Journal of Risk and Financial Management

Research

17 pages, 605 KiB

Open AccessArticle

Other Comprehensive Income: Do Nonprofessional Investors Value It as Much as Net Income?

by Ning Du and Ray Whittington

J. Risk Financial Manag. 2024, 17(11), 508; https://doi.org/10.3390/jrfm17110508 - 14 Nov 2024

Viewed by 399

This study examines how investors incorporate unrealized gains or losses reported in Other Comprehensive Income (OCI) into their investment judgments. Since unrealized gains or losses can be presented in either OCI or net income—gains from trading securities are included in net income, while [...] Read more.

This study examines how investors incorporate unrealized gains or losses reported in Other Comprehensive Income (OCI) into their investment judgments. Since unrealized gains or losses can be presented in either OCI or net income—gains from trading securities are included in net income, while those from available-for-sale securities are reported in OCI (ASC 320 and ASC 851)—it raises the question of whether OCI items are perceived as equally significant as net income items. To explore this, we conducted a 2 × 2 experiment with 240 individual investors, manipulating the presentation of unrealized gains or losses in either net income or OCI. Our findings reveal that unrealized gains are valued significantly lower when presented in OCI compared to net income, indicating that investors see OCI-reported gains as less relevant. However, for unrealized losses, the incorporation degree remained consistent across both presentations, reflecting a general aversion to unrealized losses regardless of how they are reported. Full article

(This article belongs to the Special Issue Advances in Accounting & Auditing Research)

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22 pages, 1654 KiB

Open AccessArticle

The Role of Technological Readiness in Enhancing the Quality of Audit Work: Evidence from an Emerging Market

by Mohamed Ali Shabeeb Ali, Ibrahim A. Elshaer, Abdelhameed A. Montash and Abdelmoneim Bahyeldin Mohamed Metwally

J. Risk Financial Manag. 2024, 17(11), 489; https://doi.org/10.3390/jrfm17110489 - 30 Oct 2024

Viewed by 497

Abstract

This study examines the impact of remote audit quality (RAQ) on the quality of audit work (QAW). Further, it explores the moderating effect of both client technological readiness (CLTR) and auditor technology readiness (ADTR) on the link between RAQ and QAW. Data were [...] Read more.

This study examines the impact of remote audit quality (RAQ) on the quality of audit work (QAW). Further, it explores the moderating effect of both client technological readiness (CLTR) and auditor technology readiness (ADTR) on the link between RAQ and QAW. Data were collected through a questionnaire survey distributed to all external auditors working in Egypt. The final sample consists of 280 auditors. The data were analyzed with smart partial least squares (Smart-PLS) software. The results showed that RAQ has a positive and significant impact on QAW. Moreover, the results revealed that CLTR and ADTR moderate the relationship between RAQ and QAW. CLTR was found to have a positive moderating role, as CLTR was found to strengthen the relationship between RAQ and QAW, while ADTR was found to have a negative moderating role, as ADTR was found to weaken the relationship between RAQ and QAW. The findings can provide a pivotal yardstick for guiding companies, auditing firms, auditing professional bodies, and regulators in the Egyptian context. Positioned as one of the early studies to concentrate on the moderating role of CLTR and ADTR in the relationship between RAQ and QAW, this research suggests insights within an emerging market context. Full article

(This article belongs to the Special Issue Advances in Accounting & Auditing Research)

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21 pages, 290 KiB

Open AccessArticle

Informativeness of Performance Measures: Coefficients or R-Squareds?

by Ken Li

J. Risk Financial Manag. 2024, 17(11), 481; https://doi.org/10.3390/jrfm17110481 - 24 Oct 2024

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Abstract

Measuring the informativeness of earnings is of fundamental importance to accounting research. Both coefficients and R-squareds have been proposed as candidates for measuring the informativeness of earnings. However, recent research has focused substantially more on using coefficients, rather than R-squareds, to draw inferences. [...] Read more.

Measuring the informativeness of earnings is of fundamental importance to accounting research. Both coefficients and R-squareds have been proposed as candidates for measuring the informativeness of earnings. However, recent research has focused substantially more on using coefficients, rather than R-squareds, to draw inferences. This paper first documents in a small theoretical model that under some circumstances, R-squareds map more closely to informativeness than coefficients. Second, this paper documents that in archival data, coefficients and R-squareds can draw opposite inferences regarding the informativeness of earnings and other performance measures up to 50% of the time. Third, this paper proposes an approach to provide statistical inference using R-squareds. Taken together, this paper suggests that rather than solely relying on coefficients, as is common in prior literature, R-squareds can also be used to measure the informativeness of earnings and other performance measures. Full article

(This article belongs to the Special Issue Advances in Accounting & Auditing Research)

12 pages, 451 KiB

Open AccessArticle

Do Firms’ Characteristics Influence Their IT Strategies? A Study on the Driving Force behind Firms’ Decisions to Appoint IT Expertise

by Ashraf Khallaf, Anis Samet and Jap Efendi

J. Risk Financial Manag. 2024, 17(10), 465; https://doi.org/10.3390/jrfm17100465 - 14 Oct 2024

Viewed by 636

Abstract

The demand for information technology expertise has grown rapidly in the last few decades, signaling firms’ commitment to integrating IT into core business strategies. Understanding the conditions under which firms appoint a chief information officer (CIO) can provide valuable insights into the evolving [...] Read more.

The demand for information technology expertise has grown rapidly in the last few decades, signaling firms’ commitment to integrating IT into core business strategies. Understanding the conditions under which firms appoint a chief information officer (CIO) can provide valuable insights into the evolving role of IT in corporate governance. This study addresses a crucial gap in the literature by exploring the determinants of a firm’s decision to hire a CIO at the top management level. The study identifies several factors that influence a firm’s decision to appoint a CIO, including the firm’s size, its level of innovation, and its prior performance. The study examines these assertions by comparing the characteristics of firms that appoint a CIO at the top management level with those of similar firms in their industries that do not have a CIO position prior to the appointment. A logistic regression model that considers CIO firms and their matched firms indicates that firms that have larger capital expenditures, higher market value, or have experienced loss are more likely to hire a new CIO. Our study provides empirical evidence on why certain firms prioritize IT leadership at the executive level. Full article

(This article belongs to the Special Issue Advances in Accounting & Auditing Research)

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31 pages, 557 KiB

Open AccessArticle

Driving Venture Capital Interest: The Influence of the Big 4 Audit Firms on IPOs

by Manal Alidarous

J. Risk Financial Manag. 2024, 17(7), 292; https://doi.org/10.3390/jrfm17070292 - 9 Jul 2024

Viewed by 1339

Abstract

This paper investigated how hiring one of the Big 4 auditing firms helps initial public offering (IPO) owners attract venture capitalists’ (VCs) backing when going public to address the gap in auditing and venture capital literature. For this, the paper examined a large [...] Read more.

This paper investigated how hiring one of the Big 4 auditing firms helps initial public offering (IPO) owners attract venture capitalists’ (VCs) backing when going public to address the gap in auditing and venture capital literature. For this, the paper examined a large dataset from 1995 to 2019 consisting of 33,536 IPO firms from 22 countries with diverse socioeconomic, political, and cultural contexts. The study found that hiring Big 4 auditors increases IPO owners’ chances of recruiting VCs by up to 50%. The analysis also supports prior findings, which state that IPO owners strategically choose Big 4 audit firms to lower agency costs and send quality signals to improve openness and disclosure as well as boost VCs’ confidence in the IPO market. This research offers multiple benefits to academics, policymakers, investors, and issuers. Full article

(This article belongs to the Special Issue Advances in Accounting & Auditing Research)

26 pages, 364 KiB

Open AccessArticle

Cost–Benefit Analysis of International Financial Reporting Standard and Russian Accounting Standard Integration: What Does Comparability Cost?

by Elizabeth H. Turner and Clark M. Wheatley

J. Risk Financial Manag. 2024, 17(7), 287; https://doi.org/10.3390/jrfm17070287 - 8 Jul 2024

Viewed by 885

Abstract

In Russia, firms with consolidated financial statements must produce financial statements in both RAS (Russian accounting standards) and IFRS (international financial reporting standards). Unconsolidated SMEs are only required to use RAS. Using hand-collected data from 2010–2013 (pre- and post-IFRS adoption periods), we find [...] Read more.

In Russia, firms with consolidated financial statements must produce financial statements in both RAS (Russian accounting standards) and IFRS (international financial reporting standards). Unconsolidated SMEs are only required to use RAS. Using hand-collected data from 2010–2013 (pre- and post-IFRS adoption periods), we find income measures under RAS are converging to income measures under IFRS. The quality of earnings exhibits no change under IFRS, while RAS earnings are being managed upward for firms that have adopted IFRS and downward for firms that have not adopted IFRS. The relative variation in market and book values differs more widely under IFRS when compared to RAS, implying more volatility and risk under IFRS. We attribute our findings to a monitoring effect derived from IFRS. Full article

(This article belongs to the Special Issue Advances in Accounting & Auditing Research)

11 pages, 261 KiB

Open AccessArticle

Do Investment Funds Audited by the Big Four Firms Exhibit Different Performances? Evidence from Brazil

by Rodrigo Fernandes Malaquias, Dermeval Martins Borges Junior and Pablo Zambra

J. Risk Financial Manag. 2024, 17(7), 284; https://doi.org/10.3390/jrfm17070284 - 6 Jul 2024

Viewed by 1150

Abstract

Investment funds manage a portfolio composed of financial instruments; therefore, their accounting reports should undergo a careful process of preparation and auditing. The main purpose of this study is to analyze the effect of being audited by a Big Four audit company on [...] Read more.

Investment funds manage a portfolio composed of financial instruments; therefore, their accounting reports should undergo a careful process of preparation and auditing. The main purpose of this study is to analyze the effect of being audited by a Big Four audit company on funds’ risk-adjusted performance. The database is composed of equity funds from the Brazilian financial market, with daily returns spanning from January 2005 to March 2023. The funds’ performance was measured based on three indicators, including the Sharpe Ratio and Jensen’s Alpha. Fama and MacBeth regressions were used to test the hypotheses. The main findings indicate that the benefits of audit quality also include a positive effect on the risk-adjusted performance of investment funds, as the coefficient of the variable “Big Four” was positive and significant based on the proxies for risk-adjusted performance. This study advances this area of research by demonstrating the effects of the type of audit on the risk-adjusted performance indicators of investment funds. Full article

(This article belongs to the Special Issue Advances in Accounting & Auditing Research)

15 pages, 270 KiB

Open AccessArticle

Bank Loan Loss Provision Determinants in Non-Crisis Years: Evidence from African, European, and Asian Countries

by Peterson K. Ozili

J. Risk Financial Manag. 2024, 17(3), 115; https://doi.org/10.3390/jrfm17030115 - 12 Mar 2024

Cited by 1 | Viewed by 2572

Abstract

Loan loss provision is an important accounting accrual in the banking sector. There have been numerous debates about the determinants of loan loss provision in several contexts. This study extends the debate by investigating the determinants of bank loan loss provision in non-crisis [...] Read more.

Loan loss provision is an important accounting accrual in the banking sector. There have been numerous debates about the determinants of loan loss provision in several contexts. This study extends the debate by investigating the determinants of bank loan loss provision in non-crisis years for 28 countries from 2011 to 2018. The non-crisis years cover the periods after the global financial crisis and the periods before the COVID-19 pandemic while the countries consist of African, European, and Asian countries. Using the generalized linear model regression and the quantile regression methodologies, the results show that institutional quality is a significant determinant of bank loan loss provision, indicating that the presence of strong institutions decreases the size of bank loan loss provision in non-crisis years. In the regional analyses, it was found that economic growth is a significant determinant of bank loan loss provisions in African and Asian countries. Loan loss provision is higher in times of economic prosperity in African and Asian countries. Bank overhead cost is a significant determinant of bank loan loss provisions in Asian countries. Meanwhile, bank loan loss provision determinants are insignificant in European countries. Full article

(This article belongs to the Special Issue Advances in Accounting & Auditing Research)

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