2nd Research Brief of 2015

Source: Updated:2015/04/18/


1. Academic Activities
On Mar 11th 2015, Haiyan Jiang, a professor from Massey University, gave a report, “Analyst Private Information Acquisition and Stock Price Synchronicity‐A Regulatory Perspective from China”, to our students.
On Mar 12nd 2015, A. Rashad Abdel-Khalik, a professor from UIUC, gave a report about empirical accounting research to our students.
On Mar 13th 2015, V. K. Zimmerman, a professor from UIUC, gave a report about international accounting research to our students.


2. the Progresses of Major Programs 
Major program No. 1: Research on guidance mechanism of financial analysts’ information and its supervision
Responsible person: Zuyun Xue
The program is finished and we are arranging relative materials to write conclusion report.


Major program No. 2: Research on Chinese listed firms’ internal control evaluation and its index
Responsible person: Hanwen Chen
Most of our effort now is to explore the implication effect of internal control index in the field of audit and corporate governance. We plan to send several papers about it to conferences and then make them public.
According to research plan, we will follow the latest material, construct relative theoretical models and then exam the effects of internal control on management behaviors and market reaction based on the index in the next stage.
The research outcome in stage:  Chen, H., and W. Wang. 2014. Who Determines Internal control Quality: Chairman of Board or Audit Committee? Economic Management Journal 10: 97-107.
Abstract: The past years have witnessed increasingly rapid advance in the field of internal control, after entering 21 centuries, this topic has been extensively used for decades to get more and more attention by regulators, practitioners and researchers in the capital market. Using the internal control index developed by a research group from Xiamen University to measure the quality of internal control, this paper provides an empirical test on whether and how chairman of board and audit committee affect the internal control quality in listed companies of China. Moreover, this paper divide internal control into five parts, including internal environment, risk assessment, control activities, information & communication and internal monitoring, and it shows that chairman of board still has significant positive effect with these five parts. In sum, this paper gives empirical analysis to demonstrate unavailability of audit committee in China from the angle of internal control quality, and indicate that chairman of board plays an important role in construction of internal control. All of above give support to establish and perfect internal control, as well as improve corporate governance structure.


Major program No. 3: Economic cycle of industry, investment and financing behavior of R&D and firm value.
Responsible person: Hong Xiao
The concluding report has been submitted


Major program No. 4: Research on the internal accounting statement of risk management and control in group company.
Responsible person: Shaohua Chen
The concluding report has been submitted


Major program No. 5: Research on the Non-market control transfer.
Responsible person: Feng Liu
The concluding report has been submitted


Major program No. 6: Research on the management accounting report system design of group control.
Responsible person: Yuanlue Fu
The research outcome in stage: An English paper which attend in the international conference, the abstract as follows:
Abstract: In 2006, “overall risk management (ORM) guidance for state own firms of China” has been issued by state-owned asset monitoring commission, and it has been advocated as a corporate governance and management control practice applicable across all firms in China. This paper presents field study evidence from two listed firms, and suggests that the cases illustrate combining strategic risk and risk appetite into the budgeting control system which shows how they form the integrated strategic risk and risk appetite management into budgeting control system in firm. Further, this paper shows that using integrated risk approach can support to the overall risk management in budgeting control system (BCS), and explores how Strategic Risk Management (SRM) achieved the effect management in the cases. Finally, this study summarizes three propositions on SRM and BCS, in order to solve the un-controlling Key Performance Indicator (KPI) of BCS in an organization that they can be managed in a more strategic manner.


Major program No. 7: Research on the pricing role of accounting information——based on the view of international convergence of accounting standards.
Responsible person: Xiaohui Qu
The research outcome in stage: The Characteristics of Governance, Governance Environment and the Related-party Transactions
Abstract: Based on a dataset of listed companies during 2006-2012, this paper investigates the relation among related-party transactions, internal and external governance mechanism. The results findings are: first, the higher the concentration of ownership, the larger divergence between control right and cash-flow right and more active the degree of related-party transaction. The related-party transactions can be effectively controlled by the degree of power balance, the relationship between the ownership held by dominant shareholders and the degree of related-party transaction is inverse U-shape. Second, institutional investor and the duality of CEO and Chairman have some restrictive effect on the degree of related-party transaction, while we do not find the significant effect between the proportion of independent director and the degree of related-party transaction. Third, state-control and the group organization have the significant effect on the degree of related-party transaction. Audited by Big4 and cross-listed also play a restrictive role in controlling the degree of related-party transaction. Forth, the degree of related-party transaction is higher in the industry with higher competition and degree of protection by the government. We do not find the significant effect of reducing government intervention on the degree of related-party transaction. Furthermore, the relationship between corporate governance index G-score measured by the principal analysis and the degree of related-party transaction is negative, that is to say that sound corporate governance would reduce the prevalence and the degree of related-party transactions.


Major program No. 8: Political Connections and the Credibility & Relevance of Accounting Information——Data Mining and Positive Research
Responsible person: Xingqiang Du
The research outcome in stage: Xingqiang Du and Jin-Hui Luo (Corresponding Author), 2015, Political Connections, Home Formal Institutions, and Internationalization: Evidence from China, Management Organization and Review (SSCI), Forthcoming.
Abstract: This study draws on the resource dependence theory and institution-based view to examine political connections in the home market and home formal institutions for their impacts on the internationalization of emerging market firms in the context of China. The results suggest that political connections at home may prevent emerging market firms from implementing internationalization strategies by reducing the dependence constraints imposed by local governments and foreign firms, whereas home formal institutional development may promote the strategy transition of emerging market firms from building political connections to international expansion and also reduce the negative impact of political connections. Overall, our findings indicate that political connections and formal institutions at home play an important role in shaping emerging market firms’ strategy of outward internationalization.


Major program No. 9: Principle-Based Accounting Standards, the Professional Judgment of Accounting and the Quality of Accounting Information: Theory and Positive research
Responsible person: Shijun Sang
The research outcome in stage No.1: The Application Research of Accounting Professional Judgment in Debt Contract (preliminary draft has been completed)
The research outcome in stage No.2: The Quality Structure and its Improvement of Accounting Professional Judgment under the Principle-Based Accounting Standards (in the stage of collecting basic data)


Major program No. 10: Research on the Problem of Financial Governance in Public Sector
Responsible person: Jianfa Li
Work progress in this quarter:
(1)Arranging for project members including PhD. students and graduate students to collect, classify and summarize the literature about financial management and financial governance in public sector both at home and abroad through the electronic journals in library and the other related website. The category of literature is divided into financial governance theory in public sector, international comparison of current situation in financial governance, the empirical research of financial governance in public sector, the financial governance mechanism and institutional arrangement in public sector, the system building of financial governance in public sector and so on.
(2)In order to know the current situation of financial statement and financial governance in public sector, we arrange project members including PhD. students and graduate students to interview and survey on the spot, and this kind of field research will continue and normalized


Major program No. 11: Research on the design and the effect investigation of international convergence of fair value measurement model
Responsible person: Guohua Zhang
The research outcome in stage: Are the Three Tiers of Fair Value Inputs Appropriate for the Measurement of Investment Property?——the Pegging Analysis on Fair Value Measured Investment Property in China.
Abstract: Based on the location of investment properties, instead of the location of listed firms, the study makes a descriptive statistic analysis on the fair value measured investment properties of Chinese listed firms, and reveals the related issues about the tiers of fair value inputs and its suitability to the fair value measurement of investment properties according to the related accounting standards. We find that the second tier of fair value inputs are the main sources of the fair value evaluation of Chinese investment properties, the first tier of fair value inputs are also found in a few cases, and the third tier is not applicable; The application of fair value in investment properties shows obvious industrial features and positively related with the extent of property market development. The proportion of fair value measured investment properties is the highest in finance and real estate industries. The higher degree of marketization where the investment properties locate, the more listed firms will apply fair value measurement. The fair value of investment properties is mainly evaluated by asset evaluation companies instead of by listed firm itself. And market approach is the main method of evaluation, although income approach is also found. Due to that majority firms do not disclose or fully disclose the fair value evaluation information of investment properties, and fair value inputs are mostly from the second tires, fair value measured investment properties cannot be verified, thus the information of fair value measured investment properties does not conform to the fundamental quality characteristics of faithful presentation. i.e. fair value based investment properties are not reliable; we conceive the market environment constrains and high evaluation cost are the main reasons of less application of fair value in investment properties.