Yaowen Shan is an Associate Professor in the Discipline of Accounting at the University of Technology, Sydney. His research focuses on the intersection of accounting and financial economics. In particularly, he examines the role of accounting and non-accounting information in capital markets and corporate governance, accounting choices and earnings manipulations, and executive compensations. His work has been accepted for publication at Review of Accounting Studies, Contemporary Accounting Research, Abacus, Accounting and Finance, Pacific-Basin Finance Journal, Australian Journal of Management, Journal of Contemporary Accounting and Economics, and Australian Accounting Review. Yaowen has won two Best Paper Awards at leading international accounting and finance conferences and several competitive research grants such as CIFR and AFAANZ research grants.
Can supervise: YES
Capital market research; accounting choice and earnings quality; corporate governance.
Introductory accounting; Corporate Accounting.
Coulton, J, Ribeiro, A, Shan, Y & Taylor, S 2016, The RISE and RISE of NON-GAAP DISCLOSURE A Survey of Australian Practice and Its Implications.
Le, CHA, Shan, Y & Taylor, S 2020, 'Executive Compensation and Financial Performance Measures: Evidence from Significant Financial Institutions', AUSTRALIAN ACCOUNTING REVIEW.View/Download from: Publisher's site
© 2019 Accounting and Finance Association of Australia and New Zealand This paper investigates the role of the probability of informed trading (PIN) in mergers and acquisitions (M&A). We show that acquirers with higher PINs use more cash to finance their deals due to their higher cost of equity, and acquirers use more equity financing when acquiring targets with higher PINs to share the information risk with the target shareholders. We also find that acquirers and targets with higher PINs both experience higher announcement returns when cash financing is used, indicating that PINs are priced in the M&A market.
© 2020 Elsevier B.V. This study compares changes in corporate effective tax rates (ETR) between firms in Japan and the United States. Using a sample of U.S. firms from 1988 to 2016, the declining trend in corporate cash and Generally Accepted Accounting Principles (GAAP) ETR measures is initially confirmed. However, different from the results of cash ETR documented in Dyreng et al. (2017), GAAP ETR declines more rapidly for large U.S. multinational firms than for purely domestic firms, suggesting that multinational firms have better opportunities to implement cross-border tax-saving strategies. For Japanese firms, after controlling for the decrease in the statutory tax rate, there is no obvious time trend in GAAP ETR for multinational firms, but small and medium domestic firms experience a significant decline in ETR. Similar to Dyreng et al., we do not find any evidence that the time-series trend in ETR can be explained by firm characteristics of Japanese or U.S. firms.
© 2019 Accounting and Finance Association of Australia and New Zealand This study examines the factors affecting the issuance, accuracy and usefulness of analysts' cash flow forecasts (CFFs) in Australia. Given the economic importance of the mining industry in Australia, we find that analysts are likely to provide CFFs for mining firms with poor financial health and high default risk. In contrast, analysts' provision of CFFs increases with the degree of financial health for non-mining firms. The determinants of the issuance and accuracy of analysts' CFFs also differ in pre- and post-IFRS adoption periods. Our results add new evidence on the effect of IFRS adoption on analysts' cash flow forecasting behaviours.
Financial statement comparability enables weighing the similarities and differences in financial performance between firms. Prior studies mainly focus on the role of accounting standards in the production of comparability, but the role of economic agents has been largely overlooked. We find that a firm's audit committee size and financial expertise affect its financial statement comparability. Financial information tends to be more comparable among industry peers when audit committees are larger and more members have financial and accounting expertise. The effect of audit committee expertise on comparability is stronger for firms with less independent and smaller boards, for firms with non‐Big 4 auditors and for firms with CEOs serving as the chairperson of the boards.
© 2020 Elsevier B.V. We examine the inducement effect of labor cost on corporate innovation in emerging markets. To establish causality, we adopt a difference-in-differences approach, based on the variations generated by the passage of the new Labor Contract Law in China, as well as an instrumental variable approach. We find the inducement effect of labor cost is more pronounced for Chinese non-state-owned enterprises, firms without political connections, and firms with low labor productivity. Our results support the induced innovation hypothesis in that increases in wages will induce invention and technology adoption, but also suggest that government intervention through state ownership and political connections largely decreases this inducement effect. Our findings have implications for emerging markets regarding the transition from a low-cost labor development model to an innovation-driven growth model.
© 2018 AFAANZ. Operating cash flow (CFO) asymmetric timeliness occurs when CFO reflects bad news more quickly than good news. We examine the presence and determinants of CFO asymmetric timeliness in Australia, where substantial differences in reporting requirements of cash flow components, in characteristics of listed companies and in the degree of conservative financial reporting produce contrasting findings to those in the United States. We find supportive evidence for the novel 'sticky cost behaviour' explanation and also the product-pricing strategy, but not the life cycle hypothesis. These findings are useful for investors and analysts concerned with forecasting the future values of companies. Accounting and Finance
© 2019 Accounting Foundation, The University of Sydney Using a large sample of earnings press releases by Australian firms, we compare multiple attributes of non-GAAP earnings measures with their closest GAAP equivalent. We find that, on average, non-GAAP earnings are more persistent, smoother, more value relevant, and have higher predictive power than their closest GAAP equivalent. However, the same set of non-GAAP earnings disclosures are also less conservative and less timely than their closest GAAP equivalent. The results are consistent with non-GAAP earnings measures reflecting a reversal of the trade-off between the valuation and stewardship roles of accounting inherent in accounting standards and the way they are applied. We also find that differences in several of these attributes between GAAP and non-GAAP earnings are more evident in larger firms, firms with lower market-to-book ratios, firms with a higher proportion of independent directors, and firms that report profits rather than losses. Our evidence is consistent with the argument that accounting standards impose significant amounts of conditional conservatism at some cost to the valuation role of accounting information. Non-GAAP earnings measures can therefore be seen as a response to the challenges faced by a single GAAP performance measure in satisfying the competing demands of value relevance and stewardship.
This study investigates the time‐series trend and determinants of matching between revenues and expenses in a sample of 42 countries. We find that the decline in matching documented by Dichev and Tang () is not unique to the United States, but is a worldwide phenomenon. Our results show that matching is weaker in countries with (i) wider use of accrual accounting; (ii) a larger proportion of firms reporting significant special items; (iii) slower economic growth; (iv) more research and development activities; (v) larger service sectors; and (vi) stronger investor protection. We find no evidence that mandatory adoption of International Financial Reporting Standards affects matching. Changes in accounting and economic factors collectively explain the downward trend in matching. Overall, the results suggest that both accounting and economic factors are important determinants of matching over time and across countries.
Jiang, W, Lu, M, Shan, Y & Zhu, T 2016, 'Evidence of Avoiding Working Capital Deficits in Australia', Australian Accounting Review, vol. 26, no. 1, pp. 107-118.
Shan, Y & Walter, T 2016, 'Towards a Set of Design Principles for Executive Compensation Contracts', Abacus: a journal of accounting, finance and business studies, vol. 52, no. 4, pp. 619-684.
Jin, K, Shan, Y & Taylor, S 2015, 'Matching between revenues and expenses and the adoption of International Financial Reporting Standards', Pacific-Basin Finance Journal, vol. 35, no. Part A, pp. 90-107.View/Download from: Publisher's site
We examine changes in the matching between contemporaneous revenues and expenses in Australian financial reporting. Matching is fundamental to the economic demand for accrual accounting in preference to simple cash measures. Our results indicate that the revenue–expense relation has declined in Australia during 2001–2005, but improved following implementation of International Financial Reporting Standards (IFRS). The improvement is largely attributable to increases in the association of operating expenses and "other" expenses with contemporaneous revenues. These results are in sharp contrast to documented declines in matching among US firms, and also highlight a positive outcome associated with Australian firms' mandatory adoption of IFRS.
© 2015 CPA Australia Ltd (CPA Australia). This study presents empirical evidence on cost stickiness using a large sample of Australian listed firms from 1990-2010. We find cost behaviour in Australian firms is sticky on average, with a lower degree of stickiness than in United States firms. Costs increase by 0.885% with a 1% increase in sales revenues, but decrease by only 0.797% for a 1% decrease in sales. The degree of cost stickiness demonstrates a 'U' shape over the period and increases after the adoption of International Financial Reporting Standards. Sticky cost behaviour, however, is not evidenced in the resources, construction and retail industries. We document evidence consistent with the argument of adjustment costs of employed resources, managerial incentives and agency costs. The degree of cost stickiness in Australia increases with a firm's asset and employee intensity, and when managers have strong incentives to avoid decreases in earnings or losses, but is less pronounced when revenues decline in the preceding period and in firms with strong governance mechanisms. Our results provide important implications for external stakeholders' understanding of firm performance.
Zhu, T, Lu, M, Shan, Y & Zhang, Y 2015, 'Accrual-based and real activity earnings management at the back door: Evidence from Chinese reverse mergers', Pacific Basin Finance Journal, vol. 35, pp. 317-339.View/Download from: Publisher's site
© 2015 Elsevier B.V.. We examine how Chinese reverse merger (RM) firms trade off and conduct income-increasing earnings management through accrual-based and real activities manipulation strategies. We find that Chinese RM firms engage in both real activities and accrual-based manipulation at higher levels than non-Chinese RM firms, regular US firms and other Chinese US-listed firms. Further analysis suggests that Chinese RM firms use real activities and accrual-based manipulation as substitutes and tend to transition to real activities management in the years after a reverse takeover. Big 4 auditors can effectively constrain both real activities and accrual-based earnings management in Chinese RM firms. We also find that accruals manipulation is more costly relative to real activities management in the short term because it predicts changes in post-acquisition operating performance in Chinese RM firms. Overall, the results provide practical implications to regulators, investors and auditors on the channels through which Chinese RM firms manipulate earnings and the economic consequence of those manipulations.
Shan, Y, Taylor, S & Walter, T 2014, 'The role of "other information" in analysts' forecasts in understanding stock return volatility', Review of Accounting Studies, vol. 19, no. 4, pp. 1346-1392.View/Download from: Publisher's site
This study identifies "other information" in analysts' forecasts as a legitimate proxy for future cash flows and examines its incremental role in explaining stock return volatility. We suggest that "other information" contains information about fundamentals beyond that reflected in current financial statements and reflects firms' fundamentals on a more timely basis than dividends or earnings. Using standardized regressions, we find volatility increases when current "other information" is more uncertain and increases more in response to unfavorable news compared to favorable news. Variance decomposition analysis shows that the variance contribution of "other information" dominates that of expected-return news. The incremental role of "other information" is at least half of the effect of earnings in explaining future volatility. The results are more pronounced for firms with poor information environments. Overall, our results highlight the importance of including "other information" as an additional cash-flow proxy in future studies of stock prices and volatility. © 2014 Springer Science+Business Media New York.
Lai, C, Li, Y, Shan, Y & Taylor, SL 2013, 'Costs of mandatory international financial reporting standards: Evidence of reduced accrual reliability', Australian Journal of Management, vol. 38, no. 3, pp. 491-521.View/Download from: Publisher's site
This study investigates the impact of mandatory adoption of international financial reporting standards on accrual reliability. Using a large sample of Australian firm-years drawn from before and after the mandatory adoption of international financial reporting standards, we find that accrual reliability declined significantly after mandatory international financial reporting standards implementation. Working capital, non-current operating, and financing accruals all contribute to this decline. We also find that brand name audit firms (i.e. the Big four) are able to significantly attenuate any decrease in accrual reliability during the post international financial reporting standards period. Our results contrast with evidence identifying benefits of mandatory international financial reporting standards, such as increased value relevance, but are consistent with at least some degree of trade-off between relevance and reliability. Such trade-offs seem to have been largely ignored in prior examinations of the impact of mandatory international financial reporting standards.
Shan, Y, Taylor, SL & Walter, TS 2013, 'Fundamentals or managerial discretion? The relationship between accrual variability and future stock return volatility', Abacus, vol. 49, no. 4, pp. 441-475.View/Download from: Publisher's site
This paper extends the theoretical framework of Callen and Segal (2004) and Vuolteenaho (2002) to investigate the association between accrual variability and firm-specific risk. The empirical evidence supports our prediction that increased uncertainty in accounting accruals is associated with significantly higher volatility of future stock returns, and the results are valid for measures of both systematic and idiosyncratic volatility. However, when accrual variability is decomposed into fundamental and discretionary portions, we find that the positive relationship between accrual variability and future stock return volatility is dominated by the fundamental component of accrual variability. Our findings therefore support the conclusion that the market places little weight on information conveyed by that component of accounting accruals that is most likely to reflect accounting choices, implementation decisions and managerial opportunism.
This study examines whether Australian financial reporting became more conservative over the period of 19932009. Unlike the United States and European evidence in Givoly and Hayn (2000) and Grambovas et al. (2006), the Australian evidence is not consistent with the notion that conservatism has increased over time. The degree of conservatism fluctuates without any obvious trend over the 17-year period, especially for the constant sample of firms appearing throughout the period. We also examine the impact of mandatory International Financial Reporting Standards (IFRS) adoption on accounting conservatism in Australia. Our evidence suggests the adoption of IFRS has led to a decrease in conditional conservatism (i.e. asymmetric timeliness).
This study examines the heterogeneity of fiscal year-end choice in Australia. It documents substantial differences in the `popularity of balance sheet dates during 19892010, and an increasing preference of June year-ends in recent years. Eighty-one percent of Australian firms choose June to align with the mandatory tax period, followed by 13% for December and 6% for other months. The paper finds that industry membership plays an important role in the choice of fiscal year-ends, evidenced by a strong non-June effect for manufacturing, retail and financial service companies. Finally, it summarises four popular reasons for Australian firms changing fiscal year-ends, and finds that 26% of those firms did not disclose the change via a separate announcement on the Australian Securities Exchange in a timely manner.
Matolcsy, ZP, Shan, Y & Seethamraju, VC 2012, 'The timing of changes in CEO compensation from cash bonus to equity-based compensation: Determinants and performance consequences', Journal of Contemporary Accounting and Economics, vol. 8, pp. 78-91.View/Download from: Publisher's site
This study examines the determinants and performance consequences of changes in CEO compensation structure. The study uses the unique setting when Australian companies have changed from cash bonus to equity-based compensation. While most US CEOs receive some form of equity-based compensation, Australian CEOs have not always been paid equity-based compensation. According to efficient contracting theories, we argue that the change to equity-based compensation is driven by changes in firm characteristics and by the occurrence of CEO turnover, the latter of which provides a less costly opportunity for such change. Our results are consistent with the above arguments. We also document a significant negative association between changes in compensation structure and subsequent firm performance in the following year, even after controlling for CEO turnover and poor governance environments. Overall, our results suggest that the initial change to equity-based compensation is part of an error learning process made by firms that leads them towards efficient CEO compensation contracts.
Xu, L & Shan, Y 2005, 'The cost of equity of tradable shares: Empirical evidence from China listing companies', Shanghai Management Science, vol. 2005, no. 2, pp. 17-19.
With Fama and French (1999)methods, we estimate the internal rate of return on value and cost for the listed companies in China during period of 1990-2002. We find that on aggregate,the benchmark return provided by the listed companies for the tradable stockholders continues to decline over the sample period. This implies that the effective discount rate which can be observed by managers decline. The going-down hurdle rate is the main reason for the destroy of the tradable shareholders wealth.
Fan, L & Shan, Y 2004, 'Trading volume, ratio a-shares to total shares, momentum effect and three-factor model', Journal of Management Sciences in China, vol. 7, no. 3, pp. 13-22.
With the China stock market data from July 1997 to December 2000, and making use of Fama-French regression and dynamic portfolio approach, obvious effects of trading volume, ratio of A-shares to total shares, size, and book-to-market value ratio etc, are found in China stock market. The effects have close relations, and can't be explained by the market beta value. But if two other factors, size factor and book-to-market value factor are added, the three-factor model of Fama-French can explain all these effects quite well.
Hu, T, Shan, Y & Chen, L 2004, 'Evaluating performance of close-end funds in China', Statistics and Decisions, vol. 180, no. 12, pp. 40-41.
Shan, Y & Xu, J 2004, 'On stock selectivity of Chinese close-end funds', Systems Engineering, vol. 22, no. 5, pp. 66-69.
W e examine the performance of Chinese close-end funds during 2000-2002. Using PPW and GT, two benchmark portfolios and three-factor model, we find CAPM lacks efficiency and its more proper t0 use multifactor models. The funds havent exhibited significant selectivity ability in the whole sample period. But they exhibit superior securities selectivity in a bullish which may attribute to the excess return of policy.
Shan, Y & Xu, J 2003, 'Structural changes in volatility of Chinese stock market: Date, implications and causations', China Journal of Finance, vol. 1, no. 3, pp. 160-191.
Using endogenous breakpoint detection methodology, this paper presents an analysis of the behavior of Chinese stock market volatility. The analysis suggests that volatility has behaved in a different manner over the period 1992-2003. From 1997 to 2003, after the implement of price limits, volatility dynamics in the Chinese stock market has been characterized by a lower level and lower persistence. Except for price limits, this effect may be partly attributable to market structure change, including the evolution of market efficiency and the effect of trading volume, as well as the fundamental changes of market regulation and investor behavior.
Shan, Y, Taylor, SL & Walter, TS 2011, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', Finance and Corporate Governance Conference, La Trobe University, Melbourne, Australia.
Shan, Y, Taylor, SL & Walter, TS 2011, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', JCAE Symposium, Journal of Contemporary Accounting and Economics, Hong Kong.
Taylor, SL, Shan, Y & Walter, TS 2011, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', 34th Annual Congress - European Accounting Association, European Accounting Association, Rome, Italy.
Shan, Y, Taylor, SL & Walter, TS 2010, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', American Accounting Association Conference on Teaching and Learning in Accounting, American Accounting Association (AAA), American Accounting Association, San Francisco, California.
Shan, Y, Taylor, SL & Walter, TS 2010, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', Annual Conference of the Multinational Finance Society, Barcelona, Spain.
Shan, Y, Taylor, SL & Walter, TS 2009, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', 2009 AFAANZ Conference, Accounting and Finance Association of Australia and New Zealand Conference, AFAANZ, Adelaide, Australia, pp. 1-54.
We demonstrate that the articulation among accruals, cash flows and revenues which is typically assumed in tests of earnings management does not hold when large (positive or negative) external financing activities are present. Our study provides evidence that managers normal operating decisions associated with net external financing activities are likely to lead to economically and statistically significant measurement errors in unexpected accruals. This is a serious concern given the frequency with which the partitioning variable used to identify instances of alleged earnings management is correlated with significant movements in net external financing. Simulation tests show that even at modest levels of net external financing changes, rejection frequencies for the null hypothesis of no earnings management rise dramatically
Shan, Y, Taylor, SL & Walter, TS 2009, 'Fundamentals or managerial discretion? The relationship between accrual variability and future stock return volatility', Program American Accounting Association Annual Meeting, American Accounting Association Annual Meeting, American Accounting Association (AAA), New York.