Research seminars

Determinants and Consequences of Presentation Format: The Case of ETR Reconciliations

Accounting & Management Control

Speaker: Sundaresh Ramnath
University of Miami

21 April 2017 - HEC Paris - room T004 - From 2:00 pm to 4:00 pm


SEC Regulation S-X requires companies to reconcile deviations between their actual tax expense and their expected tax expense under federal statutory tax rates (effective tax rate (ETR) reconciliation). This regulation permits companies to choose between a dollar or percentage format for the ETR reconciliation. In our sample, roughly half the firms choose one of the two formats. We investigate the causes and consequences of this disclosure decision. We find, consistent with a political cost argument that firms with low (high) ETRs, through their choice of presentation format, tend to highlight the dollar (percentage) amount of the tax expense. We also find that users such as analysts seem to find the percentage format easier to use and tend to make smaller errors in their ETR forecasts when firms present their ETR reconciliation in the percentage format. Moreover, analysts’ ETR forecast dispersion is higher when companies present reconciliation in the dollar format, consistent with analysts’ comfort (or lack thereof) when information is presented in an easily usable (less straightforward) format.

TBD

Accounting & Management Control

Speaker: Kalle Kraus
Stockholm School of Economics

14 September 2018 - HEC Paris - Room T004 - From 2:00 pm to 4:00 pm


TBD

Accounting & Management Control

Speaker: Shiva Sivaramakrishnan
Rice University

15 June 2018 - HEC Paris - Room X120 - From 2:00 pm to 4:00 pm


TBD

Accounting & Management Control

Speaker: Xin Wang
Hong Kong University

8 June 2018 - HEC Paris - Room T004 - From 2:00 pm to 4:00 pm


Accounting for tacit coordination

Accounting & Management Control

Speaker: Hendrik Vollmer
University of Leicester

25 May 2018 - HEC Paris - Room T020 - From 2:00 pm to 4:00 pm


Tacit coordination is a pervasive aspect of accounting practice. This paper teases out insights on tacit coordination from existing scholarship, starting with studies of everyday life accounting, then turning to professional practice. It develops an understanding that, in the application of rules and accounting standards, in producing, framing, auditing and using statements, records, apologies or excuses, accounting practitioners tacitly coordinate towards the passing of accounts. This passing can be articulated in terms of structures, agencies and processes of tacit coordination involved in making accounting happen. The implications of this understanding of accounting practice and the importance of the wider domain of enquiry it is indicating are discussed with respect to the stewardship position of accounting professionals and to the further development of accounting theory. The paper identifies a need for broad-based forms of accounting theory to support accounting practitioners in the stewardship of silence and provide an antidote against the idea that any account, any slice of information, or any amount of ‘big data’, could speak for itself – or that it should.

“Processing the Future: Venture Project Evaluation at the American Research and Development Corporation (1946–1973)”

Accounting & Management Control

Speaker: Martin Giraudeau
LSE/Sci. Po

4 May 2018 - HEC Paris - Room T025 - From 2:00 pm to 4:00 pm


This chapter is an analysis of the project appraisal procedures in place at American Research and Development Corporation (ARD) between 1946 and 1973, under the management of Georges F. Doriot. It shows the importance of knowledge technologies and administrative procedures in the way the venture capital company dealt with uncertain futures. The origins of these knowledge practices are traced back to Georges F. Doriot’s own views on business, and more generally to the pragmatist movement in business administration, of which he was a member. The conduct of project appraisal at ARD is then observed directly, and this reveals its reliance on a rich set of knowledge and diagnostic techniques, as well as administrative procedures. These observations allow for a specification of the nature and role of imagination in the entrepreneurship and venture capital practices examined here—in particular, its close relationship with organized knowledge.

“States of Mind: the many forms of government influence on the Accounting Profession in China”

Accounting & Management Control

Speaker: Crawford Spence
King’s College London

20 April 2018 - HEC Paris - T004 - From 2:00 pm to 4:00 pm


Literature examining dynamics between the State and the Accounting Profession is well established and points towards the crucial interrelations between the two. However, this literature evinces an occidental orientation, privileging the notion of a State characterised by self-limiting, liberal ideology and that is captured by dominant interests. An extension of this view portrays professional bodies as largely autonomous from State structures and effectively avatars for said dominant interests. This paper starts from the premise that studying State-Profession dynamics in China has the potential to invigorate this literature given the non-liberal, expansive nature of the Chinese State and the situation of a professional body that is effectively under the tutelage of the Ministry of Finance. Drawing on archival analysis and interviews with over 60 regulators, State actors, practitioners in local and foreign firms in China, we show that the State successfully shapes the accounting profession by performing multiple roles: as field-maker, as regulator and as a consumer of accounting services. Accounting firms, in turn, need to develop variable strategies in order to successfully position themselves in the face of this complexity. Conceptually, this permits us to demonstrate that the State is a deep rooted cultural phenomenon existing in the cognitive structures of key actors in the accounting field in China, thereby drawing attention to further reaching forms of State influence than have hitherto been recognised in extant literature analysing State-Profession dynamics.

Strategic trading at the preopening after earnings announcements

Accounting & Management Control

Speaker: Shai Levi
Tel Aviv University

23 March 2018 - HEC Paris - Room T004 - From 2:00 pm to 4:00 pm


Prior literature finds the price adjustment after earnings announcements is not immediate. This paper shows that informed investors act strategically to prevent their information from immediately affecting prices after announcements. Specifically, we examine the price discovery at the preopening auction after earning announcements. We show that traders place more orders at the end of the preopening after earnings announcements, a behavior that reduces the market’s ability to learn their information, and we find they profit from these late orders.

Managerial Power and CEO Pay

Accounting & Management Control

Speaker: Robert F Göx
University of Zurich

16 March 2018 - HEC Paris - Room T004 - From 2:00 pm to 4:00 pm


We study the consequences of the CEO’s power over the board of directors in the context of a standard agency model. Our results indicate that a CEO-friendly board affects the structure of the optimal compensation contract in a more subtle way than suggested by the managerial power approach. First, we find that the optimal compensation level is not an increasing function of the CEO’s power. According to our analysis, a friendly board generally raises CEO pay for low performance levels but reduces it for high performance levels. Second, we find that the pay-performance sensitivity (PPS) typically varies with the firm’s performance. Third, we identify conditions for which the optimal contract implemented by a friendly board exhibits a higher PPS than the contract that maximizes the utility of shareholders. As a special case of the general model, we derive an optimal quadratic contract. In this setting, a more friendly board always proposes a contract with a higher salary, more stocks, and the same number of options. In an extension of our base model, we examine how a friendly board affects the optimal use and the rules for aggregating multiple performance measures into a single performance index. While we find that both decisions are generally not affected by the friendliness of the board, we identify conditions under which the sensitivity of CEO pay-to-peer-performance is increasing in the CEO’s power over the board. Overall, our results suggest that neither high pay levels nor the magnitude of the sensitivities of the CEO’s pay to the firm’s own performance or the performance of its peers can be taken as indicators for or against the soundness of firms’ compensation practices without relating these measures to the realized values of the performance measures used in the optimal compensation contract.

Societal Trust and Corporate Tax Avoidance

Accounting & Management Control

Speaker: Kiridaran Kanagaretnam
Schulich School of Business

14 March 2018 - HEC Paris - Room T004 - From 2:00 pm to 4:00 pm


Using an international sample of firms from 25 countries and a country-level index for societal trust, we document strong evidence that societal trust is negatively associated with tax avoidance, even after controlling for other institutional determinants such as home country legal institutions, capital market development, and tax system characteristics. We then explore the effects of two country-level institutional characteristics – strength of legal institutions and capital market pressure – on the relation between societal trust and tax avoidance. We predict and find that the relation between trust and tax avoidance is more pronounced when the legal institutions in a country are weaker and the capital market pressure is stronger. Finally, we examine the relation between societal trust and tax evasion. We show that societal trust is negatively related to tax evasion, an extreme and illegal form of tax avoidance, and the negative relation is more pronounced when the legal institutions are weaker.

The Effect of Exogenous Information on Voluntary Disclosure and Market Quality

Accounting & Management Control

Speaker: Ilan Guttman
New York University

9 March 2018 - HEC Paris - Room T004 - From 2:00 pm to 4:00 pm


We analyze a game in which a firm chooses whether to disclose information, knowing this information may be published by a third party, such as an analyst. We analyze how the firm's disclosure strategy is affected by probability of disclosure by the third party; we refer to this probability as analyst coverage. Under plausible assumptions, analyst coverage crowds out disclosure. Despite the crowding out effect, we argue that an increase in analyst coverage increases aggregate information. We base this claim on
two measures of information in prices. The first is statistical in nature while the second relies on liquidity in a model in which following information disclosure there is trade. We show how an increase in analyst coverage increases liquidity as measured by the bid ask spread.

Real Externalities of Mandatory Disclosures: Evidence from the Oil and Gas Industry

Accounting & Management Control

Speaker: Bjorn Jorgensen
London School of Economics

26 January 2018 - HEC Paris - Room T020 - From 2:00 pm to 4:00 pm


This paper documents real externalities of firms’ mandatory disclosures. We focus our analysis on the regulatory disclosure of oil and gas (O&G) reserves, a setting in which mandatory information is particularly important to understand industry competition. Using a comprehensive sample of Canadian and US O&G producers, we hypothesize and find that larger increases in reserves are accompanied by lower stock returns and increases in investment for competing firms. These findings are consistent with O&G disclosures containing competition-sensitive information. To sharpen identification, we exploit three sources of institutional variation. First, the North-American pipeline infrastructure constrains the supply of natural gas, and thus competition in the gas market, but not the supply of oil. Second, the introduction of the fracking technology substantially altered the competition dynamics in the natural gas market. Third, mandatory O&G disclosure rules were modified in Canada and the US in a similar fashion, albeit at different points in time. Consistent with mandatory disclosure of O&G reserves imposing proprietary costs, we also find that, under the new rules, disclosing firms appear to be less able to exploit their competitive advantage. Overall, our evidence highlights important trade-offs in the market-wide effects of disclosure regulation.

Financialization and the institutional foundations of the new capitalism

Accounting & Management Control

Speaker: Bruce Carruthers
Northwestern University

20 October 2017 - HEC Paris - Room T004 - From 2:00 pm to 4:00 pm


One of key features of capitalism as a form of economic organization concerns its ability to change. Innovation often occurs by using old things in new ways, or by taking pre-existing elements and rearranging them into novel configurations [termed ‘conversion’ by Streeck and Thelen (2005, p. 26)]. Change can also happen when old activities are simply discontinued, or when new activities are added [what Mahoney and Thelen (2010, p. 16) call ‘layering’]. Capitalist innovation does not arise ex nihilo, nor does it involve wholesale rejection of the past. As even casual students of contemporary capitalism realize, much of today’s capitalism resembles the old-fashioned kind studied by nineteenth-century social theorists like Marx, Durkheim andWeber. Heavy industry still exists, tangible goods are still manufactured in factories using assembly line methods, commodities are sent around the world via rail or ship, people still make steel and dig coal and iron ore out of the ground, and so on. Nevertheless, a growing number of scholars have identified ‘financialization’ as a significant change: the growth in importance of financial markets and financial institutions, and the increasing involvement of economic actors in financial transactions (Krippner, 2011; Greenwood and Scharfstein, 2013; Philippon and Reshef, 2013). Such transactions consist of traditional activities like lending (e.g. bank loans and bonds) and investment (e.g. equities), but also newer ones involving derivatives and securitization. What is the significance of this change, and what undergirds it?
The markets that organize capitalism are based on a set of underlying institutional preconditions. What do such foundations consist of? Since markets are venues for economic exchange, the first precondition concerns the objects of exchange. What do buyers buy from sellers, and how are these objects constituted? This is not a matter of physical reality since market exchange involves rights over things or services, not necessarily the things or services themselves. But by virtue of private property rights, tangible and intangible objects are commodified and ownership rights over them can be freely transferred from one owner to another.
Second, markets depend on information to suppose an interdependent role structure: buyers and sellers. Markets cannot function without actors willing to act in both of these roles. If everyone wants to sell and no-one wants to buy, then market exchange will not occur. The same is true with only buyers, but no sellers. As Akerlof (1970) showed, asymmetries of information can cause markets to unravel. In his analysis, sellers possessed information that they could not credibly convey to buyers, but the more general problem is that both buyers and sellers seek information about the objects they transact. Too much uncertainty will curtail market exchange. Third, markets depend on regulation that is sufficient to suppose binding agreements. Many bilateral transactions unfold over time, they are not completed ‘on the spot’. For example, one party might receive goods and pay for them later, or someone might pay for goods, and receive them later. In modern markets, contracts are the vehicle typically used to make an agreement formally binding.1 Finally, market economies contain the possibility of failure by firms, who then face bankruptcy. Firms that are unprofitable will eventually close down and cease their activities: their assets will be distributed to their creditors and employees lose their jobs. Corporate bankruptcy or insolvency law provides the means to identify and extinguish failing firms.
Financialization, as I discuss below, involves the modification and rearticulation of these preconditions. Krippner (2011) emphasized the political origins of financialization, but here I explore its institutional basis, an aspect she does not treat. I have listed these preconditions as analytically separable, but in historical fact they were usually linked together. For example, the development of corporate lawenabled fictive individuals to become both owners of property and objects of property rights, where financial instruments functioned as the unit of ownership. A corporation was owned (by shareholders), and their ownership interests could be freely exchanged, but the corporation itself could also own property (for instance, other corporations). With the passage of general laws of incorporation and their modification at the end of the nineteenth century, corporations could own, buy, sell and enter into binding agreements. They could also fail, although limited liability protected the personal wealth of shareholders. In addition, these preconditions are often shaped through public regulation. Regulations may set restrictions on market entry (i.e. on who may act as a buyer or seller in a particular market), set prices or quality standards, standardize the contracts that govern exchange, mandate the provision of certain types of information by market actors or set the terms of market exit. The dynamism of contemporary capitalism stems, in part, from the emergence of new ways to satisfy these preconditions. Through institutional change, capitalism was able to financialize within an overarching framework of private property, information, regulation and failure, maintaining its identity as a distinct economic system. This complex combination of change and continuity unfolded as small variations were amplified into large and often unintended transformations. The outcomes were variably intended.

Star Analyst Voting and Recommendation Bias

Accounting & Management Control

Speaker: Qiang Cheng
Singapore Management University

18 October 2017 - HEC Paris - Room T004 - From 2:00 pm to 4:00 pm


Being voted as a star analyst increases an analyst’ compensation, reputation, and mobility. In this
paper, we examine financial analysts’ economic incentives arising from currying favor from
mutual funds in star analyst voting. Using the proprietary, detailed voting data from China, we
find that analysts issue more optimistically biased recommendations to the firms owned by the
voting funds. The extent of the recommendation bias increases with the relative weight of the
firm in the voting funds’ portfolios and the weight of the funds’ vote in the calculation of final
voting outcome, and decreases with the reputation of the brokerage houses that employ the
analysts. In addition, we find that the capital markets do not seem to recognize and discount
analysts’ recommendation bias arising from such voting connections. Collectively these findings
indicate that analysts issue biased recommendations to secure favourable votes from, or return
favour to mutual funds that vote for them.

“The quality of earnings and non-earnings information in stock returns, and their relative effect on the cost of equity”

Accounting & Management Control

Speaker: Eli Amir
Tel Aviv University

6 October 2017 - HEC Paris - Room T004 - From 2:00 pm to 4:00 pm


While prior literature shows that the quality of earnings information explains the variation in firms’ cost of equity, earnings information, after all, represents only a small part of firm specific, value-relevant, information. In addition, whereas different firms report earnings according to similar rules, their information environment on non-disclosure days is more heterogeneous. Using daily stock returns, we estimate the quality of information during earnings and non-earnings announcement days, and find that although the quality of information increases during earnings announcements, it explains less of the variation in expected returns than the quality of information on non-earnings days. Our findings suggest that the quality of earnings has but only a small effect on the cost of equity relative to the quality of information released on non-earnings days.

Joint seminar HEC/ESSEC - Localization of Global Accounting Practices: A comparative analysis of practice variation in response to institutional complexity

Accounting & Management Control

Speaker: Eksa Kilfoyle
University of Windsor, Ontario, Canada

20 June 2017 - Champerret - Amphi 461 - From 2:00 pm to 4:00 pm


We conduct a comparative analysis of the initial stages of implementation of global accounting and control practices in two member organizations of an international network. We analyze organizational responses to institutional pressures. We attend to nested institutional levels and show how institutional logics, enacted by executives in early stages of implementation, mediate variations in the localized accounting and control practices. Our study contributes to understanding how field level pressures shape practice variation beyond loose coupling and decoupling. We also highlight the importance of early stages of localization of accounting practices, given the path dependent nature of institutions. Executive team decisions and actions in response to field level pressures in the early stages of localization shape organizational responses to the introduction of global accounting practices. We find that localized accounting and control practices are institutional hybrids and we propose a process that explains the source of variations in these accounting hybrids.


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