Reza Monem

Do Women and Ethnic Minority Directors Influence Firm Value? Evidence from Post‐Apartheid South Africa

Previous studies on the value relevance of board gender and ethnic diversity have produced mixed results. This paper re-examines this relationship using hand-collected data of 245 South African listed firms over the period 2008–2013. We document a positive and significant effect of both board gender and ethnic diversity on firm value. We also find that the increase in firm value is greater when boards have three or more women directors. In contrast, ethnic minority directors contribute less to firm value when there are three or more on the board. Furthermore, we document that ethnicity has a concave relationship with firm value, but gender does not. We demonstrate that in better-governed firms, ethnic diversity is more value relevant than gender diversity. Our results also suggest that financial crisis is associated with the propensity to restructure boards along gender and ethnicity. This paper sheds new light on the effect of board diversity in South African firms as the government increasingly pursues policies aimed at eradicating the effects of apartheid. Our results are robust after controlling for self-selection and various forms of endogeneity.

IFRS Adoption, Extent of Disclosure, and Perceived Corruption: A Cross-Country Study

Using data from 166 countries over the period 1996-2011, we investigate the role of accounting information in reducing corruption after controlling for the effects of political institutions and economic development. We find strong evidence that accounting environment plays only a minor role relative to the strength of political institutions in the control of corruption. Our results hold even after controlling for variables related to investor protection and cultural dimensions. Our results challenge the view that countries intending to reduce corruption should invest in higher-quality accounting standards. Our findings also suggest that countries with the strongest political institutions stand to benefit most from IFRS adoption.Using data from 166 countries over the period 1996-2011, we investigate the role of accounting information in reducing corruption after controlling for the effects of political institutions and economic development. We find strong evidence that accounting environment plays only a minor role relative to the strength of political institutions in the control of corruption. Our results hold even after controlling for variables related to investor protection and cultural dimensions. Our results challenge the view that countries intending to reduce corruption should invest in higher-quality accounting standards. Our findings also suggest that countries with the strongest political institutions stand to benefit most from IFRS adoption.

Government Quality, the Adoption of IFRS and Auditor Choice: A Cross Country Analysis

We examine the association between country-level government quality and firms’ choice of external auditors. We use a firm’s choice of a Big 4 auditor as a proxy for the demand for high-quality financial reporting. Using a cross-sectional sample of 142,193 firm-year observations from 46 countries over 1998-2007, we show that government quality of a country has a significant positive effect on the likelihood of choosing Big 4 auditors by firms in that country. We also show that firms in countries with strong governments that have adopted the IFRS are more likely to choose Big 4 than non-Big 4 auditors. To our knowledge, this is the first study of its kind to provide direct evidence on the role of government quality in firms’ choice of external auditors. The results provide insights for policy makers on the importance of government quality toward improving financial reporting quality in a country.

Economic prosperity of the gold-mining industry in Australia and the consequent gold tax

Income from gold mining in Australia was declared tax-exempt in 1924. This tax-exempt status was removed and tax on income from gold mining was imposed in 1988 with effect from 1 January 1991. This paper documents the political process that led to the imposition of this tax. It provides evidence that rapid prosperity of the Australian gold-mining industry in the 1980s led to increased political sensitivity and removal of the industrys tax-exempt status of nearly seven decades.

Effect of IFRS adoption on financial reporting quality: Evidence from bankruptcy prediction

Purpose - The purpose of this paper is to investigate whether International Financial Reporting Standards (IFRS)-based data improve bankruptcy prediction over Australian Generally Accepted Accounting Principles (AGAAP)-based data. In doing so, this paper focuses on intangibles because conservative accounting rules for intangibles under IFRS required managers to write off substantial amounts of intangibles previously capitalized and revalued upwards under AGAAP. The focus on intangibles is also motivated by empirical evidence that financially distressed firms are more likely to voluntarily capitalize and make upward revaluations of intangibles compared with healthy firms. Design/methodology/approach - This paper analyses a sample of 46 bankrupt firms and 46 non-bankrupt (healthy) firms using a matched-pair design over the period 1991 to 2004. The authors match control firms on fiscal year, size (total assets), Global Industry Classification Standard-based industry membership and principal activities. Using Altman’s (1968) model, this paper compares the bankruptcy prediction results between bankrupt and non-bankrupt firms for up to five years before bankruptcy. In the tests, the authors use financial statements as reported under AGAAP and two IFRS-based data sets. The IFRS-based datasets are created by considering the adjustments on the AGAAP data required to implement the requirements of IAS 38, IFRS 3 and IAS 36. Findings - This paper finds that, under IFRS, Altman’s (1968) model consistently predicts bankruptcy for bankrupt firms more accurately than under AGAAP for all of the five years prior to bankruptcy. This greater prediction accuracy emanates from smaller values of the inputs to Altman’s model due to conservative accounting rules for intangibles under IFRS. However, this greater accuracy in bankruptcy prediction comes with larger Type II errors for healthy firms. Overall, the results provide evidence that the switch from AGAAP to IFRS improves the quality of information contained in the financial statements for predicting bankruptcy. Research limitations/implications - Small sample size and having data available over the required period may limit generalizability of findings. Originality/value - Although bankruptcy prediction is one of the primary uses of accounting information, the burgeoning literature on the benefits of IFRS adoption has so far neglected the role of IFRS data in bankruptcy prediction. Thus, this paper documents a new benefit of IFRS adoption. In this paper, the authors demonstrate how the restrictions on the ability to capitalize and revalue intangibles enhance the quality of information used to predict bankruptcy. These results provide evidence to international standard setters of what they can expect if their efforts to remove non-restrictive accounting practices for intangibles are abandoned.

Droughts and big baths of Australian agricultural firms

Purpose – The purpose of this paper is to examine whether Australian agricultural firms display big bath behaviour during droughts by recognising extraordinary and abnormal losses. It is hypothesised that Australian agricultural firms are more likely to report big bath losses in drought years than in non‐drought years and, in a given drought year, agricultural firms are more likely to report big bath losses than firms in other industries.Design/methodology/approach – The authors analyse 405 firm‐years data for agricultural firms over 1980‐1995. For comparison, they also analyse matched‐pair samples of 17 and 30 non‐agricultural firms for the drought years of 1983 and 1995, and matched‐pair samples of 19 non‐agricultural firms for the non‐drought years of 1986 and 1990, respectively. Both univariate and multivariate analyses are used to test the hypotheses.Findings – It is found that agricultural firms are more likely to take big baths in drought years than in non‐drought years. Further, in a given drought...

Secrecy and the impact of mandatory IFRS adoption on earnings quality in Europe

This study examines the effect of mandatory IFRS adoption on earnings quality in countries which exhibit high financial secrecy. Earnings quality is proxied by signed abnormal accruals and earnings conservatism. Using 19,324 firm-years from 14 countries over the period 19982011, we find that firms in a high-secrecy country tend to report higher abnormal accruals and earnings conservatism, which results in lower earnings quality. On the other hand, we find that mandatory IFRS adoption improves earnings quality by decreasing abnormal accruals and earnings conservatism. Our study provides evidence of the interaction between national culture, as indicated by secrecy, and IFRS adoption and helps to explain differences in earnings quality across different jurisdictions following IFRS adoption.