Accounting Research: An Overview

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these decisions, accounting researchers need to rely on a broad set of theoretical and methodological tools that are drawn from various disciplines. The purpose of the ..... Auditors' Strategies to Protect Their Litigation Reputation: A Research ...
Accounting Research: An Overview Ph.D. in Business Administration Seminar Seminar Outline ADMI 860E Fall 2006 Instructor Michel Magnan, Ph.D., FCA Associate Dean – Masters’ and Graduate Diplomas Lawrence Bloomberg Chair in Accountancy John Molson School of Business Concordia University Office: GM 710 Telephone : 514-848-2424 X 4145 Fax: 514-848-4518 Email: [email protected]

Summary As a professional field, accounting encompasses a wide range of activities, practices, and concepts with accounting professionals acting in various capacities (e.g., auditor, controller, financial executive). Hence, in their efforts to understand how and why accountants make decisions as well as the impact of these decisions, accounting researchers need to rely on a broad set of theoretical and methodological tools that are drawn from various disciplines. The purpose of the seminar is to expose students to these theoretical and methodological tools. However, by emphasizing emerging issues and current trends, the seminar adopts a forward-looking stance with respect to accounting research so that students can better identify relevant and promising research themes.

Objectives The purpose of Accounting Research : An Overview is threefold: Provide students with a comprehensive perspective of the tools, theoretical as well as methodological, that are currently driving accounting research;

Expose students to emerging trends in accounting research; Introduce students to databases that are widely used in accounting research. With this background, students will be better able to delineate their research interests as well as faculty members who may potentially serve as advisers.

Pedagogical Approach Since the seminar is an introduction to accounting research, a mixed pedagogical strategy will be used. Each lecture investigates a particular research question from different theoretical and methodological perspectives. At the beginning of each lecture, the instructor will provide students with background knowledge and information so that they can better understand the context in which the studies to be discussed were realized. Afterward, the lecture will turn into a more traditional seminar format, with students leading the discussion on some papers.

Evaluation The seminar is to be viewed as a learning laboratory. Therefore, at each lecture, students are expected to turn in a short critique of a paper they would have selected. That critique could have the following format: What is the paper’s research question ? What is the paper’s underlying theory ? How was the study performed (method) ? What does the paper show ? What is the paper’s relevance (why is it interesting, important) ? Students who have critiqued a particular paper are expected to provide leadership when it is discussed in the seminar. Students are expected to write a term paper. The term paper will take the form of a research proposal (5-10 pages), with a research question, a theoretical framework and a methodology. The proposed study’s contribution will also need to be discussed. Weekly outlines and presentations Class discussion Term paper

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Detailed Content of Lectures Week 1 Accounting Research – Some background A brief history of accounting research A paradigm view of accounting research From a normative world to positive accounting o An user’s perspective of accounting information o A managerial perspective of accounting information The accountant as decision-maker Week 2: Is Accounting Information Useful and/or Relevant ? Aboody, D., M.E. Barth and R. Kasznik. 2004. SFAS No. 123 Stock-Based Compensation Expense and Equity Market Values. The Accounting Review 79(2): 251-276 Botosan, C. and M. Stanford. 2005 Managers’ Motives to Withhold Segment Disclosures and the Effect of SFAS No. 131 on Analysts’ Information environment. The Accounting Review 80(3):751-771 Guenther, D.A. and R. C. Sansing. 2004. The Valuation Relevance of Reversing Deferring Tax Liabilities. The Accounting Review 79(2): 437-452. Ely, K.; G. Waymire. 1999. Accounting Standard-setting Organizations and Earnings Relevance: Longitudinal Evidence from NYSE Common Stocks 19271993. Journal of Accounting Research 37(2): 293-318. Francis, J. and K. Schipper. 1999. Have Financial Statements Lost Their Relevance ? Journal of Accounting Research 37(2): 319-352. Kuman, K. and G. Visvanathan. 2003. The Information Content of the Deferred Tax Valuation Allowance. The Accounting Review 78(2): 471-490. Lev, B. and P. Zarowin. 1999. The Boundaries of Financial Reporting and How to Extend Them. Journal of Accounting Research 37(2): 353-386. Altamuro, J., A. Beatty, and J. Weber. 2005. The Effects of Accelerated Revenue Recognition on Earnings Management and Earnings Informativeness: Evidence from SEC Staff Accounting Bulletin No. 101. The Accounting Review 80(2): 373401

Week 3: Is Accounting Information Reliable and Unbiased ? Beatty, A. and J. Weber. 2003. The Effects of Debt Contracting on Voluntary Accounting Method Changes. The Accounting Review 78(1): 119-142. Beatty, A. and J. Weber. 2006. Accounting Discretion in Fair Value Estimates: An Examination of SFAS 142 Goodwill Impairments. Journal of Accounting Research 44(2): 257-296. Bloomfield, R., R. Libby and M.W. Nelson. 2003. Do Investors Overrely on Old Elements of the Earnings Time Series? Contemporary Accounting Research 20(1): 1-32. Bowen, R., A.K. Davis and S. Rajgopal. 2002. Determinants of RevenueReporting Practices for Internet Firms. Contemporary Accounting Research 19(4): 523-562. Burgstahler, D. and M.J. Eames. 2003. Earnings Management to Avoid Losses and Earnings Decreases: Are Analysts Fooled? Contemporary Accounting Research 20(2): 253-294. Cheng, Q. and T. Warfield. 2005. Equity Incentives and Earnings Management. The Accounting Review 80(2): 441-476. Krishnan, R. M. Yetman and R.J. Yetman. 2006. Expense Misreporting in Nonprofit Organizations. The Accounting Review 81(2): 399-420. Rosner, R. 2003. Earnings Manipulation in Failing Firms. Contemporary Accounting Research 20(2): 361-408. Hirst, E.; Koonce, L.; Miller. 2000. The joint effect of management’s prior forecast accuracy and the form of its financial forecasts on investor judgment. Journal of Accounting Research, supplement: 101-134. Hirst, E. and P. Hopkins. 1999. Comprehensive Income Reporting and Analysts’ Valuation Judgments. Journal of Accounting Research, supplement: 47-84. Magnan, M.; C. Nadeau and D. Cormier. 1999. «Earnings Management During Anti-Dumping Investigations: Analysis and Implications». Canadian Journal of Administrative Sciences/Revue canadienne des sciences de l’administration 16 (2): 149-162.

Week 4: Is Accounting Information a Sufficient Indicator of Firm Performance ? Craighead J., M. Magnan, and L. Thorne. 2004. The Impact of Mandated Disclosure on Performance-Based CEO Compensation. Contemporary Accounting Research 21(2): 369-398 Bradshaw, M. T., Sloan, R. G., 2002. GAAP versus the Street: an Empirical Assessment of Two Alternative Definitions of Earnings. Journal of Accounting Research 40: 41-66 Clarkson, P.M., Y. Li and G.D. Richardson. 2004. The Market Valuation of Environmental Capital Expenditures by Pulp and Paper Companies. The Accounting Review 79(2): 329-354. Francis, J., K. Schipper and L. Vincent. 2003. The Relative and Incremental Explanatory Power of Earnings and Alternative to Earnings Performance Measures for Returns. Contemporary Accounting Research 20(1): 121-164. Ittner, C. and D. Larcker. 1999. Are nonfinancial measures leading indicators of financial performance ? An analysis of customer satisfaction. Journal of Accounting Research, supplement: 1-46. Nwaeze, E.T., S. Yang and Q.J. Yin. Accounting Information and CEO Compensation: The Role of Cash Flow from Operations in the Presence of Earnings. Contemporary Accounting Research 23(1): 227-266. Otley, D. and A. Fakiolas. 2000. Reliance on accounting performance measures: dead end or new beginning ? Accounting, Organizations and Society 25(4-5): 497-510. Reck, J.L. 2001. The usefulness of financial and nonfinancial performance information in resource allocation decisions. Journal of Accounting and Public Policy 20(1): 45-72. Smith, MJ. 2002. Gaming Nonfinancial Performance Measures. Journal of Management Accounting Research 14: 119-134.

Week 5: Databases and Capital Markets Research Kothari, S.P. 2001. Capital Markets Research in Accounting. Journal of Accounting and Economics 31: 105-231 (continued in the following class) Kinney, W. 1986. Empirical Accounting Research Design for Ph.D. Students. Accounting review (April):338-350. Hanlon, Michelle, Shivaram Rajgopal, and Terry Shevlin. 2003. Are Executive Stock Options Associated With Future Earnings?. Journal of Accounting and Economics 36: 3-43 Kothari, S.P. 2001. Capital Markets Research in Accounting. Journal of Accounting and Economics 31: 105-231 (continued from the previous class) Bradshaw, M. T., Sloan, R. G., 2002. GAAP versus the Street: an Empirical Assessment of Two Alternative Definitions of Earnings. Journal of Accounting Research 40: 41-66 Lo and Mackinlay. 1997. The Econometrics of Financial Markets. Princeton University Press: Ch3 to ch7 (?)

Week 6: Does an Audit Add Value to Financial Statements ? Krishnan, G.V. 2005. Did Houston Clients of Arthur Andersen Recognize Publicly Available Bad News in a Timely Fashion. Contemporary Accounting Research 22(1): 165-194. Weber, J. and 2003. Do Experts Informational Intermediaries Add Value? Evidence from Auditors in Microcap Initial Public Offerings. Journal of Accounting Research 41(4): 681-720. Myers, J.N., Linda A. Meyers and T.C. Omer. 2003. Exploring the Term of the Auditor-Client Relationship and the Quality of Earnings: A Case for Mandatory Auditor Rotation? The Accounting Review 78(3): 779-800. Clarkson, P. 2000. Auditor Quality and the Accuracy of Management Earnings Forecasts. Contemporary Accounting Research 17(4): 595-622. Chen, C., Xijia Su and R. Zhao. 2000. An Emerging Market’s Reaction to Initial Modified Audit Opinions: Evidence from the Shangai Stock Exchange. Contemporary Accounting Research 17(3): 429-456. Background readings Becker, C.; M. Defond, J. Jiambalvo; K.R. Subramanyam. 1998. The Effects of Audit Quality on Earnings Management. Contemporary Accounting Research 15(1): 1-24. Blackwell, D.; T. Noland; D. Winters. 1998. The Value of Auditor Assurances: Evidence from Loan Pricing. Journal of Accounting Research 36(1): 57-70. Reed, B.J.; M.A. Trombley; D.S. Dhaliwal. 2000. Demand for Audit Quality: The Case of Laventhol and Horwath’s Auditees. Journal of Accounting, Auditing and Finance 15(2): 183-200. Kinney, Palmrose and Scholz. 2004. Auditor independence, non-audit services and restatements: Was the U.S. Government Right ? Journal of Accounting Research 42(3): 561-588.

Week 7: Why Do Firms Disclose More Information Than Is Required ? Aboody, D., M. Barth and R. Kasznik. 2004. Firms’ Voluntary Recognition of Stock-Based Compensation Expense. Journal of Accounting Research 42(2): 123-158. Botosan, C. and M. Plumlee. 2002. A Re-examination of Disclosure Level and the Expected Cost of Equity Capital. Journal of Accounting Research 40(1): 2140. Miller, G. 2002. Earnings Performance and Discretionary Disclosure. Journal of Accounting Disclosure 40(1): 173-204. Lang, M. and R. Lundholm. 2000. Voluntary Disclosure and Equity Offerings: Reducing Information Asymmetry or Hyping the Stock ? Contemporary Accounting Research 17(4): 623-662. Byrd, J.; M. Johnson and S. Porter. 1998. Discretion in Financial Reporting: The Voluntary Disclosure of Compensation Peer Groups in Proxy Statement Performance Graphs. Contemporary Accounting Research 15(1): 25-52. Cormier, D. and M. Magnan. 2001. Corporate Environmental Reporting: An International Comparison. Working Paper (UQAM). Kennedy, J.; T. Mitchell; S. Sefcik. 1998. Disclosure of Contingent Environmental Liabilities: Some Unintended Consequences. Journal of Accounting Research 36(2): 257-278. Hope, O.-K. 2003. Disclosure Practices, Enforcement of Accounting Standards, and Analysts' Forecast Accuracy: An International Study. Journal of Accounting Research 41(2): 235-284.

Week 8: Do Taxes Matter ? Erickson, M., M. Hanlon and E.L. Maydew. 2004. How much will Firms Pay for Earnings That Do Not Exist? Evidence of Taxes Paid on Allegedly Fraudulent Earnings. The Accounting Review 79(2): 387-408. Phillips, J.D. 2003. Corporate Tax-Planning Effectiveness: The CompensationBased Incentives. The Accounting Review 78(3): 847-874. Hodder, L., M.L. McNally and C. Weaver. 2003. The Influence of Tax and NonTax Factors on Banks’ Choice of Organizational Form. The Accounting Review 78(1): 297-326. Klassen, K. and A. Mawani. 2000. The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs. Contemporary Accounting Research 17(2): 227-262. Kemsley, D. 1998. The effects of taxes on production location. Journal of Accounting Research 36(2): 321-343. Sillamaa, M.A. 1999. Taxpayer behavior in response to taxation : comment and new experimental evidence. Journal of Accounting and Public Policy 18(2): 165178.

Week 9: Does It Make Accounting Sense to be Ethical ? Schatzberg, J.W., G.R. Sevcik, B.P. Shapiro, L. Thorne, and R.S. O. Wallace. 2005. A Reexamination of Behavior in Experimental Audit Markets: The Effects of Moral Reasoning and Economic Incentives on Auditor Reporting and Fees. Contemporary Accounting Research 22(1): 229-264. Chaney, P.K. and K. Philipich. 2002. Shredded Reputation: The Cost of Audit Failure. Journal of Accounting Research 40(4): 1221-1246. DeFond, M., K. Rahunandan and KR. Subramanyam. 2002. Do Non-Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions. Journal of Accounting Research 40(4): 1247-1274. McCracken, S. 2003. Auditors’ Strategies to Protect Their Litigation Reputation: A Research Note. Auditing 22(1): 165-180. Cushing, B. 1999. Economic analysis of accountants’ ethical standards: The case of audit opinion shopping. Journal of Accounting and Public Policy 18(4-5): 339-364. Falk, H.; B. Lynn; S. Mestelman; M. Shehata. 1999. Auditor independence, selfinterested behavior and ethics: some experimental evidence. Journal of Accounting and Public Policy 18(4-5): 395-428. Kaplan, S. 2001. Further Evidence on the ethics of managing earnings: an examination of the ethically related judgments of shareholders and nonshareholders. Journal of Accounting and Public Policy 20(1): 27-44.

Week 10: Is Accounting Information an Effective Management Control Tool ? Banker, R., S. Devaraj, R.G. Schroeder and K. Sinha. 2002. Performance Impact of the Elimination of Direct Lavor Variance Reporting: A Field Study. Journal of Accounting Research 40(4): 1013-1036. Engel, E., E.A. Gordon and R. Hayes. 2002. The Roles of Performance Measures and Monitoring in Annual Governance Decisions in Entrepreneurial Firms. Journal of Accounting Research 40(2): 485-528. Cavalluzo, K.; Ittner, C.; Larcker, D. 1998. Competition, Efficiency, and Cost Allocation in Government Agencies: Evidence on the Federal Reserve System. Journal of Accounting Research 36(1): 1-32. Clinton, D.; J. Hunton. 2001. Linking Participative Budgeting Congruence to Organization Performance. Behavioral Research in Accounting 13: 127-142. Coletti, A.L., K.L. Sedatole and K.L. Towry. 2005. The Effects of Control Systems on Trust and Cooperation in Collaborative Environments. The Accounting Review 80(2): 477-500. Harrison, G.L. and J. McKinnon. 1999. Cross-cultural research in management control systems design: a review of the current state. Accounting, Organizations and Society 24(4-6): 483-506. Hoque, Z.; W. James. 2000. Linking Balanced Scorecard Measures to Size and Market Factors : Impact on Organizational Performance. Journal of Management Accounting Research 12: 1-18. Bonner, S.; R. Hastie; G. Sprinkle; M. Young. 2000. A Review of the Effects of Financial Incentives on Performance in Laboratory Tasks: Implications for Management Accounting. Journal of Management Accounting Research 12: 1964. Scott, T.W.; P. Tiessen. 1999. Performance Measurement and managerial teams. Accounting, Organizations and Society 24: 263-285. Sisaye, S. 1998. An Overview of the Social and Behavioral Sciences Approaches in Management Control Research. Behavioral Research in Accounting 10: 11-26. Fisher, J. 1998. Contingency Theory, Management Control Systems and Firm Outcomes: Past Results and Future Directions. Behavioral Research in Accounting 10: 47-64.

Week 11: Do Accounting Standard International Differences Matter ? Lapointe, P., D. Cormier, M. Magnan and S. Gay-Angers. 2006. The Relative Reliability and Relevance of IAS and Local Accounting Standards: The Case of Switzerland. Working paper. Leuz, C. 2003. IAS Versus U.S. GAAP: Information Asymmetry-Based Evidence from Germany’s New Market. Journal of Accounting Research 41(3): 445-472. Black, E., J. White. 2003. An international Comparison of Income Statement and Balance Sheet Information: Germany, Japan and the U.S. European Accounting Review 12(1): 29-46. Barth, M.; Clinch, G.; Shibano, T. 1999. International accounting harmonization and global equity markets. Journal of Accounting and Economics 26(1-3): 201235. Cormier, Denis; Magnan, Michel; Morard, B. 2000. The contractual and value relevance of reported earnings in a dividend-focused environment. The European Accounting Review 9(3): 387-417. Saudaragan, S. and J.G. Diga. 1999. Evaluation of the Contingency-Based Approach in Comparative International Accounting: A Case for Alternative Research Paradigms. Journal of Accounting Literature: 57-95. Pope, P. and M. Walker. 2000. International Differences in the Timeliness, Conservatism, and Classification of Earnings. Journal of Accounting Research, Supplement: 53-100. Ball, R.; Kothari, S.P.; Robin, A. 2000. The effect of international institutional factors on properties of accounting earnings. Journal of Accounting and Economics 29(1): 1-52. Week 12: The CAR Files – A look at the review and editorial decisionmaking process at a major journal. Week 13: Wrap-up and Synthesis