Asia-Pacific Journal of Accounting & Economics
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Volume 8, Issue No. 2, December 2001

Table of Contents

Main Articles

Research Notes

  • Jayanthi Krishnan , A comparison of auditors' self-reported industry expertise and alternative measures of industry specialisation

  • Divesh S Sharma, The association between non-audit services and the propensity of going concern qualifications: Implications for audit independence


Self-serving disclosures by chairpersons of failing UK companies

Clive Lennox
Hong Kong University of Science and Technology


This paper investigates information disclosures made by the chairpersons of boards of directors in 120 failing UK companies. There are four main findings. Firstly, chairpersons excessively blame poor performance on exogenous factors rather than managerial decisions. Secondly, almost half of chairpersons do not candidly disclose problems that are apparent when they write their statements. Thirdly, prospective disclosures are more optimistic than disclosures about past performance despite significantly worse performance after the chairpersons' statements. Finally, chairpersons' compensation is negatively associated with bad news disclosures. Overall, the results indicate that chairpersons in failing companies hide bad news, and they have incentives to do so. © City University of Hong Kong.

JEL classification: M41 and G33

Keywords : self-serving; disclosure; failing


The value relevance of accounting information around the 1997 Asian financial crisis - the case of South Korea

Li-Chin Jennifer Ho a , Chao-Shin Liu b and Pyung Sik Sohn c
a University of Texas at Arlington
b University of Notre Dame
c Korean Stock exchange


This paper examines the value relevance of accounting earnings, book value of equity, and cash flows from operations for Korean firms during the 1995-1998 period. The results indicate that the value relevance of accounting earnings for Korean firms significantly declines from the pre-crisis (1995-1996) to the in-crisis (1997-1998) period. The declining importance of earnings, however, is not replaced by the increasing value relevance of book value of equity during the same period. There is also evidence that cash flows from operations become more value-relevant in the 1997-1998 period. Finally, the results hold after controlling for the amount of foreign exchange translation gains and losses included in earnings and book value. © City University of Hong Kong.

JEL classification: M41

Keywords : Asian financial crisis; value relevance of accounting information; South Korea


Earnings management in the electric utility industry

Wonsun Paek
Sungkyunkwan University


This study examines whether accounting earnings are systematically managed as a response to regulation regime (rate vs. incentive regulation) and relative performance (over- vs. under-performance). Incentive regulation aims at mitigating efficiency problems arising from rate regulation under which managers have incentives to decrease accounting earnings to the extent that expenses are recoverable through a bargaining process at rate hearings. Specifically, income-managing incentives of electric utilities are assessed by hypothesising that income-decreasing accounting accruals are more pronounced (i) for rate-regulated firms than for incentive regulated firms and (ii) for overearning firms than for underearning firms. Empirical results generally support the expectation. In particular, income-decreasing discretionary accruals are the most negative for rate regulated overearning firms (i.e., firms that earn above allowed return) among others. © City University of Hong Kong.

JEL classification: M41

Keywords: discretionary accruals; earnings management; incentive regulation; rate regulation


A comparison of auditors' self-reported industry expertise and alternative measures of industry specialisation

Jayanthi Krishnan
Temple University


Auditing research requiring measures of auditor industry expertise have relied largely on auditors' market shares as proxies for industry expertise. This study systematically documents differences in these proxies for each of the Big Six (now Big Five) and a subset of non-Big Six auditors. Next, it examines an alternative measure based on the industry's share in the auditor's portfolio. Finally, it compares the market shares-based measures and the alternative measure with audit firms' postings of their industry specialisation in their home pages on the World Wide Web. The numbers indicate that the auditors' self-reported specialisations are not correlated with market shares for most auditors . The findings suggest that future studies should consider alternative measures of specialisation in studies of audit market outcomes. © City University of Hong Kong.

JEL classification: L10, L84 and M41

Keywords: industry specialization; industry expertise; portfolio shares; market shares