scholarly journals Do diligent independent directors restrain earnings management practices? Indian lessons for the global world

2019 ◽  
Vol 4 (1) ◽  
pp. 52-69
Author(s):  
Nimisha Kapoor ◽  
Sandeep Goel
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Panel Data Analysis ◽  
Economic Value ◽  
Independent Directors ◽  
Content Type ◽  
Board Processes ◽  
Global World ◽  
The Impact

Purpose The purpose of this paper is to explore the role of independent directors’ diligence in restraining earnings management practices in the Indian context. Design/methodology/approach It employs a panel data analysis to test the association of earnings management with the diligence of independent directors. Findings The results suggest that the diligence of independent directors has a significant impact on earnings management. The findings support the agency theory and provide evidence of the role played by the board processes in restricting earnings management. Originality/value This study is important for the regulators as it highlights the significance of independent directors’ diligence in producing higher quality financial statements, thereby creating the real economic value of companies. This is the first article that explores the impact of independent directors’ diligence on earnings management practices particularly in the context of an emerging economy, like India in the light of new Companies Act 2013 and revised Clause 49 of the Listing Agreement, 2014 by Securities and Exchange Board of India.

scholarly journals The impact of corporate governance mechanisms on real and accrual earnings management practices: evidence from Jordan

2019 ◽  
Vol 19 (6) ◽  
pp. 1167-1186 ◽  
Author(s):  
Lara Al-Haddad ◽  
Mark Whittington
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Management Practices ◽  
Reporting Quality ◽  
Content Type ◽  
Public Firms ◽  
Corporate Governance Mechanisms ◽  
The Impact

Purpose This paper aims to investigate the impact of corporate governance (CG) mechanisms on real (REM), accrual-based earnings management (AEM) and REM/AEM interaction in Jordan following the 2009 Jordanian CG Code (JCGC). Design/methodology/approach The study used a sample of 108 Jordanian public firms covering 2010-2014. Hypotheses are tested using pooled OLS-regression models. Findings The authors find that both institutional and managerial ownership constrain the use of REM and AEM. In contrast, both independent directors and large shareholders are found to exaggerate such practices, and CEO-duality is found to exaggerate REM only. However, foreign ownership does not appear to have a significant impact. They further find that managers use REM and AEM jointly to obtain the greatest earnings impact. Practical implications The findings have important implications for policymakers, regulators, audit professionals and investors in their attempts to constrain earnings management (EM) practices and improve financial reporting quality in Jordan. Originality/value The authors believe this to be the first Jordanian study examining the relationship between CG mechanisms and both REM and AEM following the introduction of the 2009 JCGC, as well as the first in Jordan and the Middle East to examine board characteristics and REM. Moreover, it is the first to test for the potential substitution of REM and AEM since the 2009 JCGC enactment. As such, the findings draw attention to EM practices and the role of monitoring mechanisms in Jordan.

Do corporate diversification and earnings management practices affect capital structure?

2015 ◽  
Vol 7 (4) ◽  
pp. 360-378 ◽  
Author(s):  
Ranjitha Ajay ◽  
R Madhumathi
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Negative Relationship ◽  
Corporate Diversification ◽  
Content Type ◽  
Diversification Strategies ◽  
Market Product ◽  
Diversified Firms ◽  
The Impact

Purpose – The purpose of this paper is to empirically examine the impact of earnings management on capital structure across firm diversification strategies. Design/methodology/approach – The study focuses on firms operating in the manufacturing sector (diversified and focused). Panel data methodology compares diversification strategies and identifies the impact of diversification strategy with earnings management practices on capital structure decision. Findings – International and product diversified firms have lower levels of leverage than focused firms in their capital structure. Asset-based earnings management is positive for diversified (market/product) firms. Earnings management using discretionary expenditure (project based) is found to be higher for market diversified but product-focused firms. Earning smoothing method is found to be significant for focused firms and shows a negative relationship with capital structure. Originality/value – This study offers an insight into the relationship between corporate diversification, earnings management and capital structure decisions of manufacturing firms. The results provide an important contribution to accounting and strategy literature. A distinction is made between market- and product-diversified firms and influence of earnings management practices (asset-based, project-based and earnings smoothing (ESM)) on capital structure decisions. Diversified firms (market/product) tend to have lower levels of leverage than focused firms and earnings management practices within firm groups significantly influence the capital structure decisions.

Earnings management and audit quality at Damascus securities exchange: Does managerial ownership matter?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zukaa Mardnly ◽  
Zinab Badran ◽  
Sulaiman Mouselli
Keyword(s):  
Earnings Management ◽  
Ownership Structure ◽  
Management Practices ◽  
Audit Quality ◽  
Emerging Market ◽  
Ordinary Least Squares ◽  
Managerial Ownership ◽  
External Audit ◽  
Content Type ◽  
The Impact

Purpose The purpose of this study is to examine the individual and combined effect of managerial ownership and external audit quality, as two control mechanisms, on earnings management. Design/methodology/approach This study applies ordinary least squares estimates on fixed-time effects panel regression model to test the impact of the investigated variables on earnings management for the whole population of banks and insurance companies listed at Damascus Securities Exchange (DSE) during the period from 2011 to 2018. Findings The empirical evidence suggests a negative non-linear relationship between managerial ownership (as proxied by board of directors’ ownership) on earnings management. However, neither audit quality nor the simultaneous effect of the managerial ownership and audit quality (Big 4) affects earnings management. Research limitations/implications DSE is dominated by the financial sector and the number of observations is constrained by the recent establishment of DSE and the small number of firms listed at DSE. In addition, the non-availability of data on executive directors’ and foreign ownerships restrict our ability to uncover the impact of different dimensions of ownership structure on earnings management. Practical implications First, it stimulates investors to purchase stocks in financial firms that enjoy both high managerial ownership, as they seem enjoying higher earnings quality. Second, the findings encourage external auditors to consider the ownership structure when choosing their clients as the financial statements’ quality is affected by this structure. Third, researchers may need to consider the role of managerial ownership when analyzing the determinants of earnings management. Originality/value It fills the gap in the literature, as it investigates the impact of both managerial ownership and audit quality on earnings management in a special conflict context and in an unexplored emerging market of DSE. It suggests that managerial ownership exerts a significant role in controlling earnings management practices when loose regulatory environment combines conflict conditions. However, external audit quality fails to counter earnings management practices when conditions are fierce.

Green marketing programs as strategic initiatives in hospitality

2015 ◽  
Vol 29 (2) ◽  
pp. 81-92 ◽  
Author(s):  
Mark Scott Rosenbaum ◽  
Ipkin Anthony Wong
Keyword(s):  
Firm Value ◽  
Structural Equation ◽  
Economic Value ◽  
Green Marketing ◽  
Loyalty Programs ◽  
Equation Modeling ◽  
Content Type ◽  
The Impact ◽  
Guest Loyalty

Purpose – This paper aims to investigate a guest’s subjective appraisal of a hotel’s green marketing program, or green equity, along with value, brand and relationship equities on guest loyalty. Design/methodology/approach – Study 1 presents three models to explicate the role of a luxury hotel’s green initiatives in influencing guest loyalty. By means of structural equation modeling, one model emerges with the best fit. Study 2 examines how tourists assign economic value to a hotel’s green programs. Findings – Green equity plays a significant role in customers’ overall assessment of a hotel’s marketing programs; however, the effect is weaker when compared with the other indicators, including a hotel’s value proposition, brand image and loyalty programs. Furthermore, the results reveal that tourists are willing to pay a price premium for a hotel’s green marketing programs. Research limitations/implications – The paper links green marketing to the customer equity model and clarifies the impact of green marketing programs on loyalty and profitability. However, the study was conducted among luxury hotel guests and tourists in Macau, a leading gambling destination; thus, these customers might not have been concerned with green marketing initiatives. Practical implications – The results show that green initiatives are beneficial as long as managers include these initiatives in their overall strategic marketing programs that also promote firm value propositions, brand images and reputation. Originality/value – The paper clarifies the role of green marketing programs in hospitality and shows how hotels can benefit from enhanced guest loyalty and decreased operational expenses by implementing green initiatives.

Do discretionary accruals affect firms’ corporate dividend policy? Evidence from France

2018 ◽  
Vol 16 (2) ◽  
pp. 333-347 ◽  
Author(s):  
Anis Ben Amar ◽  
Olfa Ben Salah ◽  
Anis Jarboui
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Positive Impact ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Discretionary Accruals ◽  
Additional Measure ◽  
Ample Evidence ◽  
Content Type ◽  
The Impact

Purpose In financial literature, dividend payout decisions are determined by factors such as debt, liquidity, profitability, size and risk. The purpose of this paper is to identify the effect of earnings management measured by discretionary accruals based on Dechow et al.’s (1995) model on dividend policy. Design/methodology/approach This research will use panel data analysis to test the effect of earnings management on dividend policy. The authors selected 280, French non-financial companies, listed on the CAC All Tradable index for the 2008-2015 period. Findings Using a sample of 2108 firm-year observations, the authors find a positive impact of earnings management on dividend policies of firms. Besides, there is a positive/negative relationship between the size of the firm and the dividend policy. Moreover, this paper has dealt with some factors such as debt, the risk of the firm and liquidity which may affect the corporate dividend policy. The results are robust as the authors adopted an additional measure of dividend policy. Practical implications The findings may have important implications for analysts, investors, regulators and academics. First, the study shows that earnings management is a common practice in the French context and constitutes a major objective of dividend policy. Better still, identifying the other variables that influence the dividend policy provides a clearer understanding of dividend policy for investors, analysts and academics alike. Second, the study provides ample evidence of agency problems between various partners in French capital markets, highlighting the necessity to establish new corporate governance mechanisms. This is highly relevant for policymakers in their quest for a better financial market. Originality/value This study extends the literature on the impact of dividend thresholds on earnings management by showing that firms run earnings to inform the market that the company can distribute dividends.

The role of audit committees in mitigating earnings management: evidence from Jordan

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Taha Almarayeh ◽  
Modar Abdullatif ◽  
Beatriz Aibar-Guzmán
Keyword(s):  
Developing Countries ◽  
Earnings Management ◽  
Audit Committee ◽  
Discretionary Accruals ◽  
Least Square ◽  
Audit Committees ◽  
Institutional Setting ◽  
Content Type ◽  
The Impact

PurposeThis study examines the relationship between audit committees (ACs) and earnings management (EM) in the developing country context of Jordan. In particular, it investigates whether audit committee attributes, including their size, independence, expertise and meetings, are able to restrict discretionary accruals as a proxy for EM.Design/methodology/approachThe generalized least square (GLS) regression was used to study the association between audit committee attributes and discretionary accruals, as a proxy of EM, for a sample of industrial firms listed on the Amman Stock Exchange (ASE) during the period 2012–2020. Data were obtained from the firms' annual reports.FindingsThe regression results indicate that audit committee independence is the only audit committee attribute that seems to improve the effectiveness of ACs, in that it is significantly associated with less EM, while other audit committee attributes that were tested do not show statistically significant associations.Research limitations/implicationsIn emerging markets, like Jordan, ACs may not be an efficient monitoring mechanism; therefore, it can be argued that the prediction made by the agency theory about the role of ACs in mitigating opportunistic EM activities does not necessarily apply to all contexts.Practical implicationsA better understanding of audit committee effectiveness in developing countries could help regulators in these countries assess the impact of planned corporate governance (CG) reforms and to better monitor and enhance the performance of ACs.Social implicationsIn a setting characterized by closely held companies, high power distance and low demand for high-quality CG mechanisms, this study contributes to understanding how this business system operates, and how improving CG mechanisms could be successful in such cultures.Originality/valueThis study investigates the under-researched relationship between audit committee characteristics and EM in developing countries. In so doing, it aims to provide new insights into this relationship within the developing context case of Jordan, including if and how the institutional setting influences this relationship.

Board characteristics, external auditing quality and earnings management

2014 ◽  
Vol 4 (1) ◽  
pp. 79-96 ◽  
Author(s):  
Neila Boulila Taktak ◽  
Ibtissem Mbarki
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Audit Quality ◽  
Good Practice ◽  
Board Structure ◽  
External Audit ◽  
Content Type ◽  
Board Characteristics ◽  
Big 4 ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of board characteristics and external audit quality on earnings management among major Tunisian banks over the period 2003-2007. Design/methodology/approach – Multivariate regressions are employed to test the effect of board structure and external audit quality on discretionary provisions as a proxy for earnings management. Findings – Results indicate that among the characteristics of the board, CEO duality is associated with higher levels of discretionary provisions. However, the presence of directors affiliated to the largest shareholder tends to constrain earnings management practices. The results reveal also that a co-audit belonging to the BIG 4 provides incentives to manage earnings while the capacity of the external auditor to disclose reservations impacts negatively the manager's discretion. Practical implications – First, it is not desirable to appoint a co-audit both belonging to the BIG 4. Second, the presence of affiliated directors reduces the discretionary practices except in cases where directors are affiliated to families. In this case, banks should strengthen the presence of independent directors. Finally, the delineation of the leeway left in the Tunisian accounting standards would provide more transparent financial information. Originality/value – This study contributes to the literature on governance and its impact on earnings management among Tunisian banks by introducing two variables that have not been tested before which are affiliated directors and co-audit. The paper will be of value to banks willing to comply with the Governance Good Practice Guide adopted recently in Tunisia.

Determinants of loan losses of Indian Banks: a panel study

2015 ◽  
Vol 9 (1) ◽  
pp. 17-32 ◽  
Author(s):  
Satyajit Dhar ◽  
Avijit Bakshi
Keyword(s):  
Public Sector ◽  
Panel Data Analysis ◽  
Capital Adequacy ◽  
Content Type ◽  
Specific Factors ◽  
Indian Banks ◽  
Loan Losses ◽  
The Impact ◽  
Bank Specific Factors

Purpose – The purpose of this paper is to examine the factors that influence the variability of loan losses (termed as non-performing advances or NPA in India) of Indian banks in the public sector during the period of five years from 2001 to 2005. Design/methodology/approach – The analysis is based on a panel approach, which considers both spatial and time dimensions of observations. Panel regression was used to explore the impact of different bank-specific factors on NPAs of 27 public sector banks (PSBs). Standard tests were used to find out suitability of different models of panel data analysis. Eight bank-specific factors were identified for analysis on the basis of review of extant literature. Findings – Certain bank-specific factors, in particular, net interest margin and capital adequacy ratio exhibit negative and significant impact on gross non-performing advances (GNPA) ratio of Indian PSBs. The results also suggest that relative quantum of sensitive sector (SEN) (comprised of commercial real estate, commodity and capital market) advances has a positive relationship with NPA ratio, and such a relationship is statistically significant. Research limitations/implications – The sample is restricted to India and may not be reflective of other countries. The study considers bank-level factors, and there are some macro factors (e.g. gross domestic product, interest rate and inflation rate) which could have explained the variability of GNPA ratio. Practical implications – Provisioning against loan losses is a major issue for stability of the banking system. Identification of appropriate causes of variability of such loan losses is important for managing credit portfolio of a bank. A positive and significant relationship between SEN advances and NPA calls for a more cautionary approach toward lending to those sectors. Originality/value – This paper is believed to be the first attempt to empirically examine the role of bank-specific factors. This study attempts to enrich empirical research in the field and provides an insight into the role of various bank-specific factors on loan losses in the context of Indian PSBs. The study provides contrary evidence regarding the role of priority sector advances on a GNPA ratio.

Political stability, political rights and earnings management: some international evidence

2019 ◽  
Vol 33 (1) ◽  
pp. 57-74 ◽  
Author(s):  
Tesfaye Taddese Lemma ◽  
Ayalew Lulseged ◽  
Mthokozisi Mlilo ◽  
Minga Negash
Keyword(s):  
Earnings Management ◽  
Political Stability ◽  
Real Earnings Management ◽  
Political Rights ◽  
Firm Level ◽  
Content Type ◽  
Financial Firms ◽  
Political Forces ◽  
The Impact

Purpose This study aims to examine the impact of political stability and political rights on firm-level earnings (both accrual-based and real) management. Design/methodology/approach The authors develop models that link political stability, political rights, and the interplay between the two and earnings (both accrual-based and real) management. The authors analyze 63,872 firm-year observations of publicly listed, non-financial, firms drawn from 39 countries, for the period 1995 to 2016. Findings The authors find that political stability (political rights) attenuates (accentuates) accrual-based earnings management; political rights (political stability) accentuates (have no effect on) real earnings management; and the association between political rights and real earnings management is more pronounced in countries with better political stability. Practical implications The findings imply that users of financial statements should take cognizance of a country’s ambient political environment in assessing the potential for earnings management by firms. Originality/value No prior research examined the role of political forces in shaping firm-level earnings management behavior in a cross-country setting.

Internal audit function and real earnings management practices in an emerging market

2020 ◽  
Vol 28 (6) ◽  
pp. 1209-1230
Author(s):  
Belal Ali Abdulraheem Ghaleb ◽  
Hasnah Kamardin ◽  
Adel Ali Al-Qadasi
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Emerging Market ◽  
Negative Relationship ◽  
Internal Audit ◽  
Least Square ◽  
Real Earnings Management ◽  
Content Type ◽  
Internal Audit Function

Purpose This study aims to investigate the monitoring role of internal audit function (IAF) on real earnings management (REM) practices. It examines the effect of investment in IAF (IIAF) and IAF sourcing arrangements on REM, unlike prior literature which has mainly examined the effects of IIAF on accrual-based earnings management. Design/methodology/approach This study uses a sample of 1,056 observations from an emerging market, Malaysia, between 2013 and 2016. Feasible generalised least square (FGLS) regression is used to analyse the data. To corroborate the results of this study, the authors use an ordinary least square (OLS) regression model with robust standard errors adjusted and also consider alternative REM measures. Findings The results of this study suggest that IIAF has a significant negative relationship with REM practices. Further, in-house IAF sourcing has a significant negative association with REM. The additional analysis supports the main results confirming the essential role of IAF in reducing REM in the Malaysian market. Practical implications The evidence relates to the important role of IAF in mitigating REM practices. High-quality of IAF impairs managers’ ability to manage earnings in their own interests. The findings may be useful in informing regulators, managers, shareholders and other investors, as well as researchers, about improving the role of IAF. Originality/value This study contributes to the existing literature by providing the first evidence of the significant role of IIAF and IAF sourcing arrangements in mitigating REM in an emerging country.

Sign in / Sign up

Export Citation Format

Share Document