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Full-Text Articles in Business
Active Independent Directors And Earnings Quality, Yuanto Kusnadi, Bin Srinidhi
Active Independent Directors And Earnings Quality, Yuanto Kusnadi, Bin Srinidhi
Research Collection School Of Accountancy
We examine the relationship between active independent directors and earnings quality for U.S. firms. We construct measures that proxy for activeness of independent directors and find that the proportion of active independent directors is under half on average. Our finding shows that earnings quality increases with the percentage of active independent directors on the board. Once the active independent directors are separated out, the other independent directors do not have any effect on earnings quality. This finding supports the hypothesis that the activeness of independent directors is incrementally significant over just the proportion of independent directors for the quality of …
Are Disclosed Auditor Materiality Thresholds Informative Of Firms’ Earnings Quality? – Evidence From The Revised Isa 700 Audit Report, Beng Wee Goh, Kiat Bee Jimmy Lee, Na Li, Dan Li
Are Disclosed Auditor Materiality Thresholds Informative Of Firms’ Earnings Quality? – Evidence From The Revised Isa 700 Audit Report, Beng Wee Goh, Kiat Bee Jimmy Lee, Na Li, Dan Li
Research Collection School Of Accountancy
Under the Financial ReportingCouncil’s presumption that mandating new disclosure requirement in the auditreport would provide information useful to investors, we examine whether theauditor disclosed materiality threshold is associated with the firm’s earningsquality. We document that a lower threshold of materiality level is associatedwith a higher earnings quality, as measured by lower discretionary accruals,higher accruals quality, and less earnings smoothing. We also find someevidence that the negative association between auditor disclosed materialitythreshold and earnings quality is more pronounced when the auditor is moreindependent, when management’s incentive to manage earnings is higher, and whenthere is lower information uncertainty. Overall, our results are …
The Impact Of Related Party Sales By Listed Chinese Firms On Earnings Informativeness And Analysts Forecasts, Jiwei Wang, Hongqi Yuan
The Impact Of Related Party Sales By Listed Chinese Firms On Earnings Informativeness And Analysts Forecasts, Jiwei Wang, Hongqi Yuan
Research Collection School Of Accountancy
Using a random sample of 140 of China's listed firms, we show an adverse impact of related party (RP) sales of goods and services on the usefulness of accounting earnings to investors and on the quality of earnings forecasts by financial analysts. Consistent with the contention that RP sales may violate the arm's-length assumption of regular transactions and consequently impair the representational faithfulness and verifiability of accounting data, we find that earnings of firms engaged in RP sales are at least 33% less informative after controlling for factors known to affect earnings informativeness. We also find that financial analysts are …
Does Earnings Quality Affect Information Asymmetry? Evidence From Trading Costs, Nilabhra Bhattacharya, Hemang Desai, Kumar Venkataraman
Does Earnings Quality Affect Information Asymmetry? Evidence From Trading Costs, Nilabhra Bhattacharya, Hemang Desai, Kumar Venkataraman
Research Collection School Of Accountancy
Information asymmetry in financial markets relates to the idea that one party to a transaction has better information than the other. Since financial reporting involves the transmission of value-relevant enterprise information, we investigate whether the quality of reported earnings can contribute to differentially informed financial market participants. Higher information asymmetry is costly as it increases the adverse selection risk for market participants and lowers liquidity. For a large sample of NYSE and NASDAQ firms, we show that (i) poor earnings quality is significantly and incrementally associated with higher information asymmetry, (ii) earnings quality disproportionately affects information asymmetry for firms with …
Direct And Mediated Associations Among Earnings Quality, Information Asymmetry And The Cost Of Equity, Nilabhra Bhattacharya, Frank Ecker, Per Olsson, Katherine Schipper
Direct And Mediated Associations Among Earnings Quality, Information Asymmetry And The Cost Of Equity, Nilabhra Bhattacharya, Frank Ecker, Per Olsson, Katherine Schipper
Research Collection School Of Accountancy
Using path analysis, we investigate the direct and indirect links between three measures of earnings quality and the cost of equity. Our investigation is motivated by analytical models that specify both a direct link and an indirect link that is mediated by information asymmetry, but do not suggest which link would be more important empirically. We measure information asymmetry as both the adverse selection component of the bid-ask spread and the probability of informed trading (PIN). For a large sample of Value Line firms during 1993–2005, we find statistically reliable evidence of both a direct path from earnings quality to …
The Effect Of Information Quality On Liquidity Risk, Jeffrey Ng
The Effect Of Information Quality On Liquidity Risk, Jeffrey Ng
Research Collection School Of Accountancy
I investigate whether information quality affects the cost of equity capital through liquidity risk. Liquidity risk is the sensitivity of stock returns to unexpected changes in market liquidity; recent asset pricing literature has emphasized the importance of this systematic risk. I find that higher information quality is associated with lower liquidity risk and that the reduction in cost of capital due to this association is economically significant. I also find that the negative association between information quality and liquidity risk is stronger in times of large shocks to market liquidity.
Effects Of National Culture On Earnings Quality Of Banks, Chee Yeow Lim, Kanagaretnam Kiridaran, Gerald J. Lobo
Effects Of National Culture On Earnings Quality Of Banks, Chee Yeow Lim, Kanagaretnam Kiridaran, Gerald J. Lobo
Research Collection School Of Accountancy
We examine the relation between four dimensions of national culture and earnings quality of banks using a sample of banks from 39 countries. Our main analysis, which focuses on the pre-financial crisis period 1993–2006, indicates that banks in high individualism, high masculinity, and low uncertainty avoidance societies manage earnings to just-meet-or-beat the prior year's earnings. In tests of income smoothing through loan loss provisions, we find that banks in high individualism, high power distance, and low uncertainty avoidance societies report smoother earnings. Our exploratory analysis of the effects of national culture on accounting outcomes during the financial crisis period 2007–2008 …
Legal Systems And Earnings Quality: The Role Of Auditor Industry Specialization, Chee Yeow Lim, Soo Young Kwon, Patricia Mui Siang Tan
Legal Systems And Earnings Quality: The Role Of Auditor Industry Specialization, Chee Yeow Lim, Soo Young Kwon, Patricia Mui Siang Tan
Research Collection School Of Accountancy
This paper extends prior studies in auditor industry specialization to an international setting and examines if the impact of industry specialist auditors on earnings quality is dependent on the legal environments. Using data for 28 countries over 20 industries from 1993 to 2003, we find that clients of industry specialist auditors have lower discretionary current accruals and higher earnings response coefficients than clients of nonspecialist auditors. In addition, we find that the impact of auditor industry specialization on earnings quality increases as the legal environment weakens. Collectively, the results suggest that the benefits from engaging the services of industry specialist …