Measuring Firms' Financial Constraints

Measuring firms' financial constraints can prove to be a difficult task for researchers because it is not possible to directly observe whether a firm is financially constrained. This chapter surveys the existing methodologies to measure such constraints at firm level, discussing the advantages and disadvantages of each one. In doing so, firstly, the authors review the direct and indirect measures of firms' financial constraints. Then they test the validity of the most commonly used indices using a large panel of (unlisted) Portuguese firms (2010-2017). The FCP index seems to outperform the other indices in capturing financial constraints of unlisted SMEs. This is not a surprising result, as most of the existing empirical literature on the field deals with listed (US) firms. It is not reasonable to expect that the coefficients of indices remain unchanged across countries and over time. Therefore, the authors propose their (re)estimation to apply them to different economies.

Corporate Governance and Firm Innovation

Innovation is a key factor for firms' competitive advantage in the long-term and for their financial success. Scholars highlight the underinvestment problem with respect of R&D investment. This chapter focuses on two relevant variables of corporate governance that influence firms' innovation performance: firm ownership and board of directors. In the first section, the effect of ownership structure on R&D investment is analyzed. More specifically, the chapter will illustrate the effects of family ownership and institutional ownership on innovation investments. The second section explores the main theoretical perspectives investigating the functions of board of directors and the main board tasks. Lastly, three attributes of board structure and their effect on R&D investments are explored.

Using Strategic Management Accounting Practices to Measure and Manage Intellectual Capital

The main purpose of this chapter is to examine the role of management accounting to measure and manage intellectual capital (IC), and more specifically to explore the potential role of strategic management accounting (SMA) in this process. In addition, this chapter is intended to link SMA practices and some IC resources. SMA practices enable the identification, measurement, and management of IC resources such as production processes and innovation capacity (e.g., target costing), quality management (e.g., quality costing), knowledge-based resources related to the organization´s external relationships (e.g., attribute costing, value chain costing, and target costing), and brand image (e.g., brand valuation/management). SMA practices, given its external orientation, enable, mainly, the identification and management of resources encompassed in relational capital. Therefore, this chapter contributes to the extant literature regarding the measurement and management of IC, highlighting the role of SMA, and provides some suggestions for further research.

The Perception of Portuguese Accountants on the Impact of the Implementation of E-Accounting With SAFT-PT

The researchers proceed with a quantitative approach resulting from a questionnaire addressed to Portuguese accountants in order to know their perceptions on the impact of adopting e-accounting to understand if they perceive it as a threat or as an opportunity for this profession. The authors found that respondents mostly believe that the level of dependency between accounting and taxation is medium, but that will sharply increase with the introduction of the e-accounting. The researchers found that most accountants perceive the implementation of e-accounting as a mix between problem and opportunity, whose main obstacle to implementation is, from the respondents' perspective, the inability of clients and employers to collaborate with this process. Additionally, data suggest that professional experience of the accountants, the development of the activity in accounting office or by other form, and finally, being certified accountants or accounting technicians are variables with impact on respondents' perceptions in this context.

Externally Financed Growth and Quality Accounting Information

This study investigates the association between quality accounting information (QAI) and externally financed growth (EFG), taking a sample of 214 firms in Brazilian stock exchange from 1998 to 2015. EFG is estimated from the sales percentage approach to financial planning. QAI is estimated according to the accruals quality model proposed by Dechow and Dichev and modified by McNichols. The hypothesis that signaling efficient accounting information marginally influences and positively EFG is tested by multiple linear regression with estimation by OLS and could not be rejected. It is inferred that QAI is a significant attribute in contributing to the firm's access to the external financing channel. This study broadens the discussions about the themes in the Brazilian scenario, shedding light on the importance of the practice of the dissemination of quality information for the growth of firms in the Brazilian context.

Earnings Management and Fraud

The purpose of the chapter is to provide a rounded discussion of the concept of earnings management and theories underpinning this behavior. The chapter presents an overview of the concept, with a discussion of alternative definitions and the theories related to this behavior, including the commonly discussed agency theory as well as some less-researched theories such as socioemotional wealth theory and upper echelons theory. The chapter also presents incentives that can lead to this behavior and evidence in the academic literature, followed by some examples in developed and developing countries of earnings management that spilled into fraud. The chapter concludes with a summary and some potential extensions to the academic literature.

A Critical Look at Social Reporting Evolution

This study analyzes the evolution of social reporting. After reviewing the literature on this topic and the main initiatives, reports, and standards, three stages can be distinguished: early moments, middle course, and current situation. All these stages have a coinciding concern that is accountability, but a very different way of putting it into practice. As the main conclusion, accountability continues to be the main objective of social reporting because companies understand the need to attend to stakeholders' demands in line with the stakeholder theory. However, voluntariness seems to give way to a regulatory horizon that allows the information received by these groups to be more relevant and reliable according to Directive 2014/95/EU for Non-Financial Information as a benchmark example of the social case in an international sphere. This contribution can help accounting regulators to address the immediate future of social reporting because understanding the past is a key to approaching the future.

Corporate Governance and Properties of Accounting Numbers in Brazil

This chapter analyzes 30 variables of the boards of directors (BDs) and oversight boards (OBs) of 325 Brazilian companies from 2011 to 2015, including examination of 19,487 resumés of their members. With support from factor analysis, the authors performed empirical tests considering the relations between the underlying factors of BDs and the properties of Brazilian accounting numbers, controlling for ownership structure, differences in corporate governance levels, issuance of ADRs, type of auditor, presence of an OB, size, and leverage. Factors like age, board interlocking, and variable compensation arrangements are the main characteristics associated with the variations in the accounting information properties of the firms analyzed. On the other hand, characteristics such as gender diversity, existence of a controlling shareholder chairing the board, board independence, and other characteristics considered relevant in the international literature tended to lose strength when the spectrum of variables analyzed increased.

The Importance of Financial Theories for SME Capital Structure Decisions

This chapter aims to analyze the importance of financial theories for SME capital structure decisions. The financial theories considered for this study were trade-off theory and pecking order theory. From the various empirical evidences researched in the Web of Science and Scopus database, it was found that most SME capital structure decisions follow the financial theory of hierarchical hierarchy, that is, the SME finance their investment opportunities through retained earnings, debt issuance, and finally stock issuance.

Benford Law and Earnings Analysis

The literature suggests that firms are actively managing the smoothing of their reported positive net incomes. The observed frequency of second digits abnormally exceeds the level predicted by Benford's Law, which results in a higher frequency of the number zero and an abnormally low occurrence of the number nine in the second digit of the reported income numbers. A reversal pattern occurs for reported net losses. This phenomenon is typically peculiar to countries with weak governance and firms under pressure to meet analysts' expectations. This chapter examines 10 years of reported net incomes by 5,040 firms (44,636 firm-years) in 10 countries ranked as having the best corporate governance quality. The analysis reveals that firms in these countries were not spared from opportunistically rounding their earning numbers. In fact, this rounding behavior is more prevalent when net losses were reported and this rounding phenomenon co-varied with some institutional factors; in particular, the rule of law and government effectiveness has significantly influenced the rounding behavior.