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In this paper, I propose a novel approach to derive a firm‐specific measure of expected return. It builds on recent accounting‐based valuation models developed by Clubb (2013) and Ashton and Wang (2013). The measure is intrinsically linked to commonly used financial ratios, including book‐to‐market, (forward) earnings yield, and dividend‐to‐price, as well as growth and past returns. The empirical...
This study examines the contribution of Raymond J. Chambers to the British inflation accounting debate in the early‐to‐mid 1970s, from the perspective of the reception of his book, Securities and Obscurities: A Case for Reform of the Law of Company Accounts, published in 1973. To structure the empirical narrative, drawing on previously unpublished documents from the R. J. Chambers Archives, we employ...
We examine whether reported ownership–performance relations systematically differ for government versus private ownership by integrating the diverse empirical results for listed corporations in emerging markets. Our meta‐analysis confirms popular perceptions that, compared to private ownership, government ownership is associated with inferior performance. We find that, on average, the underlying ownership–performance...
We argue that arbitrageurs will strategically limit their initial investment in an arbitrage opportunity in anticipation of further mispricing caused by the deepening of noise traders' misperceptions. Such ‘noise momentum’ is an important determinant of the overall arbitrage process. We design an empirical strategy to capture noise momentum in a two‐period generalized error correction model. Applying...
Research offers insights that, if heeded and built upon, could improve financial reporting, thereby contributing to a more prosperous society. In particular, research suggests improvement could stem from greater use of fair value; a performance statement designed to reveal the information embedded in changes in fair value; better information to help investors assess the value of intangible assets;...
This paper discusses some limitations of discretionary accruals measures. While discretionary accruals are acknowledged to be noisy proxies for earnings management, they are still widely used in the literature. This paper attempts to explain from basic econometrics how discretionary accruals are estimated, and in doing so why they are inappropriate measures for earnings management. It is shown that...
The paper tests the assumptions underlying the inference‐in‐residuals method as an estimation framework for detecting and classifying suspects of earnings management. We derive several systematic biases that are shown to confound inference‐in‐residuals and, depending on the data, could render the method a futile exercise. This is not a matter of model specification, but a limitation of the statistical...
Because discretionary accruals are known to be noisy proxies of earnings management that often produce biased results, we argue that a correlation between discretionary accruals and a hypothesized factor is generally not an adequate basis for valid inferences about earnings management. In this commentary, we propose and discuss a set of suggestions for improving the research design of studies on earnings...
This study develops and calibrates a revenue accruals model. Changes in accounts receivable and deferred revenues are modelled using the respective income statement and cash flow numbers (i.e., revenues and cash flows from sales) that relate directly to the accruals’ origination and reversal. Compared to existing models, the proposed specification explains more variation in the data and, in simulations...
We provide the first empirical test of the relation between CEO narcissism and earnings manipulation. We test the hypothesis that narcissistic leaders over‐identify themselves with the organizations they lead and expend considerable effort to achieve their goals, including by engaging in unethical behaviour. Earnings announcements are highly anticipated information releases by organizations. They...
Financial statement audits are mandated in most countries, thus making it difficult to distinguish between auditing driven by private incentives versus that driven by regulation. Who would ask for an audit, and how would its quality be assessed in the absence of regulation? Many private companies in Canada get their financial statements audited even though the law does not require it. In this field...
This paper demonstrates the role of a community of practice in academic endeavour, focusing on the influence of place and the role of thought leaders in guiding academic development. This is illustrated with reference to the influence of Emeritus Professor Michael Gaffikin in establishing a critical accounting community of practice at the University of Wollongong (UOW) through his PhD supervisions...
This study uses the slippery‐slope framework to understand how an oversight regulator's enforcement style influences audit firm compliance. Using data from interviews with audit regulators and audit partners, we find that partners perceive the regulator's enforcement style has shifted from being more collaborative to being more coercive. A consequence of this shift is that partners believe the development...
This paper investigates whether mandatory adoption of International Financial Reporting Standards (IFRS) is followed by a decline in firms’ suboptimal investments. On average, we find that the probability of under‐investment in capital expenditure declines for firms from 23 countries requiring mandatory adoption of IFRS relative to firms from countries that do not have such requirements; meanwhile...
This paper has three objectives. First, to introduce a theoretical solution to the issue of non‐additivity between assets in place, relying on an accounting‐based valuation approach. Second, to explain how such an approach can be implemented empirically by measuring synergies between assets. Third, to present the properties of this non‐additive valuation technique. We use Choquet capacities, that...
From a survey of the papers published in leading accounting journals in 2014, we find that accounting researchers conduct significance testing almost exclusively at a conventional level of significance, without considering key factors such as the sample size or power of a test. We present evidence that a vast majority of the accounting studies favour large or massive sample sizes and conduct significance...
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