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This study is primarily motivated by the increasing concern of the academic, practitioners, regulators and standard setters regarding the quality of earnings and financial reporting. The purpose is to investigate whether the accrual anomaly exists in Australia; whether the occurrence of the accrual anomaly is attributed to the discretionary accruals component stemming from managerial discretion; and the impact of corporate governance reforms on accrual mispricing.

This study employs the Mishkin (1983) rational expectations test to examine whether the earnings expectations embedded in stock prices accurately reflect the differential persistence of earnings components. It also employs the hedge portfolio trading strategy to examine whether taking a long position in firms with low accruals and a short position in firms with high accruals will yield positive abnormal stock returns.

The results show that investors overestimate the persistence of accruals and underestimate the persistence of cash flows and subsequently, overprice the accruals and underprice the cash flows. The evidence of accrual mispricing is severe for the component of discretionary accruals. Nonetheless, the association between discretionary accruals and abnormal returns are weakened during the corporate governance reforms period.

It should be cautious to attribute the investors' ability to accurately price accruals and cash flows to the passage of corporate governance reform program. Despite there is control for firm size, book-to-market, PE multiple, growth and leverage, other macro-economic factors such as interest rates, inflation and GDP could potentially have an impact on stock returns.

The passage of corporate governance reform program has increased the level of financial reporting disclosure and the monitoring of management, which subsequently improved accruals persistence and earnings quality. A direct practical implication is that investors should better understand the information in accruals for future earnings when the corporate disclosure environment is strengthened.

This study provides useful information to regulators, academics and investors interested in market efficiency and accrual mispricing. The results suggest that the reform of corporate governance is associated with more efficient prices. This may be of interest to the regulators who intend to improve earnings quality and financial reporting environment through the regulatory reform.

To test the accrual anomaly in the period of corporate governance reforms is particularly useful to regulators and policy makers. It allows regulators and policy makers to gain insight as whether the change of regulation has been effective – more transparent and timely reporting of financial information are supposed to help the investors to better understand the accruals and thus mitigate the potential for accrual mispricing.

An important objective of corporate governance reforms is to increase transparency. The purpose of this paper is to investigate whether this objective of corporate governance reforms of 2002 was achieved in Russia.

This paper utilizes the data collected from UBS Brunswick's “Russian Equity Guides” published during 1999‐2004, and companies’ annual reports. The modified accrual model of Jones presented by Dechow et al. is used to ascertain the quality of reported earnings of 91 Russian listed companies during the pre‐ and post‐ reform periods.

This research paper shows that the quality of earnings – measured as the inverse of absolute discretionary accruals – is not affected by the 2002 reforms in Russia. Therefore, one of the most important objectives of bringing transparency in the Russian corporate sector was not successfully achieved. Instead, this paper finds that adoption of international financial reporting standards (IAS/USGAAP) by Russian listed companies improved the transparency of corporate disclosures irrespective of the reforms. Moreover, the need for large capital investments after the Russian financial crisis of 1998 was depicted by maintaining large pools of accruals by Russian listed companies. Finally, the results show ferrous metal and telecom sector companies have generally lower quality of earnings than other sectors.

This paper builds on the previous accounting literature by studying the determinants of the quality of reported earnings in one of the most interesting emerging economies. The study re‐emphasizes the importance of legal and regulatory framework in determining the level of corporate transparency in emerging economies. The results obtained here are insightful for future accounting research and policy makers in assessing the potential pros and cons of regulatory reforms. However, the paper does not judge or comment on the quality and enforcement of the prescribed reforms. The results describe the trend of the accounting quality in Russia during the analysis period only.

This is one of the first studies on Russian listed firms testing the impacts of the most important of all reforms introduced in Russia since the fall of the USSR. This extends the knowledge not only for academics and investors but for Russian policy makers in particular and for corporate regulators in other emerging markets in general.

We examine whether discretionary accruals of firms obtaining substantial external financing can be explained by managerial manipulation or managerial overoptimism. Insider trading patterns and press releases around equity and debt financing suggest that managers are more optimistic about their firms around debt financing. Consistent with earlier studies, we find that discretionary current accruals peak when firms obtain equity financing. However, we also find that discretionary accruals peak when firms obtain debt financing. Moreover, discretionary accruals are higher for firms that rely on debt rather than on equity financing. The results are robust to controlling for firm characteristics, excluding small and distressed firms, and using alternative measures of discretionary accruals. These findings support the hypothesis that managerial overoptimism distorts financial statements of firms obtaining external financing.

Earlier studies have found that the country characteristics play important role in measuring the corporate transparency. The purpose of this paper is to examine whether the firm-level determinants play an important role in corporate transparency measured as the quality of disclosed earnings across transitional Europe and what role an overall transparency measured by the Corruption Perception Index plays in it. This paper further tests if the market reacts similarly to discretionary and non-discretionary components of earnings across different groups of countries with respect to transparency.

The financial and ownership data of listed companies in ten European countries is obtained from Amadeus. The transparency ratings are obtained from Transparency International. The sample consists of a panel of 2001 listed companies and modified Jones model of Dechow et al. (1995) is used to measure the quality of earnings.

This paper shows that the firm-level determinants (except firm size) of the quality of earnings are different among different groups made on the basis of transparency ratings. However, the determinants of the quality of earnings are not different within each group. The ownership structure of companies plays important role in determining the quality of earnings in most transparent countries whereas financial factors play significant role in least transparent countries. The markets respond positively to earnings quality in most transparent group of countries.

The results of this study provide interesting basis for future research on economic and social integration of Europe. Although the policy makers are trying to integrate the countries through common Laws and decrees but examining the firm-level factors such as size, growth and ownership are still important. The regulators should address the issue of corporate transparency in Europe by looking at the importance of these factors with respect to overall transparency.

This study extends the knowledge, not only for academicians and investors but for policy makers as well. This study re-emphasizes the role of country-level transparency and firm-level determinants of the corporate transparency within Europe.

This paper aims to investigate whether the value relevance of accounting information has been affected by the occurrence of the Egyptian revolution financial crisis. More specifically, this paper examines the value relevance changes of three key accounting constructs: operating cash flow, normal non-discretionary accruals and discretionary accruals before and after the Egyptian revolution crisis.

Ordinary Least Squares (OLS) regression is used to examine the changes in earnings value relevance across before and after the Egyptian revolution crisis. The performance matched Jones model (Kothari et al., 2005) is used to estimate the discretionary accruals.

After the Egyptian revolution financial crisis, the discretionary accruals (DAC) information value has significantly improved. However, the non-discretionary earnings components (OCF and NDAC) have minimal changes. The evidence of further analysis indicates that managers are using the discretionary accruals to signal the future adding value investments that respond optimally to changes in discount rates.

The paper extends the literature debate about earnings management over a financial crisis; the findings provide implications for regulatory bodies that could learn how the common incentives of firms to attract potential investors during a crisis could lead them to provide a high-quality financial reporting.

Using data from the Egyptian market, the paper fills a research gap by examining the value relevance of earnings and tests whether the revolution crisis has influenced earnings reporting and firms’ values from a relatively developing country with special institutional and enforcement backgrounds.

CEOs’ (chief executive officer) term of office may explain discretionary accruals as a result of opportunistic behavior arising during certain periods of the term of office. Therefore, CEOs, in their early years of office, have incentives to report results that meet market expectations. In turn, CEOs in their senior year may be motivated to use discretionary accruals to gain private benefits. In this scenario, corporate governance mechanisms play an important role in monitoring relationships. Hence, the purpose of this study is to verify the influence of monitoring mechanisms on the relationship between CEOs’ term of office and discretionary accruals.

Descriptive statistics, multiple cross-sectional regression to estimate the accruals and regression of panel data to test the hypotheses were used. The sample comprised 195 companies listed on BM&FBovespa.

The results indicated that CEOs’ long term of office has a negative impact on the level of discretionary accruals, and thus, Brazilian CEOs with a longer term of office tend to establish a certain reputation in the stock market. On the other hand, it is concluded that CEOs’ intentions, in the first years of term, are positively related to the use of accruals and that the monitoring mechanisms can minimize these CEOs’ opportunistic practices.

The results broaden the literature on corporate governance, pointing that different systems of variable remuneration may influence CEOs’ willingness to manage results in their last year of term.

I reexamine the conflicting results in Frank, Lynch, and Rego (2009) and Lennox, Lisowsky, and Pittman (2013). Frank et al. (2009) conclude that firms can manage book income upward and taxable income downward in the same period, implying a positive relation between aggressive book and tax reporting. Lennox et al. (2013) conclude the relation is negative and aggressive book reporting informs users that aggressive tax reporting is less likely. I identify four key differences in the research designs across the two studies, including measures of aggressive book reporting, measures of aggressive tax reporting, sample time periods, and empirical models. I systematically examine whether each of these differences is responsible for the conflicting results by altering the key difference while holding other factors as constant as possible. I find the relation between aggressive book and tax reporting is driven by the measure of aggressive book reporting, as the relation is positive for some subsets of firms and negative for others. Firms accused of financial statement fraud have a negative relation while nonfraud firms exhibit a positive relation. Using discretionary accruals, I also look for, but do not find a “pivot point” in the relation between aggressive book and tax reporting. I provide a better understanding of the relation between aggressive book and tax reporting by identifying research design choices that are responsible for prior results. I show that measures of both discretionary accruals and financial statement fraud are necessary to gain a more complete picture of the relation between aggressive book and tax reporting.

The purpose of this paper is to investigate, using data on US manufacturing firms, how and when corporate governance affects managers' decisions to use discretionary accruals and thereby artificially influence company financial reports.

Three‐stage least squares is employed to study the relationship between financial status, corporate governance and financial reporting discretion. The sample spans the years 2001‐2003 during a severe downturn in the US stock market. Financial status is measured with the Altman Z‐score.

A significant difference is found between firms not classified as healthy or failed (i.e. the mid‐range group) and the two extreme categories when examining governance quotient using a well‐known index. A positive relationship is found between discretionary accruals and the governance index. Strong governance appears to reduce the incidence of mid‐range firms engaging in accruals management. The least healthy and the most distressed companies have the weakest relationship with discretionary accruals. By contrast, mid‐range firms are more likely to resort to discretionary accruals.

Non‐executive members of boards of directors are warned to be particularly vigilant about discretionary accruals with firms transitioning between healthy and high‐failure risk.

The relationship between firms' financial health and discretionary accruals reveals an agency problem in credit markets with financially stressed firms. More attention is required on firms whose financial condition is uncertain. Also, it is documented that significant findings of importance to the earnings quality and corporate governance literature by documenting the role of corporate governance on discretionary accruals and financial status.

The purpose of this paper is to examine the relationship between corporate governance and earnings management in US context and provide further insights on the effects of board of directors' characteristics on earnings management.

The paper uses a sample of three groups of US firms; where firms with relatively high negative, firms with relatively high positive, and those with low levels of discretionary accruals in the year 2004 are examined. Descriptive statistics, univariate analysis, multivariate analysis, board of directors' characteristics, and possible relationships between corporate governance variables and earnings management proxy provide the basis for discussion.

Firms with annually elected boards, small size boards, 100 percent independent nominating committees, and 100 percent independent compensation committees have more negative discretionary accruals. However, firms with 75‐90 percent independent board or firms with a board size of between nine and 12 have higher positive discretionary accruals.

Certain board characteristics may be the important factors associated with constraining the propensity of managers to engage in earnings management.

Results are limited by the accuracy of the models applied to isolate discretionary accruals. Additionally, the direction diverse of discretionary accruals may differ with selecting a time series of three or more years as a base for the analysis.

In contrast to prior literature, where board composition is defined as an insiders‐ or outsiders‐controlled board, this paper classifies board composition into seven discrete categories, using the same seven categories employed by Institutional Shareholder Services in evaluating and assigning corporate governance quotient scores to firms. The paper's major contributions to the existing literature are its findings that income‐increasing and income‐decreasing discretionary accruals have a different relationship with corporate governance practices and its expansion of the scope of corporate governance from board independence and audit committee independence to other corporate governance characteristics. This paper provides evidence that supports US regulators' initiatives that stronger corporate governance mechanisms provide greater monitoring of the financial accounting process and may be the important factors in improving the integrity of financial reporting.

In response to recent financial corporate scandals, this study aims to provide a helpful understanding for investors and accounting regulators on how firms manage their reported earnings. This leads to a better firm valuation by financial intermediaries and more useful accounting standards.

Estimating discretionary accruals and opportunistic special purpose entities and using a simultaneous equation approach, the aim is to check how managers trade off between such tools of earnings management. Based on real earnings manipulation and accruals management of earnings, the goal is to understand if such tools are used simultaneously or as substitute by firms.

After controlling for each cost determinants of such earnings management tool, firms use discretionary accruals and financial engineering with special purpose entities as substitutes. Additional analyses show that managers use such tools in a sequential process. Indeed, they first use special purpose entities during the course of the year but they manipulate discretionary accruals especially at the end of the year.

Despite sensitivity checks, measurement error in discretionary accruals proxy and opportunistic SPE estimation model remains an alternative explanation for the results. The sample size and the lack of accurate information about the size of special purpose entities may limit the extent of the findings.

It is a very useful tool for regulators when they plan to disclose new accounting standards. For investors, this study can help them in assessing the firm's value more accurately for investing and financing purposes.

Providing a new methodology and new models to detect pervasive earnings management strategies adopted by firms.