Client Firms Research Articles

‘Framing’ and ‘packaging’ of foreign skilled workers: diversity of the intermediary actors in the cross-border labour market between Japan and Vietnam

ABSTRACT Intermediaries are indispensable for processing the mobility of international migrants. In the absence of an official migration policy in Japan, this requirement of intermediaries is not an exception. This paper examines the different approaches of Japanese intermediaries towards Japanese client firms and Vietnamese early-career professionals employed in the information technology sector in the cross-border labour market between Japan and Vietnam. Two major results are derived based on data from semi-structured interviews. First, recruitment companies instruct labour users, and recruitment organizations seek to ‘frame’ a job post for migrant workers for a successful visa application. Second, temporary staffing firms ‘package’ multiple Vietnamese workers to provide the necessary labour to clients. This study argues that different types of intermediaries are present in the employment process of early-career foreign skilled labourers and that a temporary staffing firm intervenes the most actively in the employment process of skilled migrants among other intermediaries.

How do investors perceive audit report lag? Evidence from the cost of equity

We investigate how investors perceive audit report lag. We argue that the cost of equity will be lower (higher) if a long audit report lag links positively to confidence (scepticism) among investors about the credibility of reported earnings. We find that the audit report lag is positively associated with the cost of equity. In the additional analyses, we report that the audit committee's effective monitoring, Big N auditors and industry‐expert auditors moderate the positive association between audit report lag and the cost of equity. Lastly, the short window return‐earnings association test suggests that investors perceive that long audit report lag reflects less credible financial reporting quality. In summary, our findings provide implications to the client firms, the practitioners and the regulators by showing that the firm's cost of raising equity capital is positively associated with the audit report lag.

Enhancing institutional capacity in a centralized state: The case of industrial water use efficiency in Vietnam

AbstractThis article uses an institutional capacity framework to assess the interplay between the macro level institutional environment in the form of the centralized Vietnamese state, and the meso level institutional capacity of three different industrial zones to develop technological water use efficiency strategies. Our results show that the relational, knowledge, and mobilization capacities of these industrial zones are constrained by the centralized nature of the Vietnamese state. These industrial zones also show a limited capacity to instigate reform of macro level regulatory institutions. However, we also find instances where industrial zones do demonstrate capacity for implementing water use efficiency technologies because of their capacity to coordinate relations with client firms, universities, and provincial industrial zone authorities. If the institutional capacities of industrial zones are better supported, we argue there remains room for them to influence the macro institutional context to support innovation in water use efficiency. Our results indicate the value of institutional capacity as a framework for assessing processes of technical innovation for industrial ecology, especially in the context of centralized states.

Risk-preparedness mechanism and audit quality: Evidence from mandatory increase of professional indemnity insurance and professional risk fund

We examine the risk-preparing benefits of Chinese audit firms’ professional indemnity insurance (PII) and professional risk fund (PRF) by using the Notice on Adjusting the Application Requirement of Audit Firms for Securities Qualifications as an exogenous shock. This policy requires audit firms to raise the sum of the cumulative compensation limit of their PII and PRF from 6 million to 80 million yuan. It is found, first, that the capital market regards this policy revision as a signal to strengthen investor protection and responds positively; client firms with high audit risks have a stronger response. Second, auditors’ governance of financial information has strengthened, resulting in the significant improvement of their clients’ financial reporting quality, with a stronger effect on firms with higher earnings management risk. There is no evidence that audit firms pass the costs on to their clients. Finally, the mismatch between auditors and new client firms is alleviated. We show that in an emerging market with weak investor protection, establishing a sound risk-preparedness mechanism for audit firms and strengthening the capacity for civil compensation ex post greatly improve the adaptive degree between international auditing standards and the legal environment of China, thereby enhancing the overall service quality of the audit market.

Disclaimer effect of key audit matters in China: negative press coverage and boilerplate

PurposeUsing China’s key audit matters (KAMs) data, this study aims to examine whether negative press coverage alleviates boilerplate KAMs.Design/methodology/approachThis study uses Levenshtein edit distance (LVD) to calculate the horizontal boilerplate of KAMs and investigates how boilerplate changes under different levels of the perceived legal risk.FindingsThe findings indicate that auditors of firms exposed to substantial negative press coverage will reduce the boilerplate of KAMs. This association is more significant for auditing firms with lower market share and client firms with higher financial distress. Additionally, the authors find that negative press coverage is more likely to alleviate the boilerplate disclosure of KAMs related to managers’ subjective estimation and material transactions and events. Furthermore, the association between negative press coverage and boilerplate KAMs varies with the source of negative news.Originality/valueThe findings suggest that upon exposure to negative press coverage, reducing the boilerplate of KAMs has a disclaimer effect for auditors.

Philanthropy, audit firms culture and auditor independence.

In this study, we examine how the prosocial ethical culture in audit firms, measured as their philanthropic contributions over gross revenues, influences auditor independence. Using 5,246 audits in the Chinese market between 2010 and 2012, we find that the level of ethical culture in audit firms is significantly negatively associated with the magnitude of earnings management and the frequencies of financial restatements of their client firms. We also find this association is even stronger when auditors provide services to clients that are economically important or when signing auditors bear school ties with at least one top executive of the client. Further evidence show that the ethical culture can both act as a mechanism that attract auditors with a compatible internal norm, and great a group norm in audit firms that directly shape auditor behavior. Collectively, our study suggests that ethical culture of audit firms can significantly improve auditor independence.

Clustering of percentage gross spreads and the avoidance of underwriter switching

PurposeBoth issuing firms and underwriters shall benefit from the associations in underwriting contracts for seasoned equity offerings (SEOs). Issuing firms that are offered underwriting contracts with clustered gross spreads do not have strong incentives to switch away from the firms' prior SEO underwriters, and thus these existing underwriters are able to maintain or gain greater market share. This study investigates how the clustering of percentage gross spreads affects the likelihood of underwriter switching.Design/methodology/approachUsing the investment bank-underwritten SEOs in Hong Kong, the authors find that the percentage gross spreads of 40% of these SEOs are clustered at 2.5%. The seemingly unrelated bivariate probit model, Weibull survival mixed model and trivariate probit model are applied to analyse this phenomenon.FindingsThe authors' study provides first direct evidence that the clustering of percentage gross spreads lowers the likelihood of underwriter switching. Investment banks as underwriters can explicitly price underwriting contracts at a clustered level, more likely in periods of greater market volatility, and intentionally retain the banks' client firms using pricing arrangements. The authors' finding and approach offer more direct and distinct support that the issuer–underwriter association can be relationship-based.Originality/valueWhilst the clustering of fees is interpreted as a type of anticompetitive price sitting, the authors contribute to literature by providing new empirical evidence on why percentage gross spreads as a price dimension are clustered. On top of contract efficiency and collusion, this study's new evidence provides a third view for the clustering of gross spreads.

Influence of Construction Micro, Small and Medium Enterprises’ Innovation on Clients in Northern Nigeria

Innovation of a firm is considered the firm’s ability to develop a new or improved product and processes or equipment for the creation and production of new invention. While customers or clients are essential to the realisation and success of innovation in construction firms. However, there is deprived understanding of the impacts of construction firms’ innovation on customers /clients. This paper, hence, exploratively determine the impacts of construction micro, small and medium enterprises’ (CMSMEs) innovation on customers/clients. To achieve this the research employed qualitative research method to exploratively determine the effects of innovation on construction micro, small and medium enterprises’ (CMSMEs) clients. While recorded semi-structured interview with opened ended questions were utilized to gather information from 43 innovative CMSMEs through judgemental and snowballing examining procedure. Information gathered were, open and axial coded, examined and interpreted. The outcome from the study reveal that innovation predominantly impacts on client/customer satisfaction, client/customer retention and client/customer relations. In addition, the findings also indicate minor occurrences of innovation impacting clients’/customers’ value for creativity, clients’/customers’ value for money and after sales services to clients’/customers. This outcome implies that innovation could be postulated as a driver of client satisfaction of a firm resulting in improved client retention and ultimately, the success of the firm. The search improves body of knowledge in respect of the basic effects of innovations on construction firm clients.

Female superiority in accruals quality: some evidence from the Scandinavian region

Purpose The purpose of this paper is twofold. First, this study examines the relationship between the presence of a female (rather than a male) audit partner and the client firm’s accruals quality. Second, this study explores whether and how the female audit partners’ specific attributes influence the gendered auditor effect on the quality of the client firm’s accruals quality (if it exists). Design/methodology/approach Research hypotheses have been tested by conducting both univariate and multivariate empirical analyses based on a large sample of firm-year observations from the Swedish Corporation for the years 2010–2019. During the sample timeframe, the client firms have been audited by 56 female and 231 male audit partners. Findings The research findings first indicate that client firms of female audit partners are associated with downward earnings management, indicating a beneficial female auditor effect on client firm’s accruals quality. Results from the audit partner change analysis exhibit that the adverse female auditor effect on the client firm’s earnings management, and hence, the beneficial female auditor effect on the client firm’s accruals quality occurs from the first year of the assignment of a female audit partner to replace a male audit partner. When looking at how specific attributes of female audit partners influence accruals quality of their audited clients, this study reveals that the favorable female auditor effect on the client firm’s accruals quality holds constant for all the female audit partners’ specific attributes included in the researched models. This underscores that the mere presence of a female audit partner constrains earnings management and enhances, thereby, the client firm’s accruals quality. Originality/value This research supports regulators calling for the appointment of more women to the audit firms’ leading ranks (e.g. leadership).

Quality perception of accounting firm customers

PurposeThis study aims to verify the dimensions of perceived quality of services which influence the satisfaction of accounting firm clients and verifies whether customer satisfaction influences loyalty and word-of-mouth recommendations.Design/methodology/approachA model is proposed and tested using a survey of 292 accounting firm clients; structural equation modeling and partial least squares are used for data analysis.FindingsThe constructs of internal policies, personal relationships and trust influence the satisfaction of accounting firm clients which directly influences word-of-mouth recommendations and customer loyalty; however, the constructs of physical aspects and problem solving have no influence on satisfaction.Research limitations/implicationsThe main contribution to the accounting field is an identification of the aspects in which firms should invest to deliver quality to clients. The development of internal policies, personal relationships and trust can lead to more satisfied clients, resulting in loyalty and word-of-mouth recommendations. These are novel results within the literature and can guide accounting firms toward better performance.Originality/valueThis study is justified by the fact that accounting firms must adapt to the new environment and the new requirements of the accounting field and look for solutions that follow the progress of financial and managerial accounting, primarily with regard to service quality, satisfaction, loyalty and word-of-mouth recommendations. We also introduce a new scale to reveal novelties which cannot be observed using traditional service quality scales. This is another important contribution to the quality of accounting services.

Determinants of goodwill impairment disclosure: the role of audit quality and analysts following

PurposeThe authors investigate the effect of audit quality and analysts' coverage on firms' compliance concerning goodwill impairment testing and disclosure requirements with the Indian Accounting Standard (Ind AS) over the period of 2017–2020.Design/methodology/approachThe authors conduct univariate analysis and employ pooled ordinary least square (POLS) and Fama–MacBeth (FMB) regression techniques for empirical testing.FindingsThe authors report a substantially higher disclosure score (DS) for firms with superior audit quality and for firms with incidence of analysts' coverage. Moreover, the authors show a positive impact of audit quality on the firm's degree of disclosure. This signifies better compliance by the clients of Big-4 audit firms in the enforcement of standard's mandates. Besides, the results on analysts' coverage indicate that the increasing number of analysts discipline managers in terms of appropriate compliance with disclosure requirements, hence favours the monitoring effect hypothesis for Indian firms. The results are robust to the alternate measures of key regressors, set of firm controls and alternate estimation technique.Originality/valueThe study adds to the knowledge concerning the economic consequences of mandatory disclosures and is possibly the first to investigate compliance related to goodwill impairment disclosure regime under the new Ind AS.

Big-4 auditors and audit quality: a novel firm life-cycle approach

PurposeFirm-specific factors such as size, profitability, growth, risk and complexity, in addition to agency-related issues determine both auditor selection and firm life-cycle stage. This paper aims to examine whether and how the effect of Big-4 auditors (B4As) on client firms’ audit quality varies across firms’ life-cycle stages.Design/methodology/approachThe sample comprises 1,813 firm-year observations in India’s emerging economy from 2011 to 2020. The Modified Jones model and Jones (signed, unsigned) model are used to compute discretionary accruals/audit quality. The authors use Koh et al.’s (2015) methodology to determine the firm life cycle.FindingsThe authors’ key findings show that the client firms employing B4As have superior audit quality than those employing non-Big-4 auditors (NB4As). The authors also show that the life-cycle stage significantly impacts the relationship between B4As and a firm’s audit quality. Furthermore, B4A client firms report superior audit quality vis-à-vis NB4A firms only in the birth- and decline-stages. The audit quality of growth- and mature-stage B4A and NB4A client firms is not significantly different.Practical implicationsImplications for managers include the decision to hire B4As. Given that B4As earn a significant fee premium, managers leading birth- and decline-stage firms should hire B4As, while managers of growth- and mature-stage firms should not.Originality/valueTo the best of the authors’ knowledge, this is the first paper to examine the moderating effect of the firm life-cycle stage on the selection of B4As and their impact on audit quality.

Low-carbon city initiatives and analyst behaviour: A quasi-natural experiment

This paper investigates how environmental regulation and action affect analyst behaviour. Exploiting staggered enactment of low carbon city (LCC) initiatives in a difference-in-differences (DiD) setting, we observe that analyst forecast accuracy (dispersion) is significantly lower (greater) for client firms headquartered in cities covered by the LCC pilot programme, especially among firms with a low-quality information environment. The LCC effort affects analyst behaviour via increased firm risk and reduced earnings predictability, causing enhanced site visits and coverage. The results are stronger in cities with more rigorous enforcement and regulation intensity, for private firms with high business complexity and in heavily polluting industries. Results are robust to DiD models with entropy balancing matching, placebo tests, parallel trend tests, and a battery of fixed effects. Collectively, they reveal that environmental regulation has real impacts on analyst forecast behaviour.

Information sharing between mutual funds and auditors

AbstractThis paper examines whether there is information sharing between mutual funds and their auditors about the auditors’ other listed firm clients. Using data from the Chinese market, we find that mutual funds earn higher profits from trading in firms that share the same auditors. The effects are more pronounced when firms have a more opaque information environment and when the audit partners for the fund and the partners for the listed firm share school ties. The evidence is consistent with information flowing from auditors to mutual funds, providing mutual funds with an information advantage in firms that share the same auditors. Our findings are robust to the use of audit‐firm mergers and acquisitions (M&As) as exogenous shocks and several other robustness checks. We further find that auditors benefit by charging higher audit fees for mutual fund clients and by improving their audit quality for listed firm clients. Our study provides evidence of bi‐directional information sharing between two important market intermediaries.

FAKTOR-FAKTOR YANG MEMENGARUHI KUALITAS AUDIT

This study aims to examine the effect of audit tenure, public accounting firm size, audit fee, and client company size on audit quality. The sample in this study amounted to 63 financial sector companies listed on the Indonesia Stock Exchange in 2015-2019 using the purposive sampling method. Data form 63 companies obtained a total sample of 315. The analysis technique used is logistic regression analysis with a significance level of 5%. The results showed that audit tenure, fee audit, and client company size have no significant effect on audit quality. Meanwhile, public accounting firm size has a negative and significant effect on audit quality.
 Keywords: Audit Tenure; Public Accounting Firm Size; Fee Audit; Client Company Size; Audit Quality.

How do consulting firms share knowledge with clients in the Arab world? A cultural embeddedness perspective

ABSTRACT This paper explores the challenges that consulting firms and client firms are facing in knowledge sharing in the context of the Arab management consulting industry, and how local culture works in solving these challenges. Taking knowledge sharing and the cultural embeddedness perspective as the theoretical lens, the study adopts a comparative case study design to explore how mechanisms of cultural contextualisation affect knowledge-sharing behaviours. The findings highlight the benefits of cultural embeddedness in knowledge sharing between consulting firms and client firms through identifying the importance of Wasta (a social network of interpersonal connections) in skill-set formation, follow-on consultancy, niche specialist cultivation, and the establishment of network consulting. Our study provides industry players with a holistic framework to leverage Wasta to achieve knowledge sharing, which sheds light on a neglected cultural aspect in the management consulting industry.

Auditors' Incentives and Audit Quality: Non-Audit Services versus Contingent Audit Fees

I develop a model that provides new insights into the consequences of the provision of non-audit services (NAS) by audit firms to audit clients. I also investigate the joint implications of NAS and contingent audit fees (CAF) for audit quality. In the model, litigation and reputation costs do not provide sufficient incentives to auditors to exert audit effort. Investors of client firms may therefore let auditors provide NAS because of an incentive effect. Indeed, the possibility of providing NAS contingent on detecting financial misstatements increases auditors' incentives to exert audit effort. However, the provision of NAS also reduces auditor independence, which may decrease audit quality and in turn render the provision of NAS by auditors undesirable. Thus my analysis uncovers an interesting tradeoff for regulators between the positive incentive effect and the decrease in auditor independence. Removing the current restrictions on CAF may offset the ex post decrease in audit quality while preserving the ex ante incentives. My analysis also generates a number of testable empirical predictions.

Auditor independence: The effect of auditors’ quality control efforts and corporate governance

This paper investigates whether audit firms’ quality control (QC) activities, which are generally viewed simply as an internal review process of engagement work-papers, are related to auditor independence. Using a sample of Korean firms, we find a significantly positive relationship between the ratio of QC hours to total audit hours (QC hour ratio) and the auditor’s propensity to issue a going concern opinion. This relationship is more pronounced for economically important clients. We also find that audit firms’ QC efforts are effective in maintaining independence only when client firms have better governance systems. These results suggest that audit firms’ QC efforts, especially in interaction with governance, are effective in maintaining auditor independence.

Designing Long-Lasting Products: Barriers for Design Consultancies

AbstractPast research shows there are significant barriers for creating long lasting products. In this paper we examine, the distinct collaborative barriers design consultancies face when striving to design long-lasting products for client firms. Data is collected through case studies (four months of observations and interviews) from three projects. Through the study we find indications, that the value chain intricacies, provide distinct interfirm barriers for creating long lasting products. These barriers include vision clashes, misalignment in the aspired manufacturing quality and price position.

How does the power dynamics in the information technology outsourcing supply chain influence supplier's talent retention: a multiple case study

PurposeThe purpose of this paper is to investigate how the power dynamics between the client firm and the supplier firm in the information technology outsourcing (ITO) supplier chain influence the supplier firm's human resource management (HRM) practices, particularly talent retention.Design/methodology/approachA multi-case study approach was adopted comprising four supplier firms, three client firms and a total of 53 interviews. The transaction cost economics (TCE) is the theoretical lens that guides the interpretation of our findings.FindingsThe power dynamics between client and supplier firms in the ITO supply chain is one underpinned by TCE theory, characterised by an asymmetric client-dominated, transactional relationship, with the client firms controlling the “why”, the “what”, and the “how” dimensions of their collaboration. This “three-dimensional control” led to high talent turnover in supplier firms, which boomerangs to perpetuate the power dynamic, forming “vicious cycles of talent turnover” in the ITO supplier chain. Originality/valueNo previous study has analysed power dynamics as an external factor on ITO supplier firms' talent retention. The construct of the “three-dimensional-control” offers a framework to study power dynamics in the ITO supplier chain. The study’s framework of the “vicious cycles of talent turnover” is the first that explains the mechanisms through which the power dynamics in the ITO influences supplier's talent retention.