Category Archives: Accounting & Finance

Cryptocurrency as an alternative inflation hedge?

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Abstract

We examine the association of Bitcoin, and other cryptocurrency, returns with changes in inflation expectations, and form a comparison with gold, a traditional inflation hedge. We control for uncertainty in economic policy, cryptocurrency, and financial markets, and show that cryptocurrency returns are positively related to changes in US inflation expectations only for a limited set of circumstances. Unlike with gold, the identified relationship is only significant for short-term inflation expectations, and when inflation or market-implied inflation expectations are below 2% (the Fed's inflation target). Moreover, cryptocurrency returns tend to be lower on days with monthly consumer price index (CPI) announcements and respond negatively to CPI surprises. Our results suggest that cryptocurrencies do not currently offer investors a viable alternative to gold for hedging inflation.

Allocation of decision‐making power and labour income share in listed companies: Evidence from China

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Abstract

This paper utilises the perspective of listed companies to explore the influence of decision-making power allocation on labour income share and analyses the possible mechanisms. Utilising 16,650 firm-year observations from both the Shenzhen and Shanghai stock exchanges between 2008 and 2021, the results show that decentralised decision-making power can significantly improve the labour income share of enterprises. This result is more obvious in enterprises with non-state-owned property rights and low total factor productivity. Furthermore, decentralising enterprise decision-making power reduces rent dissipation within the company, improves enterprise investment enthusiasm, increases investment in research and development, and promotes upgrading the labour force.

Self‐sacrifice or empty symbolism: A study of $1 CEOs

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Abstract

We examine whether CEOs' voluntary acceptance of a $1 salary is a credible signal of sacrifice. We find that firms with $1 salary CEOs are: (i) more likely to be associated with income-increasing accrual-based earnings management; (ii) less likely to use real earnings management; and (iii) more likely to engage in corporate tax avoidance. Our results indicate that this performance enhancement is driven by the motivation to restore salaries to their original levels. Our results suggest that extreme salary sacrifice could indicate an empty promise to improve firm performance and should be considered cautiously by investors and regulators.

Do ties still bind? Analyst behaviour after financial restatements

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Abstract

We find that, compared to non-connected analysts, analysts with professional connections to a coverage firm (i.e., connected analysts) are more likely to continue covering the firm after it issues a restatement. Furthermore, connected analysts are more likely to issue pessimistic earnings forecasts and to downgrade stock recommendations for the firm after its financial restatement. Our results also reveal the costs and benefits associated with connected analysts' pessimism – a reduced market reaction to the analysts' pessimistic research on the restating firm, and a positive effect on the market's perception of the quality of the analysts' research on non-restating firms.

Can work integrated learning deliver employability? International post‐graduate accounting students

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Abstract

International students studying a Master of Professional Accountancy (MPA), or equivalent postgraduate degree in accounting, in Australia were designed to fill the skills shortage gap for accountants, but employability rates appear low at 25% compared to 75% for domestic graduates. University work integrated learning (WIL) programs have been implemented to provide opportunities to increase employability, yet participation rates for international students appear low. This study uses an exploratory, qualitative approach, with semi-structured interviews of industry and students, to explore the participation rates, experiences and expectations of stakeholders in relation to WIL. Implications of the findings for stakeholders include preparation programs and simulated WIL opportunities.

Do rights matter? An intraday analysis of rights issues in Australia

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Abstract

We examine intraday abnormal returns associated with rights issue announcements in the Australian equity market over the period January 2000 to December 2022. Consistent with prior studies, we find significant abnormal returns ranging from −2.9% to −2.7% on the event day. We provide the first evidence on intraday price reactions pertaining to rights issues in Australia. Within 15 min of an announcement, we find significant abnormal trade returns of −1.2%. However, market participants are unable to profit by trading on these announcements due to transaction costs. Our results imply that the information content is fully impounded within 90 min.

Compensating balance and loan bargaining power in China

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Abstract

Chinese firms simultaneously have high levels of loans and cash holdings. Through listed firms on the Shanghai and Shenzhen Stock Exchanges, we establish a negative link between cash holdings and a firm's loan bargaining power, especially in regions with less bank competition, through a firm's passive response to bank requests rather than its voluntary excess cash reserves. Furthermore, state ownership, collateral, economic contribution, and reduced information asymmetry may effectively strengthen firm bargaining power and moderate the link. However, better marketisation strengthens the link. The banking sector may need to improve its efficiency through better credit rationing in future reforms.

Why does operating profitability predict returns? New evidence on risk versus mispricing explanations

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Abstract

This study develops new evidence on risk versus mispricing explanations of the well-known profitability premium. First, we examine whether exposure to expected downside risk is a plausible explanation. We find that high profitability is associated with both lower ex ante and ex post probabilities of future price crashes. Thus, less profitable firms exhibit greater downside risk than highly profitable firms, making a downside risk explanation implausible. Although this fact is overlooked by the market in general, it is anticipated by options traders; we find that put options of low profitability firms are relatively more expensive. Simultaneously, these firms do not exhibit greater probability of jumps, indicating that volatility(risk)-based explanations for the profitability premium are unlikely to be descriptive. Second, we find that the sticky-expectations model of Bouchaud et al. (2019, The Journal of Finance, 74, 639–674) only partially explains the profitability premium. While on average, analysts' forecast revisions correct in the same direction as recent profitability, the profitability premium still exhibits a strong relationship to the non-sticky component of analysts' forecast revisions. Third, institutional investors trade profitability-based signals but do so with a delay, likely contributing to the premium. Overall, our evidence favours the explanation that the profitability premium is related to investor mispricing of potential downside risk and provides greater clarity on recent findings in the literature.

Predicting accounting fraud using imbalanced ensemble learning classifiers – evidence from China

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Abstract

The current research aims to launch effective accounting fraud detection models using imbalanced ensemble learning algorithms for China A-Share listed firms. Based on a sample of 33,544 Chinese firm-year instances from 1998 to 2017, this research respectively established one logistic regression and four ensemble learning classifiers (AdaBoost, XGBoost, CUSBoost, and RUSBoost) by 12 financial ratios and 28 raw financial data. Additionally, we divided the sample into the train and test observations to evaluate the classifiers' out-of-sample performance. In detail, we applied two metrics, namely, Area under the ROC (receiver operating characteristic) curve (AUC) and Area under the Precision-Recall curve (AUPR), to evaluate classifiers' discriminability. In the supplement test, this study put forward an algebraic fused model on the basis of the four ensemble learning classifiers and introduced the sliding window technique. The empirical results showed that the ensemble learning classifiers can detect accounting fraud for the imbalanced China A-listed firms far more effectively than the logistic regression model. Moreover, imbalanced ensemble learning classifiers (CUSBoost and RUSBoost) effectively performed better than the common ensemble learning models (AdaBoost and XGBoost) in average. The algebraic fused model in the supplement test also obtained the highest average AUC and AUPR among all the employed algorithms. Our results offer firm support for the potential role of Machine Learning (ML)-based Artificial Intelligence (AI) approaches in reliably predicting accounting fraud with high accuracy. Similarly, for the Chinese settings, our ML-based AI offers utmost advantage in forecasting accounting fraud. Finally, this paper fills the research gap on the applications of imbalanced ensemble learning in accounting fraud detection for Chinese listed firms.

Firm culture and internal control system

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Abstract

The corporate culture within firms is a significant concern for regulators, shareholders and other stakeholders. Drawing on a large sample of US firms, we use the political preferences of the top management team (TMT) to proxy for a firm's culture and examine whether it influences the decision to implement an effective internal control system (ICS) and whether the ICS plays a mediating role between the culture created by the TMT and financial reporting quality. We find that a Republican-leaning TMT with a more conservative ideology is associated with a more effective internal control system. In addition, the TMT's political preferences affect financial reporting quality, both directly and indirectly, via the internal control system. A range of robustness tests reinforces our main findings.