Is conditional conservatism a source of deviations of financial statements from Benford's Law?

PurposeIn this paper, the authors examine the association between conditional conservatism and deviations of the first digits of financial statement items from what are expected by Benford's Law.Design/methodology/approachThis research uses data of companies listed on the London Stock Exchange. The authors measure deviations of first digits from Benford's Law following Amiram et al. (2015) and firm-year conditional conservatism following previous studies (Basu, 1997; Khan and Watts, 2009; García Lara et al., 2016). The authors use multiple regressions to provide evidence for their hypothesis.FindingsThe results show that conditional conservatism is positively associated with deviations from Benford's Law. The findings are robust across different measures of deviations and conditional conservatism. Also, the authors find that the relationship between deviations from Benford's Law and conditional conservatism is more pronounced for firms with debt issuance, and for leveraged firms facing financial distress. Next, the authors’ analyses confirm previous evidence by showing that the first digits of financial statement items of UK listed companies conform to Benford's Law at the firm-specific level and the market level, and deviations of income statements are larger than those of balance sheets and cash flow statements.Research limitations/implicationsThe research makes significant contributions to the literature. First, this is the first study that provides empirical evidence suggesting that conditional conservatism may be a source of deviations from Benford’s Law. Second, the authors provide evidence confirming previous US findings (e.g. Amiram et al., 2015) showing that the distributions of first digits of financial statement items of UK listed companies also conform to Benford's Law.Practical implicationsThe authors’ findings have implications for auditors. Auditors should be aware of “false positive” for material misstatements when using Benford's Law as a risk assessment procedure. While both conditional conservatism and earnings management are related to deviations from Benford's Law, conservatism-related biases could indicate less audit risks.Originality/valueThe authors provide new and original evidence suggesting that conditional conservatism is related to deviations from Benford's Law.

The Factors Affecting the Acceptance of Going Concerned Audit Opinion (Empirical Study on Registered Agricultural Sector Companies in Indonesia Stock Exchange 2013-2019)

The study aimed to determine and analyze the effect of financial distress, firm size, profitability, cash flow ratio, leverage, and environmental performance on going concern audit opinion. The research object is the agriculture sector company listed on the Indonesia Stock Exchange (IDX). The population in this study were all companies listed in the agricultural sector on the Indonesia Stock Exchange for the 2013-2019 period. The total population in this study was 21 companies. The method used in determining the sample using the purposive sampling technique. The sample in the study was 17 companies with 119 data analyzed. The study used secondary data and used multivariate analysis. The results of this research state that financial distress, profitability, cash flow ratio, environmental performance do not affect the acceptance of going concern audit opinion. The firm size has a negative effect on the acceptance of going concern audit opinions. In contrast, leverage positively affects the acceptance of going concern audit opinions in the agriculture sector listed on the Indonesia Stock Exchange (IDX) for 2013-2019. Keywords: financial distress, firm size, profitability, flow ratio cash, leverage, going concern audit opinion.

ANALISIS PREDIKSI FINANCIAL DISTRESS DENGAN MENGGUNAKAN MODEL SRINGATE PADA PERUSAHAAN PROPERTI DAN REAL ESTATE YANG TERDAFTAR DI BEI PERIODE 2019-2020

This study aims to financial distress predict and the level of accuracy using the Springate model in the property and real estate sector listed on the Indonesia Stock Exchange for the 2019-2020 period. The population of this study is all property and real estate companies listed on the Indonesia Stock Exchange for the 2019-2020 period, so the population of this study managed to find 66 companies. Samples were selected based on predetermined purposive sampling criteria. The sample selected according to the specified criteria is 37 companies. The data analysis technique used the Springate S-Score discriminant analysis technique. The results of the bankruptcy analysis using the Springate method, namely in 2019 before the onset of covid-19 there were 27 property and real estate companies in financial distress and 10 companies in healthy condition (non-financial distress). In 2020, during the COVID-19 pandemic, there were additional companies that were in financial distress, namely 34 companies and only 3 companies that remained in a healthy condition (non-financial distress). Based on the results of the analysis of the Springate method in predicting bankruptcy in property and real estate sector companies, it has an accuracy rate of 62.2%.

Risk Analysis of Textile Industry Foreign Investment Based on Deep Learning

With the decline of China’s economic growth rate and the uproar of antiglobalization, the textile industry, one of the business cards of China’s globalization, is facing a huge impact. When the economic model is undergoing transformation, it is more important to prevent enterprises from falling into financial distress. So, the financial risk early warning is one of the important means to prevent enterprises from falling into financial distress. Aiming at the risk analysis of the textile industry’s foreign investment, this paper proposes an analysis method based on deep learning. This method combines residual network (ResNet) and long short-term memory (LSTM) risk prediction model. This method first establishes a risk indicator system for the textile industry and then uses ResNet to complete deep feature extraction, which are further used for LSTM training and testing. The performance of the proposed method is tested based on part of the measured data, and the results show the effectiveness of the proposed method.

Corporate Social Responsibility Disclosure (CSRD) and Financial Distressed Risk (FDR): Does Institutional Ownership Matter?

This study aims to investigate the effect of corporate social responsibility disclosure (CSRD) on financial distressed risk (FDR) among firms listed on the Tehran Stock Exchange (TSE). This paper also examines whether there is a negative linkage between institutional ownership as a corporate governance mechanism and corporate bankruptcy. The final research purpose is to analyze if there is a moderating effect of institutional owners on the relationship between CSRD and FDR too. The study sample consists of 200 firms listed on the TSE between 2013 and 2018, and the statistical model is logistic regression. When FDR is assessed under both Article 141 of Iran’s business law and the Altman Z-score model, our results on the main research hypotheses are quite similar. Considering the social and cultural conditions and economic situation of the Iranian market, the results show that firms with a high level of CSR disclosure are not able to make themselves more creditworthy and do not have better access to financing, resulting in more financial insolvency. Our findings confirm institutional shareholders play a vital role in facilitating a firm’s emergence from bankruptcy. The results also demonstrate financial distress risk is less seen among companies with more institutional owners that disclose more CSR information. In other words, since the goals related to CSR are long-term and Iranian institutional investors have a long-term horizon towards the company, the presence of more institutional owners within a firm push managers to provide additional voluntary CSR disclosure so firms can maintain the trust of their shareholders at the highest possible level and prevent financial distress. Our additional analysis indicates there is a positive association between financial leverage and firm failure, whereas the current ratio and ROA are negatively connected with corporate bankruptcy. Finally, when FDR is assessed on the Altman Z-score model, our evidence supports a negative relation between purchase and sale-related party transactions and bankruptcy risk, which is consistent with the efficient transaction hypothesis.

The Effect of Managerial Ownership Structure, Financial Distress and Growth Opportunities to Application of Accounting Conservatism Principles with Litigation Risk as Moderating Variables on Manufacturing Companies Listed on the Indonesia Stock Exchange

This study aims to examine and analyze the effect of managerial ownership structure, financial distress, and growth opportunities on accounting conservatism with litigation risk as a moderating variable. The population in this study was 171 manufacturing companies listed on the Indonesia Stock Exchange for the 2010-2019 period. This research was conducted using the purposive sampling technique so that 36 samples were obtained. The data analysis method used multiple linear regression analysis and interaction tests with the help of the Eviews application program. The study results indicate that growth opportunities partially have a positive effect on applying the principle of accounting conservatism. Meanwhile, managerial ownership structure and financial distress partially do not affect the application of accounting conservatism principles. Simultaneously managerial ownership structure, financial distress and growth opportunities affect the application of accounting conservatism principles. Litigation risk as a moderating variable cannot moderate the influence of managerial ownership structure, financial distress, and growth opportunities on applying accounting conservatism principles to manufacturing companies listed on the Indonesia Stock Exchange for the 2010-2019 period. Keywords: managerial ownership structure, financial distress, growth opportunities, litigation risk and accounting conservatism.

Precautionary behaviours of individuals with multimorbidity during the COVID-19 pandemic

Studies show that older individuals with multimorbidity are more susceptible to develop a more severe case of COVID-19 when infected by the virus. These individuals are more likely to be admitted to Intensive Care Units and to die from COVID-19-related conditions than younger individuals or those without multimorbidity. This research aimed to assess whether there are differences in terms of precautionary behaviours between individuals aged 50 + with multimorbidity and their counterparts without multimorbidity residing in 25 European countries plus Israel. We used data from the SHARE-COVID19 questionnaire on the socio-demographic and economic characteristics, multimorbidity, and precautionary behaviours of individuals. SHARE wave 8 and 7 databases were also used to fully identify individuals with multimorbidity. Our results showed that individuals with multimorbidity were more likely to exhibit precautionary behaviours than their counterparts without multimorbidity when gender, age, education, financial distress and countries were included as controls. Additionally, we found that women, more educated individuals and those experiencing more financial distress adopt more protective behaviours than their counterparts. Our results also indicate that the prevalence of precautionary behaviours is higher in Spain and Italy and lower in Denmark, Finland and Sweden. To guarantee the adoption of preventive actions against COVID-19, public health messaging and actions must continue to be disseminated among middle and older aged persons with multimorbidity, and more awareness campaigns should be targeted at men and less educated individuals but also at persons experiencing less financial distress, particularly in countries where people engaged in fewer precautionary behaviours.

Indikator-Indikator yang Mempengaruhi Tingkat Konservatisme Akuntansi

Accounting conservatism is a precautionary principle applied by the company, where revenue is recognized more slowly while expenses are recognized more quickly, so net income will appear lower. The purpose of this research is to examine and analyze the effect of the size of the board of commissioners, leverage, frequency of audit committee meetings, financial distress, and firm size on the level of accounting conservatism in manufacturing companies listed on the Indonesia Stock Exchange for the 2017-2020 period. This study uses a population of all manufacturing companies that have been listed on the Indonesia Stock Exchange (IDX) in the last four periods, namely 2017-2020, obtained a population of 677 companies. The sampling method used in this study is a purposive sampling technique with several selected criteria so as to obtain a sample of 369 companies. This study uses secondary data in the form of numbers that are processed into a statistical measurement scale, so it is called secondary data. Data collection techniques using documentation techniques. The data analysis technique used is multiple linear regression analysis. The results of this study indicate that the size of the board of commissioners (UDK) and the frequency of audit committee meetings (FPKA) have no effect on the level of accounting conservatism. Meanwhile, financial distress (Distress) and firm size (SIZE) have a significant negative effect on the level of accounting conservatism. Different direction with leverage (DAR) which has a significant effect in a positive direction on the level of accounting conservatism. Keywords: financial distress; frequency of audit committee meetings; conservatism accountancy; leverage; the size of the board of commissioners; company size