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Book part

Audrey N. Scarlata, Kelly L. Williams and Brandon Vagner

The increasing availability of eXtensible Business Reporting Language (XBRL) financial statements motivates additional investigation of whether XBRL’s search-facilitating…

Abstract

The increasing availability of eXtensible Business Reporting Language (XBRL) financial statements motivates additional investigation of whether XBRL’s search-facilitating technology (SFT) and enhanced viewing capabilities facilitate information search and improve financial analysis decision quality and efficiency. This experiment investigates how using XBRL technology to view financial statements influences novice investors’ decision quality by affecting decision processes such as search strategy and effort, as well as decision efficiency (accuracy/effort) in a financial statement analysis task. In the experiment, randomly assigned student participants (n = 102) invested in companies using either static PDF-formatted or XBRL-enabled financial statements. No differences in decision quality (i.e., accuracy) due to technology use were observed. However, participants in the XBRL condition examined less information, used more directed search processes, and evidenced greater efficiency than did participants assigned to the PDF condition. Hence, the results suggest that XBRL SFT affects the use of differing decision processes relative to PDF technology.

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Advances in Accounting Behavioral Research
Type: Book
ISBN: 978-1-83867-346-8

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Article

Avi Rushinek and Sara F. Rushinek

Presents a case study demonstrating financial statement ratioanalysis (FSRA). This analysis matches company to industry data andbuilds sales forecasting models. FSRA…

Abstract

Presents a case study demonstrating financial statement ratio analysis (FSRA). This analysis matches company to industry data and builds sales forecasting models. FSRA imputes forecast standards of sales and costs, and applies them to a budgeted financial statement variance analysis for the EE (electronic and electrical) industry. Develops the concept of industry base standards, integrating them into the more traditional statistical and accounting concepts of quality control standards. Provides an implementation example, and reviews possible improvements to the current methodology and approach. Uses a similar methodology to forecast the stock market value with some exceptions. Models sales and costs of an individual company and an industry based largely on aggregate industry databases. For this purpose, uses a multivariate linear trend regression analysis for the sales forecasting model. Defines and tests related hypotheses and evaluates their significance and confidence levels. For an illustration uses the EE industry and the APM company. Also demonstrates a microcomputer‐based FSRA software that speeds, facilitates, and helps to accomplish the stated objectives. The FSRA software uses industry financial statement databases, computes financial ratios and builds forecasting models.

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Managerial Auditing Journal, vol. 10 no. 2
Type: Research Article
ISSN: 0268-6902

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Abstract

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Handbook of Transport Strategy, Policy and Institutions
Type: Book
ISBN: 978-0-0804-4115-3

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Book part

Carlo Gola and Francesco Spadafora

The global financial crisis has magnified the role of Financial Sector Surveillance (FSS) in the International Monetary Fund's activities. This chapter surveys the various…

Abstract

The global financial crisis has magnified the role of Financial Sector Surveillance (FSS) in the International Monetary Fund's activities. This chapter surveys the various steps and initiatives through which the Fund has increasingly deepened its involvement in FSS. Overall, this process can be characterised by a preliminary stage and two main phases. The preliminary stage dates back to the 1980s and early 1990s, and was mainly related to the Fund's research and technical assistance activities within the process of monetary and financial deregulation embraced by several member countries. The first ‘official’ phase of the Fund's involvement in FSS started in the aftermath of the Mexican crisis, and relates to the international call to include financial sector issues among the core areas of Fund surveillance. The second phase focuses on the objectives of bringing the coverage of financial sector issues ‘up-to-par’ with the coverage of other traditional core areas of surveillance, and of integrating financial analysis into the Fund's analytical macroeconomic framework. By urging the Fund to give greater attention to its member countries' financial systems, the international community's response to the global crisis may mark the beginning of a new phase of FSS. The Fund's financial sector surveillance, particularly on advanced economies, is of paramount importance for emerging market and developing countries, as they are vulnerable to spillover effects from crises originated in advanced economies. Emerging market and developing economies, which constitute the majority of the Fund's 187 members, are currently the recipients of over 50 programmes of financial support from the Fund (including those of a precautionary nature), totalling over $250 billion.

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The Impact of the Global Financial Crisis on Emerging Financial Markets
Type: Book
ISBN: 978-0-85724-754-4

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Article

Carlo Caserio, Delio Panaro and Sara Trucco

The purpose of this paper is to investigate whether financial companies of the USA are inclined to manipulate the management discussion and analysis (MD&A) tone and thus…

Abstract

Purpose

The purpose of this paper is to investigate whether financial companies of the USA are inclined to manipulate the management discussion and analysis (MD&A) tone and thus to follow impression management behaviours. Also, the paper proposes a tone analysis of MD&As conducted by comparing the tone of MD&As of one year with financial conditions of the same year and the next.

Design/methodology/approach

The tone analysis is conducted on two sub-samples of US-listed financial companies, unhealthy firms and healthy firms, which experienced different financial conditions between 2002 and 2011.

Findings

With regard to healthy firms, MD&A tone is useful to explain the current year’s performance and helps to predict next year performance, whereas, with reference to unhealthy companies, managers use the tone to pursue impression management strategies, by using more positive words and more future-oriented words than healthy companies.

Research limitations/implications

This study analyses the correlation between MD&A tone at time t and financial performance at time t and t+1, it does not investigate other time spans. The empirical results of this study cannot be generalized to other countries.

Practical implications

Main implications are addressed to regulators and policy makers, which may contrast impression management through a more effective regulation. Another implication regards investors, who cannot fully rely on MD&As of unhealthy companies.

Originality/value

This study analyses financial companies, rather neglected by the literature on MD&A tone. Results suggest that financial firms are also inclined to engage in impression management. This research would be useful for investors who base their decisions on qualitative analysis, interested in understanding to what extent the MD&A narratives are reliable.

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Management Decision, vol. 58 no. 3
Type: Research Article
ISSN: 0025-1747

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Article

Patricia M.S. Tan, Hian Chye Koh and Lay Chin Low

This study seeks to evaluate the stability of financial ratios across industry and over time. The sample comprises companies listed on the Stock Exchange of Singapore from…

Abstract

This study seeks to evaluate the stability of financial ratios across industry and over time. The sample comprises companies listed on the Stock Exchange of Singapore from 1980 to 1991 over six industry groupings. A set of 29 most commonly used ratios was selected for the study. Descriptive statistics, factor analysis and analysis of variance were performed. From the factor analysis results, eight representative ratios were identified. Analysis of variance and multiple comparisons were subsequently performed for each representative ratio to test if it is significantly different across industry and over time. The results indicate that financial ratio averages of the various industries are significantly different. This implies that the appropriate benchmark for evaluating company performance and position should be industry‐specific instead of economy based. Also, five of the representative ratios are significantly different over time and not all the industrial averages move consistently over time (i.e., interaction effects of industry and time exist). Thus, industry averages are not necessarily appropriate benchmarks for setting and evaluating performance through time.

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Asian Review of Accounting, vol. 5 no. 1
Type: Research Article
ISSN: 1321-7348

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Article

Erik Hofmann and Kerstin Lampe

Despite the relevance of financial information relating to logistics service providers (LSPs), recent research has paid little attention to the financial analysis of LSPs…

Abstract

Purpose

Despite the relevance of financial information relating to logistics service providers (LSPs), recent research has paid little attention to the financial analysis of LSPs. The aim of this paper is to examine the balance sheet structure of LSPs in order to find out if there are differences between single providers or defined LSP groups (clusters), respectively. Furthermore, the dependency of asset, capital and liquidity structures on LSPs specific characteristics is pointed out. Finally, we show which financial indicators positively influence profitability.

Design/methodology/approach

A total of 150 quoted LSPs from all over the world, allocated to six different clusters depending on scope of service were examined. A detailed balance sheet analysis using contingency theory, complemented by a correlation analysis, provides information about the financial structure, similarities and differences within and in-between the LSP clusters.

Findings

It was found that there are many differences regarding the financial structures of LSPs. The asset and liquidity structure of LSPs show significant differences, while the capital structure is mostly homogeneous. Profitability is achieved in various ways: Focusing on high net profit margin or asset turnover rates.

Research limitations/implications

Only quoted LSPs are analyzed. With this broad research approach the authors point out the range of possibilities for financial statement analysis of LSPs and demonstrate the potential for future research.

Practical implications

Financial analysis yields information for making strategic decisions including organic growth, outsourcing, mergers and acquisitions or cooperation between LSPs.

Originality/value

This paper contributes to further performance examinations of LSPs by providing a profound financial statement analysis with potential benefits for logistics executives, analysts and researchers.

Details

International Journal of Physical Distribution & Logistics Management, vol. 43 no. 4
Type: Research Article
ISSN: 0960-0035

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Article

Jing Wang, Jim Haslam and Claire Marston

The purpose of this paper is to provide insights into recent financial analysis practice in the Chinese context. The paper aims to examine the approaches pursued and…

Abstract

Purpose

The purpose of this paper is to provide insights into recent financial analysis practice in the Chinese context. The paper aims to examine the approaches pursued and information used by Chinese financial analysts in investment appraisal of ordinary shares. The research seeks to explore influences upon analysts' decision making and how analysts perceived the Chinese investment environment.

Design/methodology/approach

A questionnaire based survey approach was used, conducted in 2003 with 65 Chinese financial analysts.

Findings

The findings indicate that fundamental analysis was the predominant technique adopted in appraising equities in line with the development of institutional investors and improved market efficiency. Regarding information used to analyse companies, annual reports constituted the most influential source. The Chinese analysts favoured usage of International Financial Reporting Standards (IFRSs) and International Accounting Standards (IASs) by A‐share companies. The findings indicate changes within the financial analyst community, suggesting pressure for higher quality analysis and increased use of more sophisticated techniques despite ongoing market shortcomings. Opinions vary as to how important financial analysis is in influencing stock valuation or, crucially, socio‐economic welfare. However, studies putting the analysts' role in perspective vis‐à‐vis other forces contribute to broadening understanding of this significantly under researched area. This current study contributes to filling this gap.

Originality/value

This paper provides insights into how specific country contexts influence financial analysts' investment appraisal practice in interims of incentives, information sources and techniques adopted.

Details

Asian Review of Accounting, vol. 19 no. 1
Type: Research Article
ISSN: 1321-7348

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Article

Mohamed E. Ibrahim, Saad A. Metawae and Ibrahim M. Aly

In recent years, a sizeable amount of research in finance and accounting has been devoted to the issue of bond rating and bond rating changes. A major thrust of these…

Abstract

In recent years, a sizeable amount of research in finance and accounting has been devoted to the issue of bond rating and bond rating changes. A major thrust of these research efforts was to develop and test some prediction‐based models using mainly financial ratios and their trends. This paper tests the ability of statistical decomposition analysis of financial statements to predict bond rating changes. The results show that the decomposition analysis almost does not beat the a priori probability model and is no better than multiple discriminant analysis using simple financial ratios. One important piece of information for participants in debt markets is the assessment of the relative risk associated with a particular bond issue, commonly known as bond ratings. These ratings, however, are not usually fixed for the life of the issues. From time to time, the rating agencies review their ratings of the outstanding bond issues and make changes to these ratings (either upward or downward) when needed. Over the years, researchers have attempted to develop and test some prediction based models in order to predict bond ratings or bond rating changes. These prediction models have employed some variables that are assumed to reflect the rating agency decision‐making activities. Although the rating process is complicated and based mainly on judgmental considerations, Hawkins, Brown and Campbell (1983, p. 95) reported that the academic research strongly suggests that a reliable estimate of a potential bond rating or rating change can be determined by a few key financial ratios. Information theory decomposition measures have received in recent years considerable attention as a potential tool for predicting corporate events, namely corporate bankruptcy (e.g., Lev 1970; Moyer 1977; Walker, Stowe and Moriarity 1979; Booth 1983). The underlying proposition in these studies is that corporate failure, as an event, is expected to be preceded by significant changes in the company's assets and liabilities structure. Although the event of bond rating changes is different from the bankruptcy event in terms of consequences, one can still propose that a bond rating change, as a corporate event, is also expected to be preceded by some significant changes in the company's assets and liabilities structure. Therefore, the decomposition analysis may have a predictive ability in the case of bond rating changes. The purpose of this paper is to empirically test and compare the classification and predictive accuracy of the decomposition analysis with the performance of a multiple discriminant model that uses financial ratios and their trends in the context of bond rating changes.

Details

Managerial Finance, vol. 16 no. 1
Type: Research Article
ISSN: 0307-4358

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Article

Elisa García Jara, Amparo Cuadrado Ebrero and Rolando Eslava Zapata

This paper aims to analyze the quality of financial information using financial and economic ratios, assessing if the quality is affected by financial reporting standards…

Abstract

Purpose

This paper aims to analyze the quality of financial information using financial and economic ratios, assessing if the quality is affected by financial reporting standards. A group of factors that allow proving of the capacity of ratios to measure accounting information quality – and thus facilitating the analysis process to the groups of users – is also determined.

Design/methodology/approach

Using a sample of 111 companies from the Madrid Stock Exchange and 32 from Eurostoxx50, descriptive analysis and non‐parametric variance analysis were carried out during the period 2005‐2007. At the same time, reduction data techniques, specifically principal components analysis (PCA), were performed to detect the underlying main factors for the year 2007.

Findings

There is an indication that financial information quality is affected by financial reporting standards. Additionally, there is a group of factors that show an alternative to analyze accounting information.

Practical implications

This study provides evidence to measure financial information quality and the results can be beneficial to accounting users, as well as contributing to the literature related to this topic.

Originality/value

Empirically, this study shows that accounting information is affected by financial reporting standards.

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