essays on accounting information systems and accounting choice

137 Pages·2016·3.59 MB·English

ESSAYS ON ACCOUNTING INFORMATION SYSTEMS
AND ACCOUNTING CHOICE

By Jongkyum Kim

A dissertation submitted to the
Graduate School-Newark
Rutgers, The State University of New Jersey
in partial fulfillment of requirements
for the degree of
Doctor of Philosophy
Ph.D. in Management
Written under the direction of
Professor Bharat Sarath
and approved by

Dr. Bharat Sarath

Dr. Miklos A. Vasarhelyi

Dr. Divya Anantharaman

Dr. Steven B. Lilien

Newark, New Jersey
October 2016
©[2016]
Jongkyum Kim
ALL RIGHTS RESERVED
ABSTRACT OF THE DISSERTATION

Two Essays on Accounting Information Systems and Accounting Choices
By Jongkyum Kim
Dissertation Director: Professor Bharat Sarath

The first essay investigates whether the implementation of enterprise resource
planning (ERP) systems affects the audit repot lag, the time period between a company’s
fiscal year end and the date of the audit report. Prior research has shown that the
implementation of ERP systems can significantly affect a firm’s business operations and
processes. However, scant research has been conducted on the relationship between ERP
implementation and the timeliness of external audits, such as audit report lags. While some
of the alleged benefits of ERP are closely related to removing impediments contributing to
audit report lags, others argue that the complex mechanisms of ERP systems create greater
complexity for control and audit. The test results indicate that overall a firm’s ERP
implementation is negatively associated with audit report lag. However, this negative
association is significant only at fourth and fifth years after initial ERP implementation.
These results imply that the use of ERP systems by client firms may help decrease the audit
report lag, but it takes time for the full impact of the firms’ accounting systems to be
realized.
The second essay examines the consequences resulting from the adoption of the
fair value option (FVO) of SFAS 159 and explore the intentions of firms that adopt FVO.
The primary objective of SFAS 159 is to mitigate the earnings volatility. However, there
are also arguments implying that FVO could in fact increase earnings volatility. Thus, I
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first examine whether adopting FVO helps improve earnings volatility. Also, prior studies
report the negative relationship between earnings volatility and the accuracy of earnings
prediction. Therefore, the second hypothesis tests whether adopting FVO has an impact on
the analysts’ forecast accuracy. The test results indicate that there is a positive association
between FVO and earnings volatility and the relation can be amplified depending on the
size of gains or losses resulting from the FVO. Also, the results indicate that the analysts’
forecast error of FVO adopter is greater than that of non-FVO adopters. I test two more
hypotheses to explore the intention of firms’ decision to adopt FVO: opportunistic intention
and informative intention. However, I do not find results which confirm my hypotheses
except for limited evidence for the opportunistic intention.

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DEDICATION

To my parents, my brother and sister, my wife, and my sons

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ACKNOWLEDGEMENTS

I would never have been able to finish my dissertation without the guidance of my
committee members, assistance from friends, and support from my family.
I would like to express my deepest gratitude to my advisor, Dr. Bharat Sarath, for
his enormous and continuous support and guidance. Dr Sarath has been such a great mentor
not only as an academic advisor but also as a true teacher for my life. The conversations
with him have been a good opportunity to broaden my horizons on different cultures and
our society. I am very fortunate to have worked under the supervision of an outstanding
scholar and a great person like him.
I am also very thankful to Dr. Miklos Vasarhelyi for his warm advices and
continuous support throughout the Ph.D. program. I sincerely admire his passion for
research and students, and the lessons from him will be very important guidance for my
future career as a college professor.
I also would like to thank Dr. Divya Anantharaman for her insightful comments
and support. Whenever I stop by her office for advices, she has always welcomed me with
smile and given me very helpful advices. I deeply appreciate her help and kindness. I also
thank Dr Steven Lilien for serving on my dissertation committee and for his valuable
comments and suggestions for my proposal and defense.
I am also very thankful to my friends and colleagues at Rutgers Business School,
Seokyoon, Changhee, Kyunghee, Karina, Vicky, Li He, Yubin, Hyunsang, and … Sunjung.
Most importantly, I cannot imagine that I could have accomplished this work
without the love and support of my family. I would like to express my warmest appreciation
to my parents, sister, brother, and wife, Jiyoung.
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Table of Contents

ABSTRACT OF THE DISSERTATION.................................................................... ii
DEDICATION ............................................................................................................. iv
ACKNOWLEDGEMENTS ........................................................................................ v
Table of Contents ........................................................................................................ vi
List of Tables ............................................................................................................. viii
Chapter 1: The Impact of Enterprise Resource Planning (ERP) Systems on the Audit
Report Lag ............................................................................................... 1
I. Introduction ............................................................................................................. 1
II. Literature Review and Research Question ............................................................. 6
III. Research Design ................................................................................................. 12
IV. Results ................................................................................................................. 19
V. Analyses with ERP data of the 2000s ................................................................... 23
VI. Conclusion .......................................................................................................... 26
References ................................................................................................................ 31
Tables for Chapter 1 ................................................................................................. 36
Chapter 2: The Fair Value Option (FVO) under SFAS 159: Effectiveness of FVO and
Intention of FVO Adopters .................................................................. 49
I. Introduction ........................................................................................................... 49
II. Literature Review on Fair Value Accounting ....................................................... 51
III. SFAS 159 ............................................................................................................ 62
IV. Hypothesis Development .................................................................................... 72
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V. Research Design ................................................................................................... 78
VI. Results ................................................................................................................ 84
VII. Conclusion, Limitations, and Extensions .......................................................... 90
References ................................................................................................................ 93
Tables for Chapter 2 ................................................................................................. 97
Appendix A for Chapter 2 ....................................................................................... 120

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List of Tables

Table 1.1 Determinants of audit report lag ................................................................. 36
Table 1.2 Tangible and intangible benefits of ERP systems ........................................ 37
Table 1.3 Sample selection and identification of ERP firms ....................................... 38
Table 1.4 Distribution of firm years for audit report lags ............................................ 39
Table 1.5 Variable definitions ..................................................................................... 40
Table 1.6 Descriptive statistics .................................................................................... 41
Table 1.7 Multivariate test results (Model 1) ............................................................... 45
Table 1.8 Multivariate test results (Model 2) ............................................................... 46
Table 1.9 Multivariate test results ................................................................................ 47
Table 1.10 Multivariate test results .............................................................................. 48

Table 2.1 Distribution of FVO firms by FVO adoption year and industry .................. 97
Table 2.2 Variable definitions ..................................................................................... 98
Table 2.3 Descriptive statistics (for H1) .................................................................... 100
Table 2.4 OLS regression analyses of earnings volatility on adoption of FVO (full
sample) ...................................................................................................... 103
Table 2.5 OLS regression analyses of earnings volatility on adoption of FVO (financial
firms only) ................................................................................................. 104
Table 2.6 OLS regression analyses of earnings volatility on adoption of FVO (non-
financial firms only) .................................................................................. 105
Table 2.7 Descriptive statistics (for H2) .................................................................... 106
Table 2.8 OLS regression analyses of analysts’ forecast error on adoption of FVO 108
Table 2.9 Descriptive statistics (for H3) .................................................................... 109
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Table 2.10 OLS regression analyses of financing activity on adoption of FVO ....... 111
Table 2.11 Logistic regression analyses of financing activity on adoption of FVO .. 112
Table 2.12 Gains or losses?: number of firms which reposrt gains or losses resulting from
FVO in the first FVO adoption year .......................................................... 113
Table 2.13 Logistic regression analyses of financing activity on adoption of FVO with
only firms which adopted FVO in 2008 (financial vs non-financial firms
seperately) ................................................................................................. 114
Table 2.14 Logistic regression analyses of financing activity on adoption of FVO with
only firms which adopted FVO in 2008 (financial vs non-financial firms
together) ..................................................................................................... 115
Table 2.15 Descriptive statistics (for H4) .................................................................. 116
Table 2.16 OLS regression analyses of exotic features of bonds on adoption of FVO
(Model 4-2a) .............................................................................................. 118
Table 2.17 Logistic regression analyses of exotic features of bonds on adoption of FVO
................................................................................................................... 119

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