Carroll Schools's Amy Hutton to be Honored by American Accounting Association
CHESTNUT HILL, MA (July 2010) – Before the earnings-manipulation scandals at companies like Enron and WorldCom rocked the financial world, economists often argued that companies employed the optimal corporate governance structure for their particular situation. Still, it wasn’t clear which aspects of corporate governance could combat efforts to “cook the books.” That was until Boston College Carroll School of Management Professor of Accounting Amy Hutton and two fellow researchers poured over hundreds of cases and challenged the conventional thinking on the subject.
Now, 14 years later, Hutton and her two co-authors are being honored for groundbreaking research that sparked an explosion of governance-accounting studies and ushered in an era of sweeping regulatory reforms.
At a ceremony in San Francisco next month, Hutton will receive the American Accounting Association’s inaugural Distinguished Contribution to Accounting Literature Award for the research paper, “Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC.” The paper’s findings demonstrated that firms most frequently manipulate earnings to lower the short-run cost of raising new financing and that weak governance structures encourage such behavior.
Hutton, who is being honored with her former University of Rochester graduate school colleagues Patricia Dechow and Richard Sloan, now professors at the University of California, Berkeley’s Haas School of Business, said it’s gratifying to be recognized for research that took place in the mid 1990s and was published in 1996.
“I’m delighted to get this recognition, particularly for this research, which was fairly controversial when it was written,” said Hutton, who joined the Carroll School of Management faculty four years ago. “Our research challenged the existing paradigms of fully efficient capital markets and optimal corporate governance. This paper was ahead of its time. It was kind of eerie the way it foreshadowed the earnings manipulations we saw in late 1990s early 2000s.”
The study focused on firms facing alleged violations of Generally Accepted Accounting Principles (GAAP) in accounting enforcement actions taken by the SEC. Hutton, Dechow and Sloan combed through cases involving approximately 200 firms and identified links between corporate governance characteristics (such as lack of board independence and excessive managerial power) and accounting manipulations. The paper was published in the journal Contemporary Accounting Research, Vol. 13, No. 2, Spring 1996. The award’s nominating committee wrote that the paper, “documented a fundamentally important linkage – arguably weak corporate governance characteristics are associated with bad accounting outcomes. In other words, when it comes to quality accounting, corporate governance is important.”
The paper has received more than 1,000 citations on Google Scholar. In addition, a slate of regulatory reforms state and federal governments enacted were consistent with the study’s findings. For example, listed companies are now required to have a majority of independent directors on their boards and standing audit committees comprised solely of independent directors.
Founded in 1916, the AAA is a worldwide organization for accounting educators and researchers. In 2010, the AAA created the Distinguished Contribution to Accounting Literature Award to recognize accounting research of exceptional merit that has significantly impacted the discipline over a period of at least 10 years. In awarding the inaugural prize to Hutton and her colleagues, the AAA determined that their research demonstrates a major contribution to accounting education and practices. The prestigious award and a $2500 check will be presented to the three winners at the association’s annual meeting in San Francisco in August.
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