scholarly journals The Effect Of Cross Listing On The Accounting Quality Of Firms Cross Listed In East African Markets

2016 ◽  
Vol 12 (10) ◽  
pp. 403
Author(s):  
Emmah W. Ndirangu ◽  
Cyrus Iraya
Keyword(s):  
Earnings Management ◽  
East Africa ◽  
Value Relevance ◽  
Quality Metrics ◽  
Accounting Quality ◽  
East African ◽  
Cross Listing ◽  
The Cross ◽  
Timely Loss Recognition

Cross listing has been identified as a determinant of accounting quality. Prior empirical studies have differed on the effect of cross listing on accounting quality in different jurisdictions. The study of accounting quality in East Africa has however not incorporated the possible effect of cross listing. This research study sought to establish the effect that cross listing may have on the accounting quality of firms cross listed in East African stock exchanges. The study looked at three accounting quality metrics of firms cross listed in East Africa, namely, earnings management, timely loss recognition and value relevance of accounting information. The earnings management model used was the Lang, Raedy and Yetman (2003) earnings smoothing model. Timely loss recognition was investigated using the Basu (1997) model while value relevance was tested using the Lang, Raedy and Yetman (2003) model. These metrics were tested for differences during a three year period prior to cross listing and a three year period after cross listing. Accounting quality metrics for a total of six cross listed East African companies were analyzed. This study shows that earnings management did not occur around the cross listing dates. The value relevance of information presented by the cross listed firms did not change significantly, meaning that the ability of the summary accounting measures to accurately reflect the underlying economic value of the firms studied still remained as before the cross listing. There was no significant effect in terms of timely loss recognition in light of bad news and no indication of better prudence in the reporting of good news. The study finds that cross listing does not have an effect on the quality of reporting of firms cross listed within the East African Securities Exchanges.

scholarly journals The Role of IFRS on Financial Reporting Quality and Global Convergence: A Conceptual Review

2019 ◽  
Vol 3 (1) ◽  
pp. 67
Author(s):  
Auwalu Musa
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Accounting Quality ◽  
Ifrs Adoption ◽  
The World ◽  
Timely Loss Recognition

This study examines the role of International Financial Reporting Standards on financial reporting quality and the global convergence. The IFRS adoption is already an issue of global relevance across countries of the world due to the quest for uniformity, reliability and comparability of financial statements of companies. The adoption of IFRS in Europe is an example of accounting quality across-borders with different institutional frameworks and enforcement rules. This allows investigating whether, and to what extent accounting regulation per se can affect the quality of financial reporting and leads to convergence in financial reporting. Specifically, the study review how the change in the recognition and measurement of firms operating accrual item, the loan loss provision, affects income smoothing behaviour and timely loss recognition. The study found that the IFRS convergence reduces the scope for earnings management, is related to more timely loss recognition and leads to more value relevant accounting measures. Thus, the study reviews background and guidance on the change in financial reporting quality following extensive IFRS adoption around the world countries. The study found that a difference in accounting quality is related to country’s overall infrastructure setting. The study also highlights the importance of investor protection for financial reporting quality and the need for regulators to design mechanisms that limit managers' earnings management practice. The study found from different literatures that the adoption of IFRS leads to higher quality of accounting numbers and improve foreign direct investment across countries.

scholarly journals The Impact of International Financial Reporting Standards (IFRS) Adoption on The Accounting Quality of Listed Companies In Kenya

2011 ◽  
Vol 1 (1) ◽  
pp. 212 ◽  
Author(s):  
Erick Rading Outa
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Listed Companies ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Accounting Quality ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Timely Loss Recognition

AbstractThis study seeks to establish if the adoption of International Financial Reporting Standards (IFRS) in Kenya has been associated with higher accounting quality for listed companies. The International Accounting Standards Board (IASB), in its objectives and preamble, supposes that the beneficial effects from IFRS adoption include transparency, accounting quality and reduced cost of capital. Based on these assumptions, this study applied accounting quality measures; earnings management, timely loss recognition and value relevance to find out whether the adoption of IFRS has led to improvements in accounting quality in companies listed in Kenya. The methodology is based on prior literature definition of metrics of accounting quality mainly earnings management, timely loss recognition and value relevance. The study differs from the previous ones by overcoming difficulties in controlling for confounding factors faced in previous studies which could have led to less reliable results. Three out of the eight metrics indicated that quality had marginally improved while five indicated that it had marginally declined. These mixed outcomes are very much in line with findings in other studies and the study contributes to the debate by explaining why accounting quality outcomes are still not consistent with IFRS promises in spite of improved test conditions. Key words: IFRS; IAS; accounting quality; earnings management; timely loss recognition;

scholarly journals Earnings Quality, Earnings Management, and Cross-listings: Evidence from French Firms

2015 ◽  
Vol 01 ◽  
pp. 13
Author(s):  
Trabelsi Slaheddine ◽  
Keyword(s):  
United States ◽  
United Kingdom ◽  
Earnings Management ◽  
Financial Reporting ◽  
Earnings Quality ◽  
The United States ◽  
Book Value ◽  
Cross Listing ◽  
Timely Loss Recognition

This article examines the earnings quality of French firms cross-listed in the United States and United Kingdom, and non-cross-listed French firms. We examined the quality of financial reporting based on measures of earnings management, timely loss recognition (TLR), and price-earnings association. We found that both cross-listings and non-cross-listings show significant earnings smoothing activities and tend to use accruals to manage earnings, and are not timely in loss recognition. We surmise that cross-listing in the United States or United Kingdom has not changed the accounting choices of French cross-listing firms relative to firms that are not cross-listed. However, our findings show that the market considers earnings and book value data of cross-listing firms to be more informative than those of non-cross-listing firms.

scholarly journals Heterogeneity in earnings quality between different classes of companies after IFRS adoption: evidence from Brazil

2017 ◽  
Vol 28 (73) ◽  
pp. 113-131
Author(s):  
Roberto Black ◽  
Sílvio Hiroshi Nakao
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Earnings Quality ◽  
Economic Incentives ◽  
Net Income ◽  
Accounting Earnings ◽  
Ifrs Adoption ◽  
Before And After

ABSTRACT This paper aims to investigate the existence of heterogeneity in earnings quality between different classes of companies after the adoption of the International Financial Reporting Standards (IFRS). IFRS adoption is generally associated with an increase in the quality of financial statements. However, companies within the same country are likely to have different economic incentives regarding the disclosure of information. Thus, treating companies equally, without considering the related economic incentives, could contaminate earnings quality investigations. The case of Brazil is analyzed, which is a country classified as code-law, in which tax laws determined accounting practice and in which IFRS adoption is mandatory. First, Brazilian companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) were separated into two classes: companies issuing American Depositary Receipts (ADRs) before IFRS adoption and companies that did not issue ADRs until the adoption of IFRS. Then, this second class of companies was grouped, using cluster analysis, into two different subclasses according to economic incentives. Based on the groups identified, the quality of accounting earnings is tested for each class of the companies before and after IFRS adoption. This paper uses timely recognition of economic events, value relevance of net income, and earnings management as proxies for the quality of accounting earnings. The results indicate that a particular class of companies began showing conditional conservatism, value relevance of net income, and lower earnings management after IFRS adoption. On the other hand, these results were not found for the two other classes of companies.

The impact of the global economic crisis of 2008 on earnings quality in Mexico

2019 ◽  
Vol 9 (3) ◽  
pp. 407-421
Author(s):  
Jose Miranda-Lopez ◽  
Ivan Valdovinos-Hernandez
Keyword(s):  
Earnings Management ◽  
Economic Crisis ◽  
Earnings Quality ◽  
Accounting Standards ◽  
Previous Literature ◽  
Income Smoothing ◽  
Accounting Quality ◽  
Content Type ◽  
Global Economic Crisis

Purpose The purpose of this paper is to examine the earnings quality of companies listed on Mexico’s primary stock market, the Bolsa Mexicana de Valores (Bolsa) before and during the global economic crisis of 2008. Previous research has shown that these economic events can have potentially conflicting effects on the quality of earnings of listed companies in capital markets around the world. Design/methodology/approach This paper operationalizes earnings quality based on earnings management. Therefore, four constructs to proxy for earnings quality are developed from previous literature, and multiple regression analysis along with tests of differences across two time periods, 2005–2007 and 2008–2010, are used to determine if there is a significant change in the accounting quality of companies listed on the Bolsa before and after the start of the global economic crisis. Findings Results indicate a statistically significant decrease of earnings quality on three out of the four constructs used to proxy for earnings management. There is only one construct in this category that shows a significant increase of earnings quality. Research limitations/implications There are different number of constructs and methodologies used to test for earnings quality. This study draws on four different constructs on two dimensions of earnings quality from previous literature, but other methodologies and constructs can potentially be used as well, such as discretionary accruals. Furthermore, there is a chance that there can be confounding factors affecting the results of this study besides the effects of the global economic crisis. Finally, the sample used in this study comprises non-financial public companies listed on the Bolsa, which can affect the generalization of the results to countries other than Mexico. Practical implications The results of this study can be of interest to Mexican and foreign investors, standard setters and regulators of the Bolsa, as the results show a strong incentive to manage companies’ earnings using income smoothing in an emerging economy during an economic crisis even after converging to a higher-quality set of accounting standards. Results can also be of interests to investors and regulators in other Latin-American countries with economies similar to that of Mexico. Originality/value This is the first study to test the quality of earnings of Mexican companies before and during the global economic crisis of 2008. Thus, this study contributes to the accounting quality literature by offering evidence showing a significant increase of income smoothing during the global economic crisis for companies listed in a developing economy with a relevant history of economic crises, even when these companies were using recently converged, higher-quality accounting standards.

DISCUSSION OF The Impact of Mandatory IFRS Adoption on Accounting Quality: Evidence from Australia

2012 ◽  
Vol 11 (1) ◽  
pp. 147-154 ◽  
Author(s):  
Nabil Elias
Keyword(s):  
Quality Improvement ◽  
Earnings Management ◽  
Value Relevance ◽  
Accounting Quality ◽  
Early Loss ◽  
Ifrs Adoption ◽  
The Impact ◽  
Quality Evidence ◽  
Point Of Reference

ABSTRACT Studying the impact of mandatory IFRS adoption on accounting quality in Australia provides a point of reference for comparison to other IFRS-adopting countries. It could also guide the process of transition for countries considering IFRS adoption. Similar to previous research, Chua et al. (2012) use earnings management, early loss recognition, and value relevance to surrogate accounting quality. The study concludes that there is accounting quality improvement as a result of less earnings management, early loss recognition, and increased value relevance. Although the reasons for the results are unexplored, this conclusion, similar to other prior research, is based on disputable interpretations that greater conservatism and lower earnings management reflect higher accounting quality.

The Impact of Mandatory IFRS Adoption on Accounting Quality: Evidence from Australia

2012 ◽  
Vol 11 (1) ◽  
pp. 119-146 ◽  
Author(s):  
Yi Lin Chua ◽  
Chee Seng Cheong ◽  
Graeme Gould
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Accounting Quality ◽  
Generally Accepted Accounting Principles ◽  
Financial Reporting Standards ◽  
Financial Firms ◽  
Wide Range ◽  
Mandatory Adoption ◽  
The Impact

ABSTRACT Following the mandatory implementation of International Financial Reporting Standards (IFRS) in Australia as of January 1, 2005, this study examines its impact on accounting quality by focusing on three perspectives: (1) earnings management, (2) timely loss recognition, and (3) value relevance. Using four years of adoption experience since the mandate was first made effective in Australia for a wide range of accounting-based metrics and market-based information, we find that the mandatory adoption of IFRS has resulted in better accounting quality than previously under Australian generally accepted accounting principles (GAAP). In particular, the findings indicate that the pervasiveness of earnings management by way of smoothing has reduced, while the timeliness of loss recognition has improved post-adoption. Additionally, the value relevance of financial statement information has improved, especially for non-financial firms. This is despite the fact that there is evidence to suggest that financial firms are engaged in managing earnings toward a small positive target after the mandatory adoption of IFRS in Australia.

How Would the Mandatory Adoption of IFRS Affect the Earnings Quality of U.S. Firms? Evidence from Cross-Listed Firms in the U.S.

2011 ◽  
Vol 25 (4) ◽  
pp. 837-860 ◽  
Author(s):  
Jerry Sun ◽  
Steven F. Cahan ◽  
David Emanuel
Keyword(s):  
Earnings Quality ◽  
Discretionary Accruals ◽  
Earnings Persistence ◽  
Listed Firms ◽  
Ifrs Adoption ◽  
The Cross ◽  
The Impact ◽  
Timely Loss Recognition ◽  
The U.S

SYNOPSIS We examine the impact of IFRS adoption on the earnings quality of foreign firms cross-listed in the U.S. from countries that have already adopted IFRS on a mandatory basis. We use the cross-listed firms as surrogates for the U.S. firms so we can observe the effect of IFRS adoption in the U.S. We examine five measures of earnings quality related to discretionary accruals, target beating, earnings persistence, timely loss recognition, and the earnings response coefficient (ERC). To isolate the effect of IFRS adoption, we use a matched sample design where each cross-listed firm is matched to a U.S. firm. We find the difference in earnings quality from the pre- to post-IFRS period is not different for the cross-listed and matched firms when earnings quality is measured by absolute discretionary accruals, timely loss recognition, or a long-window ERC. However, for the incidence of small positive earnings and earnings persistence, we find significant difference-in-differences, indicating that IFRS adoption led to an improvement in earnings quality for cross-listed firms relative to the matched firms. Our results are slightly surprising since U.S. GAAP is generally viewed as high-quality standards with little room for improvement.

The Effect of Mandatory Adoption of IFRS on Earnings Quality: Evidence from the European Union

2012 ◽  
Vol 11 (2) ◽  
pp. 1-25 ◽  
Author(s):  
Daniel Zeghal ◽  
Sonda M. Chtourou ◽  
Yosra M. Fourati
Keyword(s):  
European Union ◽  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Earnings Quality ◽  
The European Union ◽  
Accounting Quality ◽  
Financial Reporting Standards ◽  
Accounting Numbers ◽  
Mandatory Adoption

ABSTRACT This paper addresses the question whether the mandatory adoption of International Financial Reporting Standards (IFRS) is associated with higher accounting quality. More specifically, we investigate whether the application of IFRS in 15 European Union (EU) countries is associated with less earnings management and higher timeliness, conditional conservatism, and value relevance of accounting numbers. Our results suggest that there has been some improvement in accounting quality between the pre- and post-IFRS adoption periods. In particular, we find that firms exhibit an increase in the accounting-based attributes, but a decrease in the market-based after the adoption of IFRS in 2005. Interestingly, the findings are more pronounced for the firms in countries where the distance between the pre-existing national GAAP and IFRS is important. Furthermore, we are unable to identify any change within firms that have converged their local GAAP toward IFRS before the mandatory transition.

Accounting Quality, Earnings Management and Cross-Listings: Evidence from China

2012 ◽  
Vol 15 (02) ◽  
pp. 1250009 ◽  
Author(s):  
Li Li Eng ◽  
Ying Chou Lin
Keyword(s):  
United States ◽  
Hong Kong ◽  
Earnings Management ◽  
Financial Reporting ◽  
Reporting Quality ◽  
The United States ◽  
Good News ◽  
Chinese Firms ◽  
Cross Listing

This paper examines the quality of financial reporting of Chinese firms cross-listed in the United States, Hong Kong and noncross-listed Chinese firms. We examine quality of financial reporting based on measures of earnings management, timely loss recognition and price-earnings association. We find that both cross-listings and noncross-listings show significant earnings smoothing and use accruals to manage earnings, and are not timely in loss recognition. We surmise that cross-listing in the United States or Hong Kong has not changed the accounting choices of Chinese cross-listing firms. However, our findings show that the market considers earnings and book value data of cross-listing firms to be more informative than those of noncross-listing firms in the event of good news. Our contribution is to show that in contrast to previous literature, firms from China do not have better reporting quality when they cross-list in the United States. There are still significant accounting deficiencies in many Chinese firms cross-listed in the United States (Financial Times, 2011).

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