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Article
Publication date: 6 July 2015

Anis Maaloul and Daniel Zéghal

– The purpose of this paper is to analyse the relationship between financial statement informativeness (FSI) and intellectual capital disclosure (ICD).

Abstract

Purpose

The purpose of this paper is to analyse the relationship between financial statement informativeness (FSI) and intellectual capital disclosure (ICD).

Design/methodology/approach

While FSI was measured as the explanatory power of financial information in explaining market value, ICD was collected through content analysis of annual reports. A sample of 126 US companies, divided into two groups – high-tech and low-tech companies – were used in this study. Empirical analysis was carried out using the Poisson regression method.

Findings

The results show a negative (substitutive) relationship between FSI and ICD, especially in high-tech companies. This indicates that companies with low FSI disclose more information about their IC in annual reports.

Practical implications

This study confirms the role of voluntary ICD as a solution towards mitigating the problem of the distortion of financial information due to the lack of accounting recognition of IC as an asset in the financial statements.

Originality/value

This is the first empirical study to analyse the relationship between FSI and ICD. Therefore, it serves as feedback to the regulators and standard-setters that recently published recommendations on voluntarily disclosing IC.

Details

Journal of Financial Reporting and Accounting, vol. 13 no. 1
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 1 February 2016

Ervin L Black and Anastasia Maggina

The purpose of this paper is to examine the effects of IFRS adoption on financial statement data and their usefulness in Greece. Additionally, the authors examine the…

Abstract

Purpose

The purpose of this paper is to examine the effects of IFRS adoption on financial statement data and their usefulness in Greece. Additionally, the authors examine the effect on the informativeness/usefulness of financial statement data for stock prices in Greece and the effect of the Greek Financial Crisis.

Design/methodology/approach

This study examine the effects of IFRS adoption on financial statement data and their usefulness in Greece. Additionally, the authors examine the effect on the informativeness/usefulness of financial statement data for stock prices in Greece and the effect of the Greek Financial Crisis.

Findings

The results indicate that several financial ratios were dramatically affected by IFRS adoption in Greece. In contrast to other countries, IFRS has not resulted in improved statistical behavior of these ratios in Greece: the ratios are highly skewed and the normality of their distribution is not improved. Additionally, when examining the usefulness of financial statement data for stock prices in Greece, results indicate that IFRS adoption did not necessarily improve the usefulness of the financial statements. However, the authors do find that since the financial crisis in Greece these IFRS financial statement measures are significant when regressed on stock prices.

Research limitations/implications

The authors are not able to necessarily rule out other causal factors that may have occurred in Greece during the sample period. The authors do look at the financial crisis as a potential confounding factor, but other factors such as political or macroeconomic factors have not necessarily been ruled out. Also, this study only examines the Greek situation.

Practical implications

This study may have implications for other countries in similar situations as that found in Greece – IFRS adoption and severe economic crisis.

Originality/value

To date only the impact of IFRS on earnings, stockholders’ equity, and some financial ratios has been investigated in prior Greek research studies (Hellenic Capital Market Commission, 2006; Grant Thornton, 2006). However, no academic research has been developed in this area. In addition, the authors examine the impact of IFRS on stock prices emphasizing the mandatory financial disclosure and IFRS adoption in a financially and politically distressed country – Greece.

Details

Journal of Accounting in Emerging Economies, vol. 6 no. 1
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 4 January 2018

Mohammed Iqbal and Shijin Santhakumar

This study aims to measure the magnitude of information asymmetry between insiders and outsiders in Indian equity market. The study also investigates the effect of major…

Abstract

Purpose

This study aims to measure the magnitude of information asymmetry between insiders and outsiders in Indian equity market. The study also investigates the effect of major information sources that affect information asymmetry namely, the informativeness of financial statements, news reports about the company and analyst follow-up.

Design/methodology/approach

Six-month profitability of insider trade was used as the proxy to measure information asymmetry. Fama-MacBeth two-stage regression was used to analyse the effect of information sources upon information asymmetry.

Findings

The results of the analysis demonstrate that in comparison with findings of similar studies the level of information asymmetry is comparatively high in India. On an average, profitable insider traders in India earn 19.28 per cent return than outside investors. Purchase transactions are more profitable than sales transactions, while the size of company and information asymmetry is associated inversely. Further, news and analyst follow-up are inversely associated with information asymmetry whereas informativeness of financial statements has little effect on information asymmetry.

Practical implications

The study have important insights for corporates in insider information management and legal compliance of insiders’ market activities. Results pointing to the requirements of a deeper Regulatory monitoring and stringent legal framework.

Social implications

The result validates the concerns of investor protection against informed trade.

Originality/value

The measurement of information asymmetry using profitability of insider trade is novel in Indian context even though the methodology is often used in the literature.

Details

Journal of Indian Business Research, vol. 10 no. 1
Type: Research Article
ISSN: 1755-4195

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Article
Publication date: 1 August 2016

Mishari M. Alfraih

Anecdotal concerns expressed regarding developed capital markets suggest that the information provided in financial statements has lost its value relevance to equity…

Abstract

Purpose

Anecdotal concerns expressed regarding developed capital markets suggest that the information provided in financial statements has lost its value relevance to equity holders over time. The purpose of this paper is to investigate the issue from the perspective of Kuwait, which is a frontier market.

Design/methodology/approach

Consistent with prior research, the design employs the price regression model. A total of 2,490 observations were collected from all firms listed on the Kuwait Stock Exchange (KSE) over a period of 21 years (1994-2014).

Findings

Although this study documents a notable decline in both the value relevance of earnings and book value for equity holders over this period, the results suggest that the decline in the value relevance of earnings was deeper and more pronounced than that of book value.

Practical implications

Because a fundamental prerequisite for the value relevance of accounting information is the quality of the financial reporting environment, the results are useful for regulators because they provide an assessment of the effectiveness of the current financial reporting environment. The results highlight the need for improvements because higher-quality information helps equity holders to determine value more precisely. As the timely dissemination of financial statements is an essential ingredient contributing to the relevance of financial statements, a direct implication of the study’s findings for the management of KSE companies is that timely reporting of financial statements may mitigate the observed decline of the value relevance of financial statements produced by KSE companies.

Originality/value

This study contributes to the capital market research regarding changes in the value relevance of financial statement information through an empirical examination of a frontier capital market.

Details

Journal of Advances in Management Research, vol. 13 no. 2
Type: Research Article
ISSN: 0972-7981

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Article
Publication date: 14 September 2015

Li Sun

– This study aims to investigate whether research and development (R & D) expenditures drive future innovation in the chemical industry.

Abstract

Purpose

This study aims to investigate whether research and development (R & D) expenditures drive future innovation in the chemical industry.

Design/methodology/approach

This study examines the relation between R & D expenditures for the period of 2000-2002 and the innovation effect measured by the Malmquist Productivity Index (MPI) for the period of 2003-2005. Under the MPI, the innovation effect is measured as the “shift” in a firm’s production frontier between two periods (2003-2005).

Findings

Results indicate that there is a significant and positive relation between R & D expenditures and future innovation among chemical firms.

Originality/value

This study should be of interest to financial accounting policy makers, R & D-intensive companies and investors. To policy makers, they may consider the possibility of permitting R & D-intensive companies to recognize R & D expenditures as assets. In other words, R & D-intensive companies can capitalize and amortize their R & D expenditures, as R & D expenditures can bring them future economic benefits. To R & D-intensive companies, the results may encourage them to keep up their R & D activities. Moreover, this study can increase individual investors’ confidence in investing companies with high-level R & D activities in an R & D-intense industry.

Details

International Journal of Law and Management, vol. 57 no. 5
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 4 April 2016

Laura K. Rickett

Financial blogs provide an online platform whereby retail investors effortlessly gain access to an abundant array of investment guidance. Prior studies find that the…

Abstract

Purpose

Financial blogs provide an online platform whereby retail investors effortlessly gain access to an abundant array of investment guidance. Prior studies find that the market reacts to financial blogs and similar online venues but results are inconsistent and financial blogs, a growing area in new media and distinct from other online venues, have received little attention. The purpose of this paper is to examine the particular conditions in which financial blogs serve an infomediary role in capital markets; when information asymmetry is high, earnings quality is low, and during economic uncertainty. These are conditions in which retail investors may seek easily accessible advice for their investment decisions.

Design/methodology/approach

Abnormal returns for firms mentioned in blog posts on the SeekingAlpha.com financial blog are examined using a multivariate regression to determine whether or not the market reaction associated with these posts is related to information asymmetry, earnings quality, and economic uncertainty.

Findings

Results indicate that abnormal returns are associated with the SeekingAlpha.com financial blog when information asymmetry is high and during bearish market conditions, and in particular when buy recommendations are posted on the blog for firms with high information asymmetry. This association is strengthened for firms with low institutional ownership, a proxy for unsophisticated or retail investors.

Research limitations/implications

Results are based on a sample collected during a specific time period in order to detect whether financial blogs serve an infomediary role during uncertain market conditions.

Practical implications

Results of this study can be useful to company executives who may want to monitor investment advice posted about their firm on financial blogs. Financial blogs and other forms of social media such as Twitter and Facebook are becoming the “new normal” in the investor information environment, a trend that is likely to continue.

Originality/value

Financial blogs provide an abundance of supplemental information demanded by investors. Financial blogs represent a form of “new media,” now considered a key component of firms’ information environment (Saxton, 2012). In contrast to prior studies which primarily investigate only whether the market reacts to financial blogs or similar online platforms such as stock message boards, this study attempts to understand the specific conditions in which the market reacts to financial blogs. The results provide a rationale as to when and why investors rely on financial blogs and whether financial blogs serve an infomediary role in capital markets.

Details

American Journal of Business, vol. 31 no. 1
Type: Research Article
ISSN: 1935-5181

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Article
Publication date: 30 October 2018

Moataz El-Helaly

Several studies, especially in Asian economies, have investigated the antecedents, implications and consequences of related-party transactions (RPTs). This paper aims to…

Abstract

Purpose

Several studies, especially in Asian economies, have investigated the antecedents, implications and consequences of related-party transactions (RPTs). This paper aims to review this literature to collate, gauge and critically discuss understandings of the relationship between RPTs and risk, with a particular focus on audit risk.

Design/methodology/approach

The paper discusses RPTs and how they have been associated with corporate scandals and the expropriation of shareholders’ wealth. RPTs are defined as per accounting standards and the main types of RPTs are described based on the extant literature. Two key research design issues are discussed: measures used to operationalize RPTs and observable variations in sample size across RPT studies. Evidence is presented on the negative effects of RPTs and the role of regulation, corporate governance and auditing in reducing risks.

Findings

Prior studies have associated RPTs with the expropriation of shareholders’ wealth, declining firm valuations, lower-quality financial reporting, increased risk of material misstatements and decreases in long-term firm performance. Further, the evidence suggests that regulation, corporate governance and auditing can mitigate the negative effects of RPTs.

Practical implications

This paper provides insights for regulators on the effects of enforcement, corporate governance and external audits on reducing the negative effects of RPTs, and highlights the increased risk of material misstatements in financial statements when RPTs are conducted. Moreover, it reveals how RPTs affect risk assessments for auditors.

Originality/value

This paper represents the first comprehensive review of the empirical RPT literature. It provides a starting point for future investigations of RPTs, not least because it reveals important limitations with the extant body of research in this domain. It also offers salient insights and implications for practitioners and policy makers.

Details

Managerial Auditing Journal, vol. 33 no. 8/9
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 10 April 2017

Harjeet Singh Bhabra and Ashrafee Tanvir Hossain

The purpose of this paper is to analyze and compare the performance of corporate acquisitions between the pre- and post-SOX periods, using both short-term and long-term analyses.

Abstract

Purpose

The purpose of this paper is to analyze and compare the performance of corporate acquisitions between the pre- and post-SOX periods, using both short-term and long-term analyses.

Design/methodology/approach

The sample includes 9,463 mergers and tender offers undertaken by publicly traded US firms between 1996 and 2009. The authors used the standard event study methodology for short-term performance analysis; Berkovitch and Narayanan (1993) method to identify merger motives; and standard benchmark adjusted return on assets (sales) (Barber and Lyon, 1996) and buy-and-hold abnormal returns (Mitchell and Stafford, 2000) to analyze long-term performance.

Findings

Compared to the pre-SOX period, US acquirers experience significantly higher announcement returns in the post-SOX period; the results are robust to various controls like bidder, target and deal characteristics, bidder management quality, and product market competition. Similar results (in favor of post-SOX US acquirers) are obtained with long-term post-acquisition operating and stock performance analyses.

Research limitations/implications

This paper only addressed domestic acquisitions.

Originality/value

This paper adds to the growing body of research on the impact of SOX on publicly traded US corporations. By examining corporate acquisitions, an important long-term investment decision for a firm, the paper shows that despite the complex nature of SOX, substantial compliance costs and the unintended negative consequence it engendered, the act had a beneficial impact in an important area of corporate finance.

Details

Managerial Finance, vol. 43 no. 4
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 13 June 2016

Huajing Hu and Yili Lian

– The purpose of this paper is to investigate the impact of institutional investors on the cost of bank loans using US bank loan data from 1995 to 2012.

Abstract

Purpose

The purpose of this paper is to investigate the impact of institutional investors on the cost of bank loans using US bank loan data from 1995 to 2012.

Design/methodology/approach

The cost of bank loans is analyzed with regard to loan spreads, collateral requirements, and the number of prepayment covenants.

Findings

This paper finds that, first, holding institutional ownership constant, institutional control is positively related to the cost of bank loans, implying that strong institutional control intensifies conflicts between large shareholders and lenders. Second, institutional holdings are negatively related to the cost of bank loans. These results indicate that institutional monitoring reduces the agency problem between shareholders and managers.

Originality/value

This paper suggests that the trade-off between institutional monitoring and institutional control jointly determines the effect of institutional investors on the cost of bank loans. Moreover, lenders should consider large shareholders and their influence when making lending decisions.

Details

Managerial Finance, vol. 42 no. 6
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 25 June 2020

Arash Ghorbani and Mahdi Salehi

The agency theory predicts that there are conflict of interests between managers and shareholders over free cash flow and major operating decisions. Earnings management…

Abstract

Purpose

The agency theory predicts that there are conflict of interests between managers and shareholders over free cash flow and major operating decisions. Earnings management can help managers hide and retain their private benefits of control. Given that, the purpose of this study is to investigate whether financial leverage reduces agency and information problems caused by earnings management.

Design/methodology/approach

The research uses a sample of annual data of 200 firms listed on the Tehran Stock Exchange during 2002-2016. The data required is obtained from the Rahavard Novin database. The research uses multivariate regression models that regress financial leverage on earnings management proxies and other determinants of capital structure.

Findings

The research documents that firms with higher income smoothing and the absolute value of discretionary accruals, as the proxies for earnings management, have higher financial leverage. The results suggest that a higher level of financial leverage can discipline managers and generate useful information about firm quality.

Originality/value

The study highlights the informational and disciplining role of debt in the presence of severe uncertainty about firm quality in a developing country.

Details

Journal of Asia Business Studies, vol. 15 no. 1
Type: Research Article
ISSN: 1558-7894

Keywords

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