Kenneth John Reichelt

Teaching effectiveness, impression management, and dysfunctional behavior: Student evaluation of teaching control data

Purpose – Student evaluation of teaching (SET) questionnaires are used in many countries, although much current research questions the validity of these surveys. US research indicates that more than 90 percent of academic accounting departments use this performance measurement. This paper aims to focus on the validity of SET data.Design/methodology/approach – A mail survey was sent to a random sample of 1,000 accounting professors employed at four‐year universities and colleges in the USA. A total of 447 responses were returned for a response rate of 44.7 percent. Statistical results of the survey for data are reported.Findings – Instructors engage in impression management when SET data are used for control purposes. Dysfunctional behavior of accounting instructors includes easy grading, inflating grades, course work deflation, and other defensive strategies which result in negative social implications. A significant 53 percent of the accounting instructors knew of other professors who have reduced gradin...

Estimates of Optimal Audit Firm Tenure Across Different Legal Regimes

Based on a quadratic form of audit tenure in explaining audit quality, we estimate a reference point that is potentially optimal for audit firm rotation for 22 countries across legal regimes with high versus low levels of investor protection. We find that our estimate for the high investor protection regime is longer than that for the low investor protection regime (24 years vs. 14 years for our main measure). However, very few firms from our sample would have been affected if there were a requirement of a mandatory rotation term, suggesting that mandatory audit firm rotation may not be necessary. In additional analyses, we not only evaluate the empirical validity of the quadratic form but also use various measures of our key variables, to conduct several other robustness tests. We continue to find a longer optimal point for countries with stronger investor protection in these robustness tests. Our findings imply that stronger country-level investor protection is a substitute for a shorter term of mandatory audit firm rotation.

When Does Audit Quality Start to Decline in Firm Audit Tenure? - An International Analysis

This paper investigates the decline in audit quality during an audit firm’s tenure across countries with varying degrees of legal liability. We propose that audit quality can increase through a learning effect in early years but in later years it is likely to decrease due to a bonding effect. Using a quadratic model, we estimate the year when audit quality, measured by earnings quality, starts to decline during an audit firm’s tenure. We propose that the bonding effect should be weaker in countries with stricter legal liability regimes, which implies that the year that audit quality begins to decline should be later in countries with stricter legal liability regimes. We find that it takes 14 to 16 years for countries with stronger legal liability regimes while it only takes 4 to 10 years for countries with weaker legal liability regimes for audit quality to decline. Our results are strong regardless of whether we measure legal liability from the perspective of legal origin (common or code law) or litigation risk. Our findings have implications across the world for the current debate on the mandatory requirement of audit firm rotation across the world.

Stock Market Liquidity, Aggregate Analyst Forecast Errors, and the Economy

Naes, Skjeltorp, and Odegaard (2011) suggest that stock market liquidity is a good leading indicator of the economy because of the “flight-to-quality” behavior of informed investors, whose sells (buys) tend to lead stock market liquidity to decrease (increase) and tend to occur before economic downturns (expansions). To further understand the mechanism in the economic forecastability of stock market liquidity, we hypothesize that analyst earnings forecast errors have a systematic component, which is predictable and related to changes in the economy, and that smart investors exploit analyst forecast errors, which leads to the economic forecastability of stock market liquidity. Consistent with our hypothesis, we find that there is a strong correlation between detrended aggregate analyst forecast errors and concurrent GDP growth and that a large part of the forecast errors can be predicted using lagged macro variables. Once we control for the predictable forecast errors, the economic forecastability of stock market liquidity disappears. Thus, our study reveals that aggregate analyst forecast errors are very informative about business cycle and contain all the relevant information for stock market liquidity as a leading economic indicator.