Auditor Independence: Evidence on the Joint Effects of Auditor Tenure and Nonaudit Fees

2007 ◽  
Vol 26 (2) ◽  
pp. 117-142 ◽  
Author(s):  
Ferdinand A. Gul ◽  
Bikki L. Jaggi ◽  
Gopal V. Krishnan
Keyword(s):  
Earnings Management ◽  
Firm Size ◽  
Negative Impact ◽  
Positive Association ◽  
Auditor Independence ◽  
Joint Effects ◽  
Auditor Tenure ◽  
Client Firm ◽  
The Impact

This study examines whether the impact of nonaudit fees on auditor independence is contingent on auditor tenure. The results, based on a sample of 4,720 U.S. firms for the years 2000 and 2001, show that there is a positive association between nonaudit fees and positive discretionary current accruals, a proxy for auditor independence, for firms with short auditor tenure of not more than three years. These findings suggest that nonaudit fees may impair auditor independence when auditor tenure is short and not when auditor tenure is long. Furthermore, exploratory analyses show that the positive association between nonaudit fees and earnings management for firms with short auditor tenure is significant for small clients but not for large clients. Taken together, these results suggest that the association between nonaudit fees and auditor independence is contingent upon auditor tenure, and that high nonaudit fees have a negative impact on auditor independence when audit tenure is short and client firm size is small.

Nonaudit Services and Earnings Management in the Pre-SOX and Post-SOX Eras

2011 ◽  
Vol 30 (3) ◽  
pp. 103-123 ◽  
Author(s):  
Jayanthi Krishnan ◽  
Lixin (Nancy) Su ◽  
Yinqi Zhang
Keyword(s):  
Earnings Management ◽  
Positive Association ◽  
Discretionary Accruals ◽  
Auditor Independence ◽  
Securities And Exchange Commission ◽  
Significant Decline ◽  
Subsequent Reduction ◽  
Economic Dependence ◽  
Nonaudit Services ◽  
The Impact

SUMMARY Concerns about the impact of auditor-provided nonaudit services (NAS) on auditor independence arise because of (1) auditors' economic dependence on their clients, and (2) some specific types of NAS which the Securities and Exchange Commission (SEC) argues can harm auditor objectivity. The SEC's prohibition in 2003 of specific kinds of NAS led to a significant decline in NAS between 2000–2001 and 2004–2005. We argue that this decline in observed NAS fees can be used to identify firms that had a greater likelihood of impaired auditor independence in the pre-SOX period. Using discretionary accruals to proxy for earnings management, we find a positive association between discretionary accruals in the pre-SOX era and the subsequent reduction in NAS, but this was confined to income-decreasing accruals. Further, the association between downward earnings management and the decline in NAS was reduced in the post-SOX era.

scholarly journals DIVIDEND POLICY, CORPORATE GOVERNANCE AND EARNINGS QUALITY: A CASE OF NON-FINANCIAL LISTED FIRMS OF PAKISTAN

2021 ◽  
Vol 9 (3) ◽  
pp. 517-530
Author(s):  
Tehmina Afzal ◽  
Atif Atique Siddiqui ◽  
Shiraz Khan ◽  
Muhammad Kamran Khan ◽  
Nader Huseen
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Firm Size ◽  
Dividend Policy ◽  
Audit Quality ◽  
Negative Impact ◽  
Earnings Quality ◽  
Earning Quality ◽  
The Impact

Purpose of the study: This research empirically examined the impact of the dividend policy and corporate governance attributes (board size, board meetings, audit quality, nomination committee, board independence, remuneration committee, and CEO duality) on earnings quality (EQ) of the firms in Pakistan. Methodology: The study used secondary data of 148 non-financial listed companies of the Pakistan Stock Exchange (PSX) with 1450 firm-year observations over 10 years from 2010 to 2019. Earning quality was assessed by the earnings management, while the values of the discretionary accruals were used to measure earnings management by employing the Modified jones model (1995). Panel regression analysis examined the impact of independent variables (dividend policy & characteristics of CG) on the dependent variable (EQ). Main Findings: Results revealed that the dividend policy showed no significant impact on earnings quality. Also, the results indicated that the audit quality and remuneration committee have a significant negative impact on earning management and a positive impact on earning quality. However, the results illustrate that the large board size, board meetings, CEO duality, firm size, and leverage have a positive influence on earnings management and a negative impact on earnings quality. Overall the study found that the corporate governance characteristics, firm size, and leverage influence the earnings quality of the firms in Pakistan. Applications of this study: The empirical results of the study will help to improve the understanding of dividend policy & corporate governance attributes in relationship with the EQ. Second, as dividend is considered one of the most important factors influencing investment decisions, so this endeavour will clarify to the investors and regulators that whether dividend will predict the quality of earnings in Pakistani firms. Novelty/Originality of this study: This study extends the literature of earnings quality that is very thin in Pakistan.

Corporate Social Responsibility and Earnings Management: The Moderating Role of Family Ownership

2019 ◽  
Vol 12 (1) ◽  
Author(s):  
Asif Saeed ◽  
Aijaz Mustafa Hashmi ◽  
Attiya Yasmin Javid
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Earnings Management ◽  
Family Firms ◽  
Negative Impact ◽  
Stock Exchange ◽  
Least Square ◽  
Family Ownership ◽  
Corporate Social ◽  
The Impact

This study aims to explore the impact of family ownership on the relationship among corporate social responsibility (CSR) and earning management (EM) in Pakistan. Data is collected from nonfinancial listed firms on Pakistan Stock Exchange (PSE) for the period 2009-2017. Our results of pooled ordinary least square regression indicate that CSR has significant negative impact on EM. Furthermore, results also indicate that association between CSR and EM is moderated by family ownership. Family firms which perform CSR activities are less involved in EM as compare to nonfamily firms perform CSR activities. This variation in behavior of EM in family and non-family firms can possibly be explained by socioemotional wealth theory. Keywords: Corporate Social Responsibility, Earnings Management, Family Ownership

The bidirectional relationship between ESG performance and earnings management – empirical evidence from Germany

2019 ◽  
Vol 10 (4) ◽  
pp. 322-338 ◽  
Author(s):  
Patrick Velte
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Negative Impact ◽  
Social Performance ◽  
Negative Influence ◽  
Content Type ◽  
Thomson Reuters ◽  
Tier System ◽  
Bidirectional Relationship ◽  
The Impact

Purpose This study aims to focus on environmental, social and governance (ESG) performance as a whole and individually in its three pillars and their influence on earnings management. Design/methodology/approach Companies listed on the German Prime Standard (DAX30, TecDAX and MDAX) for the business years 2011-2017 (548 firm-year observations) are included in the empirical quantitative study. A correlation and regression analysis is conducted to analyze the impact of ESG performance as determined by the Asset4 database of Thomson Reuters on accruals-based earnings management (AEM) and real earnings management (REM). Findings ESG performance has a negative influence on AEM but not on REM. Moreover, by dividing the three different factors of ESG performance, governance performance has the strongest negative impact on AEM in comparison to environmental and social performance. This study also suggests a bidirectional relationship between ESG performance and earnings management. Originality/value The analysis makes a key contribution to research as the link between ESG performance and their three components and earnings management are analyzed for the German two-tier system for the first time. Corporate practice, regulators and researchers should recognize that ESG performance and financial reporting should be discussed together.

scholarly journals Effects of Board Size, Board Composition and Dividend Policy on Real Earnings Management in the Jordanian Listed Industrial Firms

2020 ◽  
Vol 11 (4) ◽  
pp. 195
Author(s):  
Yousef Shahwan ◽  
Tareq Hammad Almubaydeen
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Structural Model ◽  
Negative Impact ◽  
Industrial Sector ◽  
Real Earnings Management ◽  
P Value ◽  
Board Composition ◽  
Board Size ◽  
The Impact

Earning manipulation has been a normal transaction among the global businesses, in which business organization sees it as beneficial, thereby turning black eyes to its negative impact on the general economy. This study aimed at examining the impact of board size, Board composition and dividend policy on real earnings management in the listed Jordanian industries. 8 years data (2010 to 2018) was extracted from the audited financial reports of the selected firms. Data was analyzed using Structural Model via AMOS version 26 and SPSS version 21. The findings revealed a positive and significant effect between board size, board composition and real earning management at p-value<0.05 and 0.001 (two-tailed) respectively. While negative of dividend policy on REM was recorded at p-value>0.05 (two-tailed). This study has immensely contributed towards bridging the gap in the existing knowledge as it documented a new finding. The benefits of these findings cross over the managers, shareholders, board of directors, investors, the Jordanian government and all other relevant institute for the buildup of the healthiest industrial sector and better economy.

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 Faktor – Faktor Yang Mempengaruhi Real Earnings Management Pada Perusahaan Manufaktur di BEI

2020 ◽  
Vol 25 (2) ◽  
pp. 163
Author(s):  
Linda Santioso, Emily Janice, Andreas Bambang Daryatno
Keyword(s):  
Earnings Management ◽  
Firm Size ◽  
Audit Committee ◽  
Audit Quality ◽  
T Test ◽  
Real Earnings Management ◽  
External Audit ◽  
Audit Firm ◽  
Financial Expertise ◽  
The Impact

This research aims to find out and analyze the impact of audit committee financial expertise, audit quality that is proxied by external audit firm size, and profitability on real earnings management. The method used in this research was purposive sampling with a total sample of 59 manufacturing companies listed in Indonesian Stock Exchange (IDX). The type of data used was secondary data acquired through financial statements extracted from www.idx.co.id. Data analysis methods used in this research were classical assumption analysis, descriptive statistical test, f test, t test, and the test of determination coefficient. T test was used to test this study’s hypothesis. Final result of the study showed that audit committee financial expertise and audit quality proxied by external audit firm size do not have any significant effect on real earnings management, while profitability has been shown to have a positive effect on real earnings management.

scholarly journals Effect of auditor quality on auditor auditee negotiation outcomes

2008 ◽  
Vol 5 (4) ◽  
pp. 373-383
Author(s):  
Manel Hadriche Sahnoun ◽  
Mohamed Ali Zarai
Keyword(s):  
Financial Reporting ◽  
Firm Size ◽  
Significant Relationship ◽  
Audit Firm ◽  
Auditor Tenure ◽  
Auditor Quality ◽  
And Performance ◽  
The Impact ◽  
Negotiation Outcome ◽  
Industry Specialist

The purpose of this paper is to study the impact of some attributes of auditor quality such as: auditor tenure, auditor industry specialist, auditor experience and the audit firm size on auditor auditee negotiation outcomes. For the entire sample of 81 Tunisians firms, our results indicate positive and significant relationship between auditor tenure, auditor experience and the extent to which the auditee agreed with the auditor over the financial reporting issues. On the other hand, the results indicate a positive but non-significant relationship between the auditor industry specialist and the negotiation outcome. For the audit firm size, we find that auditees are more likely to agree with big 4 audits firms. Indeed, we find no significant relationship between importance, size and performance of the auditee and auditor auditee negotiation outcome

scholarly journals How Income Influences Health: Decomposition Based on Absolute Income and Relative Income Effects

2021 ◽  
Vol 18 (20) ◽  
pp. 10738
Author(s):  
Xiaodong Cui ◽  
Ching-Ter Chang
Keyword(s):  
Negative Impact ◽  
Accelerated Aging ◽  
Positive Association ◽  
Relative Income ◽  
Chinese Government ◽  
Income Effects ◽  
Absolute Income ◽  
Healthy Longevity ◽  
Significant Negative Impact ◽  
The Impact

Previous research has confirmed a positive association between income and health, but there are still a lot of inconsistencies on how income affects health. Indeed, this impact is caused by overlaying of absolute income and relative income effects, and only by decomposing and comparing their relative importance within an integrated framework can suggestions be made for health inequalities and health intervention. To deal with this issue, using the panel data from the 2011, 2014, and 2017 waves of the Chinese Longitudinal Healthy Longevity Survey (CLHLS), a well-designed research model is established to decompose and explore the impact. Our results indicate that relative income, rather than absolute income, has a significant negative impact on health performance, and that these associations may be causal in nature. The health inequity persists throughout the life cycle, but it remains relatively stable, without significant expansion or convergence. To some extent, the research-proposed models enrich the related literature on associations between income and health, and the empirical results suggest that as China moves to the stage of higher incomes and accelerated aging, the Chinese government should pay more attention to income inequality and be alert to the risks of “income-healthy poverty” traps.

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