In recent years, numerous studies have investigated whether individual executives and their characteristics relate to financial reporting choices. In this article, we review archival, experimental and survey research on the influence of individual executives on corporate financial reporting and use upper echelons theory as our organizing framework. Our review of 60 studies shows that research consistently finds that top management executives exert significant influence on financial reporting decisions, particularly on disclosure quality. Empirical research has developed promising approaches to investigate executives' psychological attributes and character traits. The results of studies examining the influence of demographic characteristics of individual executives are, however, sometimes contradictory and ambiguous. Nevertheless, the overall empirical results we review are supportive of upper echelons predictions. Additional research in this field is needed to clarify the influence of unexamined upper echelon characteristics, important moderator variables, and adverse selection effects. We also suggest that future research more closely investigates the magnitudes of managerial influence and adopts a more holistic perspective on financial reporting outcomes.
The ability to transfer knowledge effectively in the networks of small and medium-sized firms (SMEs) is paramount for supporting firm competitiveness. Our research is the first one that explores the joint effect of trust and control mechanisms on knowledge transfer in the case of networks of SMEs. We use a multiple case study approach based on six Italian networks of SMEs. We analyse the joint impact of different ethical based trustworthiness factors-namely benevolence and integrity-and the levers of control (LOCs)-namely, belief, boundary, diagnostic and interactive LOCs-on knowledge transfer between SMEs in networks. We find that trust substitutes for the implementation of boundary, diagnostic, and belief tools, while it works jointly with interactive tools in order to support knowledge transfer. These insights not only provide a rich foundation for follow-up research, but also inform SME managers about how to increase the effectiveness and efficiency of knowledge transfer with their network partners.
This study empirically investigates the relationship between auditors' identification-based trust in client firms' managers (CEOs/CFOs) and their perceptions of auditors' professional skepticism. We employ a multimethod approach broken down into two studies. First, in Study 1, we approached auditors and clients using narrative interviews in order to identify the working definitions of interpersonal trust and professional skepticism and also to develop an empirical and testable hypothesis against the backdrop of the current literature. Second, in Study 2, an ordinary least squares regression based on data collected from 233 real auditor-client dyads in Germany reveals that auditors' identification-based trust is positively associated with their clients' perception of the auditors' professional skepticism. The identified coexistence of trust and professional skepticism in auditor-client dyads implies that regulatory measures that impede the evolution of trust between auditors and their clients will fail to enhance professional skepticism. Instead, regulations should give auditors and their clients sufficient leeway to establish identification-based trust.
JEL Classifications: M42.
The European Union has discussed and recently implemented both audit‐firm instead of audit‐partner rotation and a restriction against audit‐firm‐provided tax services in order to improve auditor independence and audit quality. This study provides experimental evidence of the effects of the rotation system, the impact of audit‐firm‐provided tax services, and, for the first time, the interplay between both regulatory measures. Based on the assessments of 140 professional investment consultants from credit institutions, the results show that an audit‐partner rotation regime which allows audit‐firm‐provided tax services generates the lowest assessments of auditor independence and audit quality. While investment consultants view both audit‐firm rotation and a prohibition against audit‐firm‐provided tax services as beneficial, the joint implementation of a prohibition against audit‐firm‐provided tax services and audit‐firm rotation leads to no additional benefits in either the appearance of independence or the perceived audit quality. Besides the theoretical contribution, we discuss the practical implications of our findings, in particular that more regulation does not automatically lead to higher audit quality.
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