Managing reputation loss in China: in-depth analyses of financial restatements

2016 ◽  
Vol 10 (2) ◽  
pp. 312-345 ◽  
Author(s):  
Peng Wu ◽  
Lei Gao ◽  
Zhibin Chen ◽  
Xiao Li
Keyword(s):  
Crisis Management ◽  
Significant Relationship ◽  
Stock Markets ◽  
Financial Distress ◽  
State Ownership ◽  
Economic Consequences ◽  
Content Type ◽  
Financial Restatement ◽  
Financial Restatements ◽  
Crisis Responses

Purpose This paper aims to investigate, in China stock market, whether the reputation loss of a firm caused by financial restatements will lead to significant economic consequences such as financial distress and how a firm should respond to such a crisis. Design/methodology/approach This paper uses Chinese A-share listed firms from 2004 to 2013 as research samples to test research hypotheses using regression analyses. Findings This paper finds a significant relationship between restatements and financial distress, and such a relationship will be affected by both the type and the magnitude of restatements. More importantly, we find joint effects of restatements and state ownership on financial distress, which provides a unique contribution to the extant literature in restatement, financial distress and crisis management using Chinese stock markets data. It shows that ownership structure, affecting the firm reputation and crisis responses strategies, plays a significant role in consequences of restatements, and it is more important for state-owned enterprises (SOEs) to undertake an appropriate crisis response strategy to reduce the negative impact of restatements. Practical implications The results suggest that the damage to a firm’s reputation caused by restatements is affected by restatement type and state ownership. To reduce the negative consequences and avoid financial distress, firms should consider both the restatement type and their firm characteristics when deciding different actions to respond to restatements. In particular, SOEs should act in a more timely manner and take reputation-rebuilding actions such as taking the responsibility and making apologies and taking prompt remedial actions after restatements to regain the public trust and avoid more serious economic consequences. The Chinese government should strengthen their supervisions of SOEs and put more effort to help SOEs reduce administrative procedures, and to improve the efficiency of the implementation of recovery plans after restatements to reinstate firm credibility. Originality/value First, this paper is among the first to link financial restatement, including the type and magnitude of restatements, with financial distress, and the authors find a significant relationship between restatement type and financial distress in China stock markets. Second, this paper is the first to examine whether there is a joint effect of state ownership and restatements on financial distress. Third, this study examines how the magnitude and pervasiveness of restatements influence financial distress and find that both result in an increase of financial distress. Finally, this paper is among the first to connect crisis management and accounting literature to explain how a reputation loss caused by financial restatement may damage a firm’s value and subsequent performance, and based on which to suggest crisis-responses strategies.

Is institutional investor a supervisor or cooperator?

2018 ◽  
Vol 9 (1) ◽  
pp. 2-18 ◽  
Author(s):  
Yuedong Li ◽  
Xianbing Liu ◽  
Qing Yan
Keyword(s):  
Institutional Investors ◽  
Institutional Investor ◽  
Test Methods ◽  
Future Research ◽  
Management Turnover ◽  
Content Type ◽  
Financial Restatement ◽  
Strategic Cooperation ◽  
Financial Restatements ◽  
The Relationship

Purpose The purpose of this paper is to discuss whether top management will assume their liabilities especially when financial restatement occurs, and,based on the “effective supervision theory” and “strategic cooperation theory,” to examine whether an institutional investor is a supervisor or a cooperator considering the management turnover caused by financial restatement in the companies. Design/methodology/approach Using a sample of the A-share-listed companies from year 2010 to year 2014 and dividing financial restatement into fraudulent financial restatement and other financial restatement, the authors examine the relationship between financial restatement and abnormal management turnover, which usually is related to the management integrity or capacity. By using group test methods, the authors test the influence of the institutional investors’ shareholding on the relation between financial restatements and management turnover. Findings This paper finds that financial restatement can result in abnormal management turnover, especially the fraudulent financial restatement. The institutional investors usually are supervisors but when the shareholding of institutional investor is too high and the management turnover results from fraudulent financial restatement, the institutional investors may become cooperators with management in the companies. Besides, the institutional investors play the supervisory function more significantly in non-state-owned enterprises. Originality/value This paper expands literature of the institutional investors in the corporate governance area and provides a basis for future research in the area of the institutional investors’ governance effect. It divides financial restatements into fraudulent financial restatement and other financial restatement and examines the relationship between financial restatement and abnormal management turnover so as to provide evidence about whether the management will assume their responsibilities when there is financial restatement in the company. It also tests whether the institutional investors will play supervisor’s or cooperator’s function in state-owned and non-state-owned enterprises.

Stock returns and volatility dynamics in China

2015 ◽  
Vol 5 (2) ◽  
pp. 103-131 ◽  
Author(s):  
David G McMillan ◽  
Pornsawan Evans
Keyword(s):  
Stock Returns ◽  
Portfolio Management ◽  
Stock Markets ◽  
Negative Relationship ◽  
World Trade Organisation ◽  
State Ownership ◽  
Lower State ◽  
Firm Level ◽  
Content Type ◽  
Listed Firms

Purpose – The purpose of this paper is to examine the nature of equity ownership of state-owned enterprises (SOEs) for over 2,000 listed firms in China. The paper examines both the pattern of state ownership and the dynamics of stock returns and volatility. Firms under the control of SOEs dominate the Chinese stock markets and currently account for over three-quarters of total market capitalisation. Central SOEs are focused in strategic industries, while Local SOEs concentrate on pillar industries relating to consumer goods and services. Design/methodology/approach – The authors obtain firm-level data from the Shanghai and Shenzhen stock markets and using panel estimation techniques examine the dynamics of returns, volatility and their relationship. Findings – The authors report an increase in state control among listed firms compared to earlier reported figures. This is contradictory to the expectation of a lower state influence following China joining of the World Trade Organisation in 2001. In examining the behaviour of stock returns the authors find evidence of daily and monthly autocorrelations that are larger and of a different sign to that reported for western markets. The authors also report evidence of volatility persistence but little evidence of volatility asymmetry, again in contrast to that often reported for other markets. Finally, the authors find evidence of either no or a negative relationship between returns and volatility (risk) that differs from our usual view of risk aversion. Originality/value – It is hoped, knowledge of these dynamics will increase the understanding of the Chinese equity market, which in turn is important for those engaged in international portfolio management and micro-structure modelling.

Institutional environment, political connections of partial state ownership, and performance

2016 ◽  
Vol 43 (8) ◽  
pp. 856-870 ◽  
Author(s):  
Zengji Song ◽  
Abraham Nahm ◽  
Jun Yang
Keyword(s):  
Institutional Environment ◽  
State Ownership ◽  
Economic Consequences ◽  
Political Connections ◽  
Political Connection ◽  
Data Set ◽  
Content Type ◽  
Partial State ◽  
The Government ◽  
And Performance

Purpose – The purpose of this paper is to examine whether substantial differences in institutional environment in China lead to different levels of demand for political connection. Design/methodology/approach – Using a data set of 296 listed private sector enterprises (PSEs) in China, the authors empirically investigate the effects of institutional environmental factors upon political connection. Findings – The authors find that the lower the level of regional property right protection, the more powerful the government intervention, and the slower the economic development, the more motivated the PSEs were to build relationship with the government via partial state ownership. However, the degree of local corruption was not correlated with the demand for political connection. The authors also find that partial state ownership in PSEs exerted a positive effect on performance. Originality/value – Deviating from previous literature that has been mostly concerned about the economic consequences to firms caused by political connections, this paper examines the reasons for political connection among Chinese PSEs. The authors introduce a new dimension of political connection, namely, partial state ownership in PSEs.

Media coverage and financial restatements: evidence from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Radwan Hussien Alkebsee ◽  
Ahsan Habib
Keyword(s):  
Corporate Governance ◽  
Internal Control ◽  
Media Coverage ◽  
State Ownership ◽  
Content Type ◽  
Control Quality ◽  
Significant Difference ◽  
Financial Restatements ◽  
The Media

PurposeDrawing on the premise that the media play a vital corporate governance role, this paper aims to investigate the association between media coverage and financial report restatements.Design/methodology/approachBased on a sample of Chinese listed companies over the period 2011–2015, the authors use ordinary least squares regression as well as a number of additional tests. To mitigate the endogeneity issue, the authors use a two-stage Heckman test and a propensity score matching model.FindingsThe authors document a negative and significant association between media coverage and restatements, suggesting that firms with high media coverage engage less in financial restatements. The authors further explore the moderating effects of internal control quality and state ownership on the association between media coverage and restatements. Regression results reveal that the governance role of the media is more pronounced for state-owned enterprises than for private firms. However, no significant difference in the disciplining effect of media coverage is found for firms with high, versus low, internal control quality.Originality/valueThe role of the media in corporate governance and financial reporting quality has been well documented. In emerging economies, such a role has been overlooked. As a result, the purpose of this study is to fill that void. Furthermore, prior research ignores the impacts of state ownership and the internal control environment on the media's governance role.

The effect of corporate governance and firm-specific characteristics on the incidence of financial restatement

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Suhaily Hasnan ◽  
Mardhiahtul Huda Mohd Razali ◽  
Alfiatul Rohmah Mohamed Hussain
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Executive Compensation ◽  
Significant Relationship ◽  
Audit Quality ◽  
Governance Mechanisms ◽  
Content Type ◽  
Financial Restatement ◽  
Corporate Governance Mechanisms ◽  
Firm Leverage

Purpose This paper aims to examine the effects of corporate governance and firm-specific characteristics on the incidence of financial restatement among Malaysian public listed firms. Design/methodology/approach The elements of corporate governance consist of board size, board independence, multiple directorships, audit committee expertise, external audit quality and executive compensation. Meanwhile, the firm-specific characteristics consist of firm age, firm performance, firm leverage and firm liquidity. The agency theory has been used to guide the study. This study used a matched-pair sample that consisted of a sample of 49 restatement firms and 98 non-restatement firms between the years 2011 and 2016. Univariate (t-test and Pearson correlation) and multivariate (logistic regression) statistical techniques were used to test the hypotheses. Findings The results show that there is a negative and significant relationship between executive compensation and firm performance, and the incidence of financial restatement. In addition, there is a positive and significant relationship between firm leverage and the incidence of financial restatement. However, the other corporate governance and firm-specific characteristic variables included in the study were found to be insignificant with the incidence of financial restatement. This paper provides evidence that some form of corporate governance mechanisms and firm-specific characteristics, particularly executive compensation, firm performance and firm leverage, may influence the direction and magnitude of the incidence of financial restatement. The findings indicate that optimal executive incentives may align management interests with those of shareholders. In addition, greater performance and lower leverage levels minimise firms’ financial pressure and debt covenant violation risk, which may reduce the management tendency to misstate the financial statement, and consequently, minimise the likelihood of financial restatement. Originality/value The main value of this paper is the effect of corporate governance and firm-specific characteristics on the likelihood of financial restatement in Malaysia. The findings of this study provide useful insights for regulators to improve and reconsider the current regulations on corporate governance mechanisms.

scholarly journals Chief Executive Officer Characteristics and Financial Restatements in Malaysia

2020 ◽  
Vol 11 (2) ◽  
pp. 173
Author(s):  
Marwan Altarawneh ◽  
Rohami Shafie ◽  
Rokiah Ishak
Keyword(s):  
Regression Analysis ◽  
Chief Executive Officer ◽  
Significant Relationship ◽  
Chief Executive ◽  
Financial Statements ◽  
Financial Restatement ◽  
Dummy Variable ◽  
Ceo Tenure ◽  
Financial Restatements ◽  
Ceo Characteristics

The purpose of this paper is to investigate whether the Chief Executive Officer (CEO) characteristics affect the occurrence of financial restatements in Malaysian firms. The CEO characteristics used in this study were tenure, honorific title, gender, expertise, and age. In addition, the financial restatement has been measured as a dummy variable as to whether companies restate their financial statements or not. The sample of this study comprised 442 companies listed in the main market of Bursa Malaysia during the period 2012–2016. The panel data method was utilised to analyse the data. This study employed a logistic regression analysis. The results of this study revealed that there is a positive and significant relationship between CEO tenure and CEO gender with financial restatements. In addition, this study found a negative and significant relationship between CEO honorific title and financial restatements. However, the results found insignificant relationships between CEO expertise and age with financial restatements. This study highlighted the importance of considering CEO characteristics as one of the influential determinants of financial restatements in Malaysian companies.

Turnaround Model Prediction with Content Dimension on Financial Distress Firms

2020 ◽  
Vol 11 (1) ◽  
pp. 65-65
Author(s):  
Giriati
Keyword(s):  
Family Member ◽  
Model Prediction ◽  
Significant Relationship ◽  
Financial Distress ◽  
Stock Exchange ◽  
Organization Change ◽  
Least Square ◽  
Ordinary Least Square ◽  
Change Framework

This article aims to synthesize and test empirically turnaround model by content dimension that is an integration of the organization change framework into turnaround research to measure some activities done to avoid failure in turnaround. This study on the Indonesian Stock Exchange (BEI) by using Ordinary Least Square technique. The results of the analysis from content dimension show that the CEO expertise variable has a significant relationship to turnaround, since companies in Indonesia are dominated by family companies, so maintaining the incumbent CEO is more appropriate, because it is a family member. In addition, free assets show a significant relationship with turnaround, while leverage and growth of sales do not have a significant relationship with turnaround. Keywords: Financial Distress, Turnaround Model, CEO Expertise, Free Assets, Leverage and Growth of Sales,

Financial distress determinants among SMEs: empirical evidence from Sweden

2020 ◽  
Vol 47 (3) ◽  
pp. 547-560 ◽  
Author(s):  
Darush Yazdanfar ◽  
Peter Öhman
Keyword(s):  
Financial Crisis ◽  
Financial Distress ◽  
Large Scale ◽  
Global Financial Crisis ◽  
Binary Logistic Regression ◽  
Data Availability ◽  
Cross Sectional ◽  
Data Set ◽  
Content Type ◽  
The Global Financial Crisis

PurposeThe purpose of this study is to empirically investigate determinants of financial distress among small and medium-sized enterprises (SMEs) during the global financial crisis and post-crisis periods.Design/methodology/approachSeveral statistical methods, including multiple binary logistic regression, were used to analyse a longitudinal cross-sectional panel data set of 3,865 Swedish SMEs operating in five industries over the 2008–2015 period.FindingsThe results suggest that financial distress is influenced by macroeconomic conditions (i.e. the global financial crisis) and, in particular, by various firm-specific characteristics (i.e. performance, financial leverage and financial distress in previous year). However, firm size and industry affiliation have no significant relationship with financial distress.Research limitationsDue to data availability, this study is limited to a sample of Swedish SMEs in five industries covering eight years. Further research could examine the generalizability of these findings by investigating other firms operating in other industries and other countries.Originality/valueThis study is the first to examine determinants of financial distress among SMEs operating in Sweden using data from a large-scale longitudinal cross-sectional database.

Making investment decisions in stock markets using a forecasting-Markowitz based decision-making approaches

2019 ◽  
Vol 15 (2) ◽  
pp. 647-659 ◽  
Author(s):  
Zahra Moeini Najafabadi ◽  
Mehdi Bijari ◽  
Mehdi Khashei
Keyword(s):  
Decision Making ◽  
Time Series ◽  
Stock Markets ◽  
Time Series Prediction ◽  
Investment Decisions ◽  
Rate Of Return ◽  
Expected Returns ◽  
Prediction Methods ◽  
Content Type ◽  
Markowitz Model

Purpose This study aims to make investment decisions in stock markets using forecasting-Markowitz based decision-making approaches. Design/methodology/approach The authors’ approach offers the use of time series prediction methods including autoregressive, autoregressive moving average and artificial neural network, rather than calculating the expected rate of return based on distribution. Findings The results show that using time series prediction methods has a significant effect on improving investment decisions and the performance of the investments. Originality/value In this study, in contrast to previous studies, the alteration in the Markowitz model started with the investment expected rate of return. For this purpose, instead of considering the distribution of returns and determining the expected returns, time series prediction methods were used to calculate the future return of each asset. Then, the results of different time series methods replaced the expected returns in the Markowitz model. Finally, the overall performance of the method, as well as the performance of each of the prediction methods used, was examined in relation to nine stock market indices.

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