Ferdinand A. Gul

The effects of management accounting systems, perceived environmental uncertainty and decentralization on managerial performance: A test of three-way interaction

Abstract This study investigated the interaction effects of perceived environmental uncertainty (PEU), decentralization and management accounting systems (MAS) design on managerial performance. MAS design was defined in terms of perceived availability of two characteristics of information, which were scope and level of aggregation. The responses of 48 managers, drawn from a cross-section of Singapore companies, to a questionnaire survey were analysed by examining the regression equations for the three-way interaction model and the partial derivatives of the equations. The results indicated that decentralization and the availability of MAS information characteristics of broad scope and aggregation were associated with higher managerial performance under conditions of high PEU. Under conditions of low PEU, decentralization and the availability of MAS broad scope and aggregated information were associated with lower managerial performance.

Discretionary Accounting Accruals, Managers' Incentives, and Audit Fees*

This paper examines the linkages between discretionary accruals (DAs), managerial share ownership, management compensation and audit fees. It draws on the theory that managers of firms with high management ownership are likely to use DAs to communicate value relevant information while managers of firms with high accounting-based compensation are likely to use DAs opportunistically to manage earnings to improve their compensation. OLS regression results of 648 Australian firms show that (1) there is a positive association between DAs and audit fees, and (2) managerial ownership negatively affects the positive relationship between DAs and audit fees, and 3) this negative impact is further found to be weaker for firms with high accounting-based management compensation.

Litigation Risk and Audit Fees: Evidence from UK Firms Cross-Listed on US Markets

Two ingredients necessary to examine the relation between litigation risk and audit pricing are (a) a litigious legal environment, and (b) publicly disclosed auditor remuneration. We combine both ingredients by focusing on UK firms offering to sell their securities publicly in the United States. We find that UK auditors charge higher fees for their services when their clients access US, but not non-US, capital markets. Further, we show that the higher fees cannot be fully explained by the SECs extensive disclosure requirements. Rather, these findings are consistent with audit fees reflecting risk differences across liability regimes.

The Differential Effects of Auditors' Nonaudit and Audit Fees on Accrual Quality*

This paper examines linkages between the audit and non-audit fees and accrual quality. We measure accrual quality by the Francis et al. (2005) modification of Dechow and Dichev (2002) measure. We posit that in settings where audit quality is compromised by a loss of auditor independence, managers use accruals more opportunistically and thereby drive down the accrual quality. Conversely, higher audit effort and quality translate to a better accrual quality. Our dependent variables are the relative magnitude of non-audit fees to audit fees, the absolute magnitudes of audit, non-audit and total fees. Results show that accrual quality has a significant negative association with the magnitude of non-audit fees but a significant positive association with audit fees. This latter result is consistent with the proposition that higher audit fee reflects higher audit effort and better judgments about the propriety of accruals, but is not consistent with the proposition that audit fee is associated with economic bonding.

Predicting success for introductory accounting students: some further Hong Kong evidence

This study, which examines the factors that affect first year (Hong Kong) accounting student performance, is motivated by two considerations. First, such studies are important in providing comparative evidence from recently developed countries such as Hong Kong in the context of calls for the harmonization of international accounting education. Second, prior studies seldom consider the variable student personality type as one of the predictor variables. Results using 455 students in the introductory accounting class as subjects, and a multiple regression model indicate that self-expectation of examination results, English secondary school education, high school certificate level grades in English and Mathematics, personality type, intention to obtain a business degree and previous knowledge of accounting were significant predictors of student performance.

Growth opportunities, capital structure and dividend policies in Japan

Abstract This paper, using 5308 observations of listed Japanese firms between the years 1988–1992, provides additional evidence on contracting theory arguments for the relation between growth opportunities, capital structure and dividend policies. To avoid the problems of using cross-sectional proxies for time-sequenced variables, this study uses (1) pooled cross-sectional time-series analysis and (2) time-series analysis with a one-year lag for the dependent variables. Results show significant negative relations between growth opportunities and levels of both debt financing and dividend yields after controlling for firm size, profitability, firm keiretsu affiliations and industry regulation. The results are consistent with contracting cost arguments for corporate finance and dividend policies and confirm the importance of growth opportunities in corporate finance theory.

Government share ownership, investment opportunity set and corporate policy choices in China

Abstract This study, using pooled cross-sectional observations of companies listed on the Shanghai Stock Exchange from 1990 to 1995, examines the relationship between government ownership of shares, growth opportunities measured in terms of the investment opportunity set (IOS) and corporate policy decisions. IOS is measured in terms of three ratios; market value of the firm to book value of assets, market value of equity to book value of equity and the earnings price ratio. Corporate policy choices are defined in terms of leverage and dividend policies. Government ownership is found to be positively associated with debt financing and dividend policy. Consistent with prior studies, IOS is found to be negatively associated with debt financing and dividend payments.

An Analysis of Joint Effects of Investment Opportunity Set, Free Cash Flows and Size on Corporate Debt Policy

This study, based on a sample of 1869 observations from 1989 to 1993 for non-regulated U.S. firms, examines the association between investment opportunity set (IOS), free cash flows (FCF) and debt, and also tests whether firm size acts as a moderating variable on this association. The results show that there is a significantly positive association between FCF and debt for low IOS firms, which provide support to Jensens (1986) “control hypothesis”. The results also show that the positive association between debt and high FCF for low IOS firms is more pronounced for large firms, suggesting that the firm size serves as a moderating variable on the association.

Decentralisation as a Moderating Factor in the Budgetary Participation-Performance Relationship: Some Hong Kong Evidence

Abstract This study tests the contingency or ‘fit’ hypothesis that the effects of budgetary participation on managerial performance will be positive in decentralised organisations and negative in centralised organisations. The responses of 37 managers from a cross-section of Hong Kong manufacturing companies to a questionnaire survey designed to measure the variables were analysed by examining the interaction term in a multiple regression equation. The results supported the interaction hypothesis and found that at high levels of decentralisation there is a positive relationship between budgetary participation and managerial performance but at low levels of decentralisation this relationship is negative. These findings have implications for the design of effective control subsystems.

TRACKS: audit quality, earnings, and the Shanghai stock market reaction

This study examines whether audit quality in the Shanghai Stock Exchange affects the positive association between change in earnings per share and cumulative abnormal return (CAR). Regression results using 659 Shanghai listed company observations in 1996 and 1997 show that the positive market reaction to increase in earnings is stronger for firms audited by high quality auditors. A broad conclusion of the study is that audit quality is playing an important role in China and that investors in the Shanghai market differentiate between high quality versus low quality auditors.