Mary Jane Lenard

The design and validation of a hybrid information system for the auditor's going concern decision

Decision making in a semistructured environment often involves the use of quantitative, structured analysis along with the qualitative judgment of an expert. Decision support systems and expert systems are often developed to assist in this judgment process. The hybrid information system described in this paper combines a statistical model with a rule-based expert system in order to integrate the quantitative and qualitative aspects of decision making. The GC Advisor hybrid system is designed for use by auditors to assess the ability of the client firm to continue as a going concern. The guidelines for expert system validation given in previous literature are then applied to the validation of GC Advisor.

Impact of board gender diversity on firm risk

Purpose - – The purpose of this paper is to study gender diversity on the board of directors and the relation to risk management and corporate performance as measured by the variability of stock market return. Design/methodology/approach - – The sample consists of companies from the RiskMetrics database from 2007 to 2011. This database contains information on corporate board of directors. Financial variables were collected from the Compustat database and CRSP database for the years 2005-2011. The authors then measure the effect of gender diversity on corporate performance in terms of firm risk, using the model by Cheng (2008) which measures the variability of stock market return. Findings - – The study shows that more gender diversity on the board of directors impacts firm risk by contributing to lower variability of stock market return. The higher the percentage of female directors on the board, the lower the variability of corporate performance. Originality/value - – The research design and findings assist in providing additional evidence about the role of women in corporate leadership positions and the association with corporate performance. The approach combines Chengs (2008) model of stock market variability with the impact of gender diversity on the board of directors.

Female business leaders and the incidence of fraud litigation

Purpose The purpose of this paper is to examine whether companies with female executives and directors are less likely to be involved in financial reporting fraud litigation. Design/methodology/approach The authors build a data set comprised of companies from the Stanford Securities Class Action Clearinghouse database that were involved in fraud litigation along with a control set of companies listed on the Compustat database for the time period 2007-2013. The authors use a logistic regression model to determine the likelihood of fraud when there is at least one woman in an executive position or on the board of directors. Findings The authors find that the presence of at least one female leader decreases the likelihood that the company will be involved in litigation for financial reporting fraud. The results are robust after controlling for sample selection bias by using a propensity score matched sample. Practical implications The findings add to the literature which indicates that women tend to be more risk averse and are more committed to ethics policies. The study also supports previous research that indicates large firms with inflated market value are more likely to be subject to fraud litigation. Originality/value The study combines the literature on the characteristics of women in leadership positions with the study of fraud litigation. The authors find evidence that the presence of either female executives or female directors lowers financial reporting fraud risk.

Indicators of audit fees and fraud classification: impact of SOX

Purpose - The purpose of this paper is to compare the effect of corporate governance variables and fraud litigation on audit fees both before and after the implementation of the Sarbanes-Oxley (SOX) Act in 2002. Design/methodology/approach - The paper utilizes a sample of firms that had litigation proceedings filed against them for fraudulent financial reporting, and compare these firms to a sample of non-fraud firms in the pre-and post-SOX period. First, the authors examine indicators of audit fees using the Simunic model. Next, the authors develop a logistic regression model with corporate governance variables and other financial control variables in order to identify the characteristics of firms that are accused of fraud in the pre-and post-SOX period. Findings - The paper identifies specific components of corporate governance that are positively related to audit fees and which subsequently aid in classifying companies subject to fraud litigation. The most successful logistic regression model for 2005 (post-SOX) is 64.4 per cent accurate in distinguishing firms litigated for fraud, while the most successful model for 2001 (pre-SOX) is 61.4 per cent accurate in distinguishing such firms. Originality/value - The research design and findings assist in providing additional evidence about the association between the effectiveness of the corporate governance structure and the external auditor in assessing the risk of fraud.

Real Earnings Management: An International Comparison Based on Differences in Investor Protection

This paper examines the relation between investor protection and real earnings management. We build on the work of La Porta et al. (2000), who found that countries with different legal systems protect investors differently. Using a sample of more than 13,000 unique firms in over 54 countries, for a testing period of 2000–2011, we find evidence that companies in countries that have a lower level of investor protection engage in real earnings management. Our findings contribute to the literature on the quality of financial reporting and the importance of the protection of investors from actions that managers take that deviate from normal business practices.