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This study examines whether a firm’s management earnings forecasts affect its technical innovation activities. Our study also examines whether the cost of debt plays a mediating role between the management earnings forecasts and the innovation nexus.

We obtained data from 1,032 Chinese non-financial firms listed on the Shanghai and Shenzhen stock markets from 2005 to 2022 (i.e. 18,576 firm-year observations). We used various econometrics techniques, such as Heckman’s (1979) two-stage selection method and two-stage least square, to examine the relationship between management earnings forecasts and the firm’s technical innovation activities.

We find a positive relationship between management earnings forecasts and the firms' technical innovation. We also find that the cost of debt mediates the relationship between management earnings forecast and technical innovation. Further analysis indicates that frequent earnings forecasts provide incremental information regarding a firm’s future value and cash flows, thus reducing the volatility and uncertainty in cash flow calculations. Our findings are robust to several tests.

Our study has implications for policymakers, practitioners and high-level management of Chinese firms, enabling them to understand the relationship between management earnings forecasts and firms' innovation activities.

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.

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.

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.

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.

This study aims to examine the impact of national culture on classification shifting in Eastern European Member States of EU Eastern European countries (EEU) vis-à-vis the Western Member States of EU (WEU). The EEU provides a unique sample to study the quality of financial reporting that the authors measure with classification shifting given that for more than five decades they were following the model of a centrally planned economy, where market-based financial reporting was absent. Yet, the EEU transitioned to a market-based economy and completed its accession to the EU.

This study uses a panel data set of firm year observations from 1996 and 2020 that covers the full transition of EEU. This empirical analysis is based on fixed effects panel regression analysis where the authors report a plethora of identifications.

This study finds classification shifting in the EEU countries since their transition to the market-based economy, though they have no long record of market-based financial reporting. This study also notices that cultural factors are associated with classification shifting across all Member States of the EU. This study further examines the impact of interactions between cultural characteristics and special items and reveal variability between WEU and EEU. As part of the robustness analysis, this study also tests the impact of culture on real earnings management measures for both WEU vs EEU, confirming the variability of the impact of culture on earnings management.

Future research could explore the role of religion differences in WEU vis-à-vis EEU states, as they are also subject to cultural differences.

The findings are important for regulators, external monitors and investors, as they show that cultural factors affect earnings management with some variability across countries in the EU, and they should be acknowledged in policymaking.

The findings show that cultural differences between EEU and the “old” Member States of the EU could explain classification shifting.

To the best of the authors’ knowledge, this is the first study that sheds light on the impact of national culture on classification shifting in EEU of EU vis-à-vis the “old” WEU of EU.

The purpose of this study is to examine how lenders alter their behavior when faced with real earnings management.

This study uses the incremental R-square approach as in Kim and Kross (2005) to examine how much lenders rely on income statement and balance sheet ratios as the degree of real earnings management increases.

As real earnings management affects mostly the income statement, the authors find that lenders rely less on income statement ratios in making credit decisions in the presence of real earnings management. The authors also find that lenders do not alter their reliance on balance sheet ratios when faced with real earnings management.

This paper is the first to study how lenders alter their reliance on financial statements in making credit decisions in the presence of real earnings management. The findings of this paper could help the regulators set standards to improve the usefulness of financial statements. The findings of this paper could also help practitioners (borrowers and lenders) understand how real earnings management affects credit decisions.

This examine the impact of environmental, social and governance (ESG) performance on financial reporting quality (FRQ) before and during COVID-19 in the Egyptian market.

This study uses quarterly data from 2017 to 2021 to draw conclusions, with a sample consisting of 486 firm-year observations for 27 Egyptian companies listed on the Standard and Poor’s/Egyptian Stock Exchange ESG index. This study uses both firms’ ESG scores and the Beneish Model, an earnings detection model, as proxies for FRQ. COVID-19 effects on ESG performance and FRQ were examined by using Pearson’s correlation coefficient and two-stage least squares.

COVID-19 has a significant impact on the link between ESG and FRQ. This implies that corporations with high ESG performance are less likely to manipulate earnings (having a low M-score) and thus provide high FRQ during the COVID-19 pandemic. Moreover, there is a significant positive relationship between firm size, leverage and M-Score, indicating that large firms typically present a high FRQ.

The sample size and data availability are the main research limitations. Additionally, this study only considers the effects of firms’ ESG performance on FRQ during the COVID-19 pandemic. Thus, future research should consider other factors associated with investors’ corporate social responsibility (CSR).

This research has practical implications for market regulators seeking to establish a legislative framework and enhance guidance to mandate managers to provide ESG data and CSR reports appropriate for Egypt and other developing economies in times of crisis.

Promoting the adoption of ESG practices in business, particularly during crises, has the potential to effectively provide high-quality and reliable financial reporting required for investment.

This study aspires to address notable deficiencies in the pertinent literature concerning the relationship between ESG performance and FRQ during COVID-19. To the best of the authors’ knowledge, little is known about how ESG performance changes in response to pandemics in emerging markets. To address this gap, this study examines the effects of COVID-19 on the relationship between ESG performance and FRQ in Egyptian-listed firms from 2017 to 2021.

This paper aims to investigate the impact of the revised Code of Corporate Governance 2017 (CCG-2017) clauses pertaining to board independence, mandatory inclusion of female directors, audit committee (AC) chair independence and directors’ expertise on earnings manipulation.

Using an unbalanced panel of 323 listed companies from 2015 to 2019, this study uses panel data regression models with a robust methodology called difference-in-differences to tackle the potential endogeneity.

This study’s findings show that, as compared to the pre-CCG-2017 period, board- and AC-related variables increased significantly in the post-CCG-2017 period. Furthermore, financial experts on the board and board independence have a negative effect on discretionary accruals (DAs), whereas female directors and DAs are positively related, as is real activity manipulation. The AC-related variables, such as AC independence, expertise in AC, and AC chair independence, are significantly different from the preperiod to the postperiod, whereas their relationship is not according to the hypotheses of the study. Moreover, these results are robust to additional analysis of the alternative proxies for female directorship and the endogeneity problem.

The findings of this study have implications for regulators and practitioners who are concerned with the functions of the board of directors (BOD). The findings of this research study show that earnings management (EM) may be reduced by independent and expert directors. However, board gender diversity is not reducing the EM. Therefore, the decision to appoint female directors to the board should be based on their business and professional attributes rather than simply filling quotas or blindly adhering to regulations. Moreover, the findings of this research may assist the regulator in encouraging listed firms to enhance board governance via independence, diversity and competency, which are useful for effective monitoring.

This study fills a gap in the literature by providing the first evidence of country-specific regulation (CCG-2017), concerning the BOD and AC-related clauses on EM in Pakistan, which is missing in the relevant literature general and in Pakistan in particular.

The purpose of this study is to examine whether the institutional environment influences auditor reporting.

This study employs China's anti-corruption campaign as an exogenous shock to its institutional environment and compares auditors' issuance of modified audit opinions (MAOs) to small-profit clients before and during the campaign.

This study documents that small-profit clients were more likely to receive MAOs during the anti-corruption campaign period than before, indicating that auditors issued more conservative audit opinions to small-profit clients because of the anti-corruption campaign. Additionally, this study finds that increased auditor conservatism was more pronounced for auditors of large clients.

This study suggests that a weak institutional environment adversely affects auditor conservatism. This offers valuable insights for governments and regulators to improve the audit environment and for audit firms to enhance auditors' integrity and independence.

This study contributes to the research on institutional environments and auditing by observing a unique exogenous event.

This study aims to explore the moderating effects of strategy on the relationship between working capital management (WCM) and profitability.

A data sample of 72,444 firm-year observations of US-listed firms during 2000–2020 was used. The research hypotheses were tested using a panel regression analysis and an appropriate research instrument that signifies a firm’s strategic positioning.

The prospecting (defending) strategy has a decreasing (increasing) moderating effect on the relationship between WCM and profitability. The empirical findings are not affected by the level of earnings management, the presence of motives to meet earnings targets or the intensity of unreported intangible assets. Additionally, the reported empirical results remain robust within the context of propensity score matching regression analysis, in the presence of nonlinear effects of WCM on profitability, when alternative measures of WCM are used, and between firms with an increase or decrease in future profitability or different levels of efficiency on net WCM investments.

This study may stimulate future research exploring the moderating effects of various variables on the relationship between WCM and operating performance.

The findings highlight the importance of strategy for improving the performance evaluation of WCM policies and the prediction accuracy of the consequences of a strategy on short-term operating performance.

Prior empirical research has documented either a negative or positive relationship between WCM and profitability, which implies the presence of moderating effects of various factors. This study provides empirical evidence of the moderating effects of strategy on the relationship between WCM and profitability.

This study aims to examine whether auditors who specialize in research and development (R&D) activities help reduce managers’ opportunistic adjustment of R&D expenditure for real earnings management (REM).

Using a sample of US firms during the 2001–2017 period, the authors identify auditors’ R&D specialization as their prior experience of auditing R&D expenses spent by each client’s peers. The authors measure R&D-based REM as the negative deviation from the predicted level of R&D expenditure.

The authors find that clients of R&D specialist auditors are less likely to engage in REM through a discretionary reduction of R&D expenditure. This effect is more pronounced when clients face higher competition, have larger investment opportunities and entail higher audit risks.

This study shows that auditors’ specialized knowledge can facilitate stronger monitoring of clients’ real decisions, providing implications for auditors’ knowledge acquisition and transfer in specific types of transactions.

This study contributes to the literature by documenting the governance role played by R&D specialist auditors in clients’ real economic decisions. Moreover, the study identifies R&D as a distinct area of auditor specialization.

This chapter aims to examine the impact of whistleblowing policy (WH) on earnings management (EM) in an emerging market, Egypt. Our sample period from 2014 to 2019: the pre-whistleblowing policy period is 2014–2016 and the post-whistleblowing policy period is 2017–2019 with a total of 780 observations and the data are analyzed using ordinary least squares (OLS) regression analysis. Data are collected from annual reports, corporate governance reports, and companies’ website. The empirical analysis shows that whistleblowing policy coefficient is negative and significantly impacts EM in Egyptian firms. The result shows that when the firm adopts a whistleblowing policy, it led to decrease in EM. In addition, we provide strong and robust evidence by the difference-in-difference (DID) method to show that whistleblowing is significantly negatively associated with the extent of EM, which indicates that firms have an effective whistleblowing policy and can have several benefits. Firstly, it can help to identify and prevent illegal or unethical behavior within an organization, which can ultimately save the company from potential legal and reputational damage. Secondly, a whistleblowing policy can empower employees to speak up about any concerns they have, without fear of retaliation, which can help to create a more transparent and ethical work environment. Overall, an effective whistleblowing policy can contribute to the long-term success of a company and the broader economy. The findings of this chapter are relevant to policymakers, governments, management, employees, and shareholders to constraining EM in Egyptian firms.