Papers by Suraj Srinivasan
Unpublished working paper. Boston: …, 2011
We examine how the restatement frequency of foreign firms listed in the US differs by home countr... more We examine how the restatement frequency of foreign firms listed in the US differs by home country characteristic. We find that foreign firms from countries with a weak rule of law are less likely to restate their financials than those from strong rule of law countries, despite having higher levels of earnings management. For firms from weak rule of law countries, we find no relation between restatements and the level of earnings management. This is in contrast to the restatements of firms from strong rule of law countries, which show a positive relation with restatement frequency and earnings management. Also, after controlling for the materiality of the restatement, firms from weak rule of law countries are more likely to opt for less visible disclosure methods when restating their financials. We interpret this finding as home country enforcement affecting firms' likelihood of reporting existing accounting irregularities. These findings suggest that for cross-listed firms, less frequent restatements can be a signal of opportunistic reporting rather than high quality earnings.
Review of Accounting Studies, 2012
We provide evidence on the long standing concern on auditor conflicts of interest from providing ... more We provide evidence on the long standing concern on auditor conflicts of interest from providing non-audit services (NAS) to audit clients by using rarely explored NAS fee data from 1978-80. Using this earlier setting, we find cross-sectional evidence of improved earnings quality when auditors provide NAS, especially those related to information services. This is consistent with better audit quality from knowledge spillovers due to the joint offering of audit and consulting services. Events related to the repeal of these NAS disclosures in 1982 are associated with a small positive stock price reaction suggesting no adverse economic consequences of withdrawing NAS disclosures. Further, following the repeal of disclosure requirements we find no change in the earnings quality of client firms. In sum, data drawn from an earlier time period suggest that auditors' reputational incentives, possible synergies and knowledge transfers imply that NAS offered by audit firms can be associated with improved audit and reporting quality in client firms.
... Suraj Srinivasan University of Chicago ... We thank the following individuals for their usefu... more ... Suraj Srinivasan University of Chicago ... We thank the following individuals for their useful comments and discussions on previous versions of this manuscript: Mark Bradshaw, Michael Kimbrough, SP Kothari, Asis Martinez-Jerez, Greg Miller, Mohan Venkatachalam, Jim Wahlen ...
The Accounting Review, 2012
We study events surrounding ChuoAoyama's failed audit of Kanebo, a large Japanese cosmetics compa... more We study events surrounding ChuoAoyama's failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC's Japanese affiliate and one of Japan's "Big Four" audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama's operations for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously damaged ChuoAoyama's reputation for audit quality. We use these events to provide evidence on the importance of auditors' reputation for audit quality in a setting where litigation plays essentially no role. We find that ChuoAoyama's audit clients switched away from the firm as questions about its audit quality became more pronounced but before it was clear that the firm would be wound up, consistent with the importance of auditors' reputation for delivering quality.
Journal of Financial Economics, 2011
This article appeared in a journal published by Elsevier. The attached copy is furnished to the a... more This article appeared in a journal published by Elsevier. The attached copy is furnished to the author for internal non-commercial research and education use, including for instruction at the authors institution and sharing with colleagues. Other uses, including reproduction and distribution, or selling or licensing copies, or posting to personal, institutional or third party websites are prohibited. In most cases authors are permitted to post their version of the article (e.g. in Word or Tex form) to their personal website or institutional repository. Authors requiring further information regarding Elsevier's archiving and manuscript policies are
Accounting research has extensively debated the impact of non-audit services (NAS) provided by au... more Accounting research has extensively debated the impact of non-audit services (NAS) provided by auditors on auditor independence and on clients' financial reporting quality. Most research on this debate uses data resulting from a SEC disclosure rule in 2000. We provide evidence on this controversy using data from the years 1978-1980 to re-examine the relation between fees for NAS provided by auditors and (i) their clients' financial reporting outcomes; and (ii) the stock market's perception thereof. Apart from providing a new setting to examine a long-standing concern, the 1978-80 data are especially relevant to the current debate because (i) information systems related fees (ISFEE) represent the largest component of NAS in our 1978-80 sample and were of particular concern to the SEC when the current ban on NAS was enacted; and (ii) similar to the SEC requirement of 2000, firms had to obtain prior director approval in 1978-80 to engage auditors for NAS. We find no evidence that financial reporting outcomes are compromised by NAS. In fact, our results suggest that both NAS and ISFEE are associated with higher financial reporting quality. In sum, data drawn from an earlier time period than that examined by recent research fail to support the SEC's concerns that NAS provided by the auditor affects the quality of financial reporting.
Unpublished Working Paper. Harvard …, 2006
This paper investigates whether manager discretion regarding presentation within the financial st... more This paper investigates whether manager discretion regarding presentation within the financial statements reflects the firm's underlying economic performance or opportunistic motivations. In particular, we examine managers' decision to present recognized special items either as a separate line item on the income statement or aggregated within another line item with identification only via footnote disclosure. Our study is motivated by standard-setting interest in financial statement presentation, as well as prior research investigating the causes and effects of management presentation behavior. We first confirm the findings of prior research that special items have lower persistence than other components of income (i.e., earnings before special items), and then provide three new insights. First, we demonstrate that special items presented separately on the income statement have lower persistence than those revealed only in the footnotes, consistent across the sign, magnitude, and category of reported special items. Second, we demonstrate that special items revealed only in the footnotes have similar persistence as earnings before special items. Finally, we provide similar inferences examining an alternative disclosure mechanism: annual press releases. Overall, our analyses are consistent with managers using this presentation decision primarily to reflect underlying firm performance, and thus provide an alternative perspective from prior research suggesting that management presentation (e.g., Schrand and Walther 2000) and classification (e.g., McVay 2006) of such items tends to be opportunistic.
Unpublished working paper, 2006
Consistent with tournament theory, we find that pay dispersion among the top five officers at U.S... more Consistent with tournament theory, we find that pay dispersion among the top five officers at U.S. firms over the years 1996-2004 is higher when firms are larger, younger, operate in noisier environments, have greater investment opportunities, have higher officer turnover and more star executives. Imperial CEOs are associated with greater pay dispersion, although the association between pay dispersion and other governance proxies is mixed. There is some evidence that deviations from expected pay dispersion are associated with negative future operating performance, especially for technology intensive firms. However, future stock return performance is not affected by pay dispersion.
Contemporary Accounting Research, 2010
This paper investigates whether presentation of special items within the financial statements ref... more This paper investigates whether presentation of special items within the financial statements reflects the firm's underlying economic performance or opportunism. We examine the presentation of recognized special items either as a separate line item on the income statement or aggregated within another line item with disclosure only in the footnotes. Our study is motivated by standard-setting interest in performance reporting and financial statement presentation, as well as prior research investigating managers' presentation choices in other contexts. Using different constructs of persistence to capture the economics of reported special items, we find evidence consistent across a range of specifications that special items highlighted on the income statement are more transitory than those revealed only in the footnotes. For most special items, these results are consistent with this presentation decision reflecting underlying firm performance. For a subset observations -namely, those likely to reflect "big bath" reporting incentives -we provide limited evidence suggestive of opportunism in this presentation decision.
Contemporary Accounting Research, 2010
This paper investigates whether presentation of special items within the financial statements ref... more This paper investigates whether presentation of special items within the financial statements reflects the firm's underlying economic performance or opportunism. We examine the presentation of recognized special items either as a separate line item on the income statement or aggregated within another line item with disclosure only in the footnotes. Our study is motivated by standard-setting interest in performance reporting and financial statement presentation, as well as prior research investigating managers' presentation choices in other contexts. Empirical results across a range of specifications are consistent with this presentation decision reflecting underlying firm performance for particular types of special items: positive (i.e., income-increasing) special items, as well as small special items. In contrast, the presentation of large negative (i.e., incomedecreasing) special items appears to reflect opportunism, consistent with prior research examining pro forma reporting.
Management Science, …, 2012
This paper examines the extent that interactions with US markets impact the compensation practice... more This paper examines the extent that interactions with US markets impact the compensation practices of non-US firms. Using a sample of large UK companies, we find that the total compensation of UK Using data on the compensation practices of 416 publicly traded UK firms over the period 2002 to 2007, we test the proposition that interactions with US markets influence the compensation policies of foreign firms. We focus on UK firms for several reasons. First, the United States and the United Kingdom share a common language, legal traditions, and culture, all of which increase economic activity and labor mobility between the two countries. Second, by focusing on the compensation packages of firms in one country, we hold constant the primitive legal, regulatory, political, cultural, and economic factors that can lead to potential omitted variables in multiple country studies. Third, prior research documents both differences in the compensation packages of US and UK firms, but also finds that UK practices are converging toward US-style arrangements.
manuscript (University of Chicago …, 2007
In this paper, we examine foreign listing behavior on U.S. and U.K. stock exchanges before and af... more In this paper, we examine foreign listing behavior on U.S. and U.K. stock exchanges before and after the enactment of the Sarbanes-Oxley Act (SOX) in 2002. We use a sample of all listing events on U.S. and U.K. exchanges from 1995-2006, and document that the rate of foreign listings onto U.S. exchanges has declined in the post-Act period. Interestingly, foreign listings on the London Stock Exchange (LSE) Main Market have also declined in this time period while increasing significantly on LSE's Alternative Investment Market. To examine if listing preferences have changed over time, we examine if the LSE is attracting foreign firms in the post-Act time period that would have otherwise listed on a U.S. exchange prior to the Act. Our results suggest that both SOX and non-SOX related factors are influencing listing decisions. First, nearly half of the post-Act decline in U.S. listings (relative to U.K. listings) can be explained by the changing attributes of foreign firms seeking listings. Thus, even absent SOX, the frequency of U.S. vis-à-vis U.K. listings would have declined. After controlling for this selfselection, there still remains a negative SOX time period fixed effect on preference for U.S. listings. The set of firms that appear to have bypassed the U.S. in favor of a U.K. listing following SOX are mainly composed of AIM-listed firms from developed countries that are, on average, smaller and less profitable than firms that actually listed on U.S. exchanges. We also identify a small set of large, profitable firms mainly from emerging markets that choose to list on U.S. exchanges following SOX despite being predicted to list in the U.K., consistent with greater expected benefits from a U.S. listing for these firms. Together, this evidence is consistent with a shift in both the expected costs and benefits of a U.S. listing following SOX. Our analysis provides the first evidence (of which we are aware) of how both SOX and non-SOX related factors have altered the flow of foreign listings across international stock exchanges.
Journal of Accounting Research, 2008
We analyze the disclosure practices of companies as a function of their interaction with U.S. mar... more We analyze the disclosure practices of companies as a function of their interaction with U.S. markets for a group of 794 firms from 24 countries in the Asia-Pacific and Europe. Our analysis uses the Transparency and Disclosure scores developed recently by Standard & Poor's. These scores rate the disclosure of companies from around the world using U.S. disclosure practices as an implicit benchmark. Results show a positive association between these disclosure scores and a variety of market interaction measures, including U.S. listing, U.S. investment flows, exports to, and operations in the United States. Trade with the United States at the country level, however, has an insignificant relationship with the disclosure scores. Our empirical analysis controls for the previously documented association between disclosure and firm size, performance, and country legal origin. Our results are broadly consistent with the hypothesis that cross-border economic interactions are associated with similarities in disclosure and governance practices.
Journal of Accounting …, 2004
We analyze the disclosure practices of companies as a function of their interaction with U.S. mar... more We analyze the disclosure practices of companies as a function of their interaction with U.S. markets for a group of 794 firms from 24 countries in the Asia-Pacific and Europe. Our analysis uses the Transparency and Disclosure scores developed recently by Standard & Poor's. These scores rate the disclosure of companies from around the world using U.S. disclosure practices as an implicit benchmark. Results show a positive association between these disclosure scores and a variety of market interaction measures, including U.S. listing, U.S. investment flows, exports to, and operations in the United States. Trade with the United States at the country level, however, has an insignificant relationship with the disclosure scores. Our empirical analysis controls for the previously documented association between disclosure and firm size, performance, and country legal origin. Our results are broadly consistent with the hypothesis that cross-border economic interactions are associated with similarities in disclosure and governance practices.
Journal of Accounting Research, 2005
I use a sample of 409 companies that restated their earnings from 1997 to 2001 to examine penalti... more I use a sample of 409 companies that restated their earnings from 1997 to 2001 to examine penalties for outside directors, particularly audit committee members, when their companies experience accounting restatements. Penalties from lawsuits and Securities and Exchange Commission (SEC) actions are limited. However, directors experience significant labor market penalties. In the three years after the restatement, director turnover is 48% for firms that restate earnings downward, 33% for a performance-matched sample, 28% for firms that restate upward, and only 18% for technical restatement firms. For firms that overstate earnings, the likelihood of director departure increases in restatement severity, particularly for audit committee directors. In addition, directors of these firms are no longer present in 25% of their positions on other boards. This loss is greater for audit committee members and for more severe restatements. A matched-sample analysis confirms this result. Overall, the evidence is consistent with outside directors, especially audit committee members, bearing reputational costs for financial reporting failure.
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Papers by Suraj Srinivasan