Does Controlling Shareholders’ Financial Risk Affect Auditors’ Perceptions of Firms’ Financial Reporting Risk? Evidence from Share Pledging

In March 2008, the US government bailed out a failing Bear Stearns by arranging a sale to JP Morgan Chase, with US government guarantees for many Bear Stearns’ toxic assets that came with the acquisition. In September 2008, the US government failed to bail out a failing Lehman Brothers, which then went into bankruptcy. Soon thereafter, the US government established a bailout program for many other failing financial institutions. This paper uses financial risk and fraud models to attempt to answer the question as to why Bear Stearns was bailed out, but Lehman Brothers was not. Based on the analysis, was the right or wrong firm bailed out? In summary, these financial risk and fraud models show potential for developing effective risk management monitoring and stronger corporate governance in order to enhance relationships between management, financial reporting, and the stability of the economic system in crisis and post-crisis conditions.

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Earnings management, audit committee effectiveness and the role of blockholders ownership: Evidence from UK large firms

Journal of Governance and Regulation ◽

10.22495/jgr_v1_i4_c1_p1 ◽

2012 ◽

Vol 1 (4) ◽

pp. 100-116 ◽

Cited By ~ 13

Author(s):

Murya Habbash

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Audit Committee ◽

Family Firms ◽

Agency Problems ◽

Audit Committees ◽

Effective Control ◽

Agency Conflicts ◽

Controlling Shareholders

The existing literature documents that the quality of financial reporting is higher when firms have effective audit committees. However, recent studies find that audit committees are not effective in family firms where agency conflicts arise between controlling and non-controlling shareholders. This study extends the previous findings by investigating the effectiveness of audit committees in firms with similar agency conflicts when one owner obtains effective control of the firm. Compared to firms with a low level of block ownership, high-blockholder firms face less agency problems due to the separation of ownership and management, but more severe agency problems between controlling (blockholders) and non-controlling shareholders (minority shareholders). Using a unique hand-collected sample, this study tests the largest 350 UK firms for three years from 2005 to 2007, and shows that firms with effective audit committees have less earnings management. This study also documents that the monitoring effectiveness of audit committees is moderated in firms with high blockholder ownership. The results are not sensitive to the endogeneity test and hold for alternative specifications of both dependent and independent variables. Overall, these findings suggest that audit committees are ineffective in mitigating the majority-minority conflict compared to their effectiveness in reducing owners-managers conflicts. These conclusions, along with some recent similar evidence (e.g., Rose, 2009 and Guthrie and Sokolowsky, 2010), may raise doubts about the monitoring role of blockholders asserted by agency theorists and widely accepted in corporate governance literature.

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Financial Risk Disclosure and Financial Attributes among Publicly Traded Manufacturing Companies: Evidence from Bangladesh

Journal of Risk and Financial Management ◽

10.3390/jrfm11030050 ◽

2018 ◽

Vol 11 (3) ◽

pp. 50 ◽

Cited By ~ 5

Author(s):

Ripon Dey ◽

Syed Hossain ◽

Zabihollah Rezaee

Keyword(s):

Content Analysis ◽

Financial Reporting ◽

Firm Size ◽

Financial Risk ◽

Annual Reports ◽

Manufacturing Companies ◽

Risk Disclosure ◽

Publicly Traded ◽

Reporting Process ◽

The Relationship

We explore the relationship between the degree of financial risk disclosure and a firm’s financial attributes. Financial risk disclosure indices (FRDIs) are calculated based on a set of 30 disclosure identifiers through content analysis of the annual reports of 48 manufacturing companies over a six-year period (2010–2015) in Bangladesh. We find no common practice among the companies in disclosing financial risk by integrating a customized financial risk disclosure into their financial reporting process. The results indicate that firm size, financial performance, and auditor type are positively and significantly associated with the level of financial risk disclosure.

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The Determinants of Forward-looking Disclosures in Interim Reports for Non-financial Firms: Evidence from a Developing Country

International Journal of Accounting and Financial Reporting ◽

10.5296/ijafr.v2i2.2257 ◽

2012 ◽

Vol 2 (2) ◽

pp. 125 ◽

Cited By ~ 6

Author(s):

David Mathuva

Keyword(s):

Developing Country ◽

Financial Reporting ◽

Capital Investment ◽

Financial Risk ◽

Financial Reports ◽

Listed Firms ◽

Financial Firms ◽

Reporting Incentives ◽

High Degree ◽

Forward Looking

This paper examines the determinants of the forward-looking disclosures (FLD) in the interim financial reports (IFRs) of non-financial firms listed on the Nairobi Securities Exchange (NSE). Data were collected from a total of 91 firm-year observations for the mid interim periods between 2009 and 2011. A FLD score was developed for each firm in the sample based on the firm’s disclosure of forward-looking statements in its IFR. The results indicate that firms with higher debt, better performance, higher capital investment and with more concentration of foreign investment tend to have more FLDs in their IFRs. Conversely, cross listed firms are associated with lower FLDs, implying that cross listed firms provide lower forward-looking information compared to non-cross listed firms. Results show a high degree of FLD for better performing firms and firms with higher financial risk. This study contributes to literature by providing evidence to which financial reporting incentives contribute to FLDs in a developing country where enforcement is weak. As a conclusion, the paper recommends firms to provide comprehensive FLDs in future to effectively mitigate informational asymmetries between the management and owners of the firms, especially firms with more concentrated foreign ownership.

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Evaluation of financial statements of sports clubs for 2019 and 2020 operational periods in terms of the covid-19 pandemic and research in terms of financial risk

Journal of corporate governance, insurance and risk management ◽

10.51410/jcgirm.8.1.8 ◽

2021 ◽

Vol 8 (1) ◽

pp. 118-136

Author(s):

Adnan Sevim

Keyword(s):

Financial Reporting ◽

Financial Risk ◽

Management Practices ◽

Financial Analysis ◽

Financial Statements ◽

Cash Flows ◽

Leverage Ratio ◽

Sports Clubs ◽

Operational Activities ◽

The Impact

The Covid-19 pandemic and the accompanying uncertainties deeply affected the activities and financial structures of businesses and caused negative effects on their financial statements in many respects. Sports clubs are at the top of the list of businesses that suffer the most from the negativities of the pandemic process and experience a lot of loss in their financial and operational activities. Considering the developments both in Europe and in the World, the temporary postponement of sports matches, the start of competitions without spectators, the restructuring of club debts have seriously affected sports clubs, which are currently experiencing economic difficulties, deteriorate their liquidity, cash flows and increase uncertainty by making debt payments difficult. In addition, as the impact of risks on future performance increases, risk management practices have gained importance. In this context, information on the current ratio, cash ratio, financial leverage ratio, financing ratio, debt/equity ratio, and financial risk ratio obtained from the financial statement data for the period of 2019 and 2020 were used to evaluate the financial risk levels of 12 sports clubs. The deterioration in the financial structures of the sports clubs most affected by the pandemic process was examined and the risks encountered were discussed. In addition, the comparative financial analysis results were evaluated by analysing the effect of the financial structure and financial reporting of the clubs.

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STRATEGIC BUSINESS RISK ASSESSMENT-AN APPROACH FOR FINANCIAL CHARACTERISATION OF SOCIAL AND ENVIRONMENTAL RISKS

The APPEA Journal ◽

10.1071/aj99040 ◽

2000 ◽

Vol 40 (1) ◽

pp. 603

Author(s):

A.R. Bowden ◽

J.H. Martin ◽

J. Mitchell

Keyword(s):

Risk Management ◽

Financial Reporting ◽

Asset Management ◽

Financial Risk ◽

Social Issues ◽

Petroleum Industry ◽

Environmental Risks ◽

Business Risk ◽

Wide Range ◽

Social And Environmental Risks

Environmental and social issues are now well established within the business risk profile of petroleum companies. Community outcry in relation to events like the Brent Spar disposal controversy, and public reaction over siting and approvals of a gas pipeline in Thailand, have exposed the commercial consequences associated with public disaffection. Despite their obvious financial impact, social and environmental risks are often not adequately addressed in business risk management strategies, due to the perceived difficulty in analysing these risks in financial terms.This paper presents an innovative, systematic approach for identifying and characterising social and environmental risks in financial terms, and developing prioritised strategies for holistic business risk management. This approach has been developed and successfully employed in a wide range of applications, including comparative financial risk assessments of project options; determination of the financial risk of acquisitions; financial reporting of contingent liability; developing financial assurance bonds; and development of asset management plans. The approach has substantial application in the petroleum industry.

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An Empirical Study on Predicting Financial Risk of Listed Companies

Advanced Materials Research ◽

10.4028/www.scientific.net/amr.108-111.1267 ◽

2010 ◽

Vol 108-111 ◽

pp. 1267-1271 ◽

Cited By ~ 1

Author(s):

Yan Li Chen ◽

Li Hui Chen

Keyword(s):

Financial Crisis ◽

Financial Reporting ◽

Early Warning ◽

Financial Risk ◽

Listed Companies ◽

Financial Ratios ◽

Growth Ratio ◽

Revenue Growth ◽

Discriminant Model ◽

Set Up

Financial crisis early warning analysis is a matter of grave social and economic concern. It is important for enterprises, commercial banks and various investors. This is an exploratory study to determine if financial ratios of crisis companies differ from those of no crisis companies. The crisis firms (n=63) were then matched with no crisis firms on the basis of firm size, time period, and industry. Using this matched-pairs design, choose 63 listed companies, which are marked ST companies because of abnormal financial standing in Shanghai and Shenzhen in 2006, form the financial crisis samples, and choose some similar sized listed companies in same industry as matching samples, Taking the index of property liabilities ratio, audit opinion, finance lever ratio, gross property net profit ratio, sales revenue growth ratio and cash flux to current liability ratio as the final variants, set up the discriminant model by Fisher’ coefficient, conduct the case analysis of financial crisis early warning. These results provide empirical evidence of the limited ability of financial ratios to detect and predict crisis financial reporting.

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Financial reporting quality, audit fees and risk committees

Asian Review of Accounting ◽

10.1108/ara-01-2019-0017 ◽

2020 ◽

Vol 28 (3) ◽

pp. 423-444 ◽

Cited By ~ 1

Author(s):

Md. Borhan Uddin Bhuiyan ◽

Ummya Salma ◽

Jamal Roudaki ◽

Siata Tavite

Keyword(s):

Financial Reporting ◽

Financial Risk ◽

Investment Decision ◽

Reporting Quality ◽

Audit Fees ◽

Financial Reporting Quality ◽

Audit Pricing ◽

Content Type ◽

The Impact ◽

Matching Techniques

PurposeThe purpose of this paper is to examine the association between the existence of a risk committee (RC) in a firm and financial reporting quality. We also investigate whether having an RC has an effect on audit pricing. We argue that the existence of an RC in a firm contributes to higher financial reporting quality and this, eventually, affects audit pricing.Design/methodology/approachThis study uses two different proxies for RC measures and investigates the impact on financial reporting quality and audit pricing. Multivariate regression analysis and propensity score matching techniques are both applied to data from the Australian Stock Exchange's listed companies for the years 2001–2013.FindingsThe results indicate that the existence of an RC reduces the discretionary accruals; this means the financial reporting quality improves when RCs are in operation. Our findings also indicate that the existence of an RC increases audit fees.Practical implicationsThe findings from this study will be beneficial to the regulatory authorities responsible for improving the compliance of corporate governance (CG). An RC can serve as a risk-mitigating tool in the investment decision-making process. Finally, the results are beneficial for the development of best practices in CG by promoting the existence of an RC.Originality/valueThis study goes beyond the traditional focus on CG as we use the existence of an RC as an indicator of better governance practices to mitigate financial and non-financial risk factors. To the best of our knowledge, this paper is among the first to investigate the consequences for firms operating with RCs. This issue has implications for investors, auditors, directors and regulators.

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Financial risk management in the accounting system

VUZF Review ◽

10.38188/2534-9228.21.4.08 ◽

2021 ◽

Vol 6 (4) ◽

pp. 70-78

Author(s):

Halyna Umantsiv ◽

Vladyslav Novikov ◽

Oleksandra Nikolaiets

Keyword(s):

Financial Reporting ◽

Social Relations ◽

Financial Risk ◽

Accounting System ◽

Financial Instruments ◽

Economic Uncertainty ◽

Economic Relations ◽

Financial Reporting Standards ◽

Doing Business ◽

Market Relations

The article is devoted to the study of financial instruments in conditions of economic uncertainty. Based on a study of national and international statistics and theoretical resources related to the restructuring of socio-economic and geopolitical ties, due to the rapid spread of the COVID-19 pandemic, its implications for accounting for financial instruments and disclosure of financial statements in accordance with International Financial Standards Reporting. A combination of factors such as rising unemployment, falling demand for goods, bans and restrictions on doing business, severance of international ties, reorientation of markets to domestic consumption, rising risks of bankruptcy and default have led to the formation of economic uncertainty, which is most threatened by business initiative. Economic uncertainty, which gradually changes from sudden to prolonged, has a direct impact on the business activity of enterprises, in particular, on their financial instruments. The pandemic caused by the COVID-19 virus has become a great challenge for participants in economic relations, who during the years of stability have managed to get used to stable market relations. The pandemic, which humanity has been struggling with for almost two years, has affected the entire system of social relations. At the beginning of the deployment of anti-epidemiological measures, the world economy was not ready to distance the production process. Economic indicators, which are an indicator of the development of individual states, demonstrate the vulnerability of sustainable socio-economic relations that existed before the COVID-19 pandemic. The potential impact of the coronavirus outbreak on financial instruments has been assessed in such areas as increased expected credit losses, modification of financial assets and liabilities, losses under financial guarantee agreements accounted for in accordance with International Financial Reporting Standards, and reduced hedge effectiveness.

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Institutional pressures, legitimacy, risks, uncertainty and voluntary adoption of IFRS for SMEs in Vietnam

Journal of Eastern European and Central Asian Research ◽

10.15549/jeecar.v8i4.744 ◽

2021 ◽

Vol 8 (4) ◽

pp. 495-510

Author(s):

Trinh Hiep Thien ◽

Nguyen Xuan Hung

Keyword(s):

Financial Reporting ◽

Quantitative Research ◽

Financial Risk ◽

Negative Impact ◽

Positive Impact ◽

International Financial Reporting Standards ◽

Institutional Pressures ◽

Reporting Standards ◽

Financial Reporting Standards ◽

The Impact

The purpose of this study was to determine the impact of institutional variables, risks, and dependence on the voluntary application of international financial reporting standards. The study used a quantitative research method based on regression analysis, with data obtained from a survey from among Vietnam's small and medium businesses. The findings confirmed that legitimacy, dependence, consistency, time, international trade, uncertainty, operational risk, financial risk, and industry all have a positive impact on the ability to voluntary application international financial reporting standards, with the exception of flexibility, which has a negative impact. The findings of the study have consequences for stakeholders in making proper policy decisions about the application of the International Financial Reporting Standards.

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