Search

Research in corporate financial reporting identifies two important roles of accounting accruals. First, accruals smooth fluctuations in operating cash flows. Second, accruals allow recognition of losses in an asymmetric timely manner. While these two roles imply different relations between individual accrual components and operating cash flow news, prior research often focuses on the properties of aggregate accruals. We investigate the role of individual accrual components and identify asymmetry in the relation of investment with operating cash flow news as a confounding factor. We show that this investment factor operates through depreciation and amortization accruals, which typically account for the bulk of aggregate accruals. Overall, our article demonstrates the importance of adopting a granular approach to identifying the different roles of individual accrual components. [ABSTRACT FROM AUTHOR]

Research suggests that the standard model used to detect opportunistic shifting of core expenses to special items is potentially biased. Such bias has been attributed to the use of accruals, including special item related accruals, as a control for the impact of performance on core earnings in this model. This paper provides an improved classification shifting model which both tests for such accruals-related bias and controls for other sources of error in the measurement of shifting. The paper also modifies conventional market rationality tests in accounting research to examine new dimensions of rationality in relation to measurement and valuation of shifting. The main empirical findings are as follows. First, the improved classification shifting model provides strong evidence of shifting and rejects the hypothesis that inclusion of accruals in the model causes bias. Second, estimates of shifted core expenses generated by the improved model exhibit forecasting properties of shifted earnings. Third, rationality test results are broadly consistent with rationality in relation to shifted core expenses but indicate possible partial (ir)rationality in relation to adjusted special items (i.e., special items excluding shifted core expenses). Further analysis of the latter findings, however, suggests they are more likely related to risk than irrationality. Overall, the paper contributes to improved measurement of shifting and highlights the importance of considering rational expectations when examining stock returns associated with shifting. [ABSTRACT FROM AUTHOR]

AbstractThe research objectives is to analyze factors impacting on accounting conservatism such as growth opportunity, return on equity, sales growth, return on assets, capital intensity, investment opportunity, financial distress, financial leverage, global diversification and uncertainty environment. In this study, accounting conservatism is equal to non-operating accruals. The authors used balanced data collected from 379 listed companies in Vietnam stock market in a 5-year period from 2017 to 2021. The authors compared 3 models including Pooled OLS, FEM and REM to choose the most appropriate one. The test results show that FEM is the most appropriate, but this model has the phenomenon of heteroscedasticity, so the authors used FGLS to test the hypotheses. The research results show that among the independent variables included in the model, there are five variables impacting on the accounting conservatism with statistical significance of 5%. The independent variable which is investment opportunity set has a positive impact on the accounting conservatism. In contrast, the independent variables including growth opportunities, return on assets, financial leverage, and uncertainty environment have a negative impact on the accounting conservatism. Besides, the other five variables of return on equity, sales growth, capital intensity, financial distress, global diversification have no impact on the accounting conservatism in terms of statistical significance.

Purpose: The authors seek to analyze the impact of weak corporate governance by top executives of a firm on the firm's earnings reports. This research is meant to further emphasize the impact of co-opted executives on a firm, primarily through their impact on earnings management. Design/methodology/approach: Using financial data from 11,473 firm-year observations, the authors utilize ordinary least squares (OLS), 2-stage IV regressions, propensity score matching (PSM) and entropy balancing to analyze the impact of a co-opted top management team on discretionary accruals and restatements. Findings: The authors find empirical evidence that firms with weak corporate governance from top executives are more likely to manipulate reported earnings and have lower financial reporting quality. The authors also find that the effect of co-opted executives on earnings management is weaker when a chief executive officer's (CEO's) incentives are not aligned with those of top executives, suggesting that executives prevent earnings management due to reputational concerns. Co-opted chief financial officers (CFOs) increase the magnitude of earnings management in a firm but are not solely responsible for the authors' results. Originality/value: The authors' results suggest that the top executive team provides an important first defense in the prevention of earnings management and corporate wrongdoing. Co-option of the top executive team may be an important consideration when doing research into corporate governance. [ABSTRACT FROM AUTHOR]

Loan loss provision is an important accounting accrual in the banking sector. There have been numerous debates about the determinants of loan loss provision in several contexts. This study extends the debate by investigating the determinants of bank loan loss provision in non-crisis years for 28 countries from 2011 to 2018. The non-crisis years cover the periods after the global financial crisis and the periods before the COVID-19 pandemic while the countries consist of African, European, and Asian countries. Using the generalized linear model regression and the quantile regression methodologies, the results show that institutional quality is a significant determinant of bank loan loss provision, indicating that the presence of strong institutions decreases the size of bank loan loss provision in non-crisis years. In the regional analyses, it was found that economic growth is a significant determinant of bank loan loss provisions in African and Asian countries. Loan loss provision is higher in times of economic prosperity in African and Asian countries. Bank overhead cost is a significant determinant of bank loan loss provisions in Asian countries. Meanwhile, bank loan loss provision determinants are insignificant in European countries. [ABSTRACT FROM AUTHOR]

We investigate whether accounting information system quality has an impact on the level and efficiency of firms' investments. While firms' growth depends on investment and financing decisions, accounting information is fundamental for the decision-making of several stakeholders. We assess the accounting information system quality by discretionary accruals, whereas the investment inefficiency is estimated by the residuals of an investment regression for a sample of 3073 Portuguese SMEs from 27 industries, over the period from 2016 to 2021 using a panel regression analysis. The empirical evidence suggests that firms exhibiting higher accounting information system quality tend to invest more. In addition, firms with a lower accounting information system quality have more inefficient investments, as they tend to engage in more overinvestment, although this is not significant for underinvestment. Therefore, this study provides new evidence regarding the impact of accounting information systems on investment that may be useful for several stakeholders, such as managers, creditors, regulators, and academics, by providing evidence for SMEs, where empirical studies are scarce. [ABSTRACT FROM AUTHOR]

Purpose – The present study's goal is to analyze the impact of audit quality (AQ) on earnings quality (EQ) using different audit attributes. The study shows empirical evidence from India, considered an emerging market. Design/methodology/approach – The sample selected represents the 376 non-financial firms listed on the Bombay Stock Exchange (BSE). With a 20-year time frame, the authors used the absolute value of discretionary accruals (McNichols, 2002) (DA) as a proxy for EM, which is inversely related to EQ. The authors analyzed data using OLS, fixed effect (FE), 2SLS and Panel-IV estimators. Findings – The authors found that most audit attributes positively affect EQ. In the Indian context, joint auditor (JA), auditor size (A_SIZE), auditor fee (A_FEE) and auditor tenure (A_TENURE) have a negative association with EM indicating high EQ. In contrast, auditor rotation (A_ROTATON) positively affects EM confirming low EQ. Research limitations/implications – The present study uses Big-4 and its member firms as a proxy of auditor size (A_SIZE); instead, other bases may be taken for it, like the dominant audit firms in a particular industry in sample data, etc. The authors have started audit tenure from the base year, i.e. 2001, which may ignore the association of auditor and auditee just before 2001. Practical implications – The study findings would enhance policymakers' willingness to prepare appropriate regulations regarding JAs and auditor rotation, which might improve financial market efficiency and reduce financial fraud among Indian corporates. Originality/value – To the best of the authors' knowledge, this is the first study to incorporate “Joint Auditor” (JA) as a proxy for audit quality in the Indian context, which might significantly contribute to the literature.

Objetivo: O objetivo do estudo é analisar se as cooperativas de crédito gerenciam seus resultados contábeis, a fim de suavizá-los por meio da provisão para créditos de liquidação duvidosa (income smoothing), sob uma perspectiva de inadimplência. Metodologia: A amostra alcança 938 cooperativas singulares entre o período de dezembro de 2010 a dezembro de 2018, com dados do Banco Central do Brasil, testados por meio da técnica estatística de regressão múltipla, em painéis trimestrais. Resultados: A variação do estoque de operações de créditos e o lucro líquido ajustado não foram estatisticamente significativos no modelo, no entanto não foi possível aceitar a hipótese de que as cooperativas de crédito utilizam a provisão de créditos de liquidação duvidosa (PCLD) como mecanismo para gerenciamento de resultados. A taxa de juros implícitos no resultado da renda de operação de crédito foi significativa, e, portanto, relacionada à variação da PCLD, enquanto a condição de livre admissão não demonstrou significância estatística. A variação da inadimplência apresentou significância no modelo, com coeficiente negativo, implicando coerência com a hipótese de gerenciamento de resultados, pois em cenário de maior inadimplência (risco) a relação é negativa e, portanto os níveis de PCLD são menores, evitando potenciais resultados negativos. Contribuições do Estudo: Os resultados indicam ausência de gerenciamento de resultados por PCLD na amostra e período, contribuindo para a discussão das relações entre variáveis de gerenciamento de resultados. Isso possibilita as cooperativas de crédito refletir sobre sua estrutura interna de governança corporativa. Além disso, as evidências contribuem para o progresso da literatura sobre manipulação de resultados em cooperativas de crédito, para as quais existem poucos estudos disponíveis e exercem um papel importante no mercado brasileiro, garantindo fluxos de financiamento para setores econômicos não atendidos pelas instituições bancárias tradicionais.

The authors sought to determine whether the definitions of the principle of accruals and prepayments were decisive in creating an image of financial position, and whether their omission could be significantly considered in the decisions of users of a financial report. After a brief historical introduction, they reviewed two special groups, those preparing micro-business reports and church legal entities, which did not or just partially applied accruals, and they also considered their auditing aspects. The authors used the National Tax Authority’s database compiled on the basis of corporate tax returns among Hungarian companies in 2018–2021, using descriptive statistical methods to analyse the change of the stock of accruals. The results showed that the resolution of imaging would distort the result: temporal resolution was necessary to determine the exact period result. Their absence was only an issue if the economic events underlying the training did not coincidentally affect the period. [ABSTRACT FROM AUTHOR]

Exploiting an exogenous shock to short selling costs brought by the RegSHO, we find that short seller monitoring restrains real earnings management (REM). The effect is concentrated in firms facing a lower cost of REM than accruals management. Litigation risk and reduced CEO wealth gain from REM are two plausible channels through which short seller monitoring deters REM. Lastly, we find that short interests on stocks of treated firms increase after the announcement of the RegSHO relative to that on stocks of control firms, and the increase is concentrated in the subsample of treated firms with signs of REM. [ABSTRACT FROM AUTHOR]

Purpose: The objective of the study is to analyze whether credit unions manage their accounting results, in order to smooth them through provision for bad debts (income smoothing), from a default perspective. Methodology: The sample reaches 938 unique cooperatives between the period from December 2010 to December 2018, with data from the Central Bank of Brazil, tested using the multiple regression statistical technique, in quarterly panels. Results: The variation in the stock of credit operations and the adjusted net income were not statistically significant in the model, however it was not possible to accept the hypothesis that credit unions use the allowance for loan losses (PPC) as a mechanism for managing results. The interest rate implicit in the result of income from credit operations was significant, and therefore related to the PPC variation, while the condition of free admission did not show statistical significance. The variation in default was significant in the model, with a negative coefficient, implying consistency with the earnings management hypothesis, since in a scenario of higher default (risk) the relationship is negative and, therefore, PPC levels are lower, avoiding potential negative results. Contributions of the Study: The results indicate the absence of earnings management by PPC in the sample and period, contributing to the discussion of the relationships between earnings management variables. This enables credit unions to reflect on their internal corporate governance structure. In addition, the evidence contributes to the progress of the literature on earnings manipulation in credit unions, for which there are few studies available and play an important role in the Brazilian market, ensuring funding flows to economic sectors not served by traditional banking institutions. [ABSTRACT FROM AUTHOR]

Purpose: This research aims to analyze whether credit unions manage their accounting results in order to smooth them through the provision for doubtful accounts (income smoothing), from a default perspective. Methodology: The sample reaches 938 unique cooperatives considering the period from December 2010 to December 2018, with data from the Central Bank of Brazil, tested using the multiple regression statistical technique, in quarterly panels. Results: The variation in the stock of credit operations and the adjusted net income were not statistically significant in the model, however it was not possible to accept the hypothesis that credit unions use the allowance for loan losses (PCLD) as a mechanism for managing results. The interest rate implicit in the result of income from credit operations was significant, and therefore related to the PCLD variation, while the condition of free admission did not show statistical significance. The variation in default was significant in the model, with a negative coefficient, implying consistency with the earnings management hypothesis, since in a scenario of higher default (risk) the relationship is negative and, therefore, PCLD levels are lower, avoiding potential negative results. Contributions of the Study: The results indicate the absence of earnings management by PCLD in the sample and period, contributing to the discussion of the relationships between earnings management variables. This enables credit unions to reflect on their internal corporate governance structure. In addition, the evidence contributes to the progress of the literature on earnings manipulation in credit unions, for which there are few studies available and play an important role in the Brazilian market, ensuring funding flows to economic sectors not served by traditional banking institutions. [ABSTRACT FROM AUTHOR]

Purpose: The objective of the study is to analyze whether credit unions manage their accounting results, in order to smooth them through provision for bad debts (income smoothing), from a default perspective. Methodology: The sample reaches 938 unique cooperatives between the period from December 2010 to December 2018, with data from the Central Bank of Brazil, tested using the multiple regression statistical technique, in quarterly panels. Results: The variation in the stock of credit operations and the adjusted net income were not statistically significant in the model, however it was not possible to accept the hypothesis that credit unions use the allowance for loan losses (PCLD) as a mechanism for managing results. The interest rate implicit in the result of income from credit operations was significant, and therefore related to the PCLD variation, while the condition of free admission did not show statistical significance. The variation in default was significant in the model, with a negative coefficient, implying consistency with the earnings management hypothesis, since in a scenario of higher default (risk) the relationship is negative and, therefore, PCLD levels are lower, avoiding potential negative results. Contributions of the Study: The results indicate the absence of earnings management by PCLD in the sample and period, contributing to the discussion of the relationships between earnings management variables. This enables credit unions to reflect on their internal corporate governance structure. In addition, the evidence contributes to the progress of the literature on earnings manipulation in credit unions, for which there are few studies available and play an important role in the Brazilian market, ensuring funding flows to economic sectors not served by traditional banking institutions. [ABSTRACT FROM AUTHOR]

This study quantifies the number of estimates involved in firms' accruals and examines whether it is informative about the relation between accruals and future earnings. We measure the number of estimates using the frequency of the use of the word estimate in the qualitative portions of a firm's Notes to the Financial Statements (footnotes). Motivated by arguments regarding the impact of estimation errors in accruals, we hypothesize and find that the accruals of firms that have more estimates have a lower relation with future earnings (i.e., lower persistence) and a lower association with their past, current, and future cash flows. This paper was accepted by Suraj Srinivasan, accounting. Funding: This work was supported by Zijiang Endowment. H. Chen acknowledges the financial support from the National Natural Science Foundation of China [Grants 72150710550, 71790591, and 72121002]. J. V. Chen acknowledges the financial support from the University of Michigan, University of Illinois at Chicago, Paton Accounting Fellowship, and Harry Jones Endowment. F. Li acknowledges the financial support from SJTU SAIF Zijiang Discipline Development Fund, sponsored by the Zijiang Foundation. Supplemental Material: The internet appendix and data are available at https://doi.org/10.1287/mnsc.2022.4659. [ABSTRACT FROM AUTHOR]

Theoretical background: High levels of cash holdings allow companies to be financially flexible. Cash holders can react to business opportunities at once, and avoid dependence on external financing. Having cash reserves acts as a protective cushion from possible business shocks. However, cash holdings, like other asset items, incur cost. The direct costs mostly relate to obtaining and servicing of financing. Excessive cash may also induce the agency problem of free cash flow. Information asymmetry, among other factors, influences cost of capital and the efficiency of investor monitoring. Earnings management strategies are related to the informativeness of financial reports, as they can either support or disturb the assessment of company risk and performance. Hence, companies search for tailor-made strategies that usefully trade-off the benefits and costs of cash reserves and earnings quality. Purpose of the article: Earnings management occurs either via intervention in the reporting process using accruals, or changing the structure or the timing of real business transactions. This study aims to assess the differences in accrual and real earnings management strategies between firms with relatively high and low cash reserves. Based on a sample of non-financial companies listed on the Warsaw Stock Exchange in Poland, this research provides evidence on the relationship between the level of cash holdings and earnings quality. Research methods: Earnings management is proxied with annual cross-sectional regressions estimated in non-financial GICS sectors. The Jones and the modified Jones model allow to estimate expected accruals. Using the Roychowdhury approach, normal cash flow from operations, normal production costs, and normal discretionary expenses are estimated. These normal levels are compared with their actual value to proxy for accrual- and real-earnings management. Next, each company was assigned to one of two groups, depending on the level of cash holdings relative to the annual industry medians. Parametric and non-parametric tests were used to test statistical significance. Main findings: The empirical results show statistically significant differences in accrual and real earnings management between companies with relatively high and low cash reserves. Cash holders seem to be more likely to manage earnings via shifting accruals between periods. However, there is no evidence that any of the groups boosted earnings more. Unsigned earnings management proxies suggest lower informativeness of financial reports for companies with cash buffers. Cash holdings were positively related to activities aimed at reducing fixed costs per unit and savings on discretionary expenses. Summing up, this research shows that companies with greater information asymmetry related to poor earnings quality preferred to hold larger cash reserves. [ABSTRACT FROM AUTHOR]

This paper examines the implications of firm-level governance mechanisms and the regulatory environment on the relationship between investor sentiment and accrual-based earnings management. Our findings confirm the positive impact of sentiment on earnings management through accruals. Our results confirm that in the presence of a stringent regulatory environment, the likelihood of abnormal accruals following a positive sentiment environment is low. We document that a stringent regulatory environment reduces the likelihood of abnormal accruals following a positive sentiment environment. Results further confirm that improved governance characteristics like larger board, increased board independence, and stringent related party transaction norms help to monitor corporate behaviour and mitigates opportunistic earnings management activity of managers with an exogeneous effect of market sentiment. Thus, our results have important implications for regulators and policymakers for strengthening the regulatory and monitoring environment. Investors may also use earnings announcement news during an optimistic market sentiment scenario in a more informative way.

Intellectual capital is widely recognized as one of the most important assets in modern businesses, but it is only reported in the financial statement in certain conditions. This study aims to evaluate the role of value-added intellectual capital (VAIC) in moderating the relationship between earnings management and financial performance. This research uses data from non-financial companies listed on the Singapore Exchange and Indonesia Stock Exchange covering the period of 2016–2021, with a total of 3,303 firm-year observations. VAIC is measured using Pulic’s intellectual capital model and earnings management using the Kasznik Model (1999). This study uses multiple linear regressions to examine the relationship between variables. The findings indicate that earnings management has no significant effect on the financial performance of Singapore, but it has a significant positive effect on the financial performance of Indonesia. Furthermore, this study discovers that intellectual capital moderates the relationship between earnings management and financial performance in both countries differently, that intellectual capital moderation is positive (negative) for the Singapore (Indonesia) sample. These findings suggest that the role of intellectual capital varies depending on stock exchanges; Singapore is considered a developed country in Southeast Asia, whilst Indonesia is considered a developing one. This study concludes that the role of intellectual capital in the relationship between earnings management and financial performance varies between market characteristics and across industries.

Purpose: This paper analyses the relationship between information asymmetry and the cash hoarded by companies listed on the Warsaw Stock Exchange (WSE). Methodology/approach: We applied the Ordinary Least Squares approach to cross-sectional data of the 212 most liquid public companies for which data on bid-ask spread was available.Findings: We show that companies with greater information asymmetry hold more cash, confirming the investment opportunities hypothesis. The average bid-ask spread negatively impacts cash reserves, no matter the character of discretionary accruals. Net working capital and cash flow to non-cash asset ratios positively affect cash holdings, in contrast to the debt ratio. The results show that the costs of monitoring managers are lower than information asymmetry costs in Poland and suggest that holding more cash is more beneficial than going into debt. The default risk or the threat of borrowing costs rising in turbulent times is worse than a loss due to keeping cash. Research limitations/implications: Research limitations concern cross-sectional data only for one year – 2017.Originality/value: Our paper is the first study of the relationship between information asymmetry and cash holdings for the transition economy. The novelty of our research is also the use of a different approach to measure information asymmetry in the Polish capital market.

Este estudo objetiva analisar a habilidade gerencial na prática do gerenciamento de resultados, via suavização de resultados e accruals, nas empresas da B3. Para tal, realizou-se uma pesquisa quantitativa e descritiva com os dados obtidos na base de dados da Economática, que perfez uma amostra com 966 observações, no período de 2010 a 2020. Utilizou-se como medida de habilidade gerencial o modelo de Demerjian et al. (2012), que possui como parâmetros de eficiência as características do gerente na utilização dos recursos para gerar receitas. Para medir a suavização e os níveis de gerenciamento de resultados, utilizaram-se os modelos de Leuz et al. (2003) e McNichols (2002), respectivamente. Os resultados demonstraram que, em média, os gestores mais habilidosos tendem a suavizar e gerenciar resultados em níveis maiores do que gestores com menor habilidade, o que sinaliza que no Brasil, em média, os gestores mais hábeis tendem a diminuir a qualidade do lucro das firmas brasileiras. Este trabalho contribui com a literatura e preenche uma lacuna sobre a habilidade gerencial e o impacto dos resultados das empresas brasileiras, pois evidencia que, no Brasil, a habilidade gerencial está associada com práticas de suavização e gerenciamento de resultados e lança uma luz para as partes interessadas a respeito da influência do perfil dos gestores e suas capacidades de influenciarem nos números divulgados no mercado brasileiro.

Purpose: This research aims to analyze whether credit unions manage their accounting results in order to smooth them through the provision for doubtful accounts (income smoothing), from a default perspective. Methodology: The sample reaches 938 unique cooperatives considering the period from December 2010 to December 2018, with data from the Central Bank of Brazil, tested using the multiple regression statistical technique, in quarterly panels. Results: The variation in the stock of credit operations and the adjusted net income were not statistically significant in the model, however it was not possible to accept the hypothesis that credit unions use the allowance for loan losses (PCLD) as a mechanism for managing results. The interest rate implicit in the result of income from credit operations was significant, and therefore related to the PCLD variation, while the condition of free admission did not show statistical significance. The variation in default was significant in the model, with a negative coefficient, implying consistency with the earnings management hypothesis, since in a scenario of higher default (risk) the relationship is negative and, therefore, PCLD levels are lower, avoiding potential negative results. Contributions of the Study: The results indicate the absence of earnings management by PCLD in the sample and period, contributing to the discussion of the relationships between earnings management variables. This enables credit unions to reflect on their internal corporate governance structure. In addition, the evidence contributes to the progress of the literature on earnings manipulation in credit unions, for which there are few studies available and play an important role in the Brazilian market, ensuring funding flows to economic sectors not served by traditional banking institutions.

Investment decisions tend to affect outcomes beyond the decision-maker's tenure at the enterprise, and these outcomes, moreover, depend in part on the actions of the decision-maker's successors. Separation between ownership and management, with hired managers compensated by accounting-based performance pay, solves the resulting incentive horizon problem. By contrast, the standard solution to "sell the firm to the agent" or the use of stock-based compensation creates incentives to invest inefficiently. Optimal managerial incentive pay may in fact show weak or even inverse correlation with stock price and cash flow. Even in enterprises managed by their owners, the prospect of implementing accounting-based incentive compensation and separating ownership from management in the future can induce efficient decision incentives at present. The separation of management from ownership must, however, coincide with the sale of the business to a new owner under an accounting-based earn-out agreement. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Research in corporate financial reporting identifies two important roles of accounting accruals. First, accruals smooth fluctuations in operating cash flows. Second, accruals allow recognition of losses in an asymmetric timely manner. While these two roles imply different relations between individual accrual components and operating cash flow news, prior research often focuses on the properties of aggregate accruals. We investigate the role of individual accrual components and identify asymmetry in the relation of investment with operating cash flow news as a confounding factor. We show that this investment factor operates through depreciation and amortization accruals, which typically account for the bulk of aggregate accruals. Overall, our article demonstrates the importance of adopting a granular approach to identifying the different roles of individual accrual components.

Research in corporate financial reporting identifies two important roles of accounting accruals. First, accruals smooth fluctuations in operating cash flows. Second, accruals allow recognition of losses in an asymmetric timely manner. While these two roles imply different relations between individual accrual components and operating cash flow news, prior research often focuses on the properties of aggregate accruals. We investigate the role of individual accrual components and identify asymmetry in the relation of investment with operating cash flow news as a confounding factor. We show that this investment factor operates through depreciation and amortization accruals, which typically account for the bulk of aggregate accruals. Overall, our article demonstrates the importance of adopting a granular approach to identifying the different roles of individual accrual components.

In this study, we document the accrual-based earnings management of Old Economy firms and New Economy firms (firms in the technology industry) and loss-making firms (firms with negative earnings in the pre-pandemic year, 2019) and profit firms in each economy, respectively, before, during, and in the recovery year of the COVID-19 pandemic. Using both univariate and difference-in-difference regression analyses, we find that old and new economy firms adopt different accrual-based earnings management, and Old Economy Loss firms changed their accrual-based earnings management the most during and in the recovery of the pandemic. During the 2020 pandemic, Old Economy Loss reported the lowest amount of accrual-based discretionary accruals. This suggests that Old Economy Loss firms are engaged in the most conservative approach to reporting their earnings, consistent with the big bath proposition. In the recovery year of the pandemic, 2021, we find that accrual-based earnings management reversed, with the old economy losing firms reporting the highest amounts of discretionary accruals. However, we do not find that the explanatory power of earnings on the variance of stock prices for the old economy loss firms is affected by their discretionary change in accounting accruals. [ABSTRACT FROM AUTHOR]

In 2015, the Hong Kong Institute of Certified Public Accountants issued a standard requiring auditors to communicate key audit matters (KAMs) in the audit report. This standard provides an opportunity to examine the effect of KAMs on audit fees and financial reporting quality. Using public companies listed on the Main Board of the Hong Kong Stock Exchange as the treatment group and the companies listed on the Shanghai and Shenzhen Main Board Stock Exchanges as the control group, pre-post and difference-in-differences analyses show that the KAMs standard resulted in improved financial reporting quality but also higher audit fees. Further analyses show that, although the increase in audit fees was related to the risk of material financial statement mis-statements and audit firm business risk, the improvement in financial reporting, which occurred for companies with low financial reporting quality, resulted from the "threat to management of disclosure in KAMs." [ABSTRACT FROM AUTHOR]

Copyright of Vie et Sciences de l'Entreprise is the property of ANDESE and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

We provide an applied introduction to Bayesian estimation methods for empirical accounting research. To showcase the methods, we compare and contrast the estimation of accruals models via a Bayesian approach with the literature's standard approach. The standard approach takes a given model of normal accruals for granted and neglects any uncertainty about the model and its parameters. By contrast, our Bayesian approach allows incorporating parameter and model uncertainty into the estimation of normal accruals. This approach can increase power and reduce false positives in tests for opportunistic earnings management as a result of better estimates of normal accruals and more robust inferences. We advocate the greater use of Bayesian methods in accounting research, especially since they can now be easily implemented in popular statistical software packages. [ABSTRACT FROM AUTHOR]

Development of Earnings quality measures, especially Accruals quality measures, has been a critical line of research over more than three decades. Literature indicates that linear-regression-based measures are subject to (suffer from) significant estimation error in non-discretionary accruals estimation. Therefore, recent research used machine learning algorithms including multilayer perceptron and radial basis neural networks, in order to address the issue. However, being founded on Blackbox approach limits future development and applicability of these methods. So, to address the limitations, we have used Group Method of Handling Data (GMDH) approach, as a Whitebox approach, in order to estimate the accruals. Findings using data from 299 Tehran Securities Exchange listed companies during 1385 to 1397 suggests that GMDH-based models perform superior to regression models and multilayer perceptron neural networks in terms of estimation error measured by mean squared error. Moreover, Cash flow approach in total accruals calculation leads to less estimation error compared to balance sheet approach. As a result, the model developed in this article can be used by market participants such as regulators, analyst and auditors in order to detect probable financial reporting misstatements.

There are different ways in which accruals are measured in academic research. Ohlson (2014) provides a conceptual construct of accruals as the change in non-cash assets and liabilities. This measure includes accruals that are less manipulated for earnings management purposes and may be classified as discretionary accruals since they are not controlled in well-known models. This can lead to errors in the estimation of discretionary accruals (earnings management index in a wide range of accounting research). In accounting research, discretionary accruals are commonly used as an indicator of earnings management. The purpose of this study is to investigate type one error due to how accruals are measured in the test of earnings management. to investigate this problem in this study Jones (1991) and Dechow and Dichev's ( 2002) models, are examined using 157 firms listed in Tehran Stock Exchange from 2007 to 2018 under two different ways of accrual measurement approaches (balance sheet vs cash flow approaches). Findings show that the difference due to the measurement approach is classified as discretionary accruals. However, the simulations performed for the test of earnings management do not show an unacceptable type one error at the 95% confidence level for any of these approaches, suggesting that researchers can rely on Ohlson’s structure in measuring accruals.

Purpose: This study aimed to verify how corporate governance measures relate to earnings management in Brazilian publicly traded financial institutions. Design/methodology/approach: To carry out the research, 20 financial institutions listed on B3 were analyzed, with annual data from 2010 to 2019 obtained from the websites of the Brazilian Securities and Exchange Commission (CVM) and the IF.Data of the Central Bank of Brazil (Bacen). To obtain the results, regression models were estimated for each attribute of corporate governance in comparison with the selected earnings management measure. Findings: The results point to several associations of corporate governance attributes with earnings management measures. That is, corporate governance attributes reduce/increase earnings management in financial entities. Research limitations/implications: The findings of this study aim to assist company managers in improving their corporate governance policies to reduce accounting choices related to accounting management. Originality/value: The study proves to be original by the use of a broad panorama referring to corporate governance measures. Generally, studies that analyze the effects of governance on earnings management use few measures for this attribute. The study also advances by specifically analyzing financial institutions, generally excluded from studies on information quality due to their particularities. [ABSTRACT FROM AUTHOR]

Copyright of Zeszyty Teoretyczne Rachunkowości is the property of Stowarzyszenie Ksiegowych w Polsce Rada Naukowa and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The purpose of this study is to determine whether there is a relationship between the accruals, cash flows and stock returns for firms which trade in the BIST 100 index between 2005 and 2017 years. Findings prove that the persistence of the earning is high, and the persistence of cash flows is higher than the persistence of accruals. We find that accruals are negative predictors and cash flows are positive predictors for stock returns. In addition, simultaneously, we conclude that the discount rates and the change in the accruals and cash flows act together. [ABSTRACT FROM AUTHOR]

An efficient monitoring by an effective board can correlate the firm performance. The main purpose of this study is to examine the interaction of political connections and earnings quality on firm performance in Pakistani non-financial sector. The results show that politically connected firms have lower earnings quality. Using a sample of 114 actively trading firm on PSX for the period of 2011-2021, GMM estimates for panel data has been used. The significant and negative coefficient of interaction between earnings quality index and political connection shows the negative effect of manipulating earnings on all three performance measures of firms (ROA, ROE & PM) having politically connected directors as their board members. The results are consistent and support the prior research that Pakistani corporate sector has great influence of political connections. An interesting findings of this study are that this influence on accounting numbers is the reason behind financial crisis. Firms with political affiliations involve more in accrual earnings manipulations to improve financial numbers. These findings reveal that non-connected firms perform better than connected firms. Overall, the findings of this study are helpful for stakeholders, investors, supervisory and regulatory bodies to analyze the financial reports of politically connected firms even after the implementation of code of corporate governance and in improving financial reporting quality. Theoretically, the results support Agency theory and resource dependency theory. [ABSTRACT FROM AUTHOR]

We investigate whether accounting information system quality has an impact on the level and efficiency of firms’ investments. While firms’ growth depends on investment and financing decisions, accounting information is fundamental for the decision-making of several stakeholders. We assess the accounting information system quality by discretionary accruals, whereas the investment inefficiency is estimated by the residuals of an investment regression for a sample of 3073 Portuguese SMEs from 27 industries, over the period from 2016 to 2021 using a panel regression analysis. The empirical evidence suggests that firms exhibiting higher accounting information system quality tend to invest more. In addition, firms with a lower accounting information system quality have more inefficient investments, as they tend to engage in more overinvestment, although this is not significant for underinvestment. Therefore, this study provides new evidence regarding the impact of accounting information systems on investment that may be useful for several stakeholders, such as managers, creditors, regulators, and academics, by providing evidence for SMEs, where empirical studies are scarce.

While financial statements are the primary source of information about a firm, they tend to be under earnings management practices, namely to avoid paying tax. Therefore, we aim to examine whether taxes still affect earning persistence in an era of prevalent digital information. For that purpose, we use book–tax differences considering the deductible temporary differences and the taxable temporary differences. In addition, we analyze which of the two earnings components are more affected by taxes, specifically cash flow or accruals. We estimate econometric regressions using panel data to test our hypotheses. Through a sample of 421 small- and medium-sized (SME) Portuguese firms, between 2016 and 2020, we found empirical evidence that earning persistence tends to be lower when deductible temporary differences increase, while taxable temporary differences produce no statically significant effect. Furthermore, our results suggest that cash flow component increases more earning persistence than accruals. Therefore, deductible temporary difference may be an indicator of earnings management activities in these firms. These results are relevant, given the potential negative consequences of earnings management for the efficient decision making of stakeholders and even more because SMEs represent a substantial number of firms in European countries, particularly in Portugal. [ABSTRACT FROM AUTHOR]