scholarly journals The value-relevance of fundamental signals and the impact of financial regulations on security valuation and earnings management

2019 ◽  
Vol 16 (3) ◽  
pp. 73-88
Author(s):  
Sung Kwon
Keyword(s):  
Earnings Management ◽  
Value Relevance ◽  
Financial Analysts ◽  
Bottom Line ◽  
Sarbanes Oxley ◽  
Implementation Costs ◽  
Net Assets ◽  
The Impact ◽  
Book Values ◽  
Over Time

This article investigates the value-relevance of earnings and financial analysts’ fundamental signals, as identified by prior research. We document four primary findings. First, consistent with the claims in the accounting literature, the value-relevance of ‘bottom line’ earnings has declined over time. Second, the combined value-relevance of earnings and financial analysts’ fundamental signals have also declined over time. Prior studies in this line of research have generated mixed evidence. In other words, some previous studies support an increase and some others find a decrease in the value-relevance of book values of net assets (common equity) over time. This study focuses on the financial analysts’ fundamental signals, not the book values of net assets, and the change in the degree of the value-relevance of those signals over time. Third, we find a negative correlation between firms’ excess returns and regulations, such as Sarbanes-Oxley (SOX) and Dodd-Frank, which are consistent with the claims of some prior studies that the implementation costs of the regulations may exceed their benefits for shareholders of the corporations affected by the regulations. Finally, we also report that the levels of opportunistic earnings management, reflected in some of those fundamental signals, have declined following these regulations.

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 Internal Controls and Penalties on Fraud

2010 ◽  
Vol 24 (1) ◽  
pp. 1-21 ◽  
Author(s):  
Roberta Ann Barra
Keyword(s):  
Internal Control ◽  
Internal Controls ◽  
Reliability Engineering ◽  
Ceteris Paribus ◽  
Sarbanes Oxley ◽  
Internal Control System ◽  
Analytical Reliability ◽  
Net Assets ◽  
Managerial Employees ◽  
The Impact

ABSTRACT: Little prior research exists on the parameters of internal control activities. The Sarbanes-Oxley Act of 2002 (SOX 2002) makes identifying the properties of these parameters under various conditions important. In this paper, an analytical/reliability engineering methodology is used to investigate the relative impact of penalties versus other types of internal controls on managerial and non-managerial employees’ propensity to commit fraud. Ceteris paribus, increasing required effort with internal controls and/or increasing employee penalties, increases the minimum amount stolen when a fraud incident occurs; that is, more net assets will be taken per fraud incident with controls than without controls. The findings show that the firm’s least-cost scenario with managerial employees is to enforce maximum penalties. The firm’s least-cost scenario with non-managerial employees is to utilize alternative internal controls while imposing minimum penalties. Further, the effectiveness of separation of duties is dependent on the detective controls in the internal control system.

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.

Are earnings strings restrained after SOX?

2018 ◽  
Vol 17 (1) ◽  
pp. 18-40 ◽  
Author(s):  
Mark Kohlbeck ◽  
Jomo Sankara ◽  
Errol G. Stewart
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Firm Value ◽  
Information Environment ◽  
Content Type ◽  
External Monitoring ◽  
Auditor Tenure ◽  
Sarbanes Oxley ◽  
Reporting Environment ◽  
The Impact

Purpose This paper aims to examine whether external monitors (auditors and analysts) constrain earnings strings, an indicator of earnings management, and whether this monitoring is more effective after the implementation of the Sarbanes-Oxley Act of 2002 (SOX), given the emphasis of SOX on improving auditing, financial reporting and the information environment. Design/methodology/approach Agency theory establishes the premise between external monitoring and earnings strings. Auditor tenure and number of analysts following provide measures for external monitoring quality. Using prior research, empirical models explaining the presence of an earnings strings and earnings strings trend are developed to test the hypotheses. Findings Pre-SOX, extreme auditor tenure, indicating lower quality external monitoring, is associated with greater earnings strings trend, and analyst coverage is associated with increased likelihood of earnings strings and greater earnings strings trend consistent with analyst pressure on management. More effective auditor and analyst monitoring occurs post-SOX in terms of reduced likelihood of earnings strings and earnings strings trend. Originality/value The authors provide evidence on how elements of external monitoring are associated with increased earnings strings pre-SOX. Further, they contribute to the debate on the impact of SOX on external firm monitoring and the overall financial information environment. By focusing on earnings strings, the outcome of earnings management, the authors provide a unique understanding of external monitoring that also provides insight on the overvaluation of equity and ultimate destruction of firm value. The evidence demonstrates how regulation has contributed to an improved financial reporting environment and external monitoring.

scholarly journals Earnings Management and Value Relevance in Nigeria: A Pre and Post Ifrs Analysis

2018 ◽  
Vol 5 (5) ◽  
pp. 4672-4680
Author(s):  
Sunny O. Temile ◽  
Al Bahloul Mohammed ◽  
Dadang Prasetyo Jatmiko
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Value Relevance ◽  
Stock Exchange ◽  
Outer Space ◽  
Financial Sector ◽  
Financial Information ◽  
Annual Reports ◽  
Space Law ◽  
The Impact

The purpose of this article is to analyse the literature concerning legal framework for outer space activities by states. Review was conducted on the elements of national space law, including literature critiquing particular strengths or weaknesses of existing laws and literature, on the obligations placed on States under international law and on why writers make particular recommendations as to the content of legislation. The article will summarise the key elements one would anticipate finding in the outer space regulatory framework and which will form the structure of the analytical framework when considering how States implement international space law in practice. In recent times, the issue of earnings management and value relevance has caused financial reports to come under scrutiny. With the introduction of the International Financial Reporting Standards (IFRS), a lot of studies have been carried out to see what kind of effect it has on key financial variables such as earnings management and value relevance of firms. Therefore, this study, “Earnings Management and Value Relevance in Nigeria: A Pre and Post IFRS Analysis”, examined the impact of IFRS on Earnings Management and Value Relevance of financial information in Non-Financial Companies quoted in the Nigerian Stock Exchange (NSE). Data gathered are from the financial statements and annual reports of 60 Companies from the Non-Financial Sector of the Nigeria Stock Exchange because companies in the financial sector are not overall amendable to accruals model. The empirical study covered the period from 2007 to 2016 statistical and econometric tools such as Panel data regression and paired samples tests. The results revealed an increase in value relevance, and a decrease in earnings management in the Post-IFRS era. Thus, we infer that earnings management level has decreased while value relevance has increased since IFRS adoption. This study therefore recommends that the relevant regulatory bodies should be empowered by the government to enable the formulation of effective measures and policies that check earnings management practices, and foster value relevance of the financial information presented in the annual reports and accounts of Nigerian companies.

scholarly journals Manajemen Laba Memoderasi Pengaruh Perubahan Laba, Perubahan Nilai Buku Ekuitas pada Relevansi Nilai Informasi Akuntansi

2019 ◽  
pp. 1419
Author(s):  
I Gede Ardian Andriawan ◽  
I Dewa Nyoman Wiratmaja
Keyword(s):  
Regression Analysis ◽  
Data Analysis ◽  
Earnings Management ◽  
Agency Theory ◽  
Value Relevance ◽  
Accounting Information ◽  
Financial Statements ◽  
Book Value ◽  
Book Values ◽  
Positive Effect

The research objective is to prove earnings management moderates the effect of earnings changes and changes in equity book values on the relevance of the value of accounting information. Data analysis using multiple regression analysis and moderated regression analysis is used to test earnings management in moderating the effect of earnings changes and changes in equity book values on the relevance of the value of accounting information. The results of the study are changes in earnings and changes in the book value of equity have a positive effect on the relevance of the value of accounting information, in addition earnings management weakens the influence of changes in earnings and changes in equity book values on the relevance of accounting information. The research implications are supporting and adding empirical evidence about agency theory, and positive contributions to users of financial statements. Keywords: Value relevance, profit, equity book value, earnings management

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