Accounting - Dissertations

Two Essays on Governance in IPO Firms

Palash Deb — Thu, 06 Oct 2011 13:54:03 PDT

In this dissertation we collate a unique hand-collected dataset of 417 IPO firms for the 2001 to 2004 period, and study the effectiveness of governance and signaling mechanisms at an IPO. In chapter 1 our main contention is that current management research on IPOs has primarily looked at how corporate governance variables like board composition and ownership structure affect IPO underpricing, while largely overlooking the implications of these governance structures for long-term liquidity. This is a significant oversight, given the many benefits to IPO issuers from having a liquid stock (e.g., reduced cost of capital, increased external monitoring etc.). We find that both pre-IPO ownership structures and the degree of underpricing affect aftermarket liquidity. More specifically, the information advantages of large ownership reduce stock liquidity, while increased liquidity following greater underpricing underlines a key benefit of underpricing that has been previously ignored. We are therefore able to present a fuller picture of pre-IPO ownership and underpricing and their long term performance implications. In chapter 2 we look at how signaling at the time of IPO certifies firm quality and helps address the adverse selection problem for uninformed investors. We contend that classifying signals according to common characteristics (like cost) has significant managerial implications in terms of whether, when and how much firms need to invest in developing signals, and how these decisions are likely to influence subsequent firm performance. We then contribute to the literature by proposing a typology of signals based on whether signaling costs are incurred upfront (default-independent) or whether they depend on future profitability (default-contingent). We argue that this definitional distinction highlights more fundamental differences in the underlying characteristics of the two signal types in terms of cost, clarity, consistency, commitment and visibility. Only default-independent signals usually possess these desirable characteristics, making them more powerful determinants of firm value than default-contingent signals.

Analysis of relative efficiency measures of medical nursing units for managerial diagnosis and control

Paul Edward Juras — Wed, 17 Nov 2010 23:59:34 PST

A prospective reimbursement system was mandated in New York in 1986. Consequently, a large portion of the financial risk of patient treatment shifted from third party payers to the hospitals. To maintain financial stability, hospitals have been forced to improve operating efficiency. This study attempted to determine if selected hospital and nursing unit characteristics and nursing unit staff work profiles were associated with efficient resource utilization. Due to regulatory differences among states, only not-for-profit hospitals in New York State were included in the study. The study was conducted in two phases. Phase one involved a cross-sectional measurement of the relative technical efficiency of forty-one comparable short-term acute care medical nursing units from twenty-one participating hospitals. The results of the first phase provided the basis for further investigation in phase two. Phase two dealt with determining whether there was an association between relative technical efficiency and eleven selected nursing unit variables and three hospital characteristics. The results of phase two indicated that the three selected hospital specific characteristics; teaching status, unionization of employees, and existence of a centralized patient transportation department, were not statistically associated with the relative efficiency ratings. Only three of the unit specific characteristics were found to be significantly statistically associated with relative technical efficiency; use of rotating shifts, use of computers in the nursing care process, and use of acuity data to prepare the staff budget. Several of the selected nursing unit characteristics showed weak associations with efficiency. Numerous programs or operating strategies are implemented in the effort to improve nursing unit efficiency. Only three of the variables selected for this study showed associations with efficiency. These findings may cause hospital administrators to reconsider their reasons for implementing the related operating programs. Part of the importance of the study stems from the apparent lack of information that relates resource allocation decisions to nursing unit efficiency. While nursing units are becoming the focus in the attempt to improve hospital performance, data collection revealed that nursing unit specific data is not readily available to those that request it.

Empirical evidence on the impact of a material weakness

Matthew J. Keane — Wed, 15 Sep 2010 06:26:37 PDT

The implementation of compliance procedures associated with the Sarbanes-Oxley Act of 2002 came at a great cost to most publicly-traded firms, in large part due to the internal control disclosures required by Section 404 of the Act. This paper investigates the effect of disclosing a material weakness on the market, the firm and the firm's auditor. Firms that disclose a material weakness in the financial reporting process are more likely to have material misstatements in their financial statements and thus are more likely to restate future financial statements. The disclosure of an ineffective control environment prior to the announcement of a restatement is associated with less negative cumulative abnormal returns at the time of the restatement announcement. Disclosing an ineffective control environment also has an effect on the manner in which firms choose to disclose a pending restatement. Auditors benefit from the requirements of the Sarbanes-Oxley by capitalizing on the added testing requirements in the case of clients with internal control weaknesses through additional revenues. A persistent ineffective control environment is also found to have a positive effect on audit fees. This study also finds that audit fees remain high in the years following the remediation of an internal control weakness suggesting that the increase in fees is due to a risk premium as well as an increase in auditor effort. This result also suggests that audit fees are "sticky".