scholarly journals Corporate Frauds, Information Asymmetry and Stock Market Reaction

2019 ◽  
Vol IV (II) ◽  
pp. 126-133
Author(s):  
Sohail Rizwan
Keyword(s):  
Financial Reporting ◽  
Abnormal Returns ◽  
Governance Structure ◽  
Securities And Exchange Commission ◽  
Positive Relation ◽  
Financial Reports ◽  
Stock Market Reaction ◽  
Outside Director ◽  
Financial Misconduct ◽  
Reporting Mechanism

Corporate financial frauds have shaken the investors’ trust in the credibility of financial reports. Given the significance of the association between the quality of governance structure and reliability of financial reporting mechanism, the study evaluates this relation to evidence whether firms accused of financial misconduct improve their credibility. Applying a sample of 63 firms involved in violations of Securities and Exchange Commission of Pakistan (SECP) rules, the study affirms a positive relation between fraud disclosure and successive improvements in governance structure. The study further notices a positive relation between the buy-and-hold abnormal returns and the intensity of increase in outside director percentage after three years of fraud detection. These empirical assertions extend the understanding of the aftereffects of manipulating financial reports. They would be handful to the regulators debating corporate governance rules, to the management when crafting policies to reinstate investors’ trust after fraud revelation, and to the investors while deciding on future investments in these securities.

scholarly journals After Sarbanes-Oxley: Market reaction to the appointment of outside directors

2006 ◽  
Vol 3 (3) ◽  
pp. 190-198
Author(s):  
Hatice Uzun ◽  
Elizabeth Webb
Keyword(s):  
Audit Committee ◽  
Market Reaction ◽  
Positive Impact ◽  
Abnormal Returns ◽  
Outside Directors ◽  
Stock Market Reaction ◽  
Sarbanes Oxley ◽  
Before And After ◽  
The Board Of Directors ◽  
Outside Director

This paper examines the stock market reaction to the appointment of outside directors to the board both before and after the passage of the Sarbanes Oxley Act in 2002. We also examine whether the abnormal returns following outside director appointments are related to audit committee appointments, and whether the outsider has financial expertise. Results show that the market response to the announcement of an appointment of an outsider to the board of directors is mixed, and abnormal returns are not significantly different after the passage of the Sarbanes-Oxley Act compared to those announcements before the Act. Also, we find that the market reaction pre- Sarbanes Oxley is higher when the outsider is expanding the board, lower in cases of CEO/chairman duality, and lower if the outsider is appointed to the audit committee. Post- Sarbanes Oxley CEO/chairman duality has a positive impact on the abnormal returns.

scholarly journals MODERATING ROLE OF SHARIAH COMMITTEE QUALITY ON THE RELATIONSHIP BETWEEN AUDIT COMMITTEE AND MALAYSIAN TAKAFUL PERFORMANCE

2020 ◽  
Vol 2 (01) ◽  
pp. 19
Author(s):  
Monther Eldaia ◽  
Saddam Ali Shatnawi ◽  
Mustafa Mohamad Hanefah ◽  
Ainulashikin Binti Marzuki
Keyword(s):  
Firm Performance ◽  
Financial Performance ◽  
Financial Reporting ◽  
Audit Committee ◽  
Management Practices ◽  
Governance Structure ◽  
General Context ◽  
Financial Reports ◽  
Control Body ◽  
The Relationship

The moderating effect of Shariah Committee Quality (SCQ) on the relationship between Audit Committee (AC) characteristics and Malaysian Takaful performance remains a challenge that is yet to be resolved. Malaysia plays a leader role in Muslim countries in Islamic Finance especially in Takaful industry and Shariah committee roles and duties. AC characteristics have a significant effect on corporate financial performance. The fundamental AC role is to supervise the corporate’s financial reporting practice, review of financial reports, auditing practice, internal accounting controls, and risk management practices. AC characteristics plays a crucial role in the overall Malaysian Takaful companies which is supposed to enhance financial performance. Hence, SCQ as part of the internal governance structure and control body of the institution, thereby, ensure Shariah compliance in all transactions and activities, and enhancing the credibility of institutions in the eyes of its shareholders and customers. SCQ can potentially moderate the relationship between AC and Malaysian Takaful performance. As an important mechanism of Corporate Governance (CG), In addition, agency theory and stewardship theory were used to develop the hypotheses.  Several results of the previous literature were found fraternized, and inconsistent regarding the SCQ effect on firm performance or its effect on AC characteristics in general context, while the literature on Malaysia context remain scarce. It is expected that this SCQ moderation may considerably improve corporate performance by determining the strength or weakness of the relationship between AC characteristics and firm performance. Therefore, this paper conceptualized that ‘SCQ’ moderates the relationship between AC Chairman Specialization, Shariah Background, AC Independence and Meeting frequency, and Malaysian Takaful performance.

SEC enforcement targets: a Christian virtue ethics perspective

2020 ◽  
Vol 27 (4) ◽  
pp. 1047-1059
Author(s):  
Christopher J. Demaline
Keyword(s):  
Virtue Ethics ◽  
Financial Reporting ◽  
Reporting Quality ◽  
Securities And Exchange Commission ◽  
Future Research ◽  
Financial Fraud ◽  
Regulatory Oversight ◽  
Content Type ◽  
Target Firms ◽  
Financial Misconduct

Purpose The purpose of this paper is to provide a summary and synthesis of US Securities and Exchange Commission accounting and auditing enforcement release (AAER)-based research on financial misreporting firms and the firms’ management. Christian virtue ethics (CVE) is used as a framework for this review. Suggestions for future research are presented. Design/methodology/approach This is a review of the academic literature covering AAERs. The findings are viewed through the lens of CVE. Findings Several financial misconduct studies use samples developed from AAER targets. These studies commonly focus on specific characteristics of AAER targets. This paper presents and analyzes characteristics of AAER targets and considers how CVE may mitigate fraudulent reporting. Research limitations/implications The main limitation of the research is that the literature review is confined to studies of financial fraud that use an AAER-based sample. Nevertheless, the sample is sufficient to provide insight into the common characteristics of AAER target firms and related entities. The benefits of CVE are considered. This study has relevant implications for investors, regulators and researchers concerned with financial reporting quality, fraud, regulatory oversight and business ethics. Originality/value This paper provides a set of AAER target features and considers how CVE may mitigate financial fraud. Financial regulators, accounting standards setters and researchers may be interested in the findings presented in this study.

A Perspective on the SEC’s Proposal to Accept Financial Statements Prepared in Accordance with International Financial Reporting Standards (IFRS) without Reconciliation to U.S. GAAP

2008 ◽  
Vol 22 (2) ◽  
pp. 241-248 ◽  
Author(s):  
Karim Jamal ◽  
George J. Benston ◽  
Douglas R. Carmichael ◽  
Theodore E. Christensen ◽  
Robert H. Colson ◽  
...  
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Securities And Exchange Commission ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Financial Reports ◽  
Financial Reporting Standards ◽  
Regulatory Changes ◽  
Better Than

SYNOPSIS: The Securities and Exchange Commission (SEC) recently issued a call for comment on a proposal to accept financial statements prepared in accordance with International Financial Reporting Standards (IFRS) without reconciliation to U.S. GAAP. Accounting researchers have attempted to assess the quality of IFRS using different methods and criteria. While we are skeptical of drawing direct conclusions about the SEC’s proposal based on this research, there is adequate evidence that both IFRS and U.S. GAAP provide useful information to investors and other users of financial statements. Moreover, we see no conclusive research evidence that financial reports prepared using U.S. GAAP are better than reports prepared using IFRS. The prudent approach when faced with alternatives with no clear difference in quality is to promote competition among them, which supports adopting the SEC’s proposal to permit foreign private issuers a choice between IFRS and U.S. GAAP. Furthermore, to help improve U.S. and international GAAP through standards-setting competition, we recommend that the Commission extend the choice of IFRS to U.S. companies, and require all companies to indicate clearly whether they are filing under U.S. GAAP or IFRS. Finally, we recommend that the Commission and its staff investigate and seek feedback on the educational consequences of its proposed actions. This attention will help educators to better prepare future professionals to implement these proposed regulatory changes.

Section 404 Compliance and Financial Reporting Quality

2010 ◽  
Vol 24 (3) ◽  
pp. 441-454 ◽  
Author(s):  
Albert L. Nagy
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Reporting Quality ◽  
Financial Statements ◽  
Securities And Exchange Commission ◽  
Small Companies ◽  
Section 404 ◽  
Financial Reports ◽  
Sarbanes Oxley

SYNOPSIS: This study examines whether the Sarbanes-Oxley Act Section 404 (S404) compliance efforts lead to higher quality financial reports. An objective of S404 is to encourage companies to devote adequate resources and attention to their internal control systems, which should lead to more reliable financial statements. A natural laboratory of S404 compliance and noncompliance companies exists because the Securities and Exchange Commission has deferred the S404 compliance date for small companies (nonaccelerated filers). A logistic regression model is estimated using a sample of companies surrounding the S404 compliance threshold to measure the S404 compliance effect on the likelihood of issuing materially misstated financial statements. The results show a significant and negative relation between S404 compliance and issuance of materially misstated financial statements, and suggest that the S404 regulation is meeting its objective of improving the quality of financial reports.

scholarly journals Cash Flow Restatements: Stock Market Reaction to Overstated versus Understated Restatements

2019 ◽  
Vol 8 (3) ◽  
pp. 1
Author(s):  
Elio Alfonso ◽  
Dana Hollie ◽  
Shaokun Carol Yu
Keyword(s):  
Stock Market ◽  
Cash Flow ◽  
Abnormal Returns ◽  
Cash Flows ◽  
Securities And Exchange Commission ◽  
Economic Consequences ◽  
Negative Response ◽  
Market Reactions ◽  
Stock Market Reaction ◽  
Operating Cash Flows

The Securities and Exchange Commission has become increasingly concerned with the rising number of restatements to statements of cash flows (SCFs). Regulators and practitioners are generally more focused on the overstatement of operating cash flows, while the understatement of operating cash flows is often overlooked but may have the same (or more) negative economic consequences. We examine market reactions to cash flow restatements (CFRs) where firms overstate or understate cash flows from 2000 to 2013. This study finds that 41% of firms overstated operating cash flows, while a surprising 48% understated operating cash flows. While we find that the market does not react to overstated operating cash flows or overstated total cash flows (TCFs), we find a negative response to understated operating cash flows and understated TCFs. Interestingly, the market penalizes these firms more for understating rather than overstating cash flows. There is a CFR disclosure post-announcement drift in abnormal returns that occurs for both understated operating and understated TCFs. We provide evidence that the often-overlooked understated CFRs may have “real” economic consequences and that they should be evaluated further and given the same consideration as overstatements by auditors, regulators, and investors.

scholarly journals Os Escândalos De Corrupção Na JBS S.A. E As Estratégias De Legitimidade Organizacional De Lindblom

2020 ◽  
Vol 23 (3) ◽  
pp. 309
Author(s):  
Pablinne De Paula Oliveira ◽  
Fernanda Fernandes Rodrigues ◽  
Mariana Guerra
Keyword(s):  
Financial Reporting ◽  
Securities And Exchange Commission ◽  
The Political ◽  
Legitimacy Theory ◽  
Financial Reports ◽  
Information User ◽  
The Media ◽  
Reference Form ◽  
The Impact ◽  
Management Report

Objective: Evaluate the narrative financial reports released by the Brazilian meatpacker JBS SA and identify how the company has sought to influence its information user while coping with its recent corruption scandals.  Method: A qualitative analysis of narrative financial reports – Market Notices, Material Facts, Management Report, and Reference Form and Prospects – was carried out for the base year 2017 based on the Legitimacy Theory (Lindblom, 1994).Originality/Relevance: Parameters are shown that could be used by managers, separately or concurrently, intentionally or unintentionally, to achieve, preserve or recover the company’s legitimacy. Mechanisms of manipulation are also shown as used in corporate reports.Results: JBS used Lindblom’s (1994) first legitimacy strategy in all reports, but more frequently in the Material Facts. Such a strategy was used for regulatory and penal reasons (i.e., the Securities and Exchange Commission of Brazil, and the Federal Public Prosecutor’s Office) as JBS acknowledged the impact of the negative event (i.e., the corruption scandals covered by the media) and provided information related to how it has addressed such a legitimacy-threatening problem.Theoretical/Methodological contributions: Lindblom’s (1994) 2nd and 3rd legitimacy strategies were not as frequent (9% and 12,5% respectively) as reported in the literature. Adding to the literature, this study provides a better understanding of financial reporting as an instrument of legitimacy and manipulation within the political and economic environment.

Reporting Technologies and Textual Readability: Evidence from the XBRL Mandate

2021 ◽  
Author(s):  
Xitong Li ◽  
Hongwei Zhu ◽  
Luo Zuo
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Securities And Exchange Commission ◽  
Annual Reports ◽  
Financial Reports ◽  
Public Firms ◽  
Business Reporting ◽  
Perceived Benefit ◽  
Research Opportunity ◽  
Negative Effect

The eXtensible Business Reporting Language (XBRL) can standardize numerical disclosures and make it easier for computers to process and compare financial reports. This perceived benefit of XBRL has prompted the U.S. Securities and Exchange Commission to mandate that public firms must submit financial statements in the XBRL format as part of their financial reports. Leveraging the research opportunity created by the XBRL mandate, we examine whether financial reporting technologies affect how firms construct textual disclosures. We find that the initial adopters’ HTML-formatted annual reports become harder to read after the XBRL mandate. Further analysis reveals that this effect is concentrated among adopters with more quantitative disclosures, a smaller firm size, or a higher level of financial complexity. Importantly, we show that managers’ reduced attention to preparing HTML-formatted annual reports, rather than increased disclosures, is likely the explanation for this decrease in textual readability. We also find that the negative effect on textual readability persists at least in the subsequent year. Our findings suggest that the XBRL adopters need to pay attention to process optimization and technology enablement to mitigate the possible negative effect of XBRL adoption on the readability of financial reports.

Did Codification Result in Improved Readability?

2017 ◽  
Vol 7 (1) ◽  
pp. 190
Author(s):  
Doug Barney ◽  
Daniel Tschopp ◽  
Steve Wells
Keyword(s):  
Financial Reporting ◽  
Essential Element ◽  
Accounting Standards ◽  
Securities And Exchange Commission ◽  
Financial Accounting ◽  
Reporting Standards ◽  
Financial Reports ◽  
Generally Accepted Accounting Principles ◽  
Financial Reporting Standards ◽  
The Impact

Financial reporting complexity costs money. The process of developing and promulgating financial reporting standards is costly. The Financial Accounting Standards Board (FASB), Securities and Exchange Commission (SEC), and the International Accounting Standards staff spend time, expertise, and funds writing detailed financial reporting standards. Reporting companies spend money studying and applying these financial reporting standards. Investors, financial analysts, and creditors, while knowledgeable in financial accounting, spend time and resources interpreting and analyzing the resulting financial reports. While there are a number of factors that contribute to the complexity in financial reporting, the level of reading complexity, or readability, is an essential element of a clear, easy-to-understand accounting standard. Recently the FASB adopted a process to bring about a Codification for U.S. Generally Accepted Accounting Principles (GAAP). What impact, if any, did the FASB’s Codification have on the level of reading complexity or readability in U.S. GAAP? The results of several readability tests reported in this article indicate the impact of Codification on the level of reading complexity or readability is not a positive one.

Beyond Financial Reporting. Integrated Reporting and its determinants: Evidence from the context of European state-owned enterprises

2019 ◽  
pp. 43-72
Author(s):  
Giuseppe Nicolò ◽  
Gianluca Zanellato ◽  
Francesca Manes-Rossi ◽  
Adriana Tiron-Tudor
Keyword(s):  
Financial Reporting ◽  
Empirical Investigation ◽  
Gender Diversity ◽  
Accounting Standards ◽  
International Accounting Standards ◽  
Integrated Reporting ◽  
Financial Reports ◽  
The Public ◽  
Explanatory Factors ◽  
Board Gender Diversity

Integrated reporting (IR), which aims to overcome the limitations of both tradi-tional financial and stand-alone non-financial reports, has gained momentum as a single comprehensive tool merging financial and non-financial information. Initially conceived for private sector entities, IR is also establishing itself in the public sector context as a vehicle for transparency and accountability. This research offers an empirical investigation of IR practices in the State-Owned Enterprises (SOEs) context. More specifically, the paper investigates the levels of disclosure provided through IR by a sample of 34 European SOEs and explores the effects of potential explanatory factors. The results indicate a fair level of IR disclosure and a trend of reporting information already requested under international accounting standards. The findings also highlight that industry (basic materials and financials) and size positively influence the level of IR disclosure in a particularly strong way, while governance features (board size and board gender diversity) and the provision of external assurance do not exert any impact.

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