scholarly journals The Benefits of Conservative Accounting to Shareholders: Evidence from the Financial Crisis

2013 ◽  
Vol 27 (2) ◽  
pp. 319-346 ◽  
Author(s):  
Bill Francis ◽  
Iftekhar Hasan ◽  
Qiang Wu
Keyword(s):  
Financial Crisis ◽  
Firm Value ◽  
Governance Mechanism ◽  
Current Crisis ◽  
Stock Performance ◽  
Conservative Accounting ◽  
Alternative Measures ◽  
Recent Financial Crisis ◽  
And Control ◽  
Jel Classifications

SYNOPSIS Using the recent financial crisis as a natural quasi-experiment we test whether, and to what extent, conservative accounting affects shareholder value. We find that there is a significantly positive and economically meaningful relation between conservatism and firm stock performance during the current crisis. The result holds for alternative measures of conservatism and is validated in a series of robustness checks. We further find that the relation between conservatism and firm value is more pronounced for firms with weaker corporate governance or higher information asymmetry. Overall, our paper complements LaFond and Watts (2008) by providing empirical evidence to their argument that conservatism is an efficient governance mechanism to mitigate information risk and control for agency problems, and that shareholders benefit from it. JEL Classifications: M41; M48; G01.

Accounting Conservatism and Creditor Recovery Rate

2015 ◽  
Vol 90 (6) ◽  
pp. 2267-2303 ◽  
Author(s):  
John Donovan ◽  
Richard M. Frankel ◽  
Xiumin Martin
Keyword(s):  
Recovery Rate ◽  
Firm Value ◽  
Accounting Conservatism ◽  
Positive Relation ◽  
Recovery Rates ◽  
Conservative Accounting ◽  
Jel Classifications

ABSTRACT We examine the relation between accounting conservatism and creditor recovery rates for firms in default. We also test the link between conservatism and the length of bankruptcy resolutions. We find that creditors of firms with more conservative accounting before default have significantly higher recovery rates, and that this positive relation is more pronounced for default firms that violated covenants before the default. We also find that conservative firms have higher asset productivity, shorter bankruptcy resolution, and a significantly higher probability of emerging from bankruptcy. These results suggest that accounting conservatism preserves firm value, leading to higher creditor recovery upon borrower default. JEL Classifications: M4; G32; G33; G34.

scholarly journals The Role of Islamic Law in Convergence to Western Corporate Governance Features in Pakistan

2021 ◽  
Vol 3 (2) ◽  
pp. 93-103
Author(s):  
Dr. Imtiaz Ahmed Khan
Keyword(s):  
Corporate Governance ◽  
Financial Crisis ◽  
Islamic Law ◽  
Good Governance ◽  
Financial System ◽  
Governance Mechanism ◽  
The World ◽  
Corporate Governance Mechanism ◽  
Recent Financial Crisis

This article examines the role of Islamic Law in convergence to western corporate governance features in Pakistan. The recent financial crisis in the world highlighted the importance of good corporate governance features. This phenomenon highlighted the possibility of adopting an alternative to conventional financial system in Pakistan. Islamic finance has shown its presence in the wake of financial crisis in the world. Therefore, this articles analyses, in comparative perspective, the Islamic financial system viz a viz conventional financial system. It further analyses the possibility of convergence of corporate governance mechanism, which is key for good governance in any financial system, in Pakistan. It concludes that Islamic Financial System may be adopted as alternative financial system as well as corporate governance mechanism may be converged to western corporate governance features in Pakistan. However, while doing so Islamic norms may act as a litmus test which may not be as problematic as it appears at first sight.

Corporate Governance and Risk Aggressiveness of Islamic Banks Against the Recent Financial Crisis

2019 ◽  
Vol 37 (3) ◽  
pp. 171
Author(s):  
Talat Ulussever
Keyword(s):  
Corporate Governance ◽  
Financial Crisis ◽  
Risk Taking ◽  
Global Financial Crisis ◽  
Banking System ◽  
Islamic Banks ◽  
Governance Mechanism ◽  
Motivating Factors ◽  
Recent Financial Crisis ◽  
The Global Financial Crisis

This study examines whether the multi-layer corporate governance mode of Islamic banking system can prevent Islamic banks from excessive risk taking and hence protect against its fallibility to the global financial crisis. Employing the random-effects GLS method with two-step GMM method for the robustness check and using the dataset of total 154 banks over the period of 2005–2011, the results show that the corporate governance and financial disclosure indices appear as the motivating factors for risk taking attitudes of Islamic banks. Thus, the governance mechanism of Islamic banks is effective in protecting them against their fallibility to the global financial crisis.

Optimal Information Asymmetry, Control Environment, and Investment in Firm-Specific Human Capital

2014 ◽  
Vol 90 (3) ◽  
pp. 917-939
Author(s):  
Neil Brisley ◽  
Alan V. Douglas
Keyword(s):  
Human Capital ◽  
Firm Value ◽  
Control Environment ◽  
Mutual Benefit ◽  
Private Benefits ◽  
Incentive Effects ◽  
Optimal Information ◽  
Specific Human Capital ◽  
And Control ◽  
Jel Classifications

ABSTRACT When future operations are expected to provide information rents, managers concerned with being replaced can entrench themselves with value-increasing firm-specific human capital (SHC). In motivating SHC investment, the firm trades off the incentive effects of an ex ante commitment to asymmetric information against the costs of compensation rents and private benefits. Firm value, therefore, is affected by (1) the accuracy with which the board observes and interprets information, and (2) the strength of the control environment restricting the manager's ability to benefit from concealing and diverting firm value. It is optimal to maintain a partially informed board to the mutual benefit of shareholders and managers, and for firms in a stricter control environment to maintain a more informed board. Due to the indirect effect on SHC, regulations that strengthen control adversely affect firm value unless the information and control environments are sufficiently biased toward managerial preferences. JEL Classifications: G30; G38; M12; M48.

scholarly journals A Short Comparative Study of Corporate Governance in European National Legal Systems

2020 ◽  
Vol 10 ◽  
pp. 207-216
Author(s):  
Ovidiu Ioan Dumitru ◽  
Nicolae Marius Vavura
Keyword(s):  
Corporate Governance ◽  
Financial Crisis ◽  
Legal Systems ◽  
Negative Effects ◽  
The Poor ◽  
Corporate Governance Codes ◽  
Governance Quality ◽  
Recent Financial Crisis ◽  
Corporate Governance Quality ◽  
And Control

Corporate Governance has developed immensely in the last decades mainly due to the negative effects on shareholders’s of management decisions leading to a continuous conflict to be solved by the policymakers and academics. After the publication of the Cadbury Report, we noticed an increase interest in drafting corporate governance codes, the American and European legislators being the most active, but recent financial crisis reduced confidence in the results of corporate governance quality, some authors asserting even that the poor implementation of the policies in the area have leaded to the crisis. This paper wants to show the diversity of corporate governance standards present today in different national legal systems, by comparing its main elements like protection of shareholders and stakeholders’ interests,  board structures and operations and control, oversight and reporting.  

scholarly journals Exchange rate movements and firm value

2015 ◽  
Vol 42 (4) ◽  
pp. 561-577 ◽  
Author(s):  
Nurul Mozumder ◽  
Glauco De Vita ◽  
Charles Larkin ◽  
Khine S. Kyaw
Keyword(s):  
Exchange Rate ◽  
Financial Crisis ◽  
Stock Returns ◽  
Financial Distress ◽  
Firm Value ◽  
Content Type ◽  
Financial Firms ◽  
Significant Difference ◽  
Exchange Rate Movements ◽  
Recent Financial Crisis

Purpose – The purpose of this paper is to investigate the sensitivity of firm value to exchange rate (ER) movements, and the determinants of such exposure for 100 European blue chip companies over 2001-2012. Design/methodology/approach – The authors adopt a disaggregated framework that distinguishes between Eurozone and non-Eurozone firms, and between financial and non-financial firms across the pre-crisis, crisis and post-crisis periods of the recent financial crisis. Findings – The authors find no significant difference between Eurozone and non-Eurozone, and financial and non-financial firms. Exposure is found to be higher during the financial crisis, across all sub-samples of firms. In the majority of cases the exposure coefficient is significantly positive, indicating that European firms’ stock returns are positively (negatively) affected by depreciation (appreciation) of ERs (indirect quotation). Practical implications – It is recommended that firms’ financial plans budget for higher liquidity levels in order to build up, during “good times”, a natural hedge for the higher exposure likely to be faced during periods characterized by greater financial distress. Originality/value – The main novelty lies in the adoption of a disaggregated framework that discriminates between pre-crisis, crisis and post-crisis periods in order to ascertain the extent to which the recent financial crisis affected the relationship in question.

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