Banks’ Financial Reporting and Financial System Stability

The use of accounting measures and disclosures in banks’ contracts and regulation suggests that the quality of banks’ financial reporting is central to the efficacy of market discipline and nonmarket mechanisms in limiting banks’ development of debt and risk overhangs in economic good times and in mitigating the adverse consequences of those overhangs for the stability of the financial system in downturns. This essay examines how research on banks’ financial reporting, informed by the financial economics literature on banking, can generate insights about how to enhance the stability of the financial system. We begin with a foundational discussion of how aspects of banks’ accounting and disclosures may affect stability. We then evaluate representative papers in the empirical literature on banks’ financial reporting and stability, pointing out the research design issues that empirical accounting researchers need to confront to develop well‐specified tests able to generate reliably interpretable findings. To this end, we provide examples of settings amenable to addressing these issues. We conclude with considerations for accounting standard setters and financial system policy makers.     

How do corporate political connections influence financial reporting? A synthesis of the literature

A large stream of research has analyzed the effects of corporate political connections (CPCs) on firms, including first evidence on their effects on financial reporting behavior. However, the evidence so far is inconclusive, and attempts to explain the causality of effects on reporting are limited. In this article, we present the results of a systematic review of the literature on CPCs. We draw on findings in the accounting, finance, and economics literature and derive a framework that identifies four channels through which CPCs affect financial reporting. Our review of the literature suggests that effects of political connections tend to be more ambiguous than suggested by individual studies that often offer directional hypotheses. We also identify eight distinct types of political connectedness and discuss their interrelations and the proxies used in the literature to measure them.     

Event studies: A methodology review

Originally developed as a statistical tool for empirical research in accounting and finance, event studies have since migrated to other disciplines as well, including economics, history, law, management, marketing, and political science. Despite the elegant simplicity of a standard event study, variations in methodology and their relative merits continue to attract attention in the literature. This paper reviews some of the fundamental topics in short‐term event study methodology, with an attempt to add new perspectives to some pressing topics.     

Blockchain and the Journey Beyond Double Entry

Whilst blockchain technology has attracted substantial attention within the scholarly literature of a number of disciplines, including economics, finance, law and technology, it has been subject to minimal discussion and scrutiny within the scholarly accounting literature. This article argues that this is a missed opportunity and that the maturation of blockchain technology may represent as profound a shift in accounting as the emergence and adoption of double‐entry accounting.     

Gathering Data for Archival,Field, Survey,and Experimental Accounting Research

In the published proceedings of the first Journal of Accounting Research Conference, Vatter [1966] lamented that “Gathering direct and original facts is a tedious and difficult task, and it is not surprising that such work is avoided.” For the fiftieth JAR Conference, we introduce a framework to help researchers understand the complementary value of seven empirical methods that gather data in different ways: prestructured archives, unstructured (“hand‐collected”) archives, field studies, field experiments, surveys, laboratory studies, and laboratory experiments. The framework spells out five goals of an empirical literature and defines the seven methods according to researchers’ choices with respect to five data gathering tasks. We use the framework and examples of successful research studies in the financial reporting literature to clarify how data gathering choices affect a study's ability to achieve its goals, and conclude by showing how the complementary nature of different methods allows researchers to build a literature more effectively than they could with less diverse approaches to gathering data.     

Corporate governance,accounting and finance: A review

We review accounting and finance research on corporate governance (CG). In the course of our review, we focus on a particularly vexing issue, namely endogeneity in the relationships between CG and other matters of concern to accounting and finance scholars, and suggest ways to deal with it. Given the advent of large commercial CG databases, we also stress the importance of how CG is measured and in particular, the construction of CG indices, which should be sensitive to local institutional arrangements, and the need to capture both internal and external aspects of governance. The ‘stickiness’ of CG characteristics provides an additional challenge to CG scholars. Better theory is required, for example, to explain whether various CG practices substitute for each other or are complements. While a multidisciplinary approach to developing better theory is never without its difficulties, it could enrich the current body of knowledge in CG. Despite the vastness of the existing CG literature, these issues do suggest a number of avenues for future research.     

Is accounting for sustainability actually accounting for sustainability…and how would we know? An exploration of narratives of organisations and the planet

The emergence of sustainable development as the complex notion through which social and environmental issues must be addressed – whether at policy, personal or organisational levels – has had a growing influence in the accounting literature. In addition to explorations of what sustainability may mean for accounting and finance, we have experienced a growth in both critiques of sustainability reporting (sic) and in experiments and speculations on how accounting for sustainability might advance. This growth – as with social and environmental accounting before it – has very properly attracted critique. One convergent theme in that critique has been a challenge that much of the realist and procedural baggage associated with conventional accounting is no longer apposite when seeking to account for sustainability. What may be required, is a more nuanced understanding of what ‘sustainability’ actually is and how, if at all, it can have any empirical meaning at the level of the organisation. This essay seeks to initiate an auto-critique of accounting for sustainability via an examination of meanings and contradictions in sustainable development which, in turn, leads towards a suggestion for the development of multiple and conditional narratives that whilst no longer realist or totalising, explicitly challenge the hegemonic claims of business movements in the arena of sustainability and sustainable development.     

Why pay? An introduction to payments economics

This paper surveys the growing literature on payments. We begin by presenting a simple model that illustrates the essential function of payments and how this may be implemented through various arrangements. We show how the basic models of payments have been used to address a variety of microeconomic and macroeconomic policy issues. We then discuss the links between payments economics and other fields, including monetary theory, corporate finance, and industrial organization. We conclude with an overview of the empirical literature and directions for future research.     

Linking international business theory to accounting history: implications of the international evolution of the state and the firm for accounting history research

Accounting is an interdisciplinary subject. We routinely draw insights and models from the base disciplines (e.g. economics, psychology etc.) as a starting point for research on accounting issues. As accounting researchers, and accounting historians in particular, explore the international dimensions of accounting it is appropriate, therefore, to look to the literature on international relations for insights. This paper provides examples of how we could use the literature on the nation-state and international enterprises to frame questions about international accounting history.     

GAAP,GFS and AASB 1049: perceptions of public sector stakeholders

Efforts by Australian standard‐setters to harmonise public sector financial reporting resulted in AASB 1049, which sought to bridge the divide between generally accepted accounting principles (GAAP)‐based and government finance statistics (GFS)‐based financial statements. However, whether AASB 1049 has resulted in information that is considered appropriate for the public sector has not been examined. We explore this issue by comparing the requirements of AASB 1049 with the responses from a survey of public sector stakeholders on the appropriate accounting treatment and presentation of selected financial items. The analysis suggests consensus with AASB 1049 on presentation issues but less consensus on accounting treatments.     

The Public Policy Debate on Investors' Need for Disclosure Regulation: Accounting Historians' Help Wanted?*/ LE DÉBAT PUBLIC SUR LES BESOINS DES INVESTISSEURS EN MATIÈRE DE RÉGLEMENTATION DE L'INFORMATION: FAUT‐IL L'AIDE DES HISTORIENS DE LA COMPTABILITÉ?

This paper explores how research in accounting history can contribute to the important public policy debate regarding investors' need for disclosure regulation. Accounting, finance, and economics researchers and practitioners argue for, as well as against, disclosure regulation. The debate remains theoretical, however, because empirical studies are virtually nonexistent. This paper reviews five contexts in which accounting historians can begin a search for empirical insights concerning the costs, benefits, externalities, and effects on stakeholders of disclosure regulation. The paper's investigation of the accounting history literature suggests that accounting historians could improve the quality of the debate and help accommodate broader interests or alternative solutions to financial crises.     

Financial statement users’ institutional logic

In this paper, we investigate what we call “financial statement users’ institutional logic,” defined as users’ expressed fundamental views and beliefs about accounting information. We analyze users’ comment letters to standard setters in response to the proposed standards on lease accounting to identify the dimensions of the institutional logic that underlie their views on accounting information. Our qualitative analysis identified and validated ten principal dimensions, namely economics and substance, due process issues, measurement, readiness and relevance for use, conceptual foundations, clarity, presentation and disclosure, cost-benefit issues, comparability and consistency, and financial statement manipulation. Quantitative analyses revealed that four of these dimensions, i.e. due process issues, readiness and relevance for use, comparability and consistency, and cost-benefit issues, occupy a medium or large amount of space in users’ comments and are referred to in strong terms, while economics and substance and measurement, although also widely discussed, are addressed in weaker terms. Overall, our study begins to fill a gap in the literature by providing insights into users’ views on accounting information. These insights challenge the “homo economicus user” currently constructed in standard-setting debates.     

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.     

Incorrect Inferences When Using Residuals as Dependent Variables

We analyze a procedure common in empirical accounting and finance research where researchers use ordinary least squares to decompose a dependent variable into its predicted and residual components and use the residuals as the dependent variable in a second regression. This two‐step procedure is used to examine determinants of constructs such as discretionary accruals, real activities management, discretionary book‐tax differences, and abnormal investment. We show that the typical implementation of this procedure generates biased coefficients and standard errors that can lead to incorrect inferences, with both Type I and Type II errors. We further show that the magnitude of the bias in coefficients and standard errors is a function of the correlations between model regressors. We illustrate the potential magnitude of the bias in accounting research in four commonly used settings. Our results indicate significant bias in many of these settings. We offer three solutions to avoid the bias.     

Tracking the numbers: Across accounting and finance,organizations and markets

This introductory essay reviews recent advances in the emergent field of social studies of finance (SSF) and, subsequently, sets out to illustrate how a closer engagement with SSF might benefit research interests in accounting and vice versa. Finally, it provides a sketch of how mutual engagements across the fields might be intensified in what is identified as an emerging accounting and finance track in the discourse of social science. The prospects of a broader field of research exploring the use of financial numbers across social settings, markets, organizations and cultures are projected, and the possibility of articulating a strong sociological programme of research is considered.     

Experimental research in financial accounting

This paper uses recent experimental studies of financial accounting to illustrate our view of how such experiments can be conducted successfully. Rather than provide an exhaustive review of the literature, we focus on how particular examples illustrate successful use of experiments to determine how, when and (ultimately) why important features of financial accounting settings influence behavior. We first describe how changes in views of market efficiency, reliance on the experimentalist’s comparative advantage, new theories, and a focus on key institutional features have allowed researchers to overcome the criticisms of earlier financial accounting experiments. We then describe how specific streams of experimental financial accounting research have addressed questions about financial communication between managers, auditors, information intermediaries, and investors, and indicate how future research can extend those streams. We focus particularly on (1) how managers and auditors report information; (2) how users of financial information interpret those reports; (3) how individual decisions affect market behavior; and (4) how strategic interactions between information reporters and users can affect market outcomes. Our examples include and integrate experiments that fall into both the “behavioral” and “experimental economics” literatures in accounting. Finally, we discuss how experiments can be designed to be both effective and efficient.     

个人投资者的行为金融学分析

行为金融是当前金融经济学的研究热点。它注重研究投资者的实际决策行为，解释金融市场上的各种现象。个人投资者行为分析是行为金融研究的重要组成部分。行为金融较为成功地解释了个人投资者的判断与决策、投资组合、策略与交易以及退休储蓄等方面的行为。     

Accounting disclosure and firms' financial attributes: Evidence from the UK stock market

This paper focuses on the disclosure of accounting information in the financial statements of UK firms. The primary objective of the study is to analyse the financial characteristics of firms that provide extensive disclosures, and assess the financial impact of their motives, such as for example the need to raise equity finance. The study examines the financial attributes of firms that disclose information about key accounting issues including risk exposure, changes in accounting policies, use of international financial reporting standards and hedging practices. Firms are inclined to disclose accounting information in order to assure the market participants that their accounting policies are consistent with the accounting regulation and meet the information needs of their stakeholders. The study shows that in order to raise finance in the capital and debt markets, firms tend to provide extensive accounting disclosures. Firms that provide informative accounting disclosures appear to display higher size, growth and leverage measures. The findings also show that the disclosure of sensitive accounting information has not adversely affected firms' profitability. In fact, firms that provide detailed accounting disclosures tend to exhibit higher profitability. The implementation of international financial reporting standards enhances the quality and the comparability of financial statements; hence it promotes consistency and reliability in financial reporting and facilitates companies in raising capital internationally.     

Trust,Owner Rights,Employee Rights and Firm Performance

This is a study of variations in trust relationships according to institutional setting. A wide body of comparative institutional literature within economics and finance engages with trust. However, as most of this literature uses macro‐level data and/or stylistic ideal types, it normally neglects intra‐firm trust. This paper redresses this lacuna by using both macro‐level data and comparative firm‐level evidence. We found that both country trust and firm trust increase firm performance, but that there is a trade‐off between the two as high levels of both reduce performance. Finally, both employee rights and investor rights are negatively correlated with country trust.