industry. We pay particular attention to the central device of the certification scheme – the pricing schedule. We examine how the pricing schedule shaped the calculative space informing contracting parties during the procurement process. In doing so, the pricing schedule increased transparency around the potential risk of labour standards noncompliance. The nature of this transparency and the perceived objectivity of the pricing schedule acted to reshape the market for contract cleaning, resulting in a redistribution of accountability for labour exploitation. We also examine how the pricing schedule formed part of a wider framework of accountability, and how these mechanisms enabled strategic co-enforcement of labour standards compliance by supply chain stakeholders. Overall, our study indicates the potential for accounting practices to play a more active role in shaping how markets address modern slavery risks.     

An empirical investigation of stock market behavior in the Middle East and North Africa

This paper analyzes excess market returns in the relatively understudied financial markets of nine Middle Eastern and North African (MENA) countries within the context of three variants of the Capital Asset Pricing Model: the static international CAPM; the constant-parameter intertemporal CAPM; and a Markov-switching intertemporal CAPM which allows for the degree of integration with international equity markets to be time-varying. On the whole we find that: (1) Israel and Turkey are most strongly integrated with world financial markets; (2) in most other MENA markets examined there is primarily local pricing of risk and evidence of a positive risk-return trade-off; and (3) there is substantial time variation in the weights on local and global pricing of risk for all of these markets. Our results suggest that investment in many of these markets over the sample studied would have provided returns uncorrelated with global markets, and thus would have served as financial instruments with which portfolio diversification could have been improved.     

Intraboard heterogeneity and the role of bank-dispatched directors in Japanese firms: An empirical study

To discuss the role of bank-dispatched directors in the governance of Japanese firms, it has to be noted that the board is heterogeneous and only senior directors, including presidents and managing directors, are likely involved in major management decisions. With a panel of about 1150 firms in 1990–98, we find that, when bank loans constitute a significant portion of the firm's assets, the low industry-adjusted profitability increases the probability that a new (or additional) director is dispatched from the bank at a senior level but not at a junior level. This dispatch improves the firm's performance provided it does not merely replace the predecessor.     

Gender differences in information processing: An empirical test of the hypothesis-confirming strategy in an audit context

Accounting education research reports that female students outperform male students. We posit that different information processing styles may have accounted for this difference. We postulate that because male students tend to process information selectively, they would rate confirming information as more important than female students would. Female students would rate disconfirming information as more important. We also postulate that male students are hypothesis-confirming whereas the female students are not. Consequently, female students being comprehensive processors, would rate the task as more difficult compared to male students. To test these propositions, 36 male and 33 female students performed an evaluation task that contained equal numbers of confirming and disconfirming cues. The students were required to rate the importance of these cues to their hypothesis. The results support our propositions except that female and male students do not rate confirming information significantly differently from each other.     

The effect of size on the failure probabilities of SMEs: An empirical study on the US market using discrete hazard model

This paper investigates the extent to which the size affects the SME probabilities of bankruptcy. Using a dataset of (11,117) US non-financial firms, of which (465) filed for insolvency under chapters 7/11 between 1980 and 2013. We forecast the bankruptcy probabilities by developing four discrete-time duration-dependent hazard models for SMEs, Micro, Small, and Medium firms. A comparison of the default prediction models for medium firms and SMEs suggests that an almost identical set of explanatory variables affect the default probabilities leading us to believe that treating each of these groups separately has no material impact on the decision making process. However, comparisons between the micro and small firms with the SMEs firms strongly suggest that these categories need to be considered separately when modelling their credit risk.     

The impact of bond rating changes on corporate bond prices: New evidence from the over-the-counter market

I study the information content of bond ratings changes using daily corporate bond data from TRACE. Abnormal bond returns over a two-day event window that includes the downgrade (upgrade) are negative (positive) and statistically significant, although the reaction to upgrades is economically small. Monthly abnormal bond returns around downgrades and upgrades are statistically significant but overstate the magnitude of the reaction relative to two-day abnormal returns. Unlike the bond market, the stock market reaction to upgrades is statistically insignificant. Evidence suggests that the differing inferences on the effect of upgrades in the two markets can be attributed to wealth transfer effects rather than relative market inefficiencies. In the cross-section, the bond market response is stronger for rating changes that appear more surprising, rating changes of lower rated firms, and upgrades that move the firm from speculative grade to investment grade.     

The synergy of financial sector development and information sharing in financial access: Propositions and empirical evidence

This study assesses the role of information sharing in financialization (or coexistence of financial sub-systems) for financial access. The empirical evidence is based on contemporary and non-contemporary Fixed Effects and Quantile regressions on 53 African countries for the period 2004–2011. The positive complementarity of information sharing offices (ISOs) and financial formalization is an increasing function of financial activity (or access to credit) whereas the negative complementarity of ISOs and financial informalization is a decreasing function of financial activity. In order to leverage on the synergy between ISO and financial formalization for enhanced financial access, some policy measures are proposed.