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Item The use and perceived usefulness of public sector financial statements by politicians – evidence from Croatia(Emerald Publishing Limited, 2023-12-18) Pajković I; Botica Redmayne N; Vašiček VPurpose: This study analyses to what extent politicians use public sector entities' financial statements along with the politicians' perceptions of the usefulness of such statements in the politicians' decision-making. The authors analyze financial statements' use and usefulness when the statements are prepared on a modified accrual basis and in the setting where there is the intention of full accrual accounting adoption. In addition, this study provides information about the use of the individual components of financial statements and investigates the reasons why the statements may not be used. Design/methodology/approach: This study was conducted using a questionnaire. The authors surveyed politicians that are members of Croatian public sector bodies. To conduct this research, the politicians were contacted by telephone over the period from February to April 2022. Findings: The findings of this study are of potential interest to researchers, regulators and policy makers. The findings show that most politicians use financial statements, but the politicians' perception of the statements' usefulness when the statements are prepared on a modified accrual accounting basis is greater than the politicians' actual use of the statements. The findings also show that in the process of making decisions, politicians use the selected financial statements that contain information of interest to the politicians; that the politicians tend to gravitate to the use of reports on revenue, expenses, receipts and expenditure prepared on modified accrual bases which are closer to budgetary reporting; that the politicians use the information that supports the politicians' sphere of responsibility as enforced by legislation. Originality/value: This study provides insights into the use and usefulness of financial statements in public sector setting where modified accrual accounting is used to prepare the statements and reports. This study provides additional evidence on the significance of legal setting to the financial reporting in public sector.Item Essays on financial accounting information, return predictability, and default risk : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Albany, New Zealand(Massey University, 2021) Thakerngkiat, NarongdechThere is a growing realization of the importance of financial and accounting information on financial markets, and this is thus very much an area of focus for academics, practitioners, and regulators. This thesis consists of three essays on financial accounting information, return predictability, and default risk. The first essay considers the impact of inconsistent financial accounting information on the cross-section of stock returns. This essay uses earnings quality and firm characteristics to capture information signals about the firm value and measure information inconsistency as the variation across the information of the same company. The findings show that returns of information-consistent firms predict the returns of information-inconsistent firms in both equal- and value-weighted portfolios. However, such predictability varies over time due to liquidity funding and investor attention. This first essay thus contributes to the growing literature documenting the cross-section of stock return predictability as a result of the varying speed of information incorporation across stocks. The second essay examines whether the differences in accounting information between the pairs of stocks affect cross-asset return predictability. This essay uses a comprehensive set of accounting variables and market environments to capture the degree of information reflection. The results show that accounting variables such as abnormal accruals, earnings smoothness, book-to-market, firm age, leverage, abnormal capital investment, and investment growth, among others, explain the variation in predictability across pairing stocks. The cross-asset predictability varies over time and is associated with liquidity funding and market sentiment. A simple trading strategy based on our findings yields a higher mean return, lower standard deviation, and higher Sharpe ratio compared to the buy-and-hold strategy. The final essay investigates the impact of risk aversion on default risk. While a large body of research documents various firm characteristics and market conditions that drive corporate default, whether risk aversion matters for default risk remains under-investigated. This could be attributed to endogeneity concerns, such as that the investor risk aversion is not an exogenous variable or the presence of omitted variables that drive the default risk and the simultaneity bias between the default risk and the risk aversion. To address the endogeneity challenge, we use the largest mega-terrorist event, the 9/11 terrorist attacks, as an exogenous shock to investor’s risk aversion; the empirical evidence shows a significant increase in default risks at both market and firm levels following the 9/11 attacks. Terrorism causes an increase in market-wide default risk for firms located in the attacked states, as well as for those located in the non-affected states. The findings are consistent with the strand of literature suggesting that, following terrorist attacks, investors become more risk-averse and demand a higher premium for their investment, leading to increased default risk.Item Value based performance reporting : a study of the information used by Australasian analysts in their assessment of long-term firm performance (value) : a thesis presented in partial fulfillment of the requirements for the degree of Master of Business Studies in Accounting, Massey University(Massey University, 2007) Macfarquhar, Clay ColinPublic company shareholders and potential investors rely on statutory and voluntary disclosures to enable an informed assessment of company performance and value. It is widely acknowledged that traditional historic accrual accounting measures do not offer a complete picture of firm performance, and that there is demand for an expanded set of performance indicators to service the needs of concerned stakeholders. The reliance on voluntary disclosure of company specific non-financial information is of particular concern to this thesis as the examination of existing literature displays evidence that such areas of performance are under-reported externally. With reference to a range of performance indicators that New Zealand and Australian Chartered Financial Analysts identify as relevant in their assessment of performance and value, this study identifies areas of performance that are under-reported by management and where information asymmetry is proposed to exist. The issue of under-reporting is assessed through gap analysis comparing the surveyed analysts ratings for the 'predictive value' (PV) measure of each performance item/indicator to the respective ratings for 'ease of acquisition' (EA). The study finds that analysts rely on a broad range of financial and non-financial information in their assessment of firm performance. More specifically the reporting of traditional financial information remains relevant and the extent of its provision is adequate, however the study finds that in many cases information not forming part of traditionally reported financial information has 'predictive value' relevance but is relatively more difficult to acquire. The thesis research findings therefore indicate that information reporting reliant on voluntary disclosure is at greater risk of being under-reported (externally). Such under-reporting has been found to be associated with non-financial information that relies on management identifying relevant company specific measures and subsequent voluntary disclosure. In an attempt to emphasise the importance of restoring the information balance between management and interested external parties (for performance assessment and valuation purposes), the thesis will include an exploration and discuss of literature on the benefits associated with full disclosure, along with potential means of identifying relevant measures for external reporting.Item Accounting standards complexity, audit fees and financial analyst forecasts in Australia : a thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy in Accounting at Massey University, Albany, New Zealand(Massey University, 2017) Miah, Muhammad ShahinWhile the beneficial effects of International Financial Reporting Standards (IFRS) on financial reporting quality, cost of capital, cross-country investment, corporate decision making and governance are well studied in the literature, there is relatively little research on the cost side of IFRS adoption and its impact on users. This thesis contributes by investigating the impact of IFRS complexity on two important groups of users of financial reports namely auditors and financial analysts. The hypotheses are built on the premise that principles-based standards are more complex than rules-based standards. This study examines the relationships between IFRS complexity, audit fees, and analyst forecast properties. IFRS is likely to require more of auditors in terms of professional expertise, time and effort, hence resulting in higher audit fees. Financial analysts may be similarly affected by the complexity of IFRS resulting in less accurate forecasts on key financial components. This thesis measures IFRS complexity based on individual IFRS standards specifically identified as having higher levels of complexity. Scores are then calculated to indicate the difference between these IFRS standards and their equivalent previous domestic accounting standards. The degree of complexity is also measured at aggregate level to indicate an overall complexity impact based on the combined score for all identified 'complex' IFRS standards. Findings indicate that aggregate IFRS complexity is positively and significantly associated with audit fees but that specific IFRS standards are identifiable as being paiticularly complex, hence explaining much of the positive relationship with audit fees. The results also reveal that the incremental effect of IFRS complexity on audit fees is more pronounced when finns are audited by city-level industly specialists as opposed to those audited by nonindustly specialists. Furthermore, IFRS complexity is found to have a positive and significant association with analyst forecast properties (forecast errors, forecast dispersion, and forecast revision). Surprisingly some of the standards identified as being more complex for auditors (i.e., driving higher audit fees) do not appear similarly complex in relation to financial analyst forecast properties. Finally, this thesis investigates the moderating role of high quality audits (proxied by industry specialist auditors) on complexity and analyst forecast properties and finds that forecast errors decrease for firms which are exposed to higher levels of IFRS complexity if they are audited by city-level industly specialists. This study provides important insights for regulator regarding the complexity of specific IFRS standards. Findings may also be of benefit to countries which are in the process of adopting IFRS or planning to do so.Item Three essays on political connections, financial reporting, and auditing : evidence from Indonesian listed companies : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Accountancy at Massey University, Albany, New Zealand(Massey University, 2016) Muhammadi, Abdul HarisThis research examines the association between political connections and related party transactions (RPTs). This study also investigates whether politically-connected firms use RPTs to tunnel resources and mask “true” operating performance by managing earnings. This study is motivated by conflicting views on whether political connections are beneficial or detrimental to stakeholder interests. In addition, this research investigates how political connections, in concert with RPTs, determine auditor choice in Indonesia. This auditor choice aspect of the study is motivated by the conflicting views and inconclusive findings on whether politically-connected firms will appoint reputable auditors, i.e., the Big 4 audit firms, or non-Big 4 auditors. Essay one examines the relationship between political connections and RPTs and investigates whether firms with political connections engage more or less in RPTs. It hypothesizes that politically connected firms conduct more value-destroying RPTs compared to non-politically connected firms, because they have more power and opportunities gained from their connections. The findings of essay one reveal that politically connected firms conduct more RPTs compared to non-politically connected firms. In terms of economic significance, the reported coefficient suggests that, compared to non-connected firms, politically connected firms carry out 43% more RPTs. However, the regression results show that the significant influence of political connections applies only to RPTLOAN (RPT loans and guarantees). In order to capture the richness in political dynamism in Indonesia, a finer classification of political connections is utilized where connected firms can be classified further into government, military, and Suharto connections. Using this approach, the study reveals that only the coefficient of GCON (government connection) is positive and significant, suggesting that listed firms having political connections with the Government will conduct more RPTLOANs. The insignificant influence of Suharto and military connections occurs because, after Suharto‟s resignation, firms associated with Suharto and military personnel had difficulties in establishing a connection with the new government, and experienced loss of government contracts, distributorships, and brokerage monopolies. Essay two investigates whether politically connected firms use RPTs to tunnel resources, and to mask “true” operating performance by managing earnings. This essay argues that politically connected firms have incentives to conduct more tunnelling compared to non-politically connected firms, due to the costs of establishment and maintenance of political connections, the opportunity to seize the benefits brought by political connections, and fewer disciplinary constraints from laws and regulations. Such tunnelling activities cause the economic performance of politically connected firms to deteriorate and, as a result, they need to be concealed by conducting income-increasing earnings management. Essay two provides empirical evidence that politically connected firms use RPTs to tunnel resources, and to engage in income-increasing earnings management designed to mask tunnelling activities. Essay three investigates how political connections determine auditor choice in Indonesia. This essay proposes that, because of tunnelling incentives, firms having political connections with the government might appoint non-big four auditors in order to allow them to have less transparent financial statements and to obfuscate their tunnelling activities. On the other hand, following the collapse of the Suharto regime, privileges and benefits enjoyed by firms having connections with Suharto and the military have gone, so that they have less incentive to engage in tunnelling and financial report manipulation in order to obfuscate such tunnelling. Therefore, essay three proposes that firms having connections with Suharto and the military are more likely to hire the Big 4 auditors. The results of essay three document that politically connected firms in Indonesia tend to choose non-Big 4 auditors. When a finer classification of political connections is used the regression results show that firms having connections with the government are more inclined to choose non-Big 4 auditors, whereas those with connections to Suharto have the option to appoint Big 4 auditors.Further, essay three also proposes that since RPTs involving loans allow politically connected firms to siphon resources, there is an incentive for those firms to manipulate financial reports in order to obfuscate “true” economic performance. Thus, politically connected firms with RPT loans are more likely to choose non-Big 4 auditors. Essay three documents that RPTs have a significant influence on the appointment of auditors of politically connected firms. The tendency to appoint non-Big 4 auditors increases when firms have political affiliations with the government and carry out RPTs. Key words: political connections, politically connected firms, related party transactions, tunnelling, earning management, auditor choice, IndonesiaItem Accounting for the elephant in the room : disclosure of intangible assets in New Zealand public companies : a thesis submitted to meet the requirements of Paper 152.800 (100 points) towards the degree of Master of Management, Department of Management, College of Business, Massey University(Massey University, 2006) Ambler, IanCompany market values often exceed the values that are published in company annual reports. One popular explanation for this discrepancy is that traditional company accounting and reporting practices ignore the potentially very large value creating impact of intangible assets, which are also often referred to as intellectual capital or knowledge resources. The theories for measuring intangible assets are reviewed, highlighting the many conceptual and definitional problems that have been encountered. These problems are traced to the resource-based static perspective of intangible assets, which sees them as balance sheet items analogous to tangible assets. A recent transition from this perspective is identified in the literature, towards recognising that the value of intangible assets arises more from their use than their possession. This is a dynamic or flow perspective of intangible assets, which views them as knowledge resources used strategically to create value. Adopting this perspective shifts the intangible asset issue away from being an accounting matter based on reporting historical transactions, to become a corporate governance and strategic management matter concerned with reporting future value creation performance and capability. The empirical research develops and tests a novel instrument for measuring intangible asset reporting in New Zealand public companies, building on recently introduced Danish intellectual capital reporting guidelines centred on this emerging dynamic perspective. Of a sample of 50 listed public companies, 84% are found to be voluntarily reporting their use of intellectual capital to create value, 16% extensively. The reporting differences between these companies are then explored. Nearly two thirds of the variation may be explained by a combination of differences in profitability, the capital market's perceptions of their future added value, industry differences of tangible asset intensity, company size and company expansion strategies. The empirical findings show a positive relationship between higher levels of disclosure and the future value placed on companies by the capital markets, which suggests capital markets reward companies that adopt a more open disclosure policy with a lower cost of capital and easier access to capital. These outcomes are compared with the inconclusive results found in a control survey of intellectual capital disclosure based on the earlier static perspective using a commonly used disclosure measurement methodology. This comparison reinforces the relevance of the emerging dynamic perspective of intangible assets, and the value to be gained from adapting disclosure research methodologies that reflect this approach. This research shows there is currently a very low level of performance outlook reporting by New Zealand companies, a finding consistent with international research. It may seem that the next logical step from disclosing how a company intends to use intangible assets to create value is for its management to report its view of forward-looking expected performance. However, the literature reports that companies with conflicting goals may undermine the confidence the capital markets are prepared to place on their projections. Capital markets prefer to make their own informed assessments of the future performance of companies based on their own external assessment of each company's business model. In the context of the principles-based reporting guidelines in New Zealand's corporate governance regulatory framework, the findings of this research indicate that a small group of exemplar companies are leading the way towards a more comprehensive voluntary disclosure of their future value creation strategies. This offers evidence that the principled-based regulatory approach is working to raise the average quality of annual report disclosures by New Zealand public companies, though the uniformity and instant results of a rules-based approach are missing.Item An examination of the accounting treatment and value relevance of intangible assets in publicly listed New Zealand companies : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Accounting at Massey University(Massey University, 2002) Hart, Carol JeanWith little current public information on intangible asset capitalisation in the New Zealand environment, this study uses companies listed on the New Zealand Stock Exchange to determine current practice. The purpose of the study is to provide a springboard for further research into the intangible area as well as providing an understanding of how New Zealand companies contend with intangible assets, in the light of the controversy that has surrounded the introduction of the exposure draft, ED-87 Accounting for Intangible Assets. The study finds that, apart from goodwill, there are a variety of other intangible assets capitalised by New Zealand listed companies and that the majority of these assets are valued at cost. Capitalisation extends across most industry sectors and company size, although a higher proportion of larger than smaller companies capitalise intangible assets. The contribution to asset value made by capitalisation is quite high for some companies, with intangible assets other than goodwill contributing a greater proportion to asset value than goodwill. Although capitalising intangibles reduces the discrepancy between market and book values of equity, capitalising companies still have higher market-to-book ratios than non-capitalising companies, indicating that the market recognises further uncapitalised intangible value. Whilst companies with higher debt levels have a greater tendency to be capitalising companies, there is no evidence to suggest that companies are capitalising simply because of leverage factors. However, with amortisation periods tending to longer rather than shorter time spans (with many companies not amortising at all), companies may well be using amortisation practices to maintain higher asset levels on the balance sheet. The research supports overseas evidence for the value relevance of capitalised intangible assets and also finds that corporate ownership diversity and size can be influential in that value relevance.Item Control-based consolidation : FRS 37 and its effect on the value relevance of consolidated financial statements in New Zealand : a thesis presented in partial fulfillment of the requirement for the Master of Business Studies (Accountancy) at Massey University, Albany, Auckland(Massey University, 2014) Barcham, RachaelPurpose: The purpose of this thesis is to determine whether the requirement for New Zealand organisations to switch from the ownership-based method of consolidation to the control-based method of consolidation increased the value relevance of consolidated financial statements in New Zealand. It takes advantage of the unique situation whereby all listed entities in New Zealand were required to comply with FRS 37: Consolidating Investments in Subsidiaries (FRS 37) in a year relatively free from changes to other financial standards. Motivation: The study was motivated by research undertaken by Hsu et al. (2012). Their research focused on the movement from the ownership-based method to the control-based method of consolidation of financial statements and whether this better reflected market value. They took advantage of the situation in Taiwan which similarly required all public firms to adopt Taiwan’s SFAS 7: Consolidated Financial Statements (TSFAS 7) at a set time. Research question: Did the change from the ownership-based method of consolidation under SSAP 8 to the control-based method of consolidation under FRS 37 increase the value relevance of consolidated financial statements in New Zealand? Sample selection and design: A sample of 54 entities listed on the New Zealand Stock Exchange (NZX) was used. The sample, although small, represented all of the final available population. Analysis of common accounting ratios was carried out and accounting variables affected by the switch to FRS 37 were analysed to determine changes in the value relevance of the consolidated financial statements. Findings: The adoption of FRS 37 led to an increase in value relevance of financial statements in New Zealand. However the ability to apply judgement to the application of control highlighted entities holding a larger number of subsidiaries and associates had a more complex structure than anticipated. Therefore holdings indirectly controlled may not have been captured with a lower instance of consolidation being achieved than was anticipated.Item Volatility, value relevance and predictive power of comprehensive income : a thesis submitted in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Accounting at Massey University, Albany, New Zealand(Massey University, 2012) Khan, ShahwaliDespite analysts' demands for (and standard setters' preferences for) a single statement of comprehensive income, both the IASB and the FASB have not been able to achieve this objective. Proponents of a single statement presentation argue that comprehensive income brings discipline to managers and analysts as it requires them to consider all factors affecting owners' wealth. Opponents argue that other comprehensive income items are transitory in nature, including them with core business earnings increases the volatility and reduces the predictive power of earnings. Thus, this thesis examines the volatility, value relevance and predictive power of comprehensive income relative to net income. Motivated by the concerns that the volatility of comprehensive income leads to the perception of increased risk, this thesis investigates the volatility and risk relevance of comprehensive income for a sample of non-financial United States (US) and New Zealand (NZ) firms. The findings show that comprehensive income is more volatile than net income. The findings also show that comprehensive income volatility is associated with market-based measures of risk (volatility of stock returns and beta). However, the incremental volatility of comprehensive income (over net income) is not associated with market risk and is not priced. Prior literature documents mixed evidence on the pricing of comprehensive income. The mixed results are attributed to the use of as if measures of comprehensive income, which introduces measurement error. This thesis uses as reported data from US and NZ firms and shows that comprehensive income is more value relevant compared to net income. However, net income is a better measure for predicting future operating cash flows and future net income. These results have important implications for the FASB/IASB in deciding whether to report comprehensive income in a single statement of performance.Item The impact of international financial reporting standards (IFRS) on bank loan loss provisioning behaviour and bank earnings volatility : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Banking Studies at Massey University, Manawatu Campus, New Zealand(Massey University, 2012) Abdul Adzis, AziraThis thesis explores the impact of the adoption of IAS 39 under the new accounting standards, the International Financial Reporting Standards (IFRS), on bank income smoothing activities, bank pro-cyclical behaviour through loan loss provisions, and bank earnings volatility. It does this by looking at a sample of commercial banks from six countries in the Asia Pacific region over the period 1995 to 2009. By looking at the impact of IFRS (via IAS 39) on adopters and non-adopters, this thesis contributes to the literature by investigating the impact of IFRS adoption on IFRS adopting banks in this region. The findings demonstrate that IFRS adoption leads to a reduction in income smoothing activities through loan loss provisions for IFRS adopters. With respect to the argument that IFRS adoption would cause more pro-cyclical behaviour of loan loss provisions, the findings from this thesis could not find enough evidence to support the suggestion that IAS 39 amplifies pro-cyclicality of bank loan loss provisioning among the adopters. For the suggestion that IFRS might cause more volatility of earnings for the adopters, there is evidence of more volatile earnings after IFRS adoption, but extra caution is needed in interpreting the findings as they may have been driven by the global recession in 2008. Finally, for the conjecture that IFRS adoption leads to higher earnings volatility for IFRS adopters than that of non-adopters, there is insufficient evidence to support this suggestion.