http://hdl.handle.net/10397/917 Search the Channel search http://repository.lib.polyu.edu.hk/jspui/simple-search http://hdl.handle.net/10397/5670 Title: Internal control weaknesses, corporate governance and the informativeness of earnings<br/><br/>Authors: Jin, Jun<br/><br/>Abstract: In this study I examine whether market discounts the information content of accounting earnings for firms reporting material weaknesses under Section 404 of SOX. To explore the influence of managerial ownership, I examine whether managerial ownership moderates the negative consequences of material weakness disclosures and whether its impact depends on the magnitude of information asymmetry. To explore the influence of female executives, I examine whether the presence of female executives moderates the negative consequences of material weakness disclosures and whether its impact depends on the magnitude of information asymmetry. Because the macroeconomic environment changes after the financial crisis, I focus on the sample period from 2004 to 2007, and a sample of 2,349 firm-year observations yields the following results. First, regardless of the moderating effects of managerial ownership or female exeutives, the results do not indicate a significantly negative impact of material weakness disclosures under Section 404 of SOX on the informativeness of earnings. Second, consistent with the argument that managerial ownership reduces agency costs, I find that managerial ownership moderates the negative impact of material weaknesses on the informativeness of earnings. Third, because the magnitude of information asymmetry decreases with firm age, I find that the moderating effect of managerial ownership diminishes with firm age. Fourth, consistent with the argument that female executives are more risk-averse and therefore ensure the quality of accounting earnings, I find that the presence of female executives moderates the negative impact of material weaknesses on the informativeness of earnings. Fifth, I find that the moderating effect of female executives also diminishes with firm age. These results are robust to a number of additional tests.<br/><br/>Description: ix, 175 p. : ill. ; 30 cm.; PolyU Library Call No.: [THS] LG51 .H577P AF 2012 Jin Sun, 01 Jan 2012 00:00:00 GMT http://hdl.handle.net/10397/5669 Title: Accounting conservatism : effect of contract incompleteness, moral hazard and board gender diversity<br/><br/>Authors: Zhou, Gaoguang<br/><br/>Abstract: Prior literature on accounting conservatism examines the effect of contracting and corporate governance structure on conservatism. The results from the prior literature show that the demand for conservatism arises from contracting costs and that conservatism is more likely to be employed by firms to facilitate monitoring and thereby improve their governance (Watts 2003a). In this study, I extend previous studies by examining two specific aspects of its association with contracting and corporate governance structure that affects accounting conservatism. I first examine the contracting-based demand for conservatism and hypothesize that it arises from the joint effect of contract incompleteness and moral hazard. I argue that the joint presence of these two factors is sufficient though not necessary for accounting conservatism. However, it is not clear at the outset how these two factors interact in creating the demand for conservatism. The empirical results in this thesis show that the degree of conservatism increases with the level of contract incompleteness. The results also show that firms with both a high (low) degree of contract incompleteness and a more (less) severe moral hazard problem adopt more (less) conservative accounting practices. Furthermore, the results reveal that the positive association between moral hazard and conservatism demonstrated by Lafond and Roychowdhury (2008) is more significant when contracts are more incomplete. Likewise, the results also show that the positive relationship between contract incompleteness and accounting conservatism is more pronounced when the moral hazard problem is more acute.; While the demand for conservative accounting practices derives from contract incompleteness and moral hazard, the composition of the board of directors is one of the mechanisms through which this demand is translated into accounting policy. I explicitly address this issue by considering the role of the board in promoting conservative accounting. The literature (e.g. Ahmed and Duellman 2007; Garcia Lara, Garcia Osama and Penalva 2009; Srinidhi, Gul and Tsui 2011) has identified three inter-related board-based factors that might affect the implementation of the accounting policy: independent boards; CEO power; and the diversity on the board. Although there is extensive literature on the first two factors, there is little extant research on the effect of board diversity on conservatism. I address this issue by investigating the effect of board gender diversity on conservatism in accounting. I hypothesize that financial reports in firms with gender-diverse boards are more conservative, because female directors are likely to be more sensitive to ethical issues and exhibit more risk-aversion. In effect, the boards with female directors are likely to be more effective in monitoring managers. As audit committees specialize in overseeing the financial reporting process, firms with female directors on the audit committee are more likely to adopt a conservative accounting approach. In this regard, I hypothesize that firms with female audit committee members exhibit more conservative accounting practices. I identify firms that transit from an all-male board of directors to a board with at least one female director as event years, with the year before the transition year being treated as the benchmark year. The empirical results show that firms in this cohort adopt more conservative financial reporting standards after appointing female directors on board (audit committee). Finally, I perform an exploratory analysis on interaction effect of contract incompleteness and board gender diversity on conservatism. The results show that the effect of board gender diversity on conservatism is more pronounced in the low contract incompleteness group, suggesting a substitution between these two aspects in driving conservatism.<br/><br/>Description: 158 p. : ill. ; 30 cm.; PolyU Library Call No.: [THS] LG51 .H577P AF 2012 Zhou Sun, 01 Jan 2012 00:00:00 GMT http://hdl.handle.net/10397/5488 Title: CEO turnover and internal control material weaknesses<br/><br/>Authors: Li, Beidi<br/><br/>Abstract: In this thesis I examine the relation between CEO turnover and subsequent internal control material weaknesses. Drawing on the literature that agency problems around CEO turnover are likely to increase and that CEO turnover causes organizational dislocation, I posit that CEO turnover may be associated with weak internal control quality. Using 7, 680 firm-year observations from 2004 to 2010 in the U.S. market, I document that firms with CEO turnover within three years before the internal control weakness disclosure tend to be associated with more internal control material weaknesses than firms without CEO turnover. This thesis also documents the impact of Chairman and CEO duality on the relation between CEO turnover and internal control material weaknesses. CEO and Chairman non-duality implies less interests alliance between the CEO and the shareholders and thus may lead to more agency problems around CEO turnover as well as more post-turnover organizational dislocation. The findings show that in firms whose CEO is not Chairman of the board the CEO turnover is significantly related with subsequent internal control material weaknesses while in firms whose CEO is also the Chairman the relation between CEO turnover and internal control material weakness is no longer significant.<br/><br/>Description: vii, 161 p. : ill. ; 30 cm.; PolyU Library Call No.: [THS] LG51 .H577P AF 2012 Li Sun, 01 Jan 2012 00:00:00 GMT http://hdl.handle.net/10397/5487 Title: Two essays on IPO underpricing<br/><br/>Authors: Chen, Yibiao<br/><br/>Abstract: This thesis focuses on the cross-sectional difference in the extent of IPO underpricing in different places. The first essay examines how the difference in institutional environment constitutes differential IPO underpricing across countries. Using the Heritage Foundation's Index of Economic Freedom (IEF) as a proxy for the cross-country heterogeneous institutional environment, and a large sample of 10,251 IPOs from 35 countries and regions over the period of 1993-2008, I find that countries with higher economic freedom have significantly less serious IPO underpricing problems. Moreover, among the ten economic freedom factors covered by the IEF, financial freedom related factors play a more important role in reducing the IPO underpricing problem. Finally, consistent with the market sentiment hypothesis, I find strong evidence that pre-IPO market sentiment influences the IPO first-day returns, and that the IPO underpricing problem is less severe when the market is bearish. The second essay examines how the difference in institutional environment across various provinces in China can explain IPO underpricing in the Chinese equity market. As the largest developing country in the world, the level of economic development and the institutional environments across China are extremely heterogeneous. In addition, China's IPO firms have quite complicated ownership structures and corporate governance mechanisms that are distinct from those in developed countries. Because most of the IPO firms in China are originally state-owned enterprises (SOEs), IPOs play the most important role in share issuing privatization (SIP) and are influenced by governments{174} political and economic considerations. Therefore, whether the cross-regional institutional heterogeneity and ownership structure play any role in IPO underpricing becomes an interesting and important issue. Using Chinese IPO data from 1999 to 2007, I find strong evidence that firms located in regions with better institutional environment (i.e., better credit market development, less governmental intervention and better legal environment) have significantly smaller IPO discounts than their counterparties. In addition private firms have less severe underpricing problems relative to SOEs. Finally, I find that local government controlled IPO firms have less severe underpricing problems than firms controlled by the central government.<br/><br/>Description: vi, 103 leaves : ill. ; 30 cm.; PolyU Library Call No.: [THS] LG51 .H577P AF 2012 Chen Sun, 01 Jan 2012 00:00:00 GMT