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The purpose of this study is to investigate whether audit quality is associated with the speed with which managers revise earnings forecasts to arrive at the actual earnings through the lens of the auditor selection theory. This study examines this relationship in a unique institutional setting, Japan, where nearly all managers disclose earnings forecasts.

The authors pioneer an empirical proxy to capture the speed of management forecast revisions based on well-established principles from the finance and disclosure literatures. This proxy is tested alongside other disclosure proxies (namely, accuracy, frequency and timeliness) to assess the influence of audit quality on managerial forecasting behavior.

This empirical analysis shows that forecast revision speed is higher for firms that select higher-quality auditors. While firms that select higher-quality auditors revise forecasts in a more timely fashion, these firms revise less frequently. Moreover, the authors find that the influence of audit quality on forecast revisions is asymmetric. Specifically, the analysis of downward forecast revisions shows that higher-quality auditors are associated with firms that disclose bad news via forecasts revisions faster, more frequently and in a more timely fashion. However, the analysis of upward forecast revisions shows that higher-quality auditors have no effect on the speed with which firms disclose good news via forecast revisions, even though they are associated with less frequent but more timely forecast revisions. These findings have important implications for prior studies that consistently document an asymmetric response of the stock market to good news and bad news.

The authors provide evidence on the relationship between audit quality and management earnings forecasts using a novel and intuitive measure that captures forecast revision speed. This measure speaks to the growing interest in understanding the notion of speed and timing of voluntary disclosures. This study provides a more robust and comprehensive measure of the speed with which managers revise their earnings forecasts to arrive at the actual earnings. Furthermore, this study is among the first to document an asymmetric effect of audit quality on the type of news disclosed in forecast revisions.

Using a sample of 9,898 firm-year observations from 1,821 unique Chinese listed firms over the period from 2004 to 2019, this study aims to investigate whether the market rewards meeting or beating analyst earnings expectations (MBE).

The authors use an event study methodology to capture market reactions to MBE.

The authors document a stock return premium for beating analyst forecasts by a wide margin. However, there is no stock return premium for firms that meet or just beat analyst forecasts, suggesting that the market is skeptical of earnings management by these firms. This market underreaction is more pronounced for firms with weak external monitoring. Further analysis shows that meeting or just beating analyst forecasts is indicative of superior future financial performance. The authors do not find firms using earnings management to meet or just beat analyst forecasts.

The authors provide evidence of market underreaction to meeting or just beating analyst forecasts, with the market's over-skepticism of earnings management being a plausible mechanism for this phenomenon.

The findings of this study are informative to researchers, market participants and regulators concerned about the impact of analysts and earnings management and interested in detecting and constraining managers' earnings management.

The authors provide new insights into how the market reacts to MBE by showing that the market appears to focus on using meeting or just beating analyst forecasts as an indicator of earnings management, while it does not detect managed MBE. Meeting or just beating analyst forecasts is commonly used as a proxy for earnings management in the literature. However, the findings suggest that it is a noisy proxy for earnings management.

This paper aims to study the impact of audit quality on the components of executive cash compensation. It is predicted that as audit quality improves, greater emphasis will be placed on the incentive components of cash compensation, and lower emphasis on the salary (fixed) component. Specifically, it is predicted that as audit quality enhances, greater emphasis will be placed on earnings and sales revenues in determining executive cash compensation. Using auditor specialization as a proxy for audit quality, empirical support is provided for all of our predictions.

This paper provides empirical support with agency theoretic predictions.

This paper developed the following hypotheses: H1 – in executive cash compensation, more weight is being placed on earnings-based measures as auditor specialization improves; H2 – in executive cash compensation, more weight is also being placed on sales revenues as auditor specialization improves; H3 – in executive cash compensation, salary levels decrease as auditor specialization improves; and H4 – the impact of auditor specialization on the weight on earnings, sales and the salary levels is lower in the post-Sarbanes–Oxley Act (SOX) period compared to pre-SOX period.

First, the article limits itself to cash compensation, while current executive compensation is largely made of equity. Second, the measure of audit quality used, ‘national level auditor specialization’, may not be as effective in the post-SOX era.

Compensation committees should pay attention to audit quality (in whatever way it may be proxied by) in determining executive compensation.

This is the first paper to show that audit quality not only improves the earnings response coefficient in firm valuation but also enhances the weight placed on earnings (and sales revenues) in executive compensation.

The purpose of this study is to describe the development of market based accounting research (MBAR) published in Indonesia for 10 years. This study attempts to explain the topics of MBAR, research method used, the variables, between-variable relationship formed, and the units analysis used in MBAR. This research uses qualitative-descriptive method to create descriptive models of MBAR articles published in accounting journals that have been accredited with minimum grade of B. The analysis of 109 MBAR articles of five accounting journals shows that 10 MBAR themes are still potential. Among three methods in MBAR, the multivariate association study is dominant. Some papers use intervening and moderating model to explore the relationship between accounting data and capital market reaction. The results for each theme are described in a research map that shows the relationship between variables (constructs) of MBAR from three units of analysis. This paper finds some implications to MBAR research agenda in the future, especially for meta-analysis research and triangulation research, due to many inconsistencies of the MBAR findings in Indonesia. In addition, accounting standard research topic is still promising in the moment of accounting standards transition.

The purpose of this paper is to investigate whether the communication that takes place through the sustainability disclosure (SD) route has an effect on earnings informativeness (EI) of firms in an emerging market.

The sample consists of companies listed on the Colombo Stock Exchange in Sri Lanka, where SD is a new phenomenon and a voluntary reporting initiative. Regression analysis is executed on the panel data to achieve the study objective.

The result reveals a positive association between SD and EI. Sustainability reports may provide useful information that supplements merely financial data, aiding the stakeholders to interpret the financial reporting better. The finding premises that SD enhances EI, communicating value relevant information to capital market participants.

SD does much to reduce capital market participants’ uncertainties, thereby aiding them to assess financial information better.

The findings of the study confirm earlier research findings that indicate a positive association between SD and EI, suggesting that capital market participants are gradually becoming aware of the value relevance of sustainability reports.

This is the first study investigating SD and EI association that is specific to the Sri Lankan context. Owing to the sparse studies done on the SD and EI association, this study should contribute significantly to the existing literature by broadening the geographical coverage.

The purpose of this paper is to examine the influence of earnings persistence and earnings power on equity valuation.

The purposive sampling method was applied to determine the samples of selected 100 firms. This study employed secondary data obtained from the annual reports and financial statements of consumer goods firms listed on the Indonesian Stock Exchange for the period 2010–2014. The analysis technique used a multiple regression analysis.

The study result shows that, partially, earnings persistence and earnings power affect equity valuation by investors. Earnings persistence has a negative influence, whereas earnings power has a positive influence on equity valuation.

This study throws additional lights on equity valuation specific to consumer goods industries.

The study investigated the relationship between residual audit fee and real income smoothening, proxied as real operating cash flow and production expenditure smoothing of non-financial firms in Nigeria.

The study relied on secondary data from annual financial statements of 75 firms in the non-financial sector from 2010 to 2019. The study estimated the residual audit fee using a modified model from several contexts to suit the Nigerian environment. The hypotheses were tested using the dynamic panel GMM estimation procedure.

The results showed a significant negative effect of residual audit fee on (real) operating cash flow smoothing and production expenditure smoothing of non-financial firms. The control variables showed mixed effects for the industry-related (firm size and profitability), auditor attribute (audit quality and audit report lag) and the board related (board size and board independence).

The firms included in the analysis were selected based on data availability from MachameRatios® and the occurrence of missing values for some of the variables used in the various estimation models may bias results.

The study identifies the nexus between RAF and real earnings management practices of non-financial firms; and shows the implication of fee payment to the overall conduct of the audit. More so, the mixed findings from the CVs suggest that in the context of developing economies, shareholders and capital markets regulators should be watchful of residual audit fees and utilise it as a gauge for audit quality and also an indicator of opportunism and weak internal control in the firm in the future assessments.

The implication of the study stems from its relevance to the capital market stability and the potential negative disastrous effect of corporate failure from earnings management practices.

The study develops a newly residual audit fee model to explore the effect of RAF on real income smoothing rather than the widely used models from prior literature; secondly, the focus on real activities manipulation may present additional evidence that applies to developing countries rather the widely used accrual measurement technique from an economic bonding perspective.

The article investigates the patterns of asset impairment recognition in search of signs of “big bath” earnings management practices across an internationally diversified sample of public companies. It also elucidates the incentives that may underlie such practices and explores possible safeguards embedded in the existing corporate governance mechanisms.

The article applied static panel and binary logit models to an international firm-level panel dataset of 1045 public companies observed between 2003 and 2018.

Our empirical results suggest that recognition of asset impairment has no determinate impact on earnings volatility. Investigating the possibility of “big bath” earnings management practices, the authors found no impact of asset impairment recognition on total senior executive compensation in firms, which pay performance-based remuneration. The quality of corporate governance has appeared to impact the firms’ intertemporal proclivity to recognize asset impairment with those having the more entrenched and management-controlled boards being more likely to time impairment recognition by delaying it during exceptionally good and exceptionally bad years. While generally unlikely, recognition of asset impairment in a period with a recorded negative operating performance is found to be closely associated with key executive departures.

The article corroborates the salient role of corporate governance mechanisms in shaping the intertemporal patterns of asset impairment recognition. The possible remedies to the phenomenon should be derived therefrom.

This study investigates the association between interim audits and final audits. The authors focus on whether interim audits affect the audit time lag and the risk of restatement associated with final audits.

Two regression models are established to empirically test if an interim audit helps to reduce the audit time lag and the restatement risk on annual reports based on a sample of Chinese listed firms.

The authors find that performing interim audits helps to reduce the audit time lag. This result suggests that final audits can be completed more efficiently when interim audits are performed during the same period. The authors also find that the decision to audit interim reports is associated with a lower risk of restating annual reports. The lower risk of restatement in turn suggests more effective final audit results.

Together, the results from this study demonstrate that interim audits could benefit final audits, which highlight the value and importance of the continuous auditing.