Date of this Version

1-1-2008

Document Type

Journal Article

Publication Details

Submitted Version.

Kent, P., Monem, R., & Cuffe, G. (2008). Droughts and big baths of Australian agricultural firms. Pacific Accounting Review, 20(3), 215-233.

Access the publisher

2008 HERDC submission. FoR Code: 1501

© Copyright Emerald Group Publishing Limited, 2008

Abstract

Purpose – The purpose of this paper is to examine whether Australian agricultural firms display big bath behaviour during droughts by recognising extraordinary and abnormal losses. It is hypothesised that Australian agricultural firms are more likely to report big bath losses in drought years than in non-drought years and, in a given drought year, agricultural firms are more likely to report big bath losses than firms in other industries.

Design/methodology/approach – The authors analyse 405 firm-years data for agricultural firms over 1980-1995. For comparison, they also analyse matched-pair samples of 17 and 30 non-agricultural firms for the drought years of 1983 and 1995, and matched-pair samples of 19 non-agricultural firms for the non-drought years of 1986 and 1990, respectively. Both univariate and multivariate analyses are used to test the hypotheses.

Findings – It is found that agricultural firms are more likely to take big baths in drought years than in non-drought years. Further, in a given drought year, agricultural firms are more likely to take big baths than non-agricultural firms. Further analyses of sales, profitability, and extraordinary and abnormal items support the idea that big baths reflect managerial opportunism rather than the economic consequences of droughts.

Originality/value – Previous studies have not investigated the impact of natural calamities like flood and drought on accounting choices. This paper makes an original contribution to the accounting literature by documenting evidence on the extent to which an act of nature, over which management has little or no control, can influence accounting choices.

Included in

Accounting Commons

Share

COinS
 

This document has been peer reviewed.

 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.