The effect of outside blockholders on earnings management around seasoned equity offerings in French listed companies on the SBF120

2019 ◽  
Vol 17 (3) ◽  
pp. 449-467
Author(s):  
Abir Jerbi Maatougui ◽  
Khamoussi Halioui
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Financial Statements ◽  
Discretionary Accruals ◽  
Seasoned Equity Offerings ◽  
Empirical Literature ◽  
Individual Investors ◽  
Equity Offerings ◽  
Content Type ◽  
The Impact

Purpose The purpose of this study is to test the effect of the presence of outside blockholders on earnings management around seasoned equity offerings (SEOs). Design/methodology/approach Given that SEO can be one of motivations for earnings management, the authors examined the role of outside blockholders in monitoring the opportunistic behavior of managers around 50 SEOs realized by 45 French companies during the 2005-2009 period based on panel data model. Findings The authors found that issuing firms are used for upward earnings management during the pre-offering period. Indeed, the discretionary accruals know a continuous evolution during the three years preceding SEO and peaked in the year prior to the SEO. This result led us to examine the role played by the outside blockholders on earnings management. The results provided empirical evidence that the presence of outside blockholders in SEO firms is able to restrain earnings management practices. Research limitations/implications This study allows to inform investors that French issuing firms are less overvalued in the presence of outside blockholders than in their absence. As a result, investors have an interest in participating in the SEO of firms that hold outside blockholders in their capital structure. Again, based on this study, users of financial statements can trust the reliability of the financial statements published by companies with outside blockholders because of the careful control exercised by these shareholders in the process of producing financial information. However, similar to how any research may suffer from some limitations, this work has two major limitations. Firstly, the authors examined the impact of outside blockholders on earnings management without distinguishing between the different types of blockholders (such as individual investors, pension funds, mutual funds, banks and trusts). Secondly, they have estimated the discretionary accruals by referring to a single model (Kothari et al., 2007). However, the use of two or more models for estimating accruals will lead to more robust results. Originality/value The empirical literature emphasizes the monitoring role played by these shareholders on earnings management. However, it does not distinguish between the circumstances when the monitors either lose or win from exaggerations. This research completes this lack by studying the impact of outside blockholders on earnings management around SEOs.

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 DETEKSI MANAJEMEN LABA MELALUI PERBEDAAN NILAI ABSOLUT AKRUAL DISKRESIONER SEPUTAR SEASONED EQUITY OFFERINGS

2018 ◽  
Vol 14 (1) ◽  
pp. 54
Author(s):  
Djaja Perdana
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Discretionary Accruals ◽  
Seasoned Equity Offerings ◽  
Rank Test ◽  
Equity Offerings ◽  
Absolute Value ◽  
Discretionary Accrual ◽  
Signed Rank ◽  
Signed Rank Test

Abstrak: Deteksi Manajemen Laba Melalui Perbedaan Nilai Absolut Akrual Diskresioner Seputar Seasoned Equity Offerings. Penelitian ini bertujuan mendeteksi praktik manajemen laba pada perusahaan yang melakukan aksi Seasoned Equity Offerings. Pendeteksian manajemen laba dilakukan melalui pengujian perbedaan nilai absolut akrual diskresioner sebelum dan sesudah aksi Seasoned Equity Offerings (SEO).  Penelitian ini melibatkan total 201 data observasi dari 67 sampel perusahaan yang terdaftar di Bursa Efek Indonesia yang melakukan Seasoned Equity Offerings selama periode 2008-2013 dan dipilih melalui metode purposive random sampling serta menggunakan data Laporan Keuangan periode 2004-2016. Pengujian hipotesis menggunakan Wilcoxon Signed Rank Test. Penelitian ini menunjukkan bahwa terdapat perbedaan yang signifikan nilai absolut akrual diskresioner dalam informasi laba perusahaan antara sebelum dengan sesudah melakukan Seasoned Equity Offerings.  Nilai absolut akrual diskresioner sebelum Seasoned Equity Offerings lebih besar dibandingkan dengan sesudah Seasoned Equity Offerings. Hal ini menunjukkan terjadinya praktik manajemen laba sebagai dampak asimetri informasi antara manajemen perusahaan dengan investor. Kata kunci: Asimetri informasi, Manajemen Laba, Nilai Absolut Akrual Diskresioner, Seasoned Equity Offerings Abstract: Detecting Earning Managemeng by Examining the Changes in Absolute Value of Discretionary Accrual in Relation to Seasoned Equity Offerings. This study aims to detect earnings management practices in companies that perform Seasoned Equity Offerings. Earnings management is detected by examining the change of absolute value of discretionary accrual before and after Seasoned Equity Offerings (SEO). This study utilises 201 observation data from 67 IDX-listed companies which conducted Seasoned Equity Offerings during 2008-2013. The samples were selected by purposive random sampling method and using the data from Financial Report 2004-2016 period. The test was performed by using Wilcoxon Signed Rank Test. This study found the absolute value of discretionary accruals before Seasoned Equity Offerings is greater than after Seasoned Equity Offerings. These earnings management practices as impact of information asymmetry between management and investors. Keywords: Information Asymmetry, Absolute Value of Discretionary Accruals, Earnings Management, Seasoned Equity Offerings

CEO characteristics and earnings management: empirical evidence from France

2020 ◽  
Vol 18 (1) ◽  
pp. 77-110 ◽  
Author(s):  
Dhouha Bouaziz ◽  
Bassem Salhi ◽  
Anis Jarboui
Keyword(s):  
Earnings Management ◽  
Significant Relationship ◽  
Management Practices ◽  
Discretionary Accruals ◽  
Content Type ◽  
Financial Communication ◽  
The Impact ◽  
The Relationship ◽  
Ceo Characteristics

Purpose The purpose of this paper is to investigate the impact of chief executive officer (CEO) characteristics on the earnings management examined by the discretionary accruals. Design/methodology/approach The sample includes 151 French firms listed on the CAC ALL shares index from 2006 to 2015. The paper uses the feasible generalized least square regression technique to test the relationship between CEO characteristics and earnings management. Findings Using discretionary accruals as a proxy for earnings management, the results obtained from the three models (Jones modified 1995; Kothari et al., 2005; Raman and Shahrur, 2008) indicated that there is a positive and significant relationship between CEO duality, CEO nationality and the quality of financial communication. However, no significant relationship was found between CEO board member, CEO turnover and earnings management. Originality/value A literature review finds that fewer studies have investigated the relationship between earnings management practices and personal CEO characteristics in the French context. Furthermore, no study yet has examined the influence of CEO nationality and CEO age on earnings management practices. This study provides empirical data about the impact of CEO’s characteristics on earnings management and how these different characteristics can facilitate the transition to manipulate and influence the quality of financial communication.

scholarly journals Management Entrenchment, Firm Characteristics and Earnings Management Of Conglomerate Companies In Nigeria

2020 ◽  
Vol 9 (1) ◽  
pp. 1-14
Author(s):  
Temitope Olamide Fagbemi ◽  
Olubunmi Florence Osemene ◽  
Oyinlade Agbaje
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Discretionary Accruals ◽  
P Value ◽  
Secondary Source ◽  
Firm Characteristics ◽  
Ex Post ◽  
Management Entrenchment ◽  
The Impact

Sometimes the rivalry between shareholders and management is an indication of the level of entrenchment within the corporate environment. Managers are believed to routinely manipulate earnings in order to mislead shareholders about their company's actual economic outlook or performance. As a result, the study investigated the impact of managerial entrenchment, firm characteristics and earnings management of conglomerate companies in Nigeria. Employing the ex-post facto research design, the data was gathered from secondary source of the 6 listed conglomerate companies for the 11-year period running (2008-2018). The study used discretionary accruals a proxy for earnings management and to calculate discretionary accruals, the study used modified Jones model. The result showed that management entrenchment and firm characteristics have Impact on multinational firms ' earnings management in Nigeria. Specifically, from the conglomerate’s entrenchment proxies, CEO’s tenure has a positive and significant impact on earnings management (coff. =1.062821, p-value =0.0367) and management entrenchment as measured by CEO’s shareholding has a negative and insignificant effect on earnings management (coff. =-6252391, p-value = 0.4090) while firm size, profitability and leverage indicated a significant and positive impact on earnings management (coff, = 0.124587, p-value = 0.0000; coff. = 0.006647, p-value = 0.0431 and coff. = 0.032065, p-value = 0.0000). The study therefore recommended among others that management should reduce the debt in their capital structure in order to improve their companies’ value and their capital structure should be majorly financed by equity rather than debt and reduce CEOs tenure to minimise earnings management practices.

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.

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.

Do discretionary accruals affect firms’ corporate dividend policy? Evidence from France

2018 ◽  
Vol 16 (2) ◽  
pp. 333-347 ◽  
Author(s):  
Anis Ben Amar ◽  
Olfa Ben Salah ◽  
Anis Jarboui
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Positive Impact ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Discretionary Accruals ◽  
Additional Measure ◽  
Ample Evidence ◽  
Content Type ◽  
The Impact

Purpose In financial literature, dividend payout decisions are determined by factors such as debt, liquidity, profitability, size and risk. The purpose of this paper is to identify the effect of earnings management measured by discretionary accruals based on Dechow et al.’s (1995) model on dividend policy. Design/methodology/approach This research will use panel data analysis to test the effect of earnings management on dividend policy. The authors selected 280, French non-financial companies, listed on the CAC All Tradable index for the 2008-2015 period. Findings Using a sample of 2108 firm-year observations, the authors find a positive impact of earnings management on dividend policies of firms. Besides, there is a positive/negative relationship between the size of the firm and the dividend policy. Moreover, this paper has dealt with some factors such as debt, the risk of the firm and liquidity which may affect the corporate dividend policy. The results are robust as the authors adopted an additional measure of dividend policy. Practical implications The findings may have important implications for analysts, investors, regulators and academics. First, the study shows that earnings management is a common practice in the French context and constitutes a major objective of dividend policy. Better still, identifying the other variables that influence the dividend policy provides a clearer understanding of dividend policy for investors, analysts and academics alike. Second, the study provides ample evidence of agency problems between various partners in French capital markets, highlighting the necessity to establish new corporate governance mechanisms. This is highly relevant for policymakers in their quest for a better financial market. Originality/value This study extends the literature on the impact of dividend thresholds on earnings management by showing that firms run earnings to inform the market that the company can distribute dividends.

The role of audit committees in mitigating earnings management: evidence from Jordan

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Taha Almarayeh ◽  
Modar Abdullatif ◽  
Beatriz Aibar-Guzmán
Keyword(s):  
Developing Countries ◽  
Earnings Management ◽  
Audit Committee ◽  
Discretionary Accruals ◽  
Least Square ◽  
Audit Committees ◽  
Institutional Setting ◽  
Content Type ◽  
The Impact

PurposeThis study examines the relationship between audit committees (ACs) and earnings management (EM) in the developing country context of Jordan. In particular, it investigates whether audit committee attributes, including their size, independence, expertise and meetings, are able to restrict discretionary accruals as a proxy for EM.Design/methodology/approachThe generalized least square (GLS) regression was used to study the association between audit committee attributes and discretionary accruals, as a proxy of EM, for a sample of industrial firms listed on the Amman Stock Exchange (ASE) during the period 2012–2020. Data were obtained from the firms' annual reports.FindingsThe regression results indicate that audit committee independence is the only audit committee attribute that seems to improve the effectiveness of ACs, in that it is significantly associated with less EM, while other audit committee attributes that were tested do not show statistically significant associations.Research limitations/implicationsIn emerging markets, like Jordan, ACs may not be an efficient monitoring mechanism; therefore, it can be argued that the prediction made by the agency theory about the role of ACs in mitigating opportunistic EM activities does not necessarily apply to all contexts.Practical implicationsA better understanding of audit committee effectiveness in developing countries could help regulators in these countries assess the impact of planned corporate governance (CG) reforms and to better monitor and enhance the performance of ACs.Social implicationsIn a setting characterized by closely held companies, high power distance and low demand for high-quality CG mechanisms, this study contributes to understanding how this business system operates, and how improving CG mechanisms could be successful in such cultures.Originality/valueThis study investigates the under-researched relationship between audit committee characteristics and EM in developing countries. In so doing, it aims to provide new insights into this relationship within the developing context case of Jordan, including if and how the institutional setting influences this relationship.

Board characteristics, external auditing quality and earnings management

2014 ◽  
Vol 4 (1) ◽  
pp. 79-96 ◽  
Author(s):  
Neila Boulila Taktak ◽  
Ibtissem Mbarki
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Audit Quality ◽  
Good Practice ◽  
Board Structure ◽  
External Audit ◽  
Content Type ◽  
Board Characteristics ◽  
Big 4 ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of board characteristics and external audit quality on earnings management among major Tunisian banks over the period 2003-2007. Design/methodology/approach – Multivariate regressions are employed to test the effect of board structure and external audit quality on discretionary provisions as a proxy for earnings management. Findings – Results indicate that among the characteristics of the board, CEO duality is associated with higher levels of discretionary provisions. However, the presence of directors affiliated to the largest shareholder tends to constrain earnings management practices. The results reveal also that a co-audit belonging to the BIG 4 provides incentives to manage earnings while the capacity of the external auditor to disclose reservations impacts negatively the manager's discretion. Practical implications – First, it is not desirable to appoint a co-audit both belonging to the BIG 4. Second, the presence of affiliated directors reduces the discretionary practices except in cases where directors are affiliated to families. In this case, banks should strengthen the presence of independent directors. Finally, the delineation of the leeway left in the Tunisian accounting standards would provide more transparent financial information. Originality/value – This study contributes to the literature on governance and its impact on earnings management among Tunisian banks by introducing two variables that have not been tested before which are affiliated directors and co-audit. The paper will be of value to banks willing to comply with the Governance Good Practice Guide adopted recently in Tunisia.

The long run performance of secondary equity offerings on the Johannesburg Stock Exchange

2018 ◽  
Vol 13 (5) ◽  
pp. 1211-1232
Author(s):  
Jesse Alves da Cunha ◽  
Yudhvir Seetharam
Keyword(s):  
Stock Exchange ◽  
Operating Performance ◽  
Investor Sentiment ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Content Type ◽  
Market Participants ◽  
Johannesburg Stock Exchange ◽  
Long Run ◽  
The Impact

Purpose Opinions have been divided on whether there is a rational explanation to the reason behind seasoned equity offerings (SEOs) or whether the explanation lies within the behavioural intricacies attributed to stock market participants. The paper aims to discuss these issues. Design/methodology/approach This study investigates the long-run performance of firms conducting SEOs on the Johannesburg Stock Exchange (JSE) over the period of 1998–2015, by examining the return performance and operating performance of firms, along with the impact of investor sentiment on these variables. Findings The results of this study are inconsistent with the existing literature, which argues that the long-run performance of issuing firms signalled an initial underreaction to SEOs buoyed by over-optimistic investors. Research limitations/implications Instead, the long-run performance of issuing firms is adequately explained by the rational models centred on the risk-return framework, implying that investors are reacting swiftly to SEOs in an unbiased fashion. Originality/value Investor sentiment does not materially influence the long-run share performance or operating performance of issuing firms, casting doubt on the ability of the market timing theory to explain the long-run performance of SEOs. The authors thus find that SEO performance cannot be explained by behavioural-based reasoning, in contrast to some asset pricing studies on the JSE which indicate the role of sentiment in explaining returns.

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