Business Commons^™

Local Institutional Investors And Corporate Monitoring: Evidence From Cross-Listed Korean Stocks In The Us Market, Changhwan Choi, Chune Young Chung, Jun Myung Song

Sim Kee Boon Institute for Financial Economics

Using Korean firms that are cross-listed in the US market, this paper investigates whether there are standalone effects of geographic and market proximity of institutional investors on monitoring performance. We find that Korean institutional ownership is negatively associated with earnings management while the US institutional ownership has no impact on earnings management. This suggests that there is the geographic proximity advantage over the market proximity advantage in the emerging markets. Furthermore, we also show that the impact of geographic proximity is stronger for firms with high informational opacity

The Effect Of Board Size, Board Independence, And The Composition Of Board Independence On Accrual And Real Earnings Management, Rizkia Fitrasari

Jurnal Akuntansi dan Keuangan Indonesia

This paper examines the effect of board size, board independence, and the composition of board independence on mitigating accrual and real earnings management by using a sample from companies listed in the S&P 500 index from 2010 to 2019. The study uses random-effect regression analysis and finds evidence that large board size is an ineffective tool for reducing earnings management. In contrast, larger board independence proves to mitigate earnings manipulation. However, when board size interacts with board independence, the result becomes more positive indicating that board independence strengthens the positive effect of board size on earnings management. It can be …

Conflict Or Alignment? The Role Of Return-Oriented Foreign Shareholders And Domestic Relational Shareholders In Mitigating Earnings Management, Toru Yoshikawa, Ignacio P. Requejo, Asli Colpan, Daisuke Uchida

Research Collection Lee Kong Chian School Of Business

This study investigates the effects of foreign return-oriented shareholders and domestic relational shareholders of Japanese companies on the earnings management behavior of their invested firms when stock option pay is adopted. We theorize that foreign shareholders seek short-term returns and do not engage in close monitoring due to an information disadvantage while domestic shareholders prevent managerial behavior that distorts information disclosure. Our findings show that managers of firms that use stock option pay engage in earnings management to increase their private financial benefits and meet capital markets’ expectations, which allows them to enhance their own reputation. However, this managerial behavior …

Earnings And Capital Management Through Loan Loss Provisions In Indonesian Banks After Ifrs 9 Implementation, Qadri Fidienil Haq

Jurnal Akuntansi dan Keuangan Indonesia

This study aims to examine whether Indonesian banks perform earnings and capital management through loan loss provisions and whether IFRS 9 implementation improves accounting quality by focussing on those practices. The analysis is conducted with a sample of 28 banks in Indonesia selected from the Indonesian Stock Exchange from 2012 – 2021. This study adopts a model modified from previous studies (Ahmed et al. 1999; Anandarajan et al. 2003; Anandarajan et al. 2006; Leventis et al. 2011). Using the model, this study finds that Indonesian banks perform earnings management but do not perform capital management through loan loss provisions. Although …

Audit Adjustments And The Discontinuity In Earnings Distribution Around Zero, Chu Yeong Lim, Themin Suwardy, Tracey Chunqi Zhang

Research Collection School Of Accountancy

Accounting researchers have documented that a discontinuity exists in earnings distribution around zero. However, there is considerable debate among researchers whether the earnings discontinuity around zero is caused by earnings management. We aim to shed light on the earnings discontinuity debate by examining the impact of audit adjustments on the distribution of earnings using a unique dataset from Singapore containing both recorded and waived adjustments. We find that audit adjustments do not reduce the discontinuity of earnings distribution around zero. This affirms that the results of Lennox et. al (2016) based on pre-tax earnings also apply to post-tax earnings and …

Moving Towards Principles-Based Accounting Standards: The Impact Of The New Revenue Standard On The Quality Of Accrual Accounting, He, Huiyu

Dissertations and Theses Collection (Open Access)

The new revenue standard (ASU 2014-09, codified in ASC 606 and ASC 340-40) establishes a comprehensive framework on accounting for contracts with customers and replaces most existing revenue recognition rules. The new guidance removes the inconsistencies and weaknesses of legacy guidance, while is more principles-based and requires more managerial judgements. Using as-reported data from structured filings to construct aggregate accruals that are potentially affected by the new revenue standard (i.e., sales-related accruals), I find that the new revenue standard increases the quality of sales-related accruals, as measured by future cash flow predictability. The increased cash flow predictability comes not only …

The Influence Of Financial Distress, Cash Holdings, And Profitability Toward Earnings Management With Internal Control As A Moderating Variable: The Case Of Listed Companies In Asean Countries, Maya Putri, Eduard Ary Binsar Naibaho

Jurnal Akuntansi dan Keuangan Indonesia

This study aims to define and analyze the relationship between financial distress, cash holding, and profitability and earnings management with internal control as a moderating variable in relation to six major countries in Southeast Asia (Indonesia, Malaysia, Singapore, Thailand, Philippines, and Vietnam). Earnings management is measured by the Jones model of discretionary accruals. Secondary data sources are used, namely companies listed on the S&P Capital IQ, with 480 observations that fit the criteria. Purposive sampling techniques are employed, with a new sample of observational data from the consumer staples sectors in the six countries covering the period 2016-2020. ASEAN was …

The Relationship Between Perceived Fairness In Executive Compensation And Managerial Behavior, Kainan Xiong

Theses and Dissertations (Comprehensive)

This dissertation examines the relationship between the perceived fairness in executive compensation and the level of earnings management on the one hand and the propensity for voluntary turnover on the other. Executive compensation has attracted significant academic attention for more than two decades. The ratcheting-up of executive pay raises questions about its determinants and whether the pay-setting process effectively promotes managerial behavior that aligns with the interests of shareholders. Alternatively, executives may simply extract rents at the expense of shareholders because of the informational advantage that they have and their influence over the board of directors, particularly the compensation committee …

Three Essays On The Impacts Of Tax Planning And Earnings Management On The Informativeness Of Taxable Income, Book Income, And Cash Flows From Operations, Yong Qiang Chen

Theses and Dissertations (Comprehensive)

This dissertation comprises three independent but highly related essays that investigate the effects of tax planning and/or earnings management. The first essay investigates how high tax planning and/or aggressive earnings management affect the relative and incremental value-relevant information of taxable income, book income, and cash flows from operations (CFO). Regarding the effects of tax planning, first, I postulate and show that high tax planning reduces the relative and incremental information of taxable income to CFO. Second, high tax planning increases the relative and incremental information of CFO to the combined information set of taxable income and book income. Third, high …

The Effect Of Ceo Characteristics On Pre-Earnings Management Profitability, Adhitya Agri Putra

Jurnal Akuntansi dan Keuangan Indonesia

This research aims to examine the effect of CEO characteristics on pre-earnings manage­ment profitability. CEO characteristics include gender, tenure, age, education level, founding-family status, and nationality. Pre-earnings management profitability is measured by return on assets minus discretionary accruals. Data analysis uses firm and year fixed-effect regression analysis. The result shows that female CEO, longer tenure CEO, CEO with higher education levels, and foreign CEO increase firms' profitability without engaging in earnings management. On the other hand, there is no effect of CEO age and founding-family status on pre-earnings management profitability. This research contributes to filling the gap of inconsistent previous …

The Effect Of Audit Committees Formation Controls On Reducing Earnings Management Practices: Applied Study On Palestinian Banks Public Shareholding, مجدي وائل الكببجي

Jerash for Research and Studies Journal مجلة جرش للبحوث والدراسات

The study aims to identify the effect of Audit Committees formation controls proxy by (Independence of the Audit Committee, Rights and duties, Experience of Audit, Committee Members, Disclosure of the Audit Committee) on reducing earnings management practices, In addition to investigate the existence of earnings management practices of Palestinian banks Public Shareholding listed in Palestine exchange (PEX). Some boards of companies approach the earnings management practices through the influence of the measurement processes and accounting disclosure that serves their interests, taking advantage of the flexibility in the international accounting standards to choose between the methods and policies of the accounting …

The First Sign: Detecting Future Financial Fraud From The Ipo Prospectus, Lisa Spadaccini Anderson

Graduate Theses and Dissertations

In this study, I examine whether it is possible to predict future financial statement fraud using disclosure content prior to the fraud. Specifically, I employ a machine learning algorithm to construct a unique measure based on the lexical cues embedded within a firm’s first public disclosure, the Management’s Discussion and Analysis section of the S-1 filing, during the Initial Public Offering process. I use this measure to predict whether a firm that is not already committing fraud will commit fraud within five years of the Initial Public Offering (IPO) that results in an Accounting or Enforcement Release (AAER). I find …

The Impact Of Corporate Governance On Earnings Management In Islamic And Conventional Banks, Christina A. Al Hajjar, Ekramy S. Mokhtar, Mohamed M. Mandour

BAU Journal - Society, Culture and Human Behavior

Purpose – This paper aims to examine the association between internal corporate governance and earnings management and to compare earnings management practices in Islamic banks versus conventional banks in the MENA region.

Design/methodology/approach – This paper uses an unbalanced panel data of 20 Islamic banks and 100 conventional banks, from eleven countries in the MENA region over the period 2012-2017. Discretionary accruals are used to measure earnings management by estimating loan loss provision. Regression analysis is used to test the hypotheses.

Findings – The results indicate that Islamic banks provide fewer earnings management practices compared to conventional banks. Besides, the …

Gdp Growth Incentives And Earnings Management: Evidence From China, Xia Chen, Qiang Cheng, Ying Hao, Qiang Liu

Research Collection School Of Accountancy

Using data from China, we examine whether and how the incentive to boost GDP growth at the government level affects earnings management at the firm level. We find that firms in provinces with GDP growth lower than the national level or the average of the adjacent provinces are more likely to engage in earnings management than firms in other provinces. Specifically, they are more likely to inflate revenues, overproduce, and delay asset impairment losses. The aggregate earnings management induced by GDP growth incentives accounts for about 0.5% of GDP. The results are stronger for local state-owned enterprises, in provinces with …

Earnings Management Of Leaders And Laggards, Candice Roche Boucree

LSU Doctoral Dissertations

In this study, I examine whether earnings management varies by a firm’s life-cycle stage relative to its industry life-cycle stage. This relationship, measured as Leaders, Match, or Laggards, concerns strategic groups with different operating strategies. Leaders (Laggards) employ a pioneering (an imperfect imitation) strategy. Overall, I find evidence that Leaders engage in less earnings management than do Match firms. Specifically, Leaders (Laggards) engage in less (more) accruals-based earnings management (AEM) than do Match firms, and Leaders engage in less real-activities earnings management (RAM) than do Match firms. Within firm life-cycle stages, I find additional evidence …

Anti-Corruption Disclosure And Earnings Management: A Case In Indonesian Capital Market, Putri Dwi Aprilia Nur Khasanah, Indra Wijaya Kusuma

Jurnal Akuntansi dan Keuangan Indonesia

This study investigates the relationship between anti-corruption disclosure and earnings management. Firms that disclose anti-corruption are related to the lower earnings management. The sample consists of 207 firm-year observation from 2016-2018. The data are hand-collected for the anti-corruption disclosure and the rest of the firm’s data are obtained from the Osiris database. Our result indicate a significant negative relationship between anti-corruption disclosure and earnings management. The relationship is more pronounce for the profitable and smaller firms. The high level of anti-corruption disclosure reported by the company can reduce earnings management actions in the company and show awareness, ability, skill, actualization …

Does R&D Expenditure Volatility Affect Stock Return?, Erwei Xiang, Dominic Gasbarro, Grant Cullen, Wenjuan Ruan

Research outputs 2014 to 2021

The relation between the volatility of R&D expenditure and stock return may be influenced by disruptive adjustment costs, emerge from earnings management, or reflect the actions of managers attempting to control the overinvestment of technocrats. Using 5,178 publicly listed US firms from 1980 to 2018, we find a negative relation between R&D volatility and return, which is moderated by firm size. We conclude that investors react negatively to the disruptive effect of changes to R&D expenditure, except for small firms. In small firms, the benefit of the governance mechanism of varying R&D expenditure to control overinvestment outweighs the cost of …

Customer's Inventory Accruals And Supplier's Earnings Quality, Cheuk Kwong Fok

Lingnan Theses and Dissertations

We examine the influence of customer’s inventory accruals on supplier’s accounting quality and earnings management practices. We consider two views of the role of customer’s inventory accruals play on their supplier and how they relate to their financial reporting. The first is the customer’s inventory accruals reflect supplier’s earnings management (i.e., intentional bias) as well as lead to difficulty in supplier’s earnings estimation (i.e., unintentional errors). The second view is based on supplier’s information advantage theory, which suggests suppliers are capable to interpret the information content of customer’s inventory accruals. In contrast to the information advantage view, we find that …

Ceo Network Centrality And Earnings Management, Huan Qiu

Doctoral Dissertations

This study investigates the relationship between CEO network centrality, choice of earnings management, and the consequences for the period from 1998 to 2016. From our empirical analysis, we find that CEOs with higher network centrality are more likely to use accruals-based earnings management, but less likely to use real earnings management to manage earnings upward in the current year. Although the use of accruals-based earnings management normally results in bad economic consequences for firms, CEO network centrality is associated with better (at least not worse) earnings quality, after controlling the use of accruals-based earnings management. As for longterm economic performance, …

The Effects Of International Financial Reporting Standards On Financial Reporting Quality, Wafaa Salah, Abdallah Ahmed Abdelsalam

Business Administration

The purpose of this study is to investigate whether the financial reporting under International Financial Reporting Standards (IFRS) has more quality than local GAAP for firms listed on Taiwan stock exchange. Financial Reporting Quality is measured in this study by three attributes of earnings introduced in previous literature, namely: 1) earnings management expressed as managing towards positive earnings and earnings smoothing and, 2) timely loss recognition expressed as the asymmetric incorporation of economic gains and losses and large negative net income, and 3) value relevance. Ordinary Least Square (OLS) Regression analysis, Z-test, and Binary Logistic Regression are employed to investigate …

Acquired In-Process Research Development And Earnings Management, Daniel Gyung Paik, Junyoup Lee, Eun Suh Lee, Kevin H. Kim

Accounting Faculty Publications

New accounting standards, namely SFAS 141 and 142, were adopted in 2001. The release of these two regulations offers a unique opportunity to explore how managers have changed their earnings manipulation behavior by using IPR&D costs. In this study, we examine whether and how the amount of IPR&D at the acquisition deals is associated with discretionary accruals, which serve as a proxy for earnings management. We use a sample of firms reporting acquired IPR&D over the period of 1993 to 2007 with a matched group based on size and industry. Our results provide evidence that managers strategically use the IPR&D …

Stock Repurchases As The Earnings Management: An Unintended Consequence Of The 2003 Dividend Tax Cut, Xiang Gao

Open Access Theses & Dissertations

I examine the impact of the 2003 dividend tax cut (Jobs and Growth Tax Relief Reconciliation Act, JGTRRA) on firms using stock repurchases for earnings per share (EPS) manipulation. Prior to 2003, dividends were taxed at the individual's income tax rate, which usually was ranged from 28 percent to 50 percent, compared to 20 percent tax rate on capital gains. In May 2003, with the passage of the JGTRRA, the dividend tax was cut significantly to 15 percent for the majority of individual income tax brackets, which is equal to the tax rate of capital gain. Consistent with Blouin et …

Additional Evidence On The Impact Of The International Financial Reporting Standards On Earnings Quality: Evidence From Latin America, Mauricio Melgarejo

Scholarship and Professional Work - Business

The purpose of this paper is to explore whether the adoption of the International Financial Reporting Standards (IFRS) has an impact on the quality of earnings in Latin America. Studying a sample offirms from Argentina, Brazil, Chile, Mexico, and Peru, I find that management reports a lower level of discretionary accruals after the implementation of the IFRS. In addition, this study provides evidence that earnings are more persistent and stock prices are more associated with earning numbers after the application of IFRS. This paper provides evidence that earnings quality has increased after the adoption of IFRS in Latin America.

Additional Evidence On The Impact Of The International Financial Reporting Standards On Earnings Quality: Evidence From Latin America, Mauricio A. Melgarejo

Mauricio Melgarejo

Blockholder Characteristics And Earnings Quality, Aslihan G. Korkmaz, Qingzhong Ma, Haigang Zhou

Business Faculty Publications

This study focuses on the impact of blockholder characteristics on earnings quality. Most of the studies in
literature make the implicit assumption that blockholders are a homogeneous group. This study is one of
few studies that acknowledges the heterogeneity of blockholders and attempts to understand the
unexplained proportion of blockholder heterogeneity. Earnings quality is calculated using the modified
Dechow and Dichev (2002) model with fixed effects (FDD model) by Lee and Masulis (2009), and it is
regressed on various blockholder characteristics. The results show that earnings quality is lower for
firms with market-driven and multilateral blockholders.

Corporate Political Activity, Ceo Hubris, And Earnings Management, Abbey Rozanski

Chancellor’s Honors Program Projects

No abstract provided.

Languages And Earnings Management, Jaehyeon Kim, Yongtae Kim, Jian Zhou

Accounting

We predict that managers of firms in countries where languages do not require speakers to grammatically mark future events perceive future consequences of earnings management to be more imminent, and therefore they are less likely to engage in earnings management. Using data from 38 countries, we find that accrual-based earnings management and real earnings management are less prevalent where there is weaker time disassociation in the language. Our study is the first to examine the relation between the grammatical structure of languages and financial reporting characteristics, and it extends the literature on the effect of informal institutions on corporate actions.

Marital Status And Earnings Management, Gilles Hillary, Sterling Huang, Yanping Xu

Research Collection School Of Accountancy

In this note, we examine the effect of CEO marital status on the riskiness of financial reporting. Using multiple proxies, we find that firms headed by a single CEO display a higher degree of earnings management than those headed by a married CEO. The effect is economically significant. Our results persist in an instrumental variable regression, suggesting that our results are not driven by innate heterogeneity in preferences.

Essays On The Performance And Earnings Management Of Cross-Listing Firms, Klaus S. Beckmann

Theses and Dissertations

I investigate the performance and earnings management of firms that cross-list in foreign markets. In the first essay, I analyze and compare the underpricing and buy-and-hold abnormal returns of depositary receipt equity offerings with preceding Initial Public Offerings (IPOs) and Seasoned Equity Offerings (SEOs) of the same firms to identify differences and motivations of equity offerings free of any matching bias. I find that domestic equity offerings entail significantly larger underpricing than subsequent foreign equity offerings. The average buy-and-hold abnormal returns of depositary receipt equity offerings are significantly lower than the underlying firm’s performance at preceding domestic equity issuances over …

Does Assurance Matter? Evidence From U.S. Financial Institutions, Ashley Warwick Douglass

Graduate Theses and Dissertations

In this paper, I explore the determinants and consequences of the level of assurance that a bank selects. Using a sample of small, privately held U.S. (United States) financial institutions (banks), I find that two differing types of banks are more likely to purchase more assurance. First, larger banks that are experiencing growth purchase relatively more assurance than other banks. Second, more complex banks with lower returns on assets, losses, and higher leverage are more likely to purchase an audit than a lower level of assurance. This may indicate the influence of regulators on banks’ assurance purchasing decisions. I also …