The International Journal of Accounting

Synopsis

The research problem

This paper assesses whether and how people’s perceptions of time — strong future time reference (FTR) versus weak FTR — affect corporate default risk.

Motivation or theoretical reasoning

Studies have shown that default risk varies across firms, regions, and countries, highlighting the need for a comprehensive understanding of the contributing factors. Traditional studies focus on how firm-level, industry-level, national and international economic and financial variables shape corporate default risk, but they fail to explain cross-country and cross-regional differences in corporate default risk from the perspective of informal institutions, particularly, language. This study takes the first step to examine whether and how future-oriented language shapes corporate default risk.

The test hypotheses

We first tested whether strong-FTR language decreases corporate default risk. We further tested whether the effect of strong-FTR language on default risk depends on firms’ level of information transparency. In addition, we tested whether the effect of strong-FTR language on default risk depends on a country’s disclosure requirements. Lastly, we tested whether the effect of strong-FTR language on default risk depends on a country’s control of corruption.

Target population

We find that corporate default risk is significantly higher in regions dominated by speakers of weak-FTR languages, using a comprehensive sample of firms in 36 countries with 180,013 observations spanning from 1988 to 2017.

Adopted methodology

Ordinary least square regressions were used in this study.

Analyses

Corporate default risk is measured by two proxies of firm probability of default, following Merton [(1974) Journal of Finance, 29(2), 449–470] and Lee and Lin [(2012) Journal of International Financial Markets, Institutions, and Money, 22(4), 973–989]. Our independent variable is Strong FTR, which equals 1 if a language belongs to the strong-FTR language family, as defined by the European Science Foundation’s Typology of Languages in Europe (EUROTYP) project. If a language does not require “obligatory [FTR] use in (main clause) prediction-based contexts” [Dahl (2000)Tense and Aspect in the Languages of Europe, O. Dahl (Ed.), pp. 309–328], then we put this language into the weak-FTR group. On the other hand, if a language does have the above-mentioned requirement, then it belongs to the strong-FTR group.

Findings

We found that corporate default risk is significantly higher in regions dominated by speakers of weak-FTR languages. Furthermore, the FTR effect on default risk is weakened in countries with stronger formal institutions (e.g., high disclosure quality, greater transparency, and less corruption). Our results introduce a new explanation for heterogeneity in corporate default risk, provide insights about whether language is an economic institution, and adds to research on the effects of languages on economic and financial outcomes.

Synopsis

The research problem

In this study, we investigated the relationship between future-time reference (FTR) in languages and goodwill impairment.

Motivation

Previous studies on goodwill have focused mainly on firms’ economic and reporting incentives in single-country settings using economic theories. There have been recent calls for more research on goodwill accounting across countries (d’Arcy and Tarca, 2018), and greater use of behavioral theories in goodwill accounting studies (Amel-Zadeh et al., 2021). In response, we applied the linguistic relativity hypothesis to a new and highly significant area of future-oriented behavior (impairment decision) to explain cross-country variations in goodwill impairment reporting.

The test hypotheses

We hypothesized that firms in countries that use weak-FTR languages have higher levels of (and greater quality) goodwill impairment than those in countries that use strong-FTR languages.

Target population

We used a sample of 15,179 firm-year observations taken from firms reporting under IFRS across 21 countries for the fiscal years 2005–2018.

Adopted methodology

We used Tobit regressions, logit regressions, mixed-effects modeling, and propensity score-matching analyses for robustness.

Analyses

We tested the relationship between FTR in languages and (a) goodwill impairment decisions, (b) goodwill impairment amounts, and (c) abnormal goodwill impairments. We repeated our main analyses using several subsamples, different measures of FTR, and alternative regression specifications.

Findings

In line with the linguistic relativity hypothesis, our findings indicate that managers who speak weak-FTR languages are more willing to bear the costs of their impairment decisions in the present and are less motivated to shift current impairment into future accounting periods. In contrast, speakers of strong-FTR languages tend to delay the recognition of current impairments to future periods to reduce their anxiety about the negative effects of current impairment decisions. Findings from further analyses indicate that firms in weak-FTR countries report lower abnormal goodwill impairment, thereby bringing impairment levels closer to their normal optimal levels. Our inferences are robust to alternative samples, different measures of FTR, and alternative model specifications.

Synopsis

The research problem

This paper aims to reveal the transformations that the Turkish accounting profession has gone through since 1839 when the modernization efforts of the Ottoman Empire started. At this point, the transformation covers the final period of the Ottoman Empire governed by the sultanate (1299–1923), and the Turkish Republic that adopts a democratic governance style (1923–present). Having a static economic structure, the Ottomans tried to gradually adapt to western style governance and practices, and they decided to quit the Stairs method that used to be a state accounting method in the accounting system (750–1879) and transit to the double-entry bookkeeping method (1879). Within the framework of westernization efforts in the republic period, the accounting systems were based on the double-entry bookkeeping method, and they adopted tax-based accounting approaches previously. They moved toward development, professional organization, and international system integration in the process.

Motivation

The study aims to present the changes in the Turkish accounting profession in the last 200 years. The Ottomans had governmental and economic changeovers with the Tanzimat Reform.

We deemed it to be a basic need to reveal the influences of demolishing a feudal state and founding a new state on the accounting profession and practices, and the developments of the accounting profession in the republic period. This study examines the period between 1879 and 2022 by dividing it into terms on the basis of significant changes in accountancy and the accounting profession.

Target Population

Accountant historians, finance analysts, shareholders of companies engaging in stock exchange deals, finance managers of companies, independent auditors and shareholders.

Adopted Methodology

Accounting historians’ documents, score matching analyses for robustness.

Analyses

All documentary analyses are composed to the results in different periods. The development of the accounting profession has been evaluated within economic and political processes. The effect of wars in Turkey and in the world on the accounting profession has been analyzed. The standards required for the merger of the accounting profession with the international practices in Turkish republic period were mentioned. They were analyzed by comparing the international and domestic companies. The international standards are required to evaluate the stock exchange movements of the public companies.

Findings

The trials for Fabrika-i Hümayun factory at the Ottomans in the 1840s showed that the economic structure and the accounting systems must be consistent; otherwise, the accounting, which is the decision support system, would not be utilized well enough. At this point, the need to transit to the double-entry bookkeeping and reporting systems compatible with the capital and profit motivated commercial and industrial operations arose, and the Ottomans quit the accounting method (Stairs) that had been used until that time in 1879, and they transited to the double-entry bookkeeping method. In order to overcome the issues that occurred within this transition process, several different organizations and bodies needed to be established, and a new republic devolved from a demolished state was founded. In the republic period, the changes were embraced by the professional stakeholders, and improved significantly in terms of institutionalization by attaining its legal organization (TÜRMOB). The profession has come a long way in terms of what had been a profession focused on bookkeeping only, having added reporting, professional organization, international cooperation and integration, adaptation to independent audit issues, and global system.