Effects of capital structure and institutional–financial characteristics on earnings management practices

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jorge Andrés Muñoz Mendoza ◽  
Sandra María Sepúlveda Yelpo ◽  
Carmen Lissette Velosos Ramos ◽  
Carlos Leandro Delgado Fuentealba
Keyword(s):  
Earnings Management ◽  
Financial Development ◽  
Latin American ◽  
Management Practices ◽  
Short Term ◽  
Financial Policies ◽  
Financing Policy ◽  
Content Type ◽  
Financial Characteristics ◽  
Systematic Control

PurposeThe purpose of this article is to analyze the effects of financing policy and countries' institutional–financial characteristics on earnings management (EM) practices in Latin American companies.Design/methodology/approachThe GMM estimator was used according to Arellano and Bover (1995) for panel data on a sample of 983 Latin American companies between 1995 and 2017.FindingsLeverage and short-term debt have a negative and nonlinear effect on EM practices. Nonlinearity suggests that firms with high levels of leverage and short-term debt carry out positive discretionary accruals. Countries' institutional and financial development reduces EM practices. Mandatory IFRS adoption also reduces these practices and mitigates the effects of the low institutional and financial development on EM.Originality/valueThese results reveal the relevance of companies' financing policy as a means of controlling EM practices. Results also suggest that policy effectiveness decreases with leverage and short-term debt. It is suggested that policymakers design financial policies aimed to promote institutional and financial development as a means of systematic control over EM activities, which also includes IFRS.

Earnings management and equity incentives: evidence from the European banking industry

2019 ◽  
Vol 27 (2) ◽  
pp. 244-261 ◽  
Author(s):  
Mohammad Alhadab ◽  
Bassam Al-Own
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Banking Industry ◽  
Future Research ◽  
Loan Loss ◽  
Content Type ◽  
Loan Loss Provisions ◽  
Equity Incentives ◽  
European Banking ◽  
European Banks

Purpose This study aims to examine the effect of equity incentives on earnings management that occurs via the use of loan loss provisions by using a sample of 204 bank-year observations over the period 2006-2011. Design/methodology/approach The authors use the data of 39 European banks to test the main hypothesis. Several valuation models and regressions are used to measure the main proxies for executives’ compensation and the determinant factors of loan loss provisions. Findings The empirical results reveal that earnings management that occurs via discretionary loan loss provisions is associated with equity incentives in the banking industry. In particular, European banks’ executives with high equity incentives are found to manage reported earnings upwards by reducing loan loss provisions. The results therefore show that income-increasing earnings management via discretionary loan loss provisions is widely practised by the executives of European banks and that this is partly motivated by executives’ compensation. Practical implications The findings of this paper present important implications for regulators in the European Union, who should take further steps to reform the regulatory environment to monitor and mitigate the earnings management practices that occur via the manipulation of loan loss provisions. Earnings management practices do not just negatively affect subsequent performance but are also found to lead to firms’ failure. Thus, regulators should take the necessary reforms to protect the wealth of stakeholders (investors, creditors, etc.). Originality/value This study provides the first evidence on the relationship between equity incentives and earnings management in the European banking industry. The study sheds more light on an issue of great interest to a broad audience that does not receive much attention in the prior research, thus opening new avenues for future research.

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.

Domestic matters will determine Mexican foreign policy

2021 ◽  
Keyword(s):  
Foreign Policy ◽  
Energy Policy ◽  
Latin American ◽  
Public Support ◽  
Critical Rhetoric ◽  
Short Term ◽  
Foreign Investors ◽  
Content Type ◽  
International Profile ◽  
Latin American And Caribbean

Significance The move follows Mexico’s hosting of a Community of Latin American and Caribbean States (CELAC) summit last month, and provides an opportunity to expand the country’s international profile. However, AMLO generally disregards foreign policy, except as a tool for advancing domestic interests and building public support. Impacts US relations will continue to dominate foreign policy, despite AMLO’s critical rhetoric about rich nations. In the short term, Mexico will frame its foreign policy around calls for increased access to COVID-19 vaccines. Mexico’s energy policy could become a source of international tension, given its potential implications for foreign investors.

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.

scholarly journals Political and financial background in board interlocking and earnings management in Brazil

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Cristian Baú Dal Magro ◽  
Roberto Carlos Klann
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Management Practices ◽  
Accounting Information ◽  
Real Earnings Management ◽  
The Political ◽  
Content Type ◽  
Quality Of Accounting Information

Purpose Although board interlocking underlying forces are largely hidden, the purpose of this paper is to provide managers, auditors, analysts, regulators and other stakeholders with sociological board interlocking information considering the different backgrounds of their members. Design/methodology/approach The research sample gathered 1,606 observations from 2010 to 2017. For data analysis, the direct and indirect board interlocking linkages, considering the different backgrounds of board members, established the centrality indicators. Subsequently, the authors used these indicators according to each measured background in the regression models. Findings The results indicate that the political background of board interlocking members is positively related to real earnings management practices, while the financial background has a mitigating effect on such practices. Research limitations/implications The findings suggest that individual skills and interests conveyed across the corporate social network have shaped corporate governance, with distinct impacts on the quality of accounting information. Practical implications The authors conclude that both backgrounds could have implications on agency conflicts, increasing (policy) or reducing (financial) information asymmetry between the company and its various stakeholders, which indicates that the authors must consider sociological and not just economic aspects within corporate governance. Social implications The sociological background of individuals is necessary for the congruence of monitoring mechanisms, and consequently, the quality of accounting information. Originality/value This study examines the influence of the political and financial background of board interlocking members on real earnings management practices in Brazilian publicly traded companies in the International Financial Reporting Standards post-adoption period.

Large institutional investors and the pressure to manage earnings surrounding seasoned equity offerings

2019 ◽  
Vol 61 (2) ◽  
pp. 402-420
Author(s):  
Mouna Njah ◽  
Raoudha Trabelsi
Keyword(s):  
Earnings Management ◽  
Institutional Investors ◽  
Information Quality ◽  
Management Practices ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Content Type ◽  
Multivariate Tests ◽  
Regulated Firms ◽  
Investor Activism

Purpose The purpose of this paper is to investigate the monitoring role exerted by large institutional investors and their ability to restrict the earnings management practices conducted around seasoned equity offerings (SEOs). Design/methodology/approach The sample includes 130 French SEOs by non-regulated firms during 2004-2015. The authors used various cross-section, univariate and multivariate tests using several proxies for earnings management. They attempt to highlight that firms issuing SEOs are more able to manage earnings around SEOs owing to the predominance of large speculative institutional investors. Noteworthy, the monitoring role exerted by sophisticated institutional investors turns out to restrict the earnings management opportunities surrounding a SEOs event. Findings The results show that the issuing firms tend to manipulate earnings in an upward trend with respect to the year preceding the SEO offer. Thus, a special attention has been drawn on the fact that the issuing companies strive to prove their ability to manage earnings around SEOs in presence of large speculative institutional investors. Practical implications The results provide useful insights into the role different types of institutional investors play in terms of enhancing both governance and accounting information quality. Originality/value This paper adds to the literature questioning the evidence that institutional investor activism frequently engage in misleading earnings management around corporate events. The authors provide an alternative explanation for earnings management around SEOs in the French context.

scholarly journals Recontextualizing Scandinavian practices in a Latin American regional office

2019 ◽  
Vol 18 (1) ◽  
pp. 99-119
Author(s):  
Jacobo Ramirez ◽  
Anne-Marie Søderberg
Keyword(s):  
Latin American ◽  
Multinational Corporation ◽  
Design Methodology ◽  
Management Practices ◽  
Middle Managers ◽  
Regional Office ◽  
Content Type ◽  
Colonial Legacy ◽  
Meaning System

Purpose The purpose of this study is to explore how Danish and Mexican communication and management practices are recontextualized at the Latin American office of a Scandinavian multinational corporation (MNC) located in Mexico. Design/methodology/approach A case study based on interviews, observations and company documents was conducted. Findings Well-educated Mexican middle managers appreciate the participative communication and management practices of Scandinavian MNCs, which transcend most experiences at local workplaces, but their interpretations and meaning system are influenced by the colonial legacy and political and socioeconomic context framing their working conditions. Originality/value This paper provides a contextualized analysis of a rich case study to further illustrate the challenges faced by MNCs in their quest to establish a regional office in a Latin American context and offers a theoretical model of the elements involved in complex recontextualization processes.

Why do employees respond to hospitality talent management

2019 ◽  
Vol 31 (10) ◽  
pp. 4021-4042 ◽  
Author(s):  
Enrique Murillo ◽  
Ceridwyn King
Keyword(s):  
Organizational Performance ◽  
Latin American ◽  
Management Practices ◽  
Brand Management ◽  
Structural Model ◽  
Talent Management ◽  
Employee Attitudes ◽  
Strategic Human Resource Management ◽  
Content Type ◽  
Relationship Orientation

Purpose In consideration that the purpose of talent management is to attract and nurture productive employees for the benefit of the hospitality organization, this study aims to examine why employees respond in such favorable ways. Recognizing beneficial employee behavior advances a hospitality organization through their ability to deliver an experience that aligns with the promoted brand promise, inspiration is drawn from both the strategic human resource management as well as the internal brand management literature. The power of this approach is illustrated through a survey of employees of a Latin American restaurant chain with a long-standing policy of values-based recruiting, inclusive talent management and progressive people management practices. Design/methodology/approach Informed by literature, employee perception of their relationship with the organization (i.e., relationship orientation) and alignment with the brand’s values (i.e., brand fit) were considered drivers of favorable employee attitudes and behavior as a result of hospitality talent management practices. These were hypothesized to positively influence employee confidence and motivation as reflected in organization-based self-esteem (OBSE) and brand motivation, which in turn drive employee brand-aligned behavior. A survey measured the variables of interest with the same employees over two time periods, matched using employees’ identification code, resulting in 199 complete surveys. The structural model was estimated using partial least squares (PLS). Findings Relationship orientation and brand fit were significant drivers of OBSE and brand motivation, respectively. In turn, they had a significant effect on employee brand-aligned behavior. Model estimation complied with all PLS quality criteria. Research limitations/implications Traditional talent management practices that tend to focus on the transactional benefits of the job/career can be strengthened by leveraging strong organizational relationships as well as engagement with the hospitality brand. In turn, employees have the confidence and motivation to exhibit brand-aligned behavior, a path to competitive advantage, which may also act as a buffer helping employees manage the stress of hospitality jobs. Originality/value Understanding why employees respond favorably to hospitality talent management practices, beyond simply transactional, monetary reasons, is important to designing relevant and timely initiatives that have the potential to enhance organizational performance.

scholarly journals A comparison of ethical perceptions of earnings-management practices

2011 ◽  
Vol 14 (4) ◽  
pp. 422-435 ◽  
Author(s):  
Leonie Jooste
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Earnings Quality ◽  
Harvard Business Review ◽  
Business Managers ◽  
Short Term ◽  
Nelson Mandela ◽  
Sarbanes Oxley ◽  
The Usa ◽  
Accounting Practitioners

In 1990, Bruns and Merchant (1990) surveyed earnings-management practices and asked the readership of the Harvard Business Review to rate the acceptability of those practices. Prior to the Bruns and Merchant (1990) study, the morality of short-term earnings-management was of little concern to researchers and accounting practitioners. However, in the light of increased financial frauds and failures, new and increased emphasis has been placed on the importance of the concepts of earnings quality and earnings-management practices.Despite increased research focusing on business ethics since 1990, there is little evidence that the profession is educating accountants about earnings-management practices. This study compares the results of studies on earnings-management practices. Students and business managers were surveyed at the Nelson Mandela Metropolitan University (NMMU) and these results were compared to studies prior to the Sarbanes-Oxley Act 2002 in the USA. The aim of the study is to determine if there have been changes in attitudes towards earnings-management practices since the acceptance of the Sarbanes-Oxley Act.

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