Many firms have begun granting teams greater autonomy in determining how they organise and report on their work. This study examines how communication influences (dis)honest reporting within such autonomous teams. Through a series of three experiments, we analyse how team members use communication to influence one another and steer their team's reporting decisions. Our first two experiments provide evidence of an asymmetric effect on honesty: while communication from initially dishonest team members corrupts initially honest team members, the latter fail to discipline the former, resulting in a convergence toward dishonesty. In the third experiment, where we make the adverse consequences of misreporting for the firm's owner salient to the team members, the convergence toward dishonesty disappears. Collectively, our findings are consistent with social norm theory, which suggests that when communication is present, it can be used to increase team misreporting depending on the activation and salience of different situational cues. Our study contributes to the literature on participative budgeting and dishonesty by revealing the process through which communication can escalate collective dishonesty in teams and identifying ways in which firms can mitigate this effect.

Due to their information advantages, former executives are routinely appointed to supervisory roles within the same firm. This practice of transitioning is often criticized based on concerns about former executives’ lack of independence and potential conflicts of interest. As supervisors, one of their main tasks is to oversee the financial reporting process and to challenge management’s assumptions and the projections that shape reporting outcomes. This study examines the effects of transitioning managers on accounting discretion in the context of goodwill impairments. Based on a hand-collected sample of such transition events, we find a decreased propensity and lower magnitude of goodwill impairments following transitions. This effect is robust when controlling for the underlying economic situation of the firms. Further analyses reveal that the effect is muted for transitions of more experienced executives, for transitions into more independent boards, and for transitions after longer cooling-off periods. Overall, our findings suggest that former executives who become supervisors tend to impact the way accounting discretion is exercised. Thereby, we add to the assessment of an important governance phenomenon and relate to regulatory debates around mandatory cooling-off periods and the impairment-only approach for goodwill accounting.

This paper investigates the importance of explainability versus accuracy of machine learning (ML) models. We propose that greater task uncertainty makes people want to interact more with the ML model, which increases the importance of explainability relative to accuracy. We focus on the use of ML models for product cost estimation during new product development. The paper provides mixed-methods evidence on the trade-off between explainability and accuracy of ML models. Specifically, we find support for an inverse relationship between explainability and accuracy from the perspective of cost experts. We also find that the accurate but complex and less explainable ML model of gradient boosted regression (GBR) was preferred in only a few situations; mostly, the more basic, better explainable models of multiple linear regression (MLR) and case-based reasoning (CBR) were preferred, although these were less accurate. This suggests that lack of explainability can indeed be a major limitation for the application of ML models. Furthermore, we investigate specific characteristics that could increase task uncertainty and the importance of explainability in our context: project unpredictability, product cost granularity, predecessor product availability, target cost gap, and product development phase.

This paper examines the real effects of accounting for software development costs on corporate innovation. We explore the adoption of SFAS 86 (Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed), which requires the capitalization of certain software development costs. We find that public software firms experience improvements in both innovation quantity and scientific quality, and their innovation strategies become riskier and more diversified following the adoption of the standard, compared to other high-tech public firms. Consistent with SFAS 86 helping to reduce agency-related costs, the real effect is more pronounced for software firms with greater financial constraints, higher analyst following, and lower concentrations of institutional shareholding. Overall, our study shows that accounting policies for software development costs have real implications not only for firms’ innovation output but also for their’ choices regarding the types of innovation to pursue.

Many countries have implemented R&D tax incentives to encourage R&D activities and foster innovation, yet their net economic benefits remain unclear. Using a novel hand-collected dataset of global R&D tax reforms and a difference-in-differences approach, we find that these reforms positively impact firm value. The effect is stronger for more generous reforms, those that adopt R&D tax super-deductions, in countries with less developed stock markets and stronger external monitoring, in R&D oriented industries, and for financially constrained firms. We also show that R&D tax incentives enhance firm value by increasing the quantity, quality, and efficiency of innovation. Furthermore, R&D tax incentives outperform patent boxes in enhancing firm value. Additionally, the two tax regimes complement each other, with this complementary effect driven by super-deduction reforms. Our findings shed light on the role of global R&D tax reforms in promoting firm value, suggesting their potential to foster long-term economic benefits.

We investigate whether regional social capital is associated with a company’s discretionary disclosures of non-GAAP earnings. The US county level social capital is used to capture the informal supervisory instrument of regional social capital. The two dimensions of social capital, dense networks and strong norms in regions with high social capital, cause reciprocity, integrity, and organizational citizenship. Using a panel of US companies, we find that companies located in regions with high social capital (1) are more likely to disclose non-GAAP earnings, and (2) their non-GAAP earnings disclosures have higher quality. These findings are robust to controlling for demographic features, substitute proxies for regional social capital, and using two-stage least squares and propensity score matching approaches. Furthermore, we implement a mediator analysis and show that companies in high social capital regions have lower costs of equity capital because they are more likely to disclose non-GAAP earnings, and their disclosures are of higher quality. Overall, the findings indicate that the informal institutional factor of regional social capital is associated with the crucial voluntary disclosure tool of managers’ non-GAAP earnings.

The commercialization of the accounting profession has been widely criticized, raising questions about its commitment to serving the public interest. This study nuances these critiques by focusing on professional accountants for whom altruism is a core value. Specifically, we examine the process by which individual accountants attempt to embody altruism by volunteering in accounting humanitarian missions. We theorize accountants’ desire to incarnate altruism as a significance quest in which they attempt to boost their social worth. Through a case study of two humanitarian missions, we uncover how volunteer accountants approached the missions with educational aspirations, wishing to embody altruism by sharing their knowledge. They faced challenges that shaped the situated possibilities of their missions and clashed with their aspirations. To navigate the resulting tensions, they mobilized different means that revealed the difficulties of embodying altruism and the fragility with which it can be accomplished. Our study highlights individual manifestations of altruism and offers a nuanced view of professionals’ understanding of altruism. It also broadens the horizons of how accountants can act in the public interest and integrate social considerations into their practice. Finally, it provides conceptual tools to further understand how accountants can contribute to (or detract from) social issues.

Our study addresses the complex processes by which actors in the market for information reposition themselves and recalibrate their work in response the introduction of the Markets in Financial Instruments Directive (MiFID) II, which regulated a wide range of issues on information flows and payments for research in capital markets. Using interviews and surveys of UK investor relations (IR) professionals we explore how the activities and practices of IR professionals, and their relations with sell-side analysts and investors, have changed. We find that the operational processes within the market for information have been materially disrupted and observe an increase in the importance and relevance of the IR function both internally (within their organizations) and externally (in the field of investment advice). We provide evidence of extensive ‘jostling for position’ in the field which is perceived to have resulted in the (at least partial) disintermediation of the sell-side and increased direct ‘interlocking’ of investors and IR professionals in their engagement and information communication practices. We report on a changing information market paradigm (sequencing of communication) - where the traditional information and relational intermediation roles of sell-side analysts are now increasingly contested and assumed by IR professionals.

ABSTRACT This study investigates the effect of performance measure characteristics―comparability and discriminability―on performance measure discontinuance. Relative performance evaluation using comparable information offers a means of filtering out common shocks and capturing the subordinates’ own performance relative to that of peers. In addition, a measure’s ability to discriminate good from poor performance is important in the incentive contract. We show that since subordinates have an incentive to put effort into the comparable and discriminable performance measures, the superior is more likely to retain performance measures with greater comparability and discriminability. Using a large sample of performance evaluation data from 15 state-owned enterprises in South Korea over the period 1985–2021, we find that comparable and discriminable performance measures are less likely to be discontinued. Our study contributes to the performance evaluation literature by identifying two measure characteristics that influence the evolution of performance measures.

We analyze the choice allowed to parent firms under IFRS of how to account for a business combination under common control (BCUCC), and provide evidence on the motivation to select fair values and the economic implications of this choice. A BCUCC is a merger of two firms owned by the same parent. Under IFRS, parent firms can use the acquisition method (fair values) to record the BCUCC or use assets’ historical cost. We show that parents are likely to choose fair values when they desire to increase the transparency of their financial reports and when they likely need to raise capital. Using propensity-score matching, we find that firms that used fair values are more likely to issue new public debt following the transaction. We also find that the cost of issuing new debt for these firms is 55 basis points lower than that of comparable firms that did not do BCUCCs. Our results suggest that using fair values in BCUCCs can increase transparency and lower firms’ cost of debt.