CA/Brock IIIA- Funded Projects
Goodman School of Business
CA/Brock IIIA- Funded Projects
Real Option and Equity Valuation Models: A Global Empirical Study-$9,997
Dr. Hemantha Herath and Dr. Raafat Roubi
This research paper studies relationship between accounting information and equity value. It tests several hypotheses regarding the nature of that relationship in different GAAP jurisdictions. The data used is drawn from the WRDS data base and covers at least a 10-year period for several countries covering several regions. Several classifications are designed to provide insights on the degree of relevance observed.
Adopting the Balanced Scorecard for Organizational Success: What Canada Could Learn from the US - $5,667
Dr. Anamitra Shome
The concept of the Balanced Scorecard (BSC) was developed by Kaplan and Norton (1996) primarily as a means of measuring organizational performance using a balanced set of metrics that encompassed both financial as well as non-financial performance indicators that can be categorized under four different perspectives: financial; customer; internal processes; and learning and growth. Although the BSC has been (and continues to be) used extensively both in Europe as well as the United States, anecdotal evidence suggests that the level of adoption of the BSC in Canada may be significantly lower than that of the US. Our study aims to uncover the reasons for this state of affairs by investigating the factors that are critical for a successful implementation of the BSC. The results of this study would make an important contribution to the accounting literature. In addition, they could have significant implications for Canadian businesses seeking to achieve and sustain a competitive advantage both globally as well as locally.
Antecedents of Mistrust: Online Auction Fraud Originating from Developing Countries - $6,926
Dr. Alex Nikitkov
In the last 2-3 years online auctions systems in the developed countries (USA, Canada, Australia, Germany, UK, and France) have experienced hundreds of thousands attacks originating from developing countries (China, Taiwan, Vietnam, Romania). A typical attack is carried out by injecting Sybil identities, manipulating reputation feedback system with such IDs, listing tens (or hundreds) of auctions under fake IDs thus established, collecting payment, and deregistering from the auction within days without shipping any of the promised product. All major online auctions have experienced such attacks (eBay-worldwide, including USA, Canada, Germany, Italy, France, Germany, Australia; Yahoo-auctions, Amazon-auctions, Overstock-auctions). This phenomenon has not been addressed by any academic or systematic research: there is virtually no research published on antecedents of mistrust and for such attacks in particular.
Thus I propose conducting a systematic analysis of such attacks and generating recommendations to the auction site management and site users as to how avoid fraudulent sellers and defend sites from such attacks. I anticipate collecting extensive sample (3,000 – 4,000 seller observations or 20,000 – 30,000 transactions) originating from China, Taiwan, Vietnam, India, Romania and possibly other developing countries. Online auction sites involved in the study will also have international span: USA, Canada, Australia, UK, France, Italy, and Germany.
Comparing the Post-Bankruptcy Financial and Operating Performance of Canadian and US Firms - $8,500
Dr. Mohamed Ayadi and Dr. Skander Lazrak
In Canada, essentially two acts govern bankruptcy, insolvency and restructuring as a consequence. These are the Bankruptcy and Insolvency Act (BIA) and the Companies Creditors Arrangement Act (CCAA). The former is directed toward consumer bankruptcy and accelerated and simplified business insolvency. The latter can be linked to the U.S. Chapter 11 legislation with few differences. It is essentially the tool used by large corporations who are having solvency problems and who choose to seek refuge from creditors for a period of time. The objective is to have the court protection from creditors while at the same time trying to negotiate a deal with them and continue making business in the meantime.
The motivation of our research is directly related to this idea. As the objective as clearly stated is to save viable firms, we propose to investigate the relation between opting for the reorganization process of failing companies and their future success. In other words, the main objective is to answer the following question: do troubled firms who choose to self reorganize and find arrangement with their creditors and other stakeholders perform well after leaving the reorganization and supervision period? We will answer this question for both Canadian and U.S. companies entering respectively the CCAA and Chapter 11 reorganization procedure. We aim to compare the post restructuring performances of these two groups and identify potential differences. The international setting presents a convenient way to test whether differences in jurisdictions can explain differential in success rates and performances. We can compare our results to similar studies conducted in the U.K. and Australia and test whether there are commonalities or differences.
Development of TAXTUTOR - $10,000
Maureen Donnelly and Allister Young
We propose to develop a prototype of an intelligent tutoring system (ITS) that will help students interpret and apply the Canadian Income Tax Act when solving tax problems. Tax is a complex technical subject that is constantly evolving through perpetual amendments to the tax legislation. It is of course important that undergraduate students of tax learn the existing state of the law but it is arguably more important for them to learn how to interpret and apply future legislation as it unfolds in their professional practice.
Values of CAs and Accounting Students - $2,500
Drs. Sandra Felton and Darlene Bay
Values, as used in this study, can be defined as beliefs about the acceptability of particular modes of conduct or end-states. Values are formed by a combination of effects: family, culture, life experiences and education. In business, it has been found that values are an important determinant of the fit between the individual and her firm and thus impact both job satisfaction and turnover intention. In addition, some studies have begun to investigate the relationship between values and ethical decision making. Because values evolve and change in response to life experiences, they can be influenced by actions of the firm. Therefore, the fit between new hires and the firm is something that can be influenced by actions of the partners. Further, the ability to impact values opens the possibility of providing a strong check on unethical actions. Thus, the values of accounting students and of CAs provide important benchmark information that can be expected to provide actionable recommendations to be used by accounting firms to increase the likelihood that important decisions with an ethical component will be made in a manner to maximize the positive impacts on the firm as well as information to inform potential educational interventions.
This proposal relates to gathering information about the values of CAs. The information can be used to compare students to CAs, but also to compare both groups to their counterparts in the United States and China. Because interactions between Canadians and representatives from both those countries can be expected to a continual part of the business environment, it is important for educators and accountants to understand how values may differ and the potential impact of these differences on behavior and ethical decision making.
The Valuation Effect and the Motives for International Mergers of Equals - $7,600
Dr. Jingyu Li
Merger of equals transactions are characterized by the absence of control premium, shared power, equal representation of board, equal contribution and relatively equal size, securities exchange transaction (no tax implications), and sharing of power by the two management teams. These unique characteristics of merger of equals give us the opportunity to examine the gain and the distribution of gains to the participants in the absence of other confounding motives that motivate other transactions. Relative to other type of merger and acquisition, merger of equals are not motivated by managerialism, agency, replacement of inefficient management, information, undervaluation, it is not a results of hubris, and it is not a method to resolve agency conflict. Merger of equals are motivated by synergy, hence, these unique transaction give us the opportunity to examine the synergistic benefits in the absence of other motives.
Voluntary Disclosure of Positive and Negative Profit Warnings: An Option Pricing Model Explanation - $7,850
Dr. Fayez Elayan
First, the market reaction to management profit warnings is documented. Second, we develop an option pricing model explanation with regard to management motives to voluntarily disclose good and bad information. Third, evidence is developed that seeks to determine which of the various competing explanations, i.e., information asymmetry reduction, lawsuit avoidance or the Option Pricing Model is most consistent with market reaction. Forth, we examine the differential valuation effect to profit warnings between US and a less litigious Canadian market, to determine the validity of the legal action avoidance hypothesis.
Y Works: Generational Differences in Attitudes Towards Workplace Success - $7,500
Shane Nicholls and Darlene Bay
My research investigates the impact of Generation Y (Gen Y) on public accounting firms. I will be taking an international approach to testing average work hours and salary changes observed across the professional accounting industry. Additionally, my database of working hours in the professional accounting industry will be compared to hours in various other industries. This will allow investigation of the impact of Gen Y not only across time, but also across cultures, some of which may not be subject to the influence of Gen Y as it is experienced in North America. In addition, the effect on the accounting profession can be compared to the effect on other professions.
Accounting For and Incentives to Invest in Intangible Assets - $1,400
Dr. Parunchana Pacharn
Accounting for intangible assets has a significant impact on accounting numbers and therefore stock prices. The accounting numbers and stock prices affect management’s incentives and investment decisions. Traditionally, accounting rules for intangible assets are similar to those for long-lived tangible assets in the issues of recognition, measurement, and allocation of costs. Recently, new international and U.S. accounting standards on intangible assets attempt to identify intangible assets with different economic characteristics and significantly changes the practice of amortizing the cost of intangible assets. Some intangible assets are recognized to have potentially indefinite lives and periodic impairment tests replace amortization for such assets.
Much has been debated about the effects of the new standards in accounting for intangible assets compared to the traditional rules. However, most discussions focus exclusively on the issue of valuation. Similarly, prior literature (before and after the new standards) has examined issues such as valuation of specific intangible assets, effects of standards on valuation of intangible assets, or implications on equity valuation.
This project examines the effects of the new accounting rules for intangible assets (such as IAS 36 and IAS 38) on management incentives to invest in internally generated or externally acquired intangible assets.
The Ultimatum Game and Transfer Pricing: Impact of Context, Gender, National Culture and Perceptions of Justice - $4,641
Drs. Darlene Bay and Gail Lynn Cook and Anis Triki
The ultimatum game is a bargaining game that has been used in the experimental economics literature to research differences between actual outcomes and theoretical behavior based on classical economics. Our proposed study uses an experimental markets setting that is exactly the same as the classic ultimatum game. However, the study is framed in a transfer pricing setting. For example, the proposer will be called the manager of Division A and the responder will be the manager of Division B. Instead of dividing a set amount of money, the two will be determining a transfer price (which, of course, in an accounting setting has the same effect of dividing a set amount of money). Our study will also apply behavioral research techniques by measuring the perceptions of participants about procedural, distributive and interactive justice. Finally, the study has been carefully designed so that effects of national culture and gender can be measured with very little chance that the participants will be able to guess the hypotheses being tested.
Fair Value in an Opaque Credit Default Swap Market: How Marking-to-Market Pushed the International Credit Crunch - $7,200
Dr. Fayez Elayan
Mark-to-market accounting under FAS No. 157 has been implicated as a contributor to the global financial meltdown caused by the housing crisis and the consequent write-down. The mark- to-market accounting rule obliges financial institutions and others holding such securities to write their value down to the securities' exit values (the value they are expected to fetch if sold currently). In today's illiquid markets this means writing down the value of the securities to near-zero amounts, thus decreasing the quantification of equity -- and in the case of securities classified as part of a trading portfolio, decreasing income as well. The repercussions of such write-down are not trivial. Losses or increases in the debt-equity ratios caused by the write-down typically trigger rating downgrades, which in turn automatically trigger requirements for additional capital; if capital is scarce in times of credit crunch the institution may be faced with insolvency.
The main objective of this study is to begin to explore whether the mark-to-market rule precipitated and/or aggravated the financial crisis by examining whether write-down announcements related to mark-to-market accounting in selected financial institutions had a significant impact -- implying they came as fresh news. To this end we relate assets write-down to premiums on credit default swaps as will as the equity markets.
Data Transcription and Preparation of Interview Data Gathered in France, the Netherlands, and Russia - $4,000
Dr. Paul Scarbrough
Research data was gathered from three different manufacturing facilities of Scania AB, the world’s premier heavy truck manufacturer and one of the world’s most advanced users of Toyota Production System (TPS) methods. As well, there is a small interview set with Volvo Construction Equipment (Braas, Sweden). The Scania data was gathered in Angers, France; Zwolle, the Netherlands; and St. Petersberg, Russia. This data consists of 32 hours of interviews, primarily with Scania employees at all levels, from assembly worker to plant manager. The use of financial information and the level of interaction of employees at all levels with financial information are examined in the interviews. We request funding to have the interviews transcribed so that the data can be analyzed in qualitative analysis software (Nvivo 8), as well as research assistant support to proof-read the transcriptions and enter the data into the analysis software.
The Economic Consequences of the Corporate Ethical Performance of Multinational Corporations - $7,700
Drs. Sandra Felton and Jingyu Li
The objective of this study is to explore a variety of issues related to corporate ethical performance including the following:
1) Do capital market price a firm’s ethical performance?
2) What factors might determine the market’s reaction to changes in ethical performance?
3) What variables might explain a firm’s ethical performance?
4) What is the relationship between a firm’s ethics and its financial performance?
5) What characteristics distinguish firms that exhibit high or low ethical performance?
To examine these issues, we use the Ethical Quote Index, a ranking system that has been constructed from a comprehensive group of variables designed to measure the ethical reputation of multinational firms.
Accelerating Vesting of Employee Stock Options: International Perspective
Dr. Fayez Elayan
Do mandated changes in accounting policy result in the reapportionment of executive equity compensation? Specifically, is this true for firms accounting for employee stock options (ESOs) under FAS 123R? This research addresses how this policy change motivated firms to substitute restricted stock awards (RSAs) and other non-option compensation for ESOs. Accelerating firms that overweighted options in their compensation structure are shown to utilize the implementation of FAS 123R as a deadline to reduce ESOs relative to RSAs. The evidence does not indicate that accelerating firms are managing option expense recognition in an effort to minimize management option compensation costs.
Backdating Executive Stock Options in Canada and the United States
Dr. Jingyu Li
This research will contribute significantly to the accounting literature by examining one of the most contemporary and debated issue with regard to employee stock options, accounting disclosures, and the choice between disclosure and recognition of the cost of employee stock options. The main objectives of the study are to examine whether Canadian companies have been involved in backdating employee stock options and to examine the unique characteristics of Canadian firms involved in backdating employee stock options, and the factors that contributed to such activities.
TaoBao and eBay: An International Comparison
Dr. Alex Nikitkov and Dr. Darlene Bay
TaoBao is the leading internet auction site in China and eBay is the leading internet auction site in Canada, the United States and many other countries. This study investigates the similarities and differences, paying particular attention to the existence of a buyer or seller bias, the basic revenue model and attempts by the websites to address fraud and other failed transactions. We intend to conduct a survey of both buyers and seller on each website. In addition, we compare financial information, website regulations, third party assessments and any other information we are able to locate.
A paper derived from this project will be published in Business Ethics: A European Review in 2010.
The Impact of Corporate Ownership and Governance on the Payout Policies of Canadian Firms
Dr. James Moore
This study examines the impact of corporate ownership structure and corporate governance structure on the payout practices of TSX traded firms. Most prior research has focused on firms traded on US exchanges. The impact of unique Canadian market conditions, such as the favourable tax treatment of dividends between corporations considered connected under the I.T.A., restrictions on share repurchases and low liquidity will be studied. The impact of these factors is of interest to researchers and practitioners who wish to better understand the factors that lead firms to either payout cash in the form of dividends, repurchases or both or to retain cash for internal use.
Accounting Education and Emotional Intelligence: The Effect of a Significant Liberal Arts Component
Dr. Darlene Bay and Dr. Gail Cook
Emotional intelligence is a relatively new construct that has received a great deal of attention among practitioners and employers as being an important skill and predictor of success. It has, however, not been well researched and there is little documented evidence of its impact in practice. Further, it has not yet been determined what types of educational interventions are effective in increasing emotional intelligence.
This study investigates the possibility that a liberal arts based education may have a greater impact on emotional intelligence than a more technically oriented educational program. To accomplish this, we administer the MSCEIT (a measure of the ability to recognize and assess emotional input) to students at three universities, one located in Canada, one in South Africa and one in the United States, which have varying degrees of technical versus humanities components in their accounting programs. We also include students in a liberal arts program to serve as a control for possible cultural effects.
A paper derived from this project was published in Personality and Individual Differences in 2010.
The Economic Consequences of Disclosure Regulation: The Case of Disclosure of Corporate Governance Practices in the Investor Relation Section of Corporate Websites in the USA and Canada
Dr. Samir Trabelsi
Following numerous accounting and financial scandals, there has been a trend on the part of regulatory bodies to encourage wider disclosure of corporate governance practices (CGP). In USA, the Sarbanes-Oxley Act of 2002 (SOX) requires public disclosure, via corporate investor relations websites, of specific information relating to governance practices. The Securities and Exchange Commission (SEC) approved corporate governance rules require companies with listed securities on the New York Stock Exchange to disclose corporate governance practices on their websites (NYSE, 2003). In contrast, the use of the Internet to disclose CGP is still voluntary in Canada. The Toronto Stock Exchange (TSX) requires listed companies to comply or explain with the corporate governance practices' (SCGP) guidelines only in the annual report or in the proxy circular. In this unique setting, we provide evidence that online disclosure of corporate governance practices differs between the United States (U.S.) and Canada, two otherwise similar business environments with different legal regimes. We find that the extent of corporate governance practices disclosures is higher in the U.S relative Canada suggesting that regulation force firms to maintain a higher level of transparency. Further, we find that the association between the extent of disclosure of governance practices on corporate website and stock liquidity is more significant in the US market. These findings are consistent with the externalities justifications of disclosure regulation. This study contributes to the debate on the economic consequences of disclosure regulation.
Environmental Corporate Governance: The Economic Consequences of Carbon Disclosure
Matt Wegener and Fayez Elayan
This study examines the factors associated with Canadian firms voluntarily disclosing climate change information through the Carbon Disclosure Project. Five hypotheses are presented to explain the factors influencing management’s decision to disclose this information. These hypotheses include a response to shareholder activism, domestic institutional investor shareholder activism, signalling, litigation risk, and low cost publicity. Both binary logistic regressions as well as a cross-sectional analysis of the equity market’s response to the environmental disclosures being made were used to test these hypotheses. Support was found for shareholder activism, low cost publicity, and litigation risk. However, the equity market’s response was not found to be statistically significant.