ACC8000 Research in Accounting Practice Assignment
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ACC8000 Research in Accounting Practice Assignment 3, Semester 2, 2017: Due 20 October 2017 ___________________________________________________________________________________ Weight: 50%, Expected words (excluding references) 2,700 – 3,100 ___________________________________________________________________________________ Question 1. Internet Financial Reporting (total 12 marks) Articles by Mitra et al. (2017) and Kuruppu et al. (2015) both investigated Internet financialreporting in their respective countries. Both papers provide lists, which show the percentage of companies that make different typesof disclosures. Along with providing percentages, the Sri Lankan study also provides somestatistical tests (table 3, panel B, P. 81). Explain the extra information available to the reader dueto the statistical tests documented in table 3. The extra information provided such on statistical information as the count of companyhistory, product and services, financial information and the industry (Kuruppu, Oyelere and Al-Jabri 2015).One study uses a sample, the other study considered the entire population. What are theadvantages and disadvantages these two approaches? Population: Advantages: There is no need for sampling as the entire population is included in the dataset.The other advantage is that the finding would be representative of the entire population as theanalyses are anchored on the entire population (Dunne, Helliar, Lymer and Mousa 2013). 1
Disadvantage: The collection of all the data for the population would probably consumer a greatamount of time which implies that more efforts as well as money will be required. SampleAdvantage: Often the only alternative-it would be very unique scenario to have the information or data on the WHOLE population. Another advantage of sampling is that the researcher can make reliable estimates of the entire populations with little time, money and efforts in case the sample is representative of the underlying population. Disadvantage: None, so long as the sample remains representative of the whole population of the interest. Otherwise, the sampling bias aplenty. And the bias implies that the researcher shall have certain explaining to do. From the above analysis, it is obvious that advantages of population are with respect ofhaving all the data which the researcher would ever wish, however, sampling is often the realityas the function of effort, time and most imperatively, money (Botti, Boubaker, Hamrouni andSolonandrasana 2014). By making sure the sampling is sufficient from the population of interest,the representative sample is able to be extracted to perform the examination or analyses andrecognize the findings which one would unravel whereas looking at the whole population at theshare of cost. Considering your answer to b. above, explain which approach is more appropriate giventhe purposes of the studies? The most appropriate method is the sample since it is less costly and the time taken to do thestudy is also efficient. It is also impossible to always get the data for the entire population inmost occasion (Miniaoui and Oyelere 2013). Question 2. Agency theory, stewardship and executive compensation (total 44 marks) Briefly describe the assumptions of traditional (positive) agency theory (5 marks) It is the supposition that explicates the relationship between principal and their agents in thebusiness and assumes that both agent and principal are driven by self-interest (Pepper and Gore2015). It is concerned with resolution of the problems which can exist in the agency associations2
because of unaligned goals or varying aversion of risk levels. It assumes that a firm can beperceived as the nexus of contracts between the holders of resources. In an imperfect labor andcapital market, this theory assumes that managers will always seek to maximize their individualutility at the expense of corporate shareholders (Pepper and Gore 2015). Assumes further thatagents holds the ability to operate in their individual self-interests instead of in the best interestsof the organization as a result of the asymmetric information and uncertainty (Song, Wang andCavusgil 2015). What influence has agency theory had on the structuring of compensation packages? (4 marks) Agency theory explains the CEO compensations in the organizations. The sensitivity of theCRE pay to performance declines with the performance variance. The CEO will trade off theincentives and insurance in the agency theory (Mitnick 2015). The sensitivity of the CEO payrises with the marginal return to the executive undertakings, that is, the pay sensitivity surgeswith the managerial control rights, employee incentive, firm rates, profit retention and the extentof product market competition the firm faces (Pouryousefi and Frooman 2017). Thusagency theory has helped structure the CEO compensation packages in order that they feelincentivized to work in order that they serve the interest of the firm and not their own self-interest (Mitnick 2015). The firms structure the package in a manner that it is based on theCEO’s performances. c.What has research shown concerning an employee’s attitude to risk and their desiredcompensation package? (4 marks) The research has shown that most of the employees have negative attitude towards risks andhence would wish to be paid more when operating in a risky condition. The employees alwayswant their pay packages to include the risks that they are faced with when working for theorganization (Bader 2015). The risk, to employees pose serious dangers to their lives andhence they would be hesitant to take up such risky position when the packages of compensationremain insensitive to the risk (Moore and Viscusi 2014). Only when the employees feel that3
their risk-exposure has been included in their compensation packages would they be willing towork under the risky environments. d.What findings have academic articles reported concerning the internal problems acompany might face if executive compensation is viewed as excessive? (5 marks) The main internal problem that a firm will be faced with immediately the executive pay isviewed as excessive is the lost morale among the non-executives. It is bad for the business,economy and society (Bandiera, Guiso, Prat and Sadun 2015). It will imposeskyrocketing costs of the business as perverse pay structures promote the wrong decision as wellas pay inequality demotivating the non-executive employees. The top executive excessivepayment thus remains detrimental to the employees’ moral further down the firm chain. The employees will feel that they are never recognized as only one person is at the top yet theproductivity of the firm should be an outcome of the team’s effort (Nazir, Shah and Zaman2014). This pay gap between the executives and average employees is further a thrust of theprotests among the shareholders. The net effect is that the organization productivity will declineas workforce do not work as a team and even do not out their best abilities as they feel that onlyone person at the top is being appreciated unreasonably. e.Consider one assumption of agency theory and explain how it has been challenged, citingat least one academic paper. (4 marks) The theory assumes both agent and principals are motivated by the self-interests. The self-interest assumptions dooms the agency-theory the inescapable intrinsic conflicts. Therefore,where both agent and principal are inspired by self-interests, the agents are more probable to huntself-interested purposes in total deviation and even conflicting the principal’s goals (Bosse andPhillips 2016). This assumption is being challenged by looking at the concept of the agencyloss which is used to determine the deviation of the agent from the goals of the principal basedon the difference between best feasible outcome for principal and consequences of agents’actions (Pepper and Gore 2015). Agency loss increases as the agency loss expands due to4
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