To supplement earnings reported under generally accepted accounting principles (GAAP), public companies often voluntarily report alternative measures of earnings called non-GAAP earnings (NGE). These companies assert that NGE exclude the effect of non-recurring transactions, thereby helping users of financial information to better assess the company's past performance and prospects. Because NGE measures are not well defined, managers can exploit the inherent discretion in calculating NGE to mislead users. Prior studies provide arguments and evidence on the informative as well as opportunistic use of NGE. However, the studies have examined the characteristics and informativeness of NGE with a focus on U.S. companies. The results of studies that consider the NGE disclosure by U.S. companies may not be generalizable to the cross-listed companies because foreign financial reporting standards are different from the U.S. GAAP. Further, prior studies report a difference in earnings quality of U.S. firms and cross-listed firms, which can also result in a difference in the informativeness of their NGE. To fill this gap in literature, I examine whether the informativeness of NGE of cross-listed companies is different from that of U.S. companies. This study contributes to the debate on the informativeness of NGE. It provides evidence that in general, …

As the workplace has evolved over the past few years, several studies have documented perceived differences in personalities, values, and preferences between generations in the workplace, including in public accounting. In this study, I examine whether exposure to a negative preconceived belief about a staff auditor's generation (generational stereotype) influences the affective state of staff auditors and ultimately causes them to reduce the extent to which they communicate with a client manager to gather the necessary information to perform an audit adequately. I also investigate whether attribute affirmation from a work buddy helps elicit positive affect to mitigate the effects that exposure to negative generational stereotypes may have on audit evidence collection. I conducted a 2 x 2 experiment using graduate auditing students as a proxy for staff auditors. I find that general affect (i.e., mood) rather than interpersonal affect (i.e., likability), drives the negative effect of exposure to generational stereotypes on willingness to collect more audit evidence. I also find that high levels of negative mood can negatively impact participants' self-efficacy. I, however, failed to find evidence of a moderated mediation. The presence of an attribute affirmation results in an insignificant increase in positive affect. When staff auditors are …

This dissertation investigates the interrelationships between a client's non-GAAP earnings disclosures, financial health (profit and loss status), and the external auditor's assessment of the client's going concern status. This dissertation comprises two essays. Essay 1 examines the informativeness and the quality of non-GAAP earnings disclosures in profit and loss firms separately. Using a large sample of non-GAAP earnings voluntarily disclosed by managers, I find that the informativeness and the quality of non-GAAP earnings vary in firms cross-classified by GAAP loss status and non-GAAP loss status. I also find that loss firms have higher quality non-GAAP exclusions relative to profit firms, although the expenses excluded by both profit and loss firms are associated with firms' future performance. Further, I posit and find that profit firms which voluntarily disclose non-GAAP losses have high-quality exclusions, while other non-GAAP reporting profit firms have low-quality exclusions. Having found that non-GAAP earnings in loss firms is opportunistic to some extent, I next study, in Essay 2, whether auditors understand the implications of low-quality non-GAAP reporting in these firms. Specifically, I examine 1) whether non-GAAP earnings disclosures are associated with the propensity of the auditor's going concern issuance to loss firms, and 2) whether non-GAAP earnings disclosures …

The purpose of my dissertation is to examine whether competition among audit partners affects audit quality. While prior research on audit market competition focuses on audit firm-level or office-level analyses, I argue that audit partners, as the primary decision makers in providing audit services, are likely to engage in competitive actions in the audit market. Further, I use spatial distance among audit partners to measure partner-level competition. I conjecture that spatial distance could better reflect the dynamics of audit market competition than the Herfindahl index, the traditional proxy for competition used in most extant studies. Drawing on the spatial economics theory and the social comparison theory, I hypothesize a negative association between competition measured by spatial distance and the quality level delivered by the incumbent audit partner. Using newly available data of U.S. audit partners, this study provides evidence that audit quality is higher (lower) when the spatial distance between the incumbent partner and the closest competing partner is larger (smaller). In addition, the results reveal that the effects of competition measured by spatial distance on audit quality is mainly a partner-level phenomenon rather than an office-level one. Overall, this study highlights the importance of studying competitive dynamics among audit …

This study examines the determinant and consequences of having a chief operating officer (COO). Specifically, we investigate chief executive officer (CEO) related factors that affect the choice to employ a COO and look into the impact of having a COO on firm operational efficiency using a data envelopment analysis (DEA)-based measure. Although prior literature has extensively investigated the role of CEOs and chief finance officers (CFOs) on firm outcomes, few studies focus on the impact of COOs. Thus, this study explores characteristics associated with the likelihood that a firm will have a COO. This research also sheds light on the effect of COOs on firm operational efficiency because the core duties of COOs include optimizing operational performance and improving cost efficiency. Our results imply that CEO busyness, CEO ability, CEO demographic characteristics, and CEO network size have a significant impact on the decision to employ a COO. We also find that firms that have a COO have a lower level of operational efficiency than firms that do not. This result implies that the cost of having a COO outweighs the benefit of having one. The effects last for three years on average. Further, we find that firms with a COO …

This dissertation examines whether managers influence corporate boards of directors in their auditor selection, change, and compensation decisions. This topic is important because it addresses concerns that the Sarbanes-Oxley Act of 2002 (SOX) is not effective in eliminating managerial influence over auditor engagement decisions and that it may provide a false sense of security to investors. These concerns are based on the implicit assumption that managers prefer weaker governance oversight and lower audit quality. However, empirical research testing associations between managerial influence and audit-related decisions post-SOX is scarce and generally guided by agency theory. Incorporating agency, stewardship, and resource dependence perspectives, I find that managerial preferences for auditor selection are not aligned. Specifically, CEOs positively influence the selection of higher quality auditors, whereas CFOs have the opposite effect. Further, CEOs who hold powerful roles as chairs of their companies' boards of directors appear to mitigate the negative influence of CFOs and inside directors on audit quality. CEOs serving in dual roles also oppose auditor turnover when lower earnings quality prompt higher demand for audit effort. Finally, my study provides some evidence that management exercises downward pressures on audit fees, suggesting that managers utilize their authority beyond the regulations established by …

Non-professional investors often rely on information obtained from social media to make investment decisions. Extant literature has not examined the most effective strategy for the target company to counter the rumors so that investors will be more willing to continue investing in the target firm. Drawing on source credibility theory and the moral intensity model, I propose that the most effective strategy would vary given different agents who are selected to counter the rumor. After conducting a 2 x 3 (counter-rumor source x counter-rumor strategy) experiment with 272 non-professional investors recruited from Amazon Mechanical Turk, my study shows that when an internal agent (e.g., the CEO) acts as a counter-rumor source, shareholders are more willing to invest in the company when the internal agent utilizes a denial strategy rather than a reassociation or a questioning strategy. In contrast, when an external agent (e.g., a famous food blogger) serves as the counter-rumor source, the external agent can also use a questioning strategy in addition to a denial strategy to motivate shareholders to be more willing to invest in the company; however, the external agent still needs to avoid from engaging a reassociation strategy. Moderated serial-mediation analysis shows that the persuasiveness of …

Because of the non-recurring and transitory nature of discontinued operations, accounting standards require that the results of discontinued operations be separately reported on the income statement. Prior accounting literature supports the view that discontinued operations are non-recurring or transitory in nature, and also suggests that income classified as transitory has minimal relevance in firm valuation. Finance and management literature, however, suggest that firms discontinue operations to strategically utilize their scarce resources. Assuming that discontinued operations are a result of managerial motives to strategically concentrate resources into remaining continued operations, this dissertation examines the informativeness of discontinued operations. In doing so, this dissertation empirically tests the financial performance, investment efficiency, valuation, and analyst forecast accuracy effects of discontinued operations. In 2001, Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) 144 (hereafter SFAS 144) replaced Accounting Principles Board's Opinion 30 (hereafter APB 30) and broadened the scope of divestiture transactions to be presented in discontinued operations. Some stakeholders of financial statements argued that discontinued operations were less decision-useful in the SFAS 144 era because too many transactions that do not represent a strategic shift in operations were separately stated as discontinued operations on the income statement. With the possibility …

This study analyzes corporate governance practices of foreign (non-U.S.) issuers listed on the New York Stock Exchange (NYSE) and Nasdaq. Specifically, I examine the extent to which these foreign issuers voluntarily comply with U.S. stock exchange corporate governance requirements applicable to domestic issuers. My sample consists of 201 foreign companies primarily domiciled in Brazil, China, Israel, and the United Kingdom. I find that 151 (75 per cent) of the sample firms do not elect to comply with any of the U.S. corporate governance requirements. Logistic regression analysis generally supports the hypotheses that conformance with U.S. GAAP and percentage of managerial ownership are positively associated, and that percentage ownership by major shareholders is negatively associated with foreign firms electing to comply with U.S. corporate governance rules. This evidence is relevant for regulators and investors.

The purpose of this dissertation was to examine how managers' judgments from an internal auditor's recommendation are influenced by some aspects of newer data sources and the related visualizations. This study specifically examined how managers' judgments from an internal auditor's recommendation are influenced by the (1) supportiveness of non-financial data with the internal auditor's recommendation and (2) evaluability of visual representations for non-financial data used to communicate the recommendation. This was investigated in a setting where financial data does not support the internal auditor's recommendation. To test my hypotheses, I conducted an experiment that uses an inventory write-down task to examine the likelihood that a manager agrees with an internal auditor's inventory write-down recommendation. This task was selected as it requires making a prediction and both financial and newer non-financial data sources are relevant to inform this judgment. The study was conducted with MBA students who proxy for managers in organizations. Evaluability of visual representations was operationalized as the (1) proximity of financial and non-financial graphs, and (2) type of non-financial graph as requiring a length judgment or not. This dissertation contributes to accounting literature and the internal auditing profession. First, I contribute to recent experimental literature on data analytics …

Contentious interactions may arise between a tax professional and client upon a disagreement over a tax position. In an increasingly competitive tax return preparation market, these contentious interactions represent a significant threat to tax practitioners' client satisfaction and retention objectives. I conduct an experiment in which I examine the effect of three factors on tax clients' (1) likelihood to accept the advice of the tax accountant and (2) likelihood to switch tax accountants upon receiving professional advice counter to their preferred tax position. The three factors are: (1) clients' antagonistic narcissism; (2) clients' relationship with the accountant; and (3) how the advice is framed by the tax accountant. The results are based on a sample of 93 taxpayers. First, this study examines how clients' measured levels of narcissistic antagonism (hereafter, antagonism) impacts their reaction to "being told no" by their tax professional. Results indicate that upon the receipt of advice contrary to their preferences, highly antagonistic clients are more likely to (1) engage in a contentious interaction with their professional and (2) switch to a new tax professional. Supplemental path analyses document that individuals with high levels of antagonism cognitively react to instances of "being told no" by simultaneously devaluing …

Prior literature suggests that CEOs capitalize on their position within the hierarchy of all business executives, resulting in various – both positive and negative – firm outcomes. Using a novel data set on golf outings to measure the quality of a CEO's informal (vs. formal) network, as measured by the CEO's network centrality, this study examines whether well-connected CEOs generate private gains through insider trades. Results suggest that, among golfing CEOs, CEOs with higher quality informal networks generate significantly higher insider trading profits on sales of their firms' stock, consistent with more famous, powerful, and influential CEOs possessing superior information. The paper continues by delineating a channel through which private information flow to network participants by documenting significantly different golf patterns of CEOs during the two weeks before material firm events become public while showing that CEOs generate noticeably higher insider trading profits from stock trades executed during the two weeks following these golf outings. This study highlights a setting in which shareholders are at risk of wealth transfer and illustrates the potential limitations of regulation concerning insider trading.

Corporate environmental social and governance (ESG) reporting is becoming subject to increased scrutiny by regulators, investors and public. This dissertation will contribute to several research streams in the extant literature. This dissertation is the first to show the impact of employee environmental values and attitudes on reporting and whistleblowing decisions, making contributions to accounting, management, whistleblowing and environmental psychology literatures. Next, it is among the first to examine the role of the identity of ESG assurance provider in ESG reporting context. Further, it is among the first to examine the impact of SEC assurance mandate and the value of assurance over ESG information, thus contributing to audit literature. Using experimental methodology, I examine how ESG report assurance, ESG report assurance provider, ESG issue type, and environmentalism as a personality factor influence employee decisions to accede to a supervisory request to misrepresent ESG information, to report management's actions to a corporate hotline, to post information about management wrongdoing on social media, to switch jobs, and to judge ESG misreporting actions as unethical. The results indicate that (1) employee personality factor environmentalism impacts their ESG reporting decisions; (2) pro-environmental employees are more likely to whistleblow when assurance is not mandated, and they …

Firms' operational restructuring involves information relevant to strategic choices as well as future demand and cost conditions. This study examines the relationship between peer firms' restructuring and a company's responsiveness to its growth opportunities. Peer firm restructuring can increase uncertainty with respect to a company's payoffs regarding its investment projects, leading to decreased responsiveness to growth opportunities. Using a large sample of public companies during 2006–2020, I find that peer firms' restructuring is negatively associated with the responsiveness of capital expenditures (Capex) to growth opportunities. The results suggest that peer firms' restructuring activities provide information about a company's investment projects above and beyond industry shocks reflected in changes in industry sales. Furthermore, these associations are moderated by industry competition. The negative effects of peer firms' restructuring on Capex sensitivity are the strongest in high-competition industries.

Audit inquiry can be a valuable source of information for auditors, particularly when the client provides useful information about important issues that could affect the audit. Recent studies indicate that the way an audit inquiry is conducted can affect the level of cooperation in the client's response. In this study, I investigate the use of social norms as an intervention auditors could include in their inquiries to increase the likelihood of client cooperation. To test my hypotheses, I conducted a 2x2 between-subjects experiment with 138 MBA and senior accounting students who proxied for non-accounting and accounting managers, respectively. I manipulated the auditor's use of a positive descriptive norm, which informed participants that the desired behavior is typical among similar others. I also manipulated the auditor's use of a negative injunctive norm, which informed participants of social disapproval for not engaging in the desired behavior. The dependent variable was a scaled measure of the likelihood the participant would disclose useful information in their response to the auditor. I find evidence of a main effect for both social norms I test. I do not find evidence of an interaction between the two social norms. My findings contribute to the audit literature as …

Prior research has provided evidence that the disclosure of internal controls material weaknesses (ICMWs) is a powerful input attribute in misstatement prediction. However, the disclosure of ICMWs is imperfect in capturing internal control quality because many firms with control problems fail to disclose ICMWs on a timely basis. The purpose of this study is to examine whether the existence of ICMWs, including both the disclosed and the undisclosed ICMWs, improves misstatement prediction. I develop a two-stage machine learning model for misstatement prediction with the predicted existence of ICMWs as the intermediate concept; my model that outperforms the model with the ICMW disclosures. I also find that the model incorporating both the predicted existence and the disclosure of ICMWs outperforms those with only the disclosure or the predicted existence of ICMWs. These results hold across different input attributes, machine learning methods, and prediction periods, and training-test samples splitting methods. Finally, this study shows that the two-stage models outperform the one-stage models in predictions related to financial reporting quality.

The purpose of my dissertation is to examine jurors' evaluation of auditor negligence in response to auditors' use of natural language processing (NLP). To test my research objective, I conducted a 2x2 between-subjects experiment with 175 jury-eligible individuals. In the online experiment, I manipulated whether the audit team analyzes contracts with NLP software or by having human auditors read the contracts. I also manipulated task complexity as complex or simple. The dependent variables include a binary verdict variable and a scaled assessment of negligence. This dissertation makes several contributions to the accounting literature and practice. First, it contributes to the recent juror literature on emerging technologies by providing evidence that jurors attribute higher negligence assessments to auditors when auditors use NLP to examine contracts than when human auditors examine contracts. I also find that auditors' use of NLP leads to jurors' higher perceived causation, which, in turn, increases jurors' assessments of auditor liability. Second, this study answers the call of other researchers to examine the relationship between task complexity and negligence in different settings. I also find a marginally significant interaction effect of the use of NLP compared to human auditors to perform audit testing that is greater for complex …