http://dspace.cityu.edu.hk:80/handle/2031/722 Tue, 30 Apr 2013 09:53:45 GMT 2013-04-30T09:53:45Z http://dspace.cityu.edu.hk:80/handle/2031/6102 Title: Financial analysts' actions and cost of equity capital Authors: Mak, Kelvin Po-lung (麥寶龍) Abstract: This paper examines the relationship between financial analysts' actions and cost of equity capital. In this study, financial analysts' actions include analysts' forecasts dispersion, analysts' forecast revision frequencies and analysts' responsiveness to quarterly earnings announcements. There are empirical studies that attempt to find out the variables that are associated with firm’s cost of equity capital. One research study finds that poorer accruals quality is associated with larger costs of capital. However, a more recent empirical study shows no evidence that accruals quality and costs of equity capital are associated. As such, the link between accounting accruals quality and cost of equity capital has not been conclusively established under empirical tests. Instead of looking at firm specific accounting information that managers of firms want to signal to market participants, i.e., accounting accruals quality, this study attempts to find out the relationship between financial analysts' actions, which is exogenous to firms, and cost of equity capital. The empirical results of my study show that firms with larger analysts’ forecasts dispersion, their cost of equity capital is higher. Nevertheless, this relationship is substituted by analysts' responsiveness to quarterly earnings announcements, after controlling for accounting accruals quality, idiosyncratic and systematic risk. Keywords: Accruals quality; Analysts' responsiveness; Analysts' forecasts dispersion; Analysts' forecast revision frequencies; Idiosyncratic risk; Systematic risk; Cost of equity capital Notes: CityU Call Number: HG4661 .M34 2010; ii, 128 leaves 30 cm.; Thesis (Ph.D.)--City University of Hong Kong, 2010.; Includes bibliographical references (leaves 122-128) Fri, 01 Jan 2010 00:00:00 GMT http://dspace.cityu.edu.hk:80/handle/2031/6102 2010-01-01T00:00:00Z http://dspace.cityu.edu.hk:80/handle/2031/5751 Title: Top management turnover, firm performance and corporate governance in political economy : evidence from China's listed state-owned enterprises Authors: Hu, Fang (胡方) Abstract: This dissertation investigates the corporate control mechanism and usefulness of accounting information for control mechanism in the political economy by examining the linkage of management turnover, firm performance and corporate governance in China’s state-owned enterprises (SOEs). The first essay investigates the relationship between top management turnover, firm performance, and government control interests in China’s listed SOEs. Firstly, this study evidences an inverse relationship between top management turnover and various accounting measures of firm performance in China’s SOEs. This finding implies that an effective method of corporate control, based on accounting information, exists in China’s SOE. This effective performance-based turnover is induced by government interests for economic performance rather than external market pressure in market economy argued by prior studies. Secondly, this study investigates how government control interests influence turnover-performance relationship by examining SOE characteristics such as the concentration or jurisdictional level of government ownership, the market power or in a strategic industry. The results suggest that government control interests or involvement have important implications on the method of corporate control and that a highly involved government owner may enhance a tight corporate control. The second essay studies the corporate control mechanism designed by the government in a political economy by investigating the replacement and appointment of management in China’s state-owned enterprises. Firstly, this study finds that the state owner is more likely to remove incumbent top executives and appoint a politically-connected executive when a SOE encounters economic distress such as poor ROA, earnings loss, high financial risk, or political distress such as regulation violation. Further, it examines the likelihood of appointing a politically-connected executive in a poor-performing SOE with characteristics such as the concentration or jurisdictional level of government ownership, the market power or in a strategic industry. Finally, this study finds that the political top executives improve firm performance following their appointments, initiating modification of internal governance structures and mitigating manager’s discretion behavior. All these findings support the arguments that state owner (government) considers political executives helpful to improve firm performance and control agency problems. Meanwhile, the post-appointment consequences suggest that political executives serve as a disciplinary or monitoring mechanism substituting for external market control, instead of being only a form of bail-out. The findings in this dissertation contribute to the literature by examining corporate control mechanism and the usefulness of accounting information in a distinguished context and provide more understanding of the value of political institutions. Notes: CityU Call Number: HD4318 .H784 2009; iv, 124 leaves : ill. 30 cm.; Thesis (Ph.D.)--City University of Hong Kong, 2009.; Includes bibliographical references (leaves 75-85) Thu, 01 Jan 2009 00:00:00 GMT http://dspace.cityu.edu.hk:80/handle/2031/5751 2009-01-01T00:00:00Z http://dspace.cityu.edu.hk:80/handle/2031/5447 Title: Relationship-specific investment, accounting conservatism, auditor choice and audit fees : the effect of customers and suppliers Authors: Yao, Yiwei (姚易偉) Abstract: This study tries to explain accounting practice using transaction cost economics (TCE) method. Specifically, I investigate how specificity, which is one of the three most important attributes for characterizing transactions (Williamson, 1985) can affect accounting conservatism, auditor choice and audit fees in a setting when customers/suppliers as stakeholders of the firm are included. Although, in the past, ample evidence was provided in economics, finance and marketing trying to explain how governance structure will be influenced by transaction cost. However, ‘Compared to the more extensive treatment in economics and marketing, there are far fewer direct applications of TCE logic to empirical phenomena in accounting. This relative dearth of TCE research is somewhat surprising, given the apparent relevance of accounting phenomena to questions of economic organization and performance. (Marcher and Richman, 2008)’. On the other hand, while prior accounting researches try to explain and predict accounting choice within the explicit contracts between the firm and shareholders, debt-holders, government, and regulators, little attention has been given to the implicit relationship between the firm and its customers/suppliers. According to the theory of accounting, accounting practice is shaped by a set of explicit contracts between the firm and the shareholders, debt-holders, government, employees, and regulators, as well as implicit claims with its customers and supplies (Sunder, 1997). So far, without considering the effect of customers/suppliers, our understanding of accounting is limited and incomplete. This study aims to address these two limitations with two parts on accounting conservatism and auditing respectively. The first part of the dissertation investigates whether a firm’s conservative accounting practice is associated with relationship-specific (RS) investment of its customers/suppliers, the value of which by definition depends upon the future prospects of the firm. Customers/suppliers with RS investment have an asymmetric loss function between overinvestment and underinvestment because of the lack of alternative use of such assets. They hence have an asymmetric demand for timely loss versus gain recognition. Accounting conservatism plays a governance role in this situation through the timelier reporting of bad news than good news. Using asymmetric timeliness and customers/suppliers’ research and development intensity as major proxies for accounting conservatism and RS investment, respectively, I find that at both the industry and firm level a firm’s accounting conservatism is positively associated with the RS investment of its customers/suppliers after controlling for the other conservatism divers and the potential endogenous problem. Further, this relationship is weaker when vertical integration (an alternative bonding mechanism) exists between the firm and its customers/suppliers, the market concentration of the firm’s customers/suppliers is low, or when the firm has a long-term relationship with its customers and suppliers. The second part examines whether customers/suppliers’ RS investment can create a demand for high quality audit services as either a bonding or signaling mechanism to reduce the agency cost associated with RS investment and whether a fee premium is charged accordingly to compensate the incremental fraud risk associated with the RS investment or due to the limited spillover of the specific knowledge investment made by the auditor. Employing R&D intensity of customers/suppliers (Industries) and auditor’s brand name (big vs. non-big) as proxies for customers/suppliers’ RS investment and audit quality respectively, After controlling for other confounding factors, I find on industry and firm level, firms with high customers/suppliers’ RS investment are more likely to choose high-quality auditors and pay more audit fees. Notes: CityU Call Number: HF5636 .Y36 2009; iii, 97 leaves 30 cm.; Thesis (Ph.D.)--City University of Hong Kong, 2009.; Includes bibliographical references (leaves 70-75) Thu, 01 Jan 2009 00:00:00 GMT http://dspace.cityu.edu.hk:80/handle/2031/5447 2009-01-01T00:00:00Z http://dspace.cityu.edu.hk:80/handle/2031/4879 Title: The effect of Sarbanes-Oxley Act and managerial-entrenchment on earnings management and the value relevance of earnings Authors: Ng, Anthony Chi-Yeung (伍子楊) Abstract: This thesis examines the effects of the passing of Sarbanes-Oxley Act (SOX) of 2002 as well as managerial entrenchment of corporations (a proxy for corporate governance) on (1) earnings management and (2) the value relevance of earnings. Following the scheme used in Cohen et al. (2005), this study partitions the sample period into three sub-periods – the Pre-Scandal (January 1, 1990 – June 30, 2001), Scandal (July 1, 2001 – June 30, 2002) and Post-SOX sub-periods (after July 1, 2002) – based on Enron’s collapse and the passing of SOX. Data analyses using 10711 (which consists of 7029 firm-year observations during the Pre-Scandal sub-period, 1251 firm-year observations during the Scandal sub-period and 2431 firm-year observations during the Post-SOX sub-period) firm-year observations show the following. First, it is found that discretionary accruals (a proxy for earnings management) are of the highest magnitudes during the Scandal sub-period, consistent with the Cohen et al. (2005) study. Based on such findings, Cohen et al. (2005) conclude it is mainly the large magnitudes of absolute discretionary accruals during the Scandal sub-period that lead to the passing of SOX. However, my analysis shows that the large magnitudes of accruals during the Scandal sub-period are mostly income-decreasing in nature. This finding suggests that the conclusions in the Cohen et al. (2005) study might not be appropriate since income decreasing accruals are more likely to be conservative application of GAAP. In addition, this thesis also takes into account firm-level corporate governance when investigating the nature of earnings management. Firm-level corporate governance in this thesis is proxied by the aggregate of six anti-managerial-entrenchment mechanisms that are in place. The anti-managerial-entrenchment mechanisms are extracted from the Investor Responsibility Research Center (IRRC) takeover database. Taking into account nature of corporate governance, this thesis shows that corporations are more likely to engage in income-decreasing earnings management if they have more anti-managerial-entrenchment mechanisms in place during the Scandal sub-period. Besides the relationship between earnings management and anti-managerial-entrenchment mechanisms, this thesis also examines the value relevance of earnings during the different sub-periods. It is shown that value relevance of earnings is significantly different for the three sub-periods. Strong anti-managerial-entrenchment mechanisms have a positive impact on the value relevance of earnings, but only during the Scandal sub-period. In addition to the effect of strong anti-managerial-entrenchment mechanisms, this thesis also shows that such positive impact only apply to firms that engage in income-decreasing earnings management during the Scandal sub-period. Investors seem to take into account corporate governance characteristics, and place more confidence on the reported earnings for firms that are managing earnings downward when corporate governance characteristics are stronger during the Scandal sub-period. The results suggest that there is a substitution effect between firm-specific corporate governance mechanism and macro corporate governance improvement like the passing of SOX in general. Notes: CityU Call Number: HF5686.C7 N4 2006; Includes bibliographical references (leaves 142-153); Thesis (Ph.D.)--City University of Hong Kong, 2006; vii, 220 leaves : ill. ; 30 cm. Sun, 01 Jan 2006 00:00:00 GMT http://dspace.cityu.edu.hk:80/handle/2031/4879 2006-01-01T00:00:00Z