Abstract: This study examines whether corporate governance (CG) mechanisms in firms that have a whistle-blowing policy (WHBLP) are more effective in constraining earnings management (EM), than those without. A sample of 288 Malaysian firms for the years 2013 to 2015, amounting to 864 firm-years were grouped into firms with and without WHBLP. Results show that for firms without WHBLP, the board chairman tenure would minimize EM activities. Meanwhile, for firms with WHBLP, board chairman independence, board chairman tenure, audit committee size, audit committee meeting and women in the audit committees are found to be associated with less EM activities. Further, it is found that ownership concentration and Big 4 auditing firms help to reduce EM activities in firms with WHBLP, while not in firms without WHBLP. Hence, functional and effective governance can be achieved by having a WHBLP, which is in line with agency and resource dependent theories. Therefore, this study suggests that firms should have a WHBLP in place, and policymakers should come up with enhanced criteria to strengthen the mechanisms of WHBLP.
Abstract: The stakeholders’ pressure on corporate managers to maintain firm’s profitability has created economic incentives for management to engage in earnings management practices. Therefore, this study examines the effects of audit quality and corporate governance on earnings management of quoted deposit money banks (DMBs) in Nigeria. This study specifically investigates the influence of audit tenure, audit fee, board independence, and board size on earnings management of DMBs. Explanatory research design was employed in carrying out the study while secondary data were sourced from the annual reports and accounts of all the 15 quoted DMBs in Nigerian Stock Exchange as at December 31, 2015 for a period of 10 years covering from 2006 to 2015. The data obtained for the study were analyzed using panel regression analysis approach. The findings reveal that board independence has a negative significant effect on earnings management at a 5% level of significance (p=0.002), while audit fee has a positive significant effect on earnings management at a 5% level of significance (p=0.013) and audit tenure has a negative significant effect on earnings management of DMBs at a 5% level of significance (p=0.003). Surprisingly, board size was statistically not significant at a 5% level of significance (p=0.086). The study concludes that high audit quality and sound corporate governance could improve the earnings quality of DMBs. Hence, the study recommends that the authorities saddled with the responsibility of banking supervision in Nigeria such the Securities and Exchange Commission (SEC) and CBN to advise the National Assembly in Nigeria to pass into law the three years professional requirement for audit tenure.
Abstract: Predicting earnings management is vital for the capital
market participants, financial analysts and managers. The aim of this
research is attempting to respond to this query: Is there a significant
difference between the regression model and neural networks’
models in predicting earnings management, and which one leads to a
superior prediction of it? In approaching this question, a Linear
Regression (LR) model was compared with two neural networks
including Multi-Layer Perceptron (MLP), and Generalized
Regression Neural Network (GRNN). The population of this study
includes 94 listed companies in Tehran Stock Exchange (TSE)
market from 2003 to 2011. After the results of all models were
acquired, ANOVA was exerted to test the hypotheses. In general, the
summary of statistical results showed that the precision of GRNN did
not exhibit a significant difference in comparison with MLP. In
addition, the mean square error of the MLP and GRNN showed a
significant difference with the multi variable LR model. These
findings support the notion of nonlinear behavior of the earnings
management. Therefore, it is more appropriate for capital market
participants to analyze earnings management based upon neural
networks techniques, and not to adopt linear regression models.
Abstract: This paper analyzes the effect of a single uniform accounting rule on reporting quality by investigating the influence of IFRS on earnings management. This paper examines whether earnings management is reduced after IFRS adoption through the use of “loss avoidance thresholds”, a method that has been verified in earlier studies. This paper concentrates on two European countries: one that represents the continental code law tradition with weak protection of investors (France) and one that represents the Anglo-American common law tradition, which typically implies a strong enforcement system (the United Kingdom).
The research investigates a sample of 526 companies (6822 firm-year observations) during the years 2000 – 2013. The results are different for the two jurisdictions. This study demonstrates that a single set of accounting standards contributes to better reporting quality and reduces the pervasiveness of earnings management in France. In contrast, there is no evidence that a reduction in earnings management followed the implementation of IFRS in the United Kingdom. Due to the fact that IFRS benefit France but not the United Kingdom, other political and economic factors, such legal system or capital market strength, must play a significant role in influencing the comparability and transparency cross-border companies’ financial statements. Overall, the result suggests that IFRS moderately contribute to the accounting quality of reported financial statements and bring benefit for stakeholders, though the role played by other economic factors cannot be discounted.
Abstract: The role of corporate governance is to reduce the
divergence of interests between shareholders and managers. The role
of corporate governance is more useful when managers have an
incentive to deviate from shareholders- interests. One example of
management-s deviation from shareholders- interests is the
management of earnings through the use of accounting accruals. This
paper examines the association between corporate governance
internal mechanisms ownership concentration, board independence,
the existence of CEO-Chairman duality and earnings management.
Firm size and leverage are control variables. The population used in
this study comprises firms listed on the Tehran Stock Exchange
(TSE) between 2004 and 2008, the sample comprises 196 firms.
Panel Data method is employed as technique to estimate the model.
We find that there is negative significant association between
ownership concentration and board independence manage earnings
with earnings management, there is negative significant association
between the existence of CEO-Chairman duality and earnings
management. This study also found a positive significant association
between control variable (firm size and leverage) and earnings
management.
Abstract: This is a comprehensive large-sample study of Australian earnings management. Using a sample of 4,844 firm-year observations across nine Australia industries from 2000 to 2006, we find substantial corporate earnings management activity across several Australian industries. We document strong evidence of size and return on assets being primary determinants of earnings management in Australia. The effects of size and return on assets are also found to be dominant in both income-increasing and incomedecreasing earnings manipulation. We also document that that periphery sector firms are more likely to involve larger magnitude of earnings management than firms in the core sector.
Abstract: Recent evidences on liquidity and valuation of securities in the capital markets clearly show the importance of stock market liquidity and valuation of firms. In this paper, relationship between transparency, liquidity, and valuation is studied by using data obtained from 70 companies listed in Tehran Stock Exchange during2003-2012. In this study, discriminatory earnings management, as a sign of lack of transparency and Tobin's Q, was used as the criteria of valuation. The results indicate that there is a significant and reversed relationship between earnings management and liquidity. On the other hand, there is a relationship between liquidity and transparency.The results also indicate a significant relationship between transparency and valuation. Transparency has an indirect effect on firm valuation alone or through the liquidity channel. Although the effect of transparency on the value of a firm was reduced by adding the variable of liquidity, the cumulative effect of transparency and liquidity increased.
Abstract: This paper investigates the effect of International
Financial Reporting Standards (IFRS) adoption on the frequency of
earnings managements towards small positive profits. We focus on
two emerging markets IFRS adopters: South Africa and Turkey.
We tested our logistic regression using appropriate panelestimation
techniques over a sample of 330 South African and 210
Turkish firm-year observations over the period 2002-2008. Our
results document that mandatory adoption of IFRS is not associated
with a reduction in earnings management towards small positive
profits in emerging markets. These results contradict most of the
previous findings of the studies conducted in developed countries.
Based on the legal system factor, we compare the intensity of
earnings management between a code law country (Turkey) and a
common law country (South Africa) over the pre and post-adoption
periods. Our findings show that the frequency of such earnings
management practice increases significantly for the code law
country.