Search results

India is one of the few countries where companies are required to give both consolidated financial statements (CFS) as well as parent‐only financial statements. While parent‐only statements have been in existence for a long time, CFS was introduced recently. The purpose of this paper is to examine the value relevance of CFS in India.

The value relevance of CFS is examined through an empirical study. The study examines the relationship between market values and consolidated earnings and parent‐only earnings is analysed. The study uses four years data of 59 companies whose subsidiary earnings are more than 20 per cent of consolidated revenue.

Initial results show that annual CFS are not value relevant, whereas annual parent‐only financial statements are value relevant. However, wherever quarterly financial statements are available, CFC are found to be value relevant and parent‐only financial statements are not value relevant.

While CFS and parent‐only financial statement on an annual basis are mandatory, companies have the option to publish parent‐only financial statement on a quarterly basis while not reporting quarterly consolidated financial statements. This inconsistency in the regulation causes confusion to investors who receive parent‐only quarterly financial statements for three quarters and suddenly consolidated financial statements at the end of the year. The paper shows how market reacts to such reporting practices.

In addition to examining the value relevance of CFS, the paper also examines the impact of incomplete regulations of financial reporting on asset pricing.

This study aims to investigate how holding public subsidiaries affects the information environment of consolidated entities in Germany.

The sample consists of German consolidated entities that are traded on major German stock exchanges over the fiscal years 2005-2012 and hold subsidiaries with public common equity. The informativeness of earnings, defined as the association between earnings and returns, is used to investigate how holding public subsidiaries affects the information environment of consolidated entities.

Findings suggest that public subsidiary earnings are incrementally informative about consolidated entity returns beyond both consolidated and segment earnings reported by consolidated entities in Germany. An investigation into the factors that affect the incremental informativeness of public subsidiary earnings reveals that public subsidiary earnings are more incrementally informative when, compared to the consolidated entity, they are relatively large, have dissimilar growth prospects and are from the same country (i.e. Germany).

These findings suggest that this disclosure is useful to investors and that this type of disclosure could be valuable to adopt in other countries that do not have this disclosure requirement.

These findings contribute to the streams of literature that: investigate ways that regulators can improve the information environment of corporations, compare the informativeness of accounting measures and investigate the informativeness of subsidiary information.

The majority stockholders are not the same as parent company stockholders in a consolidated entity when one or more subsidiaries own parent company’s shares. In this milieu, the allocation of income could be performed: a) among majority and minority stockholders; b) among parent company stockholders and minority stockholders. Considering minority interest as a component of the consolidated equity, this paper demonstrates how the criterion used to allocate income can influence on the consolidated financial statements and, thereby, analysis based these financial statements.

The purpose of this paper is to examine whether Egyptian listed firms engage in earnings management to meet or beat earnings thresholds, particularly, earnings level (avoiding losses) threshold and earnings change (avoiding earnings decreases) threshold.

The paper uses the distribution of reported earnings approach, similar to Burgstahler and Dichev, to examine discontinuities around earnings thresholds as evidence on earnings management to meet or beat earnings thresholds.

The research findings reveal that there is a discontinuity in the distribution of reported earnings and earnings changes of Egyptian listed firms surrounding zero. There are too few observations immediately below zero and too many observations immediately above zero. These results suggest that Egyptian listed firms tend to engage in earnings management to avoid reporting losses and avoid reporting earnings decreases.

The paper's main limitation is the relatively small sample size given the thinness of the Egyptian capital market, therefore, the findings should be interpreted with caution.

The paper contributes to the literature by examining earnings management to meet or beat earnings thresholds in Egypt as one of the emerging markets.

Prior studies find that US firms with managerial incentives may manipulate the earnings gap to obscure higher performing segments to competitors or to hide underperforming segments from external monitors. The purpose of this study is to complement extant research by examining the association between managerial incentives and segment earnings reporting of cross-listed firms in the USA and the impact of country-level characteristics on this association.

The dependent variable is the earnings gap between firm-level earnings and sum of segment-level earnings. Managerial incentives are proxied by proprietary cost and agency cost. Proprietary cost is measured by the Herfindahl index. Agency cost is measured by inefficient resource transfer activities across segments. Foreign firms in this study are companies listed on major US Stock Exchanges with headquarters outside the USA. Comparable US firms are selected using the Propensity Score Matching procedure as a control group.

The authors find that 1) proprietary cost motive is not the determinant of earnings gap reporting for cross-listed firms; 2) cross-listed firms motivated by agency costs are more likely to manipulate segment earnings reporting than US firms; and 3) among cross-listed firms motivated by agency costs, firms in weak rule of law countries demonstrate more manipulation in segment earnings than firms in strong rule of law countries.

Extant research with regard to segment reporting exclusively focuses on US firms, and little is known about the practice of segment reporting by cross-listed firms originating from different legal regimes. This study fills the gap in the literature by comparing cross-listed firms to US firms in the reporting of segment earnings. The results of this study have implications for regulators and investors who are interested in evaluating the extent of cross-listed firms’ financial reporting quality.

This paper aims to examine the effect of audit quality of consolidated financial statements on the accuracy of analysts’ earnings forecasts from the viewpoint of users of financial statements.

This paper investigates the effect of dependence on the work of other auditors on error in analysts’ earnings forecasts based on samples from 2011 to 2012 (the period since implementation of the International Financial Reporting Standards in Korea). In addition, this paper examines the effects of use of Big 4 auditors, use of auditors with industry expertise and the proportion of overseas subsidiaries in relation to all subsidiaries on the association between dependence on the work of other auditors and error in analysts’ earnings forecasts.

This paper finds a positive relation between dependence on the work of other auditors and error in analysts’ earnings forecasts, suggesting that more dependence on the work of other auditors decreases the quality of the audit of consolidated financial statements; thus, to the extent that low-quality audits decrease reporting reliability, analysts’ forecasts are less likely to be accurate. This paper also finds that the positive relationship between dependence on the work of other auditors and error in analysts’ earnings forecasts is weakened when the principal auditor is a Big 4 auditor or one with industry expertise, because such auditors provide higher-quality audit services. However, the positive relationship between dependence on the work of other auditors and error in analysts’ earnings forecasts is further strengthened in cases where the proportion of overseas subsidiaries to all subsidiaries is higher. These results suggest that the complexity of the consolidation process increases as the proportion of overseas subsidiaries increases.

The findings are useful in analyzing the effects of adoption of the New ISA, implemented in 2014, which does not allow the division of audit responsibilities between principal auditors and other auditors. This paper also provides insights for regulators and practitioners to improve the auditor appointment system in the future.

An issue related to the strategic choice of organizational form for affiliated businesses is how the financial information of the affiliate will be reported. A question arises as to whether alternative methods of reporting influence user decisions. The purpose of this study was to investigate whether alternative consolidation accounting methods affected the financial decisions of users in selected countries. An experiment was conducted with student subjects in Australia, Canada and the U.S. Alternative consolidation techniques and country were the independent variables. Results indicated user responses were affected by the consolidation method. Country effects were also noted.

By July 2015, 20% of Starbucks’s payments in the United States came through its mobile app. The company had created a tool to both drive loyalty and grow its customer base. No stranger to innovation, Starbucks was partnering with iTunes as early as 2007, earned its first mobile marketer of the year award by 2010, introduced its mobile app in 2011, and by 2015, 94% of Facebook users were either fans of Starbucks or friends with someone who was. This case explores the company’s commitment to mobile and its social media prowess, and considers just what it takes to drive loyalty in a customer base.

The purpose of this paper is to investigate the value relevance of segment information for both public and private sector banks in India. In doing so, this paper examines a rapidly developing economy and perhaps its most critical sector during this period of strong economic growth.

In this study uses the simplified Ohlson model, for a sample of 136 private sector and public sector banks for the period 2007-2010 in India.

The paper finds that public sector banks have higher share prices, higher earnings and more equity compared with private sector banks. Segment earnings data is highly value relevant for both sectors; however, segment equity data is only marginally value relevant for Indian banks. The number of segments is also value relevant and associated with higher share prices.

The results of this study contribute additional evidence to the literature on segment reporting by studying the effect of adoption of segment reporting in an emerging market. Findings from the paper are particularly relevant as India is currently in the process of changing its segment reporting requirements and moving to an IFRS-based segment standard.

This paper aims to understand real earnings management behavior in the context of a parent–subsidiary relationship. It explores the differences between business groups and firms that do not have controlled subsidiaries and provides potential explanations for any measured difference.

The study uses the random-effects generalized least squares (GLS) estimation to find the difference between the real earnings management behavior of business groups, represented by the ultimate parent firms and the nonparent firms from 73 countries.

The results show that ultimate parent firms have lower abnormal production costs and abnormal discretionary expenses than nonparent firms. In contrast, parent firms have higher abnormal cash flow from operations (CFO) than nonparent firms. The results are unexpected because abnormal production costs usually have a dominant direct relationship with abnormal CFO. The results indicate that business groups use a route different from manipulating production costs and discretionary expenses.

The results reveal that parent firms use a route different from manipulating production costs and discretionary expenses. The results can be used to extend the discussion to specific business group cases, such as tracing the route or allocation of real earnings management (REM) pressure from a parent firm to its listed and private subsidiaries, and if the consolidation of minority voting rights and the transitivity of control affect the behavior in its subsidiaries.

Instead of the degree of diversification or affiliation, this paper investigates REM behavior based on the parent firm's control of its subsidiaries. With this approach, the study argues that business groups prefer a route other than manipulating production costs and discretionary expenses. The results may redirect the attention of regulators to the activities of parent firms that need more policing.