Browsing Accounting by Publication Year

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  • Afzali, Mansoor (Hanken School of Economics, 2020-06-18)
    Social capital, as an important construct in social sciences, captures shared common beliefs and density of associational networks within a community. Regions with high social capital tend to have higher levels of mutual trust and display greater contract enforceability through the power of the community. Sociologists argue that communities with dense associational networks face a harsher punishment for deviation from norms, which deters individuals from acting opportunistically. In the long run, this results in fostering a norm-conducive environment that encourages cooperation among individuals and mitigates norm-deviant behavior. Research in economics and sociology shows that social capital brings several benefits to the community. For instance, regions with higher levels of social capital have effective governance mechanisms, higher economic growth, better health, lower income inequality, fewer suicides, higher education attainment ratios, and reduced levels of crime compared to regions with lower levels of social capital. Recently, researchers in corporate finance and accounting have also encompassed the idea of social capital and studied its influences in mitigating norm-deviant behavior by firms. For instance, researchers show that firms headquartered in high social capital counties have a lower tendency to avoid taxes, commit less financial reporting fraud, and use their resources more efficiently. The first two essays of this dissertation contribute to this recent literature and extend it by studying how social capital influences corporate reporting culture and accounting conservatism, and proportion of female directors on corporate boards and corporate governance mechanisms. Using county-level data on social capital in the United States, the first essay illustrates that firms headquartered in high social capital counties have higher accounting conservatism as managers in such firms are less likely to withhold information in the form of bad news. The second essay studies how social capital influences boardroom gender diversity and corporate governance mechanisms. The findings indicate that social capital enhances oversight mechanisms and reduces inequality within a society, leading to lower supply-side barriers for female directors. This ultimately results in a higher proportion of female directors on corporate boards of firms located in high social capital. Networks formed through social interactions and personal relationships are an important dimension of social capital and vital in almost all economic activities. The third essay relates to the role of social networks in disseminating information to the market. The findings of this essay suggest that insiders with larger networks are more likely to have access to channels of information and resource exchange, which ultimately result in a higher market reaction to their insider trades. This dissertation contributes to the existing literature on two important social constructs – social networks and social capital – and their influence on different processes in accounting and finance through three distinct but related essays. The main contribution of the whole dissertation is the empirical evidence on how social networks influence insider trading and how social capital affects corporate governance and accounting conservatism.
  • Ström, Eva (Svenska handelshögskolan, 2018-11-24)
    To help companies achieve strategic success, new management tools have been invented and introduced over time. One of the most well-established and popular management tools is the Balanced Scorecard (BSC). The BSC was first introduced in the 1990s by Kaplan and Norton as a performance measurement tool that supplemented financial measures with non-financial measures, chosen with regard to strategy. It has then evolved into a strategic management system. This thesis examines how the BSC is related to performance. It suggests that the BSC is associated with performance, because it is used as a strategic management system. Furthermore the research investigates how certain chosen contextual variables enable the BSC to be used as a strategic management system. The BSC contextual variables are the chosen strategy, management’s motives for introducing the BSC and management involvement in the implementation phase. The empirical evidence from Finland and Sweden provide evidence that a BSC that is used as a strategic management system is positively related to performance. Furthermore the empirical evidence shows that a certain focus of strategy and management’s role in supporting the strategy - by introducing management accounting techniques and by actively being involved in the process- has a positive association with the extent to which the BSC is used as a strategic management system. This, in turn, associated with performance. Overall the research highlights the importance of the interplay between the use of an accounting technique- such as the BSC- and the contextual factors that support that use (supporting the use with strategy and management’s active role).
  • Sundvik, Dennis (Svenska handelshögskolan, 2016-09-21)
    The opportunistic aspects of financial reporting have largely been investigated under the umbrella term of earnings management. However, most research is devoted to capital market settings and listed firms in large economies, including the United States in particular. As a contrast, this dissertation examines earnings management based on tax incentives among private firms in European settings. In particular, the four interrelated essays analyze situations where the statutory corporate tax rate in a country is changed and firms are expected to report lower (higher) earnings while the tax rate is higher (lower) to reduce their total tax burden. While these tax changes are introduced to enhance international tax competitiveness, they also give rise to strong incentives for earnings management. For example, when the tax rate is to be decreased, firms may employ various accruals to defer earnings from high to low tax periods. The first essay of the dissertation contributes to the literature by investigating decomposed measures of earnings management instead of relying on a broad measure that does not provide much insight. Based on Swedish private firms, the analyses clearly show income-decreasing earnings management on the aggregate level before two tax rate cuts. The aggregate results are later observed to be largely driven by unexpected changes in accounts receivable. The second essay uses Finnish data and provides evidence that private firms, under certain circumstances, also change the end of the fiscal year to achieve benefits around tax reforms. Further, the analyses demonstrate that a reform that simultaneously lowers corporate tax and hikes dividend tax creates conflicting incentives to manage earnings. The motivation behind the third essay stems from the debate on the appropriate level of book-tax conformity. The essay documents that higher conformity between accounting and tax reporting in jurisdictions is associated with more earnings management in response to an upcoming change in the tax rate. A contribution of this study is the analysis of a clear incentive for earnings management instead of a sole focus on absolute measures. In the fourth and final essay, private firms that use external help in the financial reporting process are separated from firms that do not. The hypothesis is that firms, that handle their accounting function internally, have greater possibilities to influence their reporting opportunistically. The results also suggest that the minority of smaller private firms who perform the tasks in-house, and have the knowledge and resources needed, are able to manage taxes to a larger extent
  • Siekkinen, Jimi (Svenska handelshögskolan, 2016-05-27)
    In order to achieve well-functioning capital markets, firms have to provide investors and other stakeholders with relevant and reliable information. Especially, for financial firms a large amount of assets and liabilities are measured at fair value in accordance with International Financial Reporting Standards (IFRS). The complexity and lack of liquid markets of certain financial instruments has made the valuation of such financial instruments complicated. Hence, fair value accounting for financial instruments leads to some subjective estimation of input data used in the valuation process. This subjectivity can be misused by managers for their own interest (i.e. opportunistic behaviour). However, opportunistic behaviour can be reduced with efficient and sophisticated internal and external control mechanisms. This dissertation investigates which control mechanisms that are suitable in monitoring managers related to fair value accounting of financial instruments in financial firms. In the first essay, the effect of corporate governance on the value relevance of fair values is analysed. The assumption is that stronger boards with an appropriate structure are more effective in monitoring managers. The results indicate that board independence and gender diversity have a positive effect on the information quality of fair value estimates. In addition, the results indicate that board size is negatively associated with the value relevance of fair value estimates. Thereby, firms with smaller, more independent, and more diverse boards disclose fair value estimates of the highest quality. The second essay examines whether the value relevance of fair values varies across investor protection environments. The premise is that the better the investor feels protected from the firm, the more likely the investor will trust in the manager’s ability to estimate reliable and relevant fair values. This essay finds evidence that the value relevance of fair values is positively associated with the investor protection environment of the firm’s home country. In countries with undeveloped investor protection traditions, investors do not trust managers when it comes to estimating the fair value of financial instruments. The third essay examines whether audit quality has an impact on the value relevance of fair values. It can be assumed that managerial opportunism is mitigated by independent high quality auditing. The results suggest that client importance affects the information quality of fair value estimates negatively and that non-audit services have a positive effect on the value relevance of fair values. Hence, the results imply that higher level of information quality of financial instruments can be achieved with independent audit of high quality.
  • Argyrou, Argyris (Svenska handelshögskolan, 2013-05-28)
    The thesis examines how the auditing of journal entries can detect and prevent financial statement fraud. Financial statement fraud occurs when an intentional act causes financial statements to be materially misstated. Although it is not a new phenomenon, financial statement fraud has attracted much publicity in the wake of numerous cases of financial malfeasance (e.g. ENRON, WorldCom). Existing literature has provided limited empirical evidence on the link between auditing journal entries and financial statement fraud. The lack of evidence contrasts sharply with the responsibility of auditors to test the appropriateness of journal entries recorded in a general ledger. It becomes more pronounced when considering that journal entries pose a high risk of financial statement fraud, as the case of WorldCom has demonstrated. It is further exacerbated given that fraud results in considerable costs to a number of parties, for example: auditors may be exposed to litigation; investors may experience negative stock returns; and, capital markets may suffer from reduced liquidity. Motivated by these considerations, the thesis adopts the tenets of design-science research in order to develop three quantitative models for auditing journal entries. It first employs self-organizing map and extreme value theory to design the models as constructs. Subsequently, it codes the constructs in MATLAB to build functioning instantiations; and finally, it evaluates the instantiations by conducting a series of experiments on an accounting dataset containing journal entries. The contribution of the thesis lies in the proposed models and their potential applications in accounting. The first model can assist management to monitor the processing of journal entries as well as to assess the accuracy of financial statements. The second model can detect novel journal entries that differ from legitimate journal entries to such an extent that they could be ‘suspicious’. The third model can identify those journal entries that have both a very low probability of occurring and a monetary amount large enough to materially misstate financial statements. The thesis has a novelty value in that it investigates financial statement fraud from the unexplored perspective of journal entries. The thesis can lead to concrete practical applications in accounting, as the models can be implemented as a Computerised Assisted Audit Technique. This potentiality can be the focal point of additional research.
  • Storå, Jakob (Svenska handelshögskolan, 2013-05-28)
    There is a great deal of research indicating that firms use the flexibility in accounting standards to engage in earnings management. This study examines whether firms that apply IFRS manage earnings through goodwill impairment accounting. IFRS require that firms shall test goodwill for impairment annually and whenever there is an indication that goodwill may be impaired. Impairment tests involve estimating the value of goodwill. More specifically, if the book value of goodwill exceeds its recoverable amount, as estimated in connection with an impairment test, the firm shall recognize the excess as an impairment loss. However, estimates of recoverable amounts for goodwill are subject to a high degree of unverifiable discretion. This suggests that goodwill impairment tests might be used for earnings management. This study examines earnings management in relation to earnings targets. It focuses on two earnings targets that might create incentives for earnings management: zero earnings and the previous year’s earnings. The findings of the study are consistent with the prediction that firms that apply IFRS manage earnings through goodwill impairment accounting. The findings suggest that firms manage earnings upwards by impairing less goodwill when pre-impairment earnings barely exceed an earnings target, presumably in order to avoid falling short of the target. Further, the findings suggest that firms manage earnings downwards by impairing more goodwill when pre-impairment earnings clearly exceed or clearly fall short of an earnings target, presumably in order to inflate future earnings.
  • Wagner, Michael (Svenska handelshögskolan, 2011-05-17)
    This dissertation develops a strategic management accounting perspective of inventory routing. The thesis studies the drivers of cost efficiency gains by identifying the role of the underlying cost structure, demand, information sharing, forecasting accuracy, service levels, vehicle fleet, planning horizon and other strategic factors as well as the interaction effects among these factors with respect to performance outcomes. The task is to enhance the knowledge of the strategic situations that favor the implementation of inventory routing systems, understanding cause-and-effect relationships, linkages and gaining a holistic view of the value proposition of inventory routing. The thesis applies an exploratory case study design, which is based on normative quantitative empirical research using optimization, simulation and factor analysis. Data and results are drawn from a real world application to cash supply chains. The first research paper shows that performance gains require a common cost component and cannot be explained by simple linear or affine cost structures. Inventory management and distribution decisions become separable in the absence of a set-dependent cost structure, and neither economies of scope nor coordination problems are present in this case. The second research paper analyzes whether information sharing improves the overall forecasting accuracy. Analysis suggests that the potential for information sharing is limited to coordination of replenishments and that central information do not yield more accurate forecasts based on joint forecasting. The third research paper develops a novel formulation of the stochastic inventory routing model that accounts for minimal service levels and forecasting accuracy. The developed model allows studying the interaction of minimal service levels and forecasting accuracy with the underlying cost structure in inventory routing. Interestingly, results show that the factors minimal service level and forecasting accuracy are not statistically significant, and subsequently not relevant for the strategic decision problem to introduce inventory routing, or in other words, to effectively internalize inventory management and distribution decisions at the supplier. Consequently the main contribution of this thesis is the result that cost benefits of inventory routing are derived from the joint decision model that accounts for the underlying set-dependent cost structure rather than the level of information sharing. This result suggests that the value of information sharing of demand and inventory data is likely to be overstated in prior literature. In other words, cost benefits of inventory routing are primarily determined by the cost structure (i.e. level of fixed costs and transportation costs) rather than the level of information sharing, joint forecasting, forecasting accuracy or service levels.
  • Höglund, Henrik (Svenska handelshögskolan, 2010-11-29)
    Detecting Earnings Management Using Neural Networks. Trying to balance between relevant and reliable accounting data, generally accepted accounting principles (GAAP) allow, to some extent, the company management to use their judgment and to make subjective assessments when preparing financial statements. The opportunistic use of the discretion in financial reporting is called earnings management. There have been a considerable number of suggestions of methods for detecting accrual based earnings management. A majority of these methods are based on linear regression. The problem with using linear regression is that a linear relationship between the dependent variable and the independent variables must be assumed. However, previous research has shown that the relationship between accruals and some of the explanatory variables, such as company performance, is non-linear. An alternative to linear regression, which can handle non-linear relationships, is neural networks. The type of neural network used in this study is the feed-forward back-propagation neural network. Three neural network-based models are compared with four commonly used linear regression-based earnings management detection models. All seven models are based on the earnings management detection model presented by Jones (1991). The performance of the models is assessed in three steps. First, a random data set of companies is used. Second, the discretionary accruals from the random data set are ranked according to six different variables. The discretionary accruals in the highest and lowest quartiles for these six variables are then compared. Third, a data set containing simulated earnings management is used. Both expense and revenue manipulation ranging between -5% and 5% of lagged total assets is simulated. Furthermore, two neural network-based models and two linear regression-based models are used with a data set containing financial statement data from 110 failed companies. Overall, the results show that the linear regression-based models, except for the model using a piecewise linear approach, produce biased estimates of discretionary accruals. The neural network-based model with the original Jones model variables and the neural network-based model augmented with ROA as an independent variable, however, perform well in all three steps. Especially in the second step, where the highest and lowest quartiles of ranked discretionary accruals are examined, the neural network-based model augmented with ROA as an independent variable outperforms the other models.
  • Velcu, Oana (Svenska handelshögskolan, 2008-05-23)
    ERP system implementations have evolved so rapidly that now they represent a must-have within industries. ERP systems are viewed as the cost of doing business. Yet, the research that adopted the resource-based view on the business value of ERP systems concludes that companies may gain competitive advantage when they successfully manage their ERP projects, when they carefully reengineer the organization and when they use the system in line with the organizational strategies. This thesis contributes to the literature on ERP business value by examining key drivers of ERP business value in organizations. The first research paper investigates how ERP systems with different degrees of system functionality are correlated with the development of the business performance after the completion of the ERP projects. The companies with a better perceived system functionality obtained efficiency benefits in the first two years of post-implementation. However, in the third year there is no significant difference in efficiency benefits between successfully and less successfully managed ERP projects. The second research paper examines what business process changes occur in companies implementing ERP for different motivations and how these changes impact the business performance. The findings show that companies reported process changes mainly in terms of workflow changes. In addition, the companies having a business-led motivation focused more on observing average costs of each increase in the input unit. Companies having a technological-led motivation focused more on the benefits coming from the fit of the system with the organizational processes. The third research paper considers the role of alignment between ERP and business strategies for the realization of business value from ERP use. These findings show that strategic alignment and business process changes are significantly correlated with the perceived benefits of ERP at three levels: internal efficiency, customers and financial. Overall, by combining quantitative and qualitative research methods, this thesis puts forward a model that illustrates how successfully managed ERP projects, aligned with the business strategy, have automate and informate effects on processes that ultimately improve the customer service and reduce the companies’ costs.
  • Yigitbasioglu, Ogan (Svenska handelshögskolan, 2008-05-13)
    As companies become more efficient with respect to their internal processes, they begin to shift the focus beyond their corporate boundaries. Thus, the recent years have witnessed an increased interest by practitioners and researchers in interorganizational collaboration, which promises better firm performance through more effective supply chain management. It is no coincidence that this interest comes in parallel with the recent advancements in Information and Communication Technologies, which offer many new collaboration possibilities for companies. However, collaboration, or any other type of supply chain integration effort, relies heavily on information sharing. Hence, this study focuses on information sharing, in particular on the factors that determine it and on its value. The empirical evidence from Finnish and Swedish companies suggests that uncertainty (both demand and environmental) and dependency in terms of switching costs and asset specific investments are significant determinants of information sharing. Results also indicate that information sharing improves company performance regarding resource usage, output, and flexibility. However, companies share information more intensely at the operational rather than the strategic level. The use of supply chain practices and technologies is substantial but varies across the two countries. This study sheds light on a common trend in supply chains today. Whereas the results confirm the value of information sharing, the contingent factors help to explain why the intensity of information shared across companies differ. In the future, competitive pressures and uncertainty are likely to intensify. Therefore, companies may want to continue with their integration efforts by focusing on the determinants discussed in this study. However, at the same time, the possibility of opportunistic behavior by the exchange partner cannot be disregarded.
  • Spohr, Jonas (Svenska handelshögskolan, 2005-12-07)
    There is much literature developing theories when and where earnings management occurs. Among the several possible motives driving earnings management behaviour in firms, this thesis focuses on motives that aim to influence the valuation of the firm. Earnings management that makes the firm look better than it really is may result in disappointment for the single investor and potentially leads to a welfare loss in society when the resource allocation is distorted. A more specific knowledge of the occurrence of earnings management supposedly increases the awareness of the investor and thus leads to better investments and increased welfare. This thesis contributes to the literature by increasing the knowledge as to where and when earnings management is likely to occur. More specifically, essay 1 adds to existing research connecting earnings management to IPOs and increases the knowledge in arguing that the tendency to manage earnings differs between the IPOs. Evidence is found that entrepreneur owned IPOs are more likely to be earnings managers than the institutionally owned ones. Essay 2 considers the reliability of quarterly earnings reports that precedes insider selling binges. The essay contributes by suggesting that earnings management is likely to occur before high insider selling. Essay 3 examines the widely studied phenomenon of income smoothing and investigates if income smoothing can be explained with proxies for information asymmetry. The essay argues that smoothing is more pervasive in private and smaller firms.