Asia-Pacific Journal of Accounting & Economics
<< Previous Issue Next Issue >>

Volume 9, Issue No. 1, June 2002

Table of Contents

Main Articles

Research Notes


The effects of earnings and cash flow permanence on their incremental information content in Thailand

Kanogporn Narktabtee a, Thomas A Carnes b and Ervin L Black c
a Kasetsart University
b University of Arkansas
c Brigham Young University


We examine whether the incremental information content of cash flows from operations (earnings) increases when earnings (cash flows) are transitory in Thailand's emerging capital market. Prior research for developed capital markets ( e.g. the United States and Japan) has found cash flows play a more important role in explaining security returns when earnings are transitory. The Stock Exchange of Thailand ("SET") required listed firms to provide a Statement of Cash Flows beginning in 1994. This requirement was not in response to investor demand, but was motivated by the SET's desire to employ standards similar to those of developed markets. We find that for a sample or 448 firm-years between 1995 and 1997, cash flows have greater incremental information content and earnings have less information content when earnings are relatively transitory and cash flows are relatively permanent. When cash flows are relatively transitory, we find they have significantly less information content and earnings have significantly more. © City University of Hong Kong.

JEL classification: G15 and M41

Keywords : information content; permanent and transitory earnings; Thailand


An analysis of the association between firms' investment opportunities, board composition and firm performance

Marion Hutchinson
Deakin University


The purpose of this paper is to identify the variables that influence the board structure adopted by firms and the subsequent relationship to the firm's performance. The results of this study of 229 Australian firms show that firms' investment opportunities are strongly associated with a higher proportion of executive directors ("ED") on the board. The results also show that the negative relationship between a firm's investment opportunity set ("IOS") and firm performance is weakened at higher levels of non-executive director board domination. These results have implications for policy setters and managers of firms with investment opportunities. © City University of Hong Kong.

JEL classification: D21, D82 and G39

Keywords : agency theory; corporate governance; investment opportunity set; firm performance


Audit firm characteristics and Type II errors in the going concern opionion

Kimberly A. Dunn a, Christine E. L. Tan b, and Elizabeth K. Venuit c
a Florida Atlantic University
b Baruch College - CUNY
c Hofstra University


According to SAS No. 59 (AICPA, 1988), auditors must modify their audit reports for uncertainties that may affect a company's ability to continue in existence. Using both auditor and company characteristics in a logistic regression model, we examine whether Big Six (now Big Five) (industry specialist) auditors are more likely to issue a going concern opinion on the financial statements immediately preceding bankruptcy than non-Big Six (non-specialist) auditors. We further partition the sample of bankrupt firms into groups based on probability of bankruptcy, default status, and events occurring after the date of the audit report. These partitions allow u s to examine whether Big Six (industry specialist) auditors systematically outperform non-Big Six (non-specialist) auditors in issuing a going concern opinion in situations in which going concern assessment is more difficult. Our findings provide no evidence that Big Six (industry specialist) auditors outperform non-Big Six (non-specialist) auditors in the overall sample or in the sample partitions. © City University of Hong Kong.

JEL classification: M41

Keywords : going concern; bankruptcy; audit quality; industry specialisation


The effect of structural changes on discretionary accrual estimates: Some implications for earnings management research

Glen A. Hansen
Penn State University


This paper examines if firms' structural changes affect bias and measurement error in discretionary accrual model estimates. Understanding the bias and measurement error in discretionary accrual estimates is particularly important because the empirical evidence in many earnings management studies is based entirely on these estimates. The evidence in this study is consistent with structural changes causing measurement error in discretionary accrual estimates. The evidence also shows that the measurement error is correlated with the level of earnings and other variables that have commonly been used by earnings management researchers to partition samples into groups with different earnings management incentives. Such a correlations provides evidence of a strong potential for bias in these estimates. Since the empirical results from many studies are based entirely on these estimates, some earnings management studies may lack valid empirical support. © City University of Hong Kong.

JEL classification: M41

Keywords : earnings management; discretionary accruals, Models selection


Valuation and growth rates manipulation

Arieh Gavious a, Joshua Ronen b and Varda (Lewinstein) Yaari a
a Ben-Gurion University of the Negev
b New York University


Valuation requires the prediction of future growth rate of persistent earnings, which depends on past and present internal and unobservable investment decisions. In this study, we investigate the "management" of the series of growth rates in a multi-period principal-agent model with a moral hazard problem between owners (the principal) and the manager (the agent). We find that the manager's choice of efforts might yield a series of increasing expected growth rates, contrary to owners' preferences. Consequently, the extrapolation of expected future earnings of an owner-controlled firm should differ from that of a management-controlled firm. © City University of Hong Kong.

JEL classification: M41, D82 and D90

Keywords : valuation; moral hazard; growth rates; smoothing