Internal governance structures and earnings management

This paper investigates the role of a firm's internal governance structure in constraining earnings management. It is hypothesized that the practice of earnings management is systematically related to the strength of internal corporate governance mechanisms, including the board of directors, the audit committee, the internal audit function and the choice of external auditor. Based on a broad cross‐sectional sample of 434 listed Australian firms, for the financial year ending in 2000, a majority of non‐executive directors on the board and on the audit committee are found to be significantly associated with a lower likelihood of earnings management, as measured by the absolute level of discretionary accruals. The voluntary establishment of an internal audit function and the choice of auditor are not significantly related to a reduction in the level of discretionary accruals. Our additional analysis, using small increases in earnings as a measure of earnings management, also found a negative association between this measure and the existence of an audit committee.     

Has the likelihood of appointing a CEO with an accounting/finance background changed in the post-Sarbanes Oxley era?

Congress passed the Sarbanes–Oxley Act (SOX) in July 2002 to improve the accuracy and reliability of financial reporting. The Act increased boards of directors’ responsibilities for financial reporting and control. Did it consequently increase boards’ preferences for a CEO with financial experience to protect against the potential reputational and/or legal losses that directors incur when financial scandals happen? We investigated whether newly appointed CEOs in the post-SOX period were more likely to have accounting or finance experience than in the pre-SOX period. Using a sample of 264 CEO changes from 2001 to 2004, we found that the percentage of newly-appointed CEOs with accounting/finance backgrounds significantly increased in the post-SOX period compared to the pre-SOX period. Our results suggest that the events surrounding the passage of the Sarbanes–Oxley Act may have affected the CEO background experience preferred by boards of directors.     

Can Fraudulent Cues Be Transmitted by Innocent Participants?

The authors explore whether and how linguistic indicators of fraud make their way into the Management Discussion & Analysis (MD&A) section of financial reports. Although research has shown that word choice and tone can help identify fraudulent financial reports, it is as yet unclear how this occurs when these reports are written by many individuals, some of whom are unaware that financial misrepresentation is occurring. Through an examination of industry recommendations and interviews with individuals experienced in writing the MD&A section, the authors confirm that many hands are involved in drafting this portion of financial reports. The authors then structure an experiment, using a real fraud case, that asks participants to write an MD&A from truthful prior U.S. Securities and Exchange Commission filings and a memo from the CFO with suggestions of what to say in the current period MD&A. Unbeknownst to participants the CFO memo was created using phrases from financial statements subsequently identified to be fraudulent. The authors find that individuals do unwittingly write MD&A associated with fraudulent financial statements with relatively little suspicion and that linguistic cues contained in the CFO memo are transmitted to the ultimate MD&A through naive and innocent participants.     

Aggregate risk sharing and equivalent financial mechanisms in an endowment economy of incomplete participation

Summary. A pure endowment overlapping generations economy can be inefficient because of insufficient risk sharing. The introduction of an outside asset by a government or the existence of a clearing house can remedy the inefficiency by allowing some intergenerational risk sharing. While the typical outside asset is fiat money, many alternative financial mechanisms, such as social security, risk-free government bonds, mispriced deposit insurance, and income insurance can serve the same function as fiat money. Hence there are many equivalent financial mechanisms that provide intergenerational insurance. In the presence of uncertainty, there are several concepts of Pareto optimality that can be appropriately applied in an overlapping generations setting. I examine the risk-sharing arrangements associated with two different concepts of optimality, including how these arrangements are financed. The results are related to, and in some instances an extension of, the equivalence results obtained by Chamley and Polemarcharkis (1984), Weiss (1977), and Wallace (1981).Received: 4 March 2003, Revised: 30 January 2004JEL Classification Numbers: E40, E44, D51.P. Labadie: I would like to thank the participants of the Economic Theory Symposium Recent Developments in Money and Finance at Purdue University, May 2-4, 2003 and an anonymous referee for comments on this version. I am grateful to Bruce Smith for comments on an earlier version.     

Heritage tourism: A question of age

This research analyzes the demographic characteristics and motivations of the senior and non-senior market segments in selecting a heritage site. By studying how these two groups of individuals select heritage sites, planners will be better able to comprehend what these individuals expect from their visit. A survey consisting of a historic preservationist scale, benefits sought scale, services sought scale, historic site preference scale, and demographic information was mailed to a systematic random sample of 700 travelers requesting tourism information about Virginia. The findings show that many similarities exist between the senior and non-senior market. However, the senior market is more likely to visit a historic site that is less convenient to reach, has fewer facilities, and is more authentic and less developed; while the non-seniors are motivated more by opportunity to escape work overloads.     

The family and HRM in North America: how demographic and social changes are shifting the way work–family issues are managed by organizations and employees

This review examines the impact of changing demographics and changing family structures on organizational human resource management (HRM) practices. We explore the practical concerns and theoretical implications of these demographic changes. The impact of general environmental changes, globalization and technology, and the role of workforce changes, such as the changing nature of the family and the aging population, is considered. In addition, the emerging trends in HRM policies and their outcomes are reviewed, and the implications for management are discussed.     

Revisiting the research–practice gap in HR: A longitudinal analysis

Over 6300 articles published in 4 HR-focused journals over a 30-year period of time (1976–2005) were content analyzed according to 14 topic areas. The purpose of the study was to examine changes that have taken place over a 30-year time frame. Specifically, what HR issues dominate the field during the past and the present? And to what extent has the HR research–practice gap narrowed or widened over time? The results indicate that HR Development and Staffing were dominant HR issues throughout the past 30 years. In addition, some HR topics demonstrated a stable research–practice gap (Motivation-related issues), and other topics were characterized by an increasing gap (Compensation & rewards), a decreasing gap (Employee/Labor relations), or no significant gap (HR Developments, Staffing). These findings are discussed in the context of key human capital trends.