nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2021‒11‒15
seven papers chosen by

  1. The usefulness of financial accounting information: evidence from the field By Cascino, Stefano; Clatworthy, Mark A.; Osma, Beatriz Garcia; Gassen, Joachim; Imam, Shahed
  2. Reporting Regulation and Corporate Innovation By Breuer, Matthias; Leuz, Christian; Vanhaverbeke, Steven
  3. How do bank lenders use borrowers’ financial statements? Evidence from a survey of Japanese banks By Takuma Kochiyama; Ryosuke Nakamura; Akinobu Shuto
  4. Understanding corporate default using Random Forest: The role of accounting and market information By Alessandro Bitetto; Stefano Filomeni; Michele Modina
  5. Using Sparse Modeling to Detect Accounting Fraud (Japanese) By USUKI Teppei; KONDO Satoshi; SHIRAKI Kengo; MASADA Takahiro; SUZAKI Kosuke; MIYAKAWA Daisuke
  6. Security and safety of tourists as a factor for sustainable tourism, based on the example of Bulgarian black sea resorts By Georgieva, Daniela; Bankova, Diyana
  7. The Case for a Normatively Charged Approach to Regulating Shadow Banking - Multipolar Regulatory Dialogues as a Means to Detect Tail Risks and Preclude Regulatory Arbitrage By Thiemann, Matthias; Tröger, Tobias

  1. By: Cascino, Stefano; Clatworthy, Mark A.; Osma, Beatriz Garcia; Gassen, Joachim; Imam, Shahed
    Abstract: We examine how investment professionals assess the usefulness of financial accounting information depending on their information acquisition objectives and preparers’ earnings management incentives. We conduct a survey experiment based on face-to-face interviews with investment professionals and document two main results. First, we find that, compared with investment professionals assigned a firm valuation objective, those assigned a managerial performance evaluation objective assess accounting information as significantly less useful. Second, we find no systematic evidence that preparers’ earnings management incentives negatively affect investment professionals’ assessments of accounting information usefulness. To elucidate this second finding, we conduct a large-scale follow-up online experiment. Our results continue to offer no support for the effect of earnings management incentives on investment professionals’ assessments of accounting information usefulness, irrespective of preparers’ corporate governance quality. Instead, we find that poor corporate governance, by itself, reduces the usefulness of accounting information to investment professionals.
    Keywords: decision usefulness; financial reporting objectives; earnings management; corporate governance; investment professionals; relevance; representational faithfulness
    JEL: G15 G18 G38 M41
    Date: 2021–02–17
  2. By: Breuer, Matthias; Leuz, Christian; Vanhaverbeke, Steven
    Abstract: We investigate the impact of reporting regulation on corporate innovation. Exploiting thresholds in Europe's regulation and a major enforcement reform in Germany, we find that forcing firms to publicly disclose their financial statements discourages innovative activities. Our evidence suggests that reporting regulation has significant real effects by imposing proprietary costs on innovative firms, which in turn diminish their incentives to innovate. At the industry level, positive information spillovers (e.g., to competitors, suppliers, and customers) appear insufficient to compensate the negative direct effect on the prevalence of innovative activity. The spillovers instead appear to concentrate innovation among a few large firms in a given industry. Thus, financial reporting regulation has important aggregate and distributional effects on corporate innovation.
    Keywords: Financial Reporting,Disclosure,Regulation,Innovation,Patents,Growth
    JEL: K22 L51 M41 M42 M48 O43 O47
    Date: 2020
  3. By: Takuma Kochiyama (The Graduate School of Business Administration, Hitotsubashi University); Ryosuke Nakamura (The Faculty of Business Sciences, University of Tsukuba); Akinobu Shuto (The Graduate School of Economics, The University of Tokyo)
    Abstract: Previous studies suggest that Japanese suppliers of capital, such as main banks, have private sources of information, and thus, the quality of public accounting information may be less relevant to their decisions. Studies also indicate that the firm–bank relationship in Japan has weakened with time, potentially increasing the importance of public accounting information in the Japanese loan market. Given these contradictory results, we survey bank lenders in Japan—a bank-centered economy— and provide evidence on whether and how they use borrowers’ accounting information. Using responses from 99 Japanese banks, we examine bank lenders’ views on (1) the main bank system, (2) the use of accounting information, and (3) financial covenants. Whereas main bank lending has declined over time, nearly all respondents agreed that the main bank system is still prevalent in loan markets. Moreover, bank lenders tend to use accounting information for lending decisions and continuous monitoring purposes, prefer persistent accounting earnings tied to cash flows, and modify borrowers’ working capital conservatively. We also find that bank lenders mainly use financial covenants in syndicated loans as tripwires to obtain bargaining power in the event of borrower financial distress. The evidence complements archival studies and provides additional insights on the importance of accounting information in lenders’ practice.
    Date: 2021–11
  4. By: Alessandro Bitetto (University of Pavia); Stefano Filomeni (University of Essex); Michele Modina (University of Molise)
    Abstract: Recent evidence highlights the importance of hybrid credit scoring models to evaluate borrowers’ creditworthiness. However, the current hybrid models neglect to consider the role of public-peer market information in addition to accounting information on default prediction. This paper aims to fill this gap in the literature by providing novel evidence on the impact of market information in predicting corporate defaults for unlisted firms. We employ a sample of 10,136 Italian micro-, small-, and mid-sized enterprises (MSMEs) that borrow from 113 cooperative banks from 2012–2014 to examine whether market pricing of public firms adds additional information to accounting measures in predicting default of private firms. Specifically, we estimate the probability of default (PD) of MSMEs using equity price of size-and industry- matched public firms, and then we adopt advanced statistical techniques based on parametric algorithm (Multivariate Adaptive Regression Spline) and non-parametric machine learning model (Random Forest). Moreover, by using Shapley values, we assess the relevance of market information in predicting corporate credit risk. Firstly, we show the predictive power of Merton’s PD on default prediction for unlisted firms. Secondly, we show the increased predictive power of credit risk models that consider both the Merton’s PD and accounting information to assess corporate credit risk. We trust the results of this paper contribute to the current debate on safeguarding the continuity and the resilience of the banking sector. Indeed, banks’ hybrid credit scoring methodologies that also embed market information prove to be successful to assess credit risk of unlisted firms and could be useful for forward-looking financial risk management frameworks
    Keywords: Default Risk, Distance to Default, Machine Learning, Merton model, SME, PD, SHAP, Autoencoder, Random Forest, XAI
    JEL: C52 C53 D82 D83 G21 G22
    Date: 2021–10
  5. By: USUKI Teppei; KONDO Satoshi; SHIRAKI Kengo; MASADA Takahiro; SUZAKI Kosuke; MIYAKAWA Daisuke
    Abstract: In this paper, we implement anomaly detection on listed firms' accounting items. Using a type of sparse modeling, i.e., Graphical Lasso, we confirm that our accounting fraud detection has achieved a practically admissible level of detection capability. We also find that the method of sparse modeling contributes to detection capability.
    Date: 2021–10
  6. By: Georgieva, Daniela; Bankova, Diyana
    Abstract: Different types of crimes are factors negatively affecting tourism worldwide. However, managers and even tourists themselves are refraining from submitting crime reports and whistleblows. The main goal of the study is to analyze the attitude of the hotels’ managers on the Bulgarian Black Sea coast, regarding the submission of whistleblows to the competent authorities. In particular, managers of hotels in Albena, Golden Sands, Dunes, St. Constantine and Helena, and Sunny Beach are studied. The main research hypothesis is that hotel managers should ensure the safety of guests by reducing gaps in the control environment, preventing financial frauds, helping for environmental protection, and supporting the process of reporting crimes and suspicious behavior in the hotels. However, the current management policy relies mainly on the installed security devices and the Security Department staff. This results in applying no specific internal rules, procedures, and training for non-security department employees, regarding crime identification and timely reporting. The adopted research methods are based on the logical, deductive, and comparative methods, as well as on the methods of analysis and synthesis. For the empirical study, the method of in-depth interviews is used. The results of the study support the literature by presenting more in-depth data regarding the used security devices and assets by Bulgarian Black Sea resort hotels. Also, more data on the attitude of hotel managers on the safety and security of tourists and the submission of whistleblows, as a factor for sustainable development of tourism on the Bulgarian Black Sea coast, is presented
    Keywords: hotels’ security devices, crime reports, whistleblow, national safety, audit
    JEL: K14 L83 M42
    Date: 2021
  7. By: Thiemann, Matthias; Tröger, Tobias
    Abstract: This paper contributes to the debate on the adequate regulatory treatment of non-bank financial intermediation (NBFI). It proposes an avenue for regulators to keep regulatory arbitrage under control and preserve sufficient space for efficient financial innovation at the same time. We argue for a normative approach to supervision that can overcome the proverbial race between hare and hedgehog in financial regulation and demonstrate how such an approach can be implemented in practice. We first show that regulators should primarily analyse the allocation of tail risk inherent in NBFI. Our paper proposes to apply regulatory burdens equivalent to prudential banking regulation if the respective transactional structures become only viable through indirect or direct access to (ad hoc) public backstops. Second, we use insights from the scholarship on regulatory networks as communities of interpretation to demonstrate how regulators can retrieve the information on transactional innovations and their risk-allocating characteristics that they need to make the pivotal determination. We suggest in particular how supervisors should structure their relationships with semi-public gatekeepers such as lawyers, auditors and consultants to keep abreast of the risk-allocating features of evolving transactional structures. Finally, this paper uses the example of credit funds as non-bank entities economically engaged in credit intermediation to illustrate the merits of the proposed normative framework and to highlight that multipolar regulatory dialogues are needed to shed light on the specific risk-allocating characteristics of recent contractual innovations.
    Keywords: shadow banking,regulatory arbitrage,principles-based regulation,credit funds,prudential supervision,non-bank financial intermediation
    JEL: G21 G28 H77 K22 K23 L22
    Date: 2020

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