Search results
1 – 10 of 297Nafisah Yami, Jannine Poletti-Hughes and Khaled Hussainey
The authors motivate this research on the gender diversity of the board because of the recent increases in the number of women in top executive teams (Francis et al., 2015), which…
Abstract
Purpose
The authors motivate this research on the gender diversity of the board because of the recent increases in the number of women in top executive teams (Francis et al., 2015), which has probably been the result of the adoption of legislation for gender quotas as well as the establishment of corporate governance recommendations for gender diverse boards in several countries. The purpose of this study is to consider the quality of board directors when examining the effect of female directors on earnings management.
Design/methodology/approach
The analyses follow the system generalized method of moment to address endogeneity concerns (e.g. a board with higher quality is more likely to have female directors on board and vice versa). Besides the lags of the endogenous variables, the authors use the female industry ratio as an additional instrument (Liu et al., 2014), as female directors might be inspired by other female directors according to industrial sectors (measured by the two-digit industry codes), where competitors are likely to follow gender diversity practices of other firms within the same industrial sector.
Findings
The authors’ findings show a negative and significant association between board gender diversity and earnings management (EM), suggesting that independent female directors are the drivers of such effect. High-quality boards decrease the incidence of EM but hinder the potential involvement from female directors towards reducing EM. The incumbent effect of high-quality boards on female director’s contribution on EM reverses with less powerful CEOs.
Originality/value
The authors contribute to the extant literature by recognizing that the effectiveness of a female director on decreasing EM is a function of the environment in which decision-making takes place (i.e. board quality/powerful CEOs).
Details
Keywords
I seek to identify whether cash flow management can affect the performance and risk of the Greek listed companies.
Abstract
Purpose
I seek to identify whether cash flow management can affect the performance and risk of the Greek listed companies.
Design/methodology/approach
This study examines the relationship of cash flow management with performance and risk, using a sample of 80 non-financial companies listed in the Athens Exchange. The study covers the period 2018–2022, and panel data analysis is applied. Both financial performance and stock return are taken into consideration, while risk concerns the volatility of the companies’ share prices. The various explanatory variables used include the net cash flow, free cash flow, cash conversion cycle days, cash flow from operating activities, cash flow from investing activities, cash flow from financing activities, inventory days, customer days and supplier days.
Findings
The empirical results provide evidence of a positive relationship between financial performance and net cash flow and free cash flow. In addition, operating cash flow is positively related to financial performance. The opposite is the case for investing and financing cash flow. Finally, some evidence of a negative relationship between financial performance and inventory and customer days is provided too. On the other hand, stock return and risk are not related to the cash flow management variables at all.
Originality/value
To the best of my knowledge, this is one of the few studies to examine the relationship of cash flow management with performance and risk, using data from the Greek stock market. The results can form an effective selection tool for investors seeking Greek companies with the highest financial performance potential, which may reward them with higher dividends.
Details
Keywords
Neerav Nagar and Mehul Raithatha
The authors examine whether internal corporate governance mechanisms are effective in curbing cash flow manipulation through real activities, misclassification, and timing.
Abstract
Purpose
The authors examine whether internal corporate governance mechanisms are effective in curbing cash flow manipulation through real activities, misclassification, and timing.
Design/methodology/approach
The sample comprises of firms from an emerging market, India with data for years 2004 through 2015. The authors use the methodology given in Roychowdhury (2006).
Findings
The authors find that corporate boards in India play an active role in curbing cash flow manipulation through real activities but fail to control cash flow manipulation through misclassification and timing.
Practical implications
The study suggests that corporate boards should pay more attention to the reported cash flow numbers. Regulators can reduce the opportunities available for cash flow misclassification by fixing relevant accounting and governance norms. Auditors can also help by critically focusing on the cash flow classifications presented by management.
Originality/value
This study, to the authors’ knowledge, is the first study that talks about the role of internal governance in a trade-off between different cash flow manipulation techniques.
Details
Keywords
Pamela Fae Kent, Richard Kent and Michael Killey
This study aims to provide insights into US and Australian analysts' views regarding the relative importance of disclosing the direct method (DM) or indirect method (IM) statement…
Abstract
Purpose
This study aims to provide insights into US and Australian analysts' views regarding the relative importance of disclosing the direct method (DM) or indirect method (IM) statement of cash flows and forecasting firm performance.
Design/methodology/approach
Evidence is collected from responses to 104 surveys and 52 interviews completed by US and Australian analysts from 2017 to 2022. The survey and interview questions are developed with reference to the literature.
Findings
US and Australian analysts believe that the DM format provides incremental benefits compared to the IM for (1) confirming the reliability of earnings; (2) improving earnings confidence; (3) more accurate ex ante forecasts of operating cash flow and earnings; and (4) identifying opportunistic accruals manipulation. Analysts view that DM disclosure can lower firm-level cost of equity, although US interviewees more uniformly expect lower costs of equity under DM disclosure when firms yield low earnings quality. DM disclosure is also more important during unstable economic periods, as proxied by COVID-19.
Originality/value
Limited research currently exists regarding disclosure of the DM or IM and its impact on analysts' forecasting accuracy, earnings quality, economic uncertainty and cost of equity. Previous research has relied on archival research to examine differences between the DM and IM methods and are limited by data availability. Our findings are particularly relevant to the US market with few US firms reporting the DM format.
Details
Keywords
Kalyani Mulchandani, Ketan Mulchandani and Megha Jain
The study examines the influence of a firm's life cycle on the cash flow classification of Indian firms.
Abstract
Purpose
The study examines the influence of a firm's life cycle on the cash flow classification of Indian firms.
Design/methodology/approach
The study employs Dickinson's (2011) cash flow patterns to classify firm years under various life-cycle stages. Cash flow classification is employed to measure a firm's classification shifting (CS) practices. The study includes Indian firms listed on the Bombay Stock Exchange during 2012–2020, an ordinary least squares regression model, a fixed-effect model and a panel corrected with standard error regression method.
Findings
Firms face different opportunities and challenges at different stages of the firm's life cycle and therefore adopt cash flow CS. The results show that firms adopt cash flow CS during introduction, growth and decline stage of life cycle either to boost or to reduce operating cash flows.
Originality/value
This study is one of its kind to study the influence of a firm's life cycle on the cash flow classification of Indian firms.
Details
Keywords
Abongeh A. Tunyi, Geofry Areneke, Tanveer Hussain and Jacob Agyemang
This study proposes a novel measure for management’s horizon (short-termism or myopia vs long-termism or hyperopia) derived from easily obtainable firm-level accounting and stock…
Abstract
Purpose
This study proposes a novel measure for management’s horizon (short-termism or myopia vs long-termism or hyperopia) derived from easily obtainable firm-level accounting and stock market performance data. The authors use the measure to explore the impact of managements’ horizon on firms’ investment efficiency.
Design/methodology/approach
The authors rely on two commonly used but uncorrelated measures of management performance: accounting performance (return on capital employed, ROCE) and stock market performance (average abnormal return, AAR). The authors combine these measures to develop a multidimensional framework for performance, which classifies firms into four groups: efficient (high accounting and high market performance), poor (low accounting and low market performance), myopic (high accounting and low market performance) and hyperopic (low accounting and high market performance). The authors validate this framework and deploy it to explore the relationship between horizon and firms’ investment efficiency.
Findings
In validation tests, the authors show that management myopia (hyperopia) explains firms’ decision to cut (grow) research and development investments. Further, as expected, myopic (hyperopic) firms are associated with significantly more (less) accrual and real earnings management. The empirical tests on the link between horizon and investment efficiency suggest that myopic managers cut new investments while their hyperopic counterparts grow the same. Ultimately, the authors find that myopia (hyperopia) exacerbates(mitigates) the over-investment of free cash flow problem.
Originality/value
The authors introduce a framework for assessing management’s horizon using easily obtainable measures of performance. The framework explains inconsistencies in prior empirical research using different measures of performance (accounting versus market). The authors demonstrate its utility by showing that the measure explains decisions around research and development investment, earnings management and firm investments.
Details
Keywords
Ali İhsan Akgün and Ayyüce Memiş Karataş
This study examines investigating the relationship between cash flows, working capital ratios and firm performance during the global financial crisis.
Abstract
Purpose
This study examines investigating the relationship between cash flows, working capital ratios and firm performance during the global financial crisis.
Design/methodology/approach
To examine the relationship between cash flow, working capital ratios and firm performance for EU-28 or Western European Countries (Norway, Turkey and Switzerland) listed firms, both panel and ordinary least squares (OLS) regression model are used to analyze the data obtained from sample.
Findings
The study empirical findings suggest that global financial crisis has negative effect on firm performance for all sample. In addition, our interaction term result shows that cash flows variables such as cash holding level (CHL) × Crisis, cash interactive effect (CIE) × Crisis and gross working capital ratio (GWC) × Crisis not contributed to firm performance for EU-28 listed firms. However, the authors find that net working capital ratio (NWC) × Crisis have statistically significant and positive effects on firm performance with return on assets (ROA).
Practical implications
The findings of the study provide evidence for managers that listed firms have reduced working capital expenditures to increase cash holdings level during the financial crisis. The authors find that cash flow variables with CHL have positive effect on firm performance with return on equity (ROE) in Western European Countries and these results are consistent with Opler et al. (1999)'s empirical results, while CIE have a negative impact on firm performance such as ROE and earnings before interest tax margin (EBITM).
Originality/value
Global financial crisis emphasizes the importance of working capital and liquidity that suggests an efficient cash holdings policy in response to the uncertainty following the crisis.
Details
Keywords
Muhammad Tariq Khan, Abdul Rashid, Mushtaq Hussain Khan, Asif Zaman and Shahid Ali
This paper aims to examine the effects of oil price uncertainty on corporate investment of Islamic stocks during the COVID-19 pandemic.
Abstract
Purpose
This paper aims to examine the effects of oil price uncertainty on corporate investment of Islamic stocks during the COVID-19 pandemic.
Design/methodology/approach
The study uses a panel data set that covers 398 listed Islamic stocks from seven major Asia Pacific countries over the period of five years from 2017 to 2021, yielding 1,990 observations. Specifically, this paper investigates the said association by combining the real options theory regarding investment and the panel data-based econometric method that captures the dynamic relationship, the generalized method of moments estimators.
Findings
The findings show that the relationship between the oil price volatility and corporate investment of Islamic stocks is significant and nonlinear in nature, suggesting the presence of both the growth options and the waiting options. Overall, the results reveal that corporate investment of Islamic stocks is hindered during the unprecedented corona crash, when oil price increases at exponential rates.
Practical implications
The findings suggest that considering the information caused by unprecedented events like the COVID-19 pandemic is crucial for investment decisions of Islamic stocks. Therefore, policymakers and regulators should incorporate the impact of oil price uncertainties caused by unprecedented events like the COVID-19 pandemic on firm’s investment expansion and diversification strategies.
Originality/value
To the best of the authors’ knowledge, this paper is the first to examine the relationship between the investment of Islamic stocks and the oil price uncertainty under compound options theory in top Asian oil-importing countries.
Details
Keywords
Maha Khalifa, Haykel Zouaoui, Hakim Ben Othman and Khaled Hussainey
The authors examine the effect of climate risk on accounting conservatism for a sample of listed companies operating in 26 developing countries.
Abstract
Purpose
The authors examine the effect of climate risk on accounting conservatism for a sample of listed companies operating in 26 developing countries.
Design/methodology/approach
The authors employ the Climate Risk Index (CRI) developed by Germanwatch to capture the severity of losses due to extreme weather events at the country level. The authors use different approaches to measure firm-level accounting conservatism.
Findings
The authors find that greater climate risk leads to a lower level of accounting conservatism. The results hold even after using different estimation methods.
Research limitations/implications
Although the authors' analysis is limited to the period 2007–2016, it could be helpful for standard setters such as International Accounting Standards Board (IASB) and International Sustainable Standards Board (ISSB) as they may consider the potential effect of climate risk in their international standards.
Practical implications
The negative impacts of climate risk on the quality of financial reporting as proxied by accounting conservatism could trigger regulators and standard setters to require disclosure of information relating to climate risks and to incorporate climate-related risks in their risk management systems. In addition, for policymakers, incorporating accounting conservatism as a financial quality reporting standard could help promote greater transparency, accuracy and reliability in financial reporting in the context of climate risk.
Originality/value
The authors add to the literature on international differences in accounting conservatism by showing that climate risk significantly affects unconditional and conditional conservatism. The authors' results provide fresh evidence of the dark side of climate change. That is, climate risk is shown to decrease financial reporting quality.
Details
Keywords
Amer Sohail, Zohaib Butt, Affaf Asghar Butt and Aamer Shahzad
This study examines the effect of business group affiliations on corporate cash holdings and how political connectedness modifies the relationship between business group…
Abstract
Purpose
This study examines the effect of business group affiliations on corporate cash holdings and how political connectedness modifies the relationship between business group affiliations and corporate cash holdings.
Design/methodology/approach
The multiple ordinary least square regression with year dummies is used to estimate the effect of business groups on cash holdings. For moderating, the multiplicative term is used. The data from 252 non-financial firms listed on Pakistan Stock Exchange were collected for the analysis from 2010 to 2018.
Findings
The findings show that business group affiliations negatively affect corporate cash holdings, and political connection positively moderates this relationship. Business group firms that are politically connected hold less cash. The firm-specific factors such as leverage, size, cash flow, and dividend dummy also significantly affect corporate cash holdings.
Practical implications
The results imply that affiliated companies have lessened financing frictions and improved stability in their expected future cash flows. Moreover, the results indicate that political connection minimizes the opportunity and agency costs linked to cash holdings.
Originality/value
This study contributes to the existing literature by examining the moderating role of political affiliations on the relationship between business groups and cash holdings in the emerging market.
Details