Product market competition and the cost of equity capital: evidence from China

Chen Chen, Li Li^b & Mary L.Z. Ma^c*
a School of Management, Xiamen University, Xiamen, China
^b School of International Trade and Economics, University of International Business and Economics, Beijing, China
^c School of Administrative Studies, York University, Toronto, Canada

Abstract
This study examines how product market competition affects the cost of equity capital in the incomplete competition and transitional economy setting in China, and reports that firms in more competitive industries have lower the cost of equity. We explain that technical innovation, production efficiency, external governance, and managerial incentives induced by increased competition reduce systematic economic uncertainty in China, and find their mediating effects on the competition cost of equity relation. We also find that better development of non-state economy, less government intervention, entrance to the World Trade Organization, and higher banking competition strengthen the competition cost of equity relation.

JEL Classifications: G1, L11, O1

World-class manufacturing, management accountants’ crossfunctional participation, and firm performance

Rong-Ruey Duh^a, Audrey Wen-hsin Hsu^a & Chee W. Chow^b
aDepartment of Accounting, National Taiwan University, Taiwan
^bLa Jolla, CA, USA

Abstract
This study examines whether management accountants’ extent of cross-functional participation increases with their firms’ world-class manufacturing (WCM) implementation and how such participation affects financial and nonfinancial firm performance. Results from applying structural equations modeling (SEM) to archival and survey data from 209 listed firms in Taiwan indicate that management accountants’ crossfunctional participation increases with their firms’ use of WCM, and that both WCM and management accountants’ cross-functional participation have positive links to firm performance, with the latter also partially mediating WCM’s performance effect. These results suggest that management accountants are responsive to the demands of their firms’ manufacturing practices and that this participation not only helps to enhance the benefits of WCM, but also firm performance in other ways.

Keywords: world-class manufacturing; management accountants; firm performance

JEL Codes: L25, M41

Does continuous auditing enhance the quality of financial reporting?
Korean evidence

Jung-Wha Lee^a, Minjung Kang^b, Yunsook Oh^b & Gyungmin Pyo^b
a Research School of Accounting and Business Information Systems, Australian National University, Canberra, Australia
^b School of Business, Yonsei University, Seoul, Republic of Korea

Abstract
This study examines the effects of audit efforts through interim reviews of financial reports. Using Korean data, we specifically investigate the relationship between the number of audit hours worked during the first three quarters and the quality of interim and annual financial reports. Our results show that continuous auditing efforts are negatively associated with interim and annual discretionary accruals (DA). Moreover, the results from the positive and negative DA of annual financial reports also support the notion that continuous auditing efforts restrict upward earnings management more than downward earnings management. Overall, our results complement prior research and regulators’ assertions by highlighting the importance of continuous audit efforts for interim and annual financial reports.

Keywords: continuous auditing; quarterly reviews; audit effort; financial reporting quality

Increased disclosure and investment efficiency

Shu-Miao Lai^a, Chih-Liang Liu^b & Taychang Wang^c
a Department of Accounting, Kainan University, Tao-Yuan, Taiwan
^b Department of Industrial and Business Management, College of Management, Chang Gung University, Tao-Yuan, Taiwan
^c Department of Accounting, National Taiwan University, Taipei, Taiwan

Abstract
This paper investigates the relation between increased disclosure level and capital investment efficiency. We hypothesize that increased disclosure level can reduce information asymmetry, which in turn improves capital investment efficiency. Consistent with our hypothesis, we document a significantly negative association between disclosure level and measures of inefficient investments, such as level of investment inefficiency, overinvestment, and underinvestment, indicating that firms increased disclosure level are found to improve investment efficiency. These results are robustness after using various measures for level of investment inefficiency and increased disclosure and considering different types of disclosure such as voluntary disclosure. Overall, our findings suggest that through reducing information asymmetry, increased disclosure level induces managers to act in the best interest of shareholders, which improves capital investment efficiency.

Keywords: disclosure; transparency; investment efficiency; capital investment

JEL codes: D82, G31

A delisting prediction model based on nonfinancial information

In Tae Hwang^a, Sun Min Kang^a & Shun Ji Jin^a
a College of Business and Economics, Chung-Ang University, Seoul, Korea

Abstract
The purpose of this study is to develop a model for predicting firm delistings based on nonfinancial information. The delisting model using nonfinancial information is more meaningful in that it can provide diverse stakeholders with earlier warning signals for predicting delistings. Nonfinancial information is generally disclosed to the public in a timely manner because it requires no procedure involving the settlement of accounts and audits. The results suggest that stakeholders should pay close attention to various qualitative factors that are not expressed in financial to predict delistings as early as possible and  thus to minimize social losses from delistings.

Keywords: delisting; nonfinancial information; financial information; timeliness

JEL Codes: M40; M41