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Book part
Publication date: 3 September 2014

Edilson Paulo, Eliseu Martins and Luiz Felipe de Araújo Pontes Girão

We analyze the quality of accounting information reported by public firms in Latin America and United States of America.

Abstract

Purpose

We analyze the quality of accounting information reported by public firms in Latin America and United States of America.

Methodology/Approach

To reach our objective, an exploratory and descriptive research was developed. To analyze the dimensions of accounting information quality, the operational model present in literature were applied which assess the persistence in earnings (Dechow & Schrand, 2004), the level of conservatism (Ball & Shivakumar, 2005), accounting earnings management (Pae, 2005) and accruals quality measurement (Dechow & Dichev, 2002), in a sample composed of publicly traded companies in the markets of Latin America and the North America (represented by USA), totaling 2,526 companies, from 2005 to 2011.

Findings

Our results evidenced that financial reporting of Latin-American companies are less conservative (except for Brazilian companies) and has similar level of earnings management in comparison to the North-American ones. Concerning to the quality of accruals it was observed that there are significant differences especially related to accruals of Brazilian companies.

Practical Implications

Our results suggest differences in the quality of accounting information, originated by the economic environment where the company is inserted. So, investors must be careful when they are comparing firms between these markets, because the results were different for some cases, which may lead the investors to make misallocation of his resources.

Originality/value of paper

We expanded previous literature by the use of various proxies for accounting quality, comparing firms on emerging markets with the major capital market (USA), and the crises period of time.

Details

Accounting in Latin America
Type: Book
ISBN: 978-1-78441-067-4

Keywords

Book part
Publication date: 30 September 2019

Masumi Nakashima

This study focuses on a survey of chief financial officers (CFOs) in public firms in Japan concerning the following six points: the importance of the definition earnings quality;…

Abstract

This study focuses on a survey of chief financial officers (CFOs) in public firms in Japan concerning the following six points: the importance of the definition earnings quality; higher quality earnings; the determinants of earnings quality; prevalence, magnitude, and motivation of earnings management; accounting that influences earnings quality; and misrepresenting of earnings. The results are following: first, Japanese CFOs define earnings quality as earnings accurately reflecting economic reality, earnings accurately reflecting the results of operations, and earnings backed by cash flows, earnings sustainability, recurring, and consistent, and earnings reflecting long-term trend importance. Second, Japanese firms consider earnings that reflect consistent reporting choices over time as higher quality. They do not consider that earnings having accruals that are eventually realized as cash flow as higher earnings quality. Third, Japanese CFOs indicate that 30% of earnings quality is impacted by firm characteristics such as firm’s business model, industry, and macroeconomic conditions. Surprisingly, the influence of the board of directors is greater than the impact of their internal controls. Fourth, as for the determinants of earnings quality, CFOs consider that more than 70% of Japanese CFOs do not allow the discretion and that accounting standards limit their ability to report higher earning quality. Fifth, Japanese CFOs consider that higher earnings are influenced by accounting principles such as policies that match expenses with revenues and policies that rely on fair value accounting as much as possible. Sixth, CFOs themselves predict that 50% of Japanese firms use discretions and that they use 20% of earnings per share (EPS). Since there is inside and outside pressure to hit earnings benchmarks, Japanese firms possess the motivation to use earnings to misrepresent economic performance, Japanese managers see a red flag when generally accepted accounting principle’s earnings do not correlate with cash flow from operations.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78973-370-9

Keywords

Book part
Publication date: 1 January 2008

Hafiza Aishah Hashim and Susela Devi

Purpose – The relationship between the board characteristics (i.e. board independence, CEO duality, board size, board meeting and board tenure) and the ownership structure (i.e…

Abstract

Purpose – The relationship between the board characteristics (i.e. board independence, CEO duality, board size, board meeting and board tenure) and the ownership structure (i.e. managerial ownership, family ownership and institutional ownership) and earnings quality is examined.

Design/methodology/approach – Data from 280 non-financial companies listed on Bursa Malaysia's Main Board for the year 2004 is used.

Findings – Significant association was found between board tenure and earnings quality. In addition, a positive significant association was found between outside board ownership and family ownership and earnings quality. However no significant relationship was found between board of directors’ independence and earnings quality.

Research limitations/implications – The association between audit committees’ characteristics and earnings quality was not examined. An examination of the impact of ownership structure on boards of directors and audit committees is warranted. An investigation of the impact of the ownership structure on earnings quality in Malaysia using separate test on family-controlled and non-family-controlled firms is suggested.

Practical implications – The appropriateness of policy directives requiring majority independent directors may be considered by policy makers.

Originality/value – The conflict of interest between outside shareholders and managers in a diffused ownership support the agency theory. However, utility of agency theory to explain the conflicts between the controlling owners and the minority shareholders where ownership concentration is prevalent is limited. Whilst demonstrating the dominant impact of ownership structure on earnings quality in Malaysia the study calls for alternative explanations of corporate governance practices in different institutional settings.

Details

Corporate Governance in Less Developed and Emerging Economies
Type: Book
ISBN: 978-1-84855-252-4

Book part
Publication date: 29 November 2012

Silvio Hiroshi Nakao

The purpose of this chapter is to discuss the relation between tax reporting and financial reporting, their influence on transparency, and empirical implications.

Abstract

The purpose of this chapter is to discuss the relation between tax reporting and financial reporting, their influence on transparency, and empirical implications.

Details

Transparency and Governance in a Global World
Type: Book
ISBN: 978-1-78052-764-2

Keywords

Book part
Publication date: 29 November 2012

Florian Bitsch

I analyze cash flow and transparency characteristics of listed infrastructure investment companies and funds and compare this unique infrastructure sample with a…

Abstract

I analyze cash flow and transparency characteristics of listed infrastructure investment companies and funds and compare this unique infrastructure sample with a non-infrastructure reference group. I confirm the common hypothesis that infrastructure investments provide more stable cash flows than non-infrastructure investments. However, I do not find that investors positively value this cash flow stability. Instead, more volatile cash flows are valued with a premium. On the other hand, earnings management is valued with a discount. Together with a punishment for complex financial and governance structures this indicates a punishment for a lack of transparency by investors. My chapter also offers evidence that infrastructure investments in general are valued with a positive “infrastructure premium” that is not driven by more stable cash flows. I find additional evidence that sector specifics and regulatory risk play a significant role for the valuation of infrastructure investment companies and funds.

Details

Transparency and Governance in a Global World
Type: Book
ISBN: 978-1-78052-764-2

Keywords

Book part
Publication date: 12 November 2016

Haiyan Zhou, Hanwen Chen and Zhirong Cheng

In this paper, we investigate whether internal control and whether corporate life cycle would affect firm performance in the emerging markets of China.

Abstract

Purpose

In this paper, we investigate whether internal control and whether corporate life cycle would affect firm performance in the emerging markets of China.

Methodology/approach

We use Chen, Dong, Han, and Zhou’s (2013) internal control index on the effectiveness of internal control and Dickinson’s (2011) definition on firm life cycle. We use multivariate regression analysis.

Findings

We find that the internal control improves corporate performance. When dividing firm life cycle into five stages: introduction, growth, mature, shake-out and decline, we find that the impacts of internal control on firm performance vary with different stages. The positive impact of internal control on firm performance is more significant in maturity and shake-out stages than other stages.

Research limitations/implications

Our findings would have implications for the regulators and policy makers with regards to the importance of internal control in corporate governance and the effectiveness of implementing standards and guidelines on internal control in public firms.

Practical implications

In addition, our findings on the various roles of internal control at different stages of firm life cycle would help managers and board of directors find more focus in risk management and board monitoring, respectively.

Originality/value

Although the prior literature have examined the link between internal control, information quality and cost of equity capital (Ashbaugh-Skaife, Collins, Kinney, & LaFond, 2009; Ogneva, Subramanyam, & Raghunandan, 2007), our study would be the first attempt to investigate the link between internal control and firm performance during different stages of firm life cycles.

Details

The Political Economy of Chinese Finance
Type: Book
ISBN: 978-1-78560-957-2

Keywords

Book part
Publication date: 13 August 2018

Robert Felix

Purpose – This study examines whether a firm’s investment efficiency is impacted by having an outside director who experiences investment efficiency at one of his/her other board

Abstract

Purpose – This study examines whether a firm’s investment efficiency is impacted by having an outside director who experiences investment efficiency at one of his/her other board seats.

Methodology – Archival data is used to examine the research question.

Findings – The results indicate that firms have higher levels of investment efficiency when they have an outside director who also sits on the board of another firm that has high investment efficiency. The result is most prevalent for the subsample of firms with a powerful CEO or with low information quality.

Implications – An implication of this finding is that boards may look to the investment-related experiences that a director has through his/her other board service when deciding to add a new director. Moreover, the results imply that firms will know to look for these informed directors when they have information problems or a powerful CEO.

Originality/Value – Investments require a firm to determine how it will allocate resources. Such important decisions require management to obtain the approval of the board of directors. This paper reveals that the investment-related experience that the directors obtain from their other board service is associated with efficient investment outcomes at the home firm.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-78756-440-4

Keywords

Book part
Publication date: 1 December 2004

Oliver Marnet

The agency view of corporate governance requires effective monitoring to align the interests of the agent with those of the principal. This paper suggests that conventional…

Abstract

The agency view of corporate governance requires effective monitoring to align the interests of the agent with those of the principal. This paper suggests that conventional proposals to reform corporate governance through legislation, codes of best practice, and the like, are necessary, but underestimate the pressures which reputational intermediaries face from inevitable conflicts of interest and bias. Various strands of the literature on corporate governance, cognitive research and behavioural economics are integrated to shed light on questions regarding the independence of boards of directors and external auditors.

Details

Corporate Governance
Type: Book
ISBN: 978-0-76231-133-0

Book part
Publication date: 6 September 2018

Debarati Bhattacharya, Tai-Yu Chen and Wei-Hsien Li

This paper studies how a firm reacts to the threat from product market competition. Consistent with the strategic equilibrium model, we find that a firm increases investment in…

Abstract

This paper studies how a firm reacts to the threat from product market competition. Consistent with the strategic equilibrium model, we find that a firm increases investment in response to external product market threats. Further, the paper analyzes whether product market threats lead to an improvement in investment efficiency. When faced with product market competition, we find that firms that are otherwise likely to underinvest (overinvest) increase (increase) their investment significantly (less than the firms that are likely to underinvest) in the next period. However, firms that are predisposed to overinvest do not make cuts in capital expenditure, which indicates that strategic investment is a critical countermeasure for addressing competitive threats for all firms, their inclination to make suboptimal investment decisions notwithstanding. Overall, the evidence supports the predatory risk of waiting as well as competition and investment efficiency hypotheses. Additional tests suggest that product market threat partially substitutes for other external monitoring mechanisms designed to manage agency problems.

Book part
Publication date: 3 September 2014

Abstract

Details

Accounting in Latin America
Type: Book
ISBN: 978-1-78441-067-4

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