Effect of Impairment-Testing Disclosures on the Cost of Equity Capital


Journal of Business Finance & Accounting

2015, vol. 42, n°5-6, pp.583-618

Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)

Mots clés : impairment test, cost of capital, information risk, disclosures, IAS 36

Information risk – the uncertainty regarding the parameters of the distribution offirms’ future cash flows – generates valuation errors and is costly to investors who require a higher return to compensate for greater information risk. We argue that, on average, through their impairment-testing disclosures, managers convey information that reduces information risk. Using disclosures from firms included in the SBF 250 index of Euronext Paris over the period 2006–2009, we document a negative association between impairment-testing disclosures and implied cost of equity capital. We find that prospective entity-specific impairment-testing disclosures are negatively associated with cost of capital whereas descriptive disclosures exhibit no association with cost of capital. Additionally, we document that firms which avoid booking impairments when low performance indicators suggest a greater likelihood of impairments exhibit no association between impairment-testing disclosures and cost of capital. This suggests that those firms’ disclosures are perceived as less accurate by investors. We also find that prospective impairment-testing disclosures are negatively related to analysts’ forecast errors. Our study adds to the literature on the economic consequences of financial reporting and sheds light on the consequences of one accounting mechanism, namely impairment-testing disclosures, ensuring conservatism of financial reporting

Instituting a transnational accountability regime: The case of Sovereign Wealth Funds and “GAPP”


Accounting Organizations and Society

juillet 2015, vol. 44, pp.15-36

Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)

This paper analyses the development of a transnational accountability regime, – the Generally Accepted Principles and Practices (GAPP), introduced in 2008 for sovereign wealth funds. Facilitated by the International Monetary Fund, the regime aimed to improve the transparency, governance and accountability of these government-owned investment funds that originate primarily from the Middle East and Asia. I focus here on the struggles leading to the establishment of the boundaries of the GAPP accountability regime by diagnosing the accountability problem, determining the providers and the imagined users of the accounts and defining the appropriate course of action. I then analyse the struggles involved in negotiating the process and technologies used to establish the accountability relationship including the role of standards in accounting, audit and risk management, as well as transparency and compliance pressures. In each case I identify the different ideas or templates that emerged during the negotiations and how consensus was achieved through careful steering by a core coalition comprising the US Treasury and the largest, most legitimate funds. I highlight the need to go beyond typical fault lines in debates surrounding the origins of global governance regimes (e.g. local vs. global, western vs. non-western, core vs. peripheral) by focusing on emerging coalitions of local/global and western/non-western actors that increasingly drive such regimes. I show how the disproportionate representation of financial actors in such coalitions leads to less attention to questions of public accountability, and instead focusing such regimes on financial accountability. I further elaborate on the implications of the fall-back to transparency in transnational accountability regimes as a last resort and the types of resistance emerging against it

International evidence on the impact of adopting English as an external reporting language


Journal of International Business Studies

février 2015, vol. 46, n°2, pp.180-205

Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)

Mots clés : English, Language (language design, silent language, translation), Annual report, Foreign ownership, Information asymmetry, Analyst following

This study investigates the economic consequences of non-English-speaking companies adopting English as an external reporting language. We examine a sample of European companies that initiate the voluntary issuance of an annual report in English in addition to the local language annual report. To control for self-selection, we use a difference-in-differences design with a propensity score matched control sample. We find that adoption of English as an external reporting language is associated with increased foreign ownership, decreased information asymmetry, and increased analyst following. We also find that these benefits are not conditional on the use of IFRS for financial reporting. Our findings hold if we run a number of robustness checks to control for correlated events (creation of an investor relations service, provision of conference calls, and/or changes in management). These results are consistent with the language used in the annual report acting as a barrier to investment for some investors and with annual reports issued in English reducing investors’ information processing costs.

Investment, Duration, and Exit Strategies for Corporate and Independent Venture Capital-Backed Start-ups


Journal of Economics and Management Strategy

été 2015, vol. 24, n°2, pp.415–455

Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)

We propose a model of investment, duration, and exit strategies for start-ups backed by venture capital (VC) funds that accounts for the high level of uncertainty, the asymmetry of information between insiders and outsiders, and the discount rate. Our analysis predicts that start-ups backed by corporate VC funds remain for a longer period of time before exiting and receive larger investment amounts than those financed by independent VC funds. Although a longer duration leads to a higher likelihood of an exit through an acquisition, a larger investment increases the probability of an IPO exit. These predictions find strong empirical support

Non-financial information: State of the art and research perspectives based on a bibliometric study


Comptabilité Contrôle Audit

décembre 2015, vol. 3, n°21, pp.15-92

Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)

Mots clés : Non-financial information (NFI), Corporate social responsibility (CSR), Intellectual capital, Environmental reporting, Social reporting, Literature review, Bibliometrics

We conduct a bibliometric analysis of academic articles published on the topic on non-financial information (NFI). We analyze 787 articles published in 53 journals over the timespan 1973 to 2013. We examine several important questions about the state of the art of academic research on NFI: How is NFI defined in the literature? Can NFI be precisely defined? How has the interest for NFI evolved over time in the academic literature? What are the main topics covered by NFI research? What are the main methodologies used by researchers? To what extent are studies country-specific? We find that many articles do not define the notion of NFI but refer to underlying concepts such as social, environmental, human capital or corporate social responsibility (CSR) reporting. We document that academic research on NFI has reached a certain degree of maturity around the end of the 1990s/beginning on the 2000s. Several new specialized journals that now capture an important share of the market were created around that time. We find 10 topics covered by research on NFI and show that the most frequent topic studied in NFI research is CSR reporting. We also discover that the volume of research on auditing of NFI is growing whereas management accounting/control research on NFI is relatively limited. We find that the growth of research on NFI is fueled by articles relying on archival (whether quantitative or qualitative) and essay methodologies. Finally, we suggest directions for future research

Non-financial information: State of the art and research perspectives based on a bibliometric study


Comptabilité Contrôle Audit

décembre 2015, vol. 21, n°3, pp.15-92

Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)

Mots clés : non-financial information (NFI) – corporate social responsibility (CSR) – intellectual capital – environmental reporting – social reporting – literature review – bibliometrics

Cet article propose une étude bibliométrique de la littérature sur le thème de l’information nonfinancière (INF). Nous analysons 787 articles publiés dans 53 revues de 1973 à 2013. Plusieurs importantes questions relatives à l’état de l’art de la recherche académique sur l’INF sont examinées : comment l’INF est-elle définie par la littérature ? L’INF peut-elle être définie ? Quels sont les principaux sujets couverts par la recherche sur l’INF ? Quelles méthodes sont utilisées par les chercheurs ? La recherche est-elle spécifique à certains pays ? L’analyse montre que beaucoup d’articles ne définissent pas le concept d’INF mais se réfèrent à des concepts sous-jacents comme lecapital social, environnemental, humain, ou la responsabilité sociale de l’entreprise (RSE). L’étude montre que la recherche en INF a atteint un certain degré de maturité à la fin des années 1990/début des années 2000. Plusieurs revues spécialisées, jouant désormais un rôle important, ont été créés pendant cette période. Par ailleurs, 10 thèmes de recherche sur l’INF sont répertoriés parmi lesquels la RSE semble être le plus souvent traité. Nous découvrons également que le volume des recherches sur l’audit de l’INF augmentealors que la recherche en comptabilité/contrôlede gestion sur le thème de l’INF reste limitée.La croissance de la recherche sur l’INF est alimentéeprincipalement par des articles utilisantdes méthodes sur données d’archives (approchesquantitatives ou qualitatives) ainsi que desessais. Enfin, nous proposons des pistes pour desrecherches futures

Rating Agency’s Adjustments to GAAP Financial Statements and Their Effect on Ratings and Credit Spreads


The Accounting Review

mars 2015, vol. 90, n°2, pp.641-674

Départements : Comptabilité et Contrôle de Gestion

Mots clés : rating agency, off-balance sheet finance, corporate credit risk, soft information

I examine a dataset of both quantitative (hard) adjustments to firms' reported U.S. GAAP financial statement numbers and qualitative (soft) adjustments to firms' credit ratings that Moody's develops and uses in its credit rating process. I first document differences between firms' reported and Moody's adjusted numbers that are both large and frequent across firms. For example, primarily because of upward adjustments to interest expense and debt attributable to firms' off-balance sheet debt, on average, adjusted coverage (cash flow-to-debt) ratios are 27 percent (8 percent) lower and adjusted leverage ratios are 70 percent higher than the corresponding U.S. GAAP ratios. I then find that Moody's hard and soft rating adjustments are associated with significantly higher credit spreads and flatter credit spread term structures. Overall, the results indicate that Moody's quantitative adjustments to financial statement numbers and qualitative adjustments to credit ratings enable it to better capture default risk, consistent with it effectively processing both hard and soft information

Regulating by ranking? The access to medicine index and the ‘will to perform’


Risk & Regulation Magazine

Winter 2015, pp.12-13

Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)

Afshin Mehrpouya and Rita Samiolo consider the implications of using rankings for facilitating access to medicine

The Effect of Mandatory IFRS Adoptionon Conditional Conservatism in Europe


Journal of Business Finance & Accounting

avril-mai 2015, vol. 42, n°3 & 4, pp.482–514

Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)

Mots clés : conditional conservatism, IFRS, Europe, enforcement, impairment, goodwill, intan-gibles

We study the effect of mandatory adoption of International Financial Reporting Standards (IFRS) in Europe in 2005 on conditional conservatism. We capture conditional conservatism with a modified version of the Khan and Watts measure (CScore) that also controls for potential shifts in unconditional conservatism and cost of capital. From a sample of 13,711 firm-year observations drawn from 16 European countries spanning the 2000–2010 period, we document an overall decline in the degree of conditional conservatism after the adoption of IFRS. We show that the decline in conditional conservatism is less pronounced for countries with high quality audit environments and strong enforcement of compliance with accounting standards using the Brown et al. audit and enforcement index. As asset impairment tests are a key mechanism ensuring conditional conser vatism in the IFRS framework, we further examine these. We show that firms booking an asset impairment present a smaller decline in the degree of conditional conservatism relative to firms that do not. We also demonstrate that firms that do not book an asset impairment when evidence suggests the probable need to do so experience a more pronounced reduction in conditional conservatism. We argue that IFRS are conceptually conditionally conservative but that inappropriate application of conditional conservatism principles is likely to prevent financial reporting from reaching the level of conservatism targeted by the International Accounting Standards Board (IASB)

The Importance of the Chief Audit Executive's Communication: Experimental Evidence on Internal Auditors' Judgments in a ‘Two Masters Setting’


International Journal of Auditing

novembre 2015, vol. 19, n°3, pp.166-181

Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)

Mots clés : Corporate governance, Internal audit, Internal control, Audit judgment

The position of an internal audit function (IAF) as a ‘servant of two masters’ (i.e., management and the audit committee) may lead to a conflict of priorities. In this setting, the tone at the top set by the Chief Audit Executive (CAE) plays a critical role in balancing the potentially competing priorities of the ‘two masters’. We test twohypotheses in a mixed experimental design with the communicated preferences of the CAE to subordinates (cost reduction vs. effectiveness of internal controls) as a between-subjects factor, and levels of ambiguity (low, medium, high) manipulated within-subjects. Findings suggest that the emphasis in the CAE’s message can influence internal auditors’ judgments, and such influence is more pronounced when task ambiguity is high, resulting in the elimination of a significantly greater number of internal controls and the design of less effective processes. We discuss implications of our results for modern IAFs and the role of the CAE