Transaction-based lending and accrual quality

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Stephen Gray ◽  
Arjan Premti
Keyword(s):  
Earnings Quality ◽  
Financial Statements ◽  
Financial Statement ◽  
Cost Of Debt ◽  
Accrual Quality ◽  
Content Type ◽  
Income Statement ◽  
Prior Literature ◽  
The Cost

PurposeThis study examines how lenders modify their behavior and their use of traditional, transaction-based lending models in credit decisions when faced with low earnings quality.Design/methodology/approachTo measure the earnings quality, following Bharath, Sunder and Sunder (2008), the authors use three measures of accrual quality and combine them into a simple parsimonious measure of accrual quality. Subsequently, the authors apply the incremental R-square approach used by Kim and Kross (2005) to determine the degree to which lenders modify their reliance on financial statement ratios when faced with low accrual quality.FindingsConsistent with prior literature, this study shows that the cost of debt is higher when accrual quality is low. In addition, this study extends prior literature by showing that lenders decrease their reliance on income statement data to make credit decisions as accrual quality decreases.Originality/valueThis paper broadens existing literature on the pricing of information risk in capital markets by being the first to show that lenders modify their reliance on financial statement data when faced with low-quality accruals. In addition, this paper extends the findings of Billings and Morton (2002) and demonstrates to managers the futility of using accrual manipulations to obtain more favorable credit terms. Lastly, this paper aids regulators and standard setters who seek to improve the usefulness of financial statements by showing that creditors do not appear to be misled by reporting choices that lower the quality of accruals.

scholarly journals Pengaruh Struktur Modal, Likuiditas, Profitabilitas dan Umur Perusahaan terhadap Kualitas Laba:

2022 ◽  
Vol 4 (3) ◽  
pp. 663-682
Author(s):  
Khoirunnisa Nur Hasanah ◽  
Teguh Erawati
Keyword(s):  
Capital Structure ◽  
Quantitative Research ◽  
Stock Exchange ◽  
Earnings Quality ◽  
Secondary Data ◽  
Financial Statements ◽  
Financial Statement ◽  
Firm Age ◽  
Information Need

This study aims to prove the effect of capital structure, liquidity, profitability and firm age on earnings quality. The type of research used is quantitative research and secondary data. The sample of this research is mining companies listed on the Indonesia Stock Exchange (IDX) in 2017-2020 using purposive sampling. This study shows that capital structure has no significant effect on earnings quality, liquidity has no significant effect on earnings quality, profitability has no significant effect on earnings quality and firm age has no significant effect on earnings quality. The implications of this research are related to earnings quality. Investors and other users of financial statement information, need to consider the liquidity factor because this factor has a significant impact on the quality of earnings in the company. This shows that users of financial statements, especially investors, need to consider the liquidity factor when making investment decisions in affiliated companies. Keywords: Capital Structure, Liquidity, Profitability, Company Age, Earnings Quality

A cross-country study on manipulations in financial statements of listed companies

2017 ◽  
Vol 24 (4) ◽  
pp. 656-677 ◽  
Author(s):  
Md Shamimul Hasan ◽  
Normah Omar ◽  
Paul Barnes ◽  
Morrison Handley-Schachler
Keyword(s):  
White Collar Crime ◽  
White Collar ◽  
Financial Statements ◽  
Listed Companies ◽  
Financial Statement ◽  
Content Type ◽  
Significant Difference ◽  
Cent Level ◽  
The Cost ◽  
National Difference

Purpose The purpose of this study is threefold: first, to detect trends in financial statement manipulation; second, to measure the level of manipulation and to measure the variation in manipulation between countries; and, third, to identify widely used techniques in financial statements manipulation. Design/methodology/approach This study uses financial data of listed companies from Asia, namely, Japan, Singapore, Malaysia, Indonesia, Thailand, Hong Kong and China. The study adopts financial ratios, financial forensic tool, dichotomous approach and statistical tools to analyze the data (84,000 observations) over a period of four years from 2010 to 2013. Findings The results show that 34 per cent of sample companies in selected Asian countries are involved in the manipulation of financial statements; the average level of manipulation (overall manipulation index) is 72 per cent; and there is a significant difference between countries at 5 per cent level. The study also identifies four most commonly used techniques, namely: days’ sales in receivable (DSRI), depreciation (DEPI), assets quality (AQI) and total accruals to total assets (TATA). Research limitations/implications Although this study found a significant national difference between countries in terms of practicing manipulation in financial statements, it did not address the issue of why some countries have higher level of manipulation and greater fluctuations in manipulation than others. Further study could be conducted to look for the reasons on these issues. Practical implications Investors and other stakeholders are advised to judge the manipulation in financial statements before fixing up for investment. At least they should examine Sales, Accounts Receivable, Depreciation, Value of Fixed Assets and Accruals data before accepting the financial statement in good faith. Social implications The trend of manipulation in financial statements is increasing day by day and that is why it needs to prevent to protect our society from white collar crime. The cost of white collar crime is much higher and key executives are making money at the expense of investors and other stakeholders. This kind of study creates awareness among stakeholders about the manipulation as well as provides techniques to examine the faithfulness of financial statements. Then, managers will not overstate or understate either revenues or expenses easily, as it can damage the goodwill. Originality/value This is the first study of its kind addressing measurement of manipulation score, overall manipulation index (OMI) and identification of widely used variables of manipulation in financial statements are new contributions towards existing literature of earnings manipulation.

Earnings quality and cost of debt: evidence from Portuguese private companies

2016 ◽  
Vol 14 (2) ◽  
pp. 178-197 ◽  
Author(s):  
Cecília Rendeiro Carmo ◽  
José António Cardoso Moreira ◽  
Maria Cristina Souto Miranda
Keyword(s):  
Financial Institutions ◽  
Earnings Quality ◽  
Listed Companies ◽  
Cost Of Debt ◽  
Company Size ◽  
Private Companies ◽  
Content Type ◽  
Debt Level ◽  
The Cost ◽  
The Relationship

Purpose The purpose of this paper is to test the relationship between earnings quality and the cost of debt for private companies in a “code-law” country (Ball et al., 2000). The analysis controls for company size, debt level and audited information. Design/methodology/approach The paper uses the ordinary least squares regression technique to test the relationship between earnings quality and the cost of debt. Findings The collected empirical evidence shows a negative relationship between earnings quality and the cost of debt and controls for company size and debt level. Such a relationship is stronger when the company information is audited. Research limitations/implications Similar to other studies, this paper has two main limitations. There was no access to specific data on the interest rates charged on bank loans, implying that the cost of debt is measured by the ratio of the interest expense to interest-bearing debt. The research only uses earnings quality measures based on abnormal accruals. Practical implications The collected evidence suggests that earnings quality have economic consequences for private companies by affecting their cost of debt, similar to those observed in previous studies for listed companies. This evidence can be seen as an incentive for private companies to increase their financial information quality. For debt providers, namely, financial institutions, the findings can be of interest to help them price properly the loans they make available to private companies. In general, the findings of this research can be of interest for company managers and financial institutions in countries with an institutional environment similar to that of Portugal. Originality/value The relation between earnings quality and the cost of debt has been so far studied for listed companies in “common law” countries. This paper provides new and complementary evidence about such relation for private companies and “code-law” country.

scholarly journals The role of accrual estimation errors to determine accrual and earnings quality

2016 ◽  
Vol 24 (2) ◽  
pp. 98-115 ◽  
Author(s):  
Javad Izadi Zadeh Darjezi
Keyword(s):  
Standard Deviation ◽  
Cash Flow ◽  
Earnings Quality ◽  
Cash Flows ◽  
Working Capital ◽  
Bottom Line ◽  
Significant Information ◽  
Accrual Quality ◽  
Content Type

Purpose Managers, investors and security analysts all pay special attention to the bottom line of income statements and they miss significant information included in accruals about the quality of earnings. A considerable portion of the earnings-quality literature examines the possibility of using the accruals to shift reported income among fiscal periods. One of the main roles of working-capital accruals is to adjust the recognition of cash flows. This paper aims to focus on earnings quality by examining the working-capital accruals quality using the method of Dechow and Dichev (2002). Design/methodology/approach Following the Dechow and Dichev (2002) model, the result of this paper shows that accrual quality is related to the absolute magnitude of accruals negatively. Also, the standard deviation of accruals, cash flows, sales and earnings is positively related to firm size. The result demonstrates and suggests that these observable firm characteristics can be used as instruments for measuring accrual quality. According to this framework, the author expects that the larger the unsigned abnormal accrual measure, the lower the earnings quality. Therefore, firms with low accrual quality have more accruals that are unrelated to cash flow realisations and so have more noise and less persistence in their earnings. Findings After examining earnings and accrual quality, this paper finds that average UK company behaviour was quite similar to the behaviour found earlier in the USA. This paper’s findings show that greater volatility of sales, cash flow, accruals and earnings results in a lower accrual quality. Without a doubt, some of the analysis in this paper, especially that using different equations to calculate working-capital accruals, leads us to a valuable improvement of the earlier studies. Originality/value In this paper, the author follows the method of Dechow and Dichev (2002) and define accrual quality as the extent to which accruals map into cash-flow insights based on the UK data. To find the quality of working-capital accruals, the author uses the standard deviation of the residuals as accrual quality that resulted from the author’s firm-specific OLS regressions of working-capital accruals based on last, current and one-year-ahead operating cash flow. Unlike prior research, to avoid a restriction to working-capital accruals, we use different equations to cover more items of working-capital accruals.

The quality of earnings in Shariah-compliant companies: evidence from Malaysia

2015 ◽  
Vol 6 (1) ◽  
pp. 19-41 ◽  
Author(s):  
Wan Adibah Wan Ismail ◽  
Khairul Anuar Kamarudin ◽  
Siti Rahayu Sarman
Keyword(s):  
Financial Reporting ◽  
Earnings Quality ◽  
Reporting Quality ◽  
Quality Model ◽  
High Quality ◽  
Cross Sectional ◽  
Accrual Quality ◽  
Content Type ◽  
Reported Earnings

Purpose – The purpose of this study is to examine the quality of reported earnings in the corporate reports of Shariah-compliant companies listed on Bursa Malaysia. Design/methodology/approach – This study hypothesises that companies with Shariah compliance status have higher quality of earnings because of greater demand for and supply of high-quality financial reports. The quality of reported earnings is measured using the cross-sectional Dechow and Dichev (2002) accrual quality model. The study uses a balanced panel data of 3,048 observations from 508 companies during a six-year period of 2003-2008. Findings – This paper finds robust evidence that Shariah-compliant companies have significantly higher earnings quality compared to other firms. The results provide support for the arguments that Shariah-compliant companies supply a higher quality of reported earnings to attract foreign investment, have greater demand for high-quality financial reporting because of their Shariah status and are subject to greater scrutiny by regulators and institutional investors. Research limitations/implications – This study contributes to the existing literature on Islamic capital market, business ethics, firms’ governance and financial reporting quality. The study would give a better understanding on issues relating to earnings quality of Shariah-compliant companies and would be especially useful for financial statement users, including investment analysts. Originality/value – This paper provides evidence on the quality of earnings in Shariah-compliant companies and offers new arguments that explain why such companies possess higher quality of earnings compared to their counterparts.

scholarly journals Kualitas Laba dan Tingkat Manipulasi Laporan Keuangan dimata Investor Pasar Modal Sektor Pertambangan. Pentingkah?

2021 ◽  
Vol 18 (2) ◽  
pp. 103-113
Author(s):  
Robith Hudaya
Keyword(s):  
Capital Market ◽  
Earnings Quality ◽  
Market Value ◽  
Financial Statements ◽  
Financial Statement ◽  
Linear Regression Method ◽  
Previous Theory ◽  
Negative Effect ◽  
Investment Choices

This study aims to prove empirically whether the earnings quality and the level of financial statement manipulation have an effect on the company market value. The study used sample of 3 years from 2017 to 2019. Using the multiple linear regression method, it was found that the quality of earnings has a negative effect on the market value of the company and is contrary to previous theory and research. Meanwhile, the level of financial statement manipulation has no effect on the company's market value. These results indicate that the quality of earnings and the degree of manipulation of financial statements are not the main information used by capital market players in determining their investment choices. Capital market players prefer other methods of analysis in determining their investment options.

What matters in cost of debt: audit partner public-client specialization or busyness?

2020 ◽  
Vol 35 (9) ◽  
pp. 1379-1399
Author(s):  
Kanyarat (Lek) Sanoran
Keyword(s):  
Audit Quality ◽  
Positive Association ◽  
Cost Of Debt ◽  
Content Type ◽  
Average Value ◽  
Prior Literature ◽  
Two Measures ◽  
One Year ◽  
The One ◽  
The Cost

Purpose This study aims to examine whether audit partner public-client specialization and busyness impact the cost of debt. Design/methodology/approach This paper uses data from companies in Thailand for the 1998–2016 period. To measure the cost of debt, this study uses the realized interest cost, measured as the total interest expense for the one year ahead divided by the average value of total debt outstanding during that year. Findings The results show a positive association between the cost of debt and two measures of public-client specialization and busyness, which are the number of public clients audited by an individual audit partner in each year and the proportion of the number of public clients divided by the number of total clients in an individual audit partner’s portfolio. Originality/value In the literature, there is a lack of research on whether a higher number of public clients in an audit partner’s portfolio leads to better or worse perceived audit quality. This study extends prior literature by examining whether creditors’ perception of audit quality depends on the audit partner specialization or busyness and specifically, on the number of public clients of the auditor. The findings indicate that public-client busyness of a particular audit partner, rather than the audit partner public-client specialization, matters in the cost of debt.

scholarly journals Pengakuan, Pengukuran, Penyajian, dan Pengungkapan Biaya Limbah

2018 ◽  
Vol 5 (2) ◽  
pp. 129
Author(s):  
Intan Diah Pratiwi ◽  
Yosefa Sayekti ◽  
Imam Mas'ud
Keyword(s):  
Financial Statements ◽  
Environmental Accounting ◽  
Production Costs ◽  
Financial Statement ◽  
Fixed Asset ◽  
Cement Factory ◽  
Triangulation Method ◽  
Income Statement ◽  
Asset Depreciation ◽  
The Cost

This study aims to determine the application of environmental accounting on the cost of waste at PT. Cement Puger Jaya Raya Sentosa. This research is qualitative using triangulation method. Resulth is accounting practices (the recognition, measurement, presentation and disclosure) the cost of waste carried out by PT. Cement Puger Jaya Raya Sentosa almost in accordance with the Framework for the Preparation and Presentation of Financial Statements (KDPPLK) however, PT. Cement Puger Jaya Raya Sentosa yet have a complete financial statement. The financial statements are owned by PT. Cement Puger Jaya Raya Sentosa until this research still consists of report production costs, fixed asset depreciation report, and income statement. Keywords: Accounting, Environmental, Waste, Cement Factory, Report

scholarly journals Determinant factor of the quality of financial statements and performance of the government by adding contextual factors

2018 ◽  
Vol 3 (1) ◽  
pp. 28-40 ◽  
Author(s):  
Nirwana Nirwana ◽  
Haliah Haliah
Keyword(s):  
Financial Statements ◽  
Financial Statement ◽  
Regional Government ◽  
Personal Factor ◽  
Political Factors ◽  
Content Type ◽  
System Administration ◽  
The Government ◽  
And Performance

Purpose The purpose of this paper is to re-test the determinant factors of the quality of financial statements and performance of the government by adding contextual factors, such as personal factor, system/administrative factor and political factor, that may affect the quality of financial statement information and performance of the government. Personal factor is proxied to the competencies that affect the quality of financial statements and performance. Social administrative factor is proxied on the regulations and presentation of quality financial statements. Design/methodology/approach The analysis unit in this study was conducted at the organizational level. The research object was in South Sulawesi Province. This was a descriptive and verificative research with survey technique. Based on the objectives of the research, this is an explanatory research. The research method used was explanatory survey with quantitative approach. The population of this research was proxied to the Regional Unit Organization (Organisasi Perangkat Desa) which compiled the financial statements in South Sulawesi Provincial Government consisted of 803 units of Local Government Agencies (Satuan Kerja Perangkat Daerah). The purposive sampling technique was chosen under the following criteria: the regional government whose financial statement has been audited by Badan Pemeriksa Keuangan; the regional government whose financial accountability report has been evaluated by Indonesia’s Agency for Financial and Development Supervision (Badan Pengawasan Keuangan dan Pembangunan). In line with the criteria mentioned above, the minimum samples required for 26 observations/indicators are 5×26=130 respondents. The sample size met the minimum sample requirement of 5 for each group (cell) (Hair et al., 2006, p. 112). Findings Personal factors competence affects the financial statements quality. The high personal factors competence will affect on the high financial statements quality. System/administration factors regulation affect the financial statement quality. The high system/administration factors regulation will affect on the high financial statements quality. Political factors affect the financial statements quality. The high political factors will affect on the high financial statements quality. Personal factor competence has no direct effect on the performance. The high personal factor competence will not affect the high or low of the performance. However, there is a significant indirect effect between personal factor competence on performance through the financial statements quality which means that higher personal factor competence will lead to higher performance through financial statements quality. System/administration factor regulation is not directly affects the performance. The high system/administration factor regulation will not affect on the high or low of the performance. However, there is a significant indirect effect between system/administration factor regulation on performance through the financial statements quality which means that higher the system/administration factor regulation will lead to higher performance through financial statements quality. Political factors is not directly affects the performance. The high political factors will not affect the high or low of the performance. However, there is a significant indirect effect between political factors on performance through the financial statements quality which means that the higher the political factor, it will leads to higher performance through the financial statements quality. Financial statements quality affects the performance. The high financial statements will affect on the performance. Originality/value The research issues raised are the increasing public demands for the government services and accountability, while on the other hand the government is faced with the report and financial quality that are below the expectation. This issue is a national strategic issue, leading this research to aim at providing guidelines that can help the regional government to formulate operational policies and strategies of the quality improvement of financial statement and performance of the regional government.

scholarly journals Earnings Transparency, Cost of Debt and Cost of Equity: A Cross-Country Examination

2020 ◽  
Vol 13 (10) ◽  
pp. 115
Author(s):  
Eduardo Flores ◽  
Joelson Oliveira Sampaio ◽  
Aziz Xavier Beiruth ◽  
Aldy Fernandes da Silva
Keyword(s):  
Financial Statements ◽  
Cost Of Debt ◽  
Decision Making Process ◽  
Cost Of Equity ◽  
Main Hypothesis ◽  
Prior Literature ◽  
Cross Country ◽  
Developed Stock Markets ◽  
The Cost ◽  
Debt Holders

This study evaluates the effect of earnings transparency on the cost of debt (Ki) and cost of equity (Ke). Previous literature has demonstrated that earnings transparency can reduce the Ke, especially in very well-developed stock markets. However, our main hypothesis is that this finding does not necessarily remain the same when considering the Ki. More specifically, this is because investors and creditors have different interests, concerns, and views about financial statements and accounting procedures. Using two proxies of earnings transparency, our findings support this conjecture, indicating that while an increase in earnings transparency reduces the Ke, this relationship does not keep that same impact on Ki. This study has implications for standard setters, debt holders and companies regarding the changes stemming from IFRS convergence, contributing to the prior literature which indicate that creditors and investors need different kind of information due to the distinct decision-making process.

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