The Effect of Management Characteristics on Audit Report Readability

The present study investigates the relationship between management characteristics (managerial entrenchment, CEO narcissism, overconfidence, board effort, real and accrual-based earnings management) and the audit report readability of listed firms. In other words, this paper seeks to answer the question of “whether management characteristics can have a favourable effect on the audit report readability or not.” The multivariate regression model is used for this study. Research hypotheses were also examined using a sample of 1004 observations on the Tehran Stock Exchange during 2012–2018 and by employing multiple regression patterns based on a panel data technique and fixed effects model. The results show a negative and significant relationship between managerial entrenchment and real and accrual-based earnings management and the audit report readability, based on the FOG index, and a positive and significant relationship between management narcissism, CEO overconfidence, and board effort and the audit report readability, based on the FOG index. Moreover, a negative and significant relationship exists between management entrenchment, CEO overconfidence, real and accrual-based earnings management, and audit report readability based on text length and Flesch indices. A positive and significant relationship was evident between CEO narcissism and board effort and audit report readability based on the same indices. Besides, research models were also examined for more confidence using other additional methods, including FE, T + 1, ABB, and GMM, which confirm the study’s preliminary results. Since the present study is the first paper to investigate such a topic in the emergent markets, it provides valuable information about intrinsic and acquisitive characteristics of management for users, analysts, and legal institutions that contribute significantly to financial statement readability.

The New Zealand productivity puzzle: A paradox or an issue of 'firm governance'

<p>New Zealand’s productivity under-performance, despite its good quality institutions, has remained a puzzling phenomenon. This topic has generated spirited debates among academia and public policy experts seeking to provide an answer to this age-old paradox. Solving ‘The New Zealand Productivity Puzzle’ is not a straightforward proposition. Previous studies in this area attempted to pin down the main determinants behind the extent to which New Zealand’s actual GDP per capita growth has undershot its predicted rates based on policy settings (Barnes et al., 2013). The recent New Zealand Productivity Commission (2014a) report shows the three key determinants accounting for such a gap are New Zealand’s weak international connections, low innovation and low managerial quality. This paper seeks to go further than merely highlighting the determinants (symptoms) of poor productivity performance in New Zealand, to the cause(s) of the problem by asking ‘why’ these key determinants (symptoms) of poor productivity performance occur. The analytical process of piecing together key results and findings (from available data, literature, and empirical studies) enables one to build a richer picture of New Zealand’s relatively poor productivity performance, to better understand the mechanism behind this puzzling phenomenon. The findings unraveled in this paper verify that this phenomenon is not paradoxical but simply an issue of firm/corporate governance. The sort of issues uncovered here is neither one of poor corporate governance in a conventional manner or an issue of managerial competency alone. Rather problems arise largely as a consequence of inappropriate incentives unintentionally generated by a certain ownership structure. This paper discusses how high ownership concentration associated with lower firm performance in New Zealand negatively affects managerial effectiveness by exacerbating the agency costs associated with managerial entrenchment. The paper shows that together New Zealand’s relatively lower managerial competency and managerial effectiveness associated with lower firm performance, can account for New Zealand’s lack of international connections, low innovation and low managerial quality, and thus potentially explain ‘The New Zealand Productivity Puzzle’.</p>

The New Zealand productivity puzzle: A paradox or an issue of 'firm governance'

<p>New Zealand’s productivity under-performance, despite its good quality institutions, has remained a puzzling phenomenon. This topic has generated spirited debates among academia and public policy experts seeking to provide an answer to this age-old paradox. Solving ‘The New Zealand Productivity Puzzle’ is not a straightforward proposition. Previous studies in this area attempted to pin down the main determinants behind the extent to which New Zealand’s actual GDP per capita growth has undershot its predicted rates based on policy settings (Barnes et al., 2013). The recent New Zealand Productivity Commission (2014a) report shows the three key determinants accounting for such a gap are New Zealand’s weak international connections, low innovation and low managerial quality. This paper seeks to go further than merely highlighting the determinants (symptoms) of poor productivity performance in New Zealand, to the cause(s) of the problem by asking ‘why’ these key determinants (symptoms) of poor productivity performance occur. The analytical process of piecing together key results and findings (from available data, literature, and empirical studies) enables one to build a richer picture of New Zealand’s relatively poor productivity performance, to better understand the mechanism behind this puzzling phenomenon. The findings unraveled in this paper verify that this phenomenon is not paradoxical but simply an issue of firm/corporate governance. The sort of issues uncovered here is neither one of poor corporate governance in a conventional manner or an issue of managerial competency alone. Rather problems arise largely as a consequence of inappropriate incentives unintentionally generated by a certain ownership structure. This paper discusses how high ownership concentration associated with lower firm performance in New Zealand negatively affects managerial effectiveness by exacerbating the agency costs associated with managerial entrenchment. The paper shows that together New Zealand’s relatively lower managerial competency and managerial effectiveness associated with lower firm performance, can account for New Zealand’s lack of international connections, low innovation and low managerial quality, and thus potentially explain ‘The New Zealand Productivity Puzzle’.</p>

The relationship between managerial entrenchment, social responsibility, and firm’s risk-taking and shareholders’ activity

Purpose This study aims to assess the relationship between managerial entrenchment, social responsibility and risk-taking of the firm and shareholders’ activity. Design/methodology/approach The study is carried out based on the disclosed information of listed firms on Tehran and Iraq Stock Exchanges during 2011–2017 from a sample of 121 firms on the Iranian side and 37 firms on the Iraqi side. The hypothesis testing is performed using panel estimators of the adjusted regression models. Findings The obtained results from hypothesis testing show that there is a significant relationship between managerial entrenchment, social responsibility disclosure, social responsibility growth of the firm and risk-taking and shareholders’ activity in the Iranian Stock Exchange firms. Moreover, in the case of Iraqi firms, a significant relationship is observed between managerial entrenchment, social responsibility disclosure, social responsibility growth of the firm but the relationship between firm risk-taking and shareholders’ activity was not evident. Originality/value The current study is almost is the first study conducted on two Islamic countries and the outcomes of the study may help other Muslim countries on the subject of the study.

CORPORATE SOCIAL RESPONSIBILITY DAN EARNINGS MANAGEMENT: MANAGERIAL ENTRENCHMENT SEBAGAI VARIABEL MODERASI

Abstrak: Penelitian ini bertujuan menguji pengaruh managerial entrenchment terhadap hubungan tanggung jawab sosial perusahaan (CSR) dengan praktik manajemen laba. Data yang digunakan adalah semua perusahaan sektor manufaktur yang terdaftar di BEI periode 2016-2018. Proksi yang digunakan untuk mengukur managerial entrenchment adalah kepemilikan saham CEO dan masa jabatan CEO. Pengolahan data menggunakan moderated regression analysis. Hasil penelitian yang diperoleh menyatakan bahwa tanggungjawab sosial perusahaan berpengaruh negatif terhadap manajemen laba, sedangkan masa jabatan CEO dan kepemilikan saham CEO tidak memberikan pengaruh terhadap hubungan tanggung jawab sosial perusahaan dengan manajemen laba. Selain itu, pada penelitian ini juga menemukan bahwa masa jabatan CEO memiliki pengaruh yang signifikan terhadap kesenjangan tanggung jawab sosial perusahaan. Penelitian ini memberikan implikasi bahwa walaupun managerial entrenchment tidak merusak hubungan CSR dan tindakan manajemen laba, namun managerial entrenchment menentukan jenis aktifitas CSR yang dilakukan perusahaan. Abstract: This study aims to examine the effect of managerial entrenchment on the relationship between corporate social responsibility (CSR) and earnings management practices. The data used are all manufacturing sector companies listed on the IDX for the 2016-2018 period. The proxies used to measure managerial entrenchment are CEO's share ownership and CEO's tenure. Data processing using moderated regression analysis. The results obtained indicate that corporate social responsibility harms earnings management. At the same time, the tenure of the CEO and CEO's share ownership does not affect the relationship between corporate social responsibility and earnings management. In addition, this study also found that CEO tenure has a significant influence on the corporate social responsibility gap. This study implies that although managerial entrenchment does not damage the relationship between CSR and earnings management actions, managerial entrenchment determines the company's types of CSR activities.

The relationship between managerial attributes and firm risk-taking

PurposeThe main objective of the paper is to examine the relationship between managerial attributes (e.g. managerial entrenchment, managerial myopia and managerial overconfidence) and firm risk-taking on the Tehran Stock Exchange (TSE).Design/methodology/approachThe study’s sample comprises 150 companies listed on the TSE from 2011 to 2017. Risk-taking is calculated as the standard deviation (SD) of stock return. Explanatory factor analysis was performed to calculate the weight of each of the five variables managerial ownership, board independence, chief executive officer (CEO) tenure, board compensation and CEO duality as a proxy for managerial entrenchment. The study by Anderson and Hsiao (1982) was also used to calculate managerial myopia, and the study by Schrand and Zechman (2012) was used to calculate managerial overconfidence.FindingsThe results indicate that the effect of managerial entrenchment and managerial myopia on risk-taking of listed firms on the TSE is positive and significant, implying that an increase in CEO entrenchment is likely to give rise to risk-taking. The authors conjecture that this finding could be due to the investment projects impairing the firm performance in the long run. Furthermore, the effect of managerial overconfidence on listed firms' risk-taking on the TSE is significantly negative. Since overconfidence is one of the traits of narcissism and corporate managers tend to be encouraged and admired, it is implied that they tend to make efficient and low-risk investments that ultimately reduce the firm risk-taking.Originality/valueSeveral theoretical studies show that managerial behavior is a determining factor in the economy. One of the reasons which justify the originality of this study is the context and institutional environment. Undoubtedly, managerial behavior (e.g. managerial entrenchment, managerial myopia and managerial overconfidence) is expected to have some significant variations in developing countries compared to prevailing in developed countries, particularly in the Iranian stock market the economic sanctions. Furthermore, due to the direct impact of individuals' psychological and behavioral characteristics on their decisions and the effect of companies' risk-taking on increasing and decreasing shareholders and companies' wealth, this research is essential. Given the function of designed behavioral criteria for assessing risk-taking behaviors, the relationship between managerial attributes and firms' risk-taking is still unclear and investigated in this study.