LEVERAGE, FIRM FUNDAMENTALS AND EARNINGS MANAGEMENT UNDER NONLINEAR ASSUMPTIONS: EVIDENCES FROM APTA ECONOMIES

2021 ◽  
pp. 1-30
Author(s):  
ADNAN SHOAIB ◽  
MUHAMMAD AYUB SIDDIQUI ◽  
MUHAMMAD BILAL SAEED
Keyword(s):  
Earnings Management ◽  
Firm Size ◽  
Tax Evasion ◽  
Trade Agreement ◽  
Cash Flows ◽  
Agency Cost ◽  
Asia Pacific ◽  
Sales Growth ◽  
The Impact ◽  
The Relationship

This study describes the impact of leverage on earnings management and determines varying relationships with the moderating effect of firm size in linear and nonlinear setting. Results from selected firms of members’ countries of Asia Pacific Trade Agreement (APTA) unequivocally revealed that in all countries the relationship between the leverage and earnings management is sigmoid in nature. Firms can limit the managers reporting of income-increasing accruals through debt creation up to a certain threshold after which further debt creation challenges the debt covenants. The firm size substantially moderates the relationship of leverage and earnings management and systematically converses the relationship through moderation. The relationship between accruals and firm size is also sigmoid in nature. The specific behavior is seen in Indian firms in which relationship between leverage and accruals is like Richard’s curve in nature due to higher agency cost issue. In Pakistan, firm size has been found as a major factor that guides the accrual due to higher political cost. Additionally, in the setting of comparative static analysis, at the first place, we examine cash flows-risk determining liquidity-risk position of the firms in Pakistan and Bangladesh. At the second place, in the case of China, India and Pakistan, this study reveals an increasing relationship between the effective tax rate and the probability of reporting negative accruals which may create attitude of tax evasion among the firms in these countries. In the third place, in the case of China, India and Bangladesh, sales growth depicts an increasing relationship with the likelihood of reporting positive accruals. However, decreasing relationship is observed for Pakistan and Sri Lanka between the sales growth and the possibility of positive accruals. This study has major implications for funding institutions, debt manager and regulatory bodies of Asian Economies.

scholarly journals The impact of ownership type on the relationship between corporate governance and earnings management: An empirical study

2019 ◽  
Vol 16 (4) ◽  
pp. 31-44
Author(s):  
Ahmed Boghdady
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Cash Flows ◽  
Real Earnings Management ◽  
Ownership Type ◽  
Moderation Effect ◽  
Corporate Governance Mechanisms ◽  
The Impact ◽  
The Relationship ◽  
Privately Owned

This study investigates the effect of ownership type on the relation between corporate governance and earnings management. While previous literature has mainly examined the relationship between corporate governance and both accrual and real earnings management, no study to date, to the researcher’s best knowledge, focused on the moderation effect of ownership type on this relationship. Three proxies for measuring accrual and real earnings management, namely discretionary accruals (DA), abnormal cash flows (ACFO), and abnormal discretionary expenses (ADISX) are employed. Three empirical models (i.e. DA, ACFO, and ADISX) are developed in which the earnings management proxies represent the dependent variables and are tested using a sample of non-financial companies containing state-owned and privately owned companies over the period from 2010 to 2017, with 1030 firm-year observations. The results show a positive relationship between ownership type and both accruals manipulation and sales manipulation. In general, the results suggest that the ownership type moderates the relationship between corporate governance and earnings management. The results suggest also that corporate governance mechanisms may not play an almost the same role in monitoring and mitigating real earnings management (REM) practices as they do for accrual earnings management (AEM) in Egypt. Moreover, no evidence is found supportive of the trade-off effect which means that managers in Egyptian firms use both types of earnings management jointly to reach the target levels of earnings

scholarly journals Role of dividend policy determinants in multinational and domestic companies, evidence from Iran

2016 ◽  
Vol 14 (3) ◽  
pp. 332-340 ◽  
Author(s):  
Farhad Fatemian ◽  
Mohammad Hooshyarzadeh
Keyword(s):  
Firm Size ◽  
Dividend Policy ◽  
Cash Flows ◽  
Multinational Companies ◽  
Jel Classification ◽  
Free Cash Flow ◽  
Sales Growth ◽  
Significant Difference ◽  
The Impact ◽  
Domestic Companies

In this paper, along with introducing determinants affecting decision making relevant to dividend policy, the impact of these factors on companies which merely sell their products domestically is compared with their impact on companies which, in addition to domestic sales, have exports as well. In this regard, 712 companies were tested during the years 2008 to 2013. In this study, the ratio of dividend per share to earnings per share (DPS/EPS) was used as a dividend policy index; for expressing the significant difference in dividend policy of multinational and domestic companies, t and “Mann Whitney” tests were applied. For stating the determinants in dividend policy, the variables systematic risk, profitability, free cash flow, sales growth, firm size and leverage were used. For the analysis and interpretation of data, a multivariate linear regression model was implemented as panel data. Research findings demonstrate the existence of significant difference in dividend policy of multinational and domestic companies such that the multinational companies shared more profit compared with their domestic counterparts. Whereas only leverage and profitability were among the determinants in the domestic companies, for multinational companies, in addition to these variables, the variables of free cash flows and sales growth were also among significant factors. Furthermore, the impact of Beta variables and the firm size were not found significant on dividend policy of domestic and multinational companies. Keywords: dividend policy, long term debt, multinational companies (MCs), domestic companies (DCs). JEL Classification: G32, G35, H63, F23

THE ACCESS TO GOVERNMENT FINANCIAL SUPPORT THROUGH LEGAL CHANNELS OF SMALL AND MEDIUM ENTERPRISES IN FOUR ASIA PACIFIC COUNTRIES

2020 ◽  
Vol 9 (2) ◽  
pp. 298
Author(s):  
Muhamad Marwan
Keyword(s):  
Financial Support ◽  
Small And Medium Enterprises ◽  
Mediation Effect ◽  
Asia Pacific ◽  
Survey Questionnaire ◽  
Access To Finance ◽  
Medium Enterprises ◽  
The Impact ◽  
The Relationship

The aim of this study is to determine the impact of networking on SME’s ability to access government financial support through legal channels in Asia Pacific. This study is quantitative in nature in which the data has been gathered from 281 employees and managers working in SMEs through survey questionnaire. The SEM technique was utilised for the purpose of analysing and testing the mediation effect. The study found that there is a partial mediation of government financial support through legal channels among the relationship between networking with officers and access to finance. This study is restricted to the SMEs operating in the region of Asia Pacific.

CEOs’ accounting-based attributes and earnings management strategies under mandatory IFRS adoption

2018 ◽  
Vol 19 (4) ◽  
pp. 608-625 ◽  
Author(s):  
Amel Kouaib ◽  
Anis Jarboui ◽  
Khaireddine Mouakhar
Keyword(s):  
Earnings Management ◽  
Small Sample Size ◽  
Small Sample ◽  
Moderating Effect ◽  
Audit Committees ◽  
Content Type ◽  
Ifrs Adoption ◽  
Experience Education ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to focus on the moderating effect of mandatory International Financial Reporting Standards (IFRS) adoption on the relationship between chief executive officer (CEO) experience/education and earnings management in European companies. Design/methodology/approach Data from a sample of 302 European firms listed on Stoxx Europe 600 index and 596 CEOs from 2000 to 2014 are used to test the moderation model using moderation regression analysis. Findings Evidence reveals that CEO’s accounting-based attributes are negatively associated with accruals-based earnings management and positively associated with real earnings management (REM). Further, mandatory IFRS adoption significantly moderates the impact of CEO’s accounting-based traits on earnings-management activities. Research limitations/implications A small number of European firms were studied and, given the long study period, many firms with missing data were eliminated. To avoid a small sample size, countries with few observations were included, which leads to an uneven distribution between observations per country. Practical implications Findings from this paper can help: European firms to consider demographic traits when recruiting or promoting executives; the IASB to improve enforcement mechanisms and make IFRS implementation mandatory; and audit committees to effectively monitor REM. Originality/value This study is unique in providing European evidence for the moderating effect of mandatory IFRS adoption on the relationship between CEOs’ accounting experience/education and earnings management activities. This paper is also relevant as it addresses the effectiveness and efficiency of accounting literates.

scholarly journals TAX GAP AS A TOOL FOR MEASURING VAT EVASION IN THE EU COUNTRIES

2020 ◽  
Vol 10 (2) ◽  
pp. 8-13
Author(s):  
ALENA ANDREJOVSKÁ ◽  
VERONIKA KONEČNÁ ◽  
JANA HAKALOVÁ
Keyword(s):  
Tax Evasion ◽  
Sharp Change ◽  
Member States ◽  
Eu Member States ◽  
Tax Revenues ◽  
Tax Gap ◽  
Relationship Of ◽  
The Impact ◽  
The Relationship ◽  
The Eu

VAT is one of the most decisive tax revenues sources in the EU Member States. Due to financial frauds and insufficient tax system, there is a billion loss of EUR every year in the European budget. The article deals with the impact of the tax evasion on economies of the EU Member States. By applying the top-down approach, we observed tax gaps as a quantifier of tax evasion from 2004 to 2017. The period around the economic crisis in 2009 was examined in more detail, as there was a sharp change in the evolution of tax gaps. We constructed a regression model, which examined the relationship of the tax gap and VAT tax revenues to selected determinants of tax evasion. The results showed that tax gaps in the Member States have been growing every year. We also found that there is an increase in tax revenues, but tax liabilities increase to greater extent.

scholarly journals Effects Of Key Financial Indicators On Earnings Management In Korea’s Ready Mixed Concrete Industry

2017 ◽  
Vol 33 (2) ◽  
pp. 329-342 ◽  
Author(s):  
Geun Bae Jang ◽  
Weon-Jae Kim
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Accounting Information ◽  
Cash Flows ◽  
Financial Indicators ◽  
Ability Level ◽  
Operating Income ◽  
The Relationship ◽  
Ready Mixed Concrete ◽  
Mixed Concrete

Earnings management is the practice of deriving certain benefits by intervening in external financial reporting or misleading certain stakeholders through adjustments to accruals without cash flow involvement or with affecting cash flows through real activities. Using the models of Kothari et al. (2005) and Cohen et al. (2008) for accrual-based earnings management (AEM) and real activities earnings management (REM), respectively, we examined whether relationships exist between key financial indicators, such as cash flows from operations, operating income, and debt dependency level, and AEM and REM in the ready mixed concrete (RMC) industry in Korea. This study is the first to investigate earnings management in Korea’s RMC sector. Results showed that operating income and cash flows from operations are significantly negatively related to AEM and REM, consistent with the findings of previous research. By contrast, debt dependency exhibits no significant relationship with AEM and REM, contradicting the findings of most previous studies. As a moderating variable, operating income affects the relationship between cash flows from operations and earnings management with only REM. On these bases, we can infer that earnings management in the Korean RMC industry responds differently to key financial indicators with regards to AEM and REM practice. Overall, companies in the industry implement aggressive earnings management depending on operating income and cash generation ability level rather than debt dependency level. These findings provide important insights for people who are interested in accounting information on the RMC industry in Korea.

Instructional Case: General Host: Accounting for a Bond Refunding

1999 ◽  
Vol 14 (3) ◽  
pp. 451-464 ◽  
Author(s):  
Mary Beth Mohrman
Keyword(s):  
Earnings Management ◽  
Stock Prices ◽  
Cash Flows ◽  
Economic Consequences ◽  
Financial Accounting ◽  
Business Press ◽  
Paper Money ◽  
Book Values ◽  
The Relationship ◽  
Interest Expense

This assignment, which involves accounting for a simple bond refunding, achieves several objectives. First, it reinforces basic concepts in bond accounting, such as cash flows, book values, interest expense and gains/losses from early extinguishment. Second, it leads students to critically analyze an article from the popular business press. Third, it illustrates many important issues in financial accounting, such as earnings management, the relationship between earnings and stock prices, and economic consequences. Students are asked to read “Paper Money” from Forbes' “Numbers Game” column. The article describes General Host's bond exchange offer and questions the recognition of a gain in such circumstances. The case assignment requires students to carefully analyze the bond exchange and to question many of the authors' assumptions about the economic impacts of the exchange offer. I have used this case successfully in undergraduate intermediate accounting classes and in an introductory financial accounting course for M.B.A. students.

The Relationship between Aggressive Real Earnings Management and Current and Future Audit Fees

2016 ◽  
Vol 36 (1) ◽  
pp. 85-107 ◽  
Author(s):  
Adam Greiner ◽  
Mark J. Kohlbeck ◽  
Thomas J. Smith
Keyword(s):  
Earnings Management ◽  
Firm Value ◽  
Audit Fees ◽  
Cash Flows ◽  
Data Availability ◽  
Real Earnings Management ◽  
Increased Risk ◽  
Pricing Behavior ◽  
Reported Earnings ◽  
The Relationship

SUMMARY We examine the relationship between aggressive income-increasing real earnings management (REM) and current and future audit fees. Managers pursue REM activities to influence reported earnings and, as a consequence, alter cash flows and sacrifice firm value. We posit that the implications of REM are considered in auditors' assessments of engagement risk related to the client's economic condition and result in higher audit fees. We find that, with the exception of abnormal reductions in SG&A, aggressive income-increasing REM is positively associated with both current and future audit fees. Additional analyses provide evidence consistent with increased effort combined with increased risk contributing to the current pricing effect, with increased business risk primarily driving the future pricing effect. We, therefore, provide evidence that aggressive income-increasing REM activities have a significant influence on auditor pricing behavior, consistent with the audit framework associating engagement risk with audit fees. JEL Classifications: G21; G34; M41. Data Availability: The data in this study are available from public sources indicated in the paper.

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