We develop a model of ideals-based accountability which we have witnessed at work in several long-thriving family businesses. The owners and managers of these firms eschew individualism and materiality in the pursuit of ethical ideals such as supporting democracy and bettering the human condition. Although accountability is to these ideals, not for outcomes such as profitability or even reputation, IBA has resulted in outstanding reputations for some firms. We characterize IBA according to its missions, leadership, culture, and stakeholder relationships. We (...) also contrast it with traditional forms of accountability and differentiate IBA from related stakeholder, stewardship, and CSR perspectives. Finally, we examine its manifestations within five long-lived family enterprises, in the process generating propositions to advance the concept. (shrink)

While a growing body of literature has examined the link between green activities and firm innovation, little attention has been paid to the underlying mechanisms through which green activities take effect. This paper leverages the context of ISO 14001 certification among Chinese listed firms to investigate how the certification of environmental management system to ISO 14001 shapes corporate technological innovation. Drawing from the resource-based view and the resource management perspective, we argue that EMS certification to ISO 14001 facilitates corporate technological (...) innovation through the mediating effects of firms’ internal resource management practices, namely resource utilization, resource accumulation, and resource allocation. A difference-in-differences research design, together with the propensity score matching approach and the instrumental variable technique, provides corroborating evidence for our predictions. The current research not only makes substantial contributions to the literature, but also provides important ethical implications for both policymakers and firm managers. (shrink)

Using data from China, where the identity of engagement auditors is disclosed, we find significant relationships between engagement auditors’ negative experiences and the costs of corporate bonds. Further tests differentiate field and review auditors’ experiences, and we find that both field and review auditors’ negative experiences are significantly related to higher costs of corporate bonds. In addition, we find that the above results are significant only when the engagement auditors are affiliated with non-Big10 audit firms. Using path analysis, we find (...) that credit rating is a possible channel through which information on engagement auditors’ negative experiences can transfer to bond investors. Regarding non-price terms, we conclude that engagement auditors with negative experiences are associated with smaller bond sizes, shorter bond maturities, a higher likelihood of requiring collateral, and more restrictive covenants. Further analyses also show that the effects of engagement auditors’ negative experiences on the costs of corporate bonds are less pronounced for well-governed firms. To show that our results obtained from China’s corporate bond market are relevant to loan markets, we replicate the above tests using a Chinese sample, and the results from the loan market are consistent with those from the corporate bond market. Overall, our empirical results suggest that investors are indeed concerned with engagement auditors’ negative experiences. (shrink)

This study examines the influence of auditor-CEO surname sharing on financial misstatement and further investigates whether the above effect depends on hometown relationship and the rarity of surnames, respectively. Using hand-collected data from China, the findings show that ACSS is significantly positively related to financial misstatement, suggesting that the auditor-CEO ancestry membership elicits the collusion and increases the likelihood of financial misstatement. Moreover, ACSS based upon hometown relationship leads to significantly higher likelihood of financial misstatement, compared with ACSS without hometown (...) relationship. Furthermore, the positive relation between ACSS and financial misstatement is more pronounced for rare surnames than for common surnames. The above findings are robust to sensitivity tests on the basis of different measures of ACSS and financial misstatement, and my conclusions are still valid after using the propensity score matching approach to address the endogeneity concerns. (shrink)

Using a sample of Chinese to-be-listed firms during the period of 2006–2012, this study examines the influence of CEO-auditor dialect sharing (CADS) on pre-IPO audit quality and further investigates the moderating effects of auditor reputation and audit firm industry specialization. On the basis of information in personal identification cards, this study hand-collects data about CADS, and then provides strong and consistent evidence to show that CADS is significantly positively related with discretionary accruals (the inverse proxy for audit quality), suggesting that (...) CADS leads to the collusion between the CEO and the signing auditors, elicits pre-IPO earnings management, and eventually impairs pre-IPO audit quality. Moreover, both auditor reputation and audit firm industry specialization attenuate the positive effect of CADS on discretionary accruals. Furthermore, sensitivity tests suggest that above findings are robust to different measures of CADS and discretionary accruals, and above conclusions still stand after controlling for the endogeneity. Lastly, the findings using the post-IPO sample further validate the negative association between CADS and pre-IPO audit quality. (shrink)

Following the financial crisis and recent recession, the center of gravity of global economic growth and competitiveness is shifting toward emerging economies. As a leading and increasingly influential emerging economy, China is currently attracting the attention of academics, practitioners, and policy makers. There has been an increase in research interest in and publications on issues relating to China within high-quality international academic journals. We therefore organized a special issue conference in conjunction with the Journal of Business Ethics in Lhasa, Tibet, (...) on May 19–20, 2014, on Business Ethics in Greater China: Past, Present and Future. The papers for the special issue focused on the intersection of ethics and finance, and fit within one of the three themes: environment and sustainability, corporate social responsibility, and fraud. Within these themes, issues of intellectual capital protection, gender equality, political connections, regional development, investor protection, corporate stewardship, trust and corruption, and corporate transparency each play a significant role. In this paper, we survey these studies and the related literature to provide a comprehensive coverage of business ethics and finance issues that affect China. (shrink)

This paper examines the effects of a decrease in auditor litigation risk in a setting that isolates a change in auditor litigation risk from changes in auditor reputation. _StoneRidge Investment Partners v. Scientific Atlanta_ is a 2008 U.S. Supreme Court ruling that restricted secondary actor liability in class action suits, resulting in a decrease in class actions that listed auditors as defendants. We document that the _StoneRidge_ decision is associated with a negative CAR for clients of Big 4 auditors and (...) industry specialist auditors, in particular those associated with high-litigation risk, low cash, and past incidences of modified going concern opinions. These findings are consistent with investor perception of lower potential payoffs from secondary defendants in class action suits, in particular auditors, following the _StoneRidge_ decision. We also document that auditors are more (less) likely to accept (reject) risky clients and charge lower audit fees to risky clients after _StoneRidge_, consistent with a decrease in auditor litigation risk that increases auditor risk tolerance. Finally, we provide evidence that audit firms issue fewer going concern opinions following _StoneRidge_, consistent with a decrease in litigation risk leading to lower audit quality_._ Our results are relevant to policy makers as they consider the disciplinary role of litigation on audit markets. (shrink)