The Value Relevance of Earnings in the Presence of Earnings Management: Indonesia as Evidence

This study examines the influence of earnings management on the value relevance of earnings, that is, the value relevance of level and changes of earnings. The sample consists of manufacturing companies listed on the Indonesia Stock Exchange (IDX), comprising 606 observations. By using panel data regression, this study provides evidence that the level of earnings has no value relevance; conversely, changes in earnings have value relevance, indicating that earnings have less value relevance. Furthermore, the results of the relevance test of earnings value with the presence of earnings management show that the relevance of the value of the earnings level increases with the presence of earnings management; on the contrary, the relevance of earnings changes decreases with the presence of earnings management. Based on the value of earnings response coefficient, the impact of earnings management on the value relevance of level and changes of earnings appears to indicate that earnings management reduces the value relevance of earnings.

Earnings Response Coefficient, Sharia Online Trading System, and Firm Value

This research aims to examine the nexus between Earnings Response Coefficient (ERC), Sharia Online Trading System (SOTS), and firm value. The research sample was all companies listed on the Jakarta Islamic Index (JII). The research model used path analysis employing the regression with common, fixed and random effect models as well as the robustness check through Generalized Method of Moment (GMM). The result demonstrates that ERC and SOTS can’t determine the level of firm values. This research found no effects of ERC and SOTS on firm value, but nexus between ERC and SOTS was found. These findings indicate that ERC and SOTS have no effect at all on the firm value, meanwhile ERC has the negative effect on SOTS. Nevertheless, the result of this research found no intervening effect of SOTS on the ERC and firm Value. It shows that SOTS can’t mediate the nexus between ERC and firm value.

Managerial ability, earnings quality and ISIS: evidence from Iraq

PurposeThis study investigates the association between managerial ability and earnings quality in firms listed on the Iraq Stock Exchange and how the emergence of the Islamic State of Iraq and Syria (ISIS) influences the association.Design/methodology/approachThis study uses a sample of firms listed on the Iraq Stock Exchange over the period 2012–2018. Managerial ability is quantified using data envelopment analysis, and earnings quality is measured by earnings restatement, earnings persistence, accruals quality and earnings response coefficient. Panel regression analysis is used to examine the research hypotheses.FindingsThe findings indicate that managerial ability positively affects earnings quality of Iraqi firms and that ISIS weakens the relationship between managerial ability and earnings quality. These findings are robust to the alternative measures of managerial ability, as well as to various approaches used to address endogeneity including propensity-score matching and a difference-in-differences analysis.Originality/valueThis study provides insight into the impact of managerial ability on earnings quality in an under-studied emerging market. Furthermore, this study broadens the existing literature about the financial consequences of a modern terrorist group, ISIS.

Does mandatory corporate social responsibility disclosure affect share price responses to earnings announcements? Evidence from China

We utilize the mandatory corporate social responsibility (CSR) disclosure regulation in China as an exogenous shock to evaluate the impact of such disclosures on investors as end-users of accounting information based on the analysis of share price responses to earnings announcements. Specifically, we observe that firms with mandated CSR disclosure experience an increase in earnings response coefficient and a decrease in post-earnings announcement drift. Furthermore, these effects are greater among CSR-sensitive industries, state-owned enterprises, and lower accounting quality firms. Additional analysis also reveals that these effects vary by the quality of CSR disclosure and CSR performance. These findings suggest that CSR disclosure provides incremental information that are useful for investors to assess firms’ future prospects and uncertainties. A broader implication of our study is that mandating CSR disclosure could improve market information efficiency and benefit outside investors.

Corporate Governance Disclosure and Earnings Quality: Study on Companies Listed on The ASEAN Star Financial Times Stock Exchange (FTSE)

The governance mechanism is different for each company. Therefore, companies need an indicator to measure the quality of governance and one of them is the ASEAN Scorecard. This indicator is used as a standard for measuring the quality of corporate governance in the ASEAN region. The corporate governance mechanism can be a factor in price changes in the stock market. Investors will react to any issues related to it. Price changes that occur on the stock market are a measure of the size of investors in investing because they can affect expected earnings. Although there is quite a lot of research related to it, research on earnings quality that discusses market response to price changes that occur due to the influence of governance mechanisms is limited. This study aimed to examine the effect of corporate governance on earnings quality using companies listed on the Financial Time Stock Exchange ASEAN Star (FTSE ASEAN Star). The study was conducted by examining financial ratios of companies using a cross-sectional data regression model with the Earnings Response Coefficient (ERC) as a proxy. The results showed that corporate governance affected ERC, especially on the disclosure of corporate governance and shareholder rights. Keywords: ASEAN scorecard, corporate governance, earnings response coefficient, disclosure, fraud

Visuals and attention to earnings news on twitter

We propose the visual attention hypothesis that visuals in firm earnings announcements increase attention to the earnings news. We find that visuals in firms’ Twitter earnings announcements are associated with more retweets, consistent with greater user engagement with announcements that have visuals. This result holds for earnings tweets sent by the same firm and on the same day in firm-level and tweet-level analyses. Consistent with managerial opportunism, firms are more likely to use visuals in their earnings tweets when performance is good but less persistent. Consistent with visuals increasin g investor attention, the initial return response to earnings news is stronger and the post-announcement response is lower when visuals are used. Our evidence of a post-announcement return reversal indicates that visuals can be a double-edged sword. Furthermore, the higher earnings response coefficient from visuals is more pronounced on days with high investor distraction (when many other firms are also announcing earnings). Graphical abstract

The Influence of Corporate Social Responsibility (CSR) Disclosure and Sustainability Accounting on Earnings Response Coefficient (ERC)

The research aimed to analyze the factors which provide earning response coefficient (ERC) received by automotive manufacturing companies listed on the Indonesia Stock Exchange using indicators of corporate social responsibility (CSR) and sustainability accounting from 2013 through 2017. The purposive sampling technique was used to gather data with the criteria, according which 13 companies were obtained as samples, (1) automotive manufacturing companies in 2013 – 2017 listed on the Indonesia Stock Exchange (IDX) (2) automotive manufacturing companies that published the annual reports. Meanwhile, the data were obtained from IDX & published annual reports. The research used a panel data regression panel and data regression model as the analysis technique. The analysis consists of three methods, namely common effect method, fixed-effect and random effect, while the hypothesis testing used t-statistics to test partial regression coefficients and f statistics to test the effect simultaneously at the significance level of 5%. Eventually, the results of the analysis used E-views to show whether: (1) corporate social responsibility (CSR) influences the earnings response coefficient (ERC) and (2) sustainability accounting influences the ERC. The T-test analysis results used E-views to reveal whether CSR and sustainability accounting influence ERC in automotive manufacturing companies listed on the IDX in 2013 – 2017.

Powerful CEOs and earnings quality

PurposeThis study explores the effect of CEO power on earnings quality. If powerful CEOs make the information environment more opaque, they can easily conceal information to hide self-dealing behavior through earnings manipulation. Conversely, if powerful CEOs who are well-protected create a transparent information environment, they will provide better quality earnings.Design/methodology/approachThe author constructs a composite index for CEO power by combining seven CEO characteristics and employs two variables including discretionary accruals and earnings response coefficient as proxies for earnings quality.FindingsThe author’s main results show a significant negative relation between CEO power and the firm's earnings quality. In addition, CEOs with stronger structural power and expert power are more likely to generate lower earnings quality, while those with stronger ownership power are more likely to provide higher earnings quality.Originality/valueThe findings suggest that CEO power reduces the firm's earnings quality because CEOs with structural power or expert power may destroy governance monitoring mechanisms.

Determinants of Earnings Response Coefficient in the Nigerian Post-IFRS Implementation Era

Aims: The study assessed the determinants of earnings response coefficient in the Nigerian Post-IFRS implementation era. It critically looked at the impact of investors' protection, earnings persistency, and systematic risks on earnings response coefficients. Study design: The study adopted an ex-post facto research design. Methodology: A sample of 35 companies was drawn from the population of the listed companies in the Nigerian Stock Exchange between 2013 to 2020. Secondary data was used. The Generalized Least Square was used to test the hypotheses Results: The study shows that the earnings response coefficient improves with the influence of investors’ protection, systematic risk, and earning persistency. Although the influence from systematic risk brings about an inverse effect on ERC, it is a fundamental determinant nonetheless. It was recommended that firms should improve on their investors' protection and that their financial reports should be designed to improve the information contents of accounting earnings to include inherent socio-economic risk, past and prospective earnings.