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The DuPont analysis is one of the most commonly used financial analysis tools for traditional businesses. It disaggregates return on equity (ROE) into profit margin (PM), asset turnover (ATO), and leverage (LEV) thereby providing value-relevant information relative to aggregated profitability. In this paper, I extend the use of the DuPont model to the professional service industry. The professional service industry has recently become one of the fastest growing segments driving the U.S. economy (USITC 2009, U.S. Census Bureau of Economic Analysis 2009). Unlike traditional businesses whose key business assets are their physical assets, professional service firms rely on human capital assets that are not recognized in the balance sheet. I introduce a profitability ratio analysis model that focuses on human capital. I validate the model by examining whether the disaggregated profitability ratios for professional service firms add relevant information over aggregated ratio in the same way as they do for traditional businesses. I use law firms as a representative segment of the professional service sector to empirically evaluate my model. I collect financial and human resource data for 81 of the 100 largest U.S. law firms from 2000 to 2007 then disaggregate profit per equity partner (PPP) into the three profitability ratios: profit margin (PM), revenue per lawyer (RPL), and leverage (LEV). I compare the absolute forecasting error (AFE) of the simple AR (1) model that uses only the current year profit per equity partner (PPP) to forecast one-year ahead profit per equity partner (PPP) and my model that uses the three profitability ratio model (PM, RPL, and LEV) of current year to forecast one-year ahead profit per equity partner (PPP). I find that using the disaggregated profitability ratios significantly improves forecasting of future profitability relative to using only profit per equity partner (PPP), analogous to similar results documented for the DuPont model in Fairfield and Yohn (2001) and Soliman (2004). I examine which firm characteristics are associated with the profitability ratios. I include four firm characteristics variables (STRUCTURE, SCOPE-INTL, SCOPE-RGNL, and SCALE) that are commonly used in economic analysis of industrial organizations. I find that the profitability ratios are systematically associated with firm characteristics that reveal information on the business models of individual firms. Leverage (LEV) is higher in law firms with non-equity partners (STRUCTURE), international focus (SCOPE-INTL), regional focus (SCOPE-RGNL), or large size (SCALE). Law firms that are large sized (SCALE) or regional focused (SCOPE-RGNL) command premium fee (high RPL) on average, but law firms with international focus or with non-equity partners do not. / Business Administration/Accounting

The study of earnings management requires a solid understanding on the stochastic properties of accounting accruals. Although the literature has explored in great depth on the mean properties of accounting accruals, few researchers have paid attention to the variance properties. The purpose of this thesis is to study how the variance of accounting accruals differs across firms and across time, what firm characteristics and attributes of disclosure environment affect the accrual variability, what implications the variance study has for the growing literature on earnings management, and how the variance approach can be applied to address the issue of intra-year timing of earnings management, and more generally, the issue of the pervasiveness of earnings management Building upon the Jones (1991) Model framework, this thesis provides a more complete picture on the stochastic properties of accounting accruals and broadens the scope of earnings management issues in academic studies. In this generalized framework, the conditional mean of accounting accruals is determined by the economic circumstances and the accounting requirements of GAAP, while the conditional variance is determined by the structural characteristics of the firms and the disclosure environment of the market as well as the manager's opportunistic behavior The first part of the thesis provides the foundation of the variance study by examining if there is any differing variability of discretionary accruals and what economic factors are associated with the variability. Based on the broad database of Compustat, significant heteroscedasticity of discretionary accruals is found. In particular, the variability of discretionary accruals is decreasing in firm size and leverage measured by long-term debt/assets. It increases with the variability of cash flows and leverage measured by total debt/assets. Significant industry differences and interesting temporal patterns are identified The second part of the thesis applies the variance approach to examine the intra-year timing of earnings management. Discretionary accruals are found to be significantly more volatile in the fourth quarter than in other quarters. Various checks indicate the higher variability is driven more by earnings management than by mechanical year-end closing adjustments. The results provide indirect evidence on the pervasiveness of earnings management / acase@tulane.edu

<p>I examine the relation between a corporate commitment to increased disclosure and measures of liquidity, information asymmetry, and cost of equity capital. Relative to prior research on voluntary disclosure, I use a composite, ex ante measure of commitment based in social psychology and measure commitment using characteristics of earnings announcement disclosures. Prior to Regulation Fair Disclosure (Reg FD) I find that commitment to increased disclosure is negatively related to bid-ask spreads, probability of informed trade (PIN) scores, and implied cost of capital estimates. Further analysis reveals that the disclosure of balance sheet information in earnings releases is significantly related to spreads and PINs, regardless of firms' conference call behavior, while the combination of consistent open calls and disclosure of balance sheet information in earnings releases yields the most significant results for cost of capital. After the effective date of Reg FD I find that commitment is negatively related to PIN scores and implied cost of capital estimates, but not related to bid-ask spreads. Further analysis reveals that the disclosure of balance sheet information in earnings releases is significantly related to PINs and cost of capital, regardless of firms' conference call behavior.</p> / Dissertation

<p>I develop an empirical model that estimates a firm-specific accrual noise ratio (ANR), an operational and statistically grounded measure of accrual reliability, and test the measure's construct validity. The model allows accrual reliability to vary across firms, which is particularly important because many reliability determinants vary in cross-section. Unlike metrics that measure relative perceived reliability, ANR measures accrual reliability independent of the perceptions of investors, creditors or auditors. I find that ANR relates in expected ways with multiple proxies of accounting reliability, that ANR's relation with the proxies of other accounting constructs is consistent with theory, and that ANR's sensitivity to percentage changes of accrual components is consistent with a subjective ordinal ranking of the components' reliability from prior literature.</p> / Dissertation

The never-ending changes in the mineral industry environment require fast reactions on the part of governments in adapting their mining tax policies. The fiscal analysis software developed for this Master of Engineering and commissioned by the Quebec Ministry of Natural Resources provides the provincial authorities with a quick method of assessing the tax burden of a mining project located in Quebec. It also allows comparison of Quebec's tax burden with that of other Canadian mining provinces as well as the analysis of fiscal changes on a mine's profitability. The use of the software is illustrated by analyzing the effect of inflation and price cycles on the tax burden of a hypothetical mining project located in Quebec. The behavior of specific tax provisions with respect to these factors is emphasized. / The report starts with a general review of mineral resource taxation and fiscal instruments available to governments. This is followed by the documentation of mineral taxation in Quebec, Ontario and British Columbia, three important Canadian mining provinces. The general design and programming of tax analysis software is then described and discussed. The thesis concludes with an analysis of two major economic factors that impact on the tax burden of a mining project, inflation and commodity price cycles.

Doctor of Philosophy / Department of Hotel, Restaurant, Institution Management and Dietetics / SooCheong Jang / Deborah D. Canter / In the last few decades, franchising has become a part of everyday life in the United States. Many firms in a variety of industries have adopted franchising as a method of doing business. Despite the importance of franchising, the literature on why firms initially choose to franchise and how franchising affects financial performance has been scant (Combs et al., 2004; Watson et al., 2005). The purposes of this study were 1) to examine how well agency theory, resource scarcity theory, risk-sharing theory, and specific knowledge theory justify the franchising decision, 2) to investigate whether franchising affects restaurant firms' market value and profitability, and 3) to investigate the relationship between the ownership mix, combination of franchised and company-owned outlets, and financial performance. For the statistical analysis, the data were collected from the Standard and Poor's COMPUSTAT database, Bond's Franchise Guide and 10 K reports. A logistic regression model was developed to identify a set of variables that best differentiated firms engaged in franchise contracts from those that were not. The statistical results indicated that: 1) Young and growing firms used franchise more to increase the flow of resources. This result supported resource scarcity theory. 2) The degree of geographic dispersion and involvement in foreign countries increased the probability of a firm's decision to franchise. These results supported agency theory. 3) The decrease of specific knowledge requirements increased the franchising probability. This result supported specific knowledge theory. T-tests and multivariate regression models were used to test how franchising affects firms' financial performance. The findings indicated that 1) franchised firms had better financial performance than non-franchised firms, 2) the relationship between ownership mix and financial performance was curvilinear and the inverted U-shaped relationship suggested the existence of optimal ownership mix that can maximize a firm's financial performance, and 3) ownership mix not only directly affected a firm's intangible assets, but also indirectly affected a firm's intangible assets through advertising. This study found that a purely company owned or a purely franchised chain did not produce the best financial performance. Restaurant companies could use both company-owned and franchised units to leverage the strengths of one another, which will yield a better overall financial performance than if either structure was to operate alone.

Enterprise Risk Management (ERM) is a program that manages all firm risks in an integrated framework to control and coordinate offsetting risks. In this study, I provide the first archival evidence on how ERM affects firms' day-to-day, routine operations. Using hand-collected ERM adoption data and inventory information, I examine whether firms with an ERM program experience an improvement in their inventory management. My findings suggest that ERM adoption is associated with greater inventory turnover ratios and lower inventory impairments. These results are robust to a range of models in addressing endogeneity concerns. Additionally, I find that ERM's effect on inventory management is stronger among firms with greater financial distress, with less investments in innovation, or with higher information asymmetries, and when firms' ERM program grows more mature. My study documents ERM's real economic benefits to firms' operations and highlights how ERM contributes to operating performance.

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The purpose of my dissertation is to examine whether competition among audit partners affects audit quality. While prior research on audit market competition focuses on audit firm-level or office-level analyses, I argue that audit partners, as the primary decision makers in providing audit services, are likely to engage in competitive actions in the audit market. Further, I use spatial distance among audit partners to measure partner-level competition. I conjecture that spatial distance could better reflect the dynamics of audit market competition than the Herfindahl index, the traditional proxy for competition used in most extant studies. Drawing on the spatial economics theory and the social comparison theory, I hypothesize a negative association between competition measured by spatial distance and the quality level delivered by the incumbent audit partner. Using newly available data of U.S. audit partners, this study provides evidence that audit quality is higher (lower) when the spatial distance between the incumbent partner and the closest competing partner is larger (smaller). In addition, the results reveal that the effects of competition measured by spatial distance on audit quality is mainly a partner-level phenomenon rather than an office-level one. Overall, this study highlights the importance of studying competitive dynamics among audit partners.