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The persistence and predictive ability are extensively requested as desirable attributes of earnings quality in the literature. The paper aims at investigating the persistence and predictive ability of earnings in French and UK companies. The study included a panel data of 1035 firm-year observations for 115 French listed companies from the CAC All-Tradable and 900 firm-year observations for 100 UK listed companies from the FTSE All-Share, during the period of 2011–2019. The research design was based on two equations starting from Sloan (1996) that were estimated using Fixed Effects Method. The study showed that earnings were persistent but they had no predictive ability regarding the future cash flows whether in French or UK companies and that earnings of UK companies were more persistent than those of the French companies. We argue that the persistence of earnings and the inability to predict future cash flows can be evidence of earnings management. The study contributes to the literature about earnings quality by studying earnings persistence and earnings predictive ability together in two different environments. The results require that users must take into consideration the illusory persistence of earnings, auditors must be cautious regarding the manipulation of earnings by managers, and accounting standard setters must review the reporting guidelines of cash flows to enhance their predictability by earnings.

Cash flow prediction is an essential component of economic decision making, particularly in investment and credit evaluation. This paper examines the comparative predictive ability of earnings and operating cash flows variables on future operating cash flows, during short-term, medium, and long-term periods. For this purpose, the data collected from financial statements of 203 companies listed in Tehran Stock Exchange, during a ten-year period (2005-2015) were used. In regression model, the changes of current operating cash flows (as proxy for future operating cash flows) under the influence of past one, three and five years of earnings and operating cash flows (as predictors), are evaluated. The results from the regression analysis reveal earnings and operating cash flows are significant in predicting future operating cash flows but their predictive powers are different, so that comparative predictive ability of operating earnings variable about future operating cash flows is more than that of the operating cash flow itself. The results also show that using both operating earnings and operating cash flow with each other for the prediction, has better outcomes. Moreover, the results indicate that the longer the period of prediction is, the higher the prediction power will be.

This study evaluated the value-relevance of accounting information (earnings and cash flows) in Indonesia to predict a firm’s future operating cash flows. The predictive usefulness of earnings and cash flows in association with future cash flows is of interest for three reasons. They include providing empirical evidence on the relevant accounting information to assess a firm’s future cash flows, information about the behavior and properties of Indonesian accounting information, and evidence of – or at least providing a basis for evaluating–the validity of the IndonesianAccounting Standards Committee (KPSAK) assertion on the usefulness of accounting information to assess future cash flows.The study evaluated three cash flow prediction models that employed cash flow, earnings, and a combination of earnings-cash flow variables. The models were applied on a firm-specific data set. The data used in this study were semi-annual data for the 61 sample firms (manufacturing firms)listed in the Jakarta Stock Exchange (JSX) spanning the years 1990-1997. The results of this study supported the proposed hypothesis that cash flow data provided better information to assess a firm’s future cash flows than earnings data. Since this study employed manufacturing firms only, future research is necessary to evaluate the robustness of the results to otherpopulations of firms and/or by using an alternative deflator of earnings and cash flows, such as consumer price index (CPI) or market value of the firms. Further extensions of this study include additional refinements of the prediction models on an industry-specific basis and disaggregating cash flow variables into operating, investing, and financing components in order to measure the value-relevance of the statement of cash flows.

Timely recognition of losses and expenses compared to revenues and increased values precipitates future expenses to match with current revenues. Thus, timely recognition of losses acts to reduce the persistence of earnings. However, it is expected that a more timely recognition of negative cash flows, as bad news, increase the power of earnings for predicting future cash flows. This study investigates the effects of the timely recognition of bad news (loss) versus the good news on the decrease of the persistence of earnings, and the effect of negative cash flows on forecasting future cash flows. In this study, two pooling type models and a panel type model have been used to estimate the persistence of earnings and cash flows. Seventy eight firms that were listed in the Tehran Stock Exchange during the period 2003–2010 were duly reviewed. The results of this research proved that the timely recognition of loss does not affect the persistence and the power of earnings for the purpose of forecasting future cash flows. The findings imply that conservatism does not distort persistence of earnings.

This paper proposes and illustrates a methodology to assess the economic cost of the sovereign risk finance instruments available to the Government of Ethiopia and its development partners for financing the shock-responsive scalability component of the Productive Safety Net Programme. The methodology involves: (i) specifying rules for when additional expenditures would be triggered in each woreda; (ii) specifying alternative risk finance strategies; and (iii) analyzing the costs of each risk financing strategy, including sensitivity and scenario testing of the results. The methodology is applied to a hypothetical set of rules for drought-responsive scalability, and a range of potential risk finance strategies.

This research has determined and evaluated the factors that affect financial reporting quality choice in Iran. The statistical popultion of this research is companies listed in Tehran Stock Exchange (TSE), and the research period is from 1378 to 1385. This research is considered as an empirical accounting research, and causal-comparative and correlation research methods have been used to do it. In this research, correlation test, mean-difference test, and probit regression model have been used to analyze the data and test the hypotheses. The results of unit-variable tests of hypotheses shows that, financial reporting quality is positively associated with the margin of profitability and managerial efficiency of the firm, and it is negatively associated with product market competition, managerial conservatism, size, capital intensity of business, operating cycle and complexity of the firm's operating environment. However, no association was found between financial reporting quality and growth opportunities, ownership concentration, board of directors structure, board of directors ownership, managerial integrity and financial leverage of the firm. Also, based on multi-variable tests, models were developed to predict the financial reporting quality of firms for the next financial period. These models are based on cumulative distribution function (CDF), and estimate the probability of high quality financial reporting for the next financial period.

The purpose of this paper is to contribute to theunderstanding and discussion of how the costs andbenefits of natural resource development are sharedacross society. This paper presents how IFC, as both aninvestor and a development organization, determineswhether benefits and costs are shared reasonably, and how this assessment influences IFC’s decision to invest ina particular natural resource project. the goal of the paper is to promotea broad, constructive dialogue across stakeholders—governments, investors, civil society, and others—around benefit sharing. The paper draws on IFC’s experience and presents anoverarching framework for multi-stakeholder benefitsharing, providing analysis and guidance for a range ofcomplex topics. The paper is intended to provide entrypoints for stakeholders of varying levels of familiarity with the issues to benefit-sharing assessment. The paper is not a definitive manual for all the issues coveredfor which more detailed, high-quality and excellentreferences and literature exists. This paper is organized along these broad areas of impact that IFC considers in the benefit sharing assessment:fiscal, economic, environmental, and social. The approaches IFC uses to evaluate benefit sharing arepresented in each area, along with some lessons learned. This is complemented by a discussion of key issues thatare topical in the field. Each chapter opens with a list of questions that can be used as a guide to assess the potential benefits and costs of an investment. As a result, there is a spectrum of what can be considered reasonable overall. However, there may be particular features of a benefit-sharing arrangement that stand out and can signal a risk to its legitimacy. Our aspiration is that this paper will complement as well as stimulate work by others that can enhance the collective knowledge and encourage dialogue.

This report explores the potential financing mechanism options that can be employed to catalyze more private sector investment in clean energy (renewable energy and energy efficiency) in the small island developing states (SIDS). Various financial instruments that have been used successfully to date are described and placed in the context of the issues and constraints of the SIDS, with suggested options for discussion and follow up. Green infrastructure finance, as defined in the report, makes the important point that is the combination of financial and nonfinancial interventions and instruments that can make green investments in infrastructure more affordable and less risky to private sponsors, financial markets, and governments. The objective of this report is to identify and assess options that can help increase investment in renewable energy and energy efficiency in SIDS through the adoption and funding of financing mechanisms by SIDS and development partners with special attention given to the role that the private sector can play. Many renewable energy technologies are characterized by high initial capital costs with relatively low operating costs compared to thermal alternatives. By providing an analysis of options for a financing facility to catalyze renewable energy and energy efficiency, this work is intended to inform the discussions among SIDS and development partners interested in actions to stimulate investment in renewable energy and energy efficiency. This report summarizes the results of the two stages. The assessment and selection of options identifies a number of measures that will be needed to stimulate increased private sector participation - project sponsors and developers, equity funds, lending institutions - for energy efficiency and renewable energy. The background material reviewed for this report has been summarized in the annexes.

Detailed principles of accounting for financial instruments have been prescribed in Financial Instruments Regulation, but some general principles in that area have also been outlined in the Accounting Act. According to article 3, paragraph 1, point 23 of the accounting act, financial instrument is defined as any contract giving rise to financial assets of one entity and a financial liability or an equity instrument of another entity, on condition that the contract concluded by two or more parties clearly results in economic effects, irrespective of whether the execution of contractual rights or obligations in unconditional or conditional. Financial assets include: monetary assets (assets in the form of domestic currency, foreign currencies and foreign exchange instruments and other financial assets, in particular accrued interest on financial assets, equity instruments issued by other entities, and contractual right to receive monetary assets or to exchange financial instruments with another entity under favorable conditions. Equity instruments are defined as contracts which give right to assets of an entity which remain after satisfying or securing all its creditors, as well as an obligation of an entity to issue or deliver its own equity instruments, in particular shares, share options or warrants.

IFRS 13 (2012) “Fair value measurement” is aimed to unify, in a single standard, all existing rules about fair value measurements. In this regulatory context, the present value, evaluative criteria of Level 3 hierarchy varables, has emerged as the most widely accepted financial technique both in professional field practice and issuing authority. This paper focuses on elucidating the criteria used by public accountants of present value technique implementation in Venezuelan context. The study is part of a qualitative approach, based on secondary information supported by expert’s opinion. It is concluded that the most common financial tool used, is Method-2 expected present value technique, for its construction the “capital asset pricing model” is used to get the discount rate. La NIIF 13 (2012) “medición del valor razonable” está orientada a unificar, en un único estándar, toda la normativa existente acerca de las mediciones realizadas a valor razonable. En este contexto normativo, el valor presente, criterio valorativo perteneciente a las variables del nivel 3 de la jerarquía, se ha erigido como la técnica financiera de mayor aceptación tanto en el ámbito de la práctica profesional como en el de los organismos emisores. Este documento se centra en dilucidar los criterios utilizados por los contadores públicos en la aplicación de la técnica de valor presente en el contexto venezolano. El estudio se enmarca dentro de un enfoque cualitativo, circunscrito a la modalidad documental, apoyado en la opinión de expertos. Se concluye que la herramienta financiera más utilizada es la técnica del valor presente esperado en su modalidad de método 2, para cuya construcción se emplea el “modelo de valuación de activos de capital” a fin de obtener la tasa de descuento. A NIIF 13 (2012), “medição do valor razoável”, está orientada a unificar, num único padrão, todo o regulamento existente a respeito das medições realizadas a valor razoável. Neste contexto normativo, o valor presente, critério valorativo pertencente às variáveis de nível 3 da hierarquia, erigiu-se como a técnica financeira de maior aceitação tanto no âmbito da prática profissional como no dos organismos emissores. Este documento se centra em elucidar os critérios utilizados pelos contadores públicos na aplicação da técnica de valor presente no contexto venezuelano. O estudo se emoldura dentro de um enfoque qualitativo, circunscrito à modalidade documental, apoiado na opinião de peritos. Conclui-se que a ferramenta financeira mais utilizada é a técnica do valor presente esperado em sua modalidade de método 2, para cuja construção se emprega o “modelo de valoração de ativos de capital” a fim de obter a taxa de desconto.

Running a business involves continuous growth. Such growth can be organic, stemming from resources created internally in the enterprise. However, in many cases an external development strategy is adopted, based on acquisition of other entities. Such an acquisition may involve creation of a capital group, within which each of the companies maintains its separate legal personality. However, if a capital group is not the optimal form for the given business activity, acquisition of another entity may take form of a business combination. In such case, assets and liabilities of the acquire are directly incorporated into the books of the acquirer. The overriding principle of accounting regulation is primacy of economic substance over legal format. Pursuant to this principle, economic transactions must be recorded in the accounting records in accordance with their economic nature1. In order to determine properly the economic nature of a business combination, an analysis must be performed of economic impacts of such a combination. Economic consequences for merging entities are described in the provisions of commercial law.

The importance of small and medium enterprises (SMEs) to economic development and job creation is increasingly recognized across the world. With an expected 58 percent of gross value added in 2012, SMEs are perceived to be the backbone of the economy especially within the European Union (EU). Although they faced particularly challenging economic conditions in 2011-12, SMEs within the EU still account for more than 98 percent of all enterprises and 67 percent of total employment. For such businesses, access to finance is a key factor for business start-up, development, survival, and growth. In September-October 2012, the World Bank Centre for financial reporting reform (CFRR) surveyed Austrian banks with a view to understanding the role played by financial information and audits in lending decisions. Respondents to the survey represent approximately one third of the sector based on total assets. The survey also assessed how banks measure the quality of the financial information they receive as part of a loan application. The purpose of this report is to inform the accounting and auditing profession, policy makers, and SMEs and their representative institutions about banks’ requirements and expectations regarding the scope of financial information provided by SMEs when applying for a credit.

Chinese Foreign Direct Investment (FDI) into Africa is on the rise and Ethiopia is at the forefront of this trend. On request of the Government, the World Bank surveyed 69 Chinese enterprises doing business in Ethiopia with a 95-question survey in May/June 2012. The survey covered various aspects of the foreign direct investment climate in Ethiopia, including infrastructure, sales and supplies, land, crime, competition, finance, human resources, and questions about general opportunities and constraints for doing business in Ethiopia. This report summarizes the results of survey and provides policy suggestions in light of the analysis; the report also provides some broader background of the expected benefits of FDI into Ethiopia as well as current policies and approaches to promote incoming investment. Addressing identified obstacles could help Ethiopia to take better advantage of foreign investors in order to accelerate the shift from a predominantly low-productivity agriculture-based economy towards a higher-productivity manufacturing and export-based economy. Experiences in successful countries around the world, and especially East Asia show that foreign investment is instrumental to facilitate such a structural transformation and to maintain sustained and broad-based economic development. This study recommends five main areas for policy adjustments to facilitate foreign investors coming into Ethiopia: adjust customs clearance procedures and trade regulations; facilitate currency convertibility and increase transparency of the exchange rate policy; improve tax administration consistency and efficacy; execute impartial labor regulation; and increase the supply and quality of skilled workers.

This paper focused on the delivery mechanisms for bilateral, multi-lateral, host government subsidy, and consumer cross-subsidy funding to enhance private sector investment. However, the specific source of funds is not deemed to be especially relevant for the purposes of this working paper. Focus on some of the useful characteristics of Output-Based Aid (OBA) experience to date that may be relevant. Propose an option for how OBA experience could be used to deliver national and programmatic supports to projects in middle- and low-income countries in coordination with other multi-lateral development bank instruments such as concessional loans and credits. This working paper does not: specifically address strengths and weaknesses of the clean development mechanism and only briefly touches on issues with using carbon finance in the current market. Carry out an assessment of experience with feed-in tariffs or advanced market commitments, or indeed other results orientated schemes.

What do we know about the links between economic development and corporate governance in emerging markets? Stijn Claessens and Burcin Yurtoglu have sifted through scores of academic studies on various countries, sectors, and business organizations - from state-owned enterprises to publicly listed companies - to determine how corporate governance can influence economic development and well being, and what is needed to promote good practices. The Focus 10 draws on new evidence that has become available since Focus 1: Corporate Governance and Development was published in 2003. While the paper reviews research literature, it is written to be accessible to the nonacademic audience: board members, investors, government regulators, development professionals, and other CG practitioners. Research findings sited in the Focus include: 1) improved corporate governance practices increase firm share prices; 2) operational performance is higher in better corporate governance countries; 3) well governed companies have less volatile stock prices in times of crisis; 4) companies with boards composed of a higher fraction of outsider or independent directors usually have a higher market valuation; 5) improvements in corporate governance quality lead to higher GDP growth, productivity growth, and the increased ratio of investment to GDP; 6) when a country's overall corporate governance and property rights systems are weak, voluntary and market corporate governance mechanisms have limited effectiveness; 7) large, more concentrated ownership can be beneficial, unless there is a disparity of control and cash flow rights; 8) the quality of shareholder protection positively correlates with the development of countries' capital markets; and 9) better corporate governance leads to a better developed financial system. The paper concludes by identifying several main policy and research issues that require further study. For example, more research is needed on family-owned, state-owned or controlled firms that predominate in many sectors and economies. For more publications on IFC Sustainability please visit www.ifc.org/sustainabilitypublications.

A major problem in the transition countries of Europe and Central Asia (ECA) during the transition was the breakdown of the relationships of farms with input suppliers and output markets. The simultaneous privatization and restructuring of the farms and of the up- and downstream companies in the agrifood chain has caused major disruptions. The result is that many farms and rural households face serious constraints in accessing essential inputs (feed, fertilizer, seeds, capital, etc.) and in selling their products. The problems are worsened by the lack of public institutions necessary to support market-based transactions, such as for enforcing property rights and contractual agreements. The objective of the study is to analyze Vertical Coordination (VC) in agrifood supply chains in ECA and to identify options for improved policies, institutions, and investments which Governments could make, and which the World Bank could support, in order to improve links in the agricultural marketing and processing chain and increase access of farmers to input and output markets. This is especially important in those countries where contractual arrangements are slow to develop. It is also important if farmers are to be lifted out of subsistence farming and into a modern agrifood economy.

Contingent liabilities create management problems for governments. They have a cost, but judging what the cost is and whether it is worth incurring is difficult. Except in the case of contingent liabilities created by simple guarantees of debt, governments usually can incur contingent liabilities without budgetary approval or recognition in the governments accounts. So governments may prefer contingent liabilities to other obligations. (The uncertainty surrounding contingent liabilities can work differently. It is well known that PPPs create contingent liabilities, and the International Monetary Fund (IMF), the World Bank, and others often warn of the risks. The initial reaction of a cautious Ministry of Finance may be to seek to avoid all contingent liabilities.) Management problems also arise once a government has incurred a contingent liability. Projects need to be monitored to reduce risks if possible. Spending on contingent liabilities must sometimes be forecast, despite the difficulty.

Projecto / L610, G340 Mergers and acquisitionsmarked a turning point in the economic developmentof U.S economy, which quickly became a worldwide referenceon value creation. In 2006, on a dispersed industry, either at upstream or downstream levels (steel industry) a strong example of a consolidation process took place creating a dominant player. Emergency of the Chinese economy added to the perspectives of a financial crisis made the two largest steel players to enter on a combination process, process which was far from simple. The hostile take-over bid launched by Mittal Steel did not please Arcelor SA Board of Directors which implemented some defensive measuresin order to avoid the possibility of being acquired by its main rival and, on more practical terms, leading to the increase of the offered price. Due to the forced price revision the deal was consummated. According to the expected synergiesexpectable, by projecting future cash flows, there are positive predictions for the future of ArcelorMittal. However, nowadays the economic and political future is more uncertain than ever and, although some synergieshave already been achieved, the future cash flows can not be taken as granted. Some aspects such as the market changes, corporate governance and currency exchange risk can not be forgotten by ArcelorMittal group. A temática das fusões e aquisiçõessurge como um ponto marcante no desenvolvimento empresarial dos EUA, que rapidamente se transformounuma referência na criação de valor empresarial por todo o mundo. O caso da indústria do aço dá ênfase a esta temática, visto ser um processo de combinação de empresas num sector bastante disperso quer a jusante como a montante que deu origem a uma empresa dominante. A emergência da economia chinesa juntamente com a conjuntura mundial levaram os dois maiores players desta indústria a um processo de combinação, contudo este não foi um processo simples. A abordagem hostil por parte da Mittal Steel não agradou aos dirigentes da Arcelor SA que deste logo puseram em prática um conjunto de medidas defensivasas quais, após elevarem a alavancagem financeira da empresa adquirida, forçaram a revisão (em alta) da oferta. Assim, após uma forte pressão exercida pelos accionistas o processo consumou-se e as sinergiasexpectáveis, através da projecção dos cash flows futuros, anunciam um futuro favorável ao crescimento da ArcelorMittal. Contudo, embora algumas sinergiasjá tenham sido alcançadas, o futuro económico e político está mais incerto que nunca , pelo que os cash flows futurosnão podem ser assumidos como garantidos. Não sendo possível à ArcelorMittaldescurar os aspectos de mudança na sua envolvente, de governação empresarial e de risco cambial.

This research aims to present an empirical investigation of the relative and incremental predictive ability of alternative accrual- and cash-based accounting measures to forecast future cash flows in an Australian context. To achieve this goal, eight ordinary least squares (OLS) regression models on pooled time-series of cross-sectional data are developed. To evaluate the forecasting performance of the models, both within-sample and out-of-sample forecasting tests are employed. A number of contextual factors, including the length of the operating cash cycle, industry membership, firm profitability and firm size, were taken into account in the main OLS regression analysis of this study to examine whether the predictive ability of accrual- and cash-based data to forecast future cash flows were influenced by these factors. In addition, a more sophisticated approach used for estimating regression models, namely fixed-effects, is undertaken to control for unobseved differences across firms. Results from various regression model analyses suggest that cash flow from operations is more important than earnings in predicting future cash flows. Disaggregating earnings into cash flow from operations and accruals enhances the forecast of future cash flows, compared with aggregate earnings. The accrual component of earnings provides incremental information content for future cash flows beyond that provided by the cash flow component of earnings. Various decompositions of total accruals (i.e., current and non-current accruals, accrual components, and discretionary and nondiscretionary accruals) have incremental information content beyond that contained in total accruals. Disaggregating cash flow from operations into operating cash receipts and payments, as reported under the direct method of cash flow presentation, improves the predictive ability of aggregate cash flow from operations. Indirect cash flow information incrementally enhances the ability of direct cash flow components in forecasting future cash flows. This study also provides evidence that the model based on both accrual and cash flow components outperforms other existing cash flow prediction models. Various categorisations of the sample confirm that the findings are not conditional on the selected control factors. However, the results reveal new knowledge on the characteristics of accrual- and cash-based accounting data relating to future cash flows. For instance, this study documents that cash flow and its components (earnings and accruals) are more (less) informative to market participants in the forecast of a firm’s future cash flows when: (i) the firm is small; (ii) their operating cash cycle is short; and (iii) the firm makes a loss. Furthermore, the level of the predictive ability of both accrual- and cash-based accounting variables varies across industries.

Real Gross Domestic product (GDP) in Thailand is projected to grow at 5.0 percent in 2008, driven by recovery in domestic demand. The key reason for the strengthened growth this year is the higher confidence of both consumers and investors with the return of democracy and the election of a new government late in 2007. Last year's better than-expected growth of 4.8 percent was due to buoyant export performance throughout the year even as domestic consumption and investment declined amidst the uncertain political environment and sudden shifts in policy. But this year, the opposite is likely. The external current account may weaken slightly in 2008, as the global downturn slows exports and robust domestic demand stimulates imports. Private investment should recover after its slump last year. Recovery in private consumption and investment could be fragile as there remain large down side risks to their growth, but could be mitigated by additional fiscal stimulus. In addition to the short-term measures have been introduced by the government to mitigate risks this year and next, longer term measures are needed to sustain Thailand's growth and poverty alleviation.