Studies on Real Effects of Accounting

Abstract

This thesis explores the real effects of accounting on corporate innovation, employee treatment and workplace conditions within the supply chain. This thesis comprises three studies. The first study investigates the real effects of accounting for software development costs on corporate innovation. The setting is SFAS-86, which requires the capitalisation of some software development costs. I find that public software firms' innovation quantity and quality improve and innovation strategies change following the adoption of the standard, compared with other high-tech public firms. The real effect is more pronounced for financially constrained software firms, indicating that requiring capitalisation of software development costs can reduce information asymmetry. Because it reduces the myopic pressure for these firms, SFAS-86 is also associated with improvements in the quantity and scientific quality of patents produced by firms with higher analyst following. The second study investigates the intricate dynamics between buyers' monitoring and engagement practices and suppliers' management of workplace conditions within global supply chains. Findings obtained from 40 in-depth interviews with the managers of supplying factories in Bangladesh reveal that suppliers perceive buyers' compliance pressure through social audits as beneficial for managing workplace conditions, especially when accompanied by buyers' active collaboration and engagement with suppliers. This may include engaging in joint problem-solving, sharing knowledge and offering positive incentives for improvement. Furthermore, in managing their workplace condition, suppliers employ all four types of management control system (MCS)-belief systems, boundary systems, interactive control systems and diagnostic control systems - with buyers' diverse practices aiding suppliers in using these MCSs. Finally, the study explores the informational benefits of buyers' social audits, which serve as crucial information sources for suppliers in designing MCS for managing working conditions. Overall, the study underscores the significance of buyers' monitoring and engagement practices in fostering positive changes in global supply chains. It also highlights the pivotal role of suppliers' MCS in driving such changes. The third study examines the real effects of one mandated pay inequality disclosure on workplace conditions. The US Securities and Exchange Commission mandates the disclosure of CEO-to-employee pay ratios, effective from 2017. I explore whether high pay ratio firms improve workplace conditions following the disclosure of this measure of pay inequality. Adopting a difference-in-difference approach, I find that higher initial pay ratio firms reduce the frequency, severity and occurrence of workplace misconduct related to employee mistreatment more in the post-disclosure period compared with lower pay ratio firms. Higher initial pay ratio firms with greater employment pressure and stakeholder orientation, more negative media attention and career-oriented CEOs reduce their workplace misconduct more than other firms. Moreover, higher initial pay ratio firms experience reduced profit margins, firm value, sales growth and productivity relative to other firms, consistent with shareholders bearing substantial agency costs after firms disclosing high pay ratios. Overall, mandatory inequality disclosure can bring about real changes to firms' employee treatment.