Explaining equity shares in international joint ventures: Combining the influence of asset characteristics,culture and institutional differences

This paper investigates the determinants of the observed contracted equity share ownership structure in international joint ventures (IJVs). We propose that the inherent intangibility of the assets that partner's contribute to the IJV, and both formal (legal) and informal (cultural) institutional differences between partners contribute to explaining the negotiated division of the IJV's equity share. Empirical results from 442 UK-based home-foreign IJVs, indicate that an IJV partner's equity share ownership is positively correlated with the intangibility of the assets they contribute to the IJV relative to those of the second partner. Both cultural and formal institutional differences exert a moderating influence on the observed asset intangibility-equity share relationship for the foreign IJV partner. We attribute this finding to both risk perceptions and the liability of foreignness.     

Structuration: A position–practice perspective and an illustrative study

Most prior studies of accounting and control based on structuration theory have given primacy to the analysis of the virtual structures of signification, domination and legitimation. We argue that there is scope for researchers to focus on the more concrete aspects of structuration, such as the configuration and articulation of patterns in relations between agents over time. To do so, we advocate the deployment of a position–practice perspective, which comprises four inter-related elements: praxis, positioning, capabilities and trust. We illustrate use of the perspective in a case study of a joint venture between companies engaged in the production and shipment of oil and petroleum products. The position–practice perspective reveals control governed not by equity ownership, but rather a dialectic of control between joint venture partners whose activities are also affected by accountability to powerful institutions in the wider network. Nevertheless, industry practices are mediated by partner organisations, who rely heavily on trust in systems rather than interpersonal trust. Further research is proposed, using composite research strategies, different levels of analysis, and greater diversity in inter-organisational relationships. The position–practice perspective complements previous structuration studies by more clearly focusing on the praxis of situated agents, their positioning relative to others, the stratified pluralism of institutionalised practices, the consequent role of contradiction in social relations, the recursive cycles of disembedding and reembedding that link the local and global, the concrete and the abstract, and the complex and provisional nature of trust in creating order and coordination.     

The trust-control nexus in public private partnership (PPP) contracts

This study examines the trust-control nexus in the context of public private partnership (PPP) contracts. It draws on the literature and the case of two UK school PPP contracts with varying degree of trust among the partners to illustrate the role of control in building competence trust and goodwill trust, and how trust in turn affects control. Prior to entering into the PPP contract, under a condition of high risk and low trust, reliance was placed on formal control to evaluate competence trust for the purpose of selecting a preferred bidder, whilst goodwill trust, which takes time to evolve, played no role in the selection process. During contract implementation, formal control formed the basis for demonstrating competence and nurturing goodwill trust. Trust subsequently determined the extent of reliance on formal control and informal control. In the case of School 1, high level of trust led to a reliance on informal control which enabled partners to focus resources on solving problems, whilst formal control operated in the background. In the case of School 2, low level of trust and perceived lack of transparency led to a demand for additional formal control. This study adds to the trust-control literature by shedding light on how trust relates to control, in the context of long-term PPP contracts which are difficult to specify in advance.     

Ex ante governance decisions in inter-organizational relationships: A case study in the airline industry

This paper discusses the theory behind ex ante governance decisions in inter-organizational relationships and uses an explanatory case study involving an inter-firm relationship between two European airlines to empirically assess the theoretical propositions. The case study complements existing literature by providing a comprehensive explanation of opportunism-based ex ante governance decisions. It deconstructs opportunism, links such behavior to unique governance responses and discusses the ex post effects of ex ante governance decisions in light of the necessary development of trust and relational governance mechanisms. In this context, it also takes account of differences in bargaining power between the two partners and examines the “control strategy” employed by the dominant partner. The paper offers further insights into the influence of bargaining power on governance decisions by illustrating how cooperating partners can address ex ante power differences. An interesting finding from this case study is the fact that the more powerful of the two partners deliberately relinquished the advantages associated with its ex ante privileged position. It accepted a governance structure that virtually equalized positions to motivate its weaker partner to participate and stimulate the development of trust.     

Who chooses whom? Syndication,skills and reputation

We develop a model focusing on the dynamic aspect of syndication, namely, the know-how transfer between syndication partners and their ability to learn. The core of the analysis checks whether reputational concerns outweigh the temptation to renege on a given contract. Throughout the paper, we investigate two key topics. The first consists of the conditions under which investors syndicate their deals. The second focuses on who chooses whom. Sometimes, the syndication is impeded because the financier believes that his partner has strong incentives to either renege on a contract (hold-up problem) or to shirk (moral hazard problem).     

The auditor’s strategy selection for negotiation with management: Flexibility of initial accounting position and nature of the relationship

The audit partner is usually the first mover in a negotiation with client management and has an intended strategy set going into such a negotiation. Negotiation strategies that make up the set may be integrative (both parties can gain or at least not lose) and distributive (there is a winner and a loser). We focus on five strategies: two integrative (expanding the agenda or problem solving) and three distributive (contending, conceding or compromising) and measure the audit partner’s intent to use these strategies’ associated tactics. We report the results of an audit negotiation experiment in which 140 highly experienced audit partners planned a negotiation in response to a case scenario that incorporated two key theoretical variables: the flexibility of the client initial accounting position and the nature of the prior relationship between the auditor and client management. In addition to intended tactics, we also examine these two variables’ effects on commitment to the goal of reducing net income. Our results indicate that in contrast to findings in the generic negotiation literature that show negotiators have a preference for distributive tactics and have difficulty employing integrative ones, our audit partners generally favored the use of integrative tactics over distributive ones when entering negotiations, irrespective of circumstance. However, the two theorized variables led to particular strategic choices when distributive tactics were intended; for example, when the audit partner perceived he or she was facing a client management that was inflexible in its initial accounting position, the partner was more likely to use contending tactics and less likely to use conceding and compromising tactics. Finally, we discuss implications of these results for practice and research.     

Beyond the contract: Managing risk in supply chain relations

As a consequence of the development of intensified relations with suppliers, for many firms the supply chain has become a significant source of risk exposure. In this paper we examine firms’ use of control practices to manage risks associated with intensified collaboration with supply chain partners. Specifically, we examine how buyers manage risks associated with interfirm transactions through their choice of supply partner, in terms of perceived goodwill and competence trust, and their use of multiple interrelated supply chain management (SCM) control practices. These control practices include contractual contingency planning, performance target setting, operational reviews, information sharing, supplier support and joint problem solving. We collect survey data from Japanese manufacturing firms about their relations with part suppliers to test hypotheses about the associations between transaction risks, selection of trusted suppliers and use of SCM practices. Our results support that transaction characteristics that are at the basis of transaction risks significantly affect the selection of trusted partners to collaborate with as well as their use of various control practices to manage relationships. We also find that in particular competence trust facilitates the use of control practices to support effective SCM.     

Trust,regulation, and contracting institutions

This paper demonstrates that trust directly influences contracting efficiency. We document that trust reduces demand for contract regulation and positively relates to a high‐quality contracting environment, supporting a substitution hypothesis. Furthermore, contract regulation no longer leads to poor contracting outcomes. These findings suggest that lack of trust significantly explains inefficient contracting institutions. Based on interaction effects, we note that trust could complement formal enforcement in countries with weak regulation. As regulation increases, trust substitutes for contract regulation. Overall, trust positively promotes efficient contracting by reducing burdensome regulation and providing an alternative to formal contract enforcement.     

The impacts of economic importance difference of a joint venture (JV) held by partners and partners' size difference on the extraction of rivalrous and non-rivalrous private benefits in a JV

We investigate the impacts of economic importance difference of a JV held by partners and partners' size difference on the extraction of rivalrous and non-rivalrous private benefits in a JV. Focusing on 824 JV events during the period 2001–2012 in the global markets we find that, where the economic importance difference of a JV held by partners is large, a partner with a more economically important JV extracts more rivalrous type and non-rivalrous type of private benefits. Under the situation where partners' size difference is large, a smaller partner extracts more non-rivalrous type of private benefits. Whether arbitrage trading between two partners' shares outperforms the trading strategy of buy-hold two partners' shares during the JV announcement period depends on whether there are large private benefits available or not.     

Social Trust,Rule of Law,and Economic Exchange: Evidence from China and Its Major Trading Partners

ABSTRACT

Using cross-country panel data and employing the instrumental variable generalized method of moments (GMM) method, this article examines the effect of social trust on economic exchange between China and its major trading partners over the period 2005–2013. Social trust significantly increases bilateral trade and foreign direct investment (FDI) between China and its partners, and this effect is much stronger in nonmember countries of the Organization for Economic Cooperation and Development (OECD) than OECD member countries. Further exploration suggests that the heterogeneity could be explained by the substitution relationship between social trust and the rule of law: social trust matters more in countries where the rule of law is weaker. We also .find that the impact of trust on trade and FDI is weaker in countries that have greater language similarity to China, are adjacent to China, or are common-law-origin countries. Based on these results, in implementing the Belt and Road Initiative, the Chinese government and companies should not only focus on each country’s legal norms but also attach importance to the role of social capital in international economic exchange.     

私人股权投资基金运作模式选择与对策研究

私人股权投资基金有契约型、公司型、合伙型三种组织运作模式，在法律的合规性、避免双重征税、投资管理的效率性、监督管理的有效性等诸多方面有较多差异。通过对三种股权投资基金的运作模式的分析，提出信托型私人股权投资运作模式在现阶段是理性决策。公司型私人股权投资运作模式适合早期阶段，有限合伙人股权运作模式是最终发展目标。     

Busy auditors,financial reporting timeliness and quality

We investigate whether audit partners with multiple clients are able to complete their audits in a timely fashion, an important but largely unexplored area of academic research. One view is that having multiple clients increases the knowledge and experience of the audit partner resulting in a more efficient and therefore, quicker audit. On the other hand, having multiple clients may over-burden an audit partner resulting in a slower audit process and longer completion times. We find that audit partners with multiple clients take longer to complete their annual audit. More importantly, we also find that companies with busy auditors who take longer to complete their audits also have poorer levels of financial reporting quality. Additionally, in terms of consequences for busy auditors, firms with lengthy audit report lag switched their auditors the next year suggesting that busy audit partners may lose clients if their workload is excessive and they are not able to maintain audit quality. Our results are robust to alternative measures for both audit report lag and audit partner busyness and a range of endogeneity tests. We also undertake simultaneous quantile regression to assess changes in audit report lag depending on the number of audit clients per partner where we find preliminary evidence of a knowledge spill-over effect. Consequently, our results have implications for companies, audit firms, regulators and other key stakeholders.     

The effect of accounting firm mergers on the market for audit services: New Zealand evidence

This article examines the outcomes of accounting firm mergers using data about the frequency of audit switches, the numbers of partners in the respective firms, and perceptions revealed in interviews with partners. Evidence from client switches does not show any evidence that the mergers were followed by cost reductions, or of collusion to force prices up. The effects of the mergers appear to have been elsewhere—the merging firms reduced partner numbers substantially, increasing partner leverage so that individual remaining partners were better off. Data from interviews confirm these findings, and show that the culture of individual firms had a significant effect on determining which group of partners controlled the merged firm.     

Trust, contracting and the prospectus process

This study explores the role of trust and the ways in which trust is created within the prospectus process. It is argued that trust is a necessary condition for economic exchange and that trust must exist prior to contracting. The theoretical analysis provided deconstructs the contract as the original event and points to the limitations of traditional accounting analyses in understanding economic exchange. In addition, examples from the prospectus process are used to illustrate how some of the capital market institutions and institutional practices that we observe create and recreate the trust necessary for exchange.     

Capitalist accountability and the British Industrial Revolution: The Carron Company, 1759–circa. 1850

The paper argues that accounting historians can help us to understand the origins of the British Industrial Revolution (BIR) by explaining the contribution of accounting to financial success. It re-examines the archive of the Carron Company (hereafter, ‘Carron’) from its formation in 1759 to around 1850 to explore the theory derived from Marx that class conflict, the capitalist mentality, its social relations of production, and accounts, drove the BIR. It shows that, contrary to the currently accepted view that Carron’s early financial accounts were a ‘shambles’, its partners used integrated financial and management accounts based on double entry bookkeeping to impose capitalist accountability on their managers and workers. The paper argues that zealous accounting was critical to Carron’s financial success because accountability for capital drove organisational and technical innovation and it underlay the partners’ early social solidarity. Carron’s partners worked collectively during the company’s difficult formative period up to the 1780s, using accounts to hold the managing partner and his subordinates accountable to them for the circulation of capital and to conduct class war against their workers. From the 1790s, the managing partner exploited a weakness in Carron’s system of corporate governance to understate its profits to demoralise other partners into selling their shares to give him control, which he used to divert a disproportionate share of its accumulating wealth to him and his family. The paper concludes that Carron’s history supports the Marxist theory that accounts played an important role in fuelling the BIR by giving capitalists a technology for controlling production for profit, what Marx called controlling the ‘valorization process’, and for promoting the social cohesion of capital. It calls on accounting historians to test this theory by revisiting the archives of other leading BIR firms, so that we can construct a history of this pivotal shift in the trajectory of world economic development on solid empirical foundations.     

Accounting for control and trust building in interfirm transactional relationships

This paper theorises the accounting-control-trust nexus in interfirm transactional relationships. In the context of such relationships, accounting has predominantly been conceptualised as a control technology. However, in our paper we analyse stable and durable relationships as being the results of interaction between control and trust building. Such an analysis calls for an additional conceptualisation of accounting as a trust building technology. Furthermore, we explain the interaction between accounting for control and accounting for trust building in the context of a process of embedded agency.     

Empirical Evidence on the Implicit Determinants of Compensation in Big 4 Audit Partnerships

This study investigates the implicit financial incentives of individual Big 4 audit partners by examining the association between a partner's compensation and characteristics of the audit firm, audit partner, and individual partner clientele for Big 4 firms in Sweden. Using tax and financial data for individual audit partners and clients, our empirical findings indicate that there is significant variation in the implicit determinants that are associated with compensation across the Big 4. We find that audit partners’ compensation is positively associated with the size of their clientele or the number of publicly traded clients, both of which represent revenue‐generating opportunities. Similarly, compensation and developing an industry specialization are positively related. In three firms, gaining clients is clearly related to an increase in compensation, while losing a client is associated with a reduction in partner income in only one firm. We find that audit partner income is more sensitive to performance‐related incentives, such as attracting new clients, as partners progress in their career. Finally, we find evidence that audit failures, proxied by reporting errors related to issuing a going concern opinion, are associated with lower compensation. These results should be of interest to the auditing profession, audit firms, and regulators when they consider the effects of implicit incentives of partner compensation on audit quality.     

Rotate back or not after mandatory audit partner rotation?

Many countries have implemented rules that require an audit partner to rotate off the audit of a specific client after a certain period of time in the belief that rotation will improve independence and will allow for a fresh look at the audit. The rules are either silent on whether or when a partner can rotate back or else they specify a cooling-off period after which the rotated-off partner can resume the audit. Using archival data from China, a country with a 2-year cooling-off period, this paper explores the determinants of whether the audit partner rotates back or not when the cooling-off period expires, and whether audit quality is weakened by the audit partner rotation-back practice. We find that the audit partner rotation-back practice can be explained by factors relating to switching costs, agency conflicts, client desirability, and the audit partner’s capacity constraint considerations. Interestingly, we find that clients suffering greater audit adjustments immediately prior to the expiration of the cooling-off period are more likely to be associated with subsequent audit partner rotation-back. Furthermore, we find that rotation-back partners tend to treat former clients more favorably than non-rotation-back cases using modified audit opinions as our proxy for audit quality. Overall, our findings offer preliminary explanations for and shed light on the consequences of rotation-back practice arising from mandatory audit partner rotation requirements and lend support to regulatory concerns on rotation-back practice among audit partners.     

The development of the management accountant's role revisited: An example from the Swedish Social Insurance Agency

This study traces the development of the management accountant (MA) role at the Swedish Social Insurance Agency (SIA). In 2012, the agency began a reformation by implementing the Lean management system in hopes of increasing customer trust. The results of this study show that the authority of the MA rests on decentralization and the proximity of MAs to managers, as previous research has shown, and more specifically on a definitional and a moral prerogative that may or may not be awarded to MAs enabling them to act as de facto managers. The study shows how the role of the SIA's operative level MAs changed into a helpdesk function with the role of assisting other groups to help themselves, in this case operative‐level teams that had begun performing management accounting tasks. Thus, this study bears witness not to the expansion and hybridization of existing MA roles, but to the reduction in authority and de‐hybridization of the MA role, from business partner to a pedagogical role on a consultative basis.