Earnings Management and Corporate Governance in Family Firms

Earnings management and corporate governance relationships are examined for a sample of 49 Portuguese listed firms considering an unbalanced panel for the period 2002-2017, using panel corrected standard errors models and considering the family ownership effect. Empirical findings reveal that there is a positive relationship between corporate board independence and earnings management and that the presence of women on board decreases earnings management practices. Results are consistent with the hypothesis that earnings management practices are lower in family firms than in non-family firms. Size, being audited by the Big 4 companies, return on assets, loss, and the existence of an audit committee on board influence positively earnings management, but leverage, age, and ownership control are negatively related to earnings management. Results indicate that further auditing and control is necessary for Portuguese listed companies leading to strict recommendations to be followed by policymakers regarding control of these firms.

Impact of corporate board and external audit attributes on earnings quality: Experience from Nigeria quoted foods and beverages firms

The recent audit failures has pointed to weaknesses in financial report and give occasion of doubt to users about the reliability of earnings declared by firms. This study examines the effects of corporate board and external audit attributes on earnings quality of listed foods and beverages firms in Nigeria. Secondary data were employed through audited annual reports and accounts of eight (8) selected foods and beverages firms listed on the Nigerian Stock Exchange using judgmental sampling technique. Data collected were analyse using descriptive statistics like table, percentage and inferential statistics such as panel regression analysis. All Analysis were tested at 5% level of significance. The results revealed that audit firm size (β=14485.32, P=0.000) which is external audit attribute and board size (β=-2741.887, P=0.000), audit committee presence (β= -8225.11, P=0.044) and company size (β= 5454.20, P=0.000) were the significant determinants of external audit and corporate board attributes of listed foods and beverages firms in Nigeria. Also, the result of panel regression revealed that audit independence (β= -6.57e-06, P=0.035) and audit firm size (β=0.1141479, P= 0.018) were the external audit attributes that had significant effect on discretionary accruals. The study therefore concluded that corporate board attributes (audit committee) and external audit attributes (auditor independence, audit firm size) had significant effect on earnings quality as measured by earnings management of selected foods and beverages firms in Nigeria. The study recommends that in order to enhance auditor’s independence, uniform audit fee should be formulated, and also, disclosure should be made on other corporate board attributes like board members’ year of experience and gender and for effective monitoring system.

Audit Committees and COVID-19-Related Disclosure Tone: Evidence from Oman

In this study, we content analyzed chairman’s statements to measure the tone of COVID-19-related disclosure in Omani listed firms for the year ending 2020. We also examined whether audit committee (AC) characteristics influence disclosure tone. After controlling for corporate board and firm characteristics, our regression analysis showed that two AC characteristics (gender diversity and overlapped directors) positively affect good news information and negatively affect bad news information. It also showed that AC size positively affects bad news information. No evidence was found that the AC independence, meeting frequency, multi-directorships, and financial expertise have an impact on the tone of COVID-19-related disclosures. Our paper contributes to the growing literature by being the first study to examine whether AC characteristics influenced disclosure tone during the COVID-19 pandemic. Our results indicate that investors and regulatory bodies should take AC characteristics into account in determining the tone of COVID-19-related disclosures.

COVID-19 and Corporate Governance Performance: Beyond the Financial Metrics

Corporate governance and, more broadly, the performance of corporate boards have traditionally been measured using financial metrics. These financial metrics such as Return on Investment (ROI), Return on Assets (ROA), Return on Equity (ROE), Earnings and Profitability Ratio (E and P) are ex post measure of organizations performance arising from corporate board activities. These financial metrics are largely one-dimensional measure of corporate performance and do not fully account for the other dimensions of organization responsibilities. The COVID-19 and the changing organizational dynamics have made the case for corporate board’s performance to be assessed beyond the usual financial metrics. In this study, we provide a framework that accounts for the various dimensions of organization activities: finance, social and environmental, the Triple-Bottom (TBL) approach. A TBL-compliance metric was constructed, which tracked the performance of selected manufacturing firms in Nigeria using a content analytical technique. The result showed that the majority of the firms performed remarkably well in areas of profitability and economic value creation but less satisfactorily in areas of social and environmental sustainability. On aggregate, the sampled firms committed less than 1% of their profit after tax on corporate social responsibility, while less than 5% of the sampled firms scored above average on the TBL-adoption matrix.

Community membership consistency applied to corporate board interlock networks

Community detection is a well-established method for studying the meso-scale structure of social networks. Applying a community detection algorithm results in a division of a network into communities that is often used to inspect and reason about community membership of specific nodes. This micro-level interpretation step of community structure is a crucial step in typical social science research. However, the methodological caveat in this step is that virtually all modern community detection methods are non-deterministic and based on randomization and approximated results. This needs to be explicitly taken into consideration when reasoning about community membership of individual nodes. To do so, we propose a metric of community membership consistency, that provides node-level insights in how reliable the placement of that node into a community really is. In addition, it enables us to distinguish the community core members of a community. The usefulness of the proposed metrics is demonstrated on corporate board interlock networks, in which weighted links represent shared senior level directors between firms. Results suggest that the community structure of global business groups is centered around persistent communities consisting of core countries tied by geographical and cultural proximity. In addition, we identify fringe countries that appear to associate with a number of different global business communities.

Assessment of Earnings Conservatism in Malaysian Financial Reporting

<p><b>This study examines four influences on earnings conservatism of financial reporting in Malaysia. The study employs a sample of 3,126 firm-year observations of Malaysian listed companies over the period 2003 to 2008 and measures conservatism by the asymmetric timeliness of earnings measure due to Basu (1997). First, the study assesses the degree of earnings conservatism in reporting during the period following the institutional reforms which started after the 1997 Asian financial crisis. The results suggest that conservatism has increased with the reforms which contrasts with the findings of Ball et al. (2003) who find no evidence of earnings conservatism in Malaysia. Second, this study investigates the effect of the adoption of IFRS on the level of earnings conservatism. The results show no systematic difference in the level of earnings conservatism for the short period of one to two years before and after the adoption, suggesting that conservatism may not be specific to any particular set of accounting standards. Third, this study examines the effect of ownership structure on earnings conservatism. Reporting by family firms and widely-held firms exhibits earnings conservatism, but this is not the case for state-controlled firms. The analysis also shows no significant difference between the levels of earnings conservatism for family firms and widely-held firms. Additional tests show that family firms that are strategically controlled by a family, that is, where a member of the controlling family acts as CEO and chairman of the corporate board, report significantly higher earnings conservatism than other family firms.</b></p> <p>Finally, the study examines the link between corporate governance and earnings conservatism. Employing a comprehensive set of corporate governance variables, this study does not find any evidence to link corporate governance and earnings conservatism. This result is contrary to the evidence from developed markets, such as the United States and the United Kingdom, where firms with good governance are more timely in recognising bad news. This raises the possibility that the different ownership structures in Malaysia make corporate governance reforms less important. However, this suggestion is subject to environmental and cultural issues that have not been addressed in this study.</p>

Assessment of Earnings Conservatism in Malaysian Financial Reporting

<p><b>This study examines four influences on earnings conservatism of financial reporting in Malaysia. The study employs a sample of 3,126 firm-year observations of Malaysian listed companies over the period 2003 to 2008 and measures conservatism by the asymmetric timeliness of earnings measure due to Basu (1997). First, the study assesses the degree of earnings conservatism in reporting during the period following the institutional reforms which started after the 1997 Asian financial crisis. The results suggest that conservatism has increased with the reforms which contrasts with the findings of Ball et al. (2003) who find no evidence of earnings conservatism in Malaysia. Second, this study investigates the effect of the adoption of IFRS on the level of earnings conservatism. The results show no systematic difference in the level of earnings conservatism for the short period of one to two years before and after the adoption, suggesting that conservatism may not be specific to any particular set of accounting standards. Third, this study examines the effect of ownership structure on earnings conservatism. Reporting by family firms and widely-held firms exhibits earnings conservatism, but this is not the case for state-controlled firms. The analysis also shows no significant difference between the levels of earnings conservatism for family firms and widely-held firms. Additional tests show that family firms that are strategically controlled by a family, that is, where a member of the controlling family acts as CEO and chairman of the corporate board, report significantly higher earnings conservatism than other family firms.</b></p> <p>Finally, the study examines the link between corporate governance and earnings conservatism. Employing a comprehensive set of corporate governance variables, this study does not find any evidence to link corporate governance and earnings conservatism. This result is contrary to the evidence from developed markets, such as the United States and the United Kingdom, where firms with good governance are more timely in recognising bad news. This raises the possibility that the different ownership structures in Malaysia make corporate governance reforms less important. However, this suggestion is subject to environmental and cultural issues that have not been addressed in this study.</p>

Corporate boards' and firms' R&D responses to performance feedback

PurposeA firm will respond to performance feedback, i.e. a comparison of its current performance with the goals to which it aspires, by means of changes in its search activity. There is an emerging body of literature that studies how such behavioral responses are shaped by important decision-makers inside firms. The study focuses on the corporate board – one of the most influential decision-making groups in terms of strategy. More specifically, the study aims to study the moderation effect of the size, turnover and age diversity of the board.Design/methodology/approachThe sample is based on the largest listed German automobile and manufacturing firms followed between the years 2001 and 2015. The sample is analyzed using fixed-effects panel data models.FindingsThe findings indicate that the age diversity of the corporate board and, partially, also the turnover of its members moderate firms' responsiveness to performance feedback. On the other hand, the size of the board does not seem to play a role. The study, therefore, supports the notion of taking into account the characteristics of the corporate board when analyzing strategic decision-making and points to areas for further research.Originality/valueThe study contributes to the literature by empirically testing the moderating effect of three characteristics of corporate boards that have not been largely tested in the literature to date.

Corporate Board Diversity and Sustainability Reporting: Empirical Evidence from Indonesia Before and During COVID-19

Research aims: This study aims to investigate how the influence of board diversity before and during the COVID-19 pandemic.Design/Methodology/Approach: The researchers used purposive sampling method. The research sample was 70 companies in the pre-pandemic period and 52 companies during the pandemic with the following criteria: all companies in Indonesia listed on the IDX that published complete sustainability reports and annual reports. In testing the hypotheses, multiple linear regression analysis was employed.Research findings: The presence of board diversity affected sustainability reporting in the pre-pandemic period, but during the pandemic, it did not affect the sustainability report disclosure.Theoretical contribution/Originality: This study is empirical evidence regarding the comparison of the effect of the presence of board diversity before the pandemic and during the pandemic.Research limitation/Implication: The sample period during the pandemic was still too short. As known that the initial COVID-19 pandemic entered Indonesia was in 2020, so the researchers experienced limited data regarding sustainability reports during the pandemic.