In recent years, many companies across the globe have made significant amount of administrative reforms. Various big companies are enhancing their social responsibility credentials by producing substantial environmental, social and sustainability reports. In fact, such practices contribute to the on-going debate on the role of business as social institutions, particularly against the model championed by the economists. Recent incidents of the frequent corporate delinquencies vis-à-vis professional failures across the globe—from Enron to Satyam, or from Arthur Anderson to PWC’s role in Satyam-Maytas episodes—seek for a sort of fundamental and philosophical change within the corporate structure which can hardly be overruled. Moreover, these accounting shenanigans reveal that mainstream accounting has not at all been concerned towards the large number of stakeholders associated with the entity. They are interested only in ‘profits’, which is also recognized as a unique measure of an enterprise’s accomplishment over its efforts.

The paper, “Accounting and Accountability: A Stakeholder-Agent Perspective”, by Amit K Mallik and Susanta Mitra, makes an effort to understand two contrary frameworks of accounting investigation—one, the traditional agency view; and the other, the newly emerged stakeholders’ view. While the former’s objective function is to maximize shareholders’ wealth, subject to the constraint of managerial egoism and a petty recognition of other corporate actors, the later framework aims at satisfying a broad range of stakeholders, including shareholders and their agent-managers, in terms of a contribution-inducement exchange relationship. A methodical scrutiny of the two contrary frameworks in the light of their commonalities and divergences is carried out in the paper, along with an attempt to confirm the growing perception of converging the two by counting on the agency approach into a broader stakeholder model.

Further, the paper titled, “Insights on Shareholder Value Addition from India’s Wealth Club: A Study of Selected Companies”, by Mandeep Kaur and Sweety Narang, emphasizes the creation of value for shareholders before thinking about managing the same. For creating wealth, companies need to earn economic returns, for which they need to assist investors in wealth discovering and company choosing policies. Economic Value Added (EVA) a financial measure that helps investors achieve these desired returns. This paper makes an attempt at explaining the application of EVA principles for the evaluation of companies and industries.

It highlights and explains all the elements that find place in EVA computations like calculations of Return on Invested Capital (ROIC), Weighted Average Cost of Capital (WACC), cost of debt, cost of equity as per Capital Asset Pricing Model (CAPM), cost of preference capital, and finally of EVA.

In fact, measure of EVA has been widely used across the globe by many researchers and studies have been published to examine the variety of issues related to EVA. The paper, “Shareholder Value Creation in the Indian Banking Industry: An EVA Analysis”, by G Soral and Shurveer S Bhanawat, is an attempt to further the research on EVA in the banking sector. The study evaluates 14 public sector and 12 private sector banks listed in the Bombay Stock Exchange (BSE) using EVA, for a period of four years (2003-2004 to 2006-2007). The study measures shareholder value in terms of EVA of Indian nationalized and private sector banks, and correlates between EVA with Operating Profits (OP), Net Operating Profit After Tax (NOPAT), Earnings Per Share (EPS) and stock price, in order to evaluate which one is a better measure. The study reveals positive EVA by the Indian banking industry, both by public and private sector banks, and concludes that the performance of the Indian banking industry is satisfactory. Further, the study observes that the value creation for the shareholders is not reflecting on the stock prices of the banks as the disclosure of EVA may be inadequate.

Information asymmetry is the key issue to be addressed for making markets and price discovery efficient. To address this issue, corporates are turning towards Internet reporting and new methods. An outbreak of corporate scandals has been demanding more accuracy, transparency, and timely financial reporting. Of the many initiatives taken up by the regulators and the corporates, a very vital element has been the adoption of Web-based reporting as a financial reporting tool. It is a medium that offers numerous benefits for distributing business information to stakeholders over traditional means of reporting. The paper, “Perceived Usefulness of Corporate Disclosure Through the Web: An Empirical Study”, by Subash Chander and Manjinder Singh, analyzes the perceived usefulness of Web-based corporate disclosure through a survey of retail investors taken from selected cities of Punjab and Chandigarh (union territory). The study identifies factors such as improvement in quality of information, better decision making, increased usefulness of information, better evaluation, and enhanced competition for influencing companies to adopt Web-based financial reporting.

External auditors express their opinions on the trueness and fairness of the presented financial statements. The paper, “The Effects of Auditor Gender on Audit Quality”, by Diane Breesch and Joel Branson, seeks to gauge the potential effects of gender on audit content and audit report, with respect to severity of opinion. The study, focusing on 20 female and 20 male future auditors, observes that while female auditors discover more potential misstatements than male auditors, they analyze the misstatements in a less accurate manner than their male counterparts. The study also finds that female auditors are more risk-averse than male auditors.

The paper, “Selection of Industrial Investment of a Province in Iran”, by Younos Vakil Alroaia and Hamid Gharzi, brings the issue of ranking of industrial investment in the Khorasan-e-Razavi province of Iran. The study emphasizes the designing of industries and the importance of selection of those industries that will have sufficient success potential. Of the several factors of success, four indices have been selected—export rate, productivity, employment, and capital. These indices have been considered as important criteria for evaluating the alternatives (selection of industry) for a period of five years. The study proposes a question multi-criteria approach for selecting the best alternatives of industrial investment and finds that investment in food and beverage industries is of higher importance in the province under study.

-- Vunyale Narender
Consulting Editor