School of Accountancy (MU)The School of Accountancy is a school in the Trulaske College of Business at the University of Missouri-Columbia.https://hdl.handle.net/10355/52942024-03-19T03:14:57Z2024-03-19T03:14:57ZAccrual persistence and accrual anomalyMartin, Xiumin, 1972-https://hdl.handle.net/10355/48242022-09-27T15:49:33Z2007-01-01T00:00:00ZAccrual persistence and accrual anomaly
Martin, Xiumin, 1972-
The first essay, "Inter-temporal accrual persistence and accrual anomaly" investigates whether accrual persistence and accrual anomaly vary with the state of economy. Prior accounting research argues that diminishing marginal returns on new investments drive lower persistence of accruals relative to cash flows. Macroeconomic research documents that marginal profitability is counter-cyclical, which implies that diminishing marginal returns on new investments are more pronounced during periods of expansions than recessions. Linking the cyclicality of diminishing returns on investments with the argument that diminishing returns to investments contribute to lower persistence of accruals relative to cash flows, this paper predicts that the differential persistence of accruals is greater during expansionary periods than recessionary periods. Using a U.S. sample from 1972 to 2003, I find that the differential persistence of accruals is greater during economic expansions than recessions. When I focus on the components of accruals, I find that depreciation, change in accounts receivable, change in raw materials,and change in finished goods are the main drivers of cyclical differential accrual persistence. These findings are robust to alternative conditioning sets, estimation procedures, and measures of the business cycle. I also find that investors are unable to assess the cyclical differential persistence of accruals, leading to higher returns (both raw and abnormal returns) from an accrual-based trading strategy during expansionary periods. The second essay "Can cyclical property of accrual persistence explain the accrual anomaly?" examines whether cyclical accrual persistence documented in the first essay can provide an explanation to accrual anomaly based on consumption based assets pricing theory. Specifically, I posit that accruals decrease in consumption risk because of cyclical property of accrual persistence (i.e., accruals are less persistent during economic expansions than during recessions). The implication is that the observed abnormal returns from accrual-trading strategy represent compensation for the underlying consumption risk. Using a U.S. sample from 1972 to 2003, I find that consumption risk decreases in the level of accruals. I also show that after controlling for other known risk factors, pricing kernel (a proxy for the state of economy) can explain about 11 percent of abnormal returns from accrual-based trading strategy. These findings are robust to alternative conditioning set and estimation procedures.
The entire dissertation/thesis text is included in the research.pdf file; the official abstract appears in the short.pdf file (which also appears in the research.pdf); a non-technical general description, or public abstract, appears in the public.pdf file.; Title from title screen of research.pdf file (viewed on September 28, 2007); Vita.; Thesis (Ph. D.) University of Missouri-Columbia 2007.
2007-01-01T00:00:00ZArchival evidence on bias in auditors' assessment of client risk and the consequences for audit fees and auditor changesHallman, Nicholashttps://hdl.handle.net/10355/606272022-09-27T19:35:58Z2016-01-01T00:00:00ZArchival evidence on bias in auditors' assessment of client risk and the consequences for audit fees and auditor changes
Hallman, Nicholas
As part of planning and performing financial statement audits, auditors are required to make judgments regarding client risk. These judgments permeate the audit process, driving decisions regarding client acceptance, audit pricing, the extent of audit testing, and the nature of auditors' written opinions. Although auditors may aim to assess each client's risk independently, prior research suggests individuals' draw on their idiosyncratic experiences and environments for benchmarks against which to contrast the case at hand. These "contrast effects" can result in judgments that deviate from those that would be reached using normative principles and may cause bias in auditors' assessment of client risk. Consistent with this theory, the archival evidence presented in this paper shows that, after controlling for clients' actual risk levels, auditors perform more (less) conservative audits and charge higher (lower) audit fees when clients appear riskier (less risky) in the context of other clients audited by the same practice office. Moreover, clients subject to increased (decreased) conservatism and higher (lower) audit fees due to auditors' biases are more (less) likely to switch auditors during the following period.
2016-01-01T00:00:00ZAudit committee tenure, earnings quality, firm performance and cost of capitalBraswell, James M.https://hdl.handle.net/10355/60092022-09-27T15:49:25Z2007-01-01T00:00:00ZAudit committee tenure, earnings quality, firm performance and cost of capital
Braswell, James M.
[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT REQUEST OF AUTHOR.] Regulators and financial reporting institutions have recently increased their focus on audit committee composition, indicating an acknowledgement of the potential importance of audit committee monitoring efforts on financial reporting quality. I extend prior corporate governance research by exploring whether the duration of service on a specific audit committee (i.e., audit committee tenure) affects earnings quality, future financial performance and cost of capital. Using a sample of 2,355 firm years for fiscal years 1998-2003, I test the potential association between audit committee tenure and GAAP-based earnings quality proxies and find some evidence that audit committee tenure improves earnings quality by limiting the degree to which management relies on accruals to determine income. I also test whether audit committee tenure effectively reduces real earnings management proxies since such techniques reflect routine business decisions that often fall outside of GAAP's jurisdiction. I find that audit committee tenure is associated with the use of abnormally low discretionary expenses, suggesting that current-period earnings are artificially inflated when audit committee tenure is relatively longer. The next stage of my study examines the effect of audit committee tenure on firm performance. Audit committees can influence firm performance by two avenues. First, committee effectiveness can influence the quality of reported earnings, which could reduce the cost of capital and improve firm performance by making positive NPV projects more feasible. The audit committee also oversees risk management activities and internal reporting efforts that are ultimately used by the board of directors to monitor and ratify management's strategic decisions. The results of this analysis provide evidence consistent with the entrenchment hypotheses since audit committee tenure appears to have a negative effect on future firm performance. I conclude the study by analyzing the potential association between audit committee tenure and cost of capital. After employing both cost of equity and cost of debt proxies as dependent variables, I find no significant associations with audit committee tenure.
The entire dissertation/thesis text is included in the research.pdf file; the official abstract appears in the short.pdf file (which also appears in the research.pdf); a non-technical general description, or public abstract, appears in the public.pdf file.; Title from title screen of research.pdf file (viewed on October 16, 2007); Vita.; Thesis (Ph. D.) University of Missouri-Columbia 2007.
2007-01-01T00:00:00ZAuditor offices and the comparability and quality of client's earningsKawada, Brett S, 1977-https://hdl.handle.net/10355/401272021-01-05T19:10:59Z2013-01-01T00:00:00ZAuditor offices and the comparability and quality of client's earnings
Kawada, Brett S, 1977-
[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT AUTHOR'S REQUEST.] This study examines the role of the local auditor office in the comparability and quality of their clients' earnings. I construct of sample of firm-pairs in which each observation consists of two firms in the same industry-year. Accounting comparability is inferred by the closeness of total accruals between two firms in each firm-pair. I find that firm-pairs audited by the same local auditor office have more comparable earnings, on average, than firm-pairs audited by either the same Big 4 auditor but different local auditor offices or by different Big 4 auditors. This finding suggests that the application of a local auditor office style increases the comparability of client earnings. I also examine the association between comparability and average earnings quality in firm-pairs. Based on abnormal accruals, I find that firm-pairs with lower accounting comparability have lower average earnings quality. I also find that firm-pairs audited by the same local auditor office have greater average earnings quality. Overall, the results documented here provide further evidence of the role of the auditor as an economic agent promoting increased financial statement comparability in client earnings, as well as the benefits of increased comparability between firms as manifested in the quality of their earnings.
2013-01-01T00:00:00Z