The Real Effects of Mandatory Quarterly Reporting

2017 ◽  
Vol 92 (5) ◽  
pp. 33-60 ◽  
Author(s):  
Jürgen Ernstberger ◽  
Benedikt Link ◽  
Michael Stich ◽  
Oliver Vogler
Keyword(s):  
Earnings Management ◽  
Matched Control ◽  
Data Availability ◽  
The European Union ◽  
Short Term ◽  
Business Decisions ◽  
Real Effects ◽  
Interim Management ◽  
Reporting Frequency ◽  
Short Termism

ABSTRACT This paper examines how mandatory quarterly reporting affects managers' business decisions in terms of real activities manipulations. For our analyses, we use the setting of the European Union, where the reporting frequency was increased with the introduction of a mandate to issue Interim Management Statements (IMSs) on a quarterly basis. Controlling for accrual-based earnings management, we find an increase in real activities manipulations for firms mandated to switch from semiannual to quarterly IMS reporting, relative to matched control firms. This finding is in line with the notion of higher managerial short-termism resulting from increased reporting frequency requirements. Further, we provide evidence that reporting frequency-induced real activities manipulations are more pronounced if the price pressure from investors is high and if the informativeness of IMS disclosure is low. We also document that reporting frequency-induced real activities manipulations are followed by a short-term increase and then a decrease in firms' operating performance. Data Availability: Data are available from the commercial databases and public sources identified in the paper.

Clawbacks and Earnings Management

2018 ◽  
Vol 31 (3) ◽  
pp. 129-151 ◽  
Author(s):  
Carolyn B. Levine ◽  
Michael J. Smith
Keyword(s):  
Numerical Analysis ◽  
Earnings Management ◽  
Cash Flows ◽  
Data Availability ◽  
Real Earnings Management ◽  
Interim Report ◽  
Short Term ◽  
Period Model ◽  
Jel Classifications

ABSTRACT This study addresses the effect of clawbacks on earnings management (EM). In a two-period model, the manager can report truthfully or distort an interim report using either accrual or real EM. The principal can make short-term payments based on a manipulable accounting signal and long-term payments based on unmanipulable cash flows. The strength of the clawbacks determines the likelihood that the manager's compensation is reclaimed when the interim report was managed. Stronger clawback provisions may result in (1) a substitution between accrual and real earnings management, or (2) earnings management when no earnings management was optimal with weak clawbacks, and (3) lower expected profits for the principal. Numerical analysis suggests that strong clawbacks do not reduce aggregate earnings management. JEL Classifications: J33; M48; M52; G38. Data Availability: All data are simulated.

Substitution between Real and Accruals-Based Earnings Management after Voluntary Adoption of Compensation Clawback Provisions

2014 ◽  
Vol 90 (1) ◽  
pp. 147-174 ◽  
Author(s):  
Lilian H. Chan ◽  
Kevin C. W. Chen ◽  
Tai Yuan Chen ◽  
Yangxin Yu
Keyword(s):  
Earnings Management ◽  
High Growth ◽  
Data Availability ◽  
Short Term ◽  
Financial Reports ◽  
Accruals Management ◽  
Earnings Information ◽  
Financial Misstatements ◽  
Earnings Targets ◽  
Voluntary Adoption

ABSTRACT To deter financial misstatements, many companies have recently adopted compensation recovery policies—commonly known as “clawbacks”—that authorize the board to recoup compensation paid to executives based on misstated financial reports. Clawbacks have been shown to reduce financial misstatements and increase investors' confidence on earnings information. We show that the benefits come with an unintended consequence of certain firms substituting for accruals management with real transactions management (e.g., reduce research and development [R&D] expenditures), especially firms with strong incentives to achieve short-term earnings targets, such as firms with high growth or high transient institutional ownership. As such, the total amount of earnings management does not decrease subsequent to clawback adoption. We further show that although real transactions management temporarily boosts those clawback adopters' short-term profitability and stock performance, this trend reverses after three years. In summary, clawbacks may have unexpected effects for a subset of firms whose managers are under greater pressure to meet earnings goals. Data Availability: All data used in the study are publicly available from the sources cited in the text.

Does the Mandatory Adoption of IFRS Improve the Association between Accruals and Cash Flows? Evidence from Accounting Estimates

2018 ◽  
Vol 33 (1) ◽  
pp. 39-59
Author(s):  
Jimmy F. Downes ◽  
Tony Kang ◽  
Sohyung Kim ◽  
Cheol Lee
Keyword(s):  
Financial Reporting ◽  
Cash Flows ◽  
Data Availability ◽  
The European Union ◽  
Accounting Quality ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Accounting Estimates ◽  
Accounting Accruals ◽  
Future Cash Flows

SYNOPSIS We investigate the effect of mandatory International Financial Reporting Standards (IFRS) adoption in the European Union on the association between accounting estimates and future cash flows, a key concept of accounting quality within the International Accounting Standard Board conceptual framework. We find that the predictive value of accounting estimates improves after IFRS adoption. This improvement is largely driven by specific types of accounting estimates, such as accounts receivable, depreciation, and amortization expense. We also find that the improvement is concentrated in countries with larger differences between pre-IFRS domestic GAAP and IFRS. Our findings suggest that IFRS allow managers to exercise their judgment to provide information about future cash flows through the more subjective/judgmental portion of accounting accruals. JEL Classifications: M16; M49; O52. Data Availability: The data used in this study are from public sources identified in the study.

Interim Reporting Frequency and the Mispricing of Accruals

2018 ◽  
Vol 32 (3) ◽  
pp. 29-47
Author(s):  
Shou-Min Tsao ◽  
Hsueh-Tien Lu ◽  
Edmund C. Keung
Keyword(s):  
Financial Reporting ◽  
Stock Prices ◽  
Data Availability ◽  
Financial Reports ◽  
Regulatory Changes ◽  
Sample Composition ◽  
Reporting Frequency ◽  
Over Time ◽  
Jel Classifications ◽  
Accrual Mispricing

SYNOPSIS This study examines the association between mandatory financial reporting frequency and the accrual anomaly. Based on regulatory changes in reporting frequency requirements in Taiwan, we divide our sample period into three reporting regimes: a semiannual reporting regime from 1982 to 1985, a quarterly reporting regime from 1986 to 1987, and a monthly reporting regime (both quarterly financial reports and monthly revenue disclosure) from 1988 to 1993. We find that although both switches (from the semiannual reporting regime to the quarterly reporting regime and from the quarterly reporting regime to the monthly reporting regime) hasten the dissemination of the information contained in annual accruals into stock prices and reduce annual accrual mispricing, the switch to monthly reporting has a lesser effect. Our results are robust to controlling for risk factors, transaction costs, and potential changes in accrual, cash flow persistence, and sample composition over time. These results imply that more frequent reporting is one possible mechanism to reduce accrual mispricing. JEL Classifications: G14; L51; M41; M48. Data Availability: Data are available from sources identified in the paper.

scholarly journals Competency-Industry Relatedness (C-IR) Framework for Sustained Business Growth in Startups during and beyond Pandemic: Myths and Lessons from Publicly Funded Innovative Startups

2021 ◽  
Vol 13 (9) ◽  
pp. 4632
Author(s):  
Varun Gupta ◽  
Luis Rubalcaba
Keyword(s):  
Case Studies ◽  
Business Environment ◽  
Learning Curves ◽  
The European Union ◽  
Business Growth ◽  
Product Lines ◽  
Business Decisions ◽  
Multiple Case ◽  
Multiple Case Studies ◽  
Industry Relatedness

Context: The coronavirus disease 2019 (COVID-19) pandemic led to a turbulent business environment, resulting in market uncertainties, frustrations, and rumors. Wrongly held beliefs—or myths—can hinder startups from turning new market opportunities into their favor (for example, by failing at diversification decisions) or undertaking wrong business decisions, e.g., diversifying in industries that have products of no real market value). Objectives: The objective of the paper is to identify the beliefs that drive the business decisions of startups in a pandemic and to isolate those beliefs that are merely myths. Further, this paper proposes strategic guidelines in the form of a framework to help startups make sound decisions that can lead to market success. Method: The two-step research method involved multiple case studies with five startups based in India, France, Italy, and Switzerland, to identify perceptual beliefs that drove strategic business decisions, followed by a case study of 36 COVID-19-solution focused startups, funded by the European Union (EU). The findings were validated through a survey that involved 102 entrepreneurs. The comparative analysis of two multiple case studies helped identify beliefs that were merely “myths”; myths that drove irrational strategic decisions, resulting in business failures. Results: The results indicate that startups make decisions in pandemic situations that are driven by seven myths, pertaining to human, intellectual, and financial resources. The decision on whether to diversify or continue in the same business operation can be divided into four strategic options of the Competency-Industry Relatedness (C-IR) framework: ignore, delay, phase-in, and diversify. Diversification in the same (or different industry) is less risky for startups if they have the skills, as needed, to diversify in related industries. Diversification in related industries helps startups leverage their experiences and learning curves (those associated with existing product lines) to adapt their existing products in new markets, or utilize their technologies to solve new problems via new products. The desired outcome for these startups should be sustainable business growth—to meet sustainability goals by contributing to the society and the economy. Conclusion: The C-IR framework is a strategic guide for startups to make business decisions based on internal factors, rather than myths. Accurately assessing skill diversity and the nature of new industries (or markets) will help startups leverage their existing resources optimally, without the need for (pricey) external funding. This will foster sustained business growth resulting in a nation economic development. Knowledge transfer from the Innovation ecosystem will further strengthen the C-IR framework effectiveness.

Unfolding the case of returnees: How the European Union and its member States are addressing the return of foreign fighters and their families

2021 ◽  
pp. 1-23
Author(s):  
Carlota Rigotti ◽  
Júlia Zomignani Barboza
Keyword(s):  
European Union ◽  
Perceived Threat ◽  
The European Union ◽  
Security Threat ◽  
Short Term ◽  
Member States ◽  
Foreign Fighters ◽  
Term Response

Abstract The return of foreign fighters and their families to the European Union has mostly been considered a security threat by member States, which consequently adopt repressive measures aimed at providing an immediate, short-term response to this perceived threat. In addition to this strong-arm approach, reintegration strategies have also been used to prevent returnees from falling back into terrorism and to break down barriers of hostility between citizens in the long term. Amidst these different strategies, this paper seeks to identify which methods are most desirable for handling returnees.

scholarly journals The Effect of Remittances on Poverty in the Emerging Countries of the European Union

2019 ◽  
Vol 11 (12) ◽  
pp. 3265 ◽  
Author(s):  
Anca Mehedintu ◽  
Georgeta Soava ◽  
Mihaela Sterpu
Keyword(s):  
European Union ◽  
Statistical Analysis ◽  
Economic Crisis ◽  
Regression Models ◽  
Emerging Countries ◽  
Time Dependent ◽  
The European Union ◽  
Short Term ◽  
Growth Trend ◽  
Poverty Threshold

In this paper we study the evolution of remittances and risk of poverty threshold for nine emerging countries in the European Union and analyzed the evolution and trend of the share of remittances in the risk of poverty threshold. The analysis was performed on data taken from the Eurostat database for the period 2005–2017. The statistical analysis of the data showed that the evolution of both remittances and risk of poverty threshold was heavily influenced by the global economic crisis. Although after the crisis, the risk of poverty threshold has seen a growing trend in all emerging countries, the remittances have experienced sinuous variations, dramatic declines for some of the countries (drastically for Romania and Latvia) and significant increases for others (Hungary). The results of the analysis using time-dependent regression models lead to the conclusion that, although the share of remittances in risk of poverty threshold diminished abruptly after the 2009 economic crisis, in the short term it is expected to maintain a growth trend for most of the analyzed countries (Bulgaria, Czechia, Hungary, Lithuania, Poland, Romania, and Slovakia), followed downward tendency after 2018 for Bulgaria and Romania, and after 2020 for Hungary and Lithuania. For Latvia and Estonia, both quadratic and cubic models estimate a decreasing evolution.

scholarly journals Operational USLE-Based Modelling of Soil Erosion in Czech Republic, Austria, and Bavaria—Differences in Model Adaptation, Parametrization, and Data Availability

2020 ◽  
Vol 10 (10) ◽  
pp. 3647
Author(s):  
Peter Fiener ◽  
Tomáš Dostál ◽  
Josef Krása ◽  
Elmar Schmaltz ◽  
Peter Strauss ◽  
...  
Keyword(s):  
Czech Republic ◽  
Soil Erosion ◽  
Water Conservation ◽  
Data Availability ◽  
The European Union ◽  
Specific Knowledge ◽  
The Czech Republic ◽  
Environmental Threats ◽  
Implementation Techniques ◽  
Consistent Method

In the European Union, soil erosion is identified as one of the main environmental threats, addressed with a variety of rules and regulations for soil and water conservation. The by far most often officially used tool to determine soil erosion is the Universal Soil Loss Equation (USLE) and its regional adaptions. The aim of this study is to use three different regional USLE-based approaches in three different test catchments in the Czech Republic, Germany, and Austria to determine differences in model results and compare these with the revised USLE-base European soil erosion map. The different regional model adaptations and implementation techniques result in substantial differences in test catchment specific mean erosion (up to 75% difference). Much more pronounced differences were modelled for individual fields. The comparison of the region-specific USLE approaches with the revised USLE-base European erosion map underlines the problems and limitations of harmonization procedures. The EU map limits the range of modelled erosion and overall shows a substantially lower mean erosion compared to all region-specific approaches. In general, the results indicate that even if many EU countries use USLE technology as basis for soil conservation planning, a truly consistent method does not exist, and more efforts are needed to homogenize the different methods without losing the USLE-specific knowledge developed in the different regions over the last decades.

Italy's politics without policy: Balancing Atlanticism and Europeanism in the Middle East

Modern Italy ◽  
2008 ◽  
Vol 13 (2) ◽  
pp. 135-153 ◽  
Author(s):  
Raffaella A. Del Sarto ◽  
Nathalie Tocci
Keyword(s):  
Foreign Policy ◽  
Middle East ◽  
The United States ◽  
The European Union ◽  
Short Term ◽  
The Government ◽  
Specific Interests ◽  
Policy Shifts ◽  
The Eu

Focusing on Italy's Middle East policies under the second Berlusconi (2001–2006) and the second Prodi (2006–2008) governments, this article assesses the manner and extent to which the observed foreign policy shifts between the two governments can be explained in terms of the rebalancing between a ‘Europeanist’ and a transatlantic orientation. Arguing that Rome's policy towards the Middle East hinges less on Italy's specific interests and objectives in the region and more on whether the preference of the government in power is to foster closer ties to the United States or concentrate on the European Union, the analysis highlights how these swings of the pendulum along the EU–US axis are inextricably linked to a number of underlying structural weaknesses of Rome's foreign policy. In particular, the oscillations can be explained by the prevalence of short-term political (and domestic) considerations and the absence of long-term, substantive political strategies, or, in short, by the phenomenon of ‘politics without policy’ that often characterises Italy's foreign policy.

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