The Information Content of Cash Flows and the Random Walk: Evidence from the Helsinki Stock Exchange

Using a sample from the Helsinki Stock Exchange, this paper examines whether observed market reactions to unexpected cash flows are sensitive to the random walk assumption of cash flow behaviour. We consider the random walk (with drift) model commonly used in related literature, and we consider cash flow expectations generated with individually estimated parsimonious univariate time series models and an index model. Market reactions to unexpected cash flows are indiscernible under the random walk assumption, while significant market reactions are found when expectations of cash flows are measured with models which better capture their time series properties. Prior studies that rely on the random walk assumption have probably been biased against finding a significant market reaction to cash flow information.     

The Determinants of Corporate Trade Credit Policies in a Bank‐dominated Financial Environment: the Case of Finnish Small Firms

This paper examines trade credit policies of small firms operating in a bank‐dominated environment (Finland). We find that creditworthiness and access to capital markets are important determinants of trade credit extended by sellers. The level of purchases is positively correlated with the level of accounts payable. Larger and older firms and firms with strong internal financing are less likely to use trade credit, whereas firms with a high ratio of current assets to total assets, and firms subject to loan restructurings use it more. Negative loan decisions by financial intermediaries increase and a close bank‐borrower relationship decreases the probability that a firm does not take advantage of trade credit discounts.     

IQ and Audit Quality: Do Smarter Auditors Deliver Better Audits?

This study examines the role of an individual auditor's cognitive ability in delivering high‐quality audits. Our results from analyzing archival data from Sweden show that audit partners' IQ scores obtained from psychological tests are positively associated with going‐concern audit reporting accuracy and audit fee premiums. We also find some, albeit weak, evidence that audit partners' IQ scores are negatively associated with the income‐increasing abnormal accruals of the client. These results suggest that, although audit services are standardized through various control mechanisms and audits are conducted by teams rather than by individual auditors, the cognitive ability of audit partners responsible for an audit remains important in delivering high‐quality audit services.     

Responsiveness of Auditors to the Audit Risk Standards: Unique Evidence from Big 4 Audit Firms

We examine the effect of changes in audit risk standards on the conduct of financial statement audits in a European setting. We investigate this by analysing the audit hours and audit fees for clients of Big 4 audit firms in Finland in 1996 and 2010. Our results show that audit firms became more sensitive to clients’ business risk due to the introduction of the new audit risk standards, with more audit hours allocated to owner-managed companies in 2010 than in 1996, and fewer audit hours allocated to low-risk clients in 2010 than in 1996. Also, the labour mix in the audit team changed for owner-managed companies, with a greater work load carried by junior auditors in 2010 than in 1996. Regarding the price of audit, we find an increase in audit fees for clients with high business risk, while audit fees remained at roughly the same level for low-risk clients. These findings should be of interest to the auditing profession and those involved in the development of auditing regulations.     

Using enterprise architecture artefacts in an organisation

As a tool for management and planning, Enterprise Architecture (EA) can potentially align organisations’ business processes, information, information systems and technology towards a common goal, and supply the information required within this journey. However, an explicit view on why, how, when and by whom EA artefacts are used in order to realise its full potential is not defined. Utilising the features of information systems use studies and data from a case study with 14 EA stakeholder interviews, we identify and describe 15 EA artefact use situations that are then reflected in the related literature. Their analysis enriches understanding of what are EA artefacts, how and why they are used and when are they used, and results in a theoretical framework for understanding their use in general.     

Revisiting the paradox of whether retail buyers behave more like consumers or industrial purchasers: the case of price discounts

Marketing Letters - A long-lasting debate in marketing literature is whether retail buyers who purchase consumer products behave like consumers or like industrial purchasing managers. We address...     

Earnings cosmetics in a tax-driven accounting environment: evidence from Finnish public firms

Finnish firms are known to manage earnings downwards to avoid income taxes. This study suggests that they simultaneously manage earnings upwards in a smaller scale. The idea behind this behaviour is that humans may perceive a profit of, say, 301 million as abnormally larger than a profit of 298 million. Consequently, firms tend to adjust the second leftmost digit of earnings to exceed nine in order to make the first digit of earnings larger by one. Such corporate behaviour has been previously documented in New Zealand and in the USA. Our study finds a similar phenomenon in Finland. Our results show that although the largest second digits (eight and nine) are fewer than expected, only sixes and sevens are statistically significantly managed upwards.     

How Discrimination Against Female Workers Is Hidden in U.S. Industry Statistics: Sex Differences in Wages in the Cotton Textile and Boot and Shoe Industries Between the World Wars

Abstract . The conclusion that the male-female earnings gap largely reflects sex differences in occupational structure is widely accepted, This conventional wisdom is challenged by examining intraoccupational male-female wage differences in two leading manufacturing industries, cotton textiles and boots and shoes, for the 1920s and 1930s. The results show little evidence of sex differences in wage rates in particular occupations in the cotton textile industry. The piece wage system protected the wages of female workers and kept intraoccupational wage differences between the sexes within narrow limits. In contrast, the evidence points to sharp sex differentials in occupational wage rates in the boot and shoe industry. In this industry, piece wages in the different occupations varied directly with the price of the shoes. By assigning work on low quality shoes to females employers were able to practice wage discrimination against them.