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All Journal JABM JOURNAL of ACCOUNTING - BUSINESS & MANAGEMENT
Hong Chen
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Decision Sciences, Operations Research & Management Economics, Econometrics & Finance Other

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Fair Value Determination: A Conceptual Framework Sara Aliabadi; Hong Chen; Alireza Dorestani
Journal of Accounting, Business and Management (JABM) Vol 18 No 1 (2011): April
Publisher : STIE Malangkucecwara

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Financial crisis, failure of high profile corporations, new regulations and rules, expansion in globalization, and increasing fraudulent financial reporting have recently resulted in the rise of several accounting issues relevant to the capital market. Both the Financial Accounting Standard Board (FASB) and the International Accounting Standard Board (IASB) have been trying to promote fair value accounting to increase the information relevance of financial reports (Barth et al., 2007; Fiechter, 2010; Barlev and Haddad, 2003). However, critics of fair value accounting blame the flexibility and subjectivity of fair value accounting for many economics problems and financial crises. It is generally believed that fair value accounting produces more relevant financial information, but in some cases the fair value determination is subjective and is prone to management discretion and earnings manipulation. Our study shows that the literature in fair value determination is weak and universities generally do not offer any stand alone fair value related courses or programs. We believe that no conceptual framework for fair value determination has been developed, so in this paper we provide a theoretical framework for fair value determination and invite researchers to focus more in this very important area of specialization in fair value accounting. We also believe that traditional financial statements are only a partial process of accounting past and current financial position, and competitive position statement (CPS) is also a partial process of accounting for current and future financial position; therefore, we argue that the intersection of these two processes reflects the true current position unless the semantics for meaningful competitive interaction in a field is misread for an entitys decision making and implementation processes.
Investment, Earnings Management and Equity-based Compensation Chunwei Xian; Hong Chen; Asel Moldousupova
Journal of Accounting, Business and Management (JABM) Vol 18 No 2 (2011): October
Publisher : STIE Malangkucecwara

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This study investigates the moderating effect of equity-based compensation incentives on the relationship between earnings management and investment. Previous studies have shown that there is a significant positive relationship between earnings management and investment decision making. Although investment opportunities signal high growth of firms, it is not a good indicator for these high-investment firms also have a high degree of earnings management. Based on agency theory, equity-based compensation can align the interests between shareholders and managers. It is possible that equity incentives may encourage optimal investment decisions by restraining earning management. We hypothesize that equity-based pay will decrease the degree of earnings management that is related to investment. We run OLS regressions of the interaction of equity-based compensation and investment on discretionary accruals by using the databases from COMPUSTAT and ExecuComp. We find that earnings management is less related to investment when the CEOs have been granted a large portion of equity-based pay. Equity-based compensation incentives can, then, decrease the tendency for earnings management and improve the efficiency of investment decision making. In addition, we find evidence that one of the components of equity-based compensation, stock options, positively affects the relation between earnings management and investment decision making. In contrast, the other component of equity-based compensation, restricted stock, has no significant influence on earnings management and investment. These results demonstrate that the stock options of executive compensation have a stronger moderating effect than the restricted stock of executive compensation on the relationship between earnings management and investment.
Co-Authors Alireza Dorestani Asel Moldousupova Chunwei Xian Sara Aliabadi