scholarly journals Information Content of Earnings Managements: Implications on Growth and Value Companies

2016 ◽  
Vol 2 (1) ◽  
pp. 47-56
Author(s):  
Windu Mulyasari ◽  
Slamet Sugiri ◽  
Heyvon Herdhayinta
Keyword(s):  
Earnings Management ◽  
Information Content ◽  
Market Price ◽  
Accounting Information ◽  
Future Earnings ◽  
Cycle Growth ◽  
Incremental Information ◽  
Growth Firms ◽  
Management Behaviors

Objective: The purpose of this study is to investigate the pattern of earnings management on growth and value companies in Indonesia. This study predicts that earnings management has information contents. Therefore, earnings management tends to degrade the quality of earnings, then affect the future profitability. This study analyzes the effect of earnings management information content to the company's future profitability. This study provides an understanding about accounting information at certain market price levels for growth and value companies. Findings: Findings of this study indicate the differences between earnings management influence on growth and value companies. The results also support the differences of relative incremental information content of earnings management on growth and value companies. The growth firms tend to do earnings management and have higher profitability compared to the value firms. The implication is that the incremental information content of earnings management on growth firms is lower than those of the value firms to predict future profitability.   Implication: The contribution of this research is to provide an in-depth review on earnings management study associated with company life cycle (growth and value), as well as  to give additional understanding about the existence of incremental information content of earnings management. Thus, firms show different earnings management behaviors and ultimately those behaviors affect the quality of profit to predict future earnings

scholarly journals Political and financial background in board interlocking and earnings management in Brazil

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Cristian Baú Dal Magro ◽  
Roberto Carlos Klann
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Management Practices ◽  
Accounting Information ◽  
Real Earnings Management ◽  
The Political ◽  
Content Type ◽  
Quality Of Accounting Information

Purpose Although board interlocking underlying forces are largely hidden, the purpose of this paper is to provide managers, auditors, analysts, regulators and other stakeholders with sociological board interlocking information considering the different backgrounds of their members. Design/methodology/approach The research sample gathered 1,606 observations from 2010 to 2017. For data analysis, the direct and indirect board interlocking linkages, considering the different backgrounds of board members, established the centrality indicators. Subsequently, the authors used these indicators according to each measured background in the regression models. Findings The results indicate that the political background of board interlocking members is positively related to real earnings management practices, while the financial background has a mitigating effect on such practices. Research limitations/implications The findings suggest that individual skills and interests conveyed across the corporate social network have shaped corporate governance, with distinct impacts on the quality of accounting information. Practical implications The authors conclude that both backgrounds could have implications on agency conflicts, increasing (policy) or reducing (financial) information asymmetry between the company and its various stakeholders, which indicates that the authors must consider sociological and not just economic aspects within corporate governance. Social implications The sociological background of individuals is necessary for the congruence of monitoring mechanisms, and consequently, the quality of accounting information. Originality/value This study examines the influence of the political and financial background of board interlocking members on real earnings management practices in Brazilian publicly traded companies in the International Financial Reporting Standards post-adoption period.

scholarly journals The efficiency of accounting normalization in the matter Of intangibles: Asset versus Expense

2011 ◽  
Vol 1 (1) ◽  
pp. 72
Author(s):  
Ben Brahim Houneida ◽  
Mounira Ben Arab
Keyword(s):  
Balance Sheet ◽  
Accounting Information ◽  
The Other ◽  
Intangible Asset ◽  
Earnings Volatility ◽  
Future Earnings ◽  
Quality Of Accounting Information ◽  
Intangible Investments ◽  
The Future

Abstract In this paper, we seek to show if the intangible investments may accomplish the recognition’s criteria of an intangible asset and we show, thus, if these criteria are capable to preserve the quality of accounting information. We find that the capability of the intangible investments (R&D), immediately expensed, in the generation of future benefits is more important than the other investments (tangibles and intangibles investments recognized in the balance sheet). This capability is largely influenced by the engagement’s degree of the managers. Further, these investments are susceptible to diminish the future earnings volatility and, consequently, their future profits may be measured with reliability and capitalized in the balance sheet as an asset essentially for the firms that have a strong alignment between the manager’s and shareholder’s interest.

scholarly journals The Valuation Of Discretionary Accruals And Antitrust Merger Investigations

2011 ◽  
Vol 19 (1) ◽  
Author(s):  
Stephen D. Makar ◽  
Pervaiz Alam
Keyword(s):  
Earnings Management ◽  
Information Content ◽  
Discretionary Accruals ◽  
Managerial Discretion ◽  
Font Size ◽  
Earnings Components ◽  
Incremental Information ◽  
Management Context ◽  
Reported Earnings ◽  
The Impact

<p class="MsoBodyText" style="line-height: normal; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt; mso-bidi-font-style: italic;"><span style="font-family: Times New Roman;">This study explores the impact of managerial discretion on the information content of reported earnings.<span style="mso-spacerun: yes;">&nbsp; </span>In particular, we extend the prior research by examining the pricing of discretionary accruals for firms subject to antitrust merger investigation.<span style="mso-spacerun: yes;">&nbsp; </span>To date, the empirical evidence on managerial discretion and earnings informativeness has been limited, and the pricing of discretionary accruals in the earnings management context of antitrust merger investigations has not been examined.<span style="mso-spacerun: yes;">&nbsp; </span>We address this gap in the literature, and provide results that are consistent with our expectations. Specifically, the evidence indicates that investigated firms&rsquo; discretionary accruals are priced by the stock market, and that such earnings components have incremental information content regarding future profitability.<span style="mso-spacerun: yes;">&nbsp; </span>In contrast, as expected, the accruals of non-investigated firms are not value-relevant. </span></span></p>

scholarly journals Antitrust Merger Investigations And The Quality Of Reported Earnings

2011 ◽  
Vol 14 (4) ◽  
pp. 89
Author(s):  
Stephen D. Makar ◽  
Perviaz Alam ◽  
Michael A. Pearson
Keyword(s):  
Earnings Management ◽  
Accounting Information ◽  
Merger Policy ◽  
Reported Earnings

<span>Antitrust merger policy under Section 7 of the Clayton Act prohibits acquisitions that substantially lessen competition or tend to create a monopoly. Previous studies, however, indicate that government regulators have not been effective in identifying anticompetitive behavior. This paper examines whether accounting information used in assessing the competitive impact of mergers is subject to manipulation by investigated firms. We examine both total accruals and current accruals for manipulation and consider the implications of such earnings management for the quality of reported earnings. The results indicate that firms investigated for Section 7 violations during the 1974-1992 period do indeed manage reported earnings to influence regulatory efforts in discerning excess profits and anticompetitive behavior.</span>

The Impact of IFRS Adoption on Earnings Management Activities and Value Relevance of Accounting Information: Applied Study

2018 ◽  
Vol 1 (3) ◽  
pp. 11-42
Author(s):  
Mohamed Ibrahim Mohamed Hessian
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Accounting Information ◽  
Discretionary Accruals ◽  
Economic Benefits ◽  
Financial Reporting Standards ◽  
Study Results ◽  
The Impact

This study focused on the economic benefits of adoption of IFRS. More specifically, this study emphasis on whether the quality of the accounting information has been improved after the adoption of IFRS. The study investigated quality of accounting information through two main variables: earnings management and the value relevance of accounting information. The study was applied on 56 Egyptian listed companies during the period from 1997 to 2011, which divided into two periods: the period after the adoption of the standards from 2007 to 2011, and before the adoption of the International Financial Reporting Standards from 1997 to 2006. The research concluded that there is a significant impact of the adoption of IFRS on managerial opportunities to manage earnings using discretionary accruals, which is reflected in the lower value relevance of accounting information. Study results also indicate that companies with high leverage are the lowest companies in the value relevance of accounting information, and that companies that are subject to private sector law No. 159 of 1981 are the most companies engaged in earnings management activities through discretionary accruals, large size companies, without any significant impact on future growth opportunities and listing on global exchanges.

The Potential Impact of More Frequent Financial Reporting and Assurance: User, Preparer, and Auditor Assessments (Retracted)

2007 ◽  
Vol 4 (1) ◽  
pp. 47-67 ◽  
Author(s):  
James E. Hunton ◽  
Arnold M. Wright ◽  
Sally Wright
Keyword(s):  
Financial Reporting ◽  
Stock Price ◽  
Cost Of Capital ◽  
Market Price ◽  
Price Volatility ◽  
Financial Statements ◽  
Future Earnings ◽  
Decision Usefulness ◽  
Consensus Forecasts

The purpose of this study is to examine some of the potential impacts of more frequent financial reporting and concurrent assurance, as assessed by members of the assurer, preparer, and investor communities. Two hundred and fifteen participants (84 auditors, 30 controllers, 80 investors, as surrogated by MBA students, and 21 sell-side analysts) took part in an experiment where they received a case situation involving a company that was planning to voluntarily change from quarterly to monthly (daily) external financial statement reporting, without (with) assurance. After reading the case materials, the participants assessed the likely effects of such changes on the decision usefulness of financial statements, quality of earnings, financial reporting behavior, stock market price volatility, analysts' consensus forecasts, and cost of capital. The results indicate that monthly reporting without assurance would significantly enhance the decision usefulness of financial statements, improve the quality of earnings, and reduce managements' aggressiveness with respect to discretionary accounting accruals, estimates, and principles; further, the findings suggest stock price volatility would be lower, analyst consensus of future earnings estimates would increase, and cost of capital would decrease. Assessments of daily reporting were consistent with monthly reporting, yet significantly stronger. The inclusion of concurrent auditor assurance resulted in directionally consistent yet significantly pronounced results in both monthly and daily reporting conditions on all measures. Additionally, participants agreed that providing monthly reports would be technically and economically feasible at this time, while daily reporting would not be feasible.

scholarly journals Measuring value creating growth

2008 ◽  
Vol 6 (1-4) ◽  
pp. 449-458
Author(s):  
Christian Petersen ◽  
Thomas Plenborg
Keyword(s):  
Accounting Information ◽  
Financial Ratios ◽  
Share Repurchases ◽  
Return On Equity ◽  
Economic Significance ◽  
Earnings Per Share ◽  
Accounting Numbers ◽  
Growth Firms ◽  
Is Value

’Growth’ as a concept is often not very well understood. Growth may be measured in a variety of ways (e.g., growth in turnover, earnings, and earnings per share, assets, and shareholders’ equity). Investors and other capital providers generally find it attractive to invest in ‘growth firms.’ For instance, earnings per share (EPS) figures are widely published and used by investors. An increase in EPS is seen as a signal of improved profitability. Likewise, growth in earnings measures such as EBIT, EBITA, EBITDA etc. seem to indicate that firms are value creating. Our paper discusses if and under what conditions growth in accounting variables (accounting numbers and financial ratios) is value creating. We find that growth in one-periodic earnings measures does not necessarily create wealth for shareholders. Only growth in economic income is value creating. Our analysis also provide evidence that users of accounting information should be aware of the quality of growth and distinguish between growth based on transitory vs. permanent components of earnings. Our analysis finally documents that growth in earnings per share or return on equity caused by share repurchases has no economic significance.

scholarly journals Influência do refazimento das demonstrações contábeis no gerenciamento de resultados das empresas listadas na BM&FBovespa

2017 ◽  
Vol 16 (1) ◽  
pp. 95-120
Author(s):  
Paulo Roberto da Cunha ◽  
Leonardo Barbi Fernandes ◽  
Cristian Bau Dal Magro
Keyword(s):  
Earnings Management ◽  
Accounting Information ◽  
Financial Statements ◽  
Discretionary Accruals ◽  
Management Quality ◽  
Quality Of Accounting Information ◽  
Survey Sample ◽  
Quantitative Nature ◽  
Negative Earnings

A qualidade da informação contábil é essencial para os stakeholders, e a prática de gerenciamento de resultado é uma medida de qualidade da informação. Atrelada a isso, a Comissão de Valores Mobiliários (CVM) solicita a republicação das demonstrações contábeis sempre que julgar necessário. Contudo, no ato da republicação das demonstrações contábeis pode haver diferentes julgamentos em relação às escolhas contábeis por parte dos gestores, ocasionando modificações no nível de gerenciamento de resultados das organizações e assimetria informacional entre o principal e o agente. Desse modo, o objetivo com este estudo foi verificar a influência do refazimento das demonstrações contábeis no gerenciamento de resultados das empresas listadas na BM&FBovespa. A análise ocorreu no período pré-refazimento, ano do refazimento e pós-refazimento. Realizou-se uma pesquisa descritiva, documental e com abordagem de cunho quantitativo. A amostra da pesquisa foi composta por 18 empresas com refazimento das demonstrações contábeis entre 1995 e 2012, e para fins de comparação foram selecionadas 18 empresas sem refazimento listadas na BM&FBovespa que continham similaridades em relação ao tamanho e ao setor de atuação. Os resultados não revelam diferenças quanto à média dos accruals discricionários entre os períodos pré-refazimento, ano do refazimento e pós-refazimento. Por outro lado, os resultados em comparação com as empresas que não foram obrigadas ao refazimento das demonstrações contábeis revelam que o refazimento influencia o gerenciamento de resultado negativo. Diante das variáveis testadas, verificou-se que o endividamento influencia o gerenciamento de resultado negativo e que o tamanho da empresa influencia o gerenciamento de resultado positivo.Palavras-chave: Refazimento das demonstrações contábeis. Gerenciamento de resultados. Qualidade da informação contábil. Abstract The quality of accounting information is essential for stakeholders and the practice of earnings management is a measure of quality of the information. Coupled to this, the Brazilian Securities Commission (CVM) requests the republication of the financial statements whenever necessary. However, upon republication of the financial statements may be different judgments about the financial choices by managers, resulting in changes in the level of earnings management organizations and informational asymmetry between the principal and the agent. Thus, the objective with this study was to investigate the influence of the restatement of financial statements in earnings management of companies listed on BM&FBovespa. The analysis took place in the pre-restatement period, the year of restatement and post-restatement. We conducted a descriptive, documentary, with quantitative nature approach. The survey sample consisted of 18 companies with restatement of financial statements from 1995 to 2012 and for comparison 18 companies without restatement listed on BM&FBovespa containing similarities in the size and sector of activity were selected. The results did not reveal differences from the average of discretionary accruals between the periods of pre-restatement, year of restatement and post-restatement. On the other hand, the results compared to companies that were not required to restate the financial statements reveal that the restatement influences the negative earnings management. Before the variables tested, it was found that the debt influences the negative earnings management and company size influences the positive earnings management.Keywords: Restatement of financial statements. Earnings management. Quality of accounting information.

scholarly journals An analysis of the effect of board characteristics and governance indices on the quality of accounting information

2014 ◽  
Vol 3 (3) ◽  
pp. 104-119
Author(s):  
Raef Gouiaa ◽  
Daniel Zéghal
Keyword(s):  
Earnings Management ◽  
Board Of Directors ◽  
Boards Of Directors ◽  
Accounting Information ◽  
Accounting Conservatism ◽  
The Other ◽  
Academic Governance ◽  
Board Characteristics ◽  
Quality Of Accounting Information

The objective of this study is to examine the effect on the quality of accounting information published by Canadian firms of board of directors’ characteristics compared to that of governance indices that measure board quality. We find that the majority of board characteristics have an important and significant effect on the levels of earnings management and accounting conservatism. On the other hand, in the case of the studied attributes of the quality of accounting information, we find that the effect of governance indices that assess the quality of boards of directors is not clearly established. Particularly, our results reveal that individual measures of the characteristics of boards of directors allow for a better detection and explanation of the quality of accounting information than do multi-factor commercial and academic governance indices.

scholarly journals Value based financial performance measures: An evaluation of relative and incremental information content

2008 ◽  
Vol 6 (1) ◽  
pp. 66-77 ◽  
Author(s):  
Pierre D. Erasmus
Keyword(s):  
Financial Performance ◽  
Information Content ◽  
Performance Measures ◽  
Value Creation ◽  
Accounting Information ◽  
Relative Information ◽  
Incremental Information ◽  
Information Contents ◽  
Financial Performance Measures ◽  
Level Of Significance

Value-based (VB) financial performance measures are often advanced as improvements over traditional measures. It is argued that the inclusion of a firm‟s cost of capital in the calculation of these measures facilitates the evaluation of value creation. Furthermore they attempt to remove some accounting distortions resulting from the limitations of conventional accounting information. This paper investigates the ability of four VB measures to explain market-adjusted share returns and compare it to that of some traditional measures. Empirical results indicate that the relative information contents of the VB measures are not greater than that of earnings. The incremental information content tests indicate that their components add significantly to the information content of earnings, but that the level of significance is relatively low

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