The Disciplining Role of the Market Versus Government Regulation: The Case of Sarbanes-Oxley and the Earnings Quality of M&A Targets

Corporate social responsibility (CSR) involves multiple activities and is influenced by the cultural and legal environment of the country in which a firm is located. This study examines the role of audit committees’ (AC) financial expertise in the relationship between CSR and the earnings quality of Korean firms with high levels of CSR. Using a multivariate analysis, it investigates whether the ACs that include members with accounting expertise, finance expertise, or supervisory expertise individually affect a firm’s decision making. It also examines how ACs with diverse expertise contribute toward improving the financial reporting quality of firms with high levels of CSR. The results demonstrate that when there is a certified accountant in the AC of a firm that practices CSR based on ethical motivation, the earnings management through discretionary accruals is more strictly controlled. This is more effective when the AC comprises members with accounting and non-accounting expertise. This finding implies that the AC plays a positive role in improving the accounting information quality of firms with CSR excellence. Moreover, while the role of accounting experts in the AC is important for maintaining high earnings quality, combining other types of expertise creates synergy.

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Discussion of the Quality of Accruals and Earnings: The Role of Accrual Estimation Errors

The Accounting Review ◽

10.2308/accr.2002.77.s-1.61 ◽

2002 ◽

Vol 77 (s-1) ◽

pp. 61-69 ◽

Cited By ~ 686

Author(s):

Maureen F. McNichols

Keyword(s):

Measurement Error ◽

Earnings Management ◽

Earnings Quality ◽

Discretionary Accruals ◽

Cash Flows ◽

Future Research ◽

Estimation Errors ◽

Empirical Estimates

Dechow and Dichev (2002) model earnings quality as the magnitude of estimation errors in accruals, and provide empirical estimates of this construct based on the relation between accruals and cash flows. I characterize the innovation and limitations in this approach, and provide empirical evidence of measurement error in their empirical specification. I also adapt their model to assess the specification of the Jones' (1991) model and document that this model provides estimates of discretionary accruals that are significantly associated with cash flows, which are likely to be substantially nondiscretionary. I conclude with suggestions for future research on earnings quality and earnings management.

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Gender diversity, financial expertise and its effects on accounting quality

Management Decision ◽

10.1108/md-02-2016-0090 ◽

2017 ◽

Vol 55 (2) ◽

pp. 347-382 ◽

Cited By ~ 24

Author(s):

Isabel-Maria García-Sánchez ◽

Jennifer Martínez-Ferrero ◽

Emma García-Meca

Keyword(s):

Earnings Quality ◽

Investor Protection ◽

Gender Diversity ◽

Accounting Conservatism ◽

Accounting Quality ◽

Content Type ◽

Board Characteristics ◽

Financial Expertise

Purpose The purpose of this paper is to analyze whether gender diversity on board and financial expertise on audit committee affect accounting conservatism in banking sector. Additionally, the authors focus on the effects of board characteristics on bank earnings quality and examine their effects on earnings persistence. Design/methodology/approach The authors use a large sample of 159 banks from nine different countries from the period 2004-2010. The authors study whether the differences in the timeliness of earnings to bad news and earnings quality across governance structures of banks are driven by differences across investor protection and bank regulation levels in banks. Findings The findings confirm the monitoring role of both female and financial experts, noting a positive effect of them on accounting conservatism and earnings quality in banks. According to the institutional characteristics, the results suggest the complementary role of banking regulation and investor protection levels in these effects, noting that in contexts of higher regulatory and greater investor protection environments, gender diversity and financial expertise on boards have more influence on the conservatism and earnings quality of banks. Originality/value The authors contribute to both the accounting quality literature and the corporate governance literature by identifying board characteristics that are associated with higher conservatism and quality of earnings in banks around the world. In addition, this study also contributes to the ethics literature by highlighting the benefits of gender diversity and financial expertise in upholding the integrity of financial reporting. Moreover, this paper adds to prior literature about board of directors and accounting quality by identifying additional complementary factors – bank regulation and investor protection – and by focusing on a specific industry, the banking industry.

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Non-Executive Chairman, Audit Quality and Earnings Management

International Journal of Business and Management ◽

10.5539/ijbm.v15n3p50 ◽

2020 ◽

Vol 15 (3) ◽

pp. 50

Author(s):

Aditi Shams

Keyword(s):

Earnings Management ◽

Executive Director ◽

Audit Quality ◽

Earnings Quality ◽

Governance Mechanism ◽

Jones Model ◽

Corporate Governance Mechanism ◽

Total Accrual

The purpose of this paper is twofold, first, it examines the association of non-executive chairman and the quality of financial earnings and second, it examines the role of audit quality and non-executive chairman in earnings quality. This paper uses the modified jones model and the performance adjusted modified Jones model considering two cash flow methods of total accrual and perform regression analysis on the energy sector firms from the year 2010-2012. The study result does not find any significant association of earnings management and non-executive director and audit quality in the Australian context. This finding raises concerns regarding the effectiveness of such a corporate governance mechanism to maximize monitoring over the operation of the firm.

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The effect of accounting conservatism and earn-ings management on earnings quality

International Journal of Accounting and Economics Studies ◽

10.14419/ijaes.v5i2.8454 ◽

2017 ◽

Vol 5 (2) ◽

pp. 157

Author(s):

Mohammad Delkhosh ◽

Mohammad Sadeghi

Keyword(s):

Multivariate Regression ◽

Stock Exchange ◽

Earnings Quality ◽

Multivariate Regression Analysis ◽

Accounting Conservatism ◽

Net Income ◽

Statistical Population ◽

Earning Quality

The net income has been always one of the important issues that had always been a favorite among financial statement's user, and the quality and management of it have always been the focus of attention of investors and creditors. The purpose of this study is to investigate the role of conservatism and earning management in earning quality. For this purpose, the Givoly and Hayn (2000) index were used as conservative measurement criteria and the modified Jones model (1995) was used as a measure of earning's management measurement, and the Dechow and Dichev (2002) index were used as a measure of the quality of earning (earnings sustainability) of the company. The statistical population of this study is 123 companies that listed on Tehran Stock Exchange between 2009 and 2014. For testing the research hypothesis a multivariate regression analysis was used. The results of the research indicate a significant negative (invert) relation between accounting conservatism and earning's management on the quality of earnings.

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SOX Section 404 Twenty Years After: Reviewing Costs and Benefits

ACRN Journal of Finance and Risk Perspectives ◽

10.35944/jofrp.2020.9.1.008 ◽

2020 ◽

Vol 9 (1) ◽

pp. 103-112

Author(s):

Bianca Fischer ◽

Bernadette Gral ◽

Othmar Lehner

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Internal Control ◽

Earnings Quality ◽

Costs And Benefits ◽

Section 404 ◽

Positive Effects ◽

Sarbanes Oxley

Some issues of the Sarbanes Oxley Act of 2002 are still discussed controversially in literature. Thereof, Section 404 concerning internal control over financial reporting is one of the most criticized parts. This article focuses on costs and benefits of the section and impacts on earnings management. Most authors agree that compliance costs of Section 404 far outweigh its benefits. However, long-term benefits are expected. Regarding earnings management, studies show that the section has positive effects such as increased earnings quality and improved internal control systems. Although the section is heavily debated in literature, there is consensus that SOX Section 404 greatly contributed to the improvement of quality of financial reporting and of corporate governance as a whole.

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The Spillover of SOX on Earnings Quality in Non-U.S. Jurisdictions

Accounting Horizons ◽

10.2308/acch-51241 ◽

2015 ◽

Vol 30 (1) ◽

pp. 23-39 ◽

Cited By ~ 6

Author(s):

Wouter Dutillieux ◽

Jere R. Francis ◽

Marleen Willekens

Keyword(s):

Earnings Quality ◽

Control Sample ◽

Spillover Effects ◽

Data Availability ◽

Institutional Setting ◽

Sarbanes Oxley ◽

Before And After ◽

Flow Through ◽

The U.S

SYNOPSIS In most European countries, U.S.-owned subsidiaries are required by law to file separate entity financial statements in local GAAP. We use this unique institutional setting to examine whether the Sarbanes-Oxley Act of 2002 (SOX) had a flow-through effect on the earnings quality of local GAAP financial reports for a sample of Belgian subsidiaries owned by U.S.-listed firms. Belgium has weaker institutions relative to the U.S. and this is a setting where the spillover effects of SOX might be expected to improve local GAAP earnings quality. Using a difference-in-differences research design, we compare changes in earnings quality before and after SOX for a treatment sample of Belgian subsidiaries owned by U.S.-listed companies (which are subject to SOX), with a control sample of Belgian-owned subsidiaries whose owners are not subject to SOX regulations. We find that the earnings quality of the U.S.-owned subsidiaries improved after SOX (smaller abnormal accruals and more timely loss recognition). In contrast, the earnings quality of the control sample was either unchanged or declined in the pre- versus post-SOX periods. These results suggest that SOX did have a flow-through effect on earnings quality in a non-U.S. jurisdiction, and that SOX has had a broader international effect beyond the original legislative intent. Data Availability: Data are available from sources identified in the paper.

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Does chairman independence matter?

Corporate Ownership and Control ◽

10.22495/cocv8i1p9 ◽

2010 ◽

Vol 8 (1) ◽

pp. 108-116

Author(s):

Hafiza Aishah Hashim ◽

Susela Devi Suppiah

Keyword(s):

Corporate Governance ◽

Financial Reporting ◽

Earnings Quality ◽

Reporting Quality ◽

Financial Reporting Quality ◽

Leadership Structure ◽

Reported Earnings ◽

The Relationship

This paper examines the relationship between the role of non-executive (independent) chairman and the quality of reported earnings. Recent corporate governance reforms recommend firms to appoint an independent leader to ensure the success of a split leadership structure (The Combined Code on corporate Governance, 2006; Higgs Report, 2003). Research on leadership structure to date has tended to focus solely on role duality and find weak or insignificance relationship between role duality and financial reporting quality. Although separating the roles of the chairman and the CEO seems appropriate, researcher argue that it would not necessarily lead to independence of the board if the chairman is not independent. Consistent with recent recommendations to strengthen board leadership by appointing an independent chair, this study evidences a positive and significant association between non-executive chairman and earnings quality in Malaysia. The study suggests that the non-executive status of the chairman is an important mechanism in enhancing the board‟s independence, thus improving earnings quality.

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PERAN KUALITAS LABA DALAM MEMEDIASI PENGARUH KONSERVATISME AKUNTANSI TERHADAP NILAI PERUSAHAAN

Jurnal Akuntansi Bisnis ◽

10.30813/jab.v14i1.2215 ◽

2021 ◽

Vol 14 (1) ◽

Author(s):

Kezia Octaviani ◽

Sugi Suhartono

Keyword(s):

Firm Value ◽

Earnings Quality ◽

Linear Regression Analysis ◽

Accounting Conservatism ◽

Share Price ◽

Coefficient Of Determination ◽

Manufacturing Companies ◽

Purposive Sampling

Abstract: The investor's valuation of the company's performance often only sees the stock price. High share price reflects the high value of the company as well. However, low share prices do not necessarily indicate the company's performance is poor. This research aims to analyse and know the role of quality of profit in the mediation of the influence of conservatism accounting on the firm value. Sampling techniques are performed by purposive sampling methods. Sample of 60 manufacturing companies that have been listed on the Indonesia Stock Exchange for the period 2016-2018.. The data analysis techniques undertaken are coefficient of similarity, descriptive statistics, classical assumption test, and linear regression analysis, including F-Test, T-Test, and coefficient of determination test. And to make the role of the quality of profit as a variable intervening, it is done using the analysis of pathways and Sobel tests to test indirect influences. The results showed that the quality of profit has a positive and significant effect on the firm value, accounting conservatism has a positive and significant effect on the quality of profit, while the accounting conservatism is not proven directly affect the value of the company. Based on the analysis of the track and The Sobel test shows that earnings quality can mediate the effect of accounting conservatism on firm value.Keywords: Accounting Conservatism, Earnings Quality, Firm Value Abstrak: Penilaian investor terhadap kinerja perusahaan seringkali hanya melihat dari harga saham. Harga saham yang tinggi mencerminkan nilai perusahaan yang tinggi. Namun, harga saham yang rendah tidak selalu mengindikasikan kinerja perusahaan tersebut kurang baik. Tujuan dari penelitian ini adalah untuk menganalisis peran kualitas laba dalam mediasi pengaruh konservatisme akuntansi terhadap nilai perusahaan. Pengambilan sampel menggunakan teknik non probalility sampling dengan metode purposive sampling. Sampel sebanyak 60 perusahaan manufaktur yang telah didaftarkan di BEI (Bursa Efek Indonesia) periode tahun 2016-2018. Teknik analisis data antara lain uji kesamaan koefisien, statistika deskriptif, uji asumsi klasik, dan analisis regresi linear yang meliputi uji F, uji t, dan uji koefisien determinasi. Pengujian peran kualitas laba sebagai variable intervening, dilakukan dengan analisis jalur dan uji Sobel untuk menguji pengaruh tidak langsung. Hasil penelitian membuktikan bahwa kualitas laba berpengaruh positif dan signifikan terhadap nilai perusahaan, konservatisme akuntansi berpengaruh positif dan signifikan terhadap kualitas laba, sedangkan konservatisme akuntansi tidak terbukti berpengaruh secara langsung terhadap nilai perusahaan. Berdasarkan hasil path analysis dan Uji Sobel menunjukkan bahwa kualitas laba dapat memediasi pengaruh konservatisme akuntansi terhadap nilai perusahaan.Kata kunci: Konservatisme Akuntansi, Kualitas Laba, Nilai Perusahaan.

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