Accounting

 

Recent Submissions

  • González Osorio, David Humberto (Svenska handelshögskolan, 2016-05-27)
    In this dissertation we use a network approach based on cross-fund correlation to calculate metrics that can help to describe the existence of common features not captured by common factors. Previous studies have found that measurements of performance adjusted by risk factors are explained by some fund characteristics, like size, age, expenses and turnover. This dissertation specifically studies performance in the mutual fund industry utilizing a network approach to address the following three questions. Do the characteristics of the mutual fund network help to explain the performance of mutual funds? Is the position of a mutual fund in the network related to persistence of abnormal performance of the fund? Do changes in the structure of the network of mutual funds signal the presence of herd behavior? In the first essay of this dissertation we argue that performance is also explained by other features of the funds related to informational linkages. We argue that managers with different types of information will invest differently. In the same line of argument, managers with access to only free public information and poor private information should behave similarly, and their investments should perform close to the market, while managers of the type that holds quality private information should outperform the market. In that sense, funds with similar type of information will be correlated. We propose that informational linkages can be approximated by measurements of centrality in a network of mutual funds. Centrality of a fund in the network, as explained later, can be interpreted as a measure of how closely correlated the returns of a fund are to other funds in the market. In the second essay we build on the foundations of the first essay to include measures of the mutual fund network in order to establish a link between persistence and correlation across funds. If there are informational linkages, those connections could help to test for persistence. Then, we expect that the returns of those funds will be correlated to each other; if the returns of those funds were correlated by luck, it is expected that in the next period, those linkages will disappear. However, when those linkages remain from one period to another, we can consider that the returns of the funds are not correlated by chance and we expect to find persistence. Finally, we consider how correlation across funds can help to explain herd behavior in the mutual fund industry. The third essay argues that an aggregate centrality measure in the network of mutual funds could signal the existence of herd behavior in the market.
  • 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.
  • 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.
  • 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.