The role of audit committees in mitigating earnings management: evidence from Jordan

PurposeThis study examines the relationship between audit committees (ACs) and earnings management (EM) in the developing country context of Jordan. In particular, it investigates whether audit committee attributes, including their size, independence, expertise and meetings, are able to restrict discretionary accruals as a proxy for EM.Design/methodology/approachThe generalized least square (GLS) regression was used to study the association between audit committee attributes and discretionary accruals, as a proxy of EM, for a sample of industrial firms listed on the Amman Stock Exchange (ASE) during the period 2012–2020. Data were obtained from the firms' annual reports.FindingsThe regression results indicate that audit committee independence is the only audit committee attribute that seems to improve the effectiveness of ACs, in that it is significantly associated with less EM, while other audit committee attributes that were tested do not show statistically significant associations.Research limitations/implicationsIn emerging markets, like Jordan, ACs may not be an efficient monitoring mechanism; therefore, it can be argued that the prediction made by the agency theory about the role of ACs in mitigating opportunistic EM activities does not necessarily apply to all contexts.Practical implicationsA better understanding of audit committee effectiveness in developing countries could help regulators in these countries assess the impact of planned corporate governance (CG) reforms and to better monitor and enhance the performance of ACs.Social implicationsIn a setting characterized by closely held companies, high power distance and low demand for high-quality CG mechanisms, this study contributes to understanding how this business system operates, and how improving CG mechanisms could be successful in such cultures.Originality/valueThis study investigates the under-researched relationship between audit committee characteristics and EM in developing countries. In so doing, it aims to provide new insights into this relationship within the developing context case of Jordan, including if and how the institutional setting influences this relationship.

Earnings management and listing day performance of IPOs in India

PurposeThe purpose of this study is to examine the influence of earnings management during initial public offerings on the listing day returns.Design/methodology/approachThe study collected data for 511 Indian IPOs that came between April 2003 and March 2019 for calculating earnings management. On the basis of the Cross Sectional Modified Jones Model 1995, the paper presents three proxies of earnings management as discretionary accruals (DA), discretionary current accruals (DCA) and discretionary long-term accruals (DLA). The study further used correlation and multiple regression analysis to assess the impact of earnings management on listing day returns.FindingsThe findings show that earnings management and listing day returns vary through issue-year and industry-type. Apart from it, the study reveals a greater contribution of short-term accruals in earnings management on the basis of higher DCA values. It also discloses that the aggregate level of earnings management (DA) influences listing returns, whereas DCA and DLA separately have no impact on the listing day returns of the Indian IPOs.Research limitations/implicationsThe findings are useful to potential investors and analysts to observe, assess and understand the quality of financial reports that are based on fallacious disclosure of accounting figures. The study also reflects the efficacy of Indian regulatory norms for IPOs in constraining earnings management and underpricing, thus providing meaningful insight to the policy makers and the regulators.Originality/valueThis study is distinguished by its focus on determining the influence of earnings management on listing day returns in Indian IPOs by using three earnings management proxies.

Value-added intellectual capital and financial performance: evidence from Mauritian companies

PurposeThe purpose of this paper is to empirically assess the impact of value-added intellectual capital (VAIC) on the financial performance (FP) of companies in Mauritius.Design/methodology/approachThe research uses a dynamic panel vector error correction model (PVECM) which simultaneously allows for endogeneity and causality issues among the variables used.FindingsThe results show that VAIC enhances corporate FP, with a reported lower effect in the short run as compared to the long run. Other important determinants of firm’s performance are asset turnover, capital turnover and firm’s size. Leverage, on the other hand, is observed to be performance reducing in nature. FP of the companies is also a significant determinant of VAIC, implying reverse causal effects exist between the two variables of interest, namely, VAIC and FP.Research limitations/implicationsThe study can be enhanced by doing an industry-specific comparison of the impact of VAIC on FP for more insights.Practical implicationsIt is recommended that managers pay more attention to the role of firms’ stock of tangible and intangible assets, as this has a positive impact on firms’ FP. Also, the results may help to increase awareness of the importance of effective intellectual capital (IC) management within an organization. More so, as demonstrated by Ståhle et al. (2011), VAIC indicates the efficiency of the company’s labor and capital investments within firms in Mauritius. This study may, therefore, enable Mauritian firms to measure their IC efficiency and develop policies to promote and improve upon their intellectual potential to enhance firm’s performance.Originality/valueThe main theoretical contribution of this paper relates to the assessment and conceptualization of the bi-directional relationship between VAIC and FP. It confirmed that there are self-reinforcing feedback effects between VAIC and FP. Methodologically speaking, this paper investigates the VAIC–FP nexus in a dynamic setting using a dynamic panel data framework, namely, a PVECM which also allows for additional insights into the short- and long-run effects.

Understanding students' future intention to engage in sustainability accounting: the case of Malaysia and the Philippines

PurposeThe study investigates whether the level of sustainability concerns of Higher Education Institutions (HEIs) in Malaysia and the Philippines is positively associated with accounting students' intentions to engage in sustainability accounting through its effect on students' attitude, subjective norm and perceived behavioural control regarding environmental sustainability practices.Design/methodology/approachThis empirical study relies on a structural equation model computed using data collected through a questionnaire and data collected from the HEIs websites.FindingsThe findings show that the willingness to engage in sustainability accounting is determined by students' subjective norm and perceived behavioural control, but it is not determined by attitude regarding environmental sustainability practices. The authors also found that the greater the concern with sustainability of the HEI in which a student is enrolled, the greater his/her attitude, subjective norm and perceived behavioural control towards environmental sustainability, and, indirectly, the greater his/her intention to engage in sustainability accounting.Originality/valueThese findings add to the literature on higher education and sustainability accounting by high-lighting the importance of the HEIs sector in promoting sustainability policies and practices, in acting as role models regarding sustainability issues, and in preparing students for building a sustainable society.

Tone, readability and financial risk: the case of GCC banks

PurposeThe authors investigate the impact of disclosure tones and financial risk on the readability of annual reports in the banking sector. The authors also examine the moderating effect of banks' financial risk on the tone–readability relationship.Design/methodology/approachThis study relies on the agency theory and the social psychology theory to formulate its testable hypotheses and explain the empirical findings. It uses a sample of 390 bank-year observations from banks listed in the Gulf Cooperation Council (GCC) Stock Exchanges during the period 2014–2019. It also employs random effect regressions to analyze the data and to examine the reverse causality/endogeneity in order to obtain robust findings.FindingsThis study’s results demonstrate that easy (difficult) to read annual reports is significantly associated with positive (negative) tone. Bank managers characterized as “too positive/optimistic” and banks with higher financial risks publish less readable annual reports. The results also show that the interaction between negative tone and a bank's financial risk is inversely associated with reading difficulty, indicating that managers prepare easy text to clarify causes of their banks’ high risks, yet they communicate this easy text with a negative tone that reflects their feelings/emotions towards the financial risks of their banks.Practical implicationsThis study’s findings call for the use of a plain English text that bears a neutral tone and urge financial analysts to go beyond the financial aspects of annual reports. They also stimulate policymakers to draft policies, which ensure the presence of audit committee members who possess a broad expertise to uncover the linguistic issues embedded in the annual reports.Originality/valueTo the best of the authors' knowledge, this is the first study dedicated to exploring the tone–readability association in the GCC's banking sector.

Managing competing institutional logics in governance of public-sector entities in Tanzania

PurposeThe paper aims to investigate how the governance practices of public-sector entities (PSEs) in Tanzania are shaped by competing institutional logics and strategies used to manage the logics.Design/methodology/approachIn the paper, empirical evidence was gathered through documentary sources, non-participant observations and in-depth interviews with members of boards of directors (BoDs), chief executive officers (CEOs), internal and external auditors, senior executives and ministry officials. The data were analyzed using thematic and pattern-matching approaches.FindingsThe paper shows that bureaucratic and market logics co-exist and variations in governance practices within and across categories of PSEs. These are reflected in CEO appointments, multiple roles of CEOs, board member appointments, board composition, multiple board membership, board roles and evaluation of board performance. External audits also foster market logic in governance practices. The two competing logics are managed by actors through selective coupling, compromise, decoupling and compartmentalization. Despite competing logics, the bureaucratic logic remains dominant and is largely responsible for variations between the underlying logics and governance practices.Practical implicationsThe findings suggest that public-sector reforms in emerging economies (EEs) must account for the fact that governance practices in PSEs are shaped by different institutional logics embedded in socioeconomic, political and organizational contexts and their corresponding management strategies.Originality/valueFew previous studies explicitly report relationships between institutional logics and the governance practices of PSEs in EEs. The current study is one of few empirical studies to connect competing institutional logics and the associated management strategies, as well as governance practices in EEs in the context of public-sector reforms.

Ten years of Journal of Accounting in Emerging Economies: a review and bibliometric analysis

PurposeThe Journal of Accounting in Emerging Economies (JAEE), established in 2011, aims to publish research on contemporary accounting issues in emerging economies. This study used the bibliometric and scientometric approaches to provide deeper insights into the journal performance, prominent topics, author's contributions and citation structure. Content analysis was conducted to provide insights on the major themes addressed in JAEE.Design/methodology/approachThis study analyses data from the Scopus database, Google Scholar and Journal website. The total number of documents analysed are 190. This study employs VOSviewer and RStudio to conduct the analysis which is categorised into four major parts: General performance indicators, citation structure, network analysis and content analysis.FindingsSince JAEE commenced publication in 2011 and indexed in the Scopus in 2018, it achieved a 14.47% annual growth rate in document publication. It is encouraging to note that 88.4% of published documents were cited. In terms of total publication, the top contributing country is Malaysia; the USA is the primary contributor in citations. Five key themes emerged from the content analysis namely, international standards and earnings quality; audit quality and IFRS practices in emerging economies; corporate governance; financial reporting and earnings management; corruption and accounting disclosure; and ownership structure and firm performance.Originality/valueThis study offers a comprehensive assessment to the journal stakeholders about the past and current journal performance besides future trends and perspectives. Additionally, JAEE readers can gain insight into the nature of academic contributions in JAEE from 299 authors of 273 affiliated institutions in 67 countries.

How do innovation and financial reporting influence public sector performance in a transition market?

PurposeDrawing on new public management (NPM) theory and institutional theory, this research examined the direct and indirect effects of an innovation-oriented culture on organisational performance as measured based on financial reporting quality and accountability. The investigation involved public organisations in Vietnam, which is a transition market.Design/methodology/approachA survey was administered to accountants and finance managers working in the public sector, and 248 valid questionnaires were subjected to analysis. The research model and hypotheses were tested via partial least squares-structural equation modelling.FindingsResults indicated that an innovation-oriented culture favourably affects the performance of public sector organisations. The quality of financial reporting and accountability mediate the relationship between the aforementioned culture and performance.Originality/valueThis study is the first to examine the chain of activities that spans innovation, financial reporting quality, accountability and organisational performance in the context of public sector organisations in an Asian transition market.

The role of stakeholders' perception in internal audit status: the case of Iran

PurposeThe purpose of this study is to explore the internal audit actors and stakeholders' perceptions of the IA status in Iranian companies, and those actors and stakeholders' roles in shaping the current situation of IA in Iran.Design/methodology/approachThis paper uses the interpretive qualitative method. Data comprises of semi-structured interviews with board of directors, audit committees, chief executive officers and chief audit executives. The paper analyzes internal audit policy documents, reports and legislations.FindingsThe results illustrate that the internal audit in Iran is perceived as a “perfunctory” practice among its stakeholders due to being recognized as an inefficient process. The key actors and stakeholders in internal audit process–including executive and board managers, audit committee members and chief audit executives–play important roles in shaping the current status of internal audit via their perceptions and actions.Practical implicationsThe fact that internal audit in Iran is perceived as an inefficient process and is used as a perfunctory practice highlights the importance of addressing this issue at the standardization and regulation level. The deficits in the roles of key actors and stakeholders need to be considered as the legislative guide in different levels.Originality/valuePrior studies mostly focus on the role of internal audit in organizations. In contrast, this study focuses on the role of key actors and stakeholders of internal auditing process in shaping the current perceived role of internal audit in organizations. Also, the study examines an emerging economy, which differs from advanced economies in important ways, including regulations, organizational culture, internal control structure and internal audit.

Corporate value creation, stock price synchronicity and firm value in China: implications for beyond

PurposeThis study introduces Social Contribution Value per Share (SCVPS), an indicator devised by the Shanghai Stock Exchange (SSE), as an easy-to-interpret Measurement of Corporate Social Performance (MCSP) to the international research arena. The authors first explore the informativeness role of voluntary disclosure of SCVPS in the stock market. The authors then go one step further to demonstrate the relationship between corporate value creation quantified by SCVPS and firm value.Design/methodology/approachThe study takes a new perspective – a quasi-natural experiment of SCVPS disclosure in 2008 and uses a Propensity Score Matched Difference in Difference model (PSM-DiD) to investigate the impact of SCVPS disclosure policy on stock price synchronization and firm value. Through manually recalculating all the values of SCVPS and its components, this study enables us to further investigate the relationship between corporate value creation for various stakeholders and firm value.FindingsThis study reveals that voluntary disclosure of SCVPS can signal firm-specific information to the market and reduce noise in returns, thus affecting stock price synchronization. The findings further demonstrate that such firm-specific information has value relevance to firm performance. Moreover, the authors demonstrate that corporate value creation for different stakeholders measured by SCVPS can significantly affect firm value. The moderating effects of ownership structures and industry types are also investigated, and an endogeneity test confirms the robustness of the findings.Practical implicationsThis study argues that SCVPS offers an economically viable way for firms, including small-and-medium-sized enterprises, in emerging economies to disclose corporate value creation and provide the public with a direct understanding and appreciation of the values created by corporations for stakeholders.Originality/valueThe result makes contributions to the MCSP literature and explores the informativeness of SCVPS disclosure. Besides, this paper demonstrates that SCVPS offers a good setting to explore the effect of corporate value creation on firm performance in an emerging market.