Indrarini Laksmana

Corporate Board Governance and Voluntary Disclosure of Executive Compensation Practices

This study examines how corporate boards respond to investor demands for information on executive compensation practices and whether certain board and compensation committee characteristics, as proxies for board governance quality, are associated with the extent of board disclosure of compensation practices. A unique feature of this study is the development of a comprehensive checklist of 23 compensation-related items. I validate this index by showing that the disclosure scores are inversely related to two measures of information asymmetry: bid-ask spread and return volatility. This provides evidence that greater compensation disclosure reduces information asymmetry. The study presents some evidence that boards with the power to act independently from management provide more details about executive compensation practices. Moreover, it contributes to the literature on corporate governance and disclosure by showing that greater commitment of directors to perform their duties results in greater transparency.

Temporal, Cross-sectional, and Time-lag Analyses of Managerial and Cost Accounting Textbooks

In this paper, we evaluate the temporal, cross-sectional and time-lag analysis for topical content in managerial and cost accounting textbooks. Our temporal analyses of Garrisons managerial accounting and Horngrens cost accounting textbooks revealed that significant topical changes did occur over time in both textbooks. Our time-lag analysis, however, revealed that the average time for a new topic to appear in a textbook was more than two publishing cycles (i.e. eight years), indicating a ‘wait and see’ attitude on the part of the authors and/or publishers about whether that topic would turn out to be a fad. Finally, our cross-sectional analysis shows that the topical coverage of several best-selling textbooks is very similar. Most of the textbooks reflect a common body of knowledge. Textbooks with shorter publishing periods, however, are more likely to incorporate unique topics that are not covered by most other texts, thereby differentiating their content and building their market niche.

The impact of demographic characteristics of CEOs and directors on audit fees and audit delay

Purpose - – The purpose of this study is to examine the impact of gender and ethnicity of CEO and audit committee members (directors) on audit fees and audit delay in the US firms. Design/methodology/approach - – Audit-related corporate governance literature has extensively examined the determinants of audit fees and audit delay by focusing on board characteristics, specifically board independence, diligence and expertise. The authors provide empirical evidence that gender and ethnicity diversity in corporate leadership and boardrooms influence a firm’s audit fees and audit delay. Findings - – This study finds that firms with female and ethnic minority CEOs pay significantly higher audit fees than those with male Caucasian CEOs. The authors also find that firms with a higher percentage of ethnic minority directors on their audit committee pay significantly higher audit fees. Further, the authors find that firms with female CEOs have shorter audit delay than firms with male CEOs and firms with a higher percentage of female and ethnic minority directors on their audit committee are associated with shorter audit delay. Results indicate that female CEOs and both female and ethnic minority directors are sensitive to the market pressure to avoid audit delay. Research limitations/implications - – The results suggest that gender and ethnic diversity could improve audit quality and the firms’ overall financial reporting quality. Practical implications - – This study provides insights to regulators and policy-makers interested in increasing diversity within a firm’s board and top executives. Recently, the US Securities and Exchange Commission (SEC) and the European Commission have been pressing publicly traded companies to improve diversity among their directors. This study provides evidence and perspective on how diversity can enhance financial reporting quality measured by audit fees and audit delay. Originality/value - – Previous studies have not given much attention on the impact of racial ethnicity in addition to gender characteristics of top executives and audit committee directors on audit fees and audit delay.

Product market competition and corporate investment decisions

Purpose - – The study aims to examine the association between product market competition and corporate investment decisions on, particularly, risk-taking and investment efficiency. Existing theoretical studies on whether product market competition mitigates or exacerbates agency problems are inconclusive. Prior research generally finds that competition constrains management opportunism in reporting operating performance. However, the association between product market competition and managerial investment decisions has largely been unexplored. Design/methodology/approach - – The primary measure of product market competition is the Herfindahl–Hirschman Index. The authors use regression analysis to examine the association between corporate risk-taking and over-investment of free cash flow (FCF) (as dependent variables) and product market competition (as an independent variable). Findings - – Using firm-year observations from 1990 to 2010, the authors find that competition encourages managers to invest in risky investment. They also find that competition disciplines management on its use of FCFs. Overall, their results provide support for the disciplining role of product market competition in management investment decisions. The results are robust after they control for shareholder activism and executive compensations. Originality/value - – The paper contributes to the literature by providing evidence of the disciplining role of product market competition in management investment decisions. First, the results suggest that competition encourages managers to invest in risky investment. One potential explanation for the results is that competition reduces opportunities for resource diversion for management personal benefits and, in turn, decreases management risk aversion. Another explanation is that competition forces management to take more risks for the long-term survival of the company. Second, the results indicate that competition disciplines management on its use of FCFs. Although firms in highly competitive industries make investment decisions that are less conservative, they tend to avoid suboptimal investment decisions, such as over-investment of FCF, compared to their counterparts.

Board Diversity and Corporate Risk Taking

This study examines the association between board diversity and corporate risk taking. Research on board diversity has focused on gender diversity, leaving board diversity beyond gender diversity largely unexplored. We construct diversity indexes to measure board diversity in multiple dimensions, including gender, race, age, experience, tenure, and expertise. We use five variables to proxy for corporate risk taking: capital expenditures, R&D expenses, acquisition spending, the volatility of stock returns, and the volatility of accounting returns. We find that firms with more diverse boards are more risk averse, spending less on capital expenditure, R&D, and acquisitions, and exhibiting lower volatilities of stock returns and accounting returns than those with less diverse boards. Our additional analysis shows that firms with more diverse boards are more likely to pay dividends, as well as pay greater amount of dividend per share than their counterparts, confirming that board diversity is negatively associated with risk taking. We also find strong evidence that board diversity significantly curbs excessive risk taking for firms with above industry median risk taking activities. Our results shed light on the desirability of recent legal and disclosure requirements to enhance board diversity and provide implications that nominating and governance committees should consider in forming the best practices for board composition.

The Impact of Corporate Social Responsibility on Excessive Risk Taking and Firm Value

We hypothesize that CSR serves as a control mechanism to curb excessive risk taking and to reduce excessive risk avoidance. Firms with CSR focus must balance the interests of multiple stakeholders, and therefore, must allocate resources to satisfy both investing and noninvesting stakeholders’ interests. Using five measures of corporate risk taking and a sample of 1,718 U.S. firms during 1998 to 2011, we find that stronger CSR performance is associated with lower level of risk taking activities for firms with risk taking measures above the industry median. We also find some evidence that CSR performance increases risk taking for firms with risk taking measures below the industry median. We examine the mechanism through which CSR has an impact on firm value and find a positive indirect impact of CSR on firm value through its impact on risk taking. CSR performance is positively associated with firm value because CSR reduces excessive risk taking and risk avoidance.