FINANCIAL REPORTING CONSEQUENCES OF CAPITAL XENOPHOBIA
DOI:
https://doi.org/10.17524/repec.v13i3.2404Keywords:
foreign investment; financial reporting qualityAbstract
The purpose of this editorial is to describe financial protectionism as a potentially important determinant of financial reporting outcomes. Fear of foreign capital, or capital xenophobia, spurs financial protectionism. Examining the effects of financial protectionism on financial reporting outcomes potentially permits an expansion of positive accounting theory and, in particular, the political cost hypothesis. I first describe extant literature examining the political cost hypothesis. I then describe national-security related drivers of capital xenophobia. Next, I examine settings in which we can observe variation in financial protectionism. I conclude by positing varied paths by which financial protectionism can affect financial reporting outcomes.
References
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Cahan, S., Chavis, B., and Elmendorf, R. 1997. Earnings management of chemical firms in response to political costs from environmental legislation. Journal of Accounting, Auditing and Finance, 12: 37-65.
Calluzzo, P., G.N. Dong and D. Godsell. 2017. Sovereign Wealth Fund Investments and the U.S. Political Process. Journal of International Business Studies, 48: 222-243.
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Johan, S., Knill, A., & Mauck, N. 2013. Determinants of sovereign wealth fund investment in private equity vs. public equity. Journal of International Business Studies, 44(2): 155-172.
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Kim, I., Miller, S., Wan, H. and Wang, B. 2016. Drivers behind the monitoring effectiveness of global institutional investors: Evidence from earnings management. Journal of Corporate Finance, 40: 24-46.
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Hall, S., Stammerjohan, W. 1997. Damage awards and earnings management in the oil industry. The Accounting Review, 72(1): 47-65.
Hao, M. and Nwaeze, E. 2015. Healthcare reform proposal and behavior of pharmaceutical companies: The role of political costs. Accounting Horizons, 29(1): 171-198.
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Leuz, C. and Oberholzer-Gee, F. 2006. Political relationships, global financing and corporate transparency: Evidence from Indonesia. Journal of Financial Economics, 81: 411-439.
Lim, S., and Matolesy, Z. 1999. Earnings management of firms subjected to product price controls. Accounting and Finance, 39: 131-150.
Magnan, M., Nadean, C., Cormier, D. 1999. Earnings management during antidumping investigations: Analysis and Implications. Canadian Journal of Administrative Sciences, 16: 149-162.
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Megginson, W. & Fotak, V. 2015. Rise of the fiduciary state: A survey of sovereign wealth fund research. Journal of Economic Surveys, 29(4): 733-778.
Monem, R. 2003. Earnings management in response to the introduction of the Australian gold tax. Contemporary Accounting Research, 20: 747-774.
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Rose, P. 2018. FIRRMA and National Security. Ohio State Public Law Working Paper #452.
Roychowdhury, S. 2006. Earnings management through real activities manipulation. Journal of Accounting & Economics, 42: 335-370.
Sovereign Wealth Fund Institute. (2014). Sovereign Wealth Fund Institute. Retrieved January 15, 2014, 2014, from www.swfinstitute.org
Steinitz, M. and Ingrassia, M. 2009. The impact of sovereign wealth funds on the regulation of foreign direct investment in strategic industries: A comparative view. Business Law International, 10: 5-18.
Watts, R. and J. Zimmerman. 1978. Towards a positive theory of the determination of accounting standards. The Accounting Review, 53(1): 112-134.
Watts, R and J. Zimmerman. 1986. Positive Accounting Theory. Prentice-Hall Inc.
Balding, C. 2012. Sovereign wealth funds: the new intersection of money and politics. New York: Oxford University Press.
Beuselinck, C., Blanco, B. and Garcia Lara, J. 2017. The role of foreign shareholders in disciplining financial reporting. Journal of Business, Finance and Accounting, 44(5): 558-592.
Boland, M. and Godsell, D. 2019. Local soldier fatalities and war profiteers: New tests of the political cost hypothesis. Working paper. University of Illinois.
Bortolotti, B. Fotak, V. & Megginson, W. 2015. The sovereign wealth fund discount: Evidence from public equity investments. Review of Financial Studies, 28: 2993-3035.
Cahan, S. 1992. The effect of antitrust investigations on discretionary accruals: A refined test of the political-cost hypothesis. The Accounting Review, 67: 77-95.
Cahan, S. 1993. Electric utility income in response to the breakdown at the Three Mile Island nuclear power plant and subsequent political events. Journal of Accounting and Public Policy, 12: 37-63.
Cahan, S., Chavis, B., and Elmendorf, R. 1997. Earnings management of chemical firms in response to political costs from environmental legislation. Journal of Accounting, Auditing and Finance, 12: 37-65.
Calluzzo, P., G.N. Dong and D. Godsell. 2017. Sovereign Wealth Fund Investments and the U.S. Political Process. Journal of International Business Studies, 48: 222-243.
Chaney, P., Faccio, M. and Parsley, D. 2011. The quality of accounting information in politically connected firms. Journal of Accounting and Economics, 51: 58-76.
Chhaochharia, V., Kumar, A. and Niessen-Ruenzi, A. 2012. Local investors and corporate governance. Journal of Accounting and Economics¸54: 42-67.
Chung, J. (2012, April 12, 2012). Hedge-fund assets rise to record level. The Wall Street Journal.
CityUK. 2012. Fund management. Financial market series. https://www.thecityuk.com/research/. Accessed 11 November 2014.
Clark, G. and Monk, A. 2017. “Sovereign Development Funds: The governance and management of strategic investment institutions.” The Oxford Handbook of Sovereign Wealth Funds. Eds. D. Cumming, G. Wood, I. Filatotchev and J. Reinecke. Oxford University Press.
Dinc, S. and Erel, I. 2013. Economic nationalism in mergers and acquisitions. Journal of Finance, 68: 2471-2514.
El Ghoul, S., O. Guedhami, and J. Pittman. 2011. The role of IRS monitoring in equity pricing in public firms. Contemporary Accounting Research, 28(2): 643-674.
Fernandes, N. 2017. “Sovereign wealth funds: Investment choices and implications around the world.” The Oxford Handbook of Sovereign Wealth Funds. Eds. D. Cumming, G. Wood, I. Filatotchev and J. Reinecke. Oxford University Press.
Ferreira, M. and P. Matos. 2008. The colors of investors’ money: The role of institutional investors around the world. Journal of Financial Economics, 88: 499-533.
Financial Times. 2007. Funds that shake capitalist logic. Summers L. July 29. Accessed on September 20, 2015 from http://www.ft.com/cms/s/2/bb8f50b8-3dcc-11dc-8f6a-0000779fd2ac.html#axzz3jf5WC1HJ
Godsell, D., Lel, U. and Miller, D. 2019. Financial Protectionism, M&A Activity, and Shareholder Wealth. Working Paper. University of Illinois.
Godsell, D., Welker, M. and N. Zhang. 2017. Earnings management during antidumping investigations in Europe: Sample-wide and cross-sectional evidence. Journal of Accounting Research, 55(2): 407-457.
Johnston, D. and Rock, S. 2005. Earnings management to minimize superfund clean-up and transaction costs. Contemporary Accounting Research, 22: 617-642.
Johan, S., Knill, A., & Mauck, N. 2013. Determinants of sovereign wealth fund investment in private equity vs. public equity. Journal of International Business Studies, 44(2): 155-172.
Jones, J. 1991. Earnings management during import relief investigations. Journal of Accounting Research, 29(2): 193-228.
Karolyi, A. and Liao, R. 2017. State Capitalism's Global Reach: Evidence from Foreign Acquisitions by State-owned Companies. Journal of Corporate Finance, 42: 367-391.
Kim, I., Miller, S., Wan, H. and Wang, B. 2016. Drivers behind the monitoring effectiveness of global institutional investors: Evidence from earnings management. Journal of Corporate Finance, 40: 24-46.
Knill, A., Lee, B., Mauck, N., 2012. Bilateral political relations and sovereign wealth fund investment. Journal of Corporate Finance, 18, 108-123.
Hall, S., Stammerjohan, W. 1997. Damage awards and earnings management in the oil industry. The Accounting Review, 72(1): 47-65.
Hao, M. and Nwaeze, E. 2015. Healthcare reform proposal and behavior of pharmaceutical companies: The role of political costs. Accounting Horizons, 29(1): 171-198.
Key, K. 1997. Political cost incentives for earnings management in the cable television industry. Journal of Accounting & Economics, 23: 309-337.
Lel, U. 2019. The role of foreign institutional investors in restraining earnings management activities across countries. Journal of International Business Studies, 50(6): 895-922.
Leuz, C. and Oberholzer-Gee, F. 2006. Political relationships, global financing and corporate transparency: Evidence from Indonesia. Journal of Financial Economics, 81: 411-439.
Lim, S., and Matolesy, Z. 1999. Earnings management of firms subjected to product price controls. Accounting and Finance, 39: 131-150.
Magnan, M., Nadean, C., Cormier, D. 1999. Earnings management during antidumping investigations: Analysis and Implications. Canadian Journal of Administrative Sciences, 16: 149-162.
McKinsey Global Institute. 2013. Financial globalization: Retreat or reset? Global capital markets. http://www.mckinsey.com/insights/global_capital_markets/financial_globalization. Accessed 11 November 2014.
Mayda, A., Rodrik, D. 2005. Why are some people (and countries) more protectionist than others? European Economic Review, 49: 1393-1430.
Megginson, W. & Fotak, V. 2015. Rise of the fiduciary state: A survey of sovereign wealth fund research. Journal of Economic Surveys, 29(4): 733-778.
Monem, R. 2003. Earnings management in response to the introduction of the Australian gold tax. Contemporary Accounting Research, 20: 747-774.
Moran, T. 2009. Three Threats: An Analytical Framework for the CFIUS Process. Petersen Institute for International Economics.
Navissi, F. 1999. Earnings management under price regulation. Contemporary Accounting Research, 16(2): 281-304.
Pew Research Center. Faith and Skepticism about Trade, Foreign Investment, Survey. Available at: http://www.pewglobal.org/2014/09/16/faith-and-skepticism-about-trade-foreign-investment/
Prequin. 2015. The 2015 Prequin Sovereign Wealth Fund Review. Available at https://www.prequin.com/format/publication/0/1.
Rose, P. 2014. The Foreign Investment and National Security Act of 2007: An assessment of its impact on Sovereign Wealth Funds and State-Owned Enterprises. Working paper. Ohio State University.
Rose, P. 2018. FIRRMA and National Security. Ohio State Public Law Working Paper #452.
Roychowdhury, S. 2006. Earnings management through real activities manipulation. Journal of Accounting & Economics, 42: 335-370.
Sovereign Wealth Fund Institute. (2014). Sovereign Wealth Fund Institute. Retrieved January 15, 2014, 2014, from www.swfinstitute.org
Steinitz, M. and Ingrassia, M. 2009. The impact of sovereign wealth funds on the regulation of foreign direct investment in strategic industries: A comparative view. Business Law International, 10: 5-18.
Watts, R. and J. Zimmerman. 1978. Towards a positive theory of the determination of accounting standards. The Accounting Review, 53(1): 112-134.
Watts, R and J. Zimmerman. 1986. Positive Accounting Theory. Prentice-Hall Inc.
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Published
2019-10-02
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Godsell, D. (2019). FINANCIAL REPORTING CONSEQUENCES OF CAPITAL XENOPHOBIA. Journal of Education and Research in Accounting (REPeC), 13(3). https://doi.org/10.17524/repec.v13i3.2404
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