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1 – 10 of 412Justyna Fijałkowska, Dominika Hadro, Enrico Supino and Karol M. Klimczak
This study aims to explore the intelligibility of communication with stakeholders as a result of accrual accounting adoption. It focuses on changes in the use of visual forms and…
Abstract
Purpose
This study aims to explore the intelligibility of communication with stakeholders as a result of accrual accounting adoption. It focuses on changes in the use of visual forms and the readability of text that occurred immediately after the adoption of accrual accounting in performance reports of Italian public universities.
Design/methodology/approach
The authors collect the stakeholder section of performance reports published before and after accrual accounting adoption. Then, the authors use manual and computer-assisted textual analysis. Finally, the authors explore the data using principal component analysis and qualitative comparative analysis.
Findings
This study demonstrates that switching from cash to accrual accounting provokes immediate changes in communication patterns. It confirms the significant reduction of readability and increase in visual forms after accruals accounting adoption. The results indicate that smaller universities especially put effort into increasing intelligibility while implementing a more complex accounting system. This study also finds a relation between the change in readability and the change in visual forms that are complementary, with the exception of several very large universities.
Practical implications
The findings underline the possibility of neutralising the adverse effects of accounting reform associated with its complexity and difficulties in understanding by the use of visual forms and attention to the document’s readability.
Originality/value
This paper adds a new dimension to the study of public sector accounting from the external stakeholder perspective. It provides further insight into the link between accrual accounting adoption and readability, together with the use of visual forms by universities.
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Claudio Columbano, Lucia Biondi and Enrico Bracci
This paper aims to contribute to the debate over the desirability of introducing an accrual-based accounting system in the public sector by examining whether accrual-based…
Abstract
Purpose
This paper aims to contribute to the debate over the desirability of introducing an accrual-based accounting system in the public sector by examining whether accrual-based accounting information is superior to cash-based information in the context of public sector entities.
Design/methodology/approach
This paper applies a quantitative research method to assess the degree of smoothness and relevance of the accrual components of income recorded by 302 entities of the Italian National Health Service (INHS) over the period 2014–2020.
Findings
The analysis reveals that net income is smoother than cash flows as a summary measure of economic results and that accounting for accruals improves the predictability of future cash flows. However, the authors' novel disaggregation of accrual accounts reveals that those accounts that contribute the most to making income smoother than cash flows – noncurrent assets and liabilities – are also those that contribute the least to predicting future cash flows.
Originality/value
The disaggregation of accrual accounts allows to identify the sources of the informational benefits of accrual accounting, and to document the existence of an informational “trade-off” between smoothness and relevance in the context of public sector entities.
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Adhitya Agri Putra and Doddy Setiawan
This research paper aims to examine the effect of chief executive officer (CEO) characteristics on earnings management.
Abstract
Purpose
This research paper aims to examine the effect of chief executive officer (CEO) characteristics on earnings management.
Design/methodology/approach
Research samples are manufacturing firms listed in the Indonesian Stock Exchange 2015–2021. CEO characteristics include narcissism, gender, age, tenure, experience, nationality and founding family status. Data analysis uses random-effect regression.
Findings
The result shows that higher narcissism CEOs have aggressive characteristics so they will be more likely to engage in accrual and real earnings management. Female CEOs, foreign CEOs and founding-family CEOs have higher monitoring and business ethics characteristics so they will be less likely to engage in accrual and real earnings management. CEOs with higher education levels have higher thinking complexity so they will be more likely to engage in accrual earnings management with higher regulator and auditor monitoring barriers than real earnings management. CEOs with financial and accounting experience are familiar with accounting standards and auditor monitoring barriers so they will be more likely to engage in accrual earnings management than real earnings management. On the other hand, there are no effects of CEO age and tenure on earnings management.
Originality/value
This research contributes to providing evidence of the effect of CEO characteristics on earnings management in a specific industry such as manufacturing firms and emerging markets such as Indonesia with the majority group firms being family firms.
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Yamina Chouaibi, Rim Zouari-Hadiji and Sawssen Khlifi
The present work aimed to identify the impact of accrual-based earnings management on the cost of equity (KE) through corporate social responsibility (CSR) as a moderating…
Abstract
Purpose
The present work aimed to identify the impact of accrual-based earnings management on the cost of equity (KE) through corporate social responsibility (CSR) as a moderating variable on European Environmental, Social, and Governance (ESG) companies.
Design/methodology/approach
The authors used data from a sample of 366 European firms over the 2012–2022 period. The data were collected from the Thomson Reuters Asset 4 and I/B/E/S database and analyzed using STATA 17 as a statistical software package.
Findings
As expected, the results showed a negative relationship between accruals, CSR and KE. Moreover, they suggest that the moderating variable negatively affects the relationship between accruals and the KE.
Practical implications
The results are pertinent to stakeholders and investors, who would pressure companies to enhance the quality of disclosed information and mitigate risks facing the company.
Originality/value
The main contribution lies in examining the relationship between accruals and KE through CSR in the European ESG context.
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Recent studies on the securities market’s differential pricing of earnings components have shown that cash flow from operations is more highly valued than total accruals and that…
Abstract
Purpose
Recent studies on the securities market’s differential pricing of earnings components have shown that cash flow from operations is more highly valued than total accruals and that moderate cash flow from operations has higher valuation than extreme total accruals. An interesting question that follows is whether these findings hold regarding the differential valuations of cash flow and current accruals. This study aims to extend prior research by addressing this issue in two ways. First, the authors examine the incremental information content of cash flow from operations beyond working capital from operations. Second, the authors assess the effect of extreme working capital from operations on the incremental information content of cash flow from operations. This study aims to extend prior research by addressing this issue in two ways.
Design/methodology/approach
This study adopts market-based accounting research to test its hypotheses and to achieve its objectives. Specifically, this study uses statistical associations between accounting data and stock returns to examine the incremental information content (value relevance) of cash flow and working capital from operations and the effect of extreme working capital from operations on the incremental information content of cash flow.
Findings
The results show that cash flow from operations is not more highly valued than current accruals (both being valued equivalently). However, moderate cash flow from operations has higher valuation than extreme current accruals (each is valued differently). Overall, these research findings indicate that cash flow becomes more important for valuation as accruals get “extreme”.
Practical implications
As accruals are unlikely to persist to be permanent across the years, these results can be interpreted as indicating that cash flow and accruals information are used jointly by investors, with one being more important than the other depending on the relative “extremeness” of each. Therefore, both are of value to the investor and both should be reported.
Originality/value
The paper contributes to the UK research on determining the preferred level of disaggregation of earnings components, i.e. operating cash flow, current accruals and non-current accruals. This would help investors to improve their investment and credit decisions.
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The purpose of this paper is twofold. First, this study examines the relationship between the presence of a female (rather than a male) audit partner and the client firm’s…
Abstract
Purpose
The purpose of this paper is twofold. First, this study examines the relationship between the presence of a female (rather than a male) audit partner and the client firm’s accruals quality. Second, this study explores whether and how the female audit partners’ specific attributes influence the gendered auditor effect on the quality of the client firm’s accruals quality (if it exists).
Design/methodology/approach
Research hypotheses have been tested by conducting both univariate and multivariate empirical analyses based on a large sample of firm-year observations from the Swedish Corporation for the years 2010–2019. During the sample timeframe, the client firms have been audited by 56 female and 231 male audit partners.
Findings
The research findings first indicate that client firms of female audit partners are associated with downward earnings management, indicating a beneficial female auditor effect on client firm’s accruals quality. Results from the audit partner change analysis exhibit that the adverse female auditor effect on the client firm’s earnings management, and hence, the beneficial female auditor effect on the client firm’s accruals quality occurs from the first year of the assignment of a female audit partner to replace a male audit partner. When looking at how specific attributes of female audit partners influence accruals quality of their audited clients, this study reveals that the favorable female auditor effect on the client firm’s accruals quality holds constant for all the female audit partners’ specific attributes included in the researched models. This underscores that the mere presence of a female audit partner constrains earnings management and enhances, thereby, the client firm’s accruals quality.
Originality/value
This research supports regulators calling for the appointment of more women to the audit firms’ leading ranks (e.g. leadership).
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Since the 1980s, governments worldwide have been implementing the move from cash to accrual accounting. Scholars initially considered the appropriateness of this accounting reform…
Abstract
Purpose
Since the 1980s, governments worldwide have been implementing the move from cash to accrual accounting. Scholars initially considered the appropriateness of this accounting reform to be self-evident, but later they have expressed critical views. This paper systematises the existing literature intending to reflect on the adverse effects of adopting accrual accounting in the public sector and identify implications for future research.
Design/methodology/approach
The present study builds on a systematic literature review of 106 academic articles published between 1980 and 2021. It is based on the “preferred reporting items for systematic reviews and meta-analyses” (PRISMA) method. Synthesising research through a transparent, rigorous and replicable process makes it possible to identify and discuss the adverse effects of adopting public sector accrual accounting.
Findings
Significant issues are linked to organisational impacts and accountability. Resistance to change is the main negative consequence and is more likely in countries that have chosen to adopt accrual accounting without maintaining cash accounting. The new accounting rules make accounting information more complex and arbitrary for citizens and politicians. How these criticalities should be addressed deserves further investigation.
Originality/value
This paper offers a comprehensive literature review on the drawbacks of adopting accrual accounting in the public sector. It could provide a general lesson to be applied to policymakers of other jurisdictions currently considering this transition to prevent the adverse effects and act proactively.
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Osama Atayah, Hazem Marashdeh and Allam Hamdan
This study aims to examines both accrual and real-based earnings management (EM) behavior of listed corporations in tax-free countries during different economic situations. It…
Abstract
Purpose
This study aims to examines both accrual and real-based earnings management (EM) behavior of listed corporations in tax-free countries during different economic situations. It also addresses the link between firm- and country-level determinants of accrual and real-based EM and explores economic conditions' influence on these determinants.
Design/methodology/approach
The study examines 1,608 firm-years, covers sixteen years (2004–2019), clustered into three periods according to the global financial crisis (GFC): four years prior (2004–2007), two years during (2008–2009), and ten years post the GFC (2010–2019). We employ the modified Jones model (performance-matched) developed by Kothari et al. (2005) to measure the accrual-based EM (positive and negative discretionary accrual EM) and the three levels model for Dechow et al. (1998) to measure the real-based EM (cash flow from operating, discretionary expenses and abnormal production cost).
Findings
The study finds a significant increase in EM practices in the listed corporations in tax-free countries during the economic downturn. These corporations are found to understate their earnings during the economic stress period. Simultaneously, the firm-level determinants of EM practices were at the same level of significance during different economic conditions in accrual-based EM. In contrast, the country-level EM determinants vary based on the economic conditions.
Originality/value
Financial reports' users gain a deep understanding of the quality of financial reports in the context of tax-free country. And, the study outcomes inspire policymakers to develop relevant legislation to mitigate financial reports' risk and adequately protect the financial reports' users.
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Eric Valenzuela and Michael Zheng
The authors seek to analyze the impact of weak corporate governance by top executives of a firm on the firm's earnings reports. This research is meant to further emphasize the…
Abstract
Purpose
The authors seek to analyze the impact of weak corporate governance by top executives of a firm on the firm's earnings reports. This research is meant to further emphasize the impact of co-opted executives on a firm, primarily through their impact on earnings management.
Design/methodology/approach
Using financial data from 11,473 firm-year observations, the authors utilize ordinary least squares (OLS), 2-stage IV regressions, propensity score matching (PSM) and entropy balancing to analyze the impact of a co-opted top management team on discretionary accruals and restatements.
Findings
The authors find empirical evidence that firms with weak corporate governance from top executives are more likely to manipulate reported earnings and have lower financial reporting quality. The authors also find that the effect of co-opted executives on earnings management is weaker when a chief executive officer's (CEO’s) incentives are not aligned with those of top executives, suggesting that executives prevent earnings management due to reputational concerns. Co-opted chief financial officers (CFOs) increase the magnitude of earnings management in a firm but are not solely responsible for the authors' results.
Originality/value
The authors' results suggest that the top executive team provides an important first defense in the prevention of earnings management and corporate wrongdoing. Co-option of the top executive team may be an important consideration when doing research into corporate governance.
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Ratna Candra Sari, Mahfud Sholihin, Zuhrohtun Zuhrohtun, Ida Ayu Purnama, Patriani Wahyu Dewanti and Umi Syafaatul Udhma
The purpose of this study is to examine the trade-off between accrual and real activity earnings manipulation by considering gender and punishment as one aspect of clawbacks.
Abstract
Purpose
The purpose of this study is to examine the trade-off between accrual and real activity earnings manipulation by considering gender and punishment as one aspect of clawbacks.
Design/methodology/approach
To achieve the research objectives, experimental design research was used, involving 183 professional accountants in Indonesia. This was followed by interviews with board members of public companies in Indonesia.
Findings
After the adoption of clawbacks, the intention to manipulate accruals decreased more among women than among men. However, the possible unintended consequences of clawbacks, particularly an increase in real activity manipulation, did not differ between women and men.
Originality/value
There are still few studies that use experimental designs to examine the consequences of clawback. Our study is expected to provide a novel contribution to the literature on the consequences of clawbacks as we use an experimental method. Besides, previous research that tested the consequences of clawback, using both archival and experimental data, had not considered the gender aspect, thus prompting this study to fill the research gap related to the consequences of clawback adoption by including the gender variable.
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