Abstracts Track 2024

Area 1 - Accounting and Finance

Nr:	19
Title:	Internal Consistency in Audit Firms
Authors:	Hong Cai
Abstract:	We examine the internal consistency among audit offices and the economic consequences of a lack of consistency. The nature of audit work requires proximity to clients, leading audit firms to develop decentralized organizations in which individual offices have significant autonomy (Malhotra and Morris 2009). Given such autonomy, a key issue in the organization of audit firms is whether individual offices have consistent economic incentives and provide consistent audit work. Mid-tier and small audit firms, relative to the Big Four, are still in the process of developing and standardizing their operations and thus are even more vulnerable to a lack of internal consistency. We investigate internal consistency of a sample of Chinese audit firms. We focus on three dimensions of consistency: consistency in economic incentives, in audit precedures and systems, and in personnel management. We make use of the fact that most Chinese audit firms have acquired other firms as part of expansions. Thus, in addition to self-developed offices, many have acquired offices through mergers. We examine the consistency of these self-developed and acquired offices. We conducted a survey of all 36 domestic (non-Big 4) audit firms qualified to audit listed companies in the Chinese market. For each firm, we contacted one partner and asked the partner to rate the firm’s policies and practices in its self-developed and acquired offices using seven questions and a scale from 1 to 10. The results of the survey demonstrate a significant lack of internal consistency in economic incentives and personnel management across firm offices. The mean scores in these two dimensions are less than 7.5 for self-developed offices and less than 5.0 for acquired offices. Additional survey evidence suggests that, in many firms, the degree of partner profit sharing is low and partners retain most of the profits. Moreover, many offices do not submit revenue to their head offices; instead, they retain most of the revenue after submitting “management fees.” Also, many offices conduct their own recruitment, training, and performance evaluation with no involvement by the head office. Using the survey scores, we conduct an archival analysis. We use audit firm mergers as shocks and examine the changes in audit quality of acquired offices after being merged into high-consistency and low-consistency firms. We find a significant increase in audit quality among offices acquired by high-consistency firms. We observe no such improvement among offices acquired by low-consistency firms relative to their counterparts. Moreover, we find that, relative to low-consistency firms, high-consistency firms show greater improvement in controlling risk associated with acquiring new clients and ability to retain high-quality existing clients following mergers. Our study contributes to discussions of differences in audit quality at the office level. Francis et al. (2013) suggest that there might be organizational frictions that hinder the achievement of consistent quality across offices. Building on prior discussions of the economics of partnership and audit firms, we show that a lack of consistency in office-level economic incentives and policies creates such “frictions” for the sample audit firms and negatively affects their audit quality and client portfolio management. Our study also opens “the black box” by studying various dimensions of internal governance of audit firms.

Nr:	39
Title:	Energy Sustainability and Financial Digitalization: Role of Carbon Dioxide Emission, FDI and GDP in India
Authors:	Ponle H. Kareem and Wagdi Khalifa
Abstract:	Among the key disruptive trends that are not only affecting society all over the world but also influencing our future are climate change, advancements in technology, and digitalization. Our planet is experiencing serious effects from the climate disaster, mostly due to unsustainable human actions and economic activities including excessive reliance on fossil fuels, environmental degradation, and resource overconsumption. Moreover, as a result of the COVID-19 pandemic, inefficiencies and inequalities in the financial system and the global economy have come to light, emphasizing the urgent need for reform. Therefore, we investigated the relationship between renewable energy consumption and financial digitalization for the period 2005- 2020 in India, by employing the cointegration casualty tests. The Engle-Granger cointegration test results empirically reveal that renewable energy consumption, GDP, and CO2 exhibit cointegration, while the level of digitization, financial inclusion, and FDI do not show significant cointegrated with renewable energy consumption. Suggesting that GDP has a long relationship with REC and that reducing carbon dioxide emissions is closely linked to promoting renewable energy in India. From the policy perspective, these findings suggest that an integrated approach, taking into account digitalization, economic factors, financial inclusion, foreign investment, and carbon emissions, is required to promote renewable energy consumption and achieve sustainable development in the Indian economy.

Nr:	64
Title:	Cost Behavior and Profitability of Family Firms
Authors:	Efrat Shust
Abstract:	It is well-known that family firms have various attributes that distinguish them from non-family firms, such as fewer shareholders-managers conflicts and a focus on the long-term survival of the firm. These attributes have led prior literature to examine the performance of family firms, yielding evidence that they record better profitability. While the literature holds that the attributes of family firms are the drivers of this phenomenon, it hardly tackles the specific mechanisms that generate better profitability. Addressing this void, we examine an important determinant of profitability: cost behavior. The seminal paper of Anderson, Banker, and Janakiraman (2003) show that selling, general, and administrative (SG&A) costs are asymmetric since they increase more when revenues rise than decrease when revenues fall by an equivalent amount ("cost stickiness"). This behavior is attributed to determinants such as adjustment costs, incentives and preferences of managers such as empire building, and managerial beliefs such as optimism. Family firms suffer less from owner–manager agency problems and have motivation to preserve the long-term survival of the firm. These considerations may cause them to act more cautiously: have a higher (lower) inclination to cut (add) resources when sales decrease (increase) to avoid a potential financial distress. We predict a low degree of cost stickiness for family firms, or even an opposite pattern of cost anti-stickiness. As cost behavior is a determinant of profitability, such finding can explain the better performance of family firms relative to non-family firms. We use a sample of all firms listed on the Tel-Aviv Stock Exchange (TASE) in the years 2006–2018. The results indicate that SG&A costs of family firms are anti-sticky; that is, decrease SG&A costs when sales decrease more than they increase SG&A costs when sales increase. This evidence indicates that family firms adjust their costs following demand shocks differently than non-family firms. We confirm that our results are not driven by other firm characteristics by examining a subsample of firms that switched ownership status during the sample period and obtaining similar results. Next, we examine the link between cost behavior of family firms and profitability. We separate between observations recording sales decreases and observations recording sales increases. Then, we calculate profitability of each observation using three measures of return on assets (ROA). In the decreases sample, we find that ROA measures are significantly higher for family firms than for non-family firms. Conversely, in the increases sample, the profitability of family firms is not statistically different than that of non-family firms. Next, we conduct a regression analysis and the results are similar: in the decreases sample, the interaction between family ownership and the change in sales has a negative and significant coefficient, suggesting that the profitability of family firms suffers from sales declines less than that of non-family firms. However, in the increases sample, a change in sales affects profitability of family and non-family firms similarly. Overall, our findings support the notion that cost anti-stickiness of family firms, which reflects a greater propensity for cost cutting upon a negative demand shock, mitigates the damage to their profitability in times of economic contraction.

Nr:	65
Title:	Are Family Firms Less Audit-Risky?
Authors:	Efrat Shust, Menachem Abudy and Eli Amir
Abstract:	Family firms have attracted the attention of researchers, documenting that these firms care more for preservation, long-term prosperity, and the reputation of the controlling family than for short-term profitability. Family firms also act more cautiously and take fewer risks. Hence, they are less likely to engage in earnings manipulation, exhibit lower abnormal accruals and fewer restatements, all indicating a better quality of financial reporting. We focus on an additional dimension of reporting quality by examining the external and internal audit. When auditors perceive reporting quality to be low, they may increase audit hours, charge higher hourly rates, or both. However, as audit hours are not available for US and European firms, most studies use audit fees as a measure of audit effort, e.g., Ghosh and Tang (2015) find that auditors charge family firms lower audit fees than non-family firms, but their study is silent on the effect of family ownership on audit hours and hourly rates. Another important element in determining external audit scope is internal controls. Stronger internal controls moderate earnings management, so if family firms implement stronger controls than non-family firms, that may reduce the amount of work and the riskiness for the external auditors. However, prior literature reports mixed evidence on internal controls in family firms. Our analysis is based on data from all publicly listed firms on the Tel Aviv Stock Exchange in Israel from 2006 to 2018. During this period, public firms were required to disclose the total remuneration paid to external auditors and the work hours invested by the auditors. Both figures enable a calculation of auditors’ hourly rates. In addition, public firms must report the scope of employment of their internal auditors and detail any family relationships between stakeholders, directors, and managers. We show that family firms face lower audit fees compared with non-family firms. Next, we separate fees to hours and rates. We find that auditors charge lower hourly rates for family firms than for non-family firms. As auditors’ rates reflect their risk premia, this finding suggests that auditors perceive family firms as less risky. Analyzing audit hours, we do not find a significant difference between the number of audit hours in family and non-family engagements. Taken together, our findings suggest that it is the billing rate, rather than the number of hours, which drives down the audit fees paid by family firms. Additionally, we find that lower rates are concentrated in family firms in which a family member serves as the chief executive officer or other type of top manager. Conversely, family firms with no direct involvement of the family do not record lower rates (nor audit hours) compared with non-family firms. Hence, the special attention given to preservation, long-term prosperity and reputation occurs mainly when the family is actively involved in managing the firm. Next, we document that family ownership does not significantly affect internal audit hours. However, firms managed by family members record fewer internal auditing hours. This finding is consistent with the interpretation that family management significantly magnifies the special characteristics of family firms. Finally, we find that family firms have higher accrual quality than non-family firms, suggesting that reporting quality of family firms is not damaged because of the lower efforts invested in it.

Area 2 - Economics

Nr:	73
Title:	Economic Integration and Pollution Disparities: How Efficient Are Environmental Policies?
Authors:	Natalia Vechiu
Abstract:	Despite global efforts as well as political and social events slowing down the global economy, CO2 emissions keep going up even though at a slower pace and with high disparities between countries. Among the top polluters, developing countries outpace developed ones, as evidenced through the pollution heaven effect highlighted in the literature or due to higher economic activity. This work in progress is trying to disentangle the effects of economic integration on these trends, especially on the gap between countries in terms of CO2 emissions. Firstly, we are interested in how different measures of economic integration may impact the disparities between countries and their economic partners, in terms of CO2 emissions. We measure these disparities through the CO2 emissions gap between partner countries. Secondly, we are interested in how environmental policies interact with the different measures of economic integration, in driving CO2 emission disparities. Consequently, we are conducting an empirical study, in a standard gravity setting, on a heterogenous panel dataset. The dependent variable is the pollution gap between two economic partners, the origin country and the destination country, where the former is an exporting/investing country, and the latter is its importing/invested partner country. The independent variables are different measures of economic integration, namely bilateral exports, bilateral imports, inward foreign direct investment (FDI) stocks and the bilateral liner shipping connectivity index (LSCI), as well as the environmental policy in origin and destination countries and various control variables which might explain pollution (the market access, the importance of renewable energy use, the sectoral structure of economic activity). We use different estimators suitable for gravity equations, and different proxies for environmental policies and economic integration. Most of our results are robust regardless of the estimators or the proxies we use. We find that the bilateral LSCI has mostly a negative impact on the pollution gap between origin and destination countries: a high degree of maritime connectivity allows reducing the pollution gap between the origin and the destination countries. This implies that the destination countries tend to pollute relatively more than the origin countries when they are strongly connected. However, when testing for interaction effects, we find that more stringent environmental policies in destination countries allow mitigating this effect. Through interaction effects tests between environmental policies in origin and destination countries, we also find evidence for some kind of learning effect or good practices diffusion effect. The positive impact of environmental policies in destination countries is enhanced by stringent environmental policies in origin countries: destination countries become more efficient in reducing their relative pollution levels when their economic partners apply more stringent environmental policies. We also find that the pollution gap tends to increase with inward FDI stocks and the industrial output of origin countries, but also when destination countries apply more stringent environmental policies and use more renewable energy. On the other hand, the pollution gap tends to decrease with inward FDI stocks in and imports from the destination countries, as well as when origin countries apply more stringent environmental policies and use more renewable energy.

Area 3 - Emerging Areas in FEMIB

Nr:	56
Title:	Blockchain Technology as an Alternative to the Centralized Financial Transactional Model in the Financial Industry
Authors:	Marco Botta
Abstract:	The aim of this work is to analyse the impact of blockchain technology on the centralized financial transactional model in the financial industry, using Switzerland as a case study. In particular, we investigate the potential impact of blockchain technology on the financial market infrastructure and existing financial transactional model based on third-party intermediaries, trying to understand whether blockchain technology may be the foundation for a new decentralized financial market infrastructure in securities trading, clearing and settlement. We analyse the supporting and hindering factors for the adoption of blockchain technology testing through a survey of banking executives the perceived benefits and risks of large-scale blockchain technology adoption. The choice of Switzerland as a case study has two main reasons. First, Switzerland is globally perceived as a leading and competitive financial centre. In particular, Switzerland plays a key role in wealth management, with around a quarter of total global cross-border assets managed in the country. It is also a leader in transaction financing and a key international location for insurance and reinsurance. Second, in recent years it has offered a supportive environment for innovative companies in the financial industry (“fintech”), giving birth to an ecosystem of start-ups, established companies, and universities, known as “the Crypto Valley”. As an example, the establishment of the Ethereum Foundation in the Swiss Crypto Valley in Zug may play a key role for the development and innovation of the blockchain ecosystem in the country. We begin with an extensive literature review of research papers, industry reports and white papers from financial institutions, industry consultants and central bank, and complement the study through an empirical analysis based on surveys supplemented to industry experts from the financial industry and fintech companies in Switzerland. The main findings from the literature review suggest that blockchain may have a significant impact on the centralized financial transactional model and financial market infrastructure, replacing, partially or entirely, with a decentralized transactional model based on blockchain technology. The main benefits of the new technology would be efficiency gains, cost savings and speed in financial transactional settlement. However, major challenges would have to be tackled concerning legal and regulatory uncertainties and technological and operational risks such as lack of common standards, scalability and interoperability between different legacy and blockchain-based systems. The results of our survey reflect the findings from the literature review. We find that the main reasons for supporting the change to a blockchain-based system are efficiency gains, costs benefits, fast transaction settlement, and transparency benefits, whereas the main perceived obstacles are legal and regulatory uncertainties, and technological and operational risks. Through our research, we provide further evidence to the literature related to blockchain technology adoption and its potential impact as an alternative to the traditional centralized financial transactional model typically used in the financial industry. Future research should investigate the outstanding issues concerning the adoption of the distributed-ledger technology, namely compliance with legal and regulatory standards, and the risks connected with privacy and cybersecurity.

Nr:	32
Title:	Implications of Supply Chain Relocation as Fait Accompli
Authors:	Roland M. Berberich
Abstract:	As global supply chains move away from China, the people, organisations, and infrastructure left behind wonder what comes next. To move forward only a rigorous reorientation of business models and operations can be successful. This paper analyses the ongoing processes on both supply and demand side, explores the underlying rationales and concludes by proposing a sustainable path forward. This position paper engages the challenges the ongoing supply chain reorientation away from China is creating. To do so the relocation will be established as fait accompli. Introducing the reasons for relocation, the author will also establish why a reversal of this trend seems highly unlikely and why attempts to maintain the status quo will see limited success for disproportionate effort. After briefly exploring potential efforts to address underlying issues, a viable and sustainable alternative is presented. The paper concludes with a summary of required business incentives to highlight the impossibility of the attempt and the resulting necessity to adapt early to the new normal.

Area 4 - IT Business

Nr:	61
Title:	Implementation of Collaborative Business Analysis Using the Program Cube JS for NOSQL Databases
Authors:	Olga Cherednichenko and Oleksandr Sutiahin
Abstract:	The tourism industry is developing rapidly nowadays, which leads to an increase in the number of businesses and competition between them. To improve processes and grow a private business, it is necessary to make the right, balanced decisions based on analytics. Collaborative Business Intelligence extends beyond organizational boundaries, fostering a virtual space where individuals converge to contribute insights, thus enhancing the decision-making process. This paradigm enables disparate individuals to collectively address challenges without direct interaction, leveraging the outcomes for informed decision-making. However, traditional information retrieval methods, akin to tourists scouring various sources and comparing data, often consume considerable time and effort. In this research, we focus on creating such an application tailored for tourists, empowering them to make informed choices regarding destinations and activities. Our approach involves aggregating, cleansing, and structuring tourism data to provide a user-friendly interface equipped with collaborative analysis tools. This involves the gathering data from sources that usually have a disparate structure and need to be consolidated into a single format. For example, the collected data from Google Maps will be a JSON object with dozens of fields, which in turn can be either arrays or JSON objects. That's why we try to solve this problem by mapping data to an OLAP cube. We tried to combine NOSQL databases with OLAP cubes using machine learning, a method of naive Bayesian classifier. But this method is quite complicated and requires full independent implementation, which entails the search for experienced developers and thorough testing of the final algorithm. Therefore, it was decided to look for a ready-made, open-source solution that can be configured to suit your needs. It was CubeJS, a program that creates a certain additional layer between the database and the main application, generating an OLAP cube from the database and an API that makes it easy to generate the necessary cube slices, which in turn can be obtained in JSON format for further graphing. CubeJS also has built-in functionality with a web interface that allows you to select measurements and dimensions for further graphing there. MongoDB was chosen as the NOSQL database because of its ease of use, connection to CubeJS, and performance. To fill the database, we chose data from Google Maps, which we previously received from the corresponding API. As a result, using the extensive functionality of CubeJS and MongoDB, an OLAP cube was created from data in JSON format and cube slices were created. Through this endeavor, we aim to streamline the decision-making process for tourists, enhancing their overall experience.

Area 5 - Management

Nr:	81
Title:	The Impact of ESG Disclosure on the Value of Chinese State-Owned Key Enterprise
Authors:	Beiqi Mai
Abstract:	Given the commitment made by China to high-quality sustainable development, the Environmental, Social and Governance (ESG) disclosure of enterprises has attracted widespread attention from all sectors of society. At the initial stage of ESG in China, state-owned key enterprise assume the responsibility to achieve it. In this paper, the data on China's domestic shares (A-share) listed state-owned key enterprise from Q1 2011 to Q4 2023 are analyzed to empirically examine the impact of corporate ESG disclosure on enterprise value. According to the results, ESG disclosure has a significant promoting effect on the value of state-owned key enterprise. This study adopts the difference-in-differences (DID) approach, which involves the ESG ratings from Sino-Securities Index, spanning the 2011-2023 period, as well as the self-reported ESG data collected from 88 listed state-owned key enterprises, spanning the 2020-2022 period. In the DID analysis, the causal effect of ESG ratings is identified by comparing the changes in environmental performance of listed state-owned key enterprises with and without ratings before and after the introduction of them. According to the analysis of the mechanism, ESG disclosure is conducive to reducing financing constraints, improving operational competitiveness and mitigating financial risks. Thus, enterprise value increases. This conclusion remains valid after a series of robustness tests. This study presents empirical evidence of the positive effects caused by ESG disclosure on state-owned key enterprises, implying the significance for enterprises and investors to pay attention to ESG disclosure and for government departments to improve ESG incentives.