How does real earnings management respond to the 2007-2008 financial crisis?

2020 ◽  
Vol 32 (4) ◽  
pp. 495-517
Author(s):  
Zhigang Li ◽  
Yuan-Teng Hsu ◽  
Xiang Gao
Keyword(s):  
Financial Crisis ◽  
Earnings Management ◽  
Global Financial Crisis ◽  
Probit Model ◽  
Real Earnings Management ◽  
Share Repurchases ◽  
2008 Financial Crisis ◽  
Event Window ◽  
Content Type ◽  
Dummy Variable

Purpose This paper aims to investigate the dynamics of repurchase-based earnings management vis-à-vis other real activities manipulations during the 2007–2008 financial crisis. Design/methodology/approach This paper adopts a Probit model to regress alternate real earnings management (REM) methods on a dummy variable indicating whether a firm falls in the crisis event window or not, during our 15-year sample period. This paper also detects switches made by suspected firms from repurchasing to other REM tools such as reducing discretionary expenditures. Findings This paper provides solid evidence indicating that firms suspected of earnings management have the tendency to decrease accretive share repurchases after the onset of the crisis. Conversely, the above pattern is neither observed in non-suspect firms nor over non-crisis periods. A further investigation documents that firms that switch REM during crisis can be characterized by less cash holding, smaller size, more severe liquidity shortage and/or tighter financial constraint. Originality/value This paper contributes to the literature on understanding the respective and interactive implications of both share repurchases and global financial crisis on firms’ REM activities.

Analyzing seasonal anomalies for Israel: evidence from pre- and post-global financial crisis

2019 ◽  
Vol 46 (3) ◽  
pp. 435-450
Author(s):  
Dinesh Jaisinghani ◽  
Muskan Kaur ◽  
Mohd Merajuddin Inamdar
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Time Frame ◽  
Content Type ◽  
Dummy Variable ◽  
Year Effect ◽  
Show Evidence ◽  
Tel Aviv Stock Exchange ◽  
Day Of The Week

Purpose The purpose of this paper is to analyze different seasonal anomalies for the Israeli securities markets for the pre- and post-global financial crisis periods. Design/methodology/approach The closing values of six indices of the Tel Aviv Stock Exchange (TASE) of Israel have been considered. The time frame ranges from 2000 to 2018. Further, the overall time frame has been segregated into pre- and post-financial crisis periods. The study employs dummy variable regression technique for assessing different calendar anomalies. Findings The results show evidence pertaining to different seasonal anomalies for the Israeli markets. The results specifically show that the anomalies change considerably across the pre- and post-financial crisis periods. The results are more apparent for three anomalies including the day of the week effect, the month of the year effect and the holiday effect. However, anomalies including the Halloween effect and the trading month effect are found to be insignificant across both pre- and post-financial crisis periods. Originality/value The study is first of its kind that analyzes different seasonal anomalies across pre- and post-financial crisis periods for the Israeli markets. The study provides newer insights about the overall return patterns observed in different indices of the TASE.

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.

CEO discretion, political connection and real earnings management in Nigeria

2020 ◽  
Vol 43 (8) ◽  
pp. 909-929
Author(s):  
Armaya'u Alhaji Sani ◽  
Rohaida Abdul Latif ◽  
Redhwan Ahmed Al-Dhamari
Keyword(s):  
Earnings Management ◽  
Reporting Quality ◽  
Real Earnings Management ◽  
Political Connection ◽  
Financial Reports ◽  
Content Type ◽  
Dummy Variable ◽  
Panel Data Regression ◽  
Data Regression ◽  
Financial Scandals

Purpose The purpose of this paper is to examine the influence of CEO discretion on the real earnings management and to explore whether the discretion of the CEO to ensure accurate and reliable financial reports is influenced by the political connection of board members. Design/methodology/approach Using the generalized method of movement to control the potential endogeneity on the sample of listed companies in Nigeria, the study conducted several checks using Driscoll–Kraay panel data regression with standard error to robust the main findings. Findings The paper provides evidence that CEO Discretion reduces the tendency of real earnings management and improve the reporting quality. However, the CEO’s discretion to provide reliable financial reports and to reduce the likely earnings manipulation is overturn by the presence of politically connected directors. Originality/value Existing studies on CEO attributes and earnings management in Nigeria fail to explain why CEOs were involved in corporate financial scandals. This paper suggests that the presence of politically connected directors is what override and upturn the CEO discretion to dwell into real earnings manipulations. Prior studies measured political connection using a dummy variable (Chaney et al., 2011; Osazuwa et al., 2016; Tee, 2018), this paper measured political connection using the proportion of politically connected directors. This is on the idea that the presence of more politically connected directors may give them the power to override the CEOs decision.

scholarly journals DID THE 2008 GLOBAL FINANCIAL CRISIS AFFECT THE BANKING CREDITS? A CASE OF REGIONS OF TURKEY

2020 ◽  
pp. 74-82
Keyword(s):  
Financial Crisis ◽  
Great Recession ◽  
Global Financial Crisis ◽  
Annual Data ◽  
2008 Financial Crisis ◽  
Dummy Variable ◽  
The Us ◽  
The World ◽  
The 2008 Financial Crisis ◽  
One Year

In 2008 the world faced a global crisis which is started from the US; thus it is named as a “US Great Recession. In this paper, we investigate whether the 2008 financial crisis has an effect on Turkish banking credits in regional case. For this aim we use Non-specialized Loans Deposit which is collected from The Banks Association of Turkey as an annual data. The period of the paper is 2004-2014. The selected regions are 11 NUTS1 regions; thus we have panel data with 121 observations. We use two dummy variable; first dummy values are 1 for 2008 and 0 for other years, a second dummy variable is 1 for 2008 and successor years; 0 for other years. The first dummy shows if the crisis affects only one year, the second dummy shows if the crisis affects crisis year and successor years.

scholarly journals Bank earnings management using loan loss provisions: comparing the UK, France, South Africa and Egypt

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Peterson K. Ozili
Keyword(s):  
South Africa ◽  
Financial Crisis ◽  
Earnings Management ◽  
Financial Reporting ◽  
Global Financial Crisis ◽  
Income Smoothing ◽  
Loan Loss ◽  
Content Type ◽  
Loan Loss Provision ◽  
The Uk

PurposeThis paper aims to investigate bank earnings management using loan loss provision. The paper examines income smoothing, which is a type of earnings management. It compares the income smoothing behaviour of banks in the UK, France, South Africa and Egypt.Design/methodology/approachThe study uses the panel fixed effect regression methodology to analyse bank income smoothing.FindingsThe findings show that bank income smoothing is present in the UK and Egypt and absent in France and South Africa. Banks in Egypt used LLPs to smooth income before the global financial crisis. Meanwhile, bank income smoothing is pronounced in France during and after the financial crisis but was absent in the pre-crisis period. Also, bank income smoothing is reduced in countries that (1) have strict banking supervision, (2) adopt common law particularly the United Kingdom, and by countries that adopt civil law, particularly France and Egypt. Bank earnings management is greater in countries that (3) adopt a mixed legal system, particularly South Africa, and in countries that adopt International Financial Reporting Standards accounting standards.Research limitations/implicationsThe implication of the findings is that country differences may affect banks' incentive to smooth income using loan loss provision.Originality/valueThe novelty of this paper is that it explicitly analyses specific countries that have different supervisory regimes, different structure and accounting rules.

Financial Crisis and Earnings Management Under U.S. GAAP and IFRS

2020 ◽  
Vol 23 (02) ◽  
pp. 2050015
Author(s):  
Thanyaluk Vichitsarawong ◽  
Li Li Eng
Keyword(s):  
Financial Crisis ◽  
Earnings Management ◽  
Financial Reporting ◽  
Global Financial Crisis ◽  
Discretionary Accruals ◽  
The United States ◽  
Production Costs ◽  
Real Earnings Management ◽  
Foreign Companies ◽  
The Global Financial Crisis

This paper examines the effects of the global financial crisis of 2008 on real and accrual-based earnings management activities of foreign companies listed in the United States as American Depositary Receipts (ADRs). The ADR firms are classified according to whether they report under U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Accrual-based earnings management is measured using the absolute value of performance-matched discretionary accruals. We also use the positive and negative values of performance-matched discretionary accruals to examine income-increasing and income-decreasing earnings management, respectively. Real earnings management proxies are measured using performance-matched measures of the abnormal levels of cash flow from operations, production costs, and discretionary expenses. In summary, our findings indicate no difference in accrual-based earnings management for ADRs reporting under IFRS and U.S. GAAP but suggest that ADRs reporting under IFRS are more likely to manage earnings using income-decreasing discretionary accruals and aggregate real earnings management than ADRs reporting under U.S. GAAP during the financial crisis.

Earnings management by top Chinese listed firms in response to the global financial crisis

2016 ◽  
Vol 24 (3) ◽  
pp. 226-251 ◽  
Author(s):  
Guanglu (Luke) Xu ◽  
Xudong Ji
Keyword(s):  
Financial Crisis ◽  
Earnings Management ◽  
Cash Flow ◽  
Global Financial Crisis ◽  
Ordinary Least Squares ◽  
Chinese Government ◽  
Data Set ◽  
Content Type ◽  
Listed Firms ◽  
The Global Financial Crisis

Purpose The main aim of this study was to examine the earnings management behaviours, including both accrual-based and cash flow-based earnings management, of Chinese firms during the Global Financial Crisis (GFC). Design/methodology/approach A data set of 1,392 firm-year observations derived from a large sample of China's top listed firms (based on total assets) was constructed and investigated via univariate and ordinary least squares regression analyses. Findings Two distinct conclusions can be drawn from the results of the study. First, the top Chinese listed firms did engage in earnings management, as indicated by comparisons of the means of the absolute values of both accrual-based and cash flow-based earnings management indicators in the periods before and after 2008 when the GFC started. Second, investigation of earnings management directions revealed that in response to the GFC, the firms from construction-related industries and the airline industry manipulated earnings upwards through either accrual-based and/or cash flow-based earnings management activities. On the other hand, firms in the household durables industry engaged in earnings-reducing activities. These findings reflect the effect of the stimulus package launched by the Chinese Government in an effort to combat the GFC. In addition, the results indicate that firm characteristics such as size, leverage, profitability and growth affected the earnings management behaviours of the firms analysed in the study. Originality/value The empirically derived findings of this study contribute to the literature pertaining to the effects of the GFC on earnings management practices in China, which has remained relatively scant to date.

R&D disclosures and earnings management

2019 ◽  
Vol 18 (1) ◽  
pp. 111-130
Author(s):  
Nadia Lakhal ◽  
But Dedaj
Keyword(s):  
Financial Crisis ◽  
Earnings Management ◽  
Voluntary Disclosure ◽  
Management Practices ◽  
Global Financial Crisis ◽  
Annual Reports ◽  
Managerial Behavior ◽  
Data Set ◽  
Content Type ◽  
Ifrs Adoption

Purpose The purpose of this paper is to examine the effect of Research and Development (R&D) disclosures on earnings management practices. Design/methodology/approach This study has been conducted by using a longitudinal archival data set of French companies belonging to the CAC All-Tradable index and instrumental variable estimations. Findings The results of the research highlight the moderating effect of International Financial Reporting Standards (IFRS) adoption and the financial crisis in this relationship. It also shows that R&D disclosures are negatively associated with earnings management. The findings also show that the IFRS adoption is complementary in its monitoring role of managerial behavior in reducing earnings management in the presence of R&D disclosures. Furthermore, this study finds that the negative effect of R&D disclosures on earnings management is more prevalent during the global financial crisis. Originality/value This study examined the consequences of the voluntary disclosure of R&D information in the French context. It introduces a measurement for the disclosure of R&D activities in annual reports through the construction of an R&D disclosure index.

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.

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