Value Relevance of Earnings Quality: Importance of Corporate Governance, Ownership Structure and Group Affiliations in the Listed Firms of Pakistan

2020 ◽  
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Value Relevance ◽  
Earnings Quality ◽  
Panel Data Analysis ◽  
Business Group ◽  
Group Affiliation ◽  
Business Group Affiliation ◽  
Reported Earnings

This study is an endeavor to answer the question that does corporate governance, ownership pattern and business group affiliation effect value relevance of reported earnings quality in a sample of 300 listed Pakistani firms for the period of 2006-2018. The study uses earnings response coefficient and earning predictability as proxy of reported earnings quality. The panel data analysis shows that CEOduality and director ownership have significant inverse effect on the quality of reported earnings i.e. the two do not contribute towards improvement of quality of reported earnings. Whereas board independence, independence of audit committee and external audit from big4, institutional ownerships have significant direct effect on the quality of reported earnings. Moreover, it is observed that these effects are relatively more prominent in the case of group firms. Furthermore, firm size, earning persistence, growth and leverage have positive association with the quality of reported earnings while beta has significant negative effect on the quality of earnings. Further, it is found that in times of financial crisis, firms improve its reporting quality to uphold confidence of the investors where group firms showed relatively more tending to pursue this practice. This study has several implications for shareholders, prospect investors, external auditors and regulators. This is the first study of its nature that has investigated the role of group affiliation with reported earning quality. Key words: Earnings quality, corporate governance, ownership structure, business group affiliation, ERC.

Business group affiliation, ownership structure, and the cost of debt

2013 ◽  
Vol 23 ◽  
pp. 311-331 ◽  
Author(s):  
Hae-Young Byun ◽  
Sunhwa Choi ◽  
Lee-Seok Hwang ◽  
Robert G. Kim
Keyword(s):  
Ownership Structure ◽  
Business Group ◽  
Cost Of Debt ◽  
Group Affiliation ◽  
Business Group Affiliation ◽  
The Cost

Business group affiliation, earnings management and audit quality: evidence from Bangladesh

2017 ◽  
Vol 32 (4/5) ◽  
pp. 427-444 ◽  
Author(s):  
Mohammad Badrul Muttakin ◽  
Arifur Khan ◽  
Dessalegn Getie Mihret
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Earnings Quality ◽  
Investor Protection ◽  
Discretionary Accruals ◽  
Business Group ◽  
Group Affiliation ◽  
Content Type ◽  
Controlling Shareholders ◽  
Business Group Affiliation

Purpose This study aims to investigate the moderating role of audit quality on the association between business group affiliation of firms and earnings management in the South Asian emerging economy of Bangladesh. Design/methodology/approach A usable sample of 917 firm-year observations was drawn from companies listed on the Dhaka Stock Exchange from 2005 to 2013. Data were collected from the annual reports of sample companies. Earnings management was measured using the absolute value of discretionary accruals, and two proxies were used to measure audit quality: auditor size and industry specialisation. Findings Results showed that the level of discretionary accruals is positively associated with business group affiliation status, and higher audit quality reduces this association. This suggests that in environments without strong investor protection, complex ownership structures create opportunities for controlling shareholders to expropriate minority shareholders. The controlling shareholders could then mask this practice through earnings management. The findings also show that in environments lacking strong investor protection, audit quality can help improve earnings quality for group-affiliated firms. Practical implications The results suggest that financial statement users need to consider audit quality for a reasonable evaluation of the earnings quality of business groups. The study also informs regulators by illuminating audit quality as a key area of focus in any effort directed at enhancing stock market efficiency through improved earnings quality in environments where business group affiliation is prevalent. Originality/value This study documents empirical evidence on the moderating effect of audit quality on the positive association between business group affiliation and earnings management.

Alternative Governance and Corporate Financial Fraud in Transition Economies: Evidence From China

2018 ◽  
Vol 45 (7) ◽  
pp. 2685-2720 ◽  
Author(s):  
Daphne W. Yiu ◽  
William P. Wan ◽  
Yuehua Xu
Keyword(s):  
Corporate Governance ◽  
Transition Economies ◽  
Strategic Alliances ◽  
Business Group ◽  
Financial Fraud ◽  
Group Affiliation ◽  
Government Ownership ◽  
Governance Mechanisms ◽  
Institutional Conditions ◽  
Business Group Affiliation

How corporate governance mechanisms function in transition economies is a key topic for corporate governance researchers and policy makers. We propose that alternative governance mechanisms are in place to mitigate corporate fraudulent behaviors in the fluid state of transition economies where the establishment and enforcement of corporate governance legislation are presently insufficient. Drawing on the twin set of institutional logics—the institutional embeddedness logic and the institutional substitution logic—we posit that three salient types of prevailing alternative governance mechanisms (relational, administrative, and foreign governance) play important roles in transition economies because they are complementary to the institutional conditions at the time of the transition process. Conducting a bivariate probit analysis of a matched sample of corporate financial fraud cases in China, we find that strategic alliances, business group affiliation, nontradable state shares, local government ownership, use of foreign auditors, and foreign listing can deter corporate financial fraud, while foreign listing is also effective in detecting fraud. We also find that the deterrence effects of strategic alliances and business group affiliation become weaker as law development improves, while foreign listing and legal governance are completely substitutive. Our study provides a contextualized view of corporate governance that connects its effectiveness with institutionalization and the institutional state of a country. Our study also enriches our understanding of some unfamiliar forms of governance mechanisms that are in place and complementary to a country’s institutional conditions.

Corporate governance, firm performance, and business group affiliation: evidence from India

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Neeti Khetarpal Sanan ◽  
Dinesh Jaisinghani ◽  
Sangeeta Yadav
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Empirical Evidence ◽  
Emerging Economies ◽  
Chief Executive ◽  
Business Group ◽  
Independent Directors ◽  
Group Affiliation ◽  
Content Type ◽  
Business Group Affiliation

Purpose The purpose of this paper is to investigate whether, in emerging economies, the relationship between a firm’s corporate governance (CG) and its performance is associated with firm’s affiliation to a business group. Design/methodology/approach A total of 209 publicly listed firms in India during a 10-year period from 2007 to 2016 were studied, and the random effects model was employed for analysis. Findings Empirical evidence showed that board size and institutional shareholding positively impacted firm performance, whereas the proportion of independent directors negatively impacted performance. In group-affiliated firms in emerging economies, chief executive officer duality negatively impacted, whereas institutional shareholding positively impacted performance. These results are consistent with the principal–principal agency theory. The study found no discernible impact of proportion of independent directors on firm performance in group-affiliated firms. Originality/value In analyzing the governance–performance relationship and its association with business groups, this study extends current understanding by connecting business group research in emerging economies with CG and firm performance research. In examining firms from several industries over a long period of time after controlling for firm size, capital structure and spends on research and development and marketing, the results of this study offer rich empirical evidence that contributes to the extant literature on the nature of the governance–performance relationship.

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