Research Paper Abstracts

Below are the abstracts of each of the papers being presented at the 2024 CAAA Annual Conference. Please note that the abstracts appear in the language they were submitted.

Concurrent Sessions 1

1.1 Financial Accounting 1

1.1.1 Determinants of Textual Similarity in 10-K Risk Disclosures

Kevin Gauch* (Darmstadt University of Technology), Luliia Gauch
(Technical University of Darmstadt), Reiner Quick (Technical University of Darmstadt), Christian Friedrich (University of Mannheim)

Companies are exposed to various operational and strategic risks in their day-to-day business environment. Annual reports are the primary publicly available source for assessing company's risk disclosures. However, critics regularly argue that risk disclosures are too long, redundant and use boilerplate language. In this paper, we investigate textual similarities in Item 1A between 2005 to 2022 and shed light on the potential determinants influencing the textual similarities. Our results suggest that the year-to-year similarity of the average firm disclosure is very high unless severe and unexpected events happen, such as the COVID-19 pandemic. We provide a starting point to differentiate potentially more useful from potentially less useful aspects in these disclosures.

1.1.2 Precautionary Benefit of Cash Holdings

Anup Srivastava*
(University of Calgary), Chandrani Chatterjee (University of Texas at Arlington)

It is quite intuitive that cash holdings would reduce the likelihood of a firm’s inefficient closure. We examine whether and when does this precautionary benefit of cash materialize, using performance-related stock-exchange delisting as a proxy for firm’s premature closure. We find a negative relation between cash holdings and delistings. This relation becomes more pronounced during three exogenous shocks that impose severe liquidity constraints: the early 1990s recession, the dot-com bubble burst, and the global financial crisis. The precautionary benefit is higher for small firms and firms with large current liabilities, especially when they face high idiosyncratic stock-return volatility. Surprisingly, the effect does not show up during Covid pandemic, when the government provided external lifelines. Our study provides a measure of cash’s precautionary benefit, and thus of financial frictions faced by firms. Our measure could identify the circumstances in which a portion of cash holdings must be considered operating asset.

1.1.3 Financial Reporting Overstatements and Household Entrepreneurial Entry

Author: Detian Yang* (The University of Hong Kong)

I investigate the distortive spillover effect of accounting overstatements of publicly traded firms on the decision-making of households to enter entrepreneurship. I find that accounting overstatements are positively associated with the likelihood of households starting incorporated businesses. The relation is more pronounced when the overstatements have greater economic significance and when overstating firms are opaquer. Additionally, the results are stronger among households with greater financial constraints and a lower capacity to identify overstatements. I further find the EDGAR downloads of overstated financial reports increase, suggesting increasing information acquisitions by households. Consistent with the mechanisms of increased perceived entrepreneurial prospects and reduced financial constraint, I show that overstatements are positively associated with local individuals’ economic expectations and with loans to local small firms. Last, I provide evidence that households are deceived by overstatements. The quality of new businesses established during overstatement periods is lower and future local economic conditions deteriorate after overstatements. Moreover, after the revelation of overstatements, households are less likely to form incorporated businesses. Collectively, the study demonstrates important externalities of accounting quality of public firms on household entrepreneurial activities, suggesting that both the costs of false financial reporting and the need for stringent enforcement are greater than expected.

1.2 Accounting & Information Technology 1

1.2.1 When the Grass Seems Greener: An examination of the optimistic performance hypothesis applied to ESG-branded mutual funds

Jamal Nazari*
(Simon Fraser University), Lisa Ricci (Simon Fraser University), Johnny Jermias (Simon Fraser University)

ESG investing funds face heightened regulatory scrutiny, yet disclosures by investment advisers, companies, and private equity providers (collectively known as "funds") lack standardization, enabling greenwashing. Proposed regulations aim to address this, but critics doubt their ability to eliminate ambiguity. Fund communications about strategic outlook involve significant estimation and nuance. We study whether ESG reporting prevents greenwashing or enhances capital allocation by directing investment dollars toward environmentally impactful mutual firms. Our experiment manipulates quantifiable and narrative aspects of a fund’s environmental performance, focusing on the private equity and venture capital segment. Unlike prior studies, we bridge the influence disparity between retail and institutional investors. We test whether willingness to invest correlates inversely with a fund’s GHG emissions and examine the interaction between a fund's strategic narrative disclosure and emission status.

1.2.2 A Scoping Review of ChatGPT Research in Accounting and Finance

Theophanis Stratopoulos*
(University of Waterloo), Michael Dong (Missouri State University), Victor Wang (California State University Long Beach)

This paper provides a review of recent publications and working papers on ChatGPT and related Large Language Models (LLMs) in accounting and finance. The aim is to understand the current state of research in these two areas and identify potential research opportunities for future inquiry. We identify three common themes from these earlier studies. The first theme focuses on applications of ChatGPT and LLMs in various fields of accounting and finance. The second theme utilizes ChatGPT and LLMs as a new research tool by leveraging their capabilities such as classification, summarization, and text generation. The third theme investigates implications of LLM adoption for accounting and finance professionals, as well as for various organizations and sectors. While these earlier studies provide valuable insights, they leave many important questions unanswered or partially addressed. We propose venues for further exploration and provide technical guidance for researchers seeking to employ ChatGPT and related LLMs as a tool for their research.

1.2.3 Diversity Beyond Gender and Corporate Governance: A Systematic Review of the Accounting Literature

Olivier Greusard*
(University of Quebec at Montreal), Camélia Radu (University of Quebec at Montreal), Nadia Smaili (University of Quebec at Montreal)

The objective of this paper is to review the extant literature at the intersection of diversity beyond gender and corporate governance. While a large body of research has already examined gender diversity, we go a step further and explore diversity beyond gender and extended notions of diversity. Based on a systematic literature review approach and a final sample of 71 academic papers in accounting and other disciplines of management science, our findings evidence the different approaches to studying diversity in business, especially with regard to definitions, theories, and methodologies. We show that the diversity concept has become increasingly complex over time, that new categories, especially pertaining to non-visible characteristics, have emerged, and propose a definition that reflects the state of the art. We also synthetize theories used in this area to offer a holistic view to researchers interested in diversity. In addition, our review of articles suggests that firm characteristics and external pressures are the strongest determinants of diversity beyond gender, and we highlight the positive effect of diversity on board dynamics and various corporate outputs. Finally, we suggest avenues for future research for researchers interested in diversity beyond gender, and offer our conclusions.

1.3 Financial Reporting 1

1.3.1 Non-GAAP Reporting and Investor Relations

Author: Luke Phelps* (Queen's University)

I investigate whether investor relations officers (IROs) serve as information intermediaries to help investors evaluate non-GAAP earnings. Using novel investor relations survey data for a large cross-section of US firms, I find that the value relevance of non-GAAP earnings is higher for firms with IROs who interact more frequently with capital market participants and have incentives tied to equity valuation. I also find that the increased value relevance of non-GAAP earnings for firms with active IROs coincides with a decrease in the value relevance of GAAP earnings. This is consistent with non-GAAP earnings being used to reduce reliance on certain GAAP income statement items. Finally, I provide evidence that firms with these IRO characteristics are not associated with more opportunistic non-GAAP reporting. Overall, the evidence suggests that the investor relations function plays a role in improving the value-relevance of non-GAAP earnings as a substitute for GAAP earnings.

1.3.2 Firm-Level Political Risk and Opportunistic Non-GAAP Reporting

Author: Matthew Hinton* (Toronto Metropolitan University)

Firm-level political risk is the likelihood a firm will face losses due to political factors and can influence investment and other aspects of firm behavior. I examine the effect of firm-level political risk on opportunistic non-GAAP reporting using the novel political risk measure developed by Hassan et al. (2019). Using 129,937 firm-quarter observations between 2003 and 2020, I find that firms with opportunistic motives are less likely to report non-GAAP earnings opportunistically as political risk increases. Also, I find that non-GAAP earnings are more persistent for opportunistic firms when political risk is high. However, I do not find these effects for firms with informative motives. In additional analysis, I find that economic policy risk has the strongest effect on non-GAAP reporting among eight topic-specific measures. I also find evidence that the effect of political risk is stronger following the 2007-2008 financial crisis and during the COVID-19 pandemic. This study has implications for regulators, investors, and analysts. Regulators can apply pressure on firms to reduce opportunistic behaviors and investors and analysts should be wary of non-GAAP reporting for firms with low levels of political risk.

1.3.3 Herding in Corporate Climate Risk Disclosure

Alfred Liu*
(McMaster University), Angela Liu (University of North Carolina at Charlotte), Yongqiang Chu (University of North Carolina at Charlotte)

Climate change exposes businesses to significant uncertainties and, hence, operational and financial risks. Our study evaluates the current corporate disclosure of climate change as a risk factor, focusing on the phenomenon of herding. Using a machine learning algorithm to extract climate risk disclosures from 10-K filings, we find that firms herd in climate risk disclosure; that is, they conform to preceding climate risk disclosures made by their peers. We show that herding exists in both high and low climate change risk industries, and it is more prevalent when firms are in high climate change risk industries and have higher institutional ownership and analyst coverage. Herding in climate risk disclosure is also more prevalent when preceding disclosures are made by larger peers and peers with similar products. Our results suggest that firms rationally imitate their peers in disclosing climate change as a risk factor under the current disclosure regime.

1.4 Financial Accounting 2

1.4.1 An Early Look at Investor Reactions to Comparable Sustainability Measures: An Experimental Approach

James Smith*
(University of Lethbridge), Lori Kopp (University of Lethbridge), Bryden Wudrich (Cuelenaere LLP)

Business leaders and investors are demanding more information about a firm’s Environmental, Social, and Governance (ESG) performance (Carney 2015). Standard setters are also mandating some ESG information in firms’ public disclosures (SEC 2024, IFRS 2023). These mandates are answering the calls from business leaders and investor groups to make ESG more comparable across firms. It is unclear how investors will react to such disclosures. Improvements in environmental performance can indicate both lower future costs as a firm mitigates future downside risks and higher current costs related to the improving environmental measures. We test how, in a situation where easily comparable and quantitative environmental metrics are mandated, whether the disclosure of improved environmental performance impacts investor behavior. In our experiment, we find that providing comparable, quantitative measures of environmental performance across firms does impact investor judgments. Further, we learn that even in cases where there is a firm with significantly stronger financial performance, environmental performance metrics continue to have a significant impact on investment decisions. Our study contributes to the expanding literature on ESG disclosures by providing an early look at how investors will react to policies requiring firms to provide quantitative and easily comparable environmental metrics in their annual reports.

1.4.2 Analysts’ lending decisions: Do cohesive presentation and cash flow format matter?

Hwee Cheng Tan*
(Simon Fraser University), Michael Favere-Marchesi (Simon Fraser University)

Analysts’ lending decisions: Do cohesive presentation and cash flow format matter?

1.4.3 State-owned Brokerages, Analyst Competition, and Forecast Accuracy

Jing Wang*
(Queen's University), Yu Hou (Queen's Univeristy), Shuai Ling (Tianjin University)

State-owned Brokerages, Analyst Competition, and Forecast Accuracy

1.5 Financial Accounting 3

1.5.1 Value relevance of EBITDA

Amar Mahmoud*
(University of Waterloo), Darren Henderson (Wilfrid Laurier University), Andrew Bauer (University of Waterloo), Kaleab Mamo (Wilfrid Laurier University)

Many capital market participants rely extensively on EBITDA and, increasingly, adjusted EBITDA as performance metrics. Yet, the literature has paid limited attention to these non-GAAP measures. In this study, we examine the value relevance of EBITDA and adjusted EBITDA. Our results suggest that firms disclose EBITDA when it is value relevant. EBITDA is especially value-relevant for capital-intensive and leveraged firms. When comparing the alternative earnings performance measures, we find that, on average, EBITDA and adjusted EBITDA outperform GAAP and street earnings in explaining stock returns. The outperformance of EBITDA and adjusted EBITDA is consistent across industries. Moreover, adjusted EBITDA is the best predictor of future operating cash flows, which suggests that it best captures core earnings. Our results are robust to alternative model specifications. We contribute to the non-GAAP literature by documenting the superiority of adjusted EBITDA over GAAP and street earnings measures, which contrasts earlier work on EBITDA.

1.5.2 Defined benefit pension settlements: Valuation, disclosure, and economic implications

Darren Henderson*
(Wilfrid Laurier University), Divya Anantharaman (The State University of New Jersey)

Pension settlement transactions occur when a sponsoring firm pays an insurance company to take over a portion of its defined benefit pension obligations. Such transactions accelerated in the early 2010s to total more than $100bn in the US over that decade. We compile a comprehensive sample of settlement transactions from 2012-2019 and examine the valuations that are used. We find that settlements generally occur at a higher amount than the accounting value. These settlement premiums imply that accounting measures do not capture the conceptual ideal of settlement value under US Generally Accepted Accounting Principles (GAAP). Further, we find that investors react to settlement announcements in predictable ways that consider the magnitude of the settlement premium and the magnitude of future savings through elimination of insurance premiums to the Pension Benefit Guaranty Corporation. In examining pension settlement disclosures, we find significant opacity under US GAAP relative to International Financial Reporting Standards.

1.5.3 The Impact of Mandatory Plant-level Disclosure on Voluntary Firm-level Disclosure

Author: Cyndia Wang* (University of British Columbia)

This study examines how disclosure mandated at the plant level affects voluntary disclosure practices at the firm level. I use the GHGRP program as an instrument to capture an increase in mandatory plant-level environmental disclosure. Employing a difference-in-differences design, I find that treated firms are 9.8 to 21.4 percent more likely to voluntarily disclose the environmental information of the entire firm in the post-regulation period. Robustness tests accounting for environmental performance, regulatory enforcement, and prior disclosure, as well as utilizing various matching methods consistently support these findings. Moreover, the results intensify under higher external environmental pressure and greater plant-level information uncertainty. However, plant-level disclosure's impact on firm-level reporting quality or environmental performance is limited, suggesting potential opportunistic behavior. This research provides insights into the intricate interplay between plant-level and firm-level disclosure as well as mandatory and voluntary disclosure, with implications for academia and regulatory bodies, enriching the understanding of ESG disclosure dynamics.

1.6 Financial Accounting 4

1.6.1 Weather-Induced Mood and Information Acquisition

Author: Yimeng Li* (Tulane University)

Psychology theory provides contradictory predictions regarding the effect of negative mood on information acquisition. I use cloudy weather to measure negative mood and document that information users access SEC filings to a greater extent when they acquire information from a city when skies are cloudier. During event windows after 10-K and 10-Q filing dates, negative-mood users conduct more in-depth information acquisition by acquiring relatively more source documents attached to the filings and spending more time viewing the SEC filings. They also acquire relatively more historical filings and certification filings, which while containing little new information, can help validate the credibility of newly released information. Furthermore, negative mood’s effect on SEC filings’ access volume is more pronounced when the current 10-K and 10-Q filings contain more uncertainty tones and when firms have losses and large unsigned earnings surprises. However, the association of information acquired under negative mood with trading activities is attenuated. Collectively, these findings are consistent with the psychology theory that users tend to acquire information systematically to mitigate the heightened perceived uncertainty associated with negative moods.

1.6.2 Persistence of Cash Flows in Firms Suspected of Manipulation

Derek K. Oler*
(Texas Tech University), Joshua Coyne (University of Central Arkansas)

Many firms that manipulate income do so to conceal poor cash flows. Firms that are flagged as probable income manipulators have less persistent income, accruals, and cash flows when compared with non-flagged firms. Although accruals persistence for flagged firms returns to the same level of accruals persistence for non-flagged firms after one year, cash flow persistence for flagged firms remains low for at least two years into the future, and average cash from operations remains lower for flagged firms at least 5 years into the future. In the year the firm is flagged the market estimates the persistence of cash flows at a level that roughly reflects their actual persistence but in the year after the firm is flagged the market underestimates the persistence of cash flows for flagged firms. Overall, the market appears to slowly recognize the poor cash- generating potential of manipulating firms.

1.6.3 1 Commission and fees income as earnings smoothing tool during crisis: European evidence from the Covid-19 pandemic

Daniel Taylor*
(IESEG School of Management), Isaac Selasi Awuye (ESC Clermont Business School)

Using the Covid-19 crisis as a unique setting, we contribute to the less-explored banking literature on the alternative use of non-interest income as an earnings management tool. The results suggest that banks conventionally employ commission and fee income as income-decreasing strategy, nevertheless, in times of crisis and uncertainties when financial performance is adversely affected, banks employ commission and fees income as an income-increasing strategy to meet their earnings target. Also, we find that profit-making firms are concerned with maintaining the level of stability in their profit and thus use commission and fees income to smooth the variability in reported earnings rather than reporting higher earnings in a given period. Furthermore, our findings show that diversified banks do not employ commission and fees income to inflate their earnings upward. In terms of policy, the findings imply that periods of crisis and economic uncertainty should not only trigger stricter supervisory oversight from the regulatory bodies concerning banks’ provisioning policy but also regulators should exercise critical scrutiny on the reported levels of banks’ non-interest revenue as non-interest revenue, particularly commission and fees income which provide diversification gains may provide a window of opportunity for opportunistic earnings manipulation, affecting the quality of reported earnings.

1.7 Auditing & Fraud 1

1.7.1 Climate Risk and Audit Fees: Evidence from Emerging Markets

Xin Ding*
(University of Ottawa), Walid Ben-Amar (University of Ottawa), Lamia Chourou (University of Ottawa)

This study investigates whether and to what extent auditors integrate climate risk into audit pricing. Using a sample of publicly listed firms from 11 emerging countries over the period 2010–2020, we find that auditors charge higher audit fees for firms with higher carbon emissions. This positive association is stronger for firms audited by Big 4 auditors and that operate in high litigation risk industries. The association is, however, weaker for firms with board oversight of climate-related issues, verification of carbon emissions, and higher climate governance scores. We also compare the relationship between carbon emissions and audit fees in emerging versus developed countries and find that the association is stronger in developed markets. Our results are insensitive to a battery of robustness checks, including Heckman two-stage model, propensity score matching approach, weighted least squares regression model, and alternative proxies for climate risk.

1.7.2 The Effect of Changes in Corporate Governance on Key Audit Matters

Chia-Chun Hsieh*
(National Chung Cheng University), Yan-Yi Chiou (National Defense University)

The International Standard on Auditing (ISA) introduces the concept of key audit matters (KAMs), requiring auditors to discuss the most significant matters encountered during the auditing process. ISA 260 emphasizes the importance of communication between auditors and those charged with governance. Using a sample of Taiwanese firms that introduced audit committees after the implementation of KAMs, this study investigates how the establishment of audit committees affects the characteristics of KAMs. The results indicate that the establishment of audit committees is associated with less complicated KAMs, specifically fewer and shorter KAMs and the less mention of monetary amounts compared to earlier KAMs. Additional tests reveal that longer audit committee tenure is associated with similar and more readable KAMs. This paper provides evidence on how an ex-post audit committee system affects auditors’ reporting of KAMs, suggesting the difference in governance effectiveness between the supervisor system and the audit committee system of governance.

1.7.3 The Effects of Shared-opinion Audit Reports on Perceptions of Audit Quality

Samir Trabelsi*
(Brock University), Qian Long Kweh (Canadian University of Dubai), Kuei-Fu Li (National Pingtung University), Yan-Jie Yang (Yuan Ze University)

We examine the association between a shared-opinion audit report (SOAR) and the earnings response coefficient (ERC), which is a proxy for market perception of audit quality, from a large hand-collected dataset of 3,756 firm-year observations with respect to the percentage of component firms that are not audited by the group engagement partner. This study observes negative earnings surprise when the SOAR is announced as compared to unqualified audit opinions. Results of this study are robust to estimation across various subsamples and using an alternative measure of earnings-returns regression model in the Taiwanese context.

Concurrent Sessions 2

2.1 Taxation 1

2.1.1 State-Level Tax Authority Preparedness and Corporate Tax Avoidance

Hu (Harrison) Liu* (University of Texas at San Antonio), Chenyong Liu (California State University), Xueyun Sun (Purdue University at Fort Wayne), Jennifer Yin (University of Texas at San Antonio)

This paper investigates the impact of state-level Internal Revenue Service (IRS) office preparedness for the upcoming tax season on local firms’ corporate tax avoidance. Utilizing tax filing data disclosed by the Service, we find that when an IRS state-level office projects a workload greater than what actually transpires, local firms demonstrate significantly less corporate tax avoidance. This effect is more pronounced when filings are in electronic format and among firms identified as aggressive tax avoiders.

2.1.2 Do Unrecognized Tax Benefits Matter for Loan Loss Recognition in Banks?

Khin Phyo Hlaing* (Saint Mary's University), Jagadison K. Aier (George Mason University), Colin Q. Koutney (George Mason University)

We examine whether a bank’s unrecognized tax benefits (UTBs) are informative about the timeliness of loan loss recognition because UTBs jointly reflect tax aggressiveness and financial reporting decisions. We test our question on a matched sample of banks with UTBs to banks without UTBs. We find that banks with higher UTBs are slower to recognize loan losses for future non-performing loans. Interestingly, this result is driven by discretionary UTBs (i.e., UTBs from financial reporting incentives) rather than non-discretionary UTBs (i.e., UTBs for tax aggressiveness). We also find UTBs are associated with lower future cash taxes, higher Tier 1 capital ratios, and greater capital market information asymmetry and these results are driven by non-discretionary UTBs. Overall, the evidence suggests that UTBs provide useful information about the timeliness of loan loss recognition and other bank performance measures.

2.1.3 The Impact of Tax Avoidance and Corporate Governance on Information Transparency: Evidence from XBRL Mandate

Rahat Jafri* (MacEwan University), Hussein Warsame (University of Calgary), Mark Anderson (University of Calgary), Michael Wright (University of Calgary)

This study explores the relationship between tax avoidance and information transparency and the role of corporate governance in this relationship. Our empirical domain is the Securities and Exchange Commission's (SEC) eXtensible Business Reporting Language (XBRL) mandate in the U.S. XBRL enhances information transparency by making financial reporting more readable and analyzable. Therefore, we view the decision to adopt or delay XBRL as an information transparency decision. We find that tax-avoiding companies also avoid XBRL because it can increase IRS detection and reveal managerial diversion. We also find that strongly governed firms are more likely to adopt XBRL. Finally, tax-avoiding companies in a strongly governed environment also avoid XBRL reporting. These findings suggest that such companies avoid XBRL to mitigate the risk of detection by the IRS. We conclude that shareholders’ value creation, not managerial diversion, is the primary motive behind corporate tax avoidance.

2.2 Managerial Accounting 1

2.2.1 Insecurity, Gratitude, and Managers’ Materialistic Behaviour

James Xede* (Hong Kong Metropolitan University), Yasheng Chen (Xiamen University)

Using functional near-infrared spectroscopy and traditional behavioral experiments, this study examines managers’ brain activity in decision-making under feelings of insecurity and gratitude. Consistent with dual-processing theory, we find a positive correlation between the activation of a brain area associated with System 1 processing and managers’ capital investment decision-making under feelings of insecurity. We also find that managers exposed to insecurity exhibit a higher degree of materialistic behavior, resulting in incongruent risk-taking and a focus on immediate consumption compared with managers who are not exposed to insecurity. However, the negative effect induced by insecurity is reduced when managers reflect on the company’s kindness to them. Collectively, this study uses a neuroimaging technique to shed light on the neurobiological mechanisms behind managers’ decisions under insecurity and how organizational kindness can translate into nonmonetary rewards, which can be useful to organizations in their incentive design choices.

2.2.2 Navigating Cost Behaviour during COVID-19 Uncertainty: Financial Flexibility, Managerial Traits, and Government Interventions

Saad Ali Khan* (HEC Montreal), Lobna Bouslimi (TELUQ University), Nourhene Ben Youssef (University of Sherbrooke)

This study examines firms' asymmetric cost management in response to the exogenous demand shock of the Covid-19 pandemic. Due to the high uncertainty and extensive government interventions to curb the virus, firms faced unprecedented challenges in cost management. To assess this asymmetric cost behavior, we develop a cross-sectional measure of abnormal sales, general, and administrative (SG&A) cost, representing the deviation from a benchmark model. Analyzing a sample of 1,858 North American firms, we find that annual abnormal SG&A was -2.93% translating to approximately $ -93 billion across our sample firms. This finding indicates a high degree of anti-cost stickiness, suggesting that managers were anticipating a persistent future sales decline. Interestingly, some firms with optimistic CEOs displayed significantly lower levels of anti-cost stickiness, indicating the relevance of behavioral traits in cost management. Our findings highlight a significant positive association between government stringency to curb the virus and anti-cost stickiness. This underscores the importance of government policy in shaping firms' expectations of economic challenges, particularly amid uncertainty.

2.2.3 The effect of partial and full relative performance information on problem-solving

Kun Huo* (Western University), Leslie Berger (Wilfrid Laurier University)

We examine how variations in the completeness of public relative performance information (RPI) affect individual performance on a problem-solving task involving insight generation. Using experiments, we study three levels of RPI completeness: full, partial, and none. In full RPI all employees’ performance is ranked and publicly disclosed, whereas in partial RPI only top-ranking employees are publicly announced. We find that full RPI reduces performance on the insight task compared to partial RPI. Partial RPI, however, does not underperform no RPI. In a supplementary study, we do not repeat this pattern of results using a problem-solving task that does not require insight generation. Implications for theory and practices are discussed.

2.3 Managerial Accounting 2

2.3.1 Do Retention Bonuses Encourage Complacency? An Experimental Study of the Design of Retention Bonuses

Nicholle Kovach* (Wilfrid Laurier University), Leslie Berger (Wilfrid Laurier University), Chris Wong (Wilfrid Laurier University)

We study whether retention bonuses (i.e., an incentive paid to employees to stay with an organization) can help organizations retain and motivate workers, or if it encourages a complacency effect. Furthermore, we consider if the design structure of retention bonuses, specifically the selection procedures and contract period requirements influence the performance of employees. We conduct a laboratory experiment where we manipulate the selection basis of the retention bonus (relative performance based or random) and the presence of a retention contract (present or absent). Although not significant, results are directionally consistent with our expectation that with the absence of a contract, when employees are selected based on merit, the performance of retained employees is lower than when employees are selected for reasons other than merit. Moreover, we observe that when an employee receives a retainment bonus accompanied by a retainment contract, retained employees that are selected based on merit have greater performance than employees who are selected for reasons other than merit. Supplemental analyses reveal that individuals in a merit based, retainment contract experience higher levels of distributive fairness those in the non-merit based, retainment contract condition.

2.3.2 Exploitation or Exploration: Employees’ Strategies in Projects with Highly Uncertain Outcomes

Michael Wynes* (University of Saskatchewan), Leslie Berger (Wilfrid Laurier University), Lan Guo (Wilfrid Laurier University), Zhuoyi Zhao (St. Nobert College)

In industries that rely on scientific research and innovations, employees often work on projects with highly uncertain outcomes. Inherent in these projects, a solution may or may not exist, and employees must experiment with many potential solutions. In this setting, different learning strategies exist: exploitation strategy that focuses on one chosen project so that employees can better leverage knowledge familiar to them, or an exploration strategy that tries out different projects such that they constantly search for new knowledge unfamiliar to them. Research suggests that balancing exploitation and exploration is vital to organizations’ long-term success. In this study, we examine how employees’ propensity to honor sunk costs in decision making, and their organizations’ control measures that either embrace or avoid failures, affect employees’ learning strategies. Our experimental data provides evidence that the greater individuals' propensity to honor sunk cost, the more they adopt an exploitation (vs. exploration) strategy. Further, the control measures of positive framing of failures and symbolic awards for failures reduce such differences in strategy choice between individual employees. This is mainly because, among employees with a low propensity to honor sunk costs, these control mechanisms increase the extent to which they adopt an exploitation (vs. exploration) strategy.

2.3.3 The impact of board independence on the relationship between takeoverprotection and customer satisfaction

Vincent O'Connell* (University College Cork), Don O'Sullivan (Melbourne Business School)

Takeover protection—a set of devices designed to shield firms from unwanted hostile takeovers—has been shown to have a range of unintended consequences for firms. As takeover protection increases, managers may become more immune to the disciplining force of the stock market with a consequent diminution of their attention to the creation of long-term shareholder value. Adopting an agency perspective, we predict and show that takeover protection negatively impacts on a crucial non-financial performance measure: customer satisfaction. We also predict and show that, as board independence increases, entrenched managers can be more effectively challenged so that the negative influence of takeover protection on customer satisfaction is reduced. Consequently, our work provides evidence that two key corporate governance constructs—takeover protection and director independence—influence the organizational role of customer satisfaction metrics. Our work has implications for both academics and organizational participants concerned with the design and operation of strategic performance measurement system employing non-financial performance indicators (such as the balanced scorecard). We also shed light on the previously unexplored links between corporate governance and a firm’s relationship to its customers.

2.4 Financial Reporting 2

2.4.1 Taking the Pulse of Firm Innovation from Online Job Postings

Wenfeng Wang* (Hong Kong University of Science and Technology), Ying Du (Xi'an Jiaotong University), Bohui Zhang (Chinese University of Hong Kong, Shenzhen), Yue Zheng (Hong Kong University of Science and Technology)

In this study, we analyze data on online job postings by US public firms to investigate their R&D activities. Our findings reveal a consistent increase in the demand for R&D human capital from 2010 to 2021. Controlling for other commonly utilized indicators of firms’ R&D activities, such as R&D expenses and narrative R&D information in 10-K filings, we find that R&D job postings possess additional predictive power in determining firms’ future innovation performance. This predictive power is particularly pronounced for firms with higher growth opportunities or lower labor intensity and for R&D job postings that require disruptive technology skills or advanced education. Furthermore, the skills listed in R&D job postings align with the types of patents firms generate in the future. Overall, our results highlight the significance of R&D job postings as a valuable source of information regarding firms’ innovation activities.

2.4.2 Do Multi-Segment Firms Tell Us Enough About Their Business Segments? Evidence from Segment-Level Data Granularity and Delays in Stock Price Updates

Chengwei Wang* (Sungkyunkwan University), C.S. Agnes Cheng (University of Oklahoma)

Although SFAS 131 mandates specific financial data for business segment reporting, we find that multi-segment firms frequently omit key data items. We investigate how this segment data opacity affects the speed at which stock prices reflect industry news. By analyzing the lead-lag return relation between single- and multi-segment firms, we document that multi-segment firms that are reticent about their segment financials significantly lag behind their single-segment peers in responding to common industry news. This result holds even after controlling for firm-wide disclosure quality and operational complexity. The lag is especially salient for firms that are likely to safeguard proprietary information or contend with agency issues. Difference-in-difference tests that leverage the exogenous ASC 280 codification support a causal inference. We also find a delayed market reaction to earnings announcements from multi-segment firms that extensively withhold segment data. Collectively, our results underscore the critical role of segment data in the timely incorporation of new information into stock prices. Our findings lead us to advocate for stricter enforcement of segment data disclosure regulations.

2.4.3 Association between SFAS No. 161 Derivative Disclosures and Interest Rate Risk Exposure: Evidence from Interest Rate Swaps Designated as Fair Value Hedge

Author: Qiuhong Zhao* (Texas A&M University - Corpus Christis)

This study examines the association between mandatory disaggregated derivative disclosures and interest rate risk (IRR) exposure. My sample of S&P 500 nonfinancial firms used interest rate swaps (IRS) as fair value hedges to mitigate IRR, demonstrating that SFAS 161 disaggregated derivative disclosures of notional and fair values are risk relevant (ASC 815-20-25). This sample consists of 37 firms designating interest rate swaps as fair value hedges from 2013 to 2019. First, I document that changes in fair values are positively associated with IRR exposure in both the partially effective hedge group and the perfect hedge group. Second, I document that the notional values of IRS in the perfect hedge group provide incremental information to investors, whereas the notional values of IRS in the partially effective hedge group do not. The observed differences may arise as a result of differences in the underlying risk of hedged items under hedge effectiveness tests. Finally, I demonstrate that the current period change in IRS fair values helps predict future IRR exposure in the perfect hedge group. These findings 1) contribute to the discussion of risk relevance and usefulness of mandatory disclosures, especially notional values; 2) correspond with Campbell’s (2015) findings.

2.5 Special Feature: Indigenous Research

2.5.1 Reclaiming Indigenous methodologies: co-creating a shared approach to impact measurement for Indigenous social purpose organizations and businesses

Marissa Hill* (Common Approach to Impact Measurement), Ashley Richard (Management Innovation and Entrepreneurship), Kate Ruff (Common Approach to Impact Measurement)

In general, Indigenous social enterprises focus on re-creating the conditions for wellbeing, sovereignty, and sustainability of their communities and the Lands, Waters, and Skies that nourish and sustain them. Through the social finance sector, there is increasing investment in Indigenous enterprises which benefits Indigenous Peoples, non-Indigenous people, and the Lands, Skies, and Waters.

2.6 Capital Markets and Societal Impact

2.6.1 Do Stock Index Revisions Impact Credit Markets? Evidence from the US Corporate Bond and CDS Markets

Kai Chen* (Wilfrid Laurier University), Ranjini Jha (University of Waterloo), Madhu Kalimipalli (Wilfrid Laurier University)

We examine the effect of S&P 500 index changes on the underlying credit risk of firms from the perspective of the corporate bond and credit default swap (CDS) markets. We find that index deletions are associated with increases in bond and CDS spreads and a spike in credit risk measured by the probability to default and the distance to default. Additions are associated only with a smaller drop in bond spreads, implying a weaker effect. Additional analysis indicates that asset tangibility, profitability, and cash liquidity affect credit risk, suggesting that index changes have a certification effect. For institutional trades, index additions increase trading liquidity and index exclusions decrease liquidity, implying index changes affect a firm’s information environment.

2.6.2 Labor Adjustment Costs and Cost Behavior

Author: Vishal Paul Baloria* (University of Connecticut)

Labor adjustment costs are dynamic, in that they change over time, and differential, in that they vary across separate classes of employees (e.g., full-time vs. part-time). I examine the cost behavior implications of these dynamic and differential labor adjustment costs using variation arising from two related employment protection legislation (EPL) settings. These collective dismissal (i.e., layoffs) EPL settings incentivize managers, at different points in time, to make resource commitment decisions that increase and decrease cost elasticity and cost asymmetry, providing a rare opportunity to accumulate evidence that extends beyond one singular event and/or direction. I document that the elasticity of firms’ costs increases (decreases) as the relative costs of firing full-time (part-time) employees increase. I also document that the asymmetry of firms’ costs increases (decreases) as the relative costs of firing full-time (part-time) employees increase. The evidence highlights the importance of dynamic and differential labor adjustment costs in driving predictable variation in cost behavior.

2.6.3 Salaries and Impact(s) of Academics: An Investigation Under the Prism of Prestige

Leanne Keddie*
(Carleton University), Tiphaine Jérôme (University Grenoble Alpes), Charles Cho (York University), Jonathan Maurice (Toulouse Capitole University)

This paper explores whether prestige at the university level is being redefined by societal-impact-focused scholars addressing the ethical concerns of universities paying solely for academic impact. We examine this issue in the context of normative ethical principles that are used to justify pay. We collect 2022 salary data of Ontarian accounting academics and investigate whether it is associated with both academic impact and societal impact measures. We provide evidence that salaries paid to Ontarian accounting academics are positively associated with societal impact, beyond the strict prestigious academic impact measured by citations. Given calls for more societal-impact-focused accounting research, this is encouraging. However, academic-impact-focused scholars continue to receive high salaries, which may be problematic as universities shift to a societal-impact model. We call for a re-examination of salaries based solely on academic impact.

2.7 Managerial Accounting 3

2.7.1 The Effects of Work Arrangement and Performance Metric Alignment on Employees’ Fraud Decisions under Different Management Controls

Joanna Andrejkow* (Western University), Kevin Veenstra (McMaster University)

After the COVID-19 pandemic, remote work has become a permanent and popular work setting. However, most companies have not adapted their management control systems in light of this change. Our study examines the interactive effect of work setting (i.e., remote versus in-office) and performance metric alignment (i.e., matching of a manager’s bonus incentive structure with the competitive strength of the vendor) on employees’ decisions to engage in vendor fraud. Specifically, using an experimental setting, participants assume the role of a purchasing manager whose task is to decide whether to report a vendor’s fraud invitation to their supervisor, ignore the solicitation, or accept the bribe. We hypothesize and find that when a control takes the form of a Code of Ethics, purchasing managers are most likely to participate in fraud when the work environment is remote and the performance metrics are aligned. We find that a major contributing factor to this enhanced risk of fraud is the weak organizational identity induced by the remote work environment. Further, we hypothesize and find that a specific departmental policy, in place of a Code of Ethics, is effective, on its own, in eliminating this enhanced fraud risk.

2.7.2 The Effect of Moral Suasion and Interactional Fairness on Tax Compliance

Oliver Okafor*
(Toronto Metropolitan University), Jonathan Farrar (Wilfrid Laurier University), John Li (Toronto Metropolitan University)

Tax authorities can use moral suasion messaging to increase compliance. Two approaches for framing these messages focus on a person’s duty to pay taxes (deontology) or the costs to society of not paying taxes (consequentialism). Prior research has not contrasted the effectiveness of these two approaches alone or in combination with the service environment in which taxpayers might process moral suasion messaging. To address this gap, we conduct two experiments on samples of Canadian taxpayers to examine whether and how moral suasion approaches and perceptions of interactional fairness influence individuals’ tax compliance. We show that taxpayers are most likely to comply when higher interactional fairness is present and the tax authority uses deontological messaging. We also show that high levels of moral disengagement suppress the positive impact of interactional fairness in influencing tax compliance when taxpayers receive deontological suasion. Our research has implications for tax and other public administrations.

2.7.3 Are We in the Same Boat? How Do Junior Accountants React to Accounting Firms’ Furlough Requests During Crises?

Kelsey Matthews* (University of Waterloo), Leslie Berger (Wilfrid Laurier University), Lan Guo (Wilfrild Laurier University)

To quickly reduce costs in response to crisis situations such as the COVID-19 pandemic, many public accounting firms implemented voluntary furlough programs, under which employees were invited to accept a reduction in pay with a corresponding reduction in work hours. In this study, we surveyed 55 junior-level public accountants who were offered a furlough during the pandemic. Most of our survey respondents chose not to volunteer. We also observed that many respondents did not trust that their firms would deliver their promises to reduce workloads and reward volunteering and questioned managements’ intentions behind the implementation of voluntary furlough programs. Other than expressing feelings of distrust, they also expressed frustration and anger with their firm. We leverage psychological contract theory to explain our observations. Specifically, we argue that the observed negative reactions towards voluntary furlough programs can be caused by psychological contract breaches that these junior-level accountants experienced before and/or after the implementation of voluntary furlough programs. Our supplemental survey among 88 junior public accountants confirmed the common occurrence of psychological contract breaches and substantiated their negative effects on furlough volunteering intentions. Our findings underscore the critical importance of psychological contract in shaping junior public accountants’ employment relationships with their firms.

Concurrent Sessions 3

3.1 Financial Reporting 3

3.1.1 Response of Bank Holding Companies’ Earnings Management to Removal of AOCI Filter

Qiuhong Zhao* (Texas A&M University - Corpus Christi), Donald Deis (Texas A&M University - Corpus Christi)

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandates US publicly traded firms to disclose CEO-to-median-employee pay ratios, aiding employees in assessing vertical pay disparity. This study uncovers that firms with pronounced pay disparity resort to upward earnings management to enhance employees’ job security perception. Additionally, firms characterized by higher excessive pay disparity and lower median employee compensation relative to peers exhibit elevated upward earnings management tendencies. Examining whether a stronger link between excessive pay disparity and upward earnings management exists in firms with more white-collar expenses reveals an affirmative correlation. Furthermore, due to differing fiscal-year ends, this study identifies late announcers of CEO pay ratios, whose excessive pay disparity is greater and median employee pay is lower, as more likely to engage in earnings management. Notably, firms practicing upward earnings management in response to excess pay disparity exhibit reduced employee turnover rates. This study employs propensity score matching and instrumental variable techniques to address endogeneity concerns. Overall, this study underscores the significance of equitable compensation practices within firms, utilizing various approaches to shed light on the complex interactions between pay disparity, earnings management, and employee turnover rates.

3.1.2 Tone Management on Interactive Investor Platforms: The Case of Chinese Firms During the COVID-19 Crisis

Fangyi Yin* (University of Auckland), Steven Cahan (University of Auckland), Jerry Chen (University of Auckland)

This study examines the communication strategies of Chinese A-share firms during the novel Coronavirus disease (COVID-19) pandemic, focusing on firms subject to complete or partial lockdown (hereafter, focal firms). Employing a difference-in-difference (DID) analysis, we observe a strategic shift in the reply tone of focal firms on the Interactive Investor Platform (IIP). Specifically, we find that during the pandemic, as retail investors’ ask tone becomes less positive, focal firms respond with increased positivity. This abnormally positive reply tone is negatively correlated with future firm performance, suggesting an intention to mislead retail investors. This strategy involves not only tone inflation but also more extensive and timely responses to retail investors, and is more pronounced among firms headquartered in cities with limited medical resources. Excluding firms from most severely affected areas like Wuhan city or Hubei province does not change our findings. Initially, retail investors respond positively to the overly optimistic tone, indicating focal firms are successful in misleading retail investors in the short-term. However, we document a subsequent correction in their pricing errors over time. Overall, our findings reveal that firms use strategic tone management to mislead retail investors during the lockdown, but the impact of such opportunistic behaviour is short-lived.

3.1.3 The Interplay between Information Acquisition and Information Integration: Evidence from EDGAR Search Volume around 10-K/10-Q Filing Dates

Sangwan Kim* (University of Massachusetts Boston), Theodore E. Christensen (University of Georgia), Joshua Coyne (University of Central Arkansas), Kevin H. Kim (Korea Advanced Institute of Science and Technology)

We investigate how investors integrate accounting information through their trading decisions. We first distinguish between information acquisition and information integration. Then, we explore two types of disclosure processing activities that constitute distinct aspects of information integration: idiosyncratic interpretation and consensus updating. Using EDGAR search volume of 10-K/10-Q reports around SEC filing dates as a proxy for information acquisition, we explore its interplay with these two aspects of information integration. Specifically, we find that, as information search increases, idiosyncratic interpretation increases, but consensus updating does not change. When we divide total search volume of 10-K/10-Q reports around SEC filing dates into search volume of newly filed reports and search volume of previously filed reports, we find that search volume of newly filed reports is associated with both increased idiosyncratic interpretation and consensus updating, whereas search volume of previously filed reports is associated with increased idiosyncratic interpretation and decreased consensus updating. We also find that the length of the report influences the association between information acquisition and information integration and that EDGAR search volume of sophisticated (retail) users appears to be more responsible for the consensus updating (idiosyncratic interpretation) effect.

3.2 CSR, Ethics, Accountability 1

3.2.1 SASB-Identified Sustainability Rating and Investment Efficiency: Evidence of an Inverted U-Shaped Relationship

Ehsan Poursoleyman* (Simon Fraser University), Jamal A. Nazari (Simon Fraser University)

Drawing on the shareholder viewpoint adopted by the Sustainability Accounting Standards Board (SASB) to determine materiality, we propose and test a hypothesis for the optimal level of investment in sustainability. Based on the premise that shareholders consider specific thresholds for sustainability investments, we postulate that shareholders respond positively if the firm’s sustainability investments are below the optimal level, whereas they react negatively if the investments are above the optimal level. Through analyzing a sample of American companies spanning from 2008 to 2021, we demonstrate a significant inverted U-shaped relationship between materiality ratings of sustainability and capital investment efficiency. In further examining the sensitivity of the turning point to the firm- and market-specific characteristics, we find that leveraged firms and those facing exogenous shocks have a higher optimal level. Our results are robust across a battery of sensitivity tests and provide significant policy implications for regulators and standard setters, informing frameworks and guidelines developed by organizations such as the U.S. Securities and Exchange Commission (SEC), the SASB, and the International Sustainability Standards Board (ISSB).

3.2.2 Capitalizing on Transparency: The Role of CSR Signaling in Accessing External Financial Resources

Jamal Nazari* (Simon Fraser University), Ehsan Poursoleyman (Simon Fraser University)

Recognizing that CSR expenditures may contain valuable private information about future financial outcomes, we examine how signaling these expenditures can facilitate access to external financial resources. With growing external demands for transparency to foster credibility and trust, we argue that transparency improves investors’ and creditors’ ability to discern the private information embedded in CSR expenditures. Analyzing data from an international sample spanning from 2003 to 2021, our research reveals that the signaling component of CSR expenditures lowers the probability of facing financial constraints, particularly when confronted with greater transparency pressures. Furthermore, we find that debt holders are less influenced by CSR signaling compared to equity holders, and transparency has a relatively smaller impact on debt holders’ perceptions. Lastly, we underscore the significance of institutional pressures for corporate transparency in shaping the perception of CSR signaling. Our findings remain robust across various sensitivity tests, highlighting the validity and consistency of our findings.

3.2.3 Does Firms’ Corporate Social Responsibility Reduce Crime?

Chenwei Sun* (McMaster University), Justin Jin (McMaster University), Khalid Nainar (McMaster University), Gerald Lobo (University of Houston)

This study examines the impact of firms’ corporate social responsibility (CSR) on state crime rates in the U.S. Our research bolsters the expanding work under the Law and Political Economy Project ( out of Yale University and Economics of Crime Working Group of National Bureau of Economic Research (NBER). Our empirical results show that states with domiciled firms having better CSR performance exhibit significantly lower crime rates. This lower crime incidence is driven by the environmental, social, and governance dimensions of CSR. Our study is the first to document the societal impact of CSR by analyzing state crime rates, and we conclude that CSR activities have positive externalities on society.

3.3 Auditing & Fraud 2

3.3.1 The Effect of Restatements on Office-Level Audit Quality

Author: Jonathan Nash* (University of New Hampshire)

This study provides evidence on how the issuance of a non-reliance restatement affects non-restating clients of the same audit office. To test the effect of restatement issuance on office level quality, this study runs regressions using both input and output-based measures of audit quality. This study finds that in the years where one or more clients of an audit office issue a restatement, audit effort is lower for non-restating clients of the same office. When two or more clients issue a restatement, other clients are charged lower audit fees, file later, and are more likely to experience an audit failure. This study contributes to the literature on office-level audit quality and provides an explanation for the longitudinal correlation of office-level audit failures.

3.3.2 Do PCAOB Inspections Induce Real Earnings Management?

Author: Eddie Hsiao* (University of Memphis)

Prior research indicates that firms engage in more real earnings management (REM) following the Sarbanes-Oxley Act. This raises serious concerns regarding whether Public Company Accounting Oversight Board (PCAOB) inspections induce real activity manipulation. I investigate this question by a difference-in-differences approach, exploiting the different inspection frequencies between annually and triennially inspected auditors. The results suggest that PCAOB oversight mitigates REM by reducing misleading disclosures and enhancing auditors’ and governance’s REM-constraining functions. This enhancement is stronger for firms with weaker monitoring, such as smaller or less independent audit committees, non-expert auditors, or weaker bondholder monitoring. Additional analyses show that these inferences are robust to the latest data (up to 2019), entropy balancing, and parallel trend assumptions. These findings alleviate the concern that PCAOB scrutiny might cause more real earnings management.

3.3.3 Managerial Availability and Oversight at the Audit Office and Audit Quality

Brandon Szerwo* (University of Buffalo, SUNY), Mengtian Li (Brock University), Joshua Khavis (University of Buffalo, SUNY)

The Public Company Accounting Oversight Board (PCAOB) posits that manager staffing leverage, primarily through greater manager availability and oversight, is an important audit quality indicator and performance metric. We test this notion by empirically examining the link between manager staffing leverage, as measured by the manager-to-employee ratio at the audit office, and audit client outcomes from 2008 to 2019. We find manager staffing leverage is associated with lower client misstatement rates, suggesting higher audit quality. When disaggregated, the association pertains to middle managers but not to partners. This relationship is stronger for more important and more complex clients and for offices that experience high growth, offer greater career opportunities, and better compensate their auditors. We also find that manager staffing leverage measured at the firm level predicts audit quality, suggesting that firm-provided workforce data may be useful for infering audit quality. Managerial leverage is also linked to higher costs in the form of higher audit fees and longer audit lags. Finally, we document that auditors with higher manager leverage are less likely to be dismissed by important clients, suggesting offices with greater manager leverage are better equiped to maintain important relationships by strategically allocating their managerial staff.

3.4 Auditing & Fraud 3

3.4.1 Detecting Informative Value in Key Audit Matters: The Importance of Dissimilar KAM Risk Descriptions

Emeline Deneuve* (HEC Montreal), Andrei Filip (IESEG School of Management), Anne Jeny (IESEG School of Management)

Despite substantial efforts worldwide over the last decade to mandate the disclosure of Key Audit Matters (KAMs), the debate over their informative content continues, with most archival studies finding that KAMs have no or low informative value. We complement the literature by providing granular analyses of KAM content. We examine the informative value for capital markets of differences in the wording of KAMs for the same topic. Using a sample of listed firms in the United Kingdom, we hypothesize and find that auditors’ KAM risk description disclosures are informative only if they simultaneously provide dissimilar information to both (a) the previous year and (b) industry peers. Our results are stronger when the firm is audited by an industry specialist, when investors face greater information asymmetries proxied by greater bid-ask spreads, and when there are more analysts following the firm. By providing evidence that temporal and cross-sectional dissimilarities in KAM communications provide useful information, this paper has practical implications for auditors and standard setters.

3.4.2 Executives’ facial attractiveness and audit fees

Karel Hrazdil* (Simon Fraser University), Jeong-Bon Kim (Simon Fraser University), Cynthia Li (Trinity Western University), Jiyuan Li (Chongqing University of Technology)

We examine whether the facial attractiveness of firms’ chief financial officers (CFOs) influences auditors’ perceptions and decisions to price their audit services. Using a machine learning-based algorithm to measure facial attractiveness, we document that firms led by CFOs with greater facial attractiveness receive significantly lower audit fees, and this inverse relation between the two is further mitigated by auditor tenure, Big 4 auditor appointment, and CFO tenure. Our results are robust to correction for selection biases and a variety of alternative specifications and suggest that determination of audit fees is not an entirely rational process, as the facial attractiveness bias is at least partly driven by taste-based discrimination.

3.4.3 Auditing in the Digital Age: Determinants and Consequences of Technology Investment

Minlei Ye* (University of Toronto), Hyun Hwang (University of Texas at Austin), Eunhee Kim (Baruch College)

Advancements in data analytics are transforming the auditing landscape. In this paper, we present a model to analyze the incentives driving technology investments by auditors and companies, as well as their impact on audit outcomes. Our analysis demonstrates that auditors and companies may fail to engage in mutually beneficial technology investments. We then identify various factors that can expand or shrink the region where coordination failures may emerge. Furthermore, we find that the consequences of technology investments on audit outcomes are ambiguous. Specifically, such investments may result in either an increase or decrease in audit fees, and they could lead to a rise in audit failures despite benefiting both companies and auditors. In addition, our analysis of technology investments and risk choices suggests that an increase in audit failures does not necessarily imply lower welfare. Our results contribute to the debate regarding the slow diffusion of data analytics and the potential role of regulatory intervention in facilitating its adoption.

3.5 CSR, Ethics, Accountability 2

3.5.1 TCFD Reporting: Early Evidence Related to the Future of Global ClimateRelated Disclosure

Elizabeth Demers* (University of Waterloo), Jurian Hendrikse (Tilburg University)

The Task Force on Climate-Related Financial Disclosures (“TCFD”) underlies the recently issued IFRS S2, California and SEC regulations, as well as numerous country-specific climate disclosure mandates. We provide the first comprehensive evidence on the determinants and market-implications of TCFD-compliant disclosures for a global sample of firms. Utilizing voluntary responses to the CDP from the initiation of TCFD reporting in 2018 through 2022, we first provide evidence on which firms are likely to face larger adjustment costs when TCFD-based disclosure mandates become effective. Capital markets tests reveal that responding to the CDP is not associated with market values, but it is negatively associated with equity market bid-ask spreads, consistent with disclosure reducing information asymmetry. Results of market-relevance tests are mixed. The number of transition risks disclosed is negatively associated with market values, consistent with the market viewing these as unrecorded liabilities or unrecognized asset impairments. Climate-related opportunities are not associated with market-based measures, suggesting that these disclosures may be viewed as “cheap talk.” The TCFD-solicited estimated financial impacts of climate risks and opportunities are unassociated with market metrics, suggesting that they are not attended to, comprehended, and/or to considered to be of sufficient credibility or materiality to be reflected in prices.

3.5.2 Anti-sweatshop campaigns and supply chain traceability: a study of global fashion retailers

Frank Schiemann* (University of Bamberg), Azizul Islam (University of Aberdeen Business School), Chris van Staden (Auckland University of Technology)

In this paper we investigate the influence of protests by ethical activists and anti-sweatshop activists on traceability in relation to the supply chains of global fashion retailers. Traceability, a key part of organisational transparency, is the desire and the ability to publicly observe the entire production process, including the origin of the products, factory locations, the origins of raw materials and the conditions under which labour is used for manufacturing. We focus on protests, which use or are linked to images, as this increases their visibility. Our results reveal that protests by anti-sweatshop activists significantly improve traceability in relation to the production facilities of global fashion retailers in our sample. Protests highlighting production facilities located in the worst countries for workers’ rights shows the strongest relation to improved traceability. Our findings therefore show evidence of the influence of anti-sweatshop activists on the traceability of supply chain information. Social movement activism and actions are therefore important influences on corporations to be socially traceable (i.e., revealing information that can be used to track and trace social issues) and play an important part to create change in corporate social transparency.

3.5.3 Board Environmental, Social, and Governance (ESG) Expertise and ESG report usefulness

Author: Mohammad Soleimanian* (Concordia University)

This study examines whether board ESG expertise is associated with the usefulness of ESG reports. I posit that board ESG expertise plays a pivotal role in shaping the company's ESG narrative, aligning it with firm performance, stakeholder expectations and regulatory requirements. Consistent with my predictions, I find that board ESG expertise is associated with the disclosure of material ESG information, less positive ESG disclosure tone, more specific ESG disclosure, and more year-over-year modifications in ESG disclosure. Falsification test and lagged independent variables support the main findings. The results indicate that a board of directors with ESG expertise enhances the usefulness of ESG reports. The findings should be of keen interest to corporate boards, regulators, and academic researchers.

3.6 Activism and Sustainability

3.6.1 Que font les entreprises canadiennes lorsque les actionnaires manifestent leur mécontentement dans le cadre du vote consultatif sur la rémunération des hauts dirigeants?

Sylvie Berthelot* (Sherbrooke University), Michel Coulmont (Sherbrooke University)

Cette étude a pour objectif d’examiner les actions prises par les sociétés canadiennes lorsque les actionnaires manifestent leur mécontentement lors de l’exécution du vote consultatif sur la rémunération des hauts dirigeants. Les analyses ont porté sur 23 cas d’entreprises canadiennes pour lesquelles les votes consultatifs sur la rémunération des hauts dirigeants adoptés volontairement par celles-ci ont été inférieurs à 70 %, et ce, entre 2018 et 2022 inclusivement. Les résultats des analyses sont peu concluants en ce qui concerne l’incidence de ces votes sur l’ampleur des rémunérations accordées l’année suivant le vote. Ils permettent toutefois de connaitre les stratégies de rhétorique mises en place par les entreprises et leur conseil d’administration pour rétablir la légitimité des pratiques de rémunération mises en place.

3.6.2 Les entreprises canadiennes face a la biodiversité : une analyse fondée sur l'intelligence artificielle

Nathalie Angelé-Halgand* (Sherbrooke University), Vincent Gagné (Sherbrooke University), Alyson Lacasse (Sherbrooke University)

Cette étude s’intéresse aux pratiques des entreprises canadiennes des secteurs minier, pétrolier et forestier en matière de préservation de la biodiversité au travers des informations qu’elles affichent sur leur site internet. Plus précisément, ce sont les choix relevant de la gestion des impressions que nous tentons d’appréhender en analysant les rapports ESG volontairement publiés par ces entreprises. La méthodologie employée mobilise l’intelligence artificielle générative (IAG), que nous avons choisie comme alternative à NVivo. Des stratégies déployées par les entreprises pour générer des impressions positives afin de renforcer leur légitimité sont ainsi identifiées. Sur ces bases, nous proposons une mise en perspective critique des apports de l’IAG comme outil de recherche, en identifiant des pistes de travaux futurs.

3.6.3 Vivre la recherche comptable en français ? Un an après

Caroline Blais (University of Sherbrooke), Emilio Boulianne (Concordia University), Charles Cho (York University), Pascale Lapointe-Antunes (Brock University), Samir Trabelsi (Brock University)

L'année dernière, l’ACPC a organisé un premier panel sur le sujet et a lancé une initiative visant à promouvoir les activités francophones. Ce panel sera l'occasion de discuter des progrès réalisés et des défis à relever pour promouvoir la recherche comptable en français. Nous aborderons notamment les questions suivantes :

  1. Quelles sont les principales réalisations de l'initiative "Vivre la recherche comptable en français" depuis son lancement il y a un an par l’ACPC ?
  2. Quels sont les principaux défis à relever pour faire avancer la recherche comptable en français au niveau de l’ACPC?
  3. Quelles sont les meilleures pratiques pour encourager les chercheurs francophones à publier leurs travaux en français ?
  4. Comment pouvons-nous mieux faire connaître la recherche comptable francophone à l'échelle internationale ?

3.7 Financial Reporting 4

3.7.1 Does Open-Source Software Use Increase Business Risk?

Yufan Dong* (Case Western Reserve University), Jayanthi Krishnan (Temple University), Mengtian Li (Brock University)

The use of open-source software (OSS) - software source code and the produced software that are free and publicly available - is ubiquitous across businesses. One aspect of this use is the potential for heightened business risk arising from OSS license violations. However, absent strong legal foundations, the extent of such business risk is not clear. We examine the business risk implications of a 2008 court opinion which formed the first step toward establishing legal underpinnings for the use of OSS. In 2008, an opinion issued by the U.S. Court of Appeals for the Federal Circuit established the enforceability of OSS licenses under U.S. copyright law. Using a difference-in-differences design, we find that firms affected by the ruling are, on average, 6 to 8 percent more likely to make OSS-related risk factor disclosures than control firms, following the issuance of the opinion, revealing (for the first time) that OSS use contributes to firm risk. We then examine the real consequences of the ruling on corporate governance. Notably, firms after the ruling appointed more IT experts to their top management team, but not boards following the ruling, presumably to address the potentially adverse effects of OSS use on business risk.

3.7.2 How and When Analysts’ Qualitative Assessments Matter: Evidence of Analyst Report Tone Informativeness in a Merger Announcement Setting

Author: Nicolaus Wallner* (WU Vienna University of Economics and Business)

This study examines the relation between qualitative assessments in analyst reports (i.e., report tone) and investors’ market reactions. With prior research arguing for both why investors should or should not react to assessments, I argue that the context of these assessments helps aligning prior findings. Using reports published surrounding merger announcements, I show that the positive informativeness of report tone is mediated by the report-publication-timing relative to the announcement and the role of the covered company (acquirer or target). Separating market reactions across four time-windows relative to announcements allows for an analysis of investor responses to prompt versus non-prompt analyst assessments, shedding light on how investors interpret analysts’ information roles, namely interpretation and discovery roles. This research provides evidence on how analysts’ qualitative assessments matter to investors, and shows the significance of report context (e.g., analyst timing) for interpreting them.

3.7.3 The Real Effects of Disclosure on Diversity: Evidence from the Canada Business Corporations Act

Xingchao Gao* (University of Toronto), Thomas Bourveau (Columbia University), Ole-Kristian Hope (University of Toronto)

We examine the impact of a 2020 “comply-or-explain” disclosure mandate implemented by the Canada Business Corporations Act on corporate leadership diversity. The mandate requires that federally-registered public firms either set and disclose diversity policies and targets for boards of directors and senior management in their proxy statements, or explain why they have not done so. This provides new information about firms’ internal practices related to diversity. Using provincially-registered public firms as a control group, we establish two main findings. First, the difference-in-differences estimates reveal that diversity increased more for firms subject to the disclosure mandate, at least for directors. Second, the impact of the disclosure mandate is plausibly driven by shareholder monitoring through director elections and board renewal mechanisms. Overall, our findings contribute to the policy debate on the real effects of disclosure mandates on social dimensions.

Concurrent Sessions 4

4.1 Accounting Education 1

4.1.1 Animating Accounting: The Use of Technology to Foster Student Engagement in Introductory Accounting

Andrea Stapleton* (Memorial University of Newfoundland), Nader Wans (Memorial University of Newfoundland)

The COVID-19 pandemic forced academic institutions to close their doors for in-person learning and pivot to online learning. While challenging, this transition provided instructors with opportunities to explore the use of digital teaching practices. It has also provided an opportunity for researchers to examine the efficacy of various technological tools that may foster a deeper understanding of accounting and can be incorporated into courses as educators transition back to in-person learning. In this study, we examine the potential of one such technology, specifically animated videos, in teaching the accounting cycle in introductory financial accounting, and discuss evidence-based principles for designing effective animations that can enhance student engagement and promote an understanding of basic accounting concepts. Based on a survey of 51 students enrolled in introductory financial accounting, we provide empirical evidence that students find animations to be interesting, engaging and effective in enhancing their understanding of the topic and perceived them as an effective supplement to in-class discussion. Overall, our results shed light on the effectiveness of using animations to improve student engagement and provide insights to educators on incorporating animations into learning activities to enhance students’ experience throughout the entire curriculum.

4.1.2 Hey ChatGPT - is a Louis Vuitton bag an Investment? Evaluating ChatGPT’s Readiness for Use in Financial Literacy and Education

Shannon Lin* (Dalhousie University), Vlado Keselj (Dalhousie University), Samantha Taylor (Dalhousie University), Stacey Taylor (Dalhousie University)

The recent release of ChatGPT has wowed the world with its ability to generate text in a human-like manner. Its impressive scores on standardized tests make many prestigious professions wonder how soon humans will be outcompeted by AI. While educators evaluate how AI will impact the future of learning, we identify mistakes that ChatGPT has made in its evolution and point out mistakes that persist. Similarly, we extend this concern to non-financially sophisticated users seeking to improve their financial literacy by using the AI “expertise” in the place of finance professionals. While we expect these models to be imperfect, we have detected errors in the most fundamental accounting concepts. Importantly, we find that ChatGPT cannot always fully distinguish between different types of users (e.g., non-financial user versus a financial user). Our findings have important implications for accountants, educators, and students in using AI as a tool in work and education, as well as for the general population looking to bypass financial experts for their personal finance needs.

4.1.3 Audit vs. consulting, which route to choose? The role of self-elimination in the social exclusion of elite PSFs

Author: Sébastien Stenger* (ISG Business School)

This article shows that social exclusion among elite professional services firms (PSFs) varies depending on the profession and moreover is more heavily pronounced by the effect of self-exclusion of students from more modest backgrounds. For this purpose, we analysed the recruitment of two classes of students enrolled at a top-tier business school by their social and geographic origins and conducted a qualitative study of 18 students from this school in order to determine their aspirations. Our study indicates that, for the same level of qualification, auditing within a Big Four firm is mainly chosen by students from secondary schools in regions and from a lower socio-professional category than their fellow students, whereas strategy consulting firms mainly recruit from the higher social strata coming from the capital city. We also demonstrate that for this population, auditing is perceived as less socially discriminating than strategy consulting, a field from which these students exclude themselves.

4.2 Financial Accounting 5

4.2.1 Climate risk and Earnings management: The role of female board presence and leadership

Chiraz Ben Ali* (Concordia University), Khaled Guesmi (Paris School of Business, France), Panagiota Makrychoriti (University of London, UK)

This paper examines how climate risk and natural disasters impact an important dimension of top executives’ decision making, namely, the reporting and management of accounting earnings. Our baseline findings indicate a positive association between climate risk and earnings management, with U.S. firms strategically managing earnings downward during natural disasters, supporting the "big bath" hypothesis. Moreover, we document that during periods of intense climate risk, boards with increased female presence tend to exhibit more conservative behaviour than male dominated boards on managing earnings. By confirming the prevalence of "big bath" practices during natural disasters, we contribute to the ongoing discourse on the ethical dimensions of financial reporting and the impact of climate risk on corporate behavior and highlight the crucial role of board gender diversity in fostering earnings quality and financial reporting transparency.

4.2.2: Internal information asymmetry and firm-level productivity

Vishal Baloria* (University of Connecticut), Trent Krupa (University of Arkansas), Dave Weber (University of Connecticut)

Top managers of multi-divisional firms are tasked with allocating resources to their highest productive use. However, divisional managers often have superior information about their divisions. This internal information asymmetry (IIA) increases frictions in top managers’ resource allocation decisions. Using an empirical proxy for IIA that exploits differences in returns of opportunistic trades between top and divisional managers, we provide evidence that increases in IIA are associated with decreases in total factor productivity (TFP). Cross-sectional analyses indicate stronger effects where divisional managers have greater opportunities to exploit their informational advantage. Time-series analyses indicate weaker effects when top managers have heightened incentives to overcome informational frictions. Validation analyses indicate that as IIA increases, top managers allocate less internal capital to segments with high growth opportunities and more to segments with low growth opportunities. Our findings highlight the impact of information asymmetry among managers on resource allocation decisions within an internal capital market. Though theoretically important, IIA has traditionally been difficult to measure empirically. Further, most accounting research examining TFP has examined country- or industrylevel productivity. We use recent advances in measurement of IIA and TFP to address fundamental questions about the impact of internal information asymmetry on firm-level productivity

4.2.3: Other Comprehensive Income and Crash Risk: Evidence from Banking Industry

Samir Trabelsi* (Brock University), Shuai Gong (Temple University), Steve Lin (University of Memphis)

This study examines whether other comprehensive income (OCI), accumulated OCI (AOCI), and volatility of OCI (V_OCI) are associated with one year ahead stock price crash risk in the banking sector. Using a sample of banks in COMPUSTAT, we find that OCI is negatively associated with future crash risk and the association is more pronounced only if firms report extreme OCI. We also find a positive association between AOCI and future crash risk and the association is more pronounced only if firms report AOCI within the interquartile range where reflects bank earnings and regulatory capital management. V_OCI is generally not associated with future crash risk. Further analysis shows that the above findings are driven by commercial banks. We find that commercial banks that experience extreme interest rates, high leverage ratio, and high financial opacity (have weaker external monitoring) appear to have more pronounced (weaker) positive association between AOCI and future crash risk. Our paper provides direct evidence on the relationship between OCI and AOCI and future crash risk in the banking sector.

4.3 Financial Accounting 6

4.3.1: CEO Compensation When Accounting Information and Market Information Diverge

Daphne Hart* (University of Illinois at Chicago), Bjorn N. Jorgensen (Copenhagen Business School), Jonathan Bonham (University of Illinois at Chicago), Ellen Engel (University of Illinois at Chicago)

We explore settings in which the aggregate measures of a firm’s performance – earnings changes and stock returns – provide opposing information. We hypothesize that boards of directors may respond to the occurrence of these diverging signals by altering the weight(s) on the performance measures in executive compensation contracts. These adjustments may reflect either the greater information produced by the diverging signals or the need to provide incentives for managers to shift their actions to address the situation underlying the signal divergence. Our findings document lower sensitivity of total and annual cash compensation to earnings performance in firms-years following negative industry correlation between earnings and stock returns. At the firm level, we also document a lower (higher) sensitivity to earnings performance in annual cash compensation following diverging in which earnings performance declines (increases) while stock returns increase (decrease). We also show that CEO compensation of profit and loss firms is associated with firm-level signals, however the reaction is dependent on the type of diverging signal. Overall, the finding suggest that boards of directors consider the occurrence of diverging signals in compensation structure and that the nature of the divergence matters in how the board responds.

4.3.2: Is intangibles talk informative about future returns? Evidence from 10-K filings

Anup Srivastava* (University of Calgary), Alexander David (University of Calgary), Amir Hosseini (University of Calgary

We construct a measure of intangible intensity — intangibles talk — based on discussions of intangibles in a firm’s 10-K filings. This measure likely includes managers’ views about the ex-post, successful outcomes of intangibles investments and not just ex-ante investments. In general, the expected and realized outcomes of intangible investments differ because many of those investments fail while only a few would produce lottery-type payoffs. Therefore our measure is correlated with, but carries orthogonal information to, prior measures of intangibles that are largely based on expected outcomes of initial intangibles investments. We test the informativeness of our measure about future returns. Returns from long and short portfolios based on high and low values of our measure, outperform portfolios formed on book-to-market ratio as well as those based on capitalization intangibles. Our strategy generates an average annual alpha of 3.37% from 1995 to 2020. Our alphas are higher than those generated from portfolios sorted on other indicators of intangible intensity shown in the literature. We find that positive alphas are concentrated among stocks with higher arbitrage risk, proxied by idiosyncratic volatility, suggesting that stocks with higher discussion of intangibles in 10-K filings are often mispriced.

4.3.3: Real Effects of Government Subsidy Accounting Changes: Evidence from a Natural Experiment

Feng Chen* (University of Toronto), Wei Shi (Deakin University), Chao Yan (Zhongnan University of Economics and Law), Ziyi Zhang (Zhongnan University of Economics and Law)

We examine the real effects of the unique regulatory reform in China, i.e., the change in accounting rules related to the recognition of government subsidies in firms’ income statements in 2017. Prior to the rule change, firms could only recognize government subsidies below the line of operating income. After the rule change, firms can choose to recognize government subsidies either above or below the line of operating income, and many firms now recognize income-related government subsidies as operating income. We find significant overvaluation for firms that subsequently recognize government subsidies as operating income. Moreover, such firms tend to increase investment but suffer from lower investment efficiency. Our findings highlight the unintended consequences of accounting changes related to government subsidy recognition.

4.4 Financial Accounting 7

4.4.1: How do Firms Respond to Within-Firm Pay Disparity? Evidence from Earnings Management

Author: Hunghua Pan* (National Tsing Hua University)

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandates US publicly traded firms to disclose CEO-to-median-employee pay ratios, aiding employees in assessing vertical pay disparity. This study uncovers that firms with pronounced pay disparity resort to upward earnings management to enhance employees’ job security perception. Additionally, firms characterized by higher excessive pay disparity and lower median employee compensation relative to peers exhibit elevated upward earnings management tendencies. Examining whether a stronger link between excessive pay disparity and upward earnings management exists in firms with more white-collar expenses reveals an affirmative correlation. Furthermore, due to differing fiscal-year ends, this study identifies late announcers of CEO pay ratios, whose excessive pay disparity is greater and median employee pay is lower, as more likely to engage in earnings management. Notably, firms practicing upward earnings management in response to excess pay disparity exhibit reduced employee turnover rates. This study employs propensity score matching and instrumental variable techniques to address endogeneity concerns. Overall, this study underscores the significance of equitable compensation practices within firms, utilizing various approaches to shed light on the complex interactions between pay disparity, earnings management, and employee turnover rates.

4.4.2: Speaking about Mergers and Deal Outcomes: An Examination of Analyst Report Tone surrounding Merger Announcements

Author: Nicolaus Wallner* (WU Vienna University of Economics and Business)

Financial analysts play an important intermediary role in mergers due to information asymmetries among market participants. While most announced deals are completed, a considerable amount is terminated. I examine how announcements impact analysts’ qualitative assessments (i.e., report tone), and if these assessments provide valuable insights to market participants early into the deal. Through construct validation tests, I find report tone decreasing in optimism following an announcement, likely reflecting analysts’ caution for mergers bad long-term performance. This change in optimism is stronger for targets than for acquirers. Further, I show that the merger topic itself and usage of uncertainty-words shape analysts’ assessments. Finally, I find evidence for analysts’ assessments within 20-days of the announcement, particularly on the acquirer, strongly associate with the deal completion probability. These findings highlight that analysts’ qualitative assessments offer early, valuable indicators to market participants regarding the potential success of mergers.

4.4.3: Breaking the Language Barriers? Machine Translation Technology and Analysts’ Forecasts for Multinational Firms

Bingxu Fang* (Singapore Management University), Pengkai Lin (Singapore Management University)

We study the impact of machine translation technology on analysts’ forecasts for multinational firms. Exploiting the staggered rollout of Google Translate’s support to translate foreign languages into English, we find that U.S. analysts improve their forecast accuracy for firms with substantial business exposure in the corresponding foreign countries. The improvement is greater for analysts with limited language skills or brokerage resources to process foreign information. We further find that analysts raise more questions about firms’ foreign exposure during conference calls and incorporate more foreign economic information into their forecasts after the rollout of Google Translate. Our findings highlight the complementary role of publicly accessible technology in supplementing analysts’ skills and resources.

4.5 Financial Accounting 8

4.5.1: Higher Order Beliefs, Accounting Standards, and Stock Market Efficiency

Author: Yan Li* (Trent University)

Do higher quality accounting standards which impose greater disclosure requirements and reporting precision improve stock market efficiency i.e. reduce the likelihood that stock prices deviate from their fundamental values? Two conflicting views motivate our inquiry. One view is that such accounting standards can cause stock prices to deviate from its fundamentals since investors tend to over-weight public information (a beauty contest effect). An alternative view is that high quality accounting standards will cause prices to converge towards its fundamental value because they help investors properly assess firms’ risk and forecast future cash flow. We empirically evaluate this question by examining the effect of mandatory IFRS adoption on stock price efficiency. In general, we find the deviation of prices from its fundamentals declines following IFRS adoption. We also find the impact of IFRS adoption on stock price efficiency is more pronounced in countries with poorer accounting quality before the adoption and greater distance between IFRS and domestic accounting standards. Overall, our study highlights the consequence of accounting standards on price efficiency. Our evidence also refutes the contention that greater flow of firm specific information will cause prices to deviate from its fundamentals.

4.5.2: Free Money? An Analysis of the Paycheck Protection Program

Andrea Faulkner* (University of Texas at San Antonio), Jennifer Yin (University of Texas at San Antonio), Harrison Liu (University of Texas at San Antonio)

The Paycheck Protection Program (PPP) was the most extensive firm-based fiscal policy in United States history, deploying around $800 billion in funds to businesses in response to the COVID-19 pandemic. Funds were designed to enable businesses to maintain employees by providing funds to cover payroll costs and help cover operating costs such as rent, utilities, and mortgage interest. However, prior research has provided evidence that the program did not significantly impact employment rates during the COVID-19 pandemic, which begs the question, “Where did the money go?” Using PPP loan data from, this study finds evidence that, on average, public firms that received PPP loans did not need the funds to remain in operation during the pandemic. The evidence shows PPP firms had higher levels of liquidity in each quarter following the period when the PPP funds were received, indicating excess liquidity. In addition, results show that once the funds were forgiven, the excess liquidity was paid out to shareholders in the form of distributions.

4.5.3: Does Options Trading Reduce the Demand for Conditional Accounting Conservatism?

Michel Magnan* (Concordia University), Ahmad Hammami (Concordia University), Mahmoud Delshadi (University of Glasgow)

We examine if options trading via organized markets reduces the demand for conditional conservatism by alleviating information asymmetry and by mitigating the shareholders-manager conflict. We build upon and extend prior evidence that options trading enhances stock market informational efficiency. Focusing on a large sample of firms from 1997 to 2019, we show that options trading is associated with less conditional conservatism in financial reporting. Moreover, firms reduce their level of conditional conservatism after being listed on the options market. Options trading’s effect on conditional conservatism is greater among small firms, firms with low asset tangibility, and firms with long investment cycles. We find that options trading has little or no effect when economic policy uncertainty is high. We observe that the presence of financial analysts strengthens the negative association between options trading and conditional conservatism. We also document that options trading prominently influences conditional conservatism when investor sentiment is high.

4.6 Corporate Governance 1

4.6.1: Are Firms Ideologically Fickle?

Bryce Cross* (Saint Mary's University), Matthew Boland* (Saint Mary's University)

This paper investigates whether U.S. firms exhibit ideologically fickle behavior in their political contributions. Drawing on a comprehensive review of the literature on corporate political connections and using a regression discontinuity design, we analyze corporate PAC contributions in relation to close election outcomes for the U.S. House of Representatives. Our findings indicate that firms reduce their contributions to losing parties, suggesting opportunistic rather than ideologically driven behavior. We bolster these findings with a Difference-in-Differences analysis and additional cross-sectional tests, confirming that firms are not ideologically committed but rather adjust contributions based on the expected value of political connections. The study contributes to the debate on whether corporate political contributions are investments or consumption, leaning towards the former. These results have implications for corporate governance, suggesting that political contributions are strategic decisions aimed at maximizing shareholder value, rather than a form of consumption.

4.6.2: Role of Academic Directors in Curtailing Tax Aggressiveness in Chinese Firms

Hong Fan* (Saint Mary's University), Liqiang Cheng (Saint Mary's University)

This study investigates the role of academic directors in reducing tax aggressiveness in Chinese public firms. Prior research has demonstrated that academic directors are perceived to have higher ethical standards and a broader perspective that includes corporate social responsibility in addition to shareholder interests. Consistent with this literature, we find that the effective tax rate (ETR) of Chinese firms is positively related to the presence of academic directors. A higher ETR indicates less tax aggressiveness, which might be preferrable to outside stakeholders. Additional evidence supports the claim that professor-directors' damper on firm tax aggressiveness is motivated by their concerns for the interests of overall stakeholders. In addition, academic directors play a more discernible role in firms with a greater proportion of independent directors, in firms with a lower concentration of ownership, and in years following China's anti-corruption campaign.


4.7 CSR, Ethics, Accountability 3

4.7.1: Machine Lending and Discrimination: Evidence from Peer-to-peer FinTech Lending

Kiridaran Kanagaretnam* (York University), Xiaoran Jia (Wilfrid Laurier University), Marcia Annisette (York University)

We hypothesize that statistical racial discrimination can exist in machine lending even when racial information is not directly observable. Using a large sample of loan listings from a sizeable peer-to-peer (P2P) lender in the U.S., we find strong evidence that loan listings in counties with a greater proportion of minority population are associated with higher lending rates and loan denial rates. In cross-sectional tests, we document that statistical racial discrimination is less pronounced with the availability of more traditional and non-traditional information on credit quality. Employing path analysis, we find that county-level racial information is implicitly transmitted through the P2P platform’s internal rating process.

4.7.2: Impact of Asset Bubbles on Exercise of Executive Stock Options

Amin Mawani* (York University), Saikat Sarkar (York University)

This study examines whether CEOs exercise a greater proportion of their exercisable options in response to firm-specific stock price bubbles. For a sample of U.S. firms from 1992 to 2021, the study identifies stock price bubble periods using the GSADF method from Phillips, Shi, and Yu (2015). A bubble is a statistical measure that detects an ex-post firm-specific stock price exuberance that creates abnormally high variation in stock prices arising from a variety of factors such as changes in discount rates, quantitative easing, technological change and innovation, market liquidity, excess demand or supply for specific stocks for speculation, and other reasons.

Using data aggregated at the CEO-year level, we find that CEOs are prone to exercising a larger portion of their vested stock options during market bubbles, with the aim of monetizing on the exuberance in the firm's stock price. They leverage their expertise, incorporating experience, age, and their acquired price-sensitive private information to identify these bubbles. We also find that executives exercise more of their options later when the bubble duration is 3 years long, but the incremental exercise decisions do not seem to extend beyond 3 years

4.7.3: The interplay between materiality & comparability in sustainability reporting: Evidence from the banking industry

Blerita Korca* (University of Bamberg), Ericka Costa (University of Toronto), Mercedes Luque (University of Cordoba), Emanuele Taufer (University of Toronto)

Comparability creation in sustainability reporting is of high interest to investors. Regulators and policy makers are currently working towards creating regulations and reporting standards that will guide reporting into becoming more comparable. While the comparability concept is a highly discussed one in the sustainability reporting field, there is almost no research empirically exploring its potential creation. Therefore, the aim of this study is to start from the materiality assessment, to understand the potential creation of comparability in sustainability reporting. Using data from the banking industry, we find that materiality affects the creation of comparability. Banks chose very different material topics, between each other, but also within one bank over the years. Even when material topics are similar between banks, they still choose different GRI indicators to report that specific information, which hampers the information comparability. The results of our study aim to inform regulators and standard setters on how the materiality and comparability interplay with each other. While the materiality assessment is linked to the accountability purpose of reporting, the comparability concept instead is linked to the valuation purpose of reporting. The contrasting aims between the materiality and comparability create challenges for a co-existence of these two reporting features.

4.8 Financial Reporting 5

4.8.1: Do Hedge Funds Exploit Material Nonpublic Information? Evidence from Corporate Bankruptcies

Jingyu Zhang* (Queen's University), Wei Wang (Queen's University), Yang Yang (Queen's University)

Serving on the unsecured creditors’ committee (UCC) of a bankrupt firm allows hedge funds to access material nonpublic information (MNPI), which can facilitate hedge funds’ trading in other firms and across asset markets. We show that hedge funds have higher equity portfolio turnover and make large trades in the few quarters after joining a UCC. Hedge funds do not trade differently after accessing public information of bankrupt firms. Hedge funds’ large trades concentrate in firms that have close economic links to the bankrupt firm. Returns from large trades driven by access to MNPI are substantial.

4.8.2: Beyond labels: Decoding market surprises, non-linear dynamics, and strategic choices in the era of EU taxonomy reporting

Stefan Veith* (University of Applied Sciences Bremen), Armin Varmaz (University of Applied Sciences Bremen), Jörg R. Werner (Frankfurt School of Finance & Management)

This paper investigates the capital market effects of the European Union  taxonomy regulation that provides a standardized framework for identifying environmentally sustainable economic activities. Firms under this regulation have to report the proportion (“alignment”) of sustainable revenues, capital expenditure and operating expenditure. Utilizing hand-collected data from EUROSTOXX 600 index constituents, the study assesses short-term market reactions to taxonomy announcements and explores the long-term associations between these disclosures and firms’ monthly stock returns and volatility. Comparing the results from the event and association study reveals that the investors are recalibrating their assessments, necessitating time to fully comprehend and integrate the new sustainability-related information. This is due to non-linear dynamics underlying the transformation of business models. In the long run, firms with lower levels of revenue alignment face a decrease in equity risk, and those with higher levels are exposed to increasing risk. The market seems to acknowledge a threshold beyond which additional revenue alignment could be detrimental to firm risk. Relatedly, we observe only at higher levels of taxonomy-aligned investments a risk mitigation effect. Finally, we identify four ESG management strategies and show that “Transformers” exhibit the highest level of risk, while “ESG stars” the lowest.

4.8.3: The Financial Reporting Effects of Shadow Banking: Evidence from China

Qiuhong Zhao* (Texas A&M University - Corpus Christi),Jinbo Luo (Lanzhou University)

This study examines the effects of entrusted lending on the accounting conservatism of Chinese-listed entrusted loan lenders (EL lenders). We argue that commercial banks implicit guarantees or provision of capital makes entrusted lending appear less risky, thereby reducing lenders’ timely recognition of losses that signal potential risk while exposing banks to greater off-balance-sheet risk. We find that EL lenders employ aggressive (i.e., less conservative) accounting after issuing entrusted loans. We apply the instrumental variable approach as well as the difference-in-differences approach to adjust for endogeneity. We document that this negative effect ceased after implementation of the Administration Measures on the Entrustment Loans of Commercial Banks in January 2018. Our study extends the debt contracting theory of accounting conservatism and provides indirect empirical evidence for the contract theory of accounting conservatism in the shadow banking setting. Our findings have important policy implications regarding management incentives and elucidate shadow banking activities in relation to systemic risk and financial stability.

Concurrent Sessions 5

5.1 Auditing & Fraud 4

5.1.1 The Impact of Pre-Audit Risk of Material Misstatements on the Quality of FinancialStatements and Its Implication for Auditor Quality Estimation

Ping Zhang* (University of Toronto), Giulia Sargiacomo (University of Toronto), Ling Chu (Wilfrid Laurier University)

In this paper, we argue that, for economic rational auditors, the pre-audit risk of material misstatements plays a significant role in the post-audit quality of the annual financial statements. We predict that the post-audit quality of financial statements is a function of the pre-audit risk, and the relation between the post-audit quality and the pre-audit risk is a function of auditor quality. We also argue that the pre-audit risk, if not properly controlled, can bias the estimated auditor quality.

We use the standard deviation of quarterly discretionary working capital accruals calculated from the pre-audit quarterly data as a measure for pre-audit risk of material misstatements. We document evidence that this measure behaves consistently with our theoretical predictions. Our analysis suggests that the pre-audit risk needs to be neutralized when using the post-audit quality of the financial statements to estimate auditor quality. We apply our approach to compare the quality of Big N and Non-Big N auditors and find that their responses to the pre-audit risk are not the same, although their average quality is similar.

5.1.2 Do Accounting Estimates in the Form of Accruals Capture the Economic Substance of Firm Activities? An Exploratory Study

Wally Smieliauskas* (University of Toronto), Minlei Ye (University of Toronto, Mississauga)

This study investigates the degree to which accruals reflect the economic substance of firm activities in audited financial statements. Using the concepts of materiality and risk of professional standards, we apply the most successful discretionary accrual models in the accounting research literature to estimate the degree of material misstatement in the reported accruals. We find that audited accruals have very high risks of material misstatements indicating that a compliance-oriented approach to audits of accounting estimates is being followed in the vast majority of public company audit engagements. This is true even after controlling for reasonable audit risk in each engagement. Our findings show that estimation uncertainty in the form of accounting risk in audited accounting estimates can be very high indicating elevated levels of misreporting risk, and a need for more standards guidance if audited financial statements are to better reflect economic substance and fair presentation in financial reporting. This paper enhances our understanding of the reliability problems associated with accounting estimates that should concern regulators, standard setters, management and practicing auditors.

5.1.3 Component Auditors and Credit Risk

Author: Steven Zhu* (University of Houston)

This paper studies the use of component auditors and how their presence within a group audit affects credit risk. Using data from the Public Company Accounting Oversight Board (PCAOB) mandated Form AP disclosures, I find that the use of component auditors is associated with increased credit risk, even after controlling for a set of firm-, auditor-, and market-specific factors. Additional results from a propensity score matched sample analysis, entropy balancing approach, and an instrumental variables approach imply that my findings are robust to accounting for endogeneity. I also provide evidence on three channels (accounting accruals, corporate culture, and PCAOB audit inspections) through which the use of component auditors increases firm credit risk. Overall, my findings suggest that the use of component auditors decreases audit quality, which in turn leads to increased credit risk.

5.2 CSR, Ethics, Accountability 4

5.2.1 “If Not Certain Be Vague”: How Uncertainty about Investors’ Preferences Shapes Voluntary Climate Change Disclosure

Giulia Sargiacomo* (University of Toronto), Ole-Kristian Hope (University of Toronto)

Utilizing the unique setting of the CDP (previously, the Carbon Disclosure Project), we investigate the role of uncertainty about investors' preferences in voluntary climate change-related disclosure. When uncertain of how the voluntary disclosure will be perceived, we examine whether firms choose to remain silent and vague to mitigate potential dissatisfaction among investors. We provide evidence that uncertainty about investors' environmental preferences is positively related to silence and vagueness in voluntary climate change disclosure using both dictionary-based and ClimateBert-based (a Large Language Model trained on climate change disclosure) measures. Moreover, we show that companies with extreme environmental performance (either extremely "bad" or extremely "good") use less silence and vagueness in their disclosure when facing uncertainty of institutional investors' preferences. Additional analyses show that a dispersed general opinion about corporate efforts toward climate change is positively associated with higher levels of silence and vagueness. Finally, our tests reveal that the level of silence and vagueness in the previous year is positively associated with analysts' climate change interest during Q&A sessions of earnings calls. Overall, the paper sheds light on a potential explanation for the increasing levels of boilerplate ESG disclosure.

5.2.2 Analyst coverage and financial materiality of corporate social performance

Dongyoung Lee* (McGill University), Jennifer Chen (University of Missouri - St. Louis)

We identify different types of CSR (corporate social responsibility) activities with and without financial implications across various industry sectors. Applying this concept of financial materiality in CSR engagement, we replicate and extend Qian et al.’s (2019) finding of an improvement in corporate social performance following an exogenous reduction in analyst coverage. First, we show that financially immaterial CSR engagement drives their finding, indicating that managers commit to CSR activities that are more beneficial to non-equity stakeholders when they face less short-term pressures from financial analysts. Second, we show that financially material yet socially irresponsible actions tend to increase after a drop in analyst coverage. This finding implies that a sudden loss of financial analysts’ monitoring results in firm managers’ misbehavior of engaging in value-destroying and socially irresponsible activities.

5.2.3 The Ultimate Power of Religiosity: Local Religiosity and CEO Gender Pay Gap

Samir Trabelsi*
(Brock University), Dave Bouckenooghe (Brock University), Kareen Brown (Brock University), Maryam Vashahi (Brock University)

In this study we focus on the effect of local religiosity on the probability of hiring female incoming CEOs while transitions, and how local religiosity relates to female CEO compensation. Given that all major religions facilitate patriarchy contributing to gender stratification, justifying men’s hierarchical superiority to women, we predicted that local religiosity is negatively related to appointing and remunerating female CEOs. We found no evidence that local religiosity relates to the probability of appointing a female incoming CEO. Moreover, using both a longitudinal as well as propensity scored matched sample, results indicate that local religiosity slightly negatively relates to the level of CEO compensation for male CEOs as opposed to the positive and significant association with the level of female CEO remuneration. Contrary to predictions, local religiosity shifted pay discrimination against female CEOs in secular states to their favor in religious states.

5.3 CSR, Ethics, Accountability 5

5.3.1 Corporate Purpose Disclosure: Substance or Cheap Talk? An Experimental Analysis of Investors’ Perception

Kevin Gauch* (Darmstadt University of Technology), Jochen Theis (University of Southern Denmark)

With the shift away from shareholder primacy towards stakeholder management, an increasing number of companies formulate and disclose their corporate purpose, often also as part of the annual report. A corporate purpose describes the reason for the existence of a company, which can provide an overarching framework to justify the company in society. Using US non-professional investors, we experimentally investigate the effect of disclosing a corporate purpose in the annual report on their willingness to invest. We furthermore examine the interaction between a corporate purpose disclosure and an adverse event for the company. Our results suggest that disclosing a stakeholder-oriented corporate purpose does not directly increase the willingness to invest because of significant opposing mediations of induced perceptions of social contribution and purpose-washing (similar to greenwashing) of the company. We further find that a stakeholder-oriented corporate purpose disclosure acts as an insurance if not contradicted by the characteristics of the adverse event.

5.3.2 Counter Accounts in Accountability Relationships: A Multimodal Critical Discourse Analysis of Rio Tinto’s Destruction of the Juukan Gorge

Merridee Bujaki* (Carleton University), Anamika Jayendran (Carleton University), Bruce McConomy (Wilfrid Laurier University), Leanne Morrison (University of Tasmania)

We analyze accountability relationships in media reports regarding the destruction of the Juukan Gorge by Rio Tinto in May 2020. The Juukan Gorge caves in Western Australia are of cultural and heritage significance to Indigenous Australians, yet no laws were broken when they were largely destroyed by mining company Rio Tinto. Multimodal critical discourse analysis (MCDA) is used to examine 182 photo-text pairings in reports from global news outlets that address the incident (multimodal accounts), to gauge the responses of various stakeholders. MCDA involves assessing how texts and accompanying photos interact to reflect power and accountability relations. We find four key stakeholders represented in multimodal accounts about the destruction of the Juukan Gorge: Rio Tinto, the mining industry, government and Indigenous communities. Each stakeholder group is represented differently from an ethical philosophy perspective and within the accountability relationships that connect them. Rio Tinto is striving to repair its damaged legitimacy as a corporate citizen; the mining industry is self-interestedly seeking to avoid having Rio Tinto’s actions limit the industry’s future opportunities; government is attempting to build bridges among the various stakeholders; and Indigenous communities are searching for restitution, remediation and an equal partnership with mining companies as a way forward.

5.3.3 Has sustainability accounting permeated traditional accounting? A bibliometric analysis to determine the state of research today

Sanobar A. Siddiqui* (University of Regina), Leanne Keddie (Carleton University)

Sustainability accounting is a tool accountants use to measure firms’ sustainability, often regarding their impact on the environment, society, and good governance. This type of accounting is a specialty field because it requires analysis of non-financial data and, therefore, provides a more holistic view of the company’s performance than financial data alone. The demand for sustainability accounting is increasing as resources are depleted, and governments, individuals, and companies feel the importance of planning for the future. A bibliometric analysis is described in this paper to obtain a structural overview of the academic work of sustainable accounting to determine its permeation into traditional accounting areas. A keyword search using the terms ‘financial account*,’ ‘managerial account*,’ ‘environmental management*,’ ‘audit,’ ‘assurance,’ ‘tax*,’ and ‘sustainability account*’ is performed, yielding 810 individual articles published between 2013 and 2022, with a collection of 44,456 references. Through co-citation analysis, bibliographic coupling, and co-word analysis, we draw insights into the most common or influential documents, authors, and journals in sustainability accounting and how these are moving into traditional accounting areas. Results are presented in tabular and visual formats. The bibliometric analysis of existing work in sustainability accounting provides a valuable and germinal reference for researchers and practitioners alike.

5.4 Corporate Governance 2

5.4.1 Christianity Maturity and Audit Committee and Board Characteristics

Zhongxia Ye* (University of Texas at San Antonio), Dana Hermanson (Kennesaw State University), Mengtian Li (Brock University)

To better understand the contributors to effective corporate governance, we examine the relation of Christianity maturity with audit committee and board characteristics. We consider Christianity maturity measures related to both the firm headquarters geographic location and the members of the board of directors. We find that Christianity maturity in firms’ headquarters location and board of directors is positively related to audit committee size and financial expertise, and board independence. We find that these relations are most pronounced when the CEO is not the board chair and when the firm is large. We also find evidence that Christianity maturity related to nominating and governance committee members and audit committee members is positively related to certain governance characteristics. We find no evidence that management (CEO or CFO) Christianity maturity is related to audit committee and board characteristics. In a supplemental analysis, we find that Christianity maturity at the headquarters location level is negatively related to female involvement in governance, but Christianity maturity at the board level is positively related to female involvement in governance. We discuss implications and future research directions.

5.4.2 Entrenched Management, Underperformance, and the Adaptation Option

Author: Mitchell Oler* (University of Wyoming)

This paper examines underperforming firms, proxied by firms with market values less than book values, continue to exist because management does not utilize the adaptation option. If managers have the option to adapt assets (either internally or externally via selling the firm) to other uses when the expected net present value from current earnings is less than the book value, then a book-to-market (BTM) ratio greater than one should not be observed since managers could exercise the option to increase shareholder value. However, a sample from 1996 to 2015 indicates 23,976 firm-year observations where the BTM ratio is above one. I find evidence consistent with observations that use entrenchment devices persisting with a BTM above one longer than those that do not. I also find that a change in the CEO and share repurchases are related to a firm’s BTM ratio falling below one again. This paper extends the research on the adaptation option and provides an explicit link between firm value and corporate governance.


5.5 Financial Accounting 9

5.5.1 Does trustworthiness lead to forecast bias? Evidence from analysts’ site visits

Zihui Li* (City University of Hong Kong), Jiyuan Li (Chongqing University of Technology)

This study investigates the impact of face-to-face interactions between visiting analysts and investor relations (IR) managers during corporate site visits. Using the unique data on site visits to public firms in China, we find that analysts accompanied by IR managers perceived as more trustworthy are inclined to issue more optimistic forecasts during the post-visit period. However, we observe that this cognitive bias can be alleviated through the utilization of alternative information sources. The effect is attenuated for firms operating in a transparent information environment and for experienced or star analysts with broader access to diverse information. Additionally, we find that this cognitive bias diminishes over time or with increased interactions, as more information becomes available subsequent to the site visits, indicating that the initial impression bias is the most significant. Notably, our findings underscore that even sophisticated analysts are susceptible to cognitive bias, but the integration of supplementary information and repeated interactions can help mitigate such bias.

5.5.2 Switching Back from IFRS to Local GAAP: Does it Impact Target Price Accuracy and Analyst Optimism?

Paul André* (HEC Lausanne), Adam Aoun (EHL Singapoore), Alain Schatt (HEC Lausanne)

Prior research shows that mandatory IFRS adoption provided some benefits for financial analysts. We extend this literature by investigating whether switching back from IFRS to local GAAP reduces these benefits. More precisely, we analyze the impact of such a switch on target price errors in Switzerland, where several firms have decided to abandon IFRS and use Swiss GAAP. Our cross-sectional analysis shows that analysts’ errors are significantly lower for firms applying IFRS. The results from our staggered difference-in-differences suggest a significant increase in the absolute target price errors after a switch from IFRS to Swiss GAAP. Thus, we conclude that target price accuracy decreases when opacity increases. However, analysts are usually more optimistic about firms using IFRS, and analyst optimism significantly decreases after a switch from IFRS to Swiss GAAP. This latter finding suggests that analysts become more prudent when opacity increases. Overall, we conclude that switching back from IFRS to local GAAP has some negative and some positive consequences for financial analysts.

5.5.3 SEC Investigations and Opportunistic Non-GAAP Reporting

Author: Matthew Hinton* (Toronto Metropolitan University)

This study examines whether an investigation by the United States Securities and Exchange Commission (SEC) affects a firm’s non-GAAP reporting choices and a potential mechanism for the effect, Turnover-Performance Sensitivity (TPS). Using a list of all closed SEC investigations between January 1, 2000 and August 2, 2017 provided by Blackburne et al. (2021), I examine my research question. I find that, when under an SEC investigation, firms with opportunistic (informative) motives increase (decrease) their opportunistic non-GAAP reporting. Further, I find TPS increases for firms with opportunistic motives that are under investigation and that opportunistic non-GAAP reporting choices exacerbate this effect. Opportunistic firms also have less persistent non-GAAP earnings during an SEC investigation. I also find that the effect of an investigation on opportunistic reporting is stronger for (i) informative firms in the post-financial crisis period, (ii) firms that have a high level of financial expertise on the board of directors and the nomination committee, (iii) firms with dual board chair-CEO positions, and (iv) firms with low Earnings Response Coefficients (ERC). This paper has implications for regulators and investors, as my research shows that SEC interventions have unintended consequences for opportunistic non-GAAP reporting and managers’ career prospects.

5.6 Financial Reporting 6

5.6.1 Interpretive Earnings Forecasts via Machine Learning: A High-Dimensional Financial Statement Data Approach

Dieter Hess* (University of Cologne), Frederik A. Simon (University of Cologne), Sebastian A. Weibels (University of Cologne)

We predict earnings for forecast horizons of up to five years by utilizing a fully flexible approach, i.e., using the entire set of Compustat financial statement data as input and feeding it to state-of-the-art machine learning models capable of approximating an arbitrary functional form. Our approach yields on average 13% more accurate one-year ahead predictions than the best-performing traditional linear approach. This superior performance is consistent across a variety of evaluation metrics and translates into more profitable investment strategies. Extensive model interpretation reveals that income statement variables, especially different definitions of earnings, are by far the most important predictors. Lastly, we show that model non-linearity is more pronounced for longer forecasts horizons and that the outperformance cannot be explained by simple interactions between the input variables.

5.6.2 Beyond Compliance: Analyzing the Relationship between Data Breach Disclosure Laws and Corporate Social Responsibility Commitments

Author: Ming Liu* (Saint Mary's University)

This study investigates the connection between the implementation of data breach disclosure laws and corporate social responsibility (CSR). By exploring exogenous changes resulting from the staggered adoption of data breach disclosure laws across U.S. states, we observe a significant increase in corporate CSR engagement following the introduction of these laws. Furthermore, our findings suggest that, subsequent to the adoption of these laws, companies tend to prioritize addressing CSR concerns over enhancing their strengths. Specifically, our analysis of the impact of data breach disclosure laws on different dimensions of CSR performance underscores a prevailing emphasis on investing in areas related to employees and the environment.

5.6.3 Analysts’ Risk Discussions

Changqiu Yu* (University of Manitoba), Mark Bradshaw (Boston College), Ziwei Qiao (Capital University of Economics and Business), Hongping Tan (McGill University)

Using textual analysis for a large sample of analyst reports on U.S. firms, we examine the determinants and informativeness of analysts’ specific discussions of risk. Analysts’ risk discussions are largely driven by unobserved time-invariant analyst and analyst-firm fixed effects, suggesting analysts tailor risk assessments to the underlying firms rather than provide a generic commentary. More importantly, analysts’ risk discussions are positively correlated with subsequent stock return volatility and conducive to the informativeness of their investment opinions, especially for firms with weaker information environments. Our results reveal that analysts’ risk discussions provide incremental information about the underlying firms’ potential risk exposure and enhance the value of their research to firms and capital markets.

5.7 Markets, Corporate Finance

5.7.1 Acquire to Nurture or Eliminate Competition

Jonathan Tanone* (University of Calgary), Anup Srivastava (University of Calgary)

A firm may acquire another company to assimilate and nurture its resources or to eliminate it from the market to reduce competition. The degree of these two extreme strategies post-acquisition is not easily observable. We construct a novel measure to assess the degree of nurturance. We argue that the acquirer is more likely to have nurtured the target’s resources when the change in the acquirer’s revenues, post-acquisition, is related to the target’s past revenues and the acquirer’s business is similar to that of the target. Using our measure, we find that small, high-growth firms are more likely to assimilate and nurture their targets’ businesses, whereas big, slow-growth firms are more likely to acquire to reduce competition. Furthermore, some industries are more likely to sacrifice the target’s potential while reducing competition. The main contribution of this paper is proposing a measure of synergistic assimilation in M&A transactions and use it to examine the determinants of acquirer’s M&A decisions.

5.7.2 Repeated interaction, lobbying, and government procurement contracting

Xiao Liu* (Peking University), Zhiming Ma (Peking University), Lufei Ruan (San Francisco State University)

This paper investigates the effect of repeated interaction and lobbying on government procurement contracting. We find that repeated interactions are associated with more use of cost-plus contracts, and this effect is stronger for firms with poorer accounting quality, or with higher administrative costs of cost-plus contracts. We also find that the positive relationship between repeated interactions and the use of cost-plus contracts is stronger in firms with more lobbying activities, probably because lobbying increases firms’ chances of gaining future government contracts and thus strengthens firms’ cost-reduction incentives. Overall, the findings suggest that firm-government ties through repeated interaction and through lobbying both create value: repeated interaction is an efficient alternative way that substitutes lobbying to learn knowledge of dealing with the government, while lobbying complements repeated interaction by increasing the expectation of future gains of relationship continuity.

5.7.3 Does local government debt discourage corporate risk-taking? Evidence from China

Lizhi Luo* (University of Ottawa), Wenxia Ge (University of Ottawa), TieMei Li (University of Ottawa), Rongrong Chen (Beijing Jiaotong University)

Using bonds issued by local government financing vehicles across Chinese prefectures between 2006 and 2019, we examine how local government debt affects corporate risk-taking. Our results indicate that local government debt can significantly discourage corporate risk-taking. This effect is more pronounced for highly financing constrained firms, firms in cities with high housing prices, non-state-owned enterprises, and firms in non-infrastructure-related-industries. Furthermore, we find that the expansion of local government debt is associated with an increase in corporate cash holdings and a decrease in capital expenditures and total investment. Our results imply that while government deficit spending may stimulate the economy in the short run, it could have negative effects on corporate investment in the long run.

5.8 Managerial Accounting 4

5.8.1 The Interactive Effects of Performance Information and Pro-Social Controls on Office and Remote Employees’ Effort

Joanna Andrejkow* (University of Western Ontario), Dorian Lane (Wilfrid Laurier University), Chris Wong (Wilfrid Laurier University)

Our research examines how remote (versus in office) work settings impact employee effort. We theorize that remote employees will have lower organizational identity and lower effort than office employees. We also examine the effects of two common management controls, relative performance information (RPI) and pro-social controls on effort. We expect that office employees’ effort will be greater in the presence of RPI. We do not expect that effort for remote employees will increase in the presence of RPI. We expect that remote employees' effort will increase in the presence of prosocial controls. For office employees, we predict an interactive effect such that the increase in effort resulting from the provision of RPI will be weaker in the presence of pro-social controls than in their absence. Using an effort sensitive experiment, we manipulate between participants, work setting, performance information and pro-social controls. We find that effort is lower for remote employees than office employees. We also find that RPI is effective at increasing the effort of office employees but not remote employees. For office employees, we find that pro-social controls counteract the positive effects of RPI on effort. We do not find any effort effects of pro-social controls on remote employees.

5.8.2 Engaging in technological projects through crowdfunding: Impacts of social innovation

Caroline Blais* (University of Sherbrooke), Raymond K. Agdoboh-Falschau (University of Sherbrooke), Audrey Boisvert (University of Sherbrooke)

To finance and realize their innovation projects, promoters are increasingly turning to crowdfunding platforms. These allow them to present a project and obtain funds from contributors. They offer an alternative to traditional bank financing. According to research, certain characteristics of the projects submitted, and their promoters influence the success of a crowdfunding campaign, particularly when the project is associated with social innovation. Using data collected from 103 technological projects financed on the Kickstarter platform, our results show that the number of contributors positively influence the success of a crowdfunding campaign. They indicate, however, that technological projects associated with social innovation are less successful, suggesting that projects aimed at addressing a societal issue and generating positive community impact are perceived as less interesting by potential contributors. The technological nature of the projects and certain aspects of the platform could partly explain these results.

5.8.3 Managerial Ability and R&D Stickiness: Evidence from China

Jiayue Xie* (Xi'an Jiaotong University), Junqin Sun* (Lanzhou University), Fangjun Wang (Xi'an Jiaotong University), Mark Anderson (University of Calgary), Jiyuan Li (Xi'an Jiaotong University)

While numerous studies have examined the causes and consequences of research and development (R&D) spending, few have focused on adjustments in R&D spending over time. Cost adjustments are determined by managers in response to changes in relevant variables, such as the availability of financial resources. We explore the influence of managerial ability on R&D stickiness – the downward versus the upward elasticity of R&D spending in relation to changes in sales. In the case of R&D, sales represent cash flows available to support R&D spending as opposed to a direct driver of R&D spending. For a sample of Chinese firms from 2010 to 2019, we examine whether R&D stickiness increases or decreases with managerial ability. We find that R&D stickiness decreases with managerial ability. This may reflect more effective R&D spending by higher ability managers or more aggressive trimming of R&D spending by more efficient managers. Therefore, we test whether innovation output increases or decreases with managerial ability and find that it decreases with managerial ability. In contrast, we find that innovation output increases with R&D stickiness.

Concurrent Sessions 6

6.1 Accounting, Capital Markets

6.1.1 Students’ Perceptions of Diversity, Equity and Inclusion in an Accounting Firm’s Recruitment Photos

Merridee Bujaki* (Carleton University), Alisher Mansurov (Nipissing University), François Brouard (Carleton University)

This paper examines how post-secondary students perceive three photographs from the recruitment website of a Big 4 public accounting firm. We survey accounting/business students (n=366) and gather their written observations and interpretations of photographs seen as conveying messages related to diversity, equity and inclusion (DEI). Students’ responses are examined using textual analysis and natural language processing. Our investigation reveals what students view as the most prominent features of these photographs, and how they perceive diversity and inclusion. We analyze how responses differ by students’ visible minority status and gender. When directed to describe what they see, students focus on subjects’ facial expressions, clothing, accessories (glasses or jewelry) and design features of the photographs. When asked to identify the most striking item in these photos, students focus most on the subjects’ smiles. When asked to interpret the same photographs as a potential employee interested in diversity and inclusion, responses suggested the presence of a white man was the norm against which diversity and inclusion was assessed. We find evidence that gender and race influence respondents’ interpretations of diversity and inclusion in recruitment photographs. This research benefits students seeking employment, schools developing diversity and inclusion curricula, and accounting firms crafting recruitment messages.

6.1.2 Do Mutual Fund Managers Care About Proposed Accounting Standard Changes?

Rucsandra Moldovan* (Concordia University), Luminita Enache (University of Calgary),  Paul A. Griffin (University of California Davis), Zhongwei Huand (Fudan University)

This study uses Latent Dirichlet Allocation to extract the underlying topics in the transition disclosures preceding the 2019 adoption of ASC 842 on leases. The study then finds that transition disclosures that rank high in the topic of technical complexity associate with the change in portfolio weights from the transition year of 2018 to the adoption year of 2019 assigned to lease-related stocks in actively managed mutual funds. These portfolio weight changes support the theory of the paper–that well-resourced investment managers (actively-managed mutual funds) can process and understand technically complex disclosures better than others. We also show that this ability enables them to benefit fund investors by generating higher excess (risk-adjusted) portfolio returns. Policywise, our results suggest that the SEC’s quest for transparency and informativeness for the market may have a downside. This downside occurs when the disclosure playing field is tilted towards large institutional asset managers with sufficient resources to process and benefit from technically complex information. Our result of excess benefits for well-resourced funds also relates to a larger concern, namely, the dominance of large institutions as asset managers and their challenge to the belief that dispersed share ownership is the preferred mechanism for orderly and fair markets.

6.1.3 Financial Statement Readability and Internal Control

Zoey (Ying) Zhang* (University of Manitoba), David Harris (Syracuse University)

This study investigates whether firms with less readable financial statements are engaged in intentional deception and/or deficient in their accounting information collection and reporting systems, related to the likelihood of reporting internal control weaknesses (ICWs). We also examine how readability is associated with fraud, accounting rule misapplications, and other relatively “benign” ICWs. Finding readability and ICWs strongly associated when there is no specific causal reason is evidence that both arise from the unobserved, common cause of an under-performing accounting system; a possible, correlated, omitted variable for research examining readability and voluntary obfuscation. We find that lower readability is associated with an increased likelihood of ICWs, and more strongly associated with “benign” errors than with fraud. Finally, we confirm these findings by examining the association of 10-K-readability and ICWs that are only reported in quarterly reports; cases in which no ICW is disclosed in the 10-K. We also find results suggesting that as 10-K disclosures become more negative managerial obfuscation increases. These results support the notion that managers obfuscate 10-Ks that report negative information, and also suggest that without controlling for the overall quality of firms’ accounting systems, studies may overstate the relation between readability and managers’ voluntary obfuscation.

6.2 Financial Accounting 10

6.2.1 The Role of WallStreetBets Retail Investors in the Pricing of Accounting Information Surrounding Quarterly Earnings Announcements

Jennifer Yin* (University of Texas at San Antonio), Haiyi Chen (University of Texas at San Antonio)

This study employs a novel approach to assess meme stocks by gauging their viral attention on social media. Utilizing unique data extracted from daily user posts on the subreddit WallStreetBets from 2020 to 2022, we examine the impact of the WallStreetBets coverage on stock price responsiveness and volatility surrounding earnings announcements. Our findings reveal a significant increase in abnormal stock returns, abnormal trading volume, and bid-ask spreads during the two-day window encompassing earnings announcements. In cross-sectional analyses, we find that this positive association between the WallStreetBets coverage and stock price responsiveness is more pronounced for firms characterized by greater earnings surprises, smaller market capitalization, fewer analyst followings, and lower institutional ownership. Contrary to the prevailing perception of meme stocks as detached from fundamental considerations, our study implies that accounting information, particularly earnings announcements, still matters for meme stocks that attract substantial social media attention. Furthermore, we highlight the pivotal role played by social media platforms like WallStreetBets as information intermediaries, notwithstanding their potential to amplify volatility and risks within the stock market.

6.2.2 Harmony and Dissonance in Financial Reporting Among Neighboring Countries: A Comparative Analysis of Changes in Liquidity with IFRS Adoption

Mark Anderson* (University of Calgary), Shahid Khan (Pennsylvania State University - Berks), Michael Wright (University of Calgary)

A primary objective of international financial reporting standards (IFRS) is to provide uniformity in financial reporting among neighboring countries – countries that are integrated economically and clustered geographically. An anticipated outcome of achieving greater harmony in financial reporting is to improve trading and capital allocation in regional financial markets. In this study, we compare changes in capital market liquidity with the adoption of IFRS for stock exchanges in the U.K., Australia and Canada. These three Commonwealth countries share the British influence on financial reporting, with high quality accounting standards, legal systems and institutional settings prior to IFRS. However, the circumstances surrounding adoption of IFRS differed across the three countries. The U.K. adopted IFRS in harmony with many of its European neighbors. Australia adopted IFRS at the same time as the U.K. but in relative isolation. Canada adopted IFRS six years after the U.K. and in dissonance with the U.S. Consistent with the hypothesis that increasing harmony in financial reporting among neighboring countries would improve liquidity in regional stock markets and the inverse hypothesis that increasing dissonance would reduce liquidity, we find that liquidity improved for companies trading in the U.K., did not change significantly in Australia and worsened in Canada.

6.2.3 How companies managed earnings during the COVID-19 pandemic?

Chiraz Ben Ali*
(Concordia University), Cédric Lesage (Concordia University), Mohammad Soleimanian (Concordia University)

This study investigates the relationship between the COVID-19 outbreak and earnings management practices in US listed firms, considering the moderating impact of a firm's exposure to the pandemic. The results indicate an overall increase in accrual-based earnings management during COVID years. However, employing a novel measure based on textual analysis of conference calls (Hassan et al., 2020) to identify highly exposed firms reveals contrasting results for this subgroup. Remarkably, highly COVID-exposed firms exhibited less magnitude in managing their earnings during the pandemic but reported more instances of earnings decreases. These findings remain consistent when examining each year separately, underscoring that highly exposed companies exhibit distinct behaviour in terms of earnings management, engaging in significant accounting adjustments during the COVID-19 period. Additionally, the study observes that 2020 witnessed the most pronounced impact on earnings management among the three years, aligning with the heightened severity of the pandemic during that period in terms of closures, supply chain disruptions, social distancing measures, and vaccine shortages.

6.3 Financial Accounting 11

6.3.1 Less is More: Lender Distraction and Workplace Safety

Yifei Liao* (University of California, Irvine), Liang Ma (San Diego State University), Tonni Shijun Xiz (San Diego State University)

We examine the effect of lender distraction on workplace safety and find that a decrease in lender attention leads to an increase in workplace safety for borrower firms. To establish causality, we use exogenous shocks to lender attention induced by attention-grabbing events in unrelated industries in the lender’s portfolio. The improving effect of lender distraction on workplace safety is more pronounced for borrowers not in financial distress and those with lower union memberships. Additionally, we explore plausible mechanisms and find that lender distraction improves workplace safety through both reducing renegotiation pressure and lowering workload. Overall, our results document an unintended yet positive effect of corporate stakeholder distraction.

6.3.2 Territorializing Care: Accounting Strategies and Healthcare Accessibility for Undocumented Migrants

Claire Deng* (Metropolitan Toronto University), Makini McGuire-Brown
(York University)

This paper explores how accounting strategies facilitate the territorialization of assemblages that are crucial to enabling healthcare access for undocumented migrants. Drawing on the theoretical constructs of territorialization and assemblage, as articulated by Deleuze and Guattari, and refined by DeLanda, our research highlights the pivotal role of accounting—particularly through the lens of cost objects—in empowering various groups to transcend conventional constraints. Specifically, these accounting strategies enable healthcare providers to extend the reach of existing resources and funding mechanisms, assist undocumented migrants in navigating complex institutional barriers, and facilitate philanthropic organizations and individuals in their efforts to provide support. Such re-territorialization enabled by accounting strategies is vital in facilitating healthcare access for undocumented migrants, a task that poses significant challenges within the conventional bounds of healthcare systems. This nuanced perspective offers a critical insight into how accounting can adapt to address humanitarian concerns, thereby aligning with the urgent need for cooperative and innovative solutions to contemporary societal challenges. Through this lens, our research contributes to a growing body of work that reconsiders accounting’s role in addressing, alleviating, and perhaps even redefining grand challenges such as healthcare accessibility, social inequality, and migration.

6.3.3 From Mandatory to Voluntary Disclosures: Conflict Mineral Reports Filings of US Firms

Author: Yang Ding* (Leonard de Vinci School of Management)

After the SEC suspended the enforcement of conflict mineral disclosure in April 2017, some firms continue filing conflict mineral reports. I study the proportion of firms voluntarily continuing filing conflict mineral reports, and determinants of firms voluntarily filing conflict mineral reports and disclosure quality of conflict mineral reports. I find that surprisingly majority of firm continue filing conflict mineral reports. Especially, firms with more extensive social movements and monitoring from investors file conflict mineral reports voluntarily and have conflict mineral reports with better disclosure quality. Though disclosure quality remains high, voluntarily filing companies tailor their disclosure strategies. Finally, after the regulatory change of conflict mineral disclosure rule, firms with activist campaign have better disclosure quality. Broadly, my study provides insights about the firm’s disclosure strategy when the regulation changes from mandatory to voluntary by analyzing a large and comprehensive sample of conflict mineral reports.

6.4 Accounting & Information Technology 2

6.4.1 Forewarned and forearmed? Effects of a Forewarning on Nonprofessional Investors’ Susceptibility to Management’s Strategic Blockchain Disclosures

R. Drew Sellers* (Kent State University), Wei Li (Kent State University), Yu Long (University of Minnesota)

Management strategically provides disclosures to exploit investors’ technology hysteria in the stock market, which has led to regulators’ continuous concerns. Our study experimentally investigates whether, what type of, and how forewarnings mitigate nonprofessional investors’ susceptibility to management’s technology disclosures. Focusing on the context of blockchain technology, our study first shows that management’s strategic use of headlines in its blockchain disclosures influences investors’ blockchain hysteria, such that investors are significantly more willing to invest when management uses prominent (versus plain) headlines in its disclosures. Next, a forewarning about the uncertain benefits of blockchain technology leads investors to adjust downward their investment willingness only when management’s blockchain disclosure employs a plain headline. In contrast, a forewarning, which makes investors aware of management’s intent to choose language as a persuasive tactic, is not effective in reducing investors’ investment willingness regardless of headline prominence. Our results indicate that the effectiveness of forewarnings in mitigating investors’ susceptibility to management’s strategic technology disclosures depends on the type of forewarnings and the perceived strength of disclosures in terms of headline prominence. The results contribute to current research and provide important implications for regulators.

6.4.2 An examination of how different Blockchain types affect taxpayer compliance

Linda Thorne* (York University), Leslie Berger (Wilfrid Laurier University),  Preetika Joshi (McGill University), Sara Wick (University of Guelph)

Taxation is the largest source of government revenues, and in most developed countries, the collection of taxes is based on a system of taxpayers’ voluntary compliance. Due to its widely touted benefits, national tax agencies are considering adopting the Blockchain to facilitate the filing of taxes; however, little is known about how different types of participation by government tax agencies will influence voluntary tax compliance. In our study, we use an experiment that considers how the nature of government and taxpayer participation can influence taxpayers’ tax compliance. Our findings show the tax compliance is similar when Blockchain is public or a private with government access, but tax compliance is lower when Blockchain is private without government access. We also observe that compliance is higher when taxpayer participation in Blockchain is required rather than recommended by the government. Our research has important implications for tax policy as it informs tax agencies who are considering the adoption of Blockchain about features of Blockchain participation that are effective in encouraging taxpayers’ compliance.

6.4.3 Cybersecurity and internal resource allocation

Amna Chalwati*
(Saint Mary's University), Swetha Agarwal (Indian School of Business),Samir Trabelsi (Brock University), Swati Sisodia (Indian Schoold of Business)

We examine the effect of state-level data breach disclosure mandates (DBN laws) on a firm's cost management decisions as proxied by the stickiness of selling, general, and administrative (SG&A) costs. Using the staggered adoption of DBN laws across the U.S., we document a decrease in the stickiness of SG&A costs for firms affected by these laws. Our findings suggest that the disclosure laws mandating the reporting of breach incidents prompts the managers to reduce the investment in their slack SG&A resources to generate internal funds and bolster their cyber security. We corroborate our interpretations by documenting a significant decline in the SG&A cost stickiness for firms that invest heavily in cybersecurity contemporaneously and for firms with lower adjustment costs. We further document that the decrease in cost stickiness of SG&A costs is more pronounced for firms with (i) lower internal liquidity indicated by the levels of a firm's cash holdings and KZ index or (ii) higher likelihood of a breach based on the susceptibility of an industry to cyber breach, internal control weaknesses reported by the firm and levels of pre-existing cyber risks disclosed in the Risk Factor Disclosures section of 10K filings.

6.5 Auditing & Fraud 5

6.5.1 Heterogeneity in Big 4 public accounting firms. Examining differences in the stock returns of Big 4 accounting firm clients

Author: Hamilton Elkins* (University of Saskatchewan)

This paper supplies evidence collective client stock returns of Big 4 public accounting firms differ from each other absent news related to the accounting firm. Prior research finds differences in audit pricing, audit quality, and client auditor choice between Big N accounting firms and other providers of accounting services. However, outside of Simunic (1980) and Hrazdil, Simunic, and Suwanyangyuan (2020) very little research uncovers heterogeneity within the Big N. This study shows that the collective clients of the Big 4 firms experience excess mean stock returns at different rates over one, two, three, four, and five-day return windows. Often the collective clients of one Big 4 audit firm will experience excess mean stock returns and the collective clients of the other three Big 4 audit firms will not. In three and four-day return windows the frequency with which the collective clients of the Big 4 firms experience solo excess mean stock returns differs significantly. It is common for the collective clients of a single Big 4 firm and the combined collective clients of the other three firms to disagree in experiencing excess mean stock returns.

6.5.2 The Determinants of Joint Audit Imbalance: A Supply-Side Analysis

Sophie Audousset-Coulier* (Concordia University), Géraldine Broye (University of Strasbourg), Lamya Kermiche (Grenoble School of Management)

The potential beneficial effect of joint audits on audit quality and audit market competition is the subject of continuous debates amongst regulators and professional bodies in Europe. In that context, a consensus has emerged about the need for a balanced audit work allocation between the two audit firms to ensure the efficiency of joint audits. This raises questions about the factors likely to impair a proper application of balanced joint audit requirements. We use the French joint audit setting to study the supply-side determinants of unbalanced joint audits. We find that mixed auditor pairs with differentiated reputation and differentiated expertise are key drivers of joint audit imbalance. We also find that the frequency of collaborations between pairs of joint-auditors widens the imbalance. This study provides insights about the role played by supply-side factors (differences in auditors’ production functions) on the (in)ability to achieve balanced joint audits.

6.5.3 Auditee Merger, Audit Fees, and the Market Dominance of Big Four Accounting Firms.

Fayez Elayan* (SCHOOL), Kareen Brown (Brock University), Parunchana Pacharn (Brock University), Jiayi Chen (University of Waterloo), Jingyu Li (Brock University)

The market dominance of the Big-Four accounting firms (BIG4) has drawn attention from the public, regulators, and researchers. The market power of the BIG4 can have an impact of their audit quality, independence, and their power to increase the fees. We examine how and whether the auditors adjust their fees in response focus the mergers of their clients. We argue that the mergers result in lower audit costs and higher market power, which allow us to understand how auditors might adjust their fees in response to the changes in their costs and market power. We also investigate whether the auditor might perform a role of an information intermediary in the merger transactions, as suggested in prior literature. We find no evidence to support the cost savings hypothesis. The post-merger fees increase overall, indicating that the auditors do not pass on any cost savings to the clients, although the changes in fee respond to some factors related to cost savings. Our results overall suggest that the post-merger fees increase with the market power of the auditor, especially for the BIG4 auditors. Finally, we find no evidence to suggest that the auditor acts in the capacity of an information intermediary.

6.6 Accounting & Information Technology 3

6.6.1 When Worlds Collide: Auditor Expansion into the Blockchain Field

Emilio Boulianne* (Concordia University), Erica Pimentel (Queen's University), Crawford Spence (King's College London)

Purpose - Previous work has explored the ability of auditors to expand successfully into seemingly unrelated fields, referred to as new audit spaces. The present paper explores an instance of auditors expanding into a new field less successfully, charting the outcome of an accounting firm’s acquisition of a blockchain start-up.

6.6.2 “Carrying food on your back and being hungry”: Accounting Role in the (in)visibilization of platform's riders during a Pandemic Crisis

Silvia Pereira de Castro Casa Nova* (University of Sao Paulo), Douglas Tadeu de Oliveira Ribeiro (University of Sao Paulo)

We adopt a critical approach to theoretically analyse the accounting role in the current environment. A case study of the food delivery platform during the pandemic crisis is analysed to explore its interaction with the riders, who are not employees. They were considered essential workers during the COVID-19 pandemic because they delivered food and groceries during the lockdown and restrictions of movement in several locations. We highlight how the liberal ideology exploits this labour in several dimensions. We argue that there is a lack of accountability because the riders' contributions/costs are not captured by current accounting rules. Even worse, IFRS invisibilized the riders. We also present the counter-accounts from the perspective of the riders, who started to recognise themselves not as entrepreneurs, which is how the food delivery firms try to persuade them, but as a labour force, a class of exploited workers in every aspect. We aim to evaluate the effects of the IFRS, created as a result of the social and economic interactions, to better understand accounting power in sustaining social structures, even though the deepening of inequalities, as a result of the income disparities, wealth concentration, lack of diversity and the unjust allocation of resources.

6.6.3 The Information Content of Tone Dispersion: Evidence from Earnings Conference Call Q&As

Jingyu Zhang* (Queen's University), Alan Huang (University of Waterloo), Russell Wermers (University of Maryland), Jyun-Ying Fu (National ChengChi University), Yuxin Zhang (University of Nottingham, Ningbo)

Verbal features of a text matter for its information content. We quantify a text's verbal features along two distinct dimensions: tone level and tone dispersion. We textually analyze question-and-answer (Q&A) sessions of earnings conference calls and use the FinBERT model to measure tone level and tone dispersion. We find share prices respond more sensitively to earnings news accompanied with highly tone-dispersed Q&A sessions, and these Q&A sessions are associated with larger stock trading volume upon earnings announcements. These results hold after controlling for investor attention proxies, and alternative stories are discussed. Combined, our findings suggest that conference calls with higher tone dispersion produce a greater quantity of incremental information beyond cold financial figures, thus resulting in enhanced price impacts and heightened trading volume.

6.7 Accounting & Information Technology 4

6.7.1 Detecting fraudulent financial statements using Machine Learning techniques

Authors: Cédric Lesage* (Concordia University), Khaled Belkadhi (South Mediterranean University), Nabil Chaabane (South Mediterranean University), Wafa Trabelsi (South Mediterranean University)

Accounting fraud has always been a severe concern in the business community. As a result, both researchers and professionals have tried to develop fraud prediction tools efficient in detecting fraudulent financial statements. Each technological breakthrough has led to a flurry of publications testing the latest technology. In this paper, we critically review currently available techniques by checking their respective advantages as claimed by the authors. We identify six machine learning techniques, namely logistic regression (LR), decision trees (DT), support vector machine (SVM), adaptive boosting (ADABoost), extreme gradient boosting (XGBoost) and artificial neural networks (ANN). We compare them in an identical testing design. Our sample is composed of 146045 financial statements that belong exclusively to US listed companies. Our variables are 28 raw financial data items derived from 14 expert-identified financial ratios (Bao et al. 2020). In this study, our sample size is larger and we employ non linear machine learning techniques which has allowed us to properly detect $82\%$ of the fraudulent statements, increasing the reliability of previous findings. In addition, we were able to improve the results using the extreme gradient boosting (XGBoost) coupled with a random oversampling technique.

6.7.2 Enterprise System Standardization and Firm Information Provision

Zihui Li* (City University of Hong Kong), Chengxin Cao (Baruch College), Wen Chen (City University of Hong Kong), Jeong Bon Kim (Simon Fraser University), Haibin Wu (City University of Hong Kong)

This study investigates how enterprise system standardization affects corporate information provision. We find that firms with more standardized enterprise systems provide more accurate and precise management earnings forecasts. This effect is more pronounced when (i) firms face higher operating uncertainty; (ii) firms are more opaque; and (iii) firms are more dependent on external financing. Our baseline findings are robust to using the instrumental variable approach, suggesting that our results are unlikely to be driven by potential endogeneity. In addition, we find that enterprise system standardization improves a firm’s mandatory reporting quality as it reduces the likelihood of error-related restatements, but has little effect on constraining managerial reporting opportunism. Finally, we provide some initial evidence indicating that the observed improvements in the qualities of voluntary disclosure and mandatory reporting are a result of the enterprise system standardization enhancing firm operating efficiency.

6.8 Financial Reporting 7

6.8.1 Non-GAAP Metrics and Properties of Analysts’ Earnings Forecasts: The More, The Better?

Author: Hui Fan* (Concordia University), Li Yao (Concordia University)

We explore the consequences of the quantity of non-GAAP metrics disclosed in quarterly earnings releases, based on a hand-collected sample of non-GAAP disclosures from 2016-2020. We find that analysts’ forecast accuracy is increasing, and their dispersion is decreasing for firms with a larger quantity of non-GAAP metrics. We also find similar results for a larger quantity of non-GAAP categories. In addition, among twelve non-GAAP categories, adjusted revenue, adjusted operating income and adjusted tax rate increase the richness and informativeness of non-GAAP information, leading to more accurate and less disperse earnings forecasts. However, return on invested capital (ROIC) increases the disagreement among analysts, leading to less accurate and more disperse earnings forecasts. Furthermore, using a within-analyst analysis, we find that non-GAAP information is also useful to individual analysts. Last, we find that a greater quantity of non-GAAP metrics/categories is particularly beneficial to analysts who have less general experience and more industries covered in their portfolios. Together, these findings suggest that a greater quantity of non-GAAP metrics is useful to analysts.

6.8.2 Do cyberattacks influence cyber-related disclosure and workforce spending? Evidence from the U.S. healthcare sector

Wenyu Zhou* (University of Calgary), Hussein A. Warsame (University of Calgary)

This paper examines firms’ disclosures in 10-K filings post-cyberattacks, with a focus on how cyberattacks affect firms’ workforce spending. Our sample consists of publicly-traded healthcare firms in the U.S., a setting that, due to its industry-specific characteristics provides particularly strong empirical identification. We hand-collect the textual company-level disclosures and use the diverse workforce spending data from both general staff and key management as our dependent variables. Collectively, our findings suggest that (i) managers tend to increase firms’ cyber-related disclosure following cyberattacks, and (ii) generally, firms are likely to increase their workforce spending post-cyberattacks, taking more proactive actions and allocating more resources to key management rather than to general staff. This study contributes to the literature on impression management and cyber disclosure, and presents a firm-level measure of workforce spending, offering valuable insights into corporate responses to cyber incidents.

6.8.3 Do Uninsured Depositors Respond to Banks’ Interest Rate Risk?

Suyi Liu* (McMaster University), Justin Jin (McMaster University), S.M. Khalid Nainar (McMaster University), Gerald J. Lobo (University of Houston)

We study whether uninsured depositors respond to banks’ exposure to interest rate risk. We find that (1) uninsured depositors are insensitive to bank’s equity-related interest rate risk while they are alert to change in banks’ economic value of equity; and (2) depositors fixate on bank’s income-related interest rate risk. Additionally, we find that uninsured depositors’ response to banks’ interest rate risk is stronger when (1) banks hold fewer held-to-maturity security in its security portfolio; (2) banks’ financial statements are more informative and less opaque. This study is the first to investigate whether and how uninsured depositors respond to banks’ interest rate risk. It provides initial archival evidence explaining why uninsured depositors are unresponsive to banks’ interest rate risk especially to Silicon Valley Bank’s equity-related interest rate risk prior to 2023 banking crisis. Our findings call for mandatory and comprehensive disclosure of banks’ interest rate risk and held-to-maturity category.

Land Acknowledgement

We would like to acknowledge that the Canadian Academic Accounting Association (CAAA) operates within the traditional territories of the First Nations, Métis, and Inuit (FNMI) populations of Turtle Island (Canada). We recognize and honour the enduring presence of FNMI populations as the original stewards of this land, and we acknowledge the harms and injustices they have faced due to colonization. We express our gratitude for the opportunity to gather, learn, and work on this land. As we continue our journey, we commit to fostering greater understanding, respect, and reconciliation with Indigenous populations.

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