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Research Training Course for Mainland Scholars

“New Institutional Accounting Research”

Summer 2006

Professor T.J. Wong

Chair Professor of Accountancy

The Chinese University of Hong Kong

Director of Center of Institutions and Governance

http://www.baf.cuhk.edu.hk/research/cig/index_c.asp

E-mail: tjwong@cuhk.edu.hk

1. Objectives

The main objective of the course is to provide students a framework, based on institutional economics, to study the financial accounting and auditing issues using international or a non-US setting. Particularly, this framework would be useful for studying accounting topics in a transition economy or emerging market setting such as China and other East Asian economies.

We will study the recent literature in financial accounting, auditing, corporate governance and corporate transparency using this research framework. These papers illustrate how economic institutions shape the role of accounting and auditing, which serve as a foundation for our pursuit of accounting and auditing research in a non-US country setting.

I hope that by going through these papers, you will have the research tools and a more complete framework to identify and embark on a new research agenda in financial accounting research.

2. Requirements

The course includes seminar-type discussions of the assigned topics. Each student is expected to read the assigned papers and participate actively in class. Please try to get copies of all the assigned papers (with a ‘*’) on the list and read them in advance. Note: This will enhance your understanding in class. We will distribute the hard copies of all the assigned papers on July 17.

3. Grading

The purpose of grading is twofold. One is the usual evaluation of your performance of academic purposes. The second is to encourage active discussion in the classroom, so that everyone achieves a deeper understanding of the topics. In line with these objectives, your grade will be based on the following components:

Class participation 30%

Written questions for papers 70%

Class participation – You are expected to participate in discussions and ask intelligent questions in the seminar.

Written questions for papers – For each assigned paper (see * in the course outline below), each of you must generate at least three insightful and critically penetrating questions. These questions can be about the paper’s research question, methodology, and/or conclusions. You must bring copies of your questions to class and distribute them to your classmates before class begins.

4. Outline

I. Agency framework

*Alchian and Demsetz. Production, Information Costs, and Economics of Organization. AER 1972.

(The public link of this paper is available in Prof. Armen A. Alchian’s personal homepage: http://levine.sscnet.ucla.edu/General/ALCHIAN.HTM , item: “Transactions costs and the theory of organizations”.)

*Jensen and Meckling. Theory of the Firm: Managerial Behavior, Agency Cost and Ownership Structure. Journal of Financial Economics 1976 (Focus on first two sections).

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=94043 & http://www.hup.harvard.edu/catalog/JENTHF.html )

Author’s website: Prof. Michael C. Jensen’s website - http://www.people.hbs.edu/mjensen/pub2.html

Watts. Corporate Financial Statements, A Product of the Market and Political Processes, Australian Journal of Management, Vol. 2, No. 1, pp. 53-75, April 1977.

(The public link of this paper is available in Australian Journal of Management Official website: http://www.agsm.edu.au/eajm/7704/Welcome.html )

Watts and Zimmerman. The Positive Theory.1986 (Background)

(No public link is available.)

Reference site: Prof. Jerold L. Zimmerman’s website - http://www.simon.rochester.edu/fac/zimmerman/textbooks.htm

* Must read. Hand in 3 questions before class.

II. Institutions and accounting

*Ball, Kothari, and Robin. The Effect of Institutional Factors on Properties of Accounting Earnings: International Evidence. Journal of Accounting and Economics 2000, Vol. 29, 1-51.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=176989)

*Leuz, Nanda, and Wysocki. Investor Protection and Earnings Management: International Investigation. Journal of Financial Economics 2003, Vol. 69, Issue 3, p.505-527.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=281832 )

Mingyi Hung. Accounting Standards and Value Relevance of Financial Statements: an International Analysis. Journal of Accounting and Economics 2001, Vol. 30, pp. 401-420.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=256931 )

Ball, Robin, and Wu. Incentives versus Standards: Properties of Accounting Income in Four East Asian Countries. Journal of Accounting and Economics, Volume 36, Issues 1-3, December 2003, Pages 235-270.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=472960 )

III. Issues on groups, government and family firms

*Ball and Shivakumar. Earnings Quality in UK Private Firms: Comparative Loss Recognition Timeliness. Journal of Accounting and Economics, Volume 39, Issue 1, February 2005, Pages 83-128.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=335420 )

*Wang, Dechun. Founding Family Ownership and Earnings Quality. Journal of Accounting Research, 2006.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=851307 )

*Leuz and Oberholzer-Gee. Corporate Transparency and Political Connections. Journal of Financial Economics Forthcoming.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=371280 )

Fan and Wong. Corporate Ownership and the Informativeness of Accounting Information. Journal of Accounting and Economics, Volume 33, Issue 3, August 2002, Pages 401-425.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=331961 )

Bertrand, Mehta, and Mullanaithan. Ferreting out Tunneling: An application to Indian Business Groups, Quarterly Journal of Economics, Volume 117, Issue 1 - February 2002.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=246001)

Prof. Marianne Bertrand’s Personal homepage: http://www.lib.uchicago.edu/e/busecon/busfac/Bertrand.html

Bushman, Piostroky, and Smith. What Determines Corporate Transparency? Journal of Accounting Research, May 2004,- Vol. 42 Issue 2 Page 207-252.

(The public link of this paper is available in blackwell-synergy.com Official website:

Item 207 in http://www.blackwell-synergy.com/toc/joar/42/2 )

Morck, Yeung, and Yu. The Information Content of Stock Market: Why do Emerging Markets Have Synchronous Price Movements? Journal of Financial Economics, Vol. 59, No. 1 and 2, pp. 215-260, October, 2000.

(The public link of this paper http://www.stern.nyu.edu/~byeung/content.pdf is available in Prof. Bernard Yeung’s Personal homepage: http://pages.stern.nyu.edu/~byeung/papers.htm )

IV. Issues on auditing, cross-listing and corporate governance

*Fan and Wong. Do External Auditors Perform a Corporate Governance Role in Emerging Markets. Journal of Accounting Research 2005.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=876663 )

*Lang, Raedy, Yetman. How Representative are Cross-listed Firms? An Analysis of Firm Performance and Accounting Quality. Journal of Accounting Research 2003.

(The public link of this paper http://public.kenan-flagler.unc.edu/faculty/langm/Publications/How_Rep_are_Cross-Listed_Firms.pdf is available in Mark H. Lang’s Personal homepage: http://public.kenan-flagler.unc.edu/faculty/langm/Publications/publications.html )

*DeFond and Hung. Investor Protection and Corporate Governance: Evidence from Worldwide CEO Turnover. Journal of Accounting Research 2003.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=367020 )

DeFond, Wong, and Li. The Impact of Improved Auditor Independence on Audit Market Concentration in China. Journal of Accounting and Economics, Volume 28, Issue 3, December 1999, Pages 269-305.

(No public link is available. Abstract of the paper can be download in SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=184068 )

Doidge, Karolyi, and Stulz. Why Are Foreign Firms Listed in the U.S. Worth More? Journal of Financial Economics 2004. (Background)

(The public link of this paper is available in the 3^rd item of Publications in Prof. Craig Doidge’s personal homepage: http://www.rotman.utoronto.ca/~CDoidge/Research.htm#WorkingPapers )

Bushman, Chen, Engel, and Smith. Financial Accounting Information, Organizational Complexity and Corporate Governance Systems. Journal of Accounting and Economics, Volume 37, Issue 2, June 2004, Pages 167-201.

(The public link of this paper is available in the 4^th item of Publications in Prof. Robert M. Bushman’s personal homepage: http://public.kenan-flagler.unc.edu/faculty/bushmanr/ )