One of the more surprising things I have learned from my experience as Senior Editor of The Accounting Review is just how often a “hot topic” generates multiple submissions that pursue similar research objectives. Though one might view such situations as enhancing the credibility of research findings through the independent efforts of multiple research teams, they often result in unfavorable reactions from reviewers who question the incremental contribution of a subsequent study that does not materially advance the findings already documented in a previous study, even if the two (or more) efforts were initiated independently and pursued more or less concurrently. I understand the reason for a high incremental contribution standard in a top-tier journal that faces capacity constraints and deals with about 500 new submissions per year. Nevertheless, I must admit that I sometimes feel bad writing a rejection letter on a good study, just because some other research team beat the authors to press with similar conclusions documented a few months earlier. Research, it seems, operates in a highly competitive arena.
Fortunately, from time to time, we receive related but still distinct submissions that, in combination, capture synergies (and reviewer support) by viewing a broad research question from different perspectives. The two articles comprising this issue's forum are a classic case in point. Though both studies reach the same basic conclusion that material weaknesses in internal controls over financial reporting result in negative repercussions for the cost of debt financing, Dhaliwal et al. (2011) do so by examining the public market for corporate debt instruments, whereas Kim et al. (2011) examine private debt contracting with financial institutions. These different perspectives enable the two research teams to pursue different secondary analyses, such as Dhaliwal et al.'s examination of the sensitivity of the reported findings to bank monitoring and Kim et al.'s examination of debt covenants.
Both studies also overlap with yet a third recent effort in this arena, recently published in the Journal of Accounting Research by Costello and Wittenberg-Moerman (2011). Although the overall “punch line” is similar in all three studies (material internal control weaknesses result in a higher cost of debt), I am intrigued by a “mini-debate” of sorts on the different conclusions reached by Costello and Wittenberg-Moerman (2011) and by Kim et al. (2011) for the effect of material weaknesses on debt covenants. Specifically, Costello and Wittenberg-Moerman (2011, 116) find that “serious, fraud-related weaknesses result in a significant decrease in financial covenants,” presumably because banks substitute more direct protections in such instances, whereas Kim et al. (2011) assert from their cross-sectional design that company-level material weaknesses are associated with more financial covenants in debt contracting.
In reconciling these conflicting findings, Costello and Wittenberg-Moerman (2011, 116) attribute the Kim et al. (2011) result to underlying “differences in more fundamental firm characteristics, such as riskiness and information opacity,” given that, cross-sectionally, material weakness firms have a greater number of financial covenants than do non-material weakness firms even before the disclosure of the material weakness in internal controls. Kim et al. (2011) counter that they control for risk and opacity characteristics, and that advance leakage of internal control problems could still result in a debt covenant effect due to internal controls rather than underlying firm characteristics. Kim et al. (2011) also report from a supplemental change analysis that, comparing the pre- and post-SOX 404 periods, the number of debt covenants falls for companies both with and without material weaknesses in internal controls, raising the question of whether the Costello and Wittenberg-Moerman (2011) finding reflects a reaction to the disclosures or simply a more general trend of a declining number of debt covenants affecting all firms around that time period. I urge readers to take a look at both articles, along with Dhaliwal et al. (2011), and draw their own conclusions. Indeed, I believe that these sorts of debates are healthy for the discipline. A little tension and disagreement helps us to advance.
We do not often get a chance to publish concurrent related studies, but I agree with the reviewers of both Dhaliwal et al. (2011) and Kim et al. (2011) that these studies (and I would include Costello and Wittenberg-Moerman  in the set as well) capture useful synergies that justify the publication of all three in top-tier journals. I trust that our readers will share the same reaction.