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Article
Publication date: 1 March 2004

Ahmed Riahi‐Belkaoui

Output per worker varies significantly from one country to another. Why? Our analysis shows that differences in earnings opacity are important sources of this variation…

Abstract

Output per worker varies significantly from one country to another. Why? Our analysis shows that differences in earnings opacity are important sources of this variation. Earnings opacity is a measure that reflects how little information there is in a firm's earnings number about its true, but unobservable, economic performance. According to our results, a high‐productivity country has the accounting quality associated with low earnings opacity. Results further suggest that the quality of accounting in general, and low earnings opacity in particular helps a country by stimulating the accumulation of human and physical capital and by raising its total factor productivity.

Details

Review of Accounting and Finance, vol. 3 no. 3
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 1 July 2006

Ahmed Riahi‐Belkaoui and Fouad K. AlNajjar

The purpose of this paper is to identify and test the determinates of earnings opacity internationally. The determinates are hypothesized to be the elements of social…

Abstract

Purpose

The purpose of this paper is to identify and test the determinates of earnings opacity internationally. The determinates are hypothesized to be the elements of social, economic and accounting order in each of the 34 countries of the study.

Design/methodology/approach

A sample of 34 countries’ data was collected and data estimation and several statistical and correlations were performed.

Findings

Earnings opacity internationally is negatively related to the levels of economic freedom and quality of life, and positively related to rule of law, economic growth and level of corruption. Further, the findings are surprising that the level of disclosure, the number of auditors per 100,000 inhabitants and the adoption of international accounting standards (as elements of the accounting order) are not significantly related to earnings opacity internationally. It is the social and economic climate rather than the technical accounting climate that is at the core of the lack of accounting quality in general and earnings opacity in particular.

Originality/value

Elements of accounting order do not seem to affect earnings opacity as much as social and economic characteristics. It is the economic and the social context rather than the technical that explicates better the level of accounting quality in general and the level of earnings opacity in particular in a given country. Earnings opacity is higher as a result of higher rule of law, economic growth and level of corruption, and lower as result of higher level of economic freedom and quality of life.

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Review of Accounting and Finance, vol. 5 no. 3
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 1 January 2005

Ahmed Riahi‐Belkaoui

This paper examines how accounting quality, as measured by earnings opacity, affects the stock market wealth effect, which in turn is shown to be linked to economic…

Abstract

This paper examines how accounting quality, as measured by earnings opacity, affects the stock market wealth effect, which in turn is shown to be linked to economic growth. Stock market wealth effect is negatively affected by earnings opacity. The data also indicate that the exogenous component of the stock market wealth effect — the component defined by earnings opacity‐ is positively associated with economic growth. The direct effect of earnings opacity on economic growth is, as expected negative, but insignificant.

Details

Review of Accounting and Finance, vol. 4 no. 1
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 9 June 2020

Wing Him Yeung and Camillo Lento

The purpose of this paper is to investigate the relationship between corporate governance and earnings opacity in China.

Abstract

Purpose

The purpose of this paper is to investigate the relationship between corporate governance and earnings opacity in China.

Design/methodology/approach

Two corporate governance mechanisms form the basis of the analysis: 1) the board of directors and 2) the external audit function. OLS regression analysis is employed on a large sample from 2000 to 2014 with 20,235 firm-year observations.

Findings

Corporate governance is found to be associated with reduced levels of earnings opacity for Chinese listed companies. Furthermore, the association between corporate governance and reduced levels of earnings opacity strengthened after the implementation of various key reforms.

Practical implications

Chinese regulators are advised to proceed with caution as not all Western approaches to corporate governance are transferrable to the Chinese setting.

Originality/value

This study contributes to the literature by analyzing broad latent constructs of corporate governance in addition to individual observable dimensions in order to reveal that various key reforms have been successful in strengthening the link between governance and reporting quality for Chinese listed companies.

Details

Asian Review of Accounting, vol. 28 no. 4
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 1 January 2004

Ronald D. Picur

The paper explores the impact of the quality of accounting in a given country, as measured by an index of earnings opacity, on the country's level of corruption. The…

Abstract

The paper explores the impact of the quality of accounting in a given country, as measured by an index of earnings opacity, on the country's level of corruption. The results of a regression of corruption on earnings opacity for a sample of 34 countries show significant relationships between the level of corruption and the level of earnings opacity after controlling for economic development, human development, size of government and economic freedom.

Details

Review of Accounting and Finance, vol. 3 no. 1
Type: Research Article
ISSN: 1475-7702

Content available
Article
Publication date: 8 July 2019

Renata Turola Takamatsu and Luiz Paulo Lopes Fávero

The purpose of this paper is to evaluate the influence of the informational environment on the relevance of accounting information in companies traded in stock exchanges…

Abstract

Purpose

The purpose of this paper is to evaluate the influence of the informational environment on the relevance of accounting information in companies traded in stock exchanges of emerging markets.

Design/methodology/approach

For this purpose, the authors calculated indicators based on figures derived from the financial statements and variables that sought to capture the influence of the economic and institutional environment. The sample consisted of publicly traded companies from 20 countries classified as emerging by Standard & Poors. Macroeconomic information was obtained through the International Country Risk Guide database. The analysis period ranged from 2004 to 2013, excluding missing data, variables considered as outliers, besides the exclusion of data from companies that presented negative equity.

Findings

It was observed that the financial variables presented signs consistent with the literature, except for the price-to-book variable and the asset change variable. The inclusion of variables related to the accounting informational environment offered evidence that the more opaque the accounting environment in the country, the lesser the ability of the profits to portray the variations of stock returns. The variable that captured the adoption of international standards was consistent with expectations, i.e. the adoption of international standards would increase the quality of accounting information, showing a positive signal. Moreover, the variable aggressiveness of the earnings was statistically significant and negative, consistent with the literature.

Research limitations/implications

The variables earnings smoothing and aversion to losses did not show the expected behaviour though, highlighting the possible limitations of these proxies used to capture the opacity of the earnings.

Originality/value

When institutional moderators were included, it was observed that the adoption of the IFRS standards positively affected the relationship, which is more relevant when the accounting figures were under its aegis. Recently, countless nations’ transition to international accounting standards has been justified by the need to use high-quality reporting standards. The research sought to contribute to strengthen this dimension, presenting evidence that the dummy variable included to capture the adoption of international standards had a positive effect on the relationship.

Details

RAUSP Management Journal, vol. 54 no. 3
Type: Research Article
ISSN: 2531-0488

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Article
Publication date: 8 August 2016

Ranjan Kumar Mitra

This paper aims to examine the association between earnings quality and firm-specific return volatility for a large sample of Japanese manufacturing firms.

Abstract

Purpose

This paper aims to examine the association between earnings quality and firm-specific return volatility for a large sample of Japanese manufacturing firms.

Design/methodology/approach

This archival research uses idiosyncratic volatility and asynchronicity as two analogous proxies for firm-specific return volatility to investigate its association with earnings quality.

Findings

Using idiosyncratic volatility and asynchronicity as two comparable proxies for firm-specific return volatility, the author finds contradictory results. The author relates this contradiction to another debate in accounting and finance literature about whether firm-specific return volatility captures firm-specific information or noise. Initially, the author obtains conflicting results because the systematic risk, one of the components of asynchronicity, is highly correlated with earnings quality. After controlling for the systematic risk, the author finds that higher earnings quality is associated with lower firm-specific return volatility. This finding is consistent with the noise-based explanation of firm-specific return volatility. The author also separates earnings quality into an innate component driven by economic fundamentals and a discretionary component driven by managerial discretionary behavior and finds that both components have significant impact on firm-specific return volatility but the innate component has significantly stronger effect than the discretionary component.

Originality/value

This is the first research study presenting evidence on the association between earnings quality and firm-specific return volatility in the Japanese setting. The findings of this paper are likely to contribute to the resolution of a well-known debate on whether firm-specific return volatility captures more firm-specific information being impounded in stock prices or noise in stock prices.

Details

Review of Accounting and Finance, vol. 15 no. 3
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 19 June 2017

Georgios Constantinou, Angeliki Karali and Georgios Papanastasopoulos

The purpose of this paper is to examine whether firm-level asset investment effects in returns found for US firms occur within the Greek stock market.

Abstract

Purpose

The purpose of this paper is to examine whether firm-level asset investment effects in returns found for US firms occur within the Greek stock market.

Design/methodology/approach

The paper utilizes portfolio-level tests and cross-sectional regressions.

Findings

The authors find that growth in total assets is strongly negatively related to future stock returns of Greek firms. In fact, the relation remains statistically significant, even when the authors control for other strong predictors of future returns (i.e. market capitalization and book-to-market ratio). Furthermore, the authors find that a hedge trading strategy on asset growth rate consisting of a long (short) position in firms with low (high) balance sheet growth generates positive returns, confirming that investment growth has significant predictive power for future returns of Greek listed firms.

Originality/value

The paper adds to the literature on the generalization of asset pricing regularities attributable to accounting figures in an emerging market.

Details

Management Decision, vol. 55 no. 5
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 24 December 2020

Peterson K. Ozili

This paper analyzes banking sector earnings management using loan loss provisions (LLPs) in the Fintech era.

Abstract

Purpose

This paper analyzes banking sector earnings management using loan loss provisions (LLPs) in the Fintech era.

Design/methodology/approach

Regression methodology was used to examine earnings management in the Fintech era.

Findings

The findings show evidence for bank income smoothing using LLPs. There is greater income smoothing in the second-wave Fintech era compared to the first-wave Fintech era, and the presence of strong institutions did not lower income smoothing in the second-wave era. Bank income smoothing is also greater in (1) Bank of International Settlement (BIS) and EU countries than in non-EU countries and G7 countries, (2) well-capitalized banking sectors and (3) during economic booms in the second-wave Fintech era.

Practical implications

The competition for loans and deposits by banks and Fintech lenders in the second-wave Fintech era created additional incentives for banks to engage in income smoothing to report competitive and stable earnings.

Originality/value

The study uses a unique approach to detect country-level earnings management in the banking sector. Also, this study extends the bank earnings management literature by introducing the Fintech era as a determinant of the extent of bank earnings management.

Details

International Journal of Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 1 September 2005

Evangelos Koumanakos, Costas Siriopoulos and Antonios Georgopoulos

To investigate whether acquiring firms listed in the Athens Stock Exchange, that completed mergers and acquisitions during the period 2001‐2003, tend to manipulate…

Abstract

Purpose

To investigate whether acquiring firms listed in the Athens Stock Exchange, that completed mergers and acquisitions during the period 2001‐2003, tend to manipulate accounting earnings upward prior to the initiation and completion of the transaction.

Design/methodology/approach

The focus is on discretionary accruals as a measure of managers' earnings manipulation. To estimate discretionary and non‐discretionary components of total accruals the time series Jones model is adopted.

Findings

Results provide weak evidence of biased accruals reported by managers in the year preceding the announcement and the completion of the deal. The results seem to agree with those of Erickson and Wang who found no evidence of pre‐merger earnings management by a sample of acquiring firms that were involved in cash mergers.

Research limitations/implications

The model applied, even if it is considered effective in discriminating abnormal from normal accruals, has been shown to have certain deficiencies, while simultaneously the time series data and number of firms used here could be considered as small. Within the aforementioned limitations further research could examine the effect of mergers and acquisitions in the stock price of the acquiring of target firms and the possibility of earnings management by target firms, since target managers may have different incentives to manipulate earnings.

Practical implications

Findings are of particular interest to Greek regulators for policy‐making purposes as well as to investors in the Greek capital market.

Originality/value

To the best of one's knowledge this is the first study to examine earnings management by acquiring firms in the European capital market context.

Details

Managerial Auditing Journal, vol. 20 no. 7
Type: Research Article
ISSN: 0268-6902

Keywords

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