Accounting Discretion, Horizon Problem, and CEO Retirement Benefits

2009 ◽  
Vol 84 (5) ◽  
pp. 1553-1573 ◽  
Author(s):  
Paul Kalyta
Keyword(s):  
Firm Performance ◽  
Earnings Management ◽  
Discretionary Accruals ◽  
Pension Plans ◽  
Primary Data ◽  
Retirement Benefits ◽  
Horizon Problem ◽  
Accounting Choices ◽  
Fortune 1000 ◽  
The Impact

ABSTRACT: Empirical research on the impact of managerial retirement on discretionary accounting choices is inconclusive, with most studies finding no evidence of earnings management in the pre-retirement period. I argue that income-increasing accounting choices in final pre-retirement years are particularly appealing to managers whose pension depends on firm performance in these years. Using primary data on retired CEOs of Fortune 1000 firms, I investigate the impact of CEO pension plans on discretionary accruals. Consistent with the prediction, I find evidence of income-increasing earnings management in the pre-retirement period only when CEO pension is based on firm performance. I also report evidence of negative abnormal market reaction to CEO retirement in firms with performance-contingent CEO pensions.

scholarly journals Two Sides of the Same Coin. University-Industry Collaboration and Open Innovation as Enhancers of Firm Performance

2021 ◽  
Vol 13 (7) ◽  
pp. 3866
Author(s):  
Joana Costa ◽  
Ana Rita Neves ◽  
João Reis
Keyword(s):  
Firm Performance ◽  
Open Innovation ◽  
Primary Data ◽  
Company Performance ◽  
Innovation Ecosystem ◽  
Industry Collaboration ◽  
And Performance ◽  
Performance Results ◽  
The Impact ◽  
University Industry

Open innovation is proved to be determinant in the rationalization of sustainable innovation ecosystems. Firms, universities, governments, user communities and the overall environment are called to contribute to this dynamic process. This study aims to contribute to a better understanding of the impact of open innovation on firms’ performance and to empirically assess whether university-industry collaborations are complementary or substitutes for this activity. Primary data were collected from a survey encompassing 908 firms, and then combined with performance indicators from SABI (Spanish and Portuguese business information). Econometric estimations were run to evaluate the role of open innovation and university-industry collaboration in the firm innovative propensity and performance. Results highlight the importance of diversity in collaborations with the academia and inbound open innovation strategy as enhancers of firm performance. The two activities reinforce each other. By testing the impact of open innovation practices on company performance, the need for heterogeneity in terms of contact type and university is also demonstrated. Findings cast light on the need to reformulate existing policy packages, reinforcing the ties with academia as well as the promotion of open innovation strategies. The connection to the innovation ecosystem needs to be further encouraged as well as the promotion of persistent connections with the knowledge sources in an open and multilateral framework.

scholarly journals Management Entrenchment, Firm Characteristics and Earnings Management Of Conglomerate Companies In Nigeria

2020 ◽  
Vol 9 (1) ◽  
pp. 1-14
Author(s):  
Temitope Olamide Fagbemi ◽  
Olubunmi Florence Osemene ◽  
Oyinlade Agbaje
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Discretionary Accruals ◽  
P Value ◽  
Secondary Source ◽  
Firm Characteristics ◽  
Ex Post ◽  
Management Entrenchment ◽  
The Impact

Sometimes the rivalry between shareholders and management is an indication of the level of entrenchment within the corporate environment. Managers are believed to routinely manipulate earnings in order to mislead shareholders about their company's actual economic outlook or performance. As a result, the study investigated the impact of managerial entrenchment, firm characteristics and earnings management of conglomerate companies in Nigeria. Employing the ex-post facto research design, the data was gathered from secondary source of the 6 listed conglomerate companies for the 11-year period running (2008-2018). The study used discretionary accruals a proxy for earnings management and to calculate discretionary accruals, the study used modified Jones model. The result showed that management entrenchment and firm characteristics have Impact on multinational firms ' earnings management in Nigeria. Specifically, from the conglomerate’s entrenchment proxies, CEO’s tenure has a positive and significant impact on earnings management (coff. =1.062821, p-value =0.0367) and management entrenchment as measured by CEO’s shareholding has a negative and insignificant effect on earnings management (coff. =-6252391, p-value = 0.4090) while firm size, profitability and leverage indicated a significant and positive impact on earnings management (coff, = 0.124587, p-value = 0.0000; coff. = 0.006647, p-value = 0.0431 and coff. = 0.032065, p-value = 0.0000). The study therefore recommended among others that management should reduce the debt in their capital structure in order to improve their companies’ value and their capital structure should be majorly financed by equity rather than debt and reduce CEOs tenure to minimise earnings management practices.

Do discretionary accruals affect firms’ corporate dividend policy? Evidence from France

2018 ◽  
Vol 16 (2) ◽  
pp. 333-347 ◽  
Author(s):  
Anis Ben Amar ◽  
Olfa Ben Salah ◽  
Anis Jarboui
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Positive Impact ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Discretionary Accruals ◽  
Additional Measure ◽  
Ample Evidence ◽  
Content Type ◽  
The Impact

Purpose In financial literature, dividend payout decisions are determined by factors such as debt, liquidity, profitability, size and risk. The purpose of this paper is to identify the effect of earnings management measured by discretionary accruals based on Dechow et al.’s (1995) model on dividend policy. Design/methodology/approach This research will use panel data analysis to test the effect of earnings management on dividend policy. The authors selected 280, French non-financial companies, listed on the CAC All Tradable index for the 2008-2015 period. Findings Using a sample of 2108 firm-year observations, the authors find a positive impact of earnings management on dividend policies of firms. Besides, there is a positive/negative relationship between the size of the firm and the dividend policy. Moreover, this paper has dealt with some factors such as debt, the risk of the firm and liquidity which may affect the corporate dividend policy. The results are robust as the authors adopted an additional measure of dividend policy. Practical implications The findings may have important implications for analysts, investors, regulators and academics. First, the study shows that earnings management is a common practice in the French context and constitutes a major objective of dividend policy. Better still, identifying the other variables that influence the dividend policy provides a clearer understanding of dividend policy for investors, analysts and academics alike. Second, the study provides ample evidence of agency problems between various partners in French capital markets, highlighting the necessity to establish new corporate governance mechanisms. This is highly relevant for policymakers in their quest for a better financial market. Originality/value This study extends the literature on the impact of dividend thresholds on earnings management by showing that firms run earnings to inform the market that the company can distribute dividends.

The role of audit committees in mitigating earnings management: evidence from Jordan

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Taha Almarayeh ◽  
Modar Abdullatif ◽  
Beatriz Aibar-Guzmán
Keyword(s):  
Developing Countries ◽  
Earnings Management ◽  
Audit Committee ◽  
Discretionary Accruals ◽  
Least Square ◽  
Audit Committees ◽  
Institutional Setting ◽  
Content Type ◽  
The Impact

PurposeThis study examines the relationship between audit committees (ACs) and earnings management (EM) in the developing country context of Jordan. In particular, it investigates whether audit committee attributes, including their size, independence, expertise and meetings, are able to restrict discretionary accruals as a proxy for EM.Design/methodology/approachThe generalized least square (GLS) regression was used to study the association between audit committee attributes and discretionary accruals, as a proxy of EM, for a sample of industrial firms listed on the Amman Stock Exchange (ASE) during the period 2012–2020. Data were obtained from the firms' annual reports.FindingsThe regression results indicate that audit committee independence is the only audit committee attribute that seems to improve the effectiveness of ACs, in that it is significantly associated with less EM, while other audit committee attributes that were tested do not show statistically significant associations.Research limitations/implicationsIn emerging markets, like Jordan, ACs may not be an efficient monitoring mechanism; therefore, it can be argued that the prediction made by the agency theory about the role of ACs in mitigating opportunistic EM activities does not necessarily apply to all contexts.Practical implicationsA better understanding of audit committee effectiveness in developing countries could help regulators in these countries assess the impact of planned corporate governance (CG) reforms and to better monitor and enhance the performance of ACs.Social implicationsIn a setting characterized by closely held companies, high power distance and low demand for high-quality CG mechanisms, this study contributes to understanding how this business system operates, and how improving CG mechanisms could be successful in such cultures.Originality/valueThis study investigates the under-researched relationship between audit committee characteristics and EM in developing countries. In so doing, it aims to provide new insights into this relationship within the developing context case of Jordan, including if and how the institutional setting influences this relationship.

scholarly journals The impact of CEOs’ accounting backgrounds on earnings management and conservatism

2017 ◽  
Vol 10 (1) ◽  
pp. 4-24
Author(s):  
Nan Hu ◽  
Rong Huang ◽  
Xu Li ◽  
Ling Liu
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Discretionary Accruals ◽  
Accounting Conservatism ◽  
Policy Implications ◽  
Good News ◽  
Content Type ◽  
Accounting Research ◽  
Significant Difference ◽  
The Impact

Purpose Existing literature in experimental accounting research suggests that accounting professionals and people with accounting backgrounds tend to have a lower level of moral reasoning and ethical development. Motivated by these findings, this paper aims to examine whether chief executive officers (CEOs) with accounting backgrounds have an impact on firms’ earnings management behavior and the level of accounting conservatism. Design/methodology/approach The authors classify CEOs into those with and without accounting backgrounds using BoardEx data. Using discretionary accruals from several different models, they do not find that CEOs with accounting backgrounds are more likely to engage in income-increasing accruals. However, the authors find that CEOs with accounting backgrounds exhibit lower levels of conservatism, proxied by C-scores and T-scores (Basu, 1997). This finding suggests that CEOs with accounting backgrounds recognize bad news more quickly than good news, consistent with the accounting principle of “anticipating all losses but anticipating no gains”. Findings The authors show that firms whose CEOs have accounting backgrounds exhibit lower levels of accounting conservatism. However, these firms do not exhibit higher levels of income-increasing discretionary accruals. This study documents the impact of CEOs’ educational backgrounds on firms’ accounting choices and confirms prior findings in experimental accounting research using large sample archival data. Originality/value This paper is the first study that investigates the impact of CEOs’ accounting backgrounds on firms’ financial reporting policy. The findings may have some policy implications. If accounting backgrounds of CEOs can make a significant difference on firms’ behavior, it is reasonable to make CEOs accountable for the quality of financial reporting. This paper is one of the first to empirically test inferences drawn by experimental accounting research. There has been a gap between archival and experimental accounting studies. The authors propose that interesting research questions can be addressed by filling in such a gap.

scholarly journals The impact of earning management on market earnings value: the causal study on the level of accruals

2019 ◽  
Vol 4 (2) ◽  
pp. 9
Author(s):  
Muljanto Siladjaja ◽  
Yuli Anwar
Keyword(s):  
Earnings Management ◽  
Critical Role ◽  
Discretionary Accruals ◽  
Negative Influence ◽  
Path Model ◽  
Earning Management ◽  
Working Capital ◽  
Financial Report ◽  
Public Firms ◽  
The Impact

The purpose of this research is to test investors capability to detect earning management after the period of publication, when the information from financial report plays critical role in investment’s decision. Given the feedback of investor’s reaction, this research provides an empirical model, that point out the earnings management as a message or signal of firm performance, particularly of negative perception on accruals’s opportunisties. This research uses path model analysis and multivariate regression, where the data have been collected from 2.560 observations. The unit of analysis of this research was all the listed companies in the period 20012017. The method of sampling was purposive sampling, which based on annual financial report. The findings of this research showed that all public firms have systematic method for earnings management, by distinguishing the positive and negative accruals, the discretionary accruals have the negative influence on the market value significantly, when we used the earning market ratio. When financial report had high accruals quality, it had positive perception from investors, while estimating the future prospect with high accuracy by obtaining usefulness of financial report. The indicator of earnings management, and working capital had been sensitive for investors, because of accruals in reporting firm’s performance. Keywords: Discretionary Accruals, Working Capital, Dividend Pay Out, Quality of Accruals, Cost of Capital.

scholarly journals The Impact Of Audit Committee Multiple-Directorships On Earnings Management: Evidence From France

2013 ◽  
Vol 29 (5) ◽  
pp. 1333 ◽  
Author(s):  
Samir Baccouche ◽  
Manel Hadriche ◽  
Abdelwehed Omri
Keyword(s):  
Earnings Management ◽  
Audit Committee ◽  
Discretionary Accruals ◽  
Listed Firms ◽  
Multiple Directorships ◽  
The Impact ◽  
The Relationship

The aim of this paper is to examine the relationship between Audit Committee Multiple-Directorships and earnings management. Precisely, we empirically investigate the effect of the multiple directorships held by audit committee directors on the level of earnings management of listed French companies. Our investigation has been achieved on a sample of 88 non financial French listed firms that belong to the SBF 120 index, for the financial year 2008. The results suggest that the accumulation of several outside directorships by audit committee members may lead to a higher degree of earnings management, as measured by the magnitude of discretionary accruals. Therefore, our findings show that audit committee cant provide effective monitoring of earnings management when its members held many additional outside directorships.

Corporate social responsibility, firm performance and the moderating effect of earnings management in Chinese firms

2018 ◽  
Vol 10 (2/3) ◽  
pp. 184-199 ◽  
Author(s):  
Muhammad Safdar Sial ◽  
Zheng Chunmei ◽  
Tehmina Khan ◽  
Vinh Khuong Nguyen
Keyword(s):  
Corporate Social Responsibility ◽  
Firm Performance ◽  
Social Responsibility ◽  
Earnings Management ◽  
Generalized Method Of Moments ◽  
Chinese Firms ◽  
Content Type ◽  
Corporate Social ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship between corporate social responsibility (CSR) and firm performance and the moderating role of earnings management on the relationship between CSR and firm performance. Design/methodology/approach The empirical study used the updated data set (3,481 unbalanced observations for period 2009–2015) from Chinese listed companies on Shenzhen and Shanghai stock exchanges. The generalized method of moments (GMM) statistical approach has been used for the analysis. The authors utilized STATA to test GMM on a sample of Chinese listed firms data over the period 2009–2015. The unbalanced sample obtained 3,481 observations from China stock market and accounting research database and CSR ratings provided by Rankins (RKS). Findings The results demonstrated that CSR has a positive and significant relationship with firm’s performance; also, earnings management has a negatively moderate relationship between CSR and firm performance. These results imply that a high value of earnings management, which results in high level of symbolic CSR, converts to low firm performance of the Chinese firms. CSR actions (only as symbolic measures) promoted by managers as a means to cover their profit management incite an adverse effect on the company’s performance. This study has highlighted the impact of two different corporate social responsibilities: substantive and symbolic (genuine CSR vs greenwashing) on firm performance. Research limitations/implications The results of this investigation will be of distinct interest to company owners who wish to ascertain the effectiveness of the sustainability decisions of directors and managers, and also to investors and public authorities to estimate the positive relationship between CSR and company’s reputation and image, and thus, the positive influence on firm performance. Originality/value Previous studies have generally focused on the relationship between CSR and firm performance. This study provides the impact of earnings management (measurement of both aspects of accrual-based earnings management and real earnings management) on this relationship. Furthermore, this study examines the state of CSR in the Chinese market and provides empirical evidence of this relationship in emerging markets.

Management of pension discount rate and financial health

2016 ◽  
Vol 8 (2) ◽  
pp. 142-162
Author(s):  
Paula Diane Parker ◽  
Nancy J. Swanson ◽  
Michael T. Dugan
Keyword(s):  
Earnings Management ◽  
Discount Rate ◽  
Design Methodology ◽  
Pension Plans ◽  
Financial Health ◽  
Z Score ◽  
Bottom Line ◽  
Content Type ◽  
The Impact

Purpose This study aims to examine the unexpected portion of the pension discount rate to determine if the pension discount rate is being used to manage earnings for both financially healthy and financially unhealthy firms as categorized based upon their Altman z-score for bankruptcy. Design/methodology/approach Regression analysis is conducted with the unexpected portion of the pension discount rate as the dependent variable and various metrics indicating potential firm strengths and weaknesses as the independent variables. Findings This study finds evidence that suggests managers for both groups of firms are using their choice of discount rate to manage bottom-line earnings. These findings highlight the patterns of various firm choice differences found between the two groups and the magnitude of the differences between the groups. Originality/value Three streams of literature are considered in this research: earnings management, defined pension plans and z-score bankruptcy. This study extends prior research by examining the unexpected portion of the pension discount rate based on the z-score determination of whether a firm is considered financially healthy or financially unhealthy. Our findings highlight the impact of various firm choice differences found between the two groups of firms.

scholarly journals The Impact of the UK Corporate Governance Code 2010 on Earnings Management around Mergers and Acquisitions

2016 ◽  
Vol 8 (2) ◽  
pp. 1
Author(s):  
Michael Yipake Banseh ◽  
Ehsan Khansalar
Keyword(s):  
Corporate Governance ◽  
Mergers And Acquisitions ◽  
Earnings Management ◽  
Financial Reporting ◽  
Pearson Correlation ◽  
Discretionary Accruals ◽  
Corporate Management ◽  
Corporate Governance Code ◽  
The Uk ◽  
The Impact

<p>Several studies revealed earnings management (EM) around mergers and acquisitions (M&amp;As) by both acquirers and target firms. Rosa et al. (2003) suggest that a systematic EM is associated with the use of stock as payment in takeovers. This and other corporate malpractices have prompted authorities to tighten regulations by passing the United Kingdom (UK) Corporate Governance (CG) Code to guide companies in the UK in their corporate management and financial reporting.</p><p>This study is to investigate the impact of the UK CG Code on accruals EM around M&amp;As in the UK. The study applied the Modified Jones (1991) model as modified by Dechow et al. (1995) and the Pearson Product Moment Correlation in analysing a sample data from 66 companies listed on the LSE that have undertaken M&amp;As within the period of January 2007 to December 2014. The results produced by the modified Jones model indicate some level of income increasing discretionary accruals in the pre-CG period but showed an opposite situation in the post-CG period. A test for significance indicates the means of pre-CG discretionary accruals and post-CG discretionary accruals were different and significant. The hypothesis that “the level of earnings management around mergers and acquisitions in the UK has significantly reduced after the enactment of the UK Corporate Governance code 2010” was therefore accepted.</p>Results from the Pearson Correlation Coefficient were inconclusive on EM but indicate some changes in the level of activities in the earnings between the two periods. This may also points to some effect of CG Code on the reported earnings of these companies. The results from this study is consistent with existing studies that evince the effectiveness of CG in controlling EM as Hsu and Koh (2005); Osma (2008) suggest that best corporate governance practices minimise EM and reduce fraud drastically.

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