SangHyun Suh

Family Firms and Institutional Investors

It is generally assumed that family firms emphasize socioemotional wealth, which exacerbates wealth expropriation from noncontrolling shareholders. We examine this issue in the context of nonfamily shareholders, specifically institutional investors, and find that institutional investors avoid investments in family firms. Furthermore, integrating institutional theory with a socioemotional wealth approach, we find that financial regulation can mitigate external investors’ concerns. These two results are important theoretically because they provide insight into the effect of agency problems specific to family firms and are important for management practice because they can provide guidance for family firms interested in new sources of capital.

Board Structure and Audit Committee Monitoring Effects of Audit Committee Monitoring Incentives and Board Entrenchment on Audit Fees

Our study addresses two research questions. First, are audit fees related to the presence of common members in audit and compensation committees (committee overlap)? Second, are audit fees related to whether board membership is protected by the use of a staggered voting system (board classification)? Using a treatment effects model to control for endogeneity, we find a negative relationship between audit fees and committee overlap, which is consistent with the argument that committee overlap is associated with weak corporate governance and that in an environment with weak governance, monitoring efforts by the audit committee are similarly weak. We find a positive relationship between audit fees and board classification, indicating that firms with classified boards seek greater monitoring, which is consistent with the prior literature which suggests that such firms seek the “quiet life” and wish to avoid reporting-related problems.

Do characteristics of audit committees and board of directors influence earnings management

Earnings management has attracted much attention in this globalised economic environment due to large accounting scandals such as Enron and WorldCom. National governments and other market-regulation institutions are taking measures to restrain earnings management in order to ensure the reliability and transparency of financial reporting. This study explores whether audit committees and boards of directors influence earnings management using the literary review method. The findings show that both discretionary accruals and abnormal accruals are mostly used as dependent variables to detect earnings manipulation estimated by the Jones and modified Jones models. For the most part, evidence from previous literature indicates that the more independent the members of the audit committee and board, the higher the quality of earnings in financial reporting. However, some opposite findings exist.

Do ethical firms create value

Purpose – This study aims to examine the value relevance of ethics information. Design/methodology/approach – This study adopts event study methodology to test the market’s reaction around the announcements of World’s Most Ethical Companies (WME), a ranking based on firms’ overall corporate social responsibility performance. The authors calculate the abnormal returns of firms on the WME lists to investigate how stockholders respond to the disclosure of ethical information. Findings – The authors find significant and positive abnormal returns around the announcements of the lists of ethical firms. Specifically, positive market reaction on the first day after the WME announcement (Day 1) is observed. Originality/value – This study contributes to the existing literature of the relationship between business ethics and firm value. The authors provide evidence that ethics can be aligned with firms’ financial goals. Further, this study is the first to use the WME announcement as a proxy for ethical firms.

Do Audit Committee and Characteristics of Board of Directors Influence Earnings Management

Earnings management has attracted much attention in this globalized economic environment due to large accounting scandals such as Enron and WorldCom. National governments and other market-regulation institutions are taking measures to restrain earnings management in order to ensure the reliability and transparency of financial reporting. This study explores whether audit committees and boards of directors influence earnings management using the literary review method. The findings show that both discretionary accruals and abnormal accruals are mostly used as dependent variables to detect earnings manipulation estimated by the Jones and Modified Jones Models. For the most part, evidence from previous literatures indicates that the more independent the members of the audit committee and board, the higher the quality of earnings in financial reporting. However, some opposite findings exist.

The effect of reporting internal control weakness on predicting future performance using discretionary accruals

We investigate whether firms reporting internal control weaknesses (ICW) over financial reporting under Section 404 of Sarbanes-Oxley Act, on average, have accruals that exhibit lower future performance (earnings and cash flow) predictive properties compared to firms without ICWs. We also investigate whether firms that remediate ICWs have accruals with greater ability to predict future performance compared to firms with no ICW remediation. We find that firms with weak internal control result in accruals with lower performance predictability. We also find that firms that remedy ICW generate accruals with higher performance predictability compared to firms that do not remedy ICW. Our findings emphasise that the internal control environment is an important factor in providing higher quality accruals, which in turn has substantial implications on firm valuation. Our findings also emphasise the benefit of a highly contentious portion of SOX, namely Section 404.