Earnings Conservatism, Litigation and Contracting: The Case of Cross‐Listed Firms

Abstract:   We compare earnings conservatism of UK companies cross‐listed in the US to that of UK companies without a US‐listing. We expect that conservatism will be more pronounced for cross‐listed firms than for firms with a UK listing only, because the cross‐listed firms face a stricter enforcement regime. Furthermore, cross‐listed firms may use a listing on a US exchange to signal high‐quality reporting to investors. Using a matched‐pairs research design, we find that earnings of UK cross‐listed firms are significantly more conservative than earnings of UK firms without a US listing. Moreover, cross listed firms display particularly high levels of conservatism during the early years of their cross‐listing. This indicates that firms use earnings conservatism to commit to highly demanding reporting requirements and in doing so communicate a perception of investor care.     

Methodological Issues in the Design of Online Surveys for Measuring Unethical Work Behavior: Recommendations on the Basis of a Split-Ballot Experiment

In recent years, there has been an increasing interest in unethical work behavior. Several types of survey instruments to collect information about unethical work behavior are available. Nevertheless, to date little attention has been paid to design issues of those surveys. There are, however, several important problems that may influence reliability and validity of questionnaire data on the topic, such as social desirability bias. This paper addresses two important issues in the design of online surveys on unethical work behavior: the response scale for questions regarding the frequency of certain types of unethical work behavior and the location of the background questions in an online survey. We present the results of an analysis of a double split-ballot experiment in a large sample (n = 3,386) on governmental integrity. We found that, when comparing response scales that have labels for all categories with response scales that only have anchors at the end, the latter provided answers with higher validity. The study did not provide support for the conventional practice of asking background questions at the end.     

Small Entrepreneurs and Shifting Identities: The Case of Tourism in Puerto Plata (Northern Dominican Republic)

This article focuses on the way small entrepreneurs in the tourism industry of the Puerto Plata region try to cope with contextual changes caused by the development of (mass) tourism. These entrepreneurs struggle with all sorts of problems, mainly resulting from the dominance of the large, multinational, all-inclusive resorts in the tourism industry. With the introduction of these large resorts in the early 1980s, the local entrepreneurs were hoping to obtain a substantial part of the income-growth derived from this new industry. As a result many locals shifted from their previous jobs to professions in the tourism industry. Nearly 30 years later, most of them are disappointed with the results, but because of the region's dependence on tourism they feel they have no way out. The Puerto Plata case is used to further explore the impact of tourism on the culture and identity of the small entrepreneurs.     

Net working capital investment and capital budgeting analysis: Some pedagogical insights

Net working capital (NWC) investment, as a factor in discounted cash flow (DCF) analysis, receives little attention in the capital budgeting literature and accounting textbooks. The purpose of this paper is to explore the ways in which this important component of the analysis can be intregrated into the classroom and thus add to the student's overall understanding of capital budgeting. Four areas are discussed: (1) the significance of NWC investment in capital budgeting analysis, (2) the opportunity cost nature of the NWC investment, (3)measurement of the components of the NWC investment, and (4) use of the NWC investment to help restore the bottom line in DCF analysis to a pure cash flow basis. Integration of the fourth point into the topic of capital budgeting is found to be a convenient way to reinforce the student's understanding of the statement of cash flows.     

Accounting educators'' problem-solving style and their pedagogical perceptions and preferences

The problem-solving style exhibited by accounting educators may affect their propensity to implement innovative pedagogical and curriculum changes. This study used Adaption-Innovation Theory as a framework to investigate the problem-solving style of accounting educators. The sample consisted of 82 accounting educators from Missouri and Tennessee. More participants were found to be adaptive than innovative problem solvers though not to the extent found in prior research with accounting students. Faculty problem-solving style was found to be associated with preferences for certain pedagogical methodologies in the education process.     

A Wealth-Based Explanation for Earnings Conservatism

This study extends research on earnings conservatism – the degree to which the accounting system recognizes bad news regarding future cash flows in a more timely manner than good news – by arguing that heterogeneous executives' risk attitudes will influence the degree of conservatism. Prior research has demonstrated that differences in earnings conservatism are mainly the result of differences in institutional factors (Basu (1997) and Ball et al. (2000a)). We hypothesize that more risk-averse managers, who demand a risk premium that offsets the effects of the variance in their compensation, will report more conservative earnings. Earnings conservatism will temper expectations among stakeholders about the future cash flows to be distributed thereby diminishing the likelihood of disappointing outcomes and potential litigation or threats for executives of being fired. The more risk-averse manager would be more inclined to reduce such conflicts, since they will have a destabilizing effect on his future compensation. The empirical results for a sample of Dutch companies over the period of 1983 to 1995 confirm our hypothesis: more risk-averse managers report earnings more conservatively than do less risk-averse managers.