Assessing the potential impact of lease accounting reform: A review of the empirical evidence

Accounting standard-setters have proposed that the right to use assets (including land and buildings) acquired under operating lease contracts should be recognized on the balance sheet of lessee companies. In recent years, several empirical research studies have investigated the potential impact of the proposed changes in accounting for leases. The current paper reviews this work and presents some new evidence, for a property audience. It summarizes evidence that operating leases represent a major source of finance for many companies generally, and more specifically for companies in the retail sector. Recognition of operating leases on the lessee's balance sheet would have a significant impact on performance measures, especially gearing. If markets are informationally 'efficient' such changes should have little impact. However, research evidence on efficiency with respect to lease accounting information is mixed. What's more, company managers do not believe that the market is efficient so are likely to behave as if the markets are 'inefficient'.  Possible reactions include reduced use of leasing, shorter lease contract terms, more break clauses, or increased use of contingent rental agreements. It seems likely that lessors will be under pressure to bear greater risks.This paper was presented at the RICS Cutting Edge 2001 Conference, Oxford

Operating lease finance in the UK retail sector

The paper documents the importance of leasing in the UK retail sector and estimates the potential balance sheet impact of new accounting proposals to bring all leases onto lessees’ balance sheets. Off-balance sheet operating leases are shown to be a major source of finance, and far more important (3.3 times higher) than on-balance sheet long-term debt; by contrast, finance leases are immaterial. Operating leased assets, the major part of which is ‘land and buildings’ (98%), represent a significant proportion (28%) of reported total assets. Capitalization of operating leases would have a major impact on nine key performance ratios and would alter the ranking of companies markedly. The findings suggest that operating leases need careful consideration in estimating retailers’ financial risk, in comparing cross-national performance and in research studies of capital structure decisions

A geophysical investigation of the nova scotian continental shelf

A major east-west structural discontinuity, termed the Minas Basin - Chedabucto Bay - Orpheus fault zone, transects Nova Scotia and the adjacent Nova Scotian continental shelf. To the north of this discontinuity, the geophysical evidence indicates structural continuity between the late Precambrian basement rocks of south-eastern newfound lane and Eastern Cape Breton Island. The generally dense basement rocks of the northern Scotian Shelf are pierced by intrusions of magnetic granite and traversed by linear belts of volcanic rocks. The basement is depressed into a regional east-west trough which is filled by Palaeozoic and younger sedimentary rocks. To the south of the major east-west discontinuity, the southern Scotian Shelf consists of a south easterly dipping early Palaeozoic basement complex intruded by granite and overlain by a wedge of late Palaeozoic and younger sedimentary rocks which reach their maximum thickness east of Sable Island. The most notable feature on the Nova Scotian continental shelf is the Orpheus Graben which lies along the Minas Basin - Chedabucto Bay - Orpheus fault zone and which is filled with Mesozoic sedimentary rocks. Many of the basement structural features on the Nova Scotian continental shelf appear to be products of continental collisions during the early Palaeozoic Era while other features are probably due to continental separation in the late Palaeozoic and Mesozoic Eras. In particular, the Minas Basin - Chedabucto Bay - Orpheus fault zone was probably initiated in Siluro-Devonian times as the result of the thrusting of the north-western portion of Africa into the late Precambrian rocks of the Avalon (Acado-Baltic) Platform of south-eastern New Brunswick, eastern Cape Breton Island and south-eastern, Newfoundland. Later on, the Orpheus Graben was formed along the existing zone of weakness probably in Triassic or Jurassic time as a result of continental break-up and the formation of the present-day Atlantic Ocean

Audit Market Structure, Fees and Choice following the Andersen Break-up: Evidence from the UK

This paper presents evidence on audit market concentration and auditor fee levels in the UK market in the crucial period of structural change following the PricewaterhouseCoopers' (PwC) merger and encompassing Andersen's demise (1998-2003). Given the current interest in auditor choice, analysis is also undertaken at the individual audit firm level and by industry sector. There is evidence of significant upward pressure on audit fees since 2001 but only for smaller auditees. Audit fee income for top tier auditors (Big 5/4) did not change significantly while the number of auditees fell significantly, consistent with a move towards larger, less risky, clients. Andersen's demise markedly reduced the level of inequality among the top tier firms but PwC retained its position as a 'dominant firm'. On switching to the new auditor, former Andersen clients experienced audit fee rises broadly in line with inflation, with no evidence of fee premia or discounting. They also reported significantly lower NAS fees, consistent with audit firms and auditees responding to public concerns about perceptions of auditor independence. There is no general evidence of knowledge spillover effects or cross-subsidisation of the audit fee by NAS. The combined findings provide no evidence to indicate that recent structural changes have resulted in anticompetitive pricing; the key concern remains the lack of audit firm choice

Diversity and Determinants of Corporate Financing Decisions: Survey Evidence

Despite theoretical developments in recent years, our understanding of corporate capital structure remains incomplete. Prior empirical research has been dominated by archival regression studies which are limited in their ability to fully reflect the diversity found in practice. The present paper reports on a comprehensive survey of corporate financing decision-making in 192 UK listed companies. A key finding is that firms are heterogeneous in their capital structure policies. About half of the firms seek to maintain a target debt level, consistent with trade-off theory, but 60% claim to follow a financing hierarchy, consistent with pecking order theory. These two theories are not viewed by respondents as either mutually exclusive or exhaustive, since some firms adopt (at least partially) both strategies, while a significant number of firms do not appear to follow either of these strategies. Such observations raise concerns about the usefulness of large-scale regression modelling of capital structure determinants. In normal usage, these models can only describe whether a particular theory is consistent with the observed capital structure of the 'average firm' in the population. They are not typically used to model the diversity of capital structure practice. As found in many regression-based determinant studies, there is clear evidence here that company size affects corporate financing decisions. For example, large companies are more likely to adopt a target debt level and to maintain financial slack (though not more likely to follow a hierarchy of finance). Similarly, current high levels of gearing encourage a greater focus on particular issues, such as projected cash flows, loan covenants and non-interest tax shields. This contingency on debt levels suggests that empirical studies of capital structure dynamics may be particularly fruitful. Investigation of debt level determinants shows that many of the theoretical arguments are widely accepted by respondents, in particular the importance of interest tax shield, financial distress, agency costs and also, at least implicitly, information asymmetry

Earnings Management in IPOs: Determinants and Post-IPO Performance

The paper provides general evidence of income-increasing earnings management in Malaysian IPOs but this occurs primarily during a period of severe economic stress (the East Asian crisis). The requirement to provide a profit guarantee appears to reduce rather than encourage earnings management. Within this high ownership concentration market, ownership concerns also appear to constrain IPO earnings management. Owners are willing to forego 'opportunistic' earnings management and signalling opportunities to increase their likelihood of retaining control of the company post-IPO. IPO companies engaging in aggressive earnings management have significantly worse market-based performance than their more conservative counterparts, but only during the economic crisis period

Publication records of Australian accounting and finance faculty promoted to full professor, set within an international context

Australian accounting and finance faculty promoted to full professor required a median 15 papers in ABDC‐listed journals, with 7 at the highest A*/A quality levels. Promotees were typically 44 years old, with 14 years' academic experience including 9 years post‐PhD. Neither gender nor whether promotion was internal/external seemed to affect promotion requirements. Finance professors typically had more publications than accounting professors, though not at the higher quality levels; however, accounting promotees had greater academic experience but a shorter period post‐PhD. Female promotees were typically older than males. Both the volume and quality of pre‐promotion publications have increased over time

Earnings management in Malaysian IPOs: the East Asian crisis, ownership control and post-IPO performance

We find evidence of income-increasing earnings management in Malaysian IPOs, which occurs primarily for IPOs during a period of severe economic stress (the East Asian crisis). Within the high-ownership-concentration Malaysian market, post-IPO control concerns also appear to constrain IPO earnings management: owners seem willing to accept reduced IPO proceeds and signaling opportunities to increase the likelihood of retaining control of the company post-IPO. The requirement to provide a profit guarantee does not seem to greatly affect earnings management. IPO companies engaging in aggressive income-increasing earnings management have significantly worse market-based performance than their more conservative counterparts, but again only for IPOs issued during the economic crisis period. Overall, the results suggest that personal liquidity concerns are an important factor in IPO decisions during the economic crisis

Maternal gaze to the infant face: effects of infant age and facial configuration during mother-infant engagement in the first nine weeks

Background Adult gaze plays an important role in early infant development, and infants are highly sensitive to its presence and direction. Little is known, however, about how adults look at infants while interacting with them. Using eye-tracking technology, this study investigated maternal gaze during naturalistic interactions, and how it was influenced by infant age, focusing on the transition from the first to the second month when social expressiveness emerges, and by infant facial configuration, focusing on the effect of cleft lip. Methods Thirty infants (10 with a cleft lip), and their mothers, were seen at 1, 3, 5, 7, and 9 weeks. Mothers were asked to interact with their infants while wearing eye-tracking glasses. Fixation duration and count were calculated for general (infant face, body, and surrounding environment), and infant facial (eyes, mouth, other) areas. Results At all ages, mothers gazed almost exclusively towards their infant’s face, but this was reduced in the presence of a cleft lip. Within the infant’s face, the eyes attracted the greatest attention, for all mothers, at all ages. From the first to the second month, all mothers increased their visual attention towards their infant’s mouth. Regardless of infant age, the presence of a cleft lip was associated with decreased maternal gaze to the infant’s mouth. Conclusions This study provides novel findings concerning maternal gaze to infant faces during naturalistic interactions. Maternal gaze changes with infant age, in line with established shifts in social development, and according to infant facial configuration. Decreased gaze to the mouth area associated with infant cleft lip might affect maternal responsiveness, and suggests new dimensions to target in supporting these mothers

The effect of cleft lip on adults' responses to faces: cross-species findings

Cleft lip and palate is the most common of the congenital conditions affecting the face and cranial bones and is associated with a raised risk of difficulties in infant-caregiver interaction; the reasons for such difficulties are not fully understood. Here, we report two experiments designed to explore how adults respond to infant faces with and without cleft lip, using behavioural measures of attractiveness appraisal (‘liking’) and willingness to work to view or remove the images (‘wanting’). We found that infants with cleft lip were rated as less attractive and were viewed for shorter durations than healthy infants, an effect that was particularly apparent where the cleft lip was severe. Women rated the infant faces as more attractive than men did, but there were no differences in men and women's viewing times of these faces. In a second experiment, we found that the presence of a cleft lip in domestic animals affected adults' ‘liking’ and ‘wanting’ responses in a comparable way to that seen for human infants. Adults' responses were also remarkably similar for images of infants and animals with cleft lip, although no gender difference in attractiveness ratings or viewing times emerged for animals. We suggest that the presence of a cleft lip can substantially change the way in which adults respond to human and animal faces. Furthermore, women may respond in different ways to men when asked to appraise infant attractiveness, despite the fact that men and women ‘want’ to view images of infants for similar durations