This paper investigates the economic benefit of corporate pollution reduction expenditures and the value relevance of the Global Reporting Initiative (GRI) report. It utilizes a unique dataset of pollution reduction expenditures disclosed by Taiwanese manufacturing companies in their GRI reports. Economic profit is measured with Economic Value Added and Tobin's Q. The value relevance is measured with three benchmarks: stock returns, cash flows, and stock prices. The Generalized Method of Moments is adopted to control for potential endogeneity. This paper finds a positive relation between pollution reduction expenditure and corporate economic benefits, which suggests that managerial decisions aimed at pollution reduction are consistent with the interests of shareholders and of stakeholders. In addition, this paper finds that the G3.1 guideline provides relevant information in regard to firm value, while it plays merely a partial role in investors' investment decisions.

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Purpose The purpose of this paper is to empirically test the predictions in Titman (1984) and Berk et al. (2010) which indicate that firms with higher leverage will pay chief executive officer (CEO) and employee more. In addition, this paper examines whether financial distressed firms utilize leverage as a bargaining tool to reduce labor costs. Design/methodology/approach This paper conducts ordinary least squares regression analysis to investigate: CEO compensation which represents critical employees and lower-level employee compensation which represents less critical employees. Empirical data consist of US publicly held companies during the period between 2006 and 2013. Findings This paper finds that firms with higher levels of leverage tend to compensate employees for their human capital risk and that financially distressed firms consider leverage a bargaining tool by which to depress labor costs, which leads to lower employee compensation as compared to that of financially healthy firms. Research limitations/implications This paper highlights the importance of keeping balance between human capital and labor costs. In the case that human capital risk might not be fully compensated by firms facing financial distress, vicious cycle could occur because a failure of considering human capital might invite unrecoverable consequence. This could be done in future research. Originality/value This paper has three contributions. First, this paper supports the Titman (1984) and Berk et al. (2010) by empirically documenting that high-leveraged firms compensate their employees for potential human capital risk. Second, this paper adds to the literature by empirically providing that human capital risk might not be fully compensated if the firms are facing financial distress. Finally, this paper contributes to the authorities by showing that employees’ interests may be sacrificed if the firm is under financial distress.

Purpose The purpose of this paper is to investigate the extent to which the transition from self-regulation to heteronomy has changed the gap in audit quality between Big Four and non-Big Four auditors. Design/methodology/approach This study analyzes publicly held companies in the USA between 1999 and 2012 using univariate analysis, multivariate analysis and quantile regression analysis. Audit quality is measured with discretionary accruals. Findings This study shows an insignificant difference in audit quality between the clients of Big Four and non-Big Four auditors after Public Company Accounting Oversight Board (hereafter, PCAOB) began its operations. In the analysis of the effects of PCAOB inspections on the audit quality of audit firms that are inspected annually and triennially, the findings show that the inspections have more positive effects when carried out annually. This suggests that the frequency of inspection is positively associated with audit quality. Overall, these results provide evidence that recent improvements in audit quality have been caused by changes in regulatory standards. Originality/value The paper provides three major original contributions. First, the authors add to the literature on audit quality by further demonstrating a reduced gap in audit quality between Big Four and non-Big Four audit firms due to heteronomy. Secondly, this study contributes to the debate as to whether independent inspections on audit firms are beneficial or not and suggests that the PCAOB inspections help increase audit quality. Finally, the results of this work contribute to the growing literature examining discretionary accruals.

The purpose of this paper is to examine the impact of value-relevant accounting rules on corporate innovative activities. Using US data from 1972 to 2012, we find that valuerelevant accounting rules help innovative companies to reduce R&D funding gaps, which is conducive to companies' innovative activities and potential long-term benefits. However, a higher risk premium is required by shareholders of innovative companies. Additionally, we find not only that R&D spending is more sensitive to future earnings variability as compared to that occurring commercial intellectual properties and physical assets, but we also find that managers contracted with long-term compensation plans have greater incentives to engage in innovative activities when value-relevant accounting rules set in. Overall, we provide evidence on alleviation of information asymmetry between innovative companies and their lenders when accounting information is more value relevant.