Accounting - Research Publications
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ItemWho pays attention to sustainability reports and why? Evidence from Google search activity(Wiley, 2023-09)We introduce country-level Google search activity as a direct measure of the level of stakeholder attention directed towards sustainability reports. We validate this measure by establishing that search activity for sustainability reports is correlated with temporal patterns in firms' supply of these reports. To frame the economic magnitude of this search behaviour, we then show that the level of attention directed towards sustainability reports is very low compared to the level of attention directed towards financial and accounting information. Next, we examine two related research questions. First, we identify who pays attention to sustainability reports. We find, consistent with the environmental Kuznets curve, that attention towards sustainability reports is strongly associated with economic development. Consistent with findings in prior research that suggest citizens in stakeholder-oriented countries have stronger preferences for firms to act prosocially, we also find that search activity for sustainability reports relative to search activity for financial performance metrics is greater in civil law countries than in common law countries. Finally, we then explore the question of why individuals pay attention to sustainability reports and find evidence that suggests sustainability reports are used for two primary purposes: evaluating the societal impacts of firms' actions; and, firm valuation.
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ItemSuperstar Productivity and Pay: Evidence from the Australian Football League(WILEY, 2022-06)We use game‐level data from the Australian Football League (AFL) to examine superstar workers' productivity and pay. By exploiting teams' injury‐induced line‐up changes between games, we show that, compared with replacement‐level players, superstars increase their teams' likelihood of winning away games by approximately 15 percentage points. While we then show that betting markets appear to appropriately price superstars' marginal productivity, we present back‐of‐the‐envelope calculations that suggest that teams underpay superstar players by at least 30 per cent. We discuss how inaccurate performance evaluations, labour market regulations, long‐term back‐loaded contracts, clubs' attempts to reduce harmful intra‐team pay disparities and on‐field success as a form of payment‐in‐kind may explain our findings.
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ItemIs Financial Reporting Still Useful? Australian Evidence(Wiley, 2019-03-01)There has been recent and growing criticism of the usefulness of financial reporting for investors, particularly the annual financial statements. In response, the IASB is pursuing several projects aimed at improving the relevance of financial information. To inform the IASB’s work, we investigate, using a mixed‐method approach, the extent and nature of the use of annual financial statements by equity investors. We examine the relevance of financial reporting for equity valuation in Australia across time. We find that financial reporting (specifically, reported net income, shareholders’ equity, and operating cash flows) remains relevant for investment decisions. We further support this finding with evidence from field interviews that provide insight into how and why financial statements are used by equity investors. The field evidence also demonstrates that no one financial statement dominates in investor decision making. Given the increasing availability of more timely, forward‐looking information from alternative sources, we examine the relevance of non‐GAAP financial information and other non‐financial information for investor decision making. We find that non‐GAAP financial information (as proxied by EBIT and EBITDA) is more value relevant than statutory measures. We further find a broad range of non‐financial information is utilized by investors in making investment decisions both as a ‘screen’ and for valuation purposes. Our findings inform regulators and other stakeholders as we provide evidence of the continuing relevance of financial statements and the complementary role of non‐GAAP financial and other information. Our evidence provides a rebuttal to the recent criticism.
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ItemKeeping it private: financial reporting by large proprietary companies in Australia(WILEY, 2019-03-01)Since 2010, proprietary companies have had a choice of preparing three types of financial reports that vary in scope. We find that between 2010 and 2015, most proprietary companies in our random sample chose the lowest scope option, with very low quality financial reports. Few adoptedthenewoptionprovidedbyAASB1053Application of Tiers of AustralianAccounting Standards. The characteristics of the firms that adopted each type of report are consistent with the regulator’s intention. Our findings should provide a better understanding of how accounting standards impact practice, and should assist regulators to reform private company financial reporting.
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ItemEnhancing the Interface between Standard-setters and Academic Research(WILEY, 2021-09)Abstract This article points to gaps between academic research and the needs of accounting standard‐setters. In part it attributes those gaps to the academic literature seeming to be inaccessible and oriented to ideas apparently unrelated to the policy‐making issues facing standard‐setters. As a means of partially reducing that perceived inaccessibility, the paper provides a way for standard‐setters to identify and classify the various forms of academic accounting research so that they can evaluate their usefulness. Two prominent strands of research (agency theory/costly contracting and value relevance) are, as illustrations, analysed so that standard‐setters can see how they might approach those strands. The paper suggests a users’ needs/demand driven approach to improving understanding, rather than a supply (by academics) driven approach. Finally, the paper explains how the performance metrics faced by academics can be inconsistent with the readiness expressed by standard‐setters to have academics assist them. The paper provides a suggestion as to how there could be some alignment of academic performance metrics and standard‐setters’ needs.
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ItemRestatement of CSR Reports: Frequency, Magnitude, and Determinants*(WILEY, 2021-09)ABSTRACT We provide the first direct analysis of the magnitude of unreliable quantitative information disclosed in corporate social responsibility (CSR) reports. CSR report reliability is of particular interest to fund managers for investment decisions as well as to policymakers for regulating and monitoring purposes. However, surprisingly little is known about CSR reporting reliability despite concerns raised in the prior literature. We examine how often CSR reports for the Global Fortune 250 (G250) are restated, the magnitude of restatements, and factors associated with restatements during the period 2006 to 2013. During this sample period, the occurrence of restatements increased monotonically, with 39% of G250 CSR reports including one or more line‐item restatements. The magnitude of the line‐item restatements is quite high, with a median restatement of about 10%. We also find evidence of bias in the revised items toward overstatement. We find that restatements occur more frequently in firms that have reported a high level of social performance and that have environmental targets. The occurrence of restatement is also positively associated with firms residing in strong law countries and having their CSR reports audited. Our analysis of reporting bias indicates a negative association between use of Global Reporting Initiative (GRI) reporting guidelines and the likelihood of an overstatement. We also find a positive association between having the CSR report audited and the likelihood of revisions associated with overstatements. Together, our exploratory results indicate that CSR information may be unreliable and firms that face pressure to perform well have more restatements. However, our evidence is consistent with the restatements resulting from improvements in information systems over time rather than intentional bias. Our findings will help investors and fund managers better judge the reliability of CSR disclosures, and inform regulators and standard setters on ways to enhance the reliability of CSR reporting. Finally, we contribute to the audit literature examining sustainability assurance.
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ItemSpeculation and e-commerce: The long and the short of IT(Elsevier BV, 2010-06-01)
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ItemTop Management Turnover: An Examination of Portfolio Holdings and Fund Performance(SAGE Publications, 2006-01-01)We examine the performance and portfolio characteristics of actively managed equity funds impacted by top management turnover. Utilizing a unique database of monthly portfolio holdings, our study finds that, post-replacement, previously poor performing funds experience improved returns. However, this improved performance is not attributable to superior stock selection skill. We also find these new managers decrease the fund's reliance on momentum strategies and decrease the portfolio's concentration, which then leads to a reduced tracking-error volatility. Prior to the replacement event, underperforming investment managers exhibit preferences for larger, growth-oriented stocks, as well as riding momentum strategies and increasing portfolio turnover.
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ItemSeasonality in fund performance: An examination of the portfolio holdings and trades of investment managers(WILEY, 2006-09-01)Abstract: This study examines the extent to which seasonal variation arises across calendar months in the performance of active Australian equity managers. While it is well documented that there is seasonality in equity market returns, it is unknown whether calendar month variation in managed fund performance exists. Employing a unique database of monthly stock holdings, we find evidence consistent with systematic variation in the risk‐adjusted performance of active investment managers over the calendar year. Specifically, we find fund performance is higher in the months when corporate earnings are announced. We also document that the performance of fund managers is lower in the months preceding the tax year‐end. Finally, we report evidence that investment manager performance is greater than normal in December, possibly due to both window dressing and the Christmas holiday effect. These findings have important implications for investors attempting to exploit anomalies in fund returns by timing their entry and exit points from active equity funds.
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ItemAre active fund managers collectors of private information or fast interpreters of public information?(WILEY-BLACKWELL, 2010-09)Abstract Recent studies of fund manager performance find evidence of outperformance. However limited research exists as to whether such outperformance is because of privately collected information, or merely expedient interpretation of publicly released information. In this study, we examine the trade sequences of active Australian equity fund managers around earnings announcements to provide insights into the source of fund managers’ superior information. We document an increased occurrence of buy‐sell trade sequences around good‐news earnings announcements. The evidence is consistent with fund managers having both private information about forthcoming good‐news earnings announcements and being ‘short‐term profiteers’. We find no evidence that fund managers have private information about forthcoming bad‐news earnings announcements. However, we do find an increase in the frequency of fund managers not trading before bad‐news earnings announcements only to subsequently sell during announcements.