Journal of Accounting and Finance

A Note on the Impact of the Canada-India Diplomatic Standoff on the Performance of Canadian Mutual Funds Investments in India

F N U Pratima, Srinivas Nippani, Hanh Phan — Fri, 22 Mar 2024 00:00:00 -0400

On June 18, 2023, Mr. Hardeep Singh Nijjar, a Canadian citizen of Indian origin, was killed in Canada. On September 18, 2023, the Canadian Prime Minister, Mr. Justin Trudeau, accused the Indian Government of involvement in killing Mr. Nijjar in the Canadian Parliament. This accusation preceded and succeeded by other events, led to a significant diplomatic standoff that is still ongoing. We examine the impact of this event chain on the performance of daily returns of mutual funds based in Canada that are predominantly invested in Indian securities. Our results, controlled for general stock market returns, fund size, expense ratio, and interest rates, indicate that the events negatively impacted fund performance. Our study adds to the existing literature on the benefits of international diversification of mutual funds in disconnected markets. The findings of this paper suggest that political discord between two distinct and unrelated economies may impact profits and negate the advantages of international diversification. Our study is significant to professionals, particularly mutual fund managers, as it demonstrates the role of two countries’ political ties in affecting mutual fund returns.

What Determines Global Flows of Entrepreneurial Finance?

Thomas Hall — Fri, 22 Mar 2024 00:00:00 -0400

Economists examine foreign direct investment, which mostly constitutes flows to established firms (sometimes characterized as “multinational corporations”) that might or might not engage in truly innovative activity in the FDI target country. Conversely, finance scholars have studied the pipeline of entrepreneurial finance from limited partnerships (LPs) to venture capitalists (VCs) or private equity general partners (GPs) to portfolio firms. Few studies examine relationships between general and limited partners, and those that do often examine only the United States, or a limited number of countries in a given region. This paper uses a novel dataset (LP Source) to examine secular trends in cross-national flows from the LP to the GP (in the form of various investment funds) to the portfolio firm. We find evidence for “home bias” and demonstrate that cross-border flows are affected by GDP per capita, export orientation, and country-level measures of the entrepreneurial environment.

An Empirical Assessment of IAS 40 Investment Property

Chengjie Dong, Yuxuan Tan, Zhemin Wang, Yuan Zhang — Fri, 22 Mar 2024 00:00:00 -0400

This study examines the value relevance of the fair value model versus the cost model for evaluating investment properties under IAS 40 Investment Property. Contrary to the popular belief that fair value is the most relevant measurement attribute, we find that the coefficient estimate of investment properties for Chinese companies that adopted IAS 40’s fair value model is significantly smaller than its theoretical value, and is not significantly different from zero, suggesting that reported fair values are not value relevant as perceived by investors for the sample firms. Furthermore, investors tend to adjust the valuation of fair value companies’ non-investment property assets downward. The findings do not support the claim that fair value is superior to historical cost for the investment property valuation. Our findings highlight the need for more implementation guidelines from the IASB to enhance the value relevance of fair value estimates under IAS 40.

Mitigating Financial Statement Fraud Perpetrated by Corporate Psychopaths

Angela Busila — Fri, 22 Mar 2024 00:00:00 -0400

This paper proposes a fraud mitigation model that focuses on corporate psychopathy's impact on material misstatement of financial statements fraud. Prior research on psychopathy and corporate psychopaths has found that people with these tendencies do not possess the need to rationalize their behavior, therefore negating the rationalization point present in most prior fraud theory models. There is ample prior research on the impact of corporate psychopaths’ effect on corporate culture. There is also an abundance of prior research on fraud theory and how fraud is perpetrated. Drawing from existing research in these areas, this proposed fraud mitigation model identifies and addresses the elements present when corporate psychopaths perpetrate fraud. Board of directors will benefit from this study when they unknowingly hire leaders who exhibit corporate psychopathic traits that can impact financial reporting and internal controls procedures. Other stakeholders and the public interest may benefit from lower risk of financial statement fraud due to fewer corporate psychopaths in leadership positions perpetrating financial statement fraud.

An Empirical Analysis of Director Turnover in US Banks During the Financial Crisis

Wenling Lu, David A. Whidbee — Fri, 12 Apr 2024 00:00:00 -0400

We examine the impact of bank risk-taking and performance on the director labor market outcomes of 3,263 bank directors associated with 279 publicly listed US banks during the financial crisis and subsequently. We find that risk-taking before the financial crisis increases the likelihood of turnover during the financial crisis for bank directors, particularly if the bank does not perform well relative to its peers. Consistent with the evidence for directors of non-financial firms, we find that directors of banks that performed relatively well during the financial crisis were less likely to experience turnover on the bank board. Surprisingly, the directors leaving the board before turning 70 years of age held fewer committee assignments, were less busy, had smaller networks, were less likely to be independent, and with larger banks and boards. Overall, we find evidence of bank performance influencing director turnover during and after the financial crisis.

Measuring Disclosure Content Within the MD&A: The Case of North Carolina Counties

Steve Modlin — Fri, 12 Apr 2024 00:00:00 -0400

Audit implementation of Government Accounting Standards Board (GASB) 34 guidelines has yielded increased levels of disclosure content within local government comprehensive annual financial reports (CAFRs). Of particular interest is the Management Discussion & Analysis (MD&A) content that provides a prelude to primary statements establishing unit overall financial position. In this study, the level of disclosure content is measured using net position, fund balance, and organizational factors among all 100 North Carolina County governments for fiscal year 2019. The empirical analysis suggests that disclosure content within area of foci changes depending on increased audit fees, state designated tier level, specific departmental spending, and lengthier MD&As. Additional information illuminates a very limited auditor pool and some recalcitrance concerning service provision. Overall, the findings point to audit disclosure practices including the MD&A as being predicated on unit overall needs versus illumination.

Board Interlocks and Company Outcomes: A Managerial Accounting Case

Lucy U. Diala — Fri, 12 Apr 2024 00:00:00 -0400

Board interlocks are formed between two company boards when these companies share at least one common director, resulting in a reciprocal relationship from which both partners expect to benefit. Such conditions imply that directors in these interlocks will be less likely to provide strict monitoring oversight (Beckman, Haunschild, Phillips, 2004). This case examines the ethical and governance issues arising from board interlocks. The analysis examines further how board interlocks are less likely to provide strict monitoring functions on firm operations and financial reporting. Participants noted that since board interlocks imply that companies co-share members on their boards in a reciprocal relationship from which both partners expect to benefit, such conditions lead to less rigorous monitoring oversight. Participants also noted that board interlocks may create openings for operational practices with adverse firm outcomes, such as ineffective internal controls over financial reporting.

Insights From Large Language Model Analysis on Black Women in Accounting Leadership in the U.S.

Karina Kasztelnik, Edo Branch — Fri, 26 Apr 2024 00:00:00 -0400

This study explores the challenges and opportunities for Black women in leadership positions within the accounting industry in the United States. To analyze a comprehensive dataset of professional publications, social media discourse, and organizational reports, the research utilizes a cutting-edge large language model (LLM). By utilizing this advanced technology, the study aims to uncover patterns, and narratives that are often overlooked or inaccessible through traditional qualitative methods. The LLM’s capacity to process vast amounts of text-based information provides a unique perspective on Black women’s experiences, obstacles, and accomplishments in accounting leadership. The study sheds light on persistent challenges related to racial and gender bias, but also highlights a growing recognition of the value of diversity in leadership. The research identifies crucial factors that contribute to the success and advancement of Black women in accounting leadership, including mentorship, organizational culture, and policy-driven initiatives. The insights gained from this analysis offer valuable implications for policy makers, educators, and corporate leaders who aim to create a more inclusive and equitable professional environment in accounting and other fields.

Financial Literacy Simulation in Managerial Finance: Signing Up for a Mock 401(k)

Joann Fredrickson — Fri, 26 Apr 2024 00:00:00 -0400

Much evidence suggests a growing need for financial literacy as a prerequisite to a lifetime of financial well-being. And while it has been recommended that U.S. colleges and universities implement a mandatory financial literacy course (President’s Advisory Council on Financial Literacy, 2009; U.S. Financial Literacy and Education Commission, 2019), no such requirement has been imposed. Currently, only one quarter of college students report access to financial literacy education (Montalto et al, 2019). Guided by best practices and insights, this paper examines the opportunity for an upper-division core business course to support a focused, financial literacy learning opportunity for upper classmates by employing a simulated retirement plan enrollment. This work contributes to the body of work on financial literacy education and represents an efficient approach to providing relevant education to meet the growing financial literacy needs of college students.

A Study Seeking Historical Evidence for Bases of Classified Balance Sheets

Recep Pekdemir, Dale L. Flesher, Ümmühan Aslan, Melis Ercan — Fri, 26 Apr 2024 00:00:00 -0400

This paper explores the historical evolution of balance sheet layout and the reasons behind the positioning of assets on the left or right side. It delves into two main questions: why the discrepancy in asset placement on balance sheets across countries, and why the shift from right to left in the UK during the 19th century. Using historical evidence spanning from the 15th century to the mid-20th century, the study investigates the development and changes in listing assets, liabilities, and stockholders' equity. It aims to uncover the factors influencing the classification and presentation of items on balance sheets, driven by the needs of information users over time. By examining secondary sources in English literature, the paper provides insights into the evolution of balance sheet layouts globally. Researchers may find this exploration of historical balance sheet variations intriguing, shedding light on how layout decisions have been shaped by user needs and expectations.