Shimin Chen

AN EMPIRICAL EXAMINATION OF CAPITAL BUDGETING TECHNIQUES: IMPACT OF INVESTMENT TYPES AND FIRM CHARACTERISTICS

ABSTRACT This study reports the results of a survey of project evaluation techniques used in capital budgeting. Using the Friedman Two-Way ANOVA, this study compares four types of evaluation techniques over three types of investments. Not only does the study confirm the increasing popularity of discounted cash flow techniques as suggested by previous surveys, it also finds a wide use of non-financial techniques in evaluating competing projects. Furthermore, using the Friedman ANOVA and the Mann-Whitney U test, this study examines the impact of investment types and firm characteristics and provides explanations for practical variations in the use of capital budgeting techniques.

Regulatory Incentives for Earnings Management through Asset Impairment Reversals in China

While asset impairment reversals are practiced in many jurisdictions, empirical evidence is rare. China provides us with a unique opportunity to examine both the determinants and consequences of impairment reversals resulting from recent developments in standard-setting and its specific performance-based listing requirements. Based on a sample of reversal firms in China, we report the following findings: First, Chinese-listed companies are motivated by regulatory incentives to reverse asset impairments to reduce or avoid the possibility of trading suspension or de-listing. Second, we provide some evidence that the value-relevance of reversal information appears to be negatively affected by the regulatory-motivated earnings management. Third, favorable internal and external monitoring mechanisms play a role in constraining this type of earnings management. Taken together, we conclude that while the intention of granting reversal discretion is for managers to reveal private value recovery information, our findings suggest that a seemingly improved accounting standard does not necessarily lead to its intended consequence in financial reporting.

Management compensation and payback method in capital budgeting: A path analysis

Abstract While discounted cash flow techniques, such as net present value, are the primary normative models of capital budgeting recommended by finance theory, our survey suggests that one of the so-called ‘naive methods’, the payback (PB) criterion, is widely used in practice. About 85% of the responding firms make some use of the payback criterion. Almost 50% of the responding firms indicate that the payback method plays a relatively important role in capital budgeting decisions, and the degree of the importance varies among firms. This study uses path analysis to empirically identify links between the use of payback and management compensation contracts. Controlling for uncertainty in estimating future cash flows and firm size, we find that the use of the payback method is positively related to the degree to which management compensation depends on accounting earnings. Furthermore, this study finds two indirect links between management compensation and the use of payback. The more management compensati...

Participation in Transfer Pricing: The Role of Affective and Cognitive Mechanisms

This study examines how transfer pricing participation is related to satisfaction and organizational outcome. We propose and test a structural equation model that includes both direct and indirect links between participation and organizational outcome which is measured by transfer pricing effectiveness and firm performance. Based on the data collected from a cross-sectional survey of subsidiary/division managers in China and applying the structural equation modeling technique, we find that transfer pricing participation affects transfer pricing effectiveness not only directly but also indirectly through both affective and cognitive mechanisms as intervening variables. However, we do not find any direct impact of transfer pricing participation on firm performance. Transfer pricing participation affects performance only indirectly through affective and cognitive mechanisms. The findings of this study contribute to the accounting literature and enhance our understanding of participation behavior and its consequences in transfer pricing decisions.