Third-party underwriting and its effects on credit spreads and earnings management

2019 ◽  
Vol 10 (1) ◽  
pp. 75-94
Author(s):  
Huaili Lyu ◽  
Conghui Yang
Keyword(s):  
Earnings Management ◽  
Sample Selection ◽  
Estimation Method ◽  
Ordinary Least Squares ◽  
Bond Market ◽  
Third Party ◽  
Credit Spreads ◽  
Content Type ◽  
Ex Post ◽  
Bond Issuers

Purpose The purpose of this paper is to examine the certification and monitoring motivations of third-party underwriting and its effects on credit spreads and earnings management of bank issuers. Design/methodology/approach Ordinary least squares is used to examine the certification and monitoring effects of third-party underwriting. Furthermore, the Heckman two-stage estimation method is used in controlling the endogeneity of sample selection. Findings The authors find that financial bonds underwritten by third-party underwriters bear lower credit spreads due to their credibly ex ante certification and effectively ex post monitoring compared with self-underwriting. Moreover, the certification of third-party underwriters can help to select good quality bond issuers with lower earnings management, and the monitoring function also plays an essential role in constraining the behavior of earnings management after the bond issues. Research limitations/implications The findings in this study suggest that underwriting types (third-party underwriting) will affect financial bond yields and bank issuers’ earnings management. Practical implications On the one hand, the authors should encourage third-party underwriters to actively promote the certification and monitoring functions. For example, given commercial banks the chance to be underwriters when the bond issuers are investment banks, which is not allowed now in China’s financial bond market. On the other hand, the authors should cut off the quid pro quo relations within third-party underwriting because such relations will reduce the certification and monitoring effects of third-party underwriters. Originality/value This is the first study to distinguish the certification and monitoring effects by using unique data from China’s financial bond market. And the authors further investigate the adverse effects of quid pro quo relations (hiring each other as lead underwriters) on the certification and monitoring effects of third-party underwriters.

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.

Audit committee chairman characteristics and earnings management

2019 ◽  
Vol 11 (4) ◽  
pp. 339-370 ◽  
Author(s):  
Mujeeb Saif Mohsen Al-Absy ◽  
Ku Nor Izah Ku Ismail ◽  
Sitraselvi Chandren
Keyword(s):  
Earnings Management ◽  
Family Member ◽  
Audit Committee ◽  
Ordinary Least Squares ◽  
Committee Chairman ◽  
Least Squares Regression ◽  
Content Type ◽  
Listed Firms ◽  
Jones Model ◽  
Accounting Expertise

Purpose The purpose of this paper is to examine the influence of the characteristics of audit committee chairman (ACC) (tenure, age, gender, ethnicity, accounting expertise and directorship) on earnings management (EM) practices. Design/methodology/approach The Jones model and modified Jones model by Dechow et al. (1995) were used to determine the discretionary accruals (DA) of 288 Malaysian listed firms with lowest positive earnings for the years 2013‒2015. Findings The results of the ordinary least squares regression indicate that only tenure, gender and ethnicity of the ACC are associated with DA. A further test was conducted by dividing firms into two groups: firms whose boards are chaired by a family member and firms whose boards are chaired by a non-family member. The results reveal that it is possible for firms whose boards are chaired by family members to cause the corporate governance (CG) mechanisms, particularly the audit committee, to lose their effectiveness in overcoming the EM problem. In addition, robustness tests were conducted by using panel data regression, where the results were found to be similar to the original regression results. Originality/value This study alerts policymakers, firms and their stakeholders, as well as researchers, regarding the importance of having an independent board chairman, who has no relationship with any directors or major shareholders, as this may hinder the effectiveness of CG mechanisms in curbing EM, especially in emerging countries, such as Malaysia, where it is very difficult to stop members of the family from becoming board directors.

Unravelling SMEs’ participation and success in public procurement

2020 ◽  
Vol 20 (4) ◽  
pp. 377-401 ◽  
Author(s):  
Carmela Di Mauro ◽  
Alessandro Ancarani ◽  
Tara Hartley
Keyword(s):  
Small And Medium Enterprises ◽  
Public Procurement ◽  
Sample Selection ◽  
Cross Sectional ◽  
Content Type ◽  
Factors Affecting ◽  
The Public ◽  
Ex Post ◽  
Medium Enterprises

Purpose This paper aims to investigate the role of micro, small and medium enterprises (MSMEs) within the Canadian public procurement, by seeking to identify barriers and supporting factors of MSMEs’ participation and success in public tenders. Design/methodology/approach The empirical analysis builds on a unique survey run by the Canadian federal government, which addressed firms either participating or not participating in public tenders. Model estimation on the survey data relies on sample selection methodologies, which allow separating determinants of MSMEs’ decision to participate from determinants of success. Findings Results provide evidence that costs stemming from asset specificity and uncertainty (e.g. costs of bidding, requirements for participation, bundling of contracts and award rules based on minimum price) affect participation in public procurement. Within MSMEs, micro-firms are the most discouraged from participating. However, after controlling for factors affecting participation, micro-firms emerge as having a higher success rate, possibly because of high specialization and joint participation with larger firms. Research limitations/implications Because of the cross-sectional nature of the data used for hypotheses testing, endogeneity may arise if ex post variables affect ex ante decisions. This may apply if participation in procurement feeds on success in past tenders. Social implications Findings may inform policies for the inclusion of smaller firms in the public marketplace. Originality/value To the best of the authors’ knowledge, this study is the first attempting to disentangle determinants of participation in public tenders from determinants of success. Separating the two aspects helps fine-tune SME-friendly public procurement policies, by identifying actions that effectively facilitate success of MSMEs in public tenders.

Voting with hands, earnings management and corporate governance

2019 ◽  
Vol 18 (2) ◽  
pp. 178-197
Author(s):  
Ting Li ◽  
Xinlei Zhao ◽  
Aiwu Zhao
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Internal Control ◽  
Univariate Analysis ◽  
Negative Relationship ◽  
Ordinary Least Squares ◽  
External Control ◽  
Substitution Effects ◽  
Content Type ◽  
Shareholder Proposals

Purpose Motivated by managers’ intentions to pursue private interests by engaging in earnings management, this paper aims to investigate whether voting with hands (shareholders cast votes on shareholder proposals) by shareholders acts as an external disciplining mechanism over earnings management relative to corporate governance. Also, as corporate governance can scrutinize managers’ behavior, this study also examines whether there is a substitutive relation between shareholder proposals and corporate governance mechanism. Design/methodology/approach First, this paper uses ordinary least squares (OLS) regressions of discrepancy accruals on the percentage of “For” votes for shareholder proposals to test the incremental effect of shareholder proposals on earnings management. Second, firms receiving shareholder proposals are matched with those not receiving proposals by propensity scores, and the levels of earnings management and corporate governance between these two groups are compared by univariate analysis and OLS regressions. In addition, six portfolios are created based on whether firms receive shareholder proposals, as well as on the levels of corporate governance, to assess whether external control from shareholder proposals can substitute internal control for corporate governance in disciplining earnings management. Regressions of earnings management on corporate governance (shareholder proposals) are conducted in the sub-samples formed on shareholder proposals (corporate governance) to further explore the above substitution effects. Findings Based on a sample of 2,041 firm-year observations from 2001 to 2010, this paper finds that the “For” votes received from the shareholder proposals have a significant negative relationship with the practice of earnings management, even when corporate governance is controlled. The negative relationship between shareholder proposal and magnitude of earnings management is also found to be stronger when firms have weak corporate governance. The overall evidence suggests that the external control from “voting-with-hand” shareholders has a significant impact on earnings management. In addition, shareholder proposals can substitute the monitoring mechanism for corporate governance in constraining managers’ myopic behavior. Originality/value This paper contributes to the extant literature by using the percentage of “For” votes for shareholder proposals as a proxy for shareholder pressure and concerns. This study contributes to the earnings management literature by showing the disciplinary effect of outside shareholders on managers’ reporting behavior. Also, it contributes to the corporate governance research by presenting that shareholder proposals can substitute for the internal control of corporate governance in decreasing earnings management. This paper should be of interest to investors and standard setters.

Ex-post stock return behaviour of corporate restructurings and corporate control

2016 ◽  
Vol 15 (4) ◽  
pp. 484-498
Author(s):  
Dongnyoung Kim ◽  
Tih Koon Tan
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Content Type ◽  
Tracking Stocks ◽  
Ex Post ◽  
Corporate Restructurings ◽  
Tracking Stock ◽  
And Control

Purpose This paper aims to investigate the correlation between stock returns of the parent and newly created entity and the degree of return skewness in parents in the three different corporate restructurings. Design/methodology/approach Using a sample of spin-offs, equity carve-outs and tracking stocks, ordinary least squares regression is used to test the relationship between stock return correlation as well as stock return skewness and the type of corporate restructurings. Findings Tracking stock offering has the largest correlation in stock returns, whereas spin-off has the least correlation in stock returns. Also, the result from the skewness test is not consistent with the hypothesis that the stock returns skewness is positively related to the degree of ownership and control. Originality/value This is one of the few papers looking at the three corporate restructurings and their return skewness.

Internal audit quality and earnings management: evidence from the UK

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hazem Ramadan Ismael ◽  
Hany Kamel
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Audit Quality ◽  
Negative Relationship ◽  
Internal Audit ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Content Type ◽  
Abnormal Accruals ◽  
The Uk

Purpose This study aims to examine the association between internal audit quality and the involvement of UK companies in earnings management practices. Design/methodology/approach To measure the internal audit quality, this study uses 115 responses for a postal questionnaire that was addressed to the heads of internal audit departments in a sample of non-financial listed companies in the UK context. The other financial and governance data for the respondent companies were collected from the Datastream and the companies’ annual reports. The present study uses the signed abnormal accruals as a proxy for earnings management and uses both logistic and ordinary least squares regression models to test the research hypothesis. Findings This study finds a negative relationship between the internal audit quality and the abnormal accruals, implying the prominent role of internal audit in reducing the upwards earnings management. The study also finds a significant impact of the internal audit competence on reducing the engagement of UK companies in income-increasing earnings management compared to the internal audit independence. This remarkable result suggests the companies need to focus more on enhancing the internal audit competence to reduce the opportunistic management’s behaviour. Practical implications This study has important implications for the internal audit’s practice, regulation and research. Originality/value This is the first study that investigates the relationship between internal audit quality and earnings management in the UK context. Furthermore, it uses a comprehensive measure for the internal audit function (IAF) quality covering different aspects of IAF quality based on the global Institute of Internal Auditor standards and prior internal audit literature.

Gender diversity and financial performance of Islamic banks

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Huthayfa Nabeel Jabari ◽  
Rusnah Muhamad
Keyword(s):  
Financial Performance ◽  
Least Squares ◽  
Gender Diversity ◽  
Estimation Method ◽  
Supervisory Board ◽  
Ordinary Least Squares ◽  
Least Squares Estimation ◽  
Islamic Banks ◽  
Content Type ◽  
Gender Diverse

Purpose The purpose of this paper is to examine the influence of gender diversity among the board of directors (BOD) and Shariah supervisory board (SSB) members on the financial performance of Islamic banks in Indonesia and Malaysia. Design/methodology/approach Data for a sample of 19 Islamic banks for the period 2010–2018 were collected to test the research hypotheses using pooled ordinary least squares estimation method. Generalized least squares estimation method was used to confirm that the results are robust. This study lagged the explanatory variables by one period to control for potential endogeneity. Findings The findings suggest that Islamic banks with more gender-diverse BOD and SSB are expected to have better financial performance. In addition, this paper finds that an increase in Islamic banks’ size may undermine the positive impact of gender diversity among SSB members on Islamic banks’ financial performance. Research limitations/implications This study was conducted only on Islamic banks in Indonesia and Malaysia owing to data constraints; thus, the results may not be generalizable to Islamic banks in other countries. Practical implications Improving financial performance is crucial for banks, especially for Islamic banks, to sustain their fast-growing share globally. Therefore, the findings of this study are expected to provide insight and understanding in the selection and appointment of BOD and SSB members at Islamic banks. Social implications By having women represented in the BOD and SSB, Islamic banks will benefit equally from valuable abilities across demographic groups in the society. Furthermore, if the members of the BOD and SSB are properly selected, Islamic banks with more gender-diverse boards can effectively contribute to enhancing social welfare of various segments in the society. Originality/value This is the first study, as far as is known to the authors, that provides empirical evidence on the influence of gender diversity among BOD and SSB members on the financial performance of Islamic banks. This paper is expected to be used as a reference by the shareholders and customers of Islamic banks in ensuring that the BOD and SSB have the best optimal composition that maximizes their profits.

Bank earnings management and income smoothing using commission and fee income

2017 ◽  
Vol 13 (4) ◽  
pp. 419-439 ◽  
Author(s):  
Peterson K. Ozili
Keyword(s):  
Earnings Management ◽  
Management Strategy ◽  
Income Smoothing ◽  
Policy Implications ◽  
Too Big To Fail ◽  
Content Type ◽  
Interest Income ◽  
Ex Post ◽  
European Banks ◽  
Reported Earnings

Purpose The purpose of this paper is to investigate whether European banks use commission and fee income (CF) to smooth reported earnings or to persistently increase reported earnings as an income-increasing earnings management strategy. Design/methodology/approach The author tests the income-smoothing hypothesis following the approach of Stubben (2010) and Ahmed et al. (1999). Findings The author finds that European banks use CF to smooth reported earnings and this behaviour is pronounced among non-too-big-to-fail (NTBTF) European banks compared to too-big-to-fail (TBTF) European banks. The author also finds a positive and significant correlation between interest income and non-interest income (CF) indicating increased systematic risk due to reduced diversification benefits. The author also finds that the CF of NTBTF banks is procyclical with fluctuating economic conditions but not for TBTF banks. Also, the author finds evidence for income-increasing earnings management in the post-crisis period, for larger European banks and when banks have higher ex post interest income, implying that the propensity to engage in income-increasing earnings management significantly depends on bank size and ex post interest margin considerations. The findings have policy implications. Originality/value The author examines alternative financial numbers that banks use to manage earnings. The author focusses on income smoothing via CF among European banks, a context that has not been explored in the literature.

Related party transactions, corporate governance and earnings management

2018 ◽  
Vol 18 (6) ◽  
pp. 1124-1146 ◽  
Author(s):  
Pier Luigi Marchini ◽  
Tatiana Mazza ◽  
Alice Medioli
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Least Squares ◽  
Positive Association ◽  
Ordinary Least Squares ◽  
Content Type ◽  
Related Party Transactions ◽  
Governance Indicator ◽  
Contingency Perspective ◽  
Good Corporate Governance

Purpose Following the contingency perspective, this paper aims to examine if a good corporate governance structure is able to reduce earnings management made through related party transactions. The authors expect that a high-quality corporate governance influences private benefit acquisition and reduces the positive association between related party transactions and earnings management. Design/methodology/approach A two-stage least squares instrumental variable approach is used to further address endogeneity concerns in this study. The model is organized into three parts: the construction of the corporate governance indicator, the first stage regression to compute the predicted corporate governance indicator and the second stage regression (ordinary least squares multivariate regressions) to analyze the relationship between related party transactions and earnings management. The analysis focuses on a sample of Italian listed companies over the period 2007-2012. Findings The study finds that the interaction between sales-related party transactions and corporate governance is negatively associated with abnormal accruals, signaling that corporate governance quality reduces the positive association between sales-related party transactions and earnings management, consistently with the contingency perspective. Originality/value The research contributes to literature by empirically testing the assumption of contingency perspective. In particular, the results provide new insights to the academic community, underlying that good corporate governance mechanism helps to reduce earnings management behavior through related party transactions.

Motives behind remittances

2019 ◽  
Vol 46 (6) ◽  
pp. 775-791
Author(s):  
Navita Pal ◽  
Rama Pal
Keyword(s):  
Least Squares Method ◽  
Sample Selection ◽  
Probit Model ◽  
Ordinary Least Squares ◽  
Content Type ◽  
Migrant Families ◽  
Main Motive ◽  
Nationally Representative ◽  
Ordinary Least Squares Method ◽  
Part Model

Purpose The purpose of this paper is to empirically investigate whether the motives behind sending remittances differ for the migrants from single- and multi-migrant families in India. Design/methodology/approach The paper uses the second round of India Human Development Survey conducted in the year 2012 to analyse migrant’s motives using the two-part model and the sample selection model (SSM). Here, the probit model is used to model whether the migrant sends the remittances and then the amount of remittances is modelled using the ordinary least squares method. The SSM assumes that these two decisions are interdependent. This migrant-level study is the first to segregate single- and multiple-migrant settings and compare them for the existence of altruism or inheritance motives. Findings The findings indicate altruism as the main motive behind remittances for the single migrants in India. On the other hand, presence of inheritance motive is evident along with altruism in the multi-migrant setting. Research limitations/implications The analysis is restricted due to limited availability of information on migrant as the data are collected from the migrant’s family at origin. Originality/value This is the first study to use a unique nationally representative survey which enables it to point out differences in the motives behind remittances for the single-migrant and multi-migrant settings in India.

Sign in / Sign up

Export Citation Format

Share Document