scholarly journals Real earnings management and stock returns: moderating role of cross-sectional effects

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Manish Bansal ◽  
Asgar Ali ◽  
Bhawna Choudhary
Keyword(s):  
Earnings Management ◽  
Stock Returns ◽  
Stock Prices ◽  
Production Costs ◽  
Real Earnings Management ◽  
Cross Sectional ◽  
Content Type ◽  
The Impact ◽  
Moderating Role

PurposeThe study aims at investigating the impact of real earnings management (REM) on the cross-sectional stock return after considering the moderating role of market effect, size effect, value effect and momentum effect.Design/methodology/approachThe study uses weekly and monthly data of 3,085 Bombay Stock Exchange listed stocks spanning over twenty years, from January 2000 to December 2019. REM is measured through metrics developed by Roychowdhury (2006), namely, abnormal levels of operating cash flows, production costs and discretionary expenditure. The study employs univariate and bivariate portfolio-level analysis.FindingsThe findings deduced from the empirical results demonstrate that investors perceive downward REM as an element of risk; hence, they discount the stock prices at a higher rate. On the contrary, results show that investors positively perceive upward REM; hence, they hold the stocks even at a lower rate of return. This anomaly is found to be robust for all kinds of considered moderations.Practical implicationsThe findings have important managerial implications as investors are found to assign different weights to different forms of REM, depending upon the perception regarding the magnitude of risk involved in different forms. Managers can accommodate this information during their short- and long-term corporate planning.Originality/valueFirst, the study is among the earlier attempts to examine the association between REM and stock returns by considering the moderating role of cross-sectional effects. Second, the study considers the direction and endogenous nature of REM while investigating the issue.

Impact of upward and downward earnings management on stock returns

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Asgar Ali ◽  
Manish Bansal
Keyword(s):  
Earnings Management ◽  
Stock Returns ◽  
Stock Return ◽  
Momentum Effect ◽  
Cross Sectional ◽  
Content Type ◽  
Uniform Sample ◽  
The Impact ◽  
Moderating Role

PurposeThe current study aims at examining the impact of upward and downward earnings management on the cross-sections of stock return. The study also examines the moderating role of cross-sectional effects on the association between earnings management and stock returns.Design/methodology/approachThe study employed univariate and bivariate-sorted portfolio-level analysis to investigate the issue. Fama–Macbeth cross-sectional regression is used to analyze the moderating role of different cross-sectional effects. The study used a sample of 3085 Bombay Stock Exchange (BSE) listed stocks spanning over 20 years from January 2000 to December 2019.FindingsThe findings suggest that investors have different perceptions toward different forms of earnings management. In other words, results exhibit that investors perceive downward earnings management as an element of risk; hence, they discount the returns at a higher rate. On the contrary, results show that upward earnings management is positively perceived by the investors; hence, they hold the stocks even at a lower rate of return. This relation is found to be consistent even after controlling the impact of marker effect, size effect, value effect and momentum effect.Originality/valueThis study is among pioneering studies that consider the direction of earnings management while examining its impact on the stock return. This study is also among the earlier attempts to examine the moderating role of four different cross-sectional effects by taking a uniform sample of stocks over the same period.

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.

scholarly journals The impact of audit quality on real earnings management in the UK context

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Syed Numan Chowdhury ◽  
Yasser Eliwa
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Production Costs ◽  
Real Earnings Management ◽  
Sampled Data ◽  
Content Type ◽  
Listed Firms ◽  
Big 4 ◽  
The Uk ◽  
The Impact

Purpose The purpose of this paper is to examine whether audit quality influence real earnings management activities using a sample of UK listed firms that have strong incentives to manage earnings upward through meeting past year’s earnings as a benchmark in the post-adoption period of International Financial Reporting Standards (IFRS). Design/methodology/approach The authors use a sample of 4,774 firm-year observations of UK listed firms during the period 2005–2018. Univariate and multivariate analyses have been conducted to test the association after controlling for firm characteristics and institutional variables. Findings The study reports that the presence of Big 4 auditors is significantly and positively related with greater levels of sales and discretionary expenses manipulation. Though the authors do not find any conclusive evidence on production costs manipulation, the aggregated measure of real earnings management shows a significant positive association with the presence of Big 4 auditors. Practical implications The study implies that managers who have incentives to manage earnings upward around the UK firms take advantage of the accounting flexibility in defining policies while reducing information asymmetry among the investors to signal better future performance. The approach to detect earnings manipulation as described in the auditing standards fails to limit the managerial use of real activities due to limited scope and unclear guidance. Thus, due to the significant impact on public policies, the results should, therefore, be of interest to the regulators and standard setters. Originality/value To the best of the authors’ knowledge, this is the first study that examines the association between audit quality and real earnings management for the UK all-purpose operational firms in sampled data that just meet past year’s earnings as a benchmark in the post-IFRS period.

Investor sentiment and government policy interventions: evidence from COVID-19 spread

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Garima Goel ◽  
Saumya Ranjan Dash
Keyword(s):  
Stock Returns ◽  
Government Policy ◽  
Stock Return ◽  
Investor Sentiment ◽  
Role Of Government ◽  
Content Type ◽  
Policy Interventions ◽  
The Impact ◽  
Moderating Role

Purpose This paper aims to investigate the moderating role of government policy interventions amid the early spread of novel coronavirus (COVID-19) (January–May 2020) on the investor sentiment and stock returns relationship. Design/methodology/approach This paper uses panel data from a sample of 53 countries to examine the impact of investor sentiment, measured by the financial and economic attitudes revealed by the search (FEARS) index (Da et al., 2015) on the stock return. Findings The moderating role of government policy response indices with the FEARS index on the global stock returns is further explored. This paper finds that government policy responses have a moderating role in the sentiment and stock returns relationship. The effect holds true even when countries are split based on five classifications, i.e. cultural distance, health standard, government effectiveness, social well-being and financial development. The results are robust to an alternative measure of pandemic search intensity, quantile regression and two measures of stock market activity, i.e. conditional volatility and exchange traded fund returns. Research limitations/implications The sample period of this study encompasses the early spread phase (January–May 2020) of the novel COVID-19 spread. Originality/value This paper provides some early evidence on whether the government policy interventions are helpful to mitigate the impact of investor sentiment on the stock market. The paper also helps to shed better insights on the role of different country characteristics for the sentiment and stock return relationship.

scholarly journals Managing servitization in product companies: the moderating role of service suppliers

2019 ◽  
Vol 39 (1) ◽  
pp. 43-74 ◽  
Author(s):  
Néstor F. Ayala ◽  
Wolfgang Gerstlberger ◽  
Alejandro G. Frank
Keyword(s):  
Cross Sectional ◽  
Content Type ◽  
Quantitative Studies ◽  
Product Service ◽  
Service Oriented ◽  
The Impact ◽  
The Relationship ◽  
A Company ◽  
Moderating Role

PurposeThe purpose of this paper is to study service innovation in product companies (servitization) by considering the relationship (moderation) between product companies and service suppliers.Design/methodology/approachUsing a relational view of the firm, the authors propose that there are three main business dimensions that product companies have to manage in servitization and that the support of service suppliers can moderate the effects of these dimensions on the benefits obtained from the product–service system (PSS) delivered. To test these hypotheses, the authors perform a cross-sectional quantitative survey in 104 Brazilian and Italian product companies.FindingsThe findings show that the three business dimensions are important for servitization while there is a trade-off decision regarding service suppliers’ support since suppliers act differently depending on the PSS orientation (product- or service-oriented).Research limitations/implicationsThe work is limited to the analysis of what should change in a company during servitization and the impact of supplier’s support. Further research is needed to complement this study by analyzing the process and context of the organizational change.Practical implicationsThe research contributes an understanding about how the benefits practitioners can obtain from servitization are strongly influenced by the support of service suppliers and how this influence depends on the PSS orientation of the product company.Originality/valueThis is one of the first quantitative studies to provide evidence of how service suppliers’ involvement affects different servitization business dimensions and the obtained benefits for both product- and service-oriented outputs.

Real earnings management or “just business”

2017 ◽  
Vol 9 (3) ◽  
pp. 268-283
Author(s):  
Angel Arturo Pacheco Paredes ◽  
Clark Wheatley
Keyword(s):  
Earnings Management ◽  
Negative Impact ◽  
Production Costs ◽  
Real Earnings Management ◽  
Business Practices ◽  
Sales Growth ◽  
Content Type ◽  
Future Performance ◽  
Future Return ◽  
The Impact

Purpose The purpose of this study is to refine what is characterized as real earnings management. Research on real earnings management (REM) has expressed concerns that firms deviating from normal business practices may endure a negative impact on future performance. Not all studies have, however, found a negative impact of REM on future performance. As a consequence, a new stream of research is emerging that examines whether actions that would mechanically be identified as REM are truly earnings management or are simply efficient business activities. The authors further this stream of inquiry by identifying factors, i.e. restructurings and expectations of future sales growth, that can be useful in making a distinction between earnings management and “just business”. Design/methodology/approach To measure REM, the authors rely on two of the proxies of Roychowdhury (2006), abnormal discretionary expenses and abnormal production costs, and regress interactions of these with measures of restructurings and expectations of future sales growth, on future performance. Findings The authors find that when they control for restructurings, reductions in discretionary expenses that would ordinarily be indicative of REM are instead associated with improved future return-on-assets and security returns. They further find that when they control for future sales growth, overproduction is also associated with improved return on sales as it is with future increases in cost of goods sold. Originality/value Together, the results may explain the contradictory results presented in prior research with respect to the impact of REM on future performance – that is, some of what has been identified as REM in prior studies may, in fact, be “just business”.

Market orientation, innovation commercialization capability and firm performance relationships: the moderating role of supply chain influence

2017 ◽  
Vol 32 (7) ◽  
pp. 913-924 ◽  
Author(s):  
Jeen-Su Lim ◽  
William K. Darley ◽  
David Marion
Keyword(s):  
Supply Chain ◽  
Firm Performance ◽  
Market Orientation ◽  
Innovation Management ◽  
Strategy Formulation ◽  
Content Type ◽  
Positive Effects ◽  
The Impact ◽  
Moderating Role

Purpose The study aims to explore supply chain influence (SCI) on the linkages among market orientation, innovation capabilities and firm performance (FP), using the resource-based view as a theoretical backdrop. Design Survey data from 182 top managers who are involved in strategy formulation and innovative direction of their companies was collected and analyzed using moderated multiple regression analysis. Findings Results revealed a moderating role of the SCI in that the proactive market orientation (PMO) and FP relationship is stronger when SCI is high, and innovation commercialization capability (ICC) and FP relationship is stronger when SCI is low. Practical implications Firms pursuing high PMO strategy must collaborate with supply chain function to achieve the full effect of PMO. Additionally, as supply chain is critical to meeting customers’ needs, these firms should allow supply chain to exert greater influence to enjoy the positive effects of PMO in addition to ensuring full integration into marketing strategy implementation. Also, firms with high ICC need to limit SCI to maximize the benefit of ICC on FP, just as innovation management needs to be cognizant of other functional areas. Originality/value The study investigates the potential moderating role of SCI on the relationships among market orientation, ICC and FP. The study fills a gap in the understanding of the nature and role of supply chain in the marketing–supply chain interaction, and the impact on FP.

Impact of linguistic ostracism on knowledge sharing, hiding and hoarding and the moderating role of cultural intelligence

Kybernetes ◽  
2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammad Jamal Albana ◽  
Mehmet Yeşiltaş
Keyword(s):  
Knowledge Sharing ◽  
Cultural Intelligence ◽  
Causal Link ◽  
Equation Modeling ◽  
Content Type ◽  
Knowledge Hoarding ◽  
Knowledge Hiding ◽  
The Impact ◽  
Moderating Role

PurposeDrawing on the theory of belongingness, this study scrutinizes the impact of linguistic ostracism on knowledge sharing, knowledge hiding and knowledge hoarding and the moderating role of cultural intelligence (CQ) in a diverse and multi-cultural work setting.Design/methodology/approachA two-phase sampling of judgmental and random sampling techniques was used to recruit local and foreign workers in the Jordanian service industry. The present study empirically analyzes the sample of 394 employees' responses by applying variance-based structural equation modeling (VB-SEM).FindingsVB-SEM results indicate that linguistic ostracism lessens knowledge sharing behavior and heightens knowledge hiding and hoarding. CQ moderates two of the said associations, specifically by buffering the causal link between linguistic ostracism and knowledge hiding, as well as linguistic ostracism and knowledge hoarding. Consequently, CQ did not moderate the causal link between linguistic ostracism and knowledge sharing.Practical implicationsThe study's findings can help managers and decision-makers in such workplaces better understand the deleterious effects of linguistic ostracism and how CQ functions as a buffer. The study concludes with theoretical and managerial implications.Originality/valueVery few investigations have been conducted to determine the consequences of linguistic ostracism in today's multi-cultural and diverse work environment. This paper is among the first to unveil the association of linguistic ostracism and CQ with various knowledge management (KM) concepts.

scholarly journals Does sustainable consumption matter? Consumer grocery shopping behaviour andthe pandemic

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ing Grace Phang ◽  
Bamini K.P.D. Balakrishnan ◽  
Hiram Ting
Keyword(s):  
Social Transformation ◽  
Sustainable Consumption ◽  
Well Being ◽  
Grocery Shopping ◽  
Consumer Decision Making ◽  
Content Type ◽  
The Impact ◽  
The Relationship ◽  
Moderating Role

Purpose The COVID-19 pandemic took the world by surprise in early 2020. The preventive measures imposed by many countries limited human movement, causing uncertainty and disrupting consumption patterns and consumer decision-making. This study aims to explore consumers’ panic buying (PB) and compulsive buying (CB) as outcomes of the intolerance of uncertainty (IU). The moderating role of sustainable consumption behaviours (SCBs) (e.g. quality of life [QOL], concern for future generation and concern for environmental well-being) were also tested to raise awareness of responsible and mindful consumption amongst the society and business stakeholders. Design/methodology/approach To empirically examine the grocery shopping behaviours of Malaysian consumers during COVID-19, a total of 286 valid grocery consumer survey responses based on a purposive sampling were collected and analysed during the movement control order period between March and July 2020. Findings The findings confirmed the statistically significant impact of IU on both PB and CB and the impact of PB on CB behaviour. Amongst the three SCBs tested, only QOL significantly moderated the relationship between the IU and PB. Originality/value To the best of the authors’ knowledge, this is the first study to construct a framework of consumers’ PB and CB during the pandemic, building upon the stimulus-organism-response model and the concepts of IU and SCB. This study further serves as the pioneering study on the moderating role of SCB in consumer behaviour research in the pandemic context, whereby consumers’ QOL significantly moderates the relationship between their IU and PB. This study has also drawn specific implications for grocery retailers and government agencies for retail and policy planning to promote positive social transformation in consumer buying behaviours during a pandemic or crisis.

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