The information content of discretionary accruals during systemic crises

2020 ◽  
Vol 21 (3) ◽  
pp. 455-476
Author(s):  
Nicola Moscariello ◽  
Pietro Fera ◽  
Ettore Cinque
Keyword(s):  
Financial Crisis ◽  
Information Asymmetry ◽  
Information Content ◽  
Global Financial Crisis ◽  
Discretionary Accruals ◽  
Small Sample ◽  
Exogenous Shock ◽  
Content Type ◽  
Bid Ask Spread ◽  
The Relationship

PurposeBy analyzing the relationship between discretionary accruals and information asymmetry throughout the latest global financial crisis, this paper deepens our understanding of the effect of managerial discretion on the informativeness of earnings in the case of a negative exogenous shock in business fundamentals.Design/methodology/approachThis paper examines the relationship between discretionary accruals and the bid–ask spread within the Italian Stock Exchange over the period of 2007–2012. The authors focus on one country in order to avoid systematic cross-country performance variation in discretionary accruals models, and they use the bid–ask spread as a proxy for information asymmetry.FindingsThis paper shows the role played by discretionary accruals in unblocking private information in the case of a negative exogenous shock in business fundamentals and finds a significant negative relationship between discretionary accruals and the bid–ask spread during the global financial crisis, although only limited to firms with strong corporate governance.Research limitations/implicationsSince the paper focuses on one country, the findings might not be necessarily generalizable. Moreover, the relatively small sample size could be another limitation.Practical implicationsThis paper offers useful evidence to identify settings in which discretionary accruals increase the informativeness of earnings. Further, it suggests controlling for macroeconomic variables to mitigate the risk of an erroneous interpretation of discretionary accruals models.Originality/valueThis paper extends knowledge and collects new evidence on the information content of discretionary accruals by investigating the relationship between discretionary accruals and information asymmetry during a systemic crisis.

The effects of global financial crisis on the relationship between CEO compensation and earnings management

2020 ◽  
Vol 28 (2) ◽  
pp. 389-408 ◽  
Author(s):  
Oheneba Assenso-Okofo ◽  
Muhammad Jahangir Ali ◽  
Kamran Ahmed
Keyword(s):  
Financial Crisis ◽  
Earnings Management ◽  
Chief Executive Officers ◽  
Ceo Compensation ◽  
Global Financial Crisis ◽  
Chief Executive ◽  
Content Type ◽  
Multivariate Tests ◽  
Executive Officers ◽  
The Relationship

Purpose This paper aims to examine the effects of global financial crisis (GFC) on chief executive officers’ (CEO) compensation and earnings management relationship. Specifically, the authors examine whether the recent financial crisis had moderated the relationship between CEO bonus and discretionary accruals. Design/methodology/approach The authors use panel data for 1,800 firm-year observations (over a period of six years from 2005 to 2010) and use univariate and multivariate tests to test their hypothesis. The authors divide the period into pre-crisis, during-crisis and post-crisis periods to examine how the different financial crisis periods affect the relationship between CEO compensation and earnings management. Various alternative tests including endogeneity test suggest that the results are robust. Findings The authors’ multivariate results indicate that the relationship between CEO’ compensation and earnings management changes because of the GFC. Practical implications The findings, therefore, justify more monitoring and scrutiny to limit the existence of opportunistic managerial behaviour and for the appropriate designing of CEO compensation packages during abnormal economic circumstances. Originality/value So far as the authors’ knowledge goes, this is the first study which examines the relationship between CEO compensation and earnings management during GFC.

Revisiting the relationship between unexpected inflation and output in the presence of indexation

2020 ◽  
Vol 12 (2) ◽  
pp. 245-261
Author(s):  
Pavlo Buryi ◽  
Ficawoyi Donou-Adonsou
Keyword(s):  
Theoretical Model ◽  
Financial Crisis ◽  
Global Financial Crisis ◽  
Generalized Method Of Moments ◽  
Empirical Work ◽  
Purchasing Power ◽  
Content Type ◽  
The Relationship ◽  
Unanticipated Inflation ◽  
Unexpected Inflation

Purpose This paper aims to investigate the relationship between output and unanticipated inflation when wages are indexed for the loss of purchasing power. The authors argue that the monetary authority remains useful when firms that face rigid demand index wages to compensate for the loss of purchasing power, unlike Fischer (1977), who suggested that monetary policy loses effectiveness when firms index wages. Design/methodology/approach This paper develops a simple theoretical model followed by an empirical investigation of the relationship between output and unanticipated inflation in the presence of indexation. The theoretical model assumes a perfectly competitive firm that produces a final good that has no close substitutes using one factor, labor. The demand for the product is rigid. The empirical work considers quarterly US data from 1982Q1 to 2017Q1 and uses the Generalized Method of Moments in which endogenous variables are instrumented using their own lags. This paper further considers the period before and after the recent global financial crisis. Findings This paper shows that unexpected inflation decreases the growth rate of output in the USA. The decrease is quantitatively and qualitatively stronger before the financial crisis than after the crisis. This finding suggests that the Federal Reserve should maintain higher expectations of inflation and then surprise the public with lower inflation rates. The results further suggest that regardless of how expectations are formed, firms and workers agree on the nominal wage that is equal to the realized marginal revenue product of labor. Originality/value This paper sheds light on the behavior of the central bank and its relative ineffectiveness in light of the recent economic recession.

Proactive and reactive strategies deployed by restaurants in times of crisis

2015 ◽  
Vol 27 (7) ◽  
pp. 1641-1661 ◽  
Author(s):  
María del Mar Alonso-Almeida ◽  
Kerstin Bremser ◽  
Josep Llach
Keyword(s):  
Financial Crisis ◽  
Competitive Advantage ◽  
Dynamic Capabilities ◽  
Global Financial Crisis ◽  
Small Sample ◽  
Content Type ◽  
Organizational Effects ◽  
Subsequent Effect ◽  
One Year ◽  
The Global Financial Crisis

Purpose – This study aims to examine the development of dynamic capabilities and their effect on the competitive advantage of restaurants in 2009, one year after the beginning of the global financial crisis. Design/methodology/approach – The restaurants were personally surveyed to discern the importance of proactive and reactive strategies for the organization. The resulting two organizational effects – cost cutting and the development of dynamic capabilities – were tested for their influence on competitive advantage. Findings – The findings show that both proactive and reactive strategies reduce costs; however, only proactive strategies develop dynamic capabilities that improve competitive advantage. Research limitations/implications – The conclusions are drawn from a small sample of restaurants in Madrid, the capital of Spain. Given that Madrid enjoys a higher standard of living and greater business expenditures than other cities, the results may not be generalizable to the rest of the country or to other southern European capitals. Practical implications – Managers must use proactive strategies for companies to survive during times of crisis. A focus on proactive strategies will improve a company’s competitive position. Social implications – Policy makers should support the development of proactive strategies and provide an adequate infrastructure of counseling and network creation. Originality/value – To the best of our knowledge, no previous research specifically analyzes both the type of strategy deployed and its subsequent effect on dynamic capabilities and the consequences of the strategy on competitive advantage during a financial crisis.

Housing markets and policy in the UK and the USA

2014 ◽  
Vol 7 (1) ◽  
pp. 129-144 ◽  
Author(s):  
Colin Jones ◽  
Harry W. Richardson
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Home Ownership ◽  
House Price ◽  
Housing Markets ◽  
Detailed Comparison ◽  
Exogenous Shock ◽  
Content Type ◽  
The Usa ◽  
The Global Financial Crisis

Purpose – This paper aims to examine how the exogenous shock of the global financial crisis has had a differential impact on the housing markets of the USA and UK. Design/methodology/approach – The paper begins by examining the nature and dynamics of the global financial crisis. It presents a detailed comparison of institutional and housing market characteristics in each country. A particular focus is the differences in mortgage funding and subprime lending trends over the decade leading up to the financial crisis. Findings – The analysis demonstrates the distinctiveness of the recent housing cycles and the geography of the downward price adjustments. Relative unemployment rates play a key role in these outcomes. Despite the different dynamics of the boom and bust, there is a common legacy in terms of the collapse of house building, repossessions/foreclosures and falling home ownership rates. The short-term policy responses by both governments addressed the same target issues in alternative ways but with different outcomes. Longer-term solutions are still being debated in both countries. Originality/value – Innovatory insights are provided by the comparison of the sub-national spatial pattern of the recent house price cycle in two countries.

Loan fair values and the financial crisis

2020 ◽  
Vol 21 (5) ◽  
pp. 559-576
Author(s):  
Niranjan Chipalkatti ◽  
Massimo DiPierro ◽  
Carl Luft ◽  
John Plamondon
Keyword(s):  
Financial Crisis ◽  
Information Asymmetry ◽  
Information Dissemination ◽  
Stress Test ◽  
Fair Value ◽  
Bank Loan ◽  
Loan Portfolio ◽  
Content Type ◽  
Bid Ask Spread ◽  
The Impact

Purpose In 2009, effective the second-quarter, the financial accounting standards board mandated that all banks need to disclose the fair value of loans in their 10-Q filings in addition to their 10-K filings. This paper aims to investigate whether these disclosures reduced the level of information asymmetry about the riskiness of bank loan portfolios during the financial crisis. Design/methodology/approach The paper examines the impact of these disclosures on the bid-ask spread of a panel of 246 publicly traded bank holding companies. The spread serves as a proxy for information asymmetry and the ratio of the fair value of a bank’s loan portfolio to its book value is a proxy for the credit and liquidity risk associated with the same. The reaction to the first-quarter filing serves as a control to assess the reaction at the time of the second-quarter filing. Findings There is a significant negative association between bid-ask spread and the ratio indicating that the fair value information was useful in reducing information asymmetry during the financial crisis. A pattern was observed in the information dissemination related to the fair value of loans that is consistent with the literature that documents a delayed investor reaction to complex financial information. Originality/value Investors may use the fair value information to better assess the risk profile of a BHC’s loan portfolio. Also, loan fair values provide managers with data to better implement stress test models and determine optimal capital buffers.

Uncertainty avoidance culture, cash holdings and financial crisis

2020 ◽  
Vol 28 (4) ◽  
pp. 549-566
Author(s):  
Quoc Trung Tran
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Cash Holdings ◽  
Uncertainty Avoidance ◽  
Cultural Dimension ◽  
Exogenous Shock ◽  
Content Type ◽  
Crisis Period ◽  
The Global Financial Crisis ◽  
The Impact

Purpose This paper aims to investigate how the global financial crisis affects the relationship between uncertainty avoidance culture and corporate cash holdings. Design/methodology/approach This study develops a research model in which cash holdings ratio is a function of post-crisis period dummy, Hofstede’s cultural dimension of uncertainty avoidance, their interactive term and control variables. The research sample includes 188,264 observations from 26,509 firms incorporated in 44 countries between 2003 and 2016. Findings This study finds that the effect of uncertainty avoidance culture on firm cash holdings is stronger in the post-crisis period from 2008 to 2016. This effect is stronger for financially constrained firms. In addition, the research findings show that uncertainty avoidance culture is more effective in cash–cash flow sensitivity over the post-crisis period. Originality/value Prior studies show that uncertainty avoidance culture positively affects corporate cash reserves. However, the authors only examine the effect of uncertainty avoidance culture on cash holdings in a static environment. This paper investigates this effect under the impact of the global financial crisis – an exogenous shock.

Foreign ownership, state ownership and cash holdings under the global financial crisis: evidence from the emerging market of Vietnam

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Quynh Nga Nguyen Thi ◽  
Quoc Trung Tran ◽  
Hong Phat Doan
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Cash Holdings ◽  
Foreign Ownership ◽  
State Ownership ◽  
Exogenous Shock ◽  
Content Type ◽  
The Global Financial Crisis ◽  
Corporate Cash Holdings

PurposeThis paper investigates how the global financial crisis changes the effects of state ownership and foreign ownership on corporate cash holdings in an emerging market.Design/methodology/approachWe employ an interactive term between state ownership (foreign ownership) and a crisis dummy to analyze how the global financial crisis determines the effect of state ownership (foreign ownership) on corporate cash holdings.FindingsWith a research sample including 5,493 observations from 621 listed firms over the period 2007–2017, we find that state ownership (foreign ownership) is negatively (positively) related to corporate cash holdings and the effect of state ownership (foreign ownership) is stronger (weaker) during the crisis period. Moreover, the increase in the effect of state ownership is larger in financially unconstrained firms.Originality/valuePrior research shows that the effects of state ownership and foreign ownership on corporate cash holdings in emerging markets are still debatable. This paper extends this line of research by investigating how the global financial crisis – an exogenous shock – changes these effects.

How did regulation and market discipline influence banking distress in Europe?

2019 ◽  
Vol 37 (1) ◽  
pp. 160-198
Author(s):  
Vitor Branco Oliveira ◽  
Clara Raposo
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Empirical Work ◽  
Banking System ◽  
Market Discipline ◽  
Risk Indicators ◽  
Close Monitoring ◽  
Content Type ◽  
Leverage Ratio ◽  
The Relationship

Purpose This paper aims to examine the relationship between regulation, market discipline and banking distress. Design/methodology/approach To address the empirical question put forward above, a multivariate logit model is applied to an international sample of 586 banks from 21 European countries in the period between 2000 and 2012. To give robustness to the results, different variables have been used to test the role played by market discipline and regulation as well as an alternative methodology known as duration/survival analysis. Findings It can be found that market discipline is a good indicator in signalling banking distress, that is, market discipline has penalized more banks with a higher likelihood of being in distress. Nonetheless, as broadly acknowledged, market discipline was not sufficient per se to avoid banking distress in Europe. With regard to regulation, this paper evidences that the adoption of other regulatory measures beyond the simple transposition of changes occurred in the EU Directives such as borrower-based measures and limits on pre-emptive exposures’ concentration, have contributed toward reducing the probability of distress of EU banks, showing that the introduction of this kind of measures was necessary and relevant. In addition, in this paper, it can be found that the NPL ratio, size, capital (including the well-known regulatory capital ratio, as well as the novel leverage ratio which discards the risk weights present in the former one) and liquidity are good indicators of banking distress which lead us to conclude that the new regulatory framework known as Basel III is on the right path to mitigate the probability that a new banking crisis similar to the last one takes place again. Research limitations/implications The first limitation regards the period of time chosen, that is, from 2000 to 2012, empirically neglecting, to some extent the important regulatory changes occurred after the aforementioned period. Nonetheless, as mentioned in the Data and Methodology section, the period ends in 2012 because it is difficult to flag a reasonable number of banks’ bailouts afterwards, to properly run the type of model used in this paper. The second limitation is the fact that the possible changes in the risk management and risk assessment by institutions and in the behaviour of investors, acknowledge as weak and inappropriate before the on-set of the global financial crisis, albeit very relevant, are not in the scope of this paper. Practical implications Despite the welcomed changes performed by regulators so far, some aspects are not complete yet and new areas deserve more empirical work and attention by the regulators and supervisors. Some of them stem directly from the results obtained from this paper such as the enhancement and a close monitoring of the current Pillar 3 framework the increase of the adoption of more targeted tools, in a more preemptive way, to counter the build-up of risks and the implementation of the leverage ratio. Originality/value In the aftermath of the financial crisis, the identification of leading indicators signalling emerging risks to the banking system has become a major priority to central banks and supervisory authorities. As a consequence, several studies have formulated the aim of analysing predictive characteristics of a set of macroeconomic variables, such as GDP Growth, Credit-to-GDP, Inflation, M2-to-GDP, among others. Other studies take a different perspective and complement the analysis with bank-specific risk indicators. Nonetheless the aforementioned studies do not consider the relationship between regulation and market discipline and banking distress. This is the gap the authors wanted to fill, and this assessment is the main contribution of this paper.

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.

scholarly journals Corporate debt maturity and economic development

2019 ◽  
Vol 15 (5) ◽  
pp. 669-687 ◽  
Author(s):  
Celia Álvarez-Botas ◽  
Víctor M. González-Méndez
Keyword(s):  
Developing Countries ◽  
Economic Development ◽  
Financial Crisis ◽  
Firm Size ◽  
Debt Maturity ◽  
Corporate Debt ◽  
Content Type ◽  
Country Level ◽  
The Relationship ◽  
Bank Concentration

Purpose The purpose of this paper is to analyse the effect of economic development on the influence of country-level determinants on corporate debt maturity, bearing in mind firm size and the period of financial crisis. Design/methodology/approach The authors employ panel data estimation with fixed effects to examine the role of economic development in influencing the relationship between country-level determinants on corporate debt maturity. The paper uses a sample of 30,727 listed firms, belonging to 39 countries, over the period 2005–2012. Findings Corporate debt maturity increases with the efficiency of the legal system and bank concentration and decreases with the weight of banks in the economy. However, the importance of these country determinants is greater in developing than in developed countries. The authors also show that firm size in developed and developing countries influences country determinants of corporate debt maturity. Finally, the results reveal that the financial crisis has affected the debt maturity of firms differently in developed and developing countries, with the effect of bank concentration lengthening debt maturity, this effect being more pronounced in developing countries. Practical implications The findings provide useful insights to guide policy decisions providing access to long-term financing, as corporate debt maturity depends on economic development, institutional environment, banking structure and firm size. Originality/value This study incorporates economic development in explaining the relationship between country-level determinants and corporate debt maturity.

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