The recent growth in the practice of incorporating environmental, social, and governance (“ESG”) metrics in executive compensation has been strongly encouraged. According to tournament theory, the disparity in compensation between the CEO and other executives fosters a constructive competitive environment among the executive team, potentially enhancing overall company performance. Prior research has shown mixed results between tournament incentives and corporate social responsibility performance in different countries. The current study revisits the relationship between tournament incentives and environmental, social, and governance (“ESG”) performance. Using 1258 firm-year observations in the U.S. from 2014 and 2016, and 421 firm-year observations in 2021, the central takeaway of this research is to provide evidence that a positive association between compensation packages derived from tournament incentives and ESG performance exists. Our research concludes that higher tournament incentives translate to enhanced environmental, social, and governance performance. Researchers and practitioners interested in the importance of incentive compensation design and achievement of ESG goals should be also interested in this study to better inform their future research and incentive package design.

Purpose The purpose of this study is to investigate the decision usefulness of key audit matters (KAMs) disclosures from the perspective of financial analysts. Design/methodology/approach Using data from two groups of Chinese-listed firms subject to different audit standards, the authors use a quasi-natural experiment and the difference-in-differences approach to examine the impact of KAMs on analyst forecasts. The authors also conduct a textual analysis on management disclosures as well as on the content of KAM disclosures. Findings The results of this study show that both forecast errors and dispersion have significantly declined for the firms disclosing KAMs compared to the firms without such disclosures. Further analysis presents evidence that KAM disclosures have resulted in simultaneous increase in management disclosures and audit quality. In addition, auditor characteristics, such as auditor’s dependence on client fees and its industry specialization, and firm’s characteristics, such as its ownership structure and its social connection with the auditor, appear to affect the informativeness of KAM disclosures. The authors also perform content analysis of KAMs to provide additional insight. Research limitations/implications As AH firms are required to adopt the expanded audit report one year before A shares firms, by design, there is only one year in which these two types of companies differ. Therefore, the results without overgeneralizing the impact of KAM disclosures should be interpreted. In addition, this study involves the Chinese market alone and, therefore, may be affected by factors peculiar to the functioning of the Chinese economy and financial markets. Originality/value The main contribution of this study lies in highlighting the salience of KAM context in shaping the relationship between auditors, managers and analysts and its collective impact on information environment. The findings of this study are significant in that they help establish the importance of KAM disclosures in helping to assure that higher quality financial information is available to capital markets, as well as information that is otherwise unavailable given disclosure mandates in China. This study adds to the literature on the importance of providing additional means of safeguarding auditor independence and on the value of auditor expertise in providing useful content in audit disclosures. Moreover, the findings suggest that the expanded audit report can help reduce the level of asymmetric information, especially for state-owned entities. They provide insight on how the new audit rule influences managers and auditors communicating complex accounting matters as well as the moderating effect of the social connections between auditors and firm executives.

This paper develops a model of focal firm-stakeholder interactions incorporating the values of each party and the possible impact of incomplete contracts between them. The paper offers a values-based analysis of the forces driving the interaction between the parties. Firms exist in a web of perceived obligations and rights. We argue that entities in firm-stakeholder relationships have operational goals supported by terminal and instrumental values that affect the way that the parties behave and interact with others. Since various parties to an interaction may have different values and goals, this model allows for strategic interactions. While some relationships are bound by law or contract, others are not. Thus, the outcome cannot be prescribed with certainty, so an important question is whether the desired outcomes can be enforced. We draw upon contract theory to explore these issues, noting that performance under any contract is problematic since it cannot be assured in advance. We argue that the determinants of outcomes between the focal firm and its stakeholder groups are affected by the values and goals of each entity, while the nature of the contracts between them and the environment within which the interactions occur influence what can be achieved.

PurposeThe purpose of this study is to examine whether the required disclosure and the high frequency of key audit matters (KAMs) are likely to moderate the effect of higher credit risk on earnings quality. Design/methodology/approachThis study uses 15,106 Taiwanese firm-year observations to explore the relationship between earnings quality and credit risk during the 2011 to 2020 period. We use the two-stage least squares method to test whether the presence of KAM disclosures moderated the association between earnings quality and credit risk and also to examine whether higher KAM frequency moderates the association between earnings quality and credit risk. FindingsOur results provide evidence that the presence of a KAM disclosure requirement moderates the impact of firms with higher credit risk on earnings quality. In addition, there is significant evidence that the higher the frequency of KAM disclosures the greater the moderation impact that is found. Originality/valueThis research investigates whether the disclosure and high frequency of KAMs moderates the effect of credit riskiness on earnings quality. This study improves our understanding of whether more KAMs disclosures would improve earnings quality of firms with higher credit risk. In addition, we also use Beneish M-SCORE, as an alternative earnings quality proxy, to reinforce our empirical results. This markedly differentiates this paper from other studies.

Purpose This study aims to explore the relationship between audit partner and firm industry specialization and board of director independence on the decision by Taiwanese firms to use International Financial Reporting Standards (IFRS) flexibility concerning reporting interest income and expense and dividends received in different sections of the statement of cash flows. This flexibility existed in Taiwan for the first time in 2013, the year that Taiwan switched from its own generally accepted accounting principle to IFRS. Design/methodology/approach Using 2013 data for a sample of 1,227 firms, 354 of whom changed their reporting classification, this study examined the interaction effect of board independence and partner-level and firm-level auditor industry specialization on the cash flow reporting decision using logistic regression. Findings The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specializations have a complementary (but negative) relationship with board independence as to whether the firm is likely to report interest expense paid in the operating or financing activities sections. Practical implications An important implication is that knowing the levels of audit firm and partner specialization and how independent the board is, is useful for researchers and regulators in investigating auditor-client relationships and understanding the influences of variables investigated here on the outcome(s) of accounting policy and regulatory changes. Originality/value This study improved the field’s understanding of the impacts of audit partner and firm specialization, board independence and relevant interactions on cash flow reporting choices.

This research aims to specify critical urban sustainability issues by mining unstructured text data derived from the C40 city datasets of the Carbon Disclosure Project. The current study identifies underlying topical issues exhibited by text corpora, enables creation of smarter data visualizations, and forms useful profiles. Four underlying topical areas are examined: economic opportunities, climate risks, incentives to reduce greenhouse gas emissions, and emissions reduction activities. For each area, we built text data visualization profiles. Developing these text data visualization profiles enables greater attention to be paid to the list of topical issues shown in the profiles. Given the number of discovered topic issues, we generate an urban sustainability activity index and use it to identify which cities were detailing their actions toward becoming more sustainable cities. The city officials and municipal planners of either C40 or non-C40 cities worldwide can benchmark this study and put the process of text data visualization at the center of their process of generating citywide sustainable development.

Financial statement fraud occurs when financial data is manipulated with the intent of misleading the users of those statements. Academics, regulators, practitioners and standard setters have put forth significant effort to identify and prevent financial statement fraud. Prior research has investigated the indicators and causes of fraud, the effect that auditor specialization, internal auditors, and the audit committee has on fraud, and the characteristics of the perpetrators of fraud. Further, standard setters have provided auditors with guidance to help identify misstatement related to fraud, and practitioners conduct audits with a keen awareness of the consequences of fraud (American Institute of Certified Public Accountants, 1997; Carcello and Nagy, 2004; Dennid, 1999; Hammersley, 2011; Wilks, Zimbelman, and Mark, 2004). This effort has not had much effect on reducing the occurrence of financial statement fraud. K. Hurtt, Brown-Liburd, Earley, and Krishnamoorthy (2013) find that little research has been done on auditor risk assessment with respect to fraud, with that research largely limited to the differences in fraud assessment when electronic brainstorming is used versus non-electronic brainstorming.

The purpose of this study is to investigate whether the national characteristics of culture, religion and political factionalization are associated with the strength of accounting enforcement. The study uses data on percentages of religious adherents in a sample nation, the Hofstede cultural dimensions and political factionalization. National legal code (e.g., Common Law or Civic Code) and market liquidity are controlled for. Factor analysis is used to generate factor scores from the data. The dependent variable, accounting enforcement, is drawn from Brown et al. (J Bus Finance Account 41(1/2):1–52, 2014). The findings demonstrate that this set of national characteristics is strongly associated with national accounting regulatory enforcement. The implications of this research are that national characteristics should be taken into account in considering the impact of accounting standards on accounting comparability across nations. The limitation of this study is that, like much international research, the sample size is limited, here to 42 nations. The authors collectively have many years of research examining/studying domestic and international regulation, its determinants and consequences. This study importantly extends previous research on the determinants and consequences of regulation in the auditing and accounting arenas. This study provides an important contribution to the literature by helping establish that national characteristics do affect accounting enforcement efforts cross-nationally. This helps researchers and regulators better understand whether international standards can provide the link in comparability across nations that proponents are seeking. It does so by focusing on the variation in enforcement across nations rather than on the standards themselves.

Since 2009, over 176 million patients in the United States have been adversely impacted by data breaches affecting Health Insurance Portability and Accountability Act–covered institutions. While the popular press often attributes data breaches to external hackers, most breaches are the result of employee carelessness and/or failure to comply with information security policies and procedures. To change employee behavior, we borrow from the organizational climate literature and introduce the Information Security Climate Index, developed and validated using two pilot samples. In this study, four categories of healthcare professionals (certified nursing assistants, dentists, pharmacists, and physician assistants) were surveyed. Likert-type items were used to assess the Information Security Climate Index, information security motivation, and information security behaviors. Study results indicated that the Information Security Climate Index was related to better employee information security motivation and information security behaviors. In addition, there were observed differences between occupational groups with pharmacists reporting a more favorable climate and behaviors than physician assistants.

Employees spend approximately 2 h per day engaging in cyberloafing (i.e., using the internet at work for nonwork purposes) behaviors, costing organizations almost $85 billion dollars per year. As a result, cyberloafing is often considered a counterproductive type of withdrawal behavior. However, recent research suggests that cyberloafing may have some unexpected positive workplace outcomes. Therefore, we argue that the role of workplace cyberloafing is more complex than previously assumed and posit that cyberloafing may provide employees with a way to cope with workplace stress such as exposure to workplace aggression. To examine this proposition, we used a heterogeneous sample of 258 employees to test whether cyberloafing buffers the detrimental effects of workplace aggression exposure on two outcome variables: employees’ turnover intentions and job satisfaction. Overall, results supported the notion that employees use cyberloafing as a workplace coping mechanism, which runs counter to the majority of research that conceptualizes cyberloafing as a counterproductive workplace behavior. These findings suggest that managers may consider allowing some degree of cyberloafing so that employees can better cope with work stress. Moreover, managers should directly target stressful workplace conditions (e.g., aggression) that serve as the impetus for cyberloafing behaviors.

This research focuses on the development of a predictive regression model to investigate the relationship of CEO compensation of U.S. corporate insurance companies to other companies' financial status and profitability, a forecasting model was developed, based on 2014 corporate data. This forecasting model was used to forecast the 2015 compensation of each of the CEOs. -

Assuring the quality of international auditing is important in the current, globalized business/economic environment. High-quality international auditing efforts promote greater confidence in financial statements, and therefore promote greater movement of capital. Ensuring high-quality auditing efforts is the task of auditing regulation efforts, among others. Several potential determinants of the strength of these efforts were postulated in Kleinman et al (2014). The postulated determinants of interest include national culture, religion, legal code origin, and financial market liquidity. The authors, however, did not test the relationship of the postulated determinants to auditing enforcement efforts. This study undertakes the task of investigating such relationship empirically, using the Brown et al (2014) measures of auditing enforcement efforts. We find that comparative religious affiliation, religion’s importance, culture, legal code, and the financial variable of market liquidity were determinants of auditing enforcement efforts. The implications of these findings are presented.

Purpose The purpose of this paper is to examine the impact of non-staggered voting for members of the board of directors on earnings quality and the value relevance of earnings and book value. Design/methodology/approach The authors used a sample of Taiwanese firms whose board was elected as a whole every three years from 2003 to 2013. The authors used multiple regression analysis to test whether board of directors elections and corporate governance affected earnings quality and the value relevance of earnings and book value. Findings The authors found that elections led to lower earnings quality, but better corporate governance led to greater earnings quality. In the presence of board elections, earnings have reduced value relevance but book value had increased value relevance. Finally, given board elections, the relative value relevance of earnings and book value on stock price was not fully moderated by strong corporate governance. Research limitations/implications The results presented here indicate the importance of better corporate governance in diffusing suspicions of management occasioned by the use of discretionary accruals in years in which board elections take place. Better corporate governance regimes led to a more positive relationship of discretionary accruals to earnings persistence, even in the presence of directorial elections. Similarly, better corporate governance regimes led to a more positive relationship between earnings per share and stock prices. Limitations include the restriction of the testing locale to Taiwan. That said, many companies around the globe use non-staggered board elections. Accordingly, these results suggest issues of importance to corporate governance advocates beyond Taiwan as well. Originality/value This study deepens the field’s understanding of the impact of corporate governance arrangements and schedules for electing board of directors’ members on issues of interest to stockholders.

Corporate social responsibility (CSR) water disclosures vary in content, leading to concern about the quality and extent of such disclosures. This paper employs formal concept analysis (FCA) to examine water reporting of selected companies in the US food and beverage industry that have followed the water guidelines set forth by the Global Reporting Initiative (GRI) and in the disclosure guidelines of the CEO Water Mandate. Assessments of water consumption and water withdrawal were cited more often in our sample firms' CSR reports. FCA results also identify the major focus of our sample firms as setting sustainable water management goals and water quality strategy. Other important issues included leadership, partnership, and employee involvement. While the FCA text mining tool is demonstrated using water-related behaviors here, it can be used to identify continuous improvement opportunities and examine many other issues of interest to corporate stakeholders in other industries and communities worldwide. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment

The research is directed toward the prediction of operating income within the MetLife Insurance Company. The operating income of the firm is the amount of profit realized from a firm's own operation, as opposed to net income. The econometric model is based on 10 years of quarterly data (2004-2014). The explanatory variables used in this modeling effort are (1) stock price, (2) long-term borrowing, (3) capital surplus, (4) free cash flow, (5), S&P average, (6) GDP, and (7) CPI.

The accounting court proposed by Spacek (Account Rev 33(3): 368, 1958) was a potent and controversial idea. The court would provide a venue to which auditing firms and clients could bring disputes over the application of accounting principles and over time would build a database of casework illustrating the court's decisions on proper application and interpretation of accounting principles. In this paper, we contribute to the literature on the accounting court and on standard setting by analyzing group value orientations and motivations that should promote the likelihood of an accounting court appearing in these times. We base our analysis in value group theory (Shakun 1988 Evolutionary systems design: policymaking under complexity and group group decision support systems. Holden-Day, Oakland, CA.), an analysis rooted in an examination of operational and terminal values of key participants. The analysis brings to light a contradiction between the terminal values of the key players and the actions of those players. We argue that common conditions of existence came between the operational goals and terminal values in the accounting domain and key actors willingness to seek the specified values. This analysis provides a flexible but powerful tool for analyzing motivations that may influence behavior of key organizations in the accounting domain.

As the world has become more connected through advancements in technology and expansions of multinational corporations, the call has grown louder for a global set of financial reporting standards to help compare the financial results of companies conducting business internationally to better measure performance in comparison with competitors from countries using diverse sets of local or international accounting standards. Although in theory a global set of reporting standards creates a more cohesive and comparable financial reporting environment, this argument fails to take into account how the underlying differences in the culture, political, and legal environments across nations impacts the enforcement of these standards. If the enforcement efforts of accounting standards do vary as a result of national characteristics, it adds an important dimension to the arguments for and against the globalization of accounting standards for the purposes of improved comparability and standardization, because it has implications for the comparability of financial reports across nations with differing levels of enforcement. This study evaluates whether the accounting standards enforcement efforts vary as a result of underlying differences in cultural, religious, political and legal environments. Whereas there is a body of literature focusing on the adoption of IFRS and the quality of financial reporting, this study provides a new and important contribution to the literature seeking to understand whether the often advocated widespread adoption of any set of international standards can provide the link in comparability across nations that proponents have been calling for. Rather than focusing on the standards themselves, this study focuses on the hypothesized determinants of variation in enforcement efforts across nations. The results indicate that there are systematic differences in enforcement based on underlying cultural, religious, political and legal environment differences.

Despite extensive technological and legislative interventions, data breaches within the healthcare sector rose drastically in 2015. While these breaches were often attributed to external “hackers,” research indicates that the vast majority of data breaches were actually the result of careless employee behavior. As a result, cybersecurity and medical pundits have called for a change in healthcare employees’ attitudes and behaviors surrounding cybersecurity. Since research indicates that organizational climate approaches are particularly effective at impacting employees’ attitudes and behaviors, borrowing from the safety climate literature, we take a climate-based approach to tackling cybersecurity issues. To do this we test a model linking cybersecurity climate to cybersecurity-related behaviors. Using a sample of 261 healthcare employees working in a variety of medical settings, results indicate support for the proposed model.

Assuring the quality of international auditing is important in the current, globalized business/economic environment. High quality international auditing efforts promote greater confidence in financial statements, and therefore promote greater movement of capital. Ensuring high quality auditing efforts is the task of auditing regulation efforts, among others. Several potential determinants of the strength of these efforts were postulated in Kleinman, Lin and Palmon (2014). The postulated determinants of interest include national culture, religion, legal code origin and financial market liquidity. The authors, however, did not test the relationship of the postulated determinants to auditing enforcement efforts. This study undertakes the task of investigating such relationship empirically, using the Brown, Preiato and Tarca (2014) measures of auditing enforcement efforts. We find that comparative religious affiliation, religion’s importance, culture, legal code and the financial variable of market liquidity were determinants of auditing enforcement efforts. The implications of these findings are presented.

The purpose of this chapter is to determine whether a seemingly uniform group of 16 mutual funds, denoted by Morningstar as five-star, moderate asset allocation mutual funds, is actually heterogeneous in composition. Fifty-three financial variables were collected on each fund. These variables include measures of performance, risk, and equity composition and bond composition. The data were analyzed using various statistically based clustering measures and distance functions. The results revealed three clusterings within the Morningstar classification. The implications of this clustering for mutual fund selection tools arc described.