SCHOOLS OF BUSINESS
James Cotter, and George Aldhizer, III
In early 2001, the Securities and Exchange Commission (SEC) changed its disclosure rules requiring listed companies to separately report their external audit fees. This study examines the relation between these publicly reported audit fees and the financial risks faced by external auditors. Descriptive and statistical results indicate a significant positive relation between several of the financial risk variables and audit fees. More specifically, the authors find a significant positive relation between market risk (beta), client excess return risk (market model residual variance) and overvaluation risk (price-to-book ratio), and audit fees. This study’s results will help audit firms recognize the potential risks of certifying high financial risk clients and charge requisite fees for these services.
Andrea Kelton, with Ya-wen Yang
To compete and to grow in the current business environment, companies invest heavily in information technology (IT). Appropriate use may increase the efficiency and effectiveness of overall operations and enhance the timeliness and transparency of financial reporting or dramatically increase the complexity of operations, boosting costs and reducing efficiency. Although prior research has identified economic benefits in IT investment, such as improved financial performance and firm value, the Information Technology Governance Institute notes that traditional financial measures may not be able to capture critical IT performance measures and encourages examination of alternatives. This study examines one potential consequence of IT – audit quality. It aims to elucidate (1) how a company’s IT use affects audit quality; and (2) whether enhancements to IT governance can mitigate negative effects.
Michael W. Lawless
Two complementary studies focus on generational technology change at both the industry and organization levels of analysis. One will analyze an important, common, but neglected kind of innovation, where several generations of product technology co-exist in a market. The hypotheses to be tested will illuminate how multiple generations affect emerging firms and patterns of competition over time and help to explain why such markets are heterogeneous. The tests use hazard-rate estimation and other event-history methods and inclusive archival data for US software products and the firms that developed them over 10 years.
A complementary study of the European software market by INSEAD, the global institute for business administration, funded separately, will enable joint comparative analysis, but it ignores the ways that individual firms adapt to generational technological change. Firm-level adaptation is important to the theory of organizational innovation and to improving managers’ capabilities to cope with complex, turbulent markets. Therefore, the second, complementary study will look at change inside a firm, covering the same products and time period, and using case studies to describe in-depth the evolution of organizational forms and strategies. The cases highlight the co-evolution of technology, the marketing of organizational units, product-line scope, firm boundaries, and dynamic capabilities and were developed with the funding and cooperation of the Microsoft Corporation.
Both studies are linked to evolutionary theory, technology change, and organizational theory literatures. Both are preceded by a technical analysis of software product-technology and its evolution. Together, these complementary projects will produce more complete prescriptions for managers and researchers and make strong contributions to theory on the management of innovation.
The symposium, hosted by Wake Forest, brought together students, faculty, and researchers from Wake Forest University, Winston-Salem State University, Salem College, Forsyth Technical Community College, the University of North Carolina at Greensboro, and North Carolina Agricultural and Technical State University to discuss ways to implement and fund basic research in an applied environment, driven by commercial interests as well as the ethical implications of doing so. Speakers included Steve Burrill, CEO, Burrill and Company; Arthur Caplan, Director, Center for Bioethics, University of Pennsylvania; and Cliff Leaf, Executive Editor, Fortune.
G. Page West
Ya-wen Yang (see Andrea Kelton, above)
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