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Article

Husam Aldamen and Keith Duncan

The purpose of this study is to examine the efficacy of corporate governance systems in enhancing earnings quality during the recent global financial crisis (GFC). The…

Abstract

Purpose

The purpose of this study is to examine the efficacy of corporate governance systems in enhancing earnings quality during the recent global financial crisis (GFC). The literature provides insight into the corporate governance–accruals quality relationship during periods of relative financial stability. However, little is known about periods of unexpected financial shocks such as the GFC.

Design/methodology/approach

The sample consists of 340 companies (1,020 firm years) listed on the ASX during 2007-2009. Factor analysis is used to compute corporate governance factors. Seemingly unrelated regression (SUR) is used to test the impact of pre-GFC corporate governance on accruals quality during the GFC.

Findings

Consistent with prior research, the findings suggest that good corporate governance is positively related to accruals quality before the GFC. More importantly, the impact of good governance intensifies during the GFC, where the mitigating role of governance is arguably under pressure. Furthermore, during the GFC, good corporate governance also affects the level of asset impairment.

Research limitations/implications

The study provides empirical evidence that the relationship between good corporate governance practices and accruals quality is amplified during the GFC. The results support the efforts of market regulators to improve the governance of companies and make them stronger during financial crises.

Originality/value

The study is an important addition to corporate governance research because it tests governance dynamics in a unique crisis period and establishes that corporate governance structures are effective when most needed.

Details

Managerial Auditing Journal, vol. 31 no. 4/5
Type: Research Article
ISSN: 0268-6902

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Article

Md Khokan Bepari

The purpose of this study is to examine the relative and the incremental value relevance of book value and earnings in the Australian market in the context of the 2008

Abstract

Purpose

The purpose of this study is to examine the relative and the incremental value relevance of book value and earnings in the Australian market in the context of the 2008-2009 global financial crisis (GFC) and the non-crisis period (NCP).

Design/methodology/approach

Least square regressions are used to examine the research questions. Changes in the coefficient estimates and the relative explanatory power (adjusted R2) of book value (BV) and earnings between the GFC and the NCP are examined.

Findings

The findings suggest that both BV and earnings are value relevant in the Australian market surrounding the GFC. There were structural breaks in the association of BV and earnings with firms’ market value. The value relevance of earnings has increased and that of BV has decreased during the GFC compared to the NCP. During the study period, the explanatory power of earnings was greater than that of the BV.

Research limitations/implications

The single country context examined limits the generalisability of the findings.

Practical implications

The importance of this study lies in its showing the sustained importance of earnings in security valuation even during a period of macroeconomic uncertainty. Australian accounting standards have been shaped by a balance sheet focus. The recent move towards the fair value-based International Financial Reporting Standards (IFRS) has further enhanced the focus on the balance sheet. Nevertheless, the evidence in the present study demonstrates that even for a country with a balance sheet focus, the value relevance of earnings increases during a GFC. Hence, it is the earnings number, rather than the balance sheet, which should receive greater attention from accounting regulators and auditors.

Originality/value

This is the first known study to examine the value relevance of fundamental accounting information, such as BV and earnings, in the context of the 2008-2009 GFC. It extends prior research in the context of the 1997 Asian financial crisis and provides evidence on the impact of a worldwide exogenous shock on the value relevance of BV and earnings from a relatively mature and developed country with different legal, institutional and enforcement backgrounds.

Details

International Journal of Commerce and Management, vol. 25 no. 4
Type: Research Article
ISSN: 1056-9219

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Article

Khokan Bepari, Sheikh F. Rahman and Abu Taher Mollik

The purpose of this paper is to investigate the incremental value relevance of cash flow from operations (CFO) given book value and earnings. It also examines the relative…

Abstract

Purpose

The purpose of this paper is to investigate the incremental value relevance of cash flow from operations (CFO) given book value and earnings. It also examines the relative value relevance of earnings and CFO and changes therein between the 2008‐2009 global financial crisis (GFC) and the pre‐crisis period (PCP).

Design/methodology/approach

Least square regressions are estimated using modified Ohlson model to examine the research questions. Relative and incremental value relevance is examined by adjusted R2 and Vuong Z statistics.

Findings

The findings suggest that CFO has value relevance incremental to book value and earnings. The findings also suggest that earnings has greater relative and incremental information content than CFO in the Australian market. The value relevance of earnings has increased and that of CFO has decreased during the GFC compared to the PCP.

Research limitations/implications

This study focuses on a single country. Future studies can conduct cross‐country examination of the impact of the GFC on the value relevance of earnings and CFO.

Practical implications

This study contributes to the debate on the value relevance of CFO incremental to book value and earnings. It also extends the literature, showing that earnings has information content (value relevance) superior to CFO in the Australian market even during an economy‐wide exogenous shock like the one of the 2008‐2009 GFC.

Originality/value

This is the first known study examining the value relevance of fundamental accounting information such as earnings and CFO in the context of the 2008‐2009 GFC. It extends prior research in East Asian countries in the context of 1997 Asian financial crisis and provides evidence on the impact of a world‐wide exogenous shock on the value relevance of earnings and CFO from a relatively mature and developed country with different legal, institutional and enforcement backgrounds.

Details

Review of Accounting and Finance, vol. 12 no. 3
Type: Research Article
ISSN: 1475-7702

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Article

Md Khokan Bepari, Sheikh F. Rahman and Abu Taher Mollik

This study aims to examine the impact of the 2008-2009 global financial crisis (GFC) on Australian firms' compliance with IFRS 36/AASB 136 for goodwill impairment testing…

Abstract

Purpose

This study aims to examine the impact of the 2008-2009 global financial crisis (GFC) on Australian firms' compliance with IFRS 36/AASB 136 for goodwill impairment testing. It also examines the factors associated with the cross-sectional variations in the compliance levels.

Design/methodology/approach

Based on a survey of disclosure notes in companies' annual reports, firm-level compliance scores were developed and further analysed applying quantitative statistical methods.

Findings

The findings suggest that firms' compliance has increased during the GFC compared to the PCP. There was no significant intra-period change in the compliance levels during the PCP. Firms belonging to goodwill intensive industries show greater compliance levels than firms in other industries. Audit quality is also a significant determinant of firms' compliance with IFRS for goodwill impairment testing. Goodwill intensity is a significant determinant of firms' compliance level during the GFC but not during the PCP. Firm size is associated with the compliance levels when the industry effects are not controlled for. When the industry effects are controlled for, the effect of size on firms' compliance levels disappears. Profitability is also associated with firms' compliance with IFRS for goodwill impairment testing. However, firms' leverage ratio is not significantly associated with compliance levels.

Originality/value

This is the first known study to examine the issue of compliance with IFRS for goodwill impairment testing in the context of the GFC and the PCP.

Details

Journal of Accounting & Organizational Change, vol. 10 no. 1
Type: Research Article
ISSN: 1832-5912

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Article

Graeme Newell, Alastair Adair and Stanley McGreal

The purpose of this paper is to assess the robustness of capital flows into European commercial property markets during the global financial crisis (GFC) – over 2007‐2008;…

Abstract

Purpose

The purpose of this paper is to assess the robustness of capital flows into European commercial property markets during the global financial crisis (GFC) – over 2007‐2008; particularly highlighting differences between the developed and developing European markets.

Design/methodology/approach

Using the Real Capital Analytics database of over 49,000 commercial property transactions valued at over $1.5 trillion in 2007‐2008, the robustness of capital flows into the European commercial property markets is assessed during the GFC. The impact of the GFC on capital flows is assessed in both a regional context and global context, as well as between the developed and developing markets in Europe.

Findings

This paper assesses the robustness of the capital flows into the commercial property markets in Europe over 2007‐2008. Clear differences emerge regarding the relative impact in Europe in a regional and global context, as well as between the developed and developing European markets. The results highlight the robustness, stature and significant relative contribution of capital flows into the European commercial property markets across a range of property investment characteristics during the GFC.

Practical implications

Given the importance of commercial property as an asset class for institutional investors, this paper assesses the robustness of capital flows into the commercial property markets in Europe. By embedding this in a regional and global context, the robustness, stature, relative impact and significant contribution by European commercial property markets in the uncertainty and volatility of the environment of the global financial crisis is articulated for global property investors. Clear differences between the developed and developing markets in Europe are identified.

Originality/value

Using over 49,000 commercial property transactions, this paper is the first attempt to rigorously and empirically assess the robustness of capital flows into global commercial property markets, with a specific focus on the European commercial property markets during this unique international event of the GFC. Given the significance of commercial property as an institutional asset class, this empirically validated research enables a more informed and critical understanding of the impact of the GFC on capital flows into the commercial property markets in Europe, as well as identifying global property investor considerations regarding the ongoing significance for capital flows in their commercial property investment strategies in Europe and globally.

Details

Journal of European Real Estate Research, vol. 3 no. 3
Type: Research Article
ISSN: 1753-9269

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Article

Geeta Singh, Kaushik Bhattacharjee and Satish Kumar

The purpose if this paper is to examine the turn-of-the-month effect in the equity market of three major emerging countries – Brazil, India and China – from January 2000…

Abstract

Purpose

The purpose if this paper is to examine the turn-of-the-month effect in the equity market of three major emerging countries – Brazil, India and China – from January 2000 to December 2017.

Design/methodology/approach

Ordinary least square regression analysis is used to examine the presence of the turn-of-the-month effect and to test the efficiency of the emerging stock markets. The characteristics of the returns during the turn-of-the-month days are compared with that of the non-turn-of-the-month trading days.

Findings

The average returns during turn-of-the-month days for all the considered emerging market indices are significantly higher than the non-turn-of-the-month days for the full sample. For the subsample analysis, the average returns for Brazil and India for pre-GFC period are higher on the turn-of-the-month days than on the non-turn-of-the-month days. However, the effect disappears in China during the GFC period. During the crisis period, the results show that the turn-of-the-month effect disappears in Brazil and India, whereas for China, the effect is significant. For the post-GFC period, the-turn-of-the-month effect reappears for all the countries.

Practical implications

The results have important implications for both traders and investors. The authors’ results indicate that the market participants can time the stock markets of these countries by taking long positions especially during the times when the turn-of-the-month effect is highly significant.

Originality/value

To the best of the authors’ knowledge, this paper is the first to study the turn-of-the-month effect, in the key emerging countries such as Brazil, China and India. Second, the authors divide the sample into three subperiods based on the 2008 GFC such as pre-GFC, GFC and post-GFC to understand the dynamic behavior of turn-of-the-month effect over time. Most importantly, the authors control for the day-of-the-week effect while examining the turn-of-the-month effect.

Details

Managerial Finance, vol. 47 no. 4
Type: Research Article
ISSN: 0307-4358

Keywords

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Book part

Ashu Tiwari, Archana Patro and Soniya Mohil

The systematic risks related to credit financing has received significant attention in the academic domain during and after any financial crisis. However, the role of…

Abstract

The systematic risks related to credit financing has received significant attention in the academic domain during and after any financial crisis. However, the role of insurance has not been adequately studied in the context of crises. The extant literature also shows that the scale of credit financing depends upon the availability of credit insurance and on the policy orientation. Past evidence shows that demand for credit insurance was significantly high during the crisis period. Therefore, this chapter proposes to study the role of various combinations of these two aspects near the period of crisis. The findings of this chapter are based on the outcomesof previous research articles on these topics. The research articles are gathered from various online databases for the years 2000–2014 for the G7 economies. This chapter has alsoincluded facts from contextual policy documents on monetary and fiscal policies where it finds them necessary. Broadly, this chapter describes the role of policies when two mutually dependent industries interact and adversely impact market equilibrium.

Details

The Impacts of Monetary Policy in the 21st Century: Perspectives from Emerging Economies
Type: Book
ISBN: 978-1-78973-319-8

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Article

Isil Erol and Tanja Tyvimaa

The purpose of this paper is to explore the levels and determinants of net asset value (NAV) premiums/discounts for publicly traded Australian Real Estate Investment Trust…

Abstract

Purpose

The purpose of this paper is to explore the levels and determinants of net asset value (NAV) premiums/discounts for publicly traded Australian Real Estate Investment Trust (A-REIT) market during the last decade. A-REITs were severely affected by the global financial crisis as S&P/ASX 200 A-REIT index-listed property stocks experienced 47 per cent discount to NAV, on average, in 2008–2009 crisis. Since 2013, A-REIT sector has exhibited a strong recovery from the financial crisis and traded at high premiums to date. Understanding the relationship between pricing in the public and private real estate markets has taken on great importance as A-REITs continue to trade at significant premium to NAV unlike their counterparts in the USA and Europe.

Design/methodology/approach

This paper follows a rational approach to explain variations in NAV premiums and explores the company-specific factors such as liquidity, financial leverage, size, stock price volatility and portfolio diversification behind the A-REIT NAV premiums/discounts. The study specifies and estimates a model of cross-sectional and time variation in premiums/discounts to NAV using semi-annual data for a sample of 40 A-REITs over the 2008–2018 period.

Findings

The results reveal that A-REIT premiums to NAV can be explained not only by the liquidity benefit of listed property stocks but also positive financial leverage effect. During the past decade, A-REITs have followed an aggressive approach in financing their growth by using borrowed funds to purchase assets as the income from the property offsets the cost of borrowing and the risk that accompanies it. Debt-to-equity ratio has to be considered as an important source of NAV premiums as highly geared A-REITs that favoured debt financing over equity financing traded at significant premiums to NAV of their underlying real estate assets.

Practical implications

The paper includes implications for the REIT market investors. The regression analysis shows that specialty A-REITs with a focus on creative market niches traded at higher premiums compared with other property stocks, especially in the post-GFC recovery period. Specialty REITs are more highly valued by the market than their traditional specialised counterparts (e.g. office and retail REITs), and those pursuing a diversified strategy.

Originality/value

This paper presents an Australian case study as the A-REIT market provides a suitable environment for testing the effect of financial gearing on the REIT premium to NAV. The study provides empirical evidence supporting the importance of debt-to-equity ratio in explaining the variation in A-REIT NAV premiums.

Details

Journal of Property Investment & Finance, vol. 38 no. 1
Type: Research Article
ISSN: 1463-578X

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Article

Guanglu (Luke) Xu and Xudong Ji

The main aim of this study was to examine the earnings management behaviours, including both accrual-based and cash flow-based earnings management, of Chinese firms during…

Abstract

Purpose

The main aim of this study was to examine the earnings management behaviours, including both accrual-based and cash flow-based earnings management, of Chinese firms during the Global Financial Crisis (GFC).

Design/methodology/approach

A data set of 1,392 firm-year observations derived from a large sample of China's top listed firms (based on total assets) was constructed and investigated via univariate and ordinary least squares regression analyses.

Findings

Two distinct conclusions can be drawn from the results of the study. First, the top Chinese listed firms did engage in earnings management, as indicated by comparisons of the means of the absolute values of both accrual-based and cash flow-based earnings management indicators in the periods before and after 2008 when the GFC started. Second, investigation of earnings management directions revealed that in response to the GFC, the firms from construction-related industries and the airline industry manipulated earnings upwards through either accrual-based and/or cash flow-based earnings management activities. On the other hand, firms in the household durables industry engaged in earnings-reducing activities. These findings reflect the effect of the stimulus package launched by the Chinese Government in an effort to combat the GFC. In addition, the results indicate that firm characteristics such as size, leverage, profitability and growth affected the earnings management behaviours of the firms analysed in the study.

Originality/value

The empirically derived findings of this study contribute to the literature pertaining to the effects of the GFC on earnings management practices in China, which has remained relatively scant to date.

Details

International Journal of Accounting and Information Management, vol. 24 no. 3
Type: Research Article
ISSN: 1834-7649

Keywords

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Article

Chia‐lin Chang, Juan‐Ángel Jiménez‐Martín, Michael McAleer and Teodosio Pérez‐Amaral

The Basel II Accord requires that banks and other authorized deposit‐taking institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary…

Abstract

Purpose

The Basel II Accord requires that banks and other authorized deposit‐taking institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure value‐at‐risk (VaR). The risk estimates of these models are used to determine capital requirements and associated capital costs of ADIs, depending in part on the number of previous violations, whereby realized losses exceed the estimated VaR. The purpose of this paper is to address the question of risk management of risk, namely VaR of VIX futures prices.

Design/methodology/approach

The authors examine how different risk management strategies performed before, during and after the 2008‐2009 global financial crisis (GFC).

Findings

The authors find that an aggressive strategy of choosing the supremum of the univariate model forecasts is preferred to the other alternatives, and is robust during the GFC.

Originality/value

The paper examines how different risk management strategies performed before, during and after the 2008‐2009 GFC, and finds that an aggressive strategy of choosing the supremum of the univariate model forecasts is preferred to the other alternatives, and is robust during the GFC.

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