scholarly journals Effectiveness of performance compensation commitment under Information Inequality

2021 ◽  
Vol 235 ◽  
pp. 03082
Author(s):  
Yuhang Zhou
Keyword(s):  
Earnings Management ◽  
Information Asymmetry ◽  
Sample Size ◽  
Information Society ◽  
Information Inequality ◽  
Goodwill Impairment ◽  
Commitment Period ◽  
Good Market ◽  
Accurate Performance ◽  
Integration Effect

The demand of information society promotes the production of performance compensation commitment, which is used to alleviate the information asymmetry between investors and listed companies. The generation of performance compensation commitments has reduced valuation difficulties and other problems to a certain extent, lowered M&A costs and improved M&A efficiency. However, as the sample size increases, its drawbacks have gradually emerged. Youbo Pharmaceutical has stepped on the line for three consecutive years to achieve accurate performance. After the commitment period expires, the performance has dropped by more than 50%, so the authenticity of its performance has been questioned. Through the analysis of its announcement and various indicators, I find that the performance compensation commitment can not bring good market reaction after the commitment period, nor can it improve the integration effect, and even there are some behaviors such as premium, goodwill impairment risk and earnings management.

scholarly journals IPO’s Long-Run Performance: Hot Market versus Earnings Management

2021 ◽  
Vol 14 (3) ◽  
pp. 132
Author(s):  
Tsai-Yin Lin ◽  
Jerry Yu ◽  
Chia-Yi Lin
Keyword(s):  
Earnings Management ◽  
Information Asymmetry ◽  
Explanatory Power ◽  
Market Condition ◽  
Relative Importance ◽  
Long Run ◽  
Hot Market

One of the IPO-related anomalies that have been well-discussed in the finance literature is the IPO’s long-running underperformance. Two of the major explanations of that phenomenon are: “Hot market” and earnings management. This study investigates the relative importance of these two explanations to the IPO’s long-run underperformance. Our results show that although both hot market and earnings management play a role in explaining IPO’s long-run performance in their own rights, earnings management no longer exhibits significant explanatory power when the IPOs are issued in the cold market. While the IPOs that are issued in the hot market still tend to underperform in the long run even if the firms do not engage in earnings management. Our findings are consistent with the literature related to the information asymmetry in IPO market. And, because the information asymmetry is more severe in hot market condition, IPOs issued in hot market tend to exhibit poorer returns than those issued in cold market.

Earnings management and goodwill impairment

2016 ◽  
Vol 17 (1) ◽  
pp. 120-147 ◽  
Author(s):  
Giuseppe Davide Caruso ◽  
Elisa Rita Ferrari ◽  
Vincenzo Pisano
Keyword(s):  
Earnings Management ◽  
Design Methodology ◽  
Income Smoothing ◽  
Financial Accounting ◽  
Current Debate ◽  
Managerial Behavior ◽  
Content Type ◽  
Listed Firms ◽  
Goodwill Impairment ◽  
Research Questions

Purpose – The purpose of this paper is to understand whether managerial behavior in impairing goodwill arising from M & As has changed after the adoption of IAS/IFRS, searching for evidences of earnings management (EM) practices. Thus, our goal is to provide a response to the following research questions. Are goodwill impairments used by listed firms’ managers to manipulate earnings? If so, what kind of EM practice is mostly used? Design/methodology/approach – In this paper the authors tested the following hypothesis: H1. In the year of the deal’s closure and in the following four years, the management detects impairment of goodwill in difformity with the previous Italian regulations and related accounting practices. Moreover, the authors tried to determine, for each considered firms, potential symptoms of typical DEM practices widely debated in the financial accounting literature (income smoothing, income minimization, income minimization, or big bath accounting). Findings – Our analysis does not prove evidence of certain EM practices, but it highlights very clearly that, after the adoption of IAS/IFRS, managers’ behavior has deeply changed. Moreover, the analysis shows that there is no univocal choice in favor of a specific EM practice and that every firm pursues its own “strategy.” Originality/value – Considering the importance of the topic from both the perspectives of managerial (with regard to M & As valuation processes) and financial accounting (with regard to intangibles valuation fulfilled by applying the impairment test instead of the amortization), this work aims to provide a multi-dimensional contribution to the current debate.

Big Bath Earnings Management: The Case Of Goodwill Impairment Under SFAS No. 142

2011 ◽  
Vol 20 (2) ◽  
Author(s):  
Charles E. Jordan ◽  
Stanley J. Clark
Keyword(s):  
Earnings Management ◽  
Compelling Evidence ◽  
Font Size ◽  
Goodwill Impairment ◽  
Current Period ◽  
Fortune 100 ◽  
Big Bath

<p class="MsoBodyText2" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-style: normal; mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">The big bath theory of earnings management suggests that firms experiencing low earnings in a given year may take discretionary write downs to reduce even further the current period&rsquo;s earnings.<span style="mso-spacerun: yes;">&nbsp; </span>The notion is that the company and its management will not be punished proportionately more for the big hit it takes to its already depressed earnings.<span style="mso-spacerun: yes;">&nbsp; </span>This &ldquo;clearing of the decks&rdquo; makes it easier to generate higher profits in later years.<span style="mso-spacerun: yes;">&nbsp; </span>SFAS No. 142, with its new requirement to test goodwill annually for impairment, provided a unique opportunity to test this big bath theory.<span style="mso-spacerun: yes;">&nbsp; </span>Examining Fortune 100 companies, this study presents compelling evidence that the big bath theory is more than just a theory but is instead a practiced method of managing earnings.</span></span></span></p>

scholarly journals A comparison of earnings management between domestic and cross-border mergers.

2010 ◽  
Vol 7 (4) ◽  
pp. 19-33
Author(s):  
Amy Yueh-Fang Ho
Keyword(s):  
Asymmetric Information ◽  
Mergers And Acquisitions ◽  
Earnings Management ◽  
Information Asymmetry ◽  
Discretionary Accruals ◽  
Informational Asymmetry ◽  
Empirical Results ◽  
Cross Border ◽  
Acquiring Firms ◽  
International Mergers

This study examines how U.S. acquiring firms managed their earnings by means of discretionary accruals prior to the announcement of stock-for-stock domestic and cross-border mergers during the period 1980 to 2002. The objective of this study is to determine whether earnings management is exacerbated in cross-border mergers according to the informational asymmetry hypothesis. The results show that that acquiring firms tend to manage earnings upward prior to stock swap domestic takeovers. In addition, the results reveal some evidence of earnings management prior to stock swap cross-border takeovers. However, the empirical results exhibit no significant distinction in earnings management between the domestic and cross-border mergers. Despite the possible existence of asymmetric information associated with cross-border takeover activities, the international mergers and acquisitions do not facilitate managers to engage in more aggressive earnings management. The findings suggest that the higher degree of information asymmetry in cross-border mergers does not contribute to a higher degree of earnings management.

scholarly journals An Extension of Testlet-Based Equating to the Polytomous Testlet Response Theory Model

2022 ◽  
Vol 12 ◽  
Author(s):  
Feifei Huang ◽  
Zhe Li ◽  
Ying Liu ◽  
Jingan Su ◽  
Li Yin ◽  
...  
Keyword(s):  
Item Response Theory ◽  
Sample Size ◽  
Item Response ◽  
Theory Model ◽  
Response Theory ◽  
Polytomous Items ◽  
Testlet Response Theory ◽  
Accurate Performance ◽  
The Impact ◽  
Item Response Theory Models

Educational assessments tests are often constructed using testlets because of the flexibility to test various aspects of the cognitive activities and broad content sampling. However, the violation of the local item independence assumption is inevitable when tests are built using testlet items. In this study, simulations are conducted to evaluate the performance of item response theory models and testlet response theory models for both the dichotomous and polytomous items in the context of equating tests composed of testlets. We also examine the impact of testlet effect, length of testlet items, and sample size on estimating item and person parameters. The results show that more accurate performance of testlet response theory models over item response theory models was consistently observed across the studies, which supports the benefits of using the testlet response theory models in equating for tests composed of testlets. Further, results of the study indicate that when sample size is large, item response theory models performed similarly to testlet response theory models across all studies.

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