Intangible Investments and the Pricing of Corporate SGA Expenses

This study examined whether the market fully prices the reported Selling, General, and Administrative (SGA) expenses when this item includes an intangible investment component. For a sample of intangible investment-intensive firms, we showed that their SGA expenses benefit future operating performances. Evidence suggests some degree of market inefficiency in the pricing of SGA expenses and the intangible investment component. Furthermore, the financial analysts do not appear to appreciate fully the future benefits of the component in their earnings forecasts. Finally, the pertinent disclosures in firms’ annual reports are so inadequate as to attenuate the market mispricing, suggesting a significant room for future improvement

The U.S. versus international ethics codes for accountants: A computerized content analysis

Abstract. This study applies computerized content analysis techniques, including term frequency analysis, readability index, and cosine similarity, to compare the U.S. versus international ethics codes for professional accountants. It reveals and compares new characteristics of these ethics codes. The U.S. ethics code is found to be less readable but more reflective of moral values concerning social order. The international ethics code emphasizes the independence and confidentiality principles, while the U.S. ethics code emphasizes independence and responsibilities. There are more similarities within the U.S. ethics code and within the international ethics code than between these ethics code

Forecasting stock prices using a hierarchical Bayesian approach

The Ohlson model is evaluated using quarterly data from stocks in the Dow Jones Index. A hierarchical Bayesian approach is developed to simultaneously estimate the unknown coefficients in the time series regression model for each company by pooling information across firms. Both estimation and prediction are carried out by the Markov chain Monte Carlo (MCMC) method. Our empirical results show that our forecast based on the hierarchical Bayes method is generally adequate for future prediction, and improves upon the classical method. Copyright © 2005 John Wiley & Sons, Ltd.

Why did management and auditors fail to identify ineffective internal controls in their initial SOX 404 reviews?

Purpose – The purpose of this paper is to investigate the rationale for the failure of management and auditors to identify material internal control weaknesses (ICWs) in their initial Sarbanes-Oxley Act of 2002 (SOX) 404 reviews, resulting in subsequent restatement of their opinions. Design/methodology/approach – The paper focuses on the factors associated with the failure of management and auditor to identify material internal controls weaknesses in their initial SOX 404 reports. Logistic regression is run on a sample of 56 firms that reported material internal controls weaknesses in their amended internal control reports and a control group of 344 firms that reported material internal controls weaknesses (i.e. ineffective internal controls) in their initial internal control reports for 2004. Findings – The results show that firm size, the use of a Big 4 auditor, the ratio of non-audit to total fees, and the need for accounting restatements are positively associated with the probability to file an amended internal control report. The number of ICWs and the number of audit committee meetings are negatively associated with the probability to file an amended internal control report. Practical implications – The paper's findings suggest that regulators and corporate boards should consider providing more guidelines on audit committee practices in addition to the audit committee structure. For example, more guidance by the board is needed to ensure that the audit committee is active in overseeing the company's auditor–client relationship and its internal audit function. Originality/value – Empirical findings on factors associated with the failure of management and auditor to identify material ICWs in their SOX 404 review can contribute to an understanding of factors affecting the efficiency of the SOX 404 review by attributing such failure to either inherent factors such as operational complexity and industry membership or to managerial choices in auditor-client relationship and corporate governance issues. An understanding of these factors can help companies and the Public Company Accounting Oversight Board and the Securities and Exchange Commission in their efforts to improve the effectiveness and the efficiency of the current SOX 404 process.Audit committees, Auditing standards, Legislation, United States of America

Ranking accounting journals using dissertation citation analysis: A research note

Prior literature on accounting journal rankings has provided different journal lists depending on the type of examination (citations- vs. survey-based) and the choice of journals covered. A recent study by Bonner, Hesford, Van der Stede, and Young (2006) [Bonner, S., Hesford, A., Van der Stede, W. A., & Young, M. S. (2006). The most influential journals in academic accounting. Accounting, Organizations and Society, 31(7), 663-685] documents disproportionately more citations in the financial accounting area, suggesting a financial accounting bias in the accounting literature. We use citations from accounting dissertations completed during 1999-2003 to provide a ranking of accounting journals. The database allows us to assess the research interests of new accounting scholars and the literature sources they draw from. Another innovation is our ranking of accounting journals based on specialty areas (auditing, financial, managerial, tax, systems, and other) and research methods (archival, experimental, modeling, survey, and other). To mitigate the financial accounting bias documented by Bonner et al. (2006), we derive a ranking metric by scaling (normalizing) the journal citations by the number of dissertations within each specialty area and research method. Overall, the top journals are, JAR, AOS, TAR, and JAE. We also provide evidence that top journal rankings do vary by specialty area as well as by research methods.