Search results

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 objective of this paper is to investigate the direction of the causal relationship between dividend policy (DP) and earnings management (EM).

This research utilizes the panel data analysis to investigate the causal relationship between EM and DP. It provides empirical insights based on a sample of 280 French nonfinancial companies listed on the CAC All-Tradable index during the period of 2008–2015. The study initiates with a Granger causality examination on the unbalanced panel data and employs a dynamic panel approach with the generalized method of moments (GMM). It further estimates the empirical models simultaneously using the three-stage least squares (3SLS) method and the iterative triple least squares (iterative 3SLS) method.

The estimation of our various empirical models confirms the presence of a bidirectional causal relationship between DP and EM.

Our study highlights the prevalence of EM in the French context, particularly within DP. It underscores the need for regulatory bodies, the Ministry of Finance, external auditors and stock exchange organizers to prioritize governance mechanisms for improving the quality of financial information disclosed by companies.

This research is, to the best of our knowledge, the first is to extensively investigate the reciprocal causal relationship between DP and EM in France. Previous studies have not placed a significant emphasis on exploring this bidirectional link between these two variables.

This study aims to examine whether the newly available auditor tenure information is associated with non-GAAP earnings, as the recent requirement to disclose the initial year of auditor-client relationship in audit reports may give the impression that longer auditor tenure may be related to lower audit quality.

Using a sample of firm-quarters from 2017 to 2020, the authors conduct both univariate and regression analyses. We use hand-collected data for auditor tenure, SEC comment letters, and non-GAAP variables.

First, the authors find that the likelihood of disclosing non-GAAP earnings monotonically increases with auditor tenure on a univariate basis. Second, auditor tenure is negatively associated with aggressive non-GAAP reporting. Third, the authors document evidence of aggressive reporting in general; that is, items excluded in calculating non-GAAP earnings are associated with future performance. However, the association declines with longer auditor tenure. Finally, the authors report evidence that the likelihood of receiving an SEC comment letter that contains non-GAAP comments decreases with longer auditor tenure.

The results show that regulators need to consider both GAAP and non-GAAP disclosures’ costs and benefits when enacting auditor tenure regulation. Investors can benefit from the findings in evaluating the quality of non-GAAP earnings. The findings are also relevant to the SEC when allocating limited resources in monitoring non-GAAP reporting.

To the best of the authors’ knowledge, this is the first study showing that auditor tenure is associated with the quality of non-GAAP earnings. Given that financial reporting quality should be understood as a comprehensive system comprising both mandatory and voluntary disclosures, this study complements the literature that examines the effect of auditor tenure on financial reporting quality using GAAP reporting.

This study investigates the efficiency of value relevance and faithful representation when stock market price derivates from its firm value to the investigated IT companies listed in FTSE Taiwan 50. The empirical investigation reveals one financial indicators: Return on equity (ROE) has explanatory ability among seven financial indicators, earnings per share (EPS), book value (BV), dividend yield (Div.), price–earnings ratio (P/E), ROE, return on assets (ROA), and return on operating asset (ROOA) to both sampled companies, United Microelectronics Corporation, UMC, (2303) and Taiwan Semiconductor Manufacturing Company Limited, TSMC, (2330). Furthermore, the empirical results indicate that the higher order moments, skewness and kurtosis, of price deviation do not provide a reliable prediction or explanatory power for stock price trends.

This research attempts to examine bank dividend policy in Indonesia by applying the life cycle theory of dividends.

This research used secondary data gotten from two sources: banks’ annual financial statements from 2005 to 2019 and the number of observation samples was 510 from 42 banks. Random Effects Logit Model (RELM) is used to detect the influence of independent variables on Propensity to Pay Dividends (PPD) and Random Effects Tobit Model (RETM) is used to test the influence of independent variables on Dividend Payout Ratio (DPR).

The RELM results show that Retained Earnings to Total Equity (RE/TE), Retained Earnings to Total Asset (RE/TA) and bank age have a positive impact on the propensity to pay dividends (PPD) while bank growth (GRW) has a negative impact. The RETM results reveal that RE/TE, ROA and bank size have a positive impact on the dividend payout ratio (DPR) while GRW has a negative impact. This analysis also discovers that the capital adequacy ratio (CAR) and Non-performing Loans (NPL) is one important factor considered by banks in Indonesia in determining their dividend policy.

This study contributes to enriching literature in finance, especially in the life cycle theory of dividends. Also, it can be a guide to consider by investors before deciding to put their shares in banks in Indonesia.

Research on bank-specific life cycle theory is very difficult to find, especially in the Indonesian context, so this research can enrich the body of knowledge on dividend decisions.

Agency theory motivated this study, posing that leverage mitigates the agency problem. The aim was to examine whether leverage influences the relationship between executive-employee pay gaps (EEPGs) and firm performance. The study was conducted in the mining and retail sectors between 2012 and 2021.

Two EEPGs were featured based on their executive fixed pay and variable incentives accumulation. Proxies of firm performance were headline earnings per share; return on assets; earnings before interest, tax, depreciation and amortisation; and return on stock price. Data were collected from 76 JSE-listed firms in the retail and mining sectors and analysed using the two-step generalised method of moments.

The results revealed the hybrid implication of the pay gap for firm performance in the retail and mining sectors of South Africa, depending on the performance measures emphasised. More importantly, the study shows that with the moderating effects of leverage, firms can improve their performance while shrinking the pay gap.

The results have implications for policy addressing income inequality, debt management, executive compensation and regulatory reforms in South Africa concerning productivity and remuneration decisions.

The article provides specific literature for retail and mining industries on pay gaps, shows that it is possible to reduce the pay gap without compromising performance and suggests a new measure of performance that is more attuned to pay gap effect measurement.

The authors investigate how managers adapt their financial reporting and disclosure practices in response to the COVID-19 pandemic through changes in accounting estimates (CAEs).

The authors define the pandemic period as starting on March 1, 2020. The sample consists of 9,575 CAEs disclosed in quarterly (10-Qs) and annual (10-Ks) financial reports by US firms between January 1, 2004 and May 31, 2022. The authors perform multivariate analyses of the impact of the COVID-19 pandemic on the incidence of CAEs and on whether the impact of CAEs on firms' financial performance and reporting quality changes during the pandemic.

In the examination of the CAE footnote disclosures in the quarterly (10-Qs) and annual (10-Ks) reports of US companies, the authors find no evidence that the incidence of CAEs in 10-Ks or the number of firms reporting CAEs are significantly different in the pre-pandemic and pandemic periods, but the incidence of CAEs in 10-Qs is significantly higher in the pandemic period than in the pre-pandemic period. The authors also find that the number of CAEs related to revenue recognition increase significantly in the pandemic period, but CAEs in other categories decrease, with the sharpest drop seen in the liabilities category. Further investigation suggests that although the dollar impact of 10-K CAEs on current financial statements is higher during the pandemic period, firms with CAEs, especially positive CAEs, in either 10-Ks or 10-Qs are less likely to use CAEs to boost earnings in the pandemic period. However, the authors find evidence that firms tend to use CAEs to “big bath” current earnings and create reserve for future period. The authors have not observed any significant differences in how the various phases of the pandemic affect the reporting of CAEs. Additionally, there is no evidence to suggest that financially distressed firms report more or fewer CAEs during the pandemic.

The results are consistent with the notion that, during the pandemic, firms exercise greater caution in their CAE disclosures, refraining from using CAEs as a means of boosting earnings but as a strategy to create reserve for future period. The paper highlights the challenges that various stakeholders face when assessing a company's current and future financial performance based on management's accounting estimates.

This study captures the impact of the COVID-19 pandemic on the incidence of CAEs and CAEs' impact on the financial performance and financial reporting quality of firms during the pandemic.

The purpose of the present study is to determine how the cash conversion cycle (CCC) affects the financial performance of manufacturing companies in Bangladesh.

The authors have collected data of 61 Dhaka Stock Exchange (DSE)-listed firms from the 10 distinct manufacturing industries of Bangladesh for 18 years, from 2003 to 2020. The data have been analyzed through the two-steps system generalized method of moment (GMM) regression model, using profitability indicators return on asset (ROA) and earnings per share (EPS) as dependent variables, while CCC has been used as the independent variable, whereas asset turnover (ATO) and financial leverage (LEV) were used as control variables to assess the relationship between the CCC and financial performance.

The findings indicated that CCC has a negative connection with profitability – ROA and EPS, with the connection between CCC and EPS being highly significant. This indicates that reducing the inventory conversion time, reducing the period of receivable collection and making payments to creditors with potential delays might help Bangladeshi manufacturing firms boost their profitability. In addition, the firm-specific characteristics, namely ATO and LEV significantly affect the firm's profitability.

The research was based only on secondary sources and information was scarce. This research was conducted to determine the impact of the CCC on the corporate profitability of the manufacturing sector solely. There might be many other working capital variables that are still unexplored through this study.

The current study's findings are consistent with the traditional rule that minimizing the firm's days of the cash cycle may optimize financial performance. The results of this research have added to the existing body of knowledge on the topic of working capital management (WCM). Future research endeavors can be initiated for assessing the impact of the CCC on the firm's profitability in other industrial sectors or to identify other working capital variables that have much impact on corporate profitability.

This study is an original work of the researchers and adds value to the current literature in the domain of WCM and corporate profitability. The present study is the first one that covers firms in all the manufacturing industries in Bangladesh. The corporate managers, creditors, investors and other concerned stakeholders will be benefited from the findings of the present study.

This case was researched using publicly available sources, including Mercury Systems financial filings and press releases, news stories about the seasoned equity offering, financial information from Bloomberg and industry information from IBISWorld Industry Reports and articles related to seasoned/secondary equity offerings, intangible asset valuation and the use of revolving lines of credit. Quotes are taken from Mercury financial reports and press releases and express the (optimistic) opinions of company executives.

Mercury Systems, a technology company in the aerospace and defense industry, announced a six million share seasoned stock offering in June 2019. This resulted in a 6% stock price decrease. A stock price decrease is a typical event when a firm announces the issuance of new common shares, but with Mercury Systems, there were concerns about how much money the firm needed to fund its strategy of growth through acquisitions. If internally generated funds were not sufficient, should the firm issue debt or have another seasoned equity issue? Students will look at the objectives and success of the most recent seasoned equity issue, determine future funds needs and how the firm should finance these needs.

This case is appropriate for undergraduate and graduate students in corporate finance electives. Typically, topics such as seasoned equity offerings are not covered in introductory courses, so this is recommended for finance electives. Even in advanced finance courses, sometimes there is insufficient time to cover seasoned equity offerings.

This study aims to investigate whether auditors compromise their independence for economically important clients in family business settings.

The authors empirically examine the research question based on China for the years 2011 to 2020. The dependent variable is the auditors’ propensity to issue modified audit opinions, which is a proxy for auditor independence. The authors use relative client audit fees as a proxy for client importance. To address endogeneity issues in the selection of family firms, the authors use the two-stage least squares regression model and, subsequently, the propensity score matching and Hausman firm fixed effect modeling.

This study reveals that the propensity to issue modified audit opinions is positively correlated with client importance. Big-N auditors are more likely to issue modified audit opinions for their economically important family firm clients, whereas such evidence is not found for non-Big-N auditors. Results are consistent and robust to endogeneity test and sensitivity analysis.

This study enriches the literature on auditor independence and the effect of family firms’ ownership structure factors on audit reporting behavior for their economically important clients. Findings may prove useful for managers and practitioners interested in family business.