Public sector bank dominated financing and earning quality: Indian evidence

Purpose Good earnings quality (EQ) provides reasonable assurance as to the reliability of future cash-flow generation capability of the borrowing firms and thereby mitigates the credit risk of the banks. Against the backdrop of the stressed-assets problem in public-sector banks in India, adversely impacting the public finance system, this paper aims to explore the role of EQ of the borrowers in obtaining bank credit and the ways to mitigate the problem. Design/methodology/approach Using a sample of listed 3,486 non-financial and non-government firms, the authors apply Jones (1991) model to estimate their EQ. Then, the authors conduct Hausman’s (1970) test and find the existence of a two-way relation between bank finance and EQ. The authors adopt a two-stage least-square regression model to test the nature of the association between the two after controlling for firm and industry-level characteristics. Findings The empirical results suggest that there exists a two-way negative association between EQ and bank finance implying that the Indian firms tend to report abnormal accruals to enhance tangibility for enjoying higher credit limits and easier access to bank finance. Also, the poor EQ is associated with earnings volatility, adversely impacting the credit quality. The findings are consistent. Practical implications The study highlights the role of EQ in mitigating credit risk and addressing adverse selection problems in granting credit by practicing bankers. Originality/value The findings of the study enrich the literature on EQ, capital structure, agency theory and public finance in several ways and have significant ethical and policy implications in bank-finance-led economies.

Risk sharing vs risk shifting: a comparative study of Islamic banks

Purpose This study aims to compare the use of risk-sharing and risk-shifting contracts (RSFCs) in Islamic banks using a triple grouping of conservative, moderate and liberal Islamic banks based on the Khaled Khandelwal (KK) model. Six fundamental Islamic contracts are used in this study, namely, Mushãrakah, Mudãrabah, Murãbaha, Salam, Ijãrah, Istisnã. Mushãrakah and Mudãrabah represent profit and loss sharing contracts (i.e., risk-sharing contracts – RSHCs), whereas Murãbaha, Salam, Ijãrah and Istisnã represent RSFCs. This study extends the previous studies by addressing an issue that has been neglected in the literature. The extent to which the two groups of contracts are used is extremely important because of its effect on the valuation of Islamic banks and on their earning quality. Design/methodology/approach This study aims to analyze, using descriptive statistics and inferential statistics, the use of RSHCs and RSFCs made by 72 fully Islamic banks, using a sample that includes banks in most of the countries where Islamic banks are present. Only fully Islamic Banks were considered, that is, banks that are essentially mainstream banks; therefore, banks that include only a specific line of Islamic products, often called the Islamic Window, were excluded. The total number of the sample was 118, but the study was restricted to 72 banks due to the availability of time series data covering the period of study, 2007 to 2015. Findings The study documents that over the period 2007 to 2015 the moderate banks have better distribution and balance of RSHCs and RSFCs than the conservative and liberal banks. The conservative banks are found to depend greatly on RSFCs, whereas the liberal banks are found to depend almost completely on RSFCs. Unexpectedly, the conservative banks have not shown a noticeable improvement over the period of analysis on their level of reliance on RSHCs. The results show that there is a significant difference in the percentage income distribution of the two contracts between the moderate banks and the conservative banks and between the moderate banks and the liberal banks. However, no significant difference was found between the conservative banks and the liberal banks. Originality/value The study uses an alternate rating model for Islamic financial institutions. The study examined the issue of risk sharing and risk shifting contracts usage in banks for a long period of nine years and at a global level and with an additional dimension of three categories of Islamic Banks based on the KK model.

Impact Factors on Internal Audit Quality of Businesses the Case Study of Karachi Pakistan

Purpose: Internal Audit Quality is relied upon to prompt top notch financial reporting to the outsiders of the businesses. Excellent financial reporting communicates in earning quality. Earning quality has been playing a key role in the capital market for quite a while. Account clients give exceptional consideration to procuring quality since they settle on their choice dependent on it. Then again, the market economy will encounter terrible, gone misfortunes if the association's exhibition isn't reflected in its income. Methodology: This examination targets researching the connection between Internal Audit Quality, a leading group of audit quality and financial reporting. Exploration information, acquired from 300 audit firms had internal audit offices. Just the selected firms met inclusion standards, to which research polls were sent. At long last, 300 surveys were affirmed as satisfactory, and were taken as exploration test. Findings: Discoveries indicated that excellent Internal Audit Quality will prompt great financial reporting. Additionally, solid top managerial staff will fortify this connection. Implications/Originality/Value: So it is concluded that all these three newspapers were mostly against the peace talks and government and media were not on the same page on the issue of peace talks. (Times New Roman 11pt including headings and text, single line spaced).

Pengaruh Struktur Modal, Investment Opportunity Set, Ukuran Perusahaan, Return On Asset dan Likuiditas terhadap Kualitas Laba pada Perusahaan Jasa yang Terdaftar di Bursa Efek Indonesia

The purpose of this study was to see and test the effect of Capital Structure, Investment Opportunity Set (IOS), Company Size, Return on Asset (ROA) and Liquidity on Earning Quality at Service Companies listed on the IDX (Indonesia Stock Exchange) in 2017-2019. This research uses the quantitative descriptive approach. The population obtained was 79 companies listed on the IDX (Indonesia Stock Exchange) from 2017-2019. Samples were taken by using purposive sampling technique. This technique is also often used by other researchers because the obtained samples are closer to the research objectives. The obtained samples were 16 companies. The data analysis used various kind of analysys, namely ; the multiple linear analysis, the coefficient of determination test, the classical assumption test, the F test and the t test. This result of this study shows that, partially, the Capital Structure, Investment Opportunity Set (IOS), Company Size, Return on Asset (ROA) and Liquidity did not significantly affect the Earning Quality listed on the IDX (Indonesia Stock Exchange) in 2017-2019. Neither, simultaneously, the Capital Structure, Investment Opportunity Set (IOS), Company Size, Return on Asset (ROA) and Liquidity is significant on the Earning Quality at Service Companies listed on the IDX (Indonesia Stock Exchange) in 2017-2019. Keywords : Capital Structure, Investment Opportunity Set, Company Size, Return on Asset and Liquidity (Current Ratio).

IFRS dan Ketepatan Waktu Pengakuan Laba

This study aims to investigate the influence of International Financial Reporting Standards (IFRS) implementation on earning timeliness. Ball and Brown metric is used to examine earning timeliness. This research use Slovin method to determine the number of sample and selection with simple random sampling.The hypothesis tested using regression and chow test. The result show that IFRS hasn’t significantly improve the earning timeliness from before to after IFRS implementation. The reason is earning quality is sensitive to capital market environment and the bearish capital market condition.

Pengaruh Volatilitas Arus Kas, Volatilitas Penjualan, Tingkat Hutang dan Ukuran Perusahaan Terhadap Persistensi Laba pada Perusahaan Pertambangan Batu Bara yang Terdaftar di Bursa Efek Indonesia (BEI) Periode 2014-2018

“Earning persistence is a component of earning quality. This study aims to determine whether the cash flow volatility, sales volatility, debt levels and company size affect the persistence of earnings. Sampling method is purposive sampling. The population in this study consisted of 24 coal mining companies listed in the Indonesia Stock Exchange and the observation period starts from 2014-2018. The number of samples that meet the sample criteria is 10 coal companies with 50 observational data. Data analysis method used is multiple linear regression. Based on the results af analysis and testing, it is found that cash flow volatility has a significant effect on earnings persistence. While sales volatility has a negative and significant effect on earnings persistence, the level of debt has a positive and significant effect on earnings persistence, and firm size has on effect on earnings persistence.

DIVIDEND POLICY, CORPORATE GOVERNANCE AND EARNINGS QUALITY: A CASE OF NON-FINANCIAL LISTED FIRMS OF PAKISTAN

Purpose of the study: This research empirically examined the impact of the dividend policy and corporate governance attributes (board size, board meetings, audit quality, nomination committee, board independence, remuneration committee, and CEO duality) on earnings quality (EQ) of the firms in Pakistan. Methodology: The study used secondary data of 148 non-financial listed companies of the Pakistan Stock Exchange (PSX) with 1450 firm-year observations over 10 years from 2010 to 2019. Earning quality was assessed by the earnings management, while the values of the discretionary accruals were used to measure earnings management by employing the Modified jones model (1995). Panel regression analysis examined the impact of independent variables (dividend policy & characteristics of CG) on the dependent variable (EQ). Main Findings: Results revealed that the dividend policy showed no significant impact on earnings quality. Also, the results indicated that the audit quality and remuneration committee have a significant negative impact on earning management and a positive impact on earning quality. However, the results illustrate that the large board size, board meetings, CEO duality, firm size, and leverage have a positive influence on earnings management and a negative impact on earnings quality. Overall the study found that the corporate governance characteristics, firm size, and leverage influence the earnings quality of the firms in Pakistan. Applications of this study: The empirical results of the study will help to improve the understanding of dividend policy & corporate governance attributes in relationship with the EQ. Second, as dividend is considered one of the most important factors influencing investment decisions, so this endeavour will clarify to the investors and regulators that whether dividend will predict the quality of earnings in Pakistani firms. Novelty/Originality of this study: This study extends the literature of earnings quality that is very thin in Pakistan.

Analysis of the Negative Relationship between Blockchain Application and Corporate Performance

Blockchain technology is one of the most critical emerging technologies. Countries are promoting the development of blockchain technology vigorously. Theoretically, blockchain technology improves the trust between enterprises, reduces information asymmetry, and promotes efficiency. It should promote corporate performance, but analyzing the actual data of Chinese listed companies, contrary to expectation, blockchain technology makes corporate performance decline. We found that this is mainly due to the effect of adverse selection through analysis and empirical tests. The enterprises that use blockchain technology are not accompanied by the increase in R&D expenditure, investment expenditure, and patents. The companies’ abnormal stock return and stock turnover rate have increased. The enterprises with worse performance are more likely to use blockchain to the hype. They can gain a short-term stock return. However, in the long run, the market-to-book ratio of government subsidies and the growth rate of corporate income are declining. Furthermore, the financial constraints are not alleviated as adverse selection only plays a role in the short term. Besides, the heterogeneity tests find that from the prospects of internal governance environment, the higher proportion of the largest shareholder, the better earning quality of the company. The enterprises with state-owned property rights have lower motivations of using blockchain to make an adverse selection. The study also found that the external environment prospects of enterprises with a lower degree of marketization and law environment are more likely to use the blockchain.