Client Relationships, Analyst Coverage, and Earnings Management

2021 ◽  
Author(s):  
Zhi Jin ◽  
Bingxuan Lin ◽  
Chen-Miao Lin
Keyword(s):  
Earnings Management ◽  
Financial Markets ◽  
Capital Market ◽  
Mutual Fund ◽  
Conflicts Of Interest ◽  
Analyst Coverage ◽  
Client Relationships ◽  
Client Pressure ◽  
The Impact ◽  
A Company

Financial analysts have two important roles in the capital market. In addition to their informational role, which has been widely studied, they play an important monitoring role. Similar to their informational role, their monitoring role might be negatively affected when they face conflicts of interest. Using a sample of Chinese firms, we show that if analysts are under pressure (i.e., housed in a brokerage firm where specific mutual funds hold large positions in a company covered by the analyst), their role in lowering the firm earnings management activities is significantly compromised. We find that the closer the business relationship between the mutual fund and the brokerage firm, the greater the firm earnings management. Our findings caution investors and regulators to heed the impact of client pressure on analysts' roles in financial markets.

scholarly journals The Influence Of Public Equity Ownership On Earnings Management Through The Manipulation Of Operational Activities

2014 ◽  
Vol 30 (6) ◽  
pp. 1847
Author(s):  
Yura Kim
Keyword(s):  
Earnings Management ◽  
Capital Market ◽  
Public Debt ◽  
Private Equity ◽  
Real Earnings Management ◽  
Operational Activities ◽  
Public Equity ◽  
Reported Earnings ◽  
The Impact ◽  
Market Pressure

This paper examines whether public equity firms and private equity firms with public debt exhibit different degrees of real earnings management, defined as the manipulation of operational activities in order to influence reported earnings. Public equity firms face intense capital market scrutiny that their private equity counterparts do not. Therefore, this studys comparison of the two types of firms provides insight on the impact of capital market pressure on real earnings management behaviors. My results show that public equity firms are more likely than private equity firms to opportunistically alter normal operations to improve earnings by pushing sales through discounts and promotions, and by lowering costs of sales through overproduction. I find no difference in abnormal discretionary expenses between public equity and private equity firms. Although private equity firms with public debt do not face the same capital market pressure that public equity firms face, they are not immune from incentives to engage in real earnings management. Specifically, I find that private equity firms with public debt engage in real earnings management as their debt moves closer to default. Moreover, private equity firms with public debt that do engage in real earnings management appear to emphasize the zero earnings benchmark, consistent with prior research, suggesting that this benchmark is of primary importance to creditors.

scholarly journals Principles-Based Securities Regulation in the Wake of the Global Financial Crisis

2010 ◽  
Vol 55 (2) ◽  
pp. 257-307 ◽  
Author(s):  
Cristie Ford
Keyword(s):  
Financial Crisis ◽  
Financial Markets ◽  
Global Financial Crisis ◽  
Conflicts Of Interest ◽  
Securities Regulation ◽  
Access To Information ◽  
Critical Factors ◽  
The Global Financial Crisis ◽  
The Impact ◽  
Financial Markets Regulation

The recent global financial crisis contains cautionary lessons about the risks associated with principles-based regulation when it is not reinforced by an effective regulatory presence. Our response to the crisis, however, should not be a rush to enact more rules-based regulatory approaches. On the contrary, principles-based securities regulation offers more viable solutions to the challenges that such a crisis presents for contemporary financial markets regulation. The author draws on the lesson of the global financial crisis to identify three critical factors for effective principles-based securities regulation. First, regulators must have the necessary capacity in terms of numbers, access to information, and expertise in order to act as an effective counterweight to industry. Second, regulation needs to grapple with the impact of complexity on financial markets and their regulation. Third, increased diversity among regulators and greater independence from industry are required to avoid conflicts of interest, overreliance on market discipline, and “groupthink”. The paper calls for a continuing commitment to principles-based regulation, accompanied by meaningful enforcement and oversight.

scholarly journals OIL AND GOLD PRICE VOLATILITY ON INDONESIAN STOCK MARKET IN THE PERIOD OF COVID-19 PANDEMIC

2021 ◽  
Vol 23 (2) ◽  
pp. 129-137
Author(s):  
Maria Magdalena Marwanti ◽  
Robiyanto Robiyanto
Keyword(s):  
Financial Markets ◽  
Stock Returns ◽  
Capital Market ◽  
Price Volatility ◽  
Secondary Data ◽  
Developed Countries ◽  
Gold Price ◽  
Future Research ◽  
Analysis Technique ◽  
The Impact

The study aimed to analyze the effects of oil and gold price volatility on stock returns in Indonesia by comparing the period before and during the Covid-19 pandemic. The study took secondary data from the daily closing prices of oil (Brent and WTI), gold, and JCI. The analysis technique used was GARCH (1,1). The study found that oil and gold price volatility did not affect stock returns in the two periods. The impact of the Covid-19 pandemic on financial markets had yielded uncertain results. This finding supported the concept of gold as a safe haven during the financial crisis. The limitations in the study were focusing on the Indonesian capital market, and future research can compare the impact of the Covid-19 pandemic on developing countries with developed countries.

scholarly journals Financial Liquidity as a Factor Determining the Economic Condition of Companies on the Capital Market in Relation to Bankruptcy Law in Poland

e-Finanse ◽  
2019 ◽  
Vol 15 (1) ◽  
pp. 1-9
Author(s):  
Monika Bolek ◽  
Agata Gniadkowska-Szymańska
Keyword(s):  
Capital Market ◽  
Economic Condition ◽  
Quadratic Functions ◽  
Bankruptcy Law ◽  
Economic Entity ◽  
Earnings Per Share ◽  
Financial Liquidity ◽  
The Impact ◽  
A Company ◽  
The Capital Market

AbstractThe aim of this article is to present financial liquidity as a factor affecting the economic condition of the companies on the capital market in relation to the amended Bankruptcy Law in Poland. A study was carried out to determine the impact of liquidity on the increase in earnings per share and return on assets, indicators can be used to assess the economic condition of a company. As a result, logit and quadratic functions were examined and the parameters of the models provided a verification of the hypothesis. As a result, it was found that the good economic situation of a company related to the increase in earnings per share and profitability is affected by the increasing cash efficiency of assets and the decreasing value of the current ratio. It can therefore be concluded that according to theory, conducting a more aggressive policy in the area of liquidity results in an increase in the value of an economic entity and, therefore, its good economic condition, but the effect of overly aggressive policies may influence solvency, which is defined by Bankruptcy Law.

scholarly journals Determinants Of The Write-Off Decision Under IFRS: Evidence From Germany

2013 ◽  
Vol 12 (7) ◽  
pp. 737
Author(s):  
Lena Siggelkow ◽  
Henning Zulch
Keyword(s):  
Firm Performance ◽  
Earnings Management ◽  
Capital Market ◽  
Income Smoothing ◽  
Reporting Incentives ◽  
The Us ◽  
Strong Relation ◽  
Tax Payments ◽  
Management Changes ◽  
The Impact

This study examines the factors that influence write-off decisions in German-listed companies. Write-offs have been widely discussed, especially for the US-American market, and a relation to earnings management has been found in existing studies. German companies differentiate from the companies that have already been analyzed as they operate under different accounting standards (IFRS) and in a different institutional setting.Additionally, managers are confronted with the task to derive the IFRS annual statements from the existing annual statements according to local GAAP which follow a differing objective. Based on a sample of 805 observations of German companies listed in the DAX, MDAX, TecDax and SDAX indices between 2004 and 2010, we analyze the impact of firm performance as well as reporting incentives on the write-off decision. We find that the write-off probability rises significantly with decreasing overall firm performance, which is in line with the legal requirements. Additionally, we find a strong relation of the write-off probability with unexpectedly high earnings, which is an indicator for income smoothing. Besides influencing the shareholders perception, income smoothing can serve to minimize overall tax payments or to influence the banks risk assessment. In contrast with prior studies focusing on the US-American market, we found no evidence for other capital market motives, like big bath accounting and management changes; neither could we confirm the hypothesis that earnings-based management compensation or leverage have a significant influence on the write-off decision. These results indicate that German managers aim to influence tax payments and potential lenders in contrast to the perception of potential shareholders.

scholarly journals Benturan Kepentingan bagi Konsultan Hukum dalam Kejahatan Pasar Modal

2019 ◽  
Vol 6 (2) ◽  
pp. 78
Author(s):  
Elvira Fitriyani Pakpahan ◽  
Selvia Fransiska Wijaya ◽  
Agnes Fortunata ◽  
Johny Chang ◽  
Helfan Muhammad
Keyword(s):  
Capital Market ◽  
Financial Services ◽  
Conflicts Of Interest ◽  
Code Of Ethics ◽  
Secondary Data ◽  
Professional Standards ◽  
Legal Opinions ◽  
A Company ◽  
The Capital Market

<p class="JudulAbstrakIndonesia"><em>This objective of this research is to examine conflicts of interest for legal consultants in capital market crime. The method used in this study is normative juridical analysis with a library approach and using secondary data. The role of legal consultants is very important in the capital market, this is because legal consultants are required to provide legal opinions regarding a company. So, because it has an important role, a legal consultant needs to know the duties and obligations. Beside that, the information from legal opinions will be used by investors in deciding whether to invest their capital or not, because information in the capital market is a factor that causes the fluctuations in the price of securities or shares on the price of securities or shares. Therefore, in each assignment of a legal consultant, it is expected that legal consultants can act independently and impartially and in accordance with the code of ethics, professional standards and applicable regulations. Sanctions will be given to legal consultants who act independently and do not fulfill the code of ethics, professional standards and applicable regulations. The application of sanctions is also related to the role of the Financial Services Authority.</em></p>

scholarly journals THE IMPACT OF CORONAVIRUS ON FINANCIAL MARKETS OF DEVELOPED COUNTRIES

2021 ◽  
pp. 25-33
Author(s):  
Mehjbeen
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Capital Market ◽  
Financial Stability ◽  
Money Market ◽  
World Health ◽  
Future Research ◽  
Time Interval ◽  
Study Results ◽  
The Impact

According to the World Health Organization, tens of millions of confirmed cases and hundreds of thousands of confirmed deaths have been registered worldwide. COVID-19, a kind of coronavirus, has emerged as one of the most serious dangers to the global economy and financial markets in human history. The Covid-19 virus's introduction has caused a global reduction in economic activity, perhaps posing new dangers to financial stability. This study aims to look into and reveal the effect of coronavirus on two financial markets. Ten advanced countries' capital market and money market data with the time interval from March 2020 to November 2020 has been used in this study. Six indices of these financial market Shares, Mutual Funds, Treasury Bills, Certificates of Deposits, Bonds, and Mortgages worked as samples. The research has been conducted on advanced nations USA, Norway, Canada, Germany, Ireland, Sweden, Singapore, Netherlands, Australia, and Switzerland. Panel Regression Analysis, Spearman's rank correlation, and ANOVA are used to estimate the study results. The scholar constructs a weekly panel data of COVID- 19 confirmed cases and financial market indices. The second purpose is to calculate the Risk on the six chosen indices of these markets. COVAR methodology is used to measure the risks among capital market and money markets indices. Interestingly, this research noticed that all financial markets impacted by the coronavirus while the capital market has recorded maximum fluctuations and the stock market show minimum volatility. The final results give a detailed understanding of financial market indices. It will support future research on other money and Capital markets indices and investors after the Coronavirus period. KEYWORDS: Coronavirus, Financial Markets, COVAR, COVID-19 Confirmed Cases. Capital Market. Money Market, Developed economies,

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