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Article
Publication date: 17 February 2022

Guoping Liu and Jerry Sun

The purpose of this study is to examine whether the COVID-19 pandemic has affected earnings management and the value relevance of earnings in the USA.

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Abstract

Purpose

The purpose of this study is to examine whether the COVID-19 pandemic has affected earnings management and the value relevance of earnings in the USA.

Design/methodology/approach

Discretionary accruals, the explanatory power and slope coefficient of earnings are compared between 2019 (prepandemic year) and 2020 (pandemic year). Univariate and regression analyses are performed.

Findings

There was a significant decline in discretionary accruals from 2019 to 2020, suggesting that firms engaged in more income-decreasing earnings management to take a big bath in reporting earnings in the pandemic year. Meanwhile, the explanatory power and slope coefficient of earnings both were lower in 2020 than in 2019, consistent with the notion that the pandemic has impaired the value relevance of earnings.

Originality/value

This study explores the consequences of the pandemic from accounting perspective. It also enriches accounting research on economic crises.

Details

Managerial Auditing Journal, vol. 37 no. 7
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 7 May 2024

Guoping Liu and Jerry Sun

The purpose of this study is to examine whether the institutional environment influences auditor reporting.

Abstract

Purpose

The purpose of this study is to examine whether the institutional environment influences auditor reporting.

Design/methodology/approach

This study employs China's anti-corruption campaign as an exogenous shock to its institutional environment and compares auditors' issuance of modified audit opinions (MAOs) to small-profit clients before and during the campaign.

Findings

This study documents that small-profit clients were more likely to receive MAOs during the anti-corruption campaign period than before, indicating that auditors issued more conservative audit opinions to small-profit clients because of the anti-corruption campaign. Additionally, this study finds that increased auditor conservatism was more pronounced for auditors of large clients.

Practical implications

This study suggests that a weak institutional environment adversely affects auditor conservatism. This offers valuable insights for governments and regulators to improve the audit environment and for audit firms to enhance auditors' integrity and independence.

Originality/value

This study contributes to the research on institutional environments and auditing by observing a unique exogenous event.

Details

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

Keywords

Article
Publication date: 2 September 2021

Guoping Liu and Jerry Sun

The purpose of this study is to examine whether firm-specific litigation risk affects independent director conservatism in the oversight of financial reporting.

Abstract

Purpose

The purpose of this study is to examine whether firm-specific litigation risk affects independent director conservatism in the oversight of financial reporting.

Design/methodology/approach

This study considers the enactment of Sarbanes–Oxley Act and the main US stock exchanges' corresponding corporate governance regulations in 2002–2003 as an exogenous shock event to increase board independence. OLS regressions with fixed effects are conducted to test the hypothesis.

Findings

Changes in discretionary accruals from the pre-event year (2001) to the post-event year (2004) are more negatively associated with an exogenous increase in board independence for firms with high litigation risk than for firms with low litigation risk.

Originality/value

The results suggest that independent directors are more conservative in overseeing financial reporting when they face higher litigation risk, consistent with the notion that they are still concerned about liability risk although they seldom have to pay damages or legal fees out of their own pockets.

Details

Managerial Finance, vol. 48 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 23 September 2019

Guoping Liu and Jerry Sun

The purpose of this study is to examines whether clients’ share prices responded to three events, including the Securities and Exchange Commission (SEC) launch of administrative…

Abstract

Purpose

The purpose of this study is to examines whether clients’ share prices responded to three events, including the Securities and Exchange Commission (SEC) launch of administrative proceedings against five Chinese accounting firms on December 3, 2012, for their failure to hand over audit work papers due to conflict of jurisdiction; the issuance of SEC Administrative Law Judge Elliot’s ruling on January 22, 2014; and the settlement of the administrative proceedings on February 6, 2015.

Design/methodology/approach

This study uses the Schipper and Thompson approach.

Findings

It is found that share prices responded negatively around December 3, 2012, for USA-listed Chinese companies who were audited by Chinese auditors.

Originality/value

This study provides evidence on how share prices reacted to SEC enforcement actions against an affair of non-audit failure.

Details

Managerial Auditing Journal, vol. 34 no. 9
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 5 February 2021

Guoping Liu and Jerry Sun

The purpose of this study is to examine whether independent directors' financial expertise affects the use of private information in setting bank chief executive officer (CEO…

Abstract

Purpose

The purpose of this study is to examine whether independent directors' financial expertise affects the use of private information in setting bank chief executive officer (CEO) bonuses.

Design/methodology/approach

The association between future firm performance and bank CEO bonuses is used to measure the incorporation of private information into bonuses. Both level and change specifications are employed to test the effect of independent directors' financial expertise on the use of private information in setting CEO bonuses.

Findings

It is found that future firm performance is more positively associated with bank CEO bonuses for banks with a higher proportion of financial experts among independent directors than for other banks. The findings suggest that independent directors with financial expertise can more effectively use private information in setting bank CEO bonuses.

Originality/value

Research on independent directors' role in the use of private information in setting compensation is valuable for understanding how corporate governance can enhance the efficiency of CEO compensation contracts. This study indicates that financial experts on the bank board play an important role in this regard.

Details

International Journal of Managerial Finance, vol. 18 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 13 January 2012

Jerry Sun and Steven F. Cahan

The purpose of this paper is to investigate the economic determinants of compensation committee quality.

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Abstract

Purpose

The purpose of this paper is to investigate the economic determinants of compensation committee quality.

Design/methodology/approach

Sample firms were selected from the IRRC Directors' database. Compensation committee quality is measured as the factor score from a principal component analysis of six compensation committee characteristics. Regression analyses are conducted to test the hypotheses.

Findings

It was found that firms with lower CEO influence, less institutional shareholders, fewer growth opportunities, and that are smaller in size are more likely to have high quality compensation committees.

Practical implications

The results imply that even in the presence of a requirement to have only independent directors on the compensation committee, the quality of compensation committees can vary cross‐sectionally depending on the firm's economic circumstances. Thus, a one‐size fits all solution for compensation committee quality might not be optimal as different firms have different incentives in composing their compensation committees.

Originality/value

This paper adds to the limited literature on compensation committees by using a new measure of compensation committee quality to examine the economic factors that affect the governance quality of independent compensation committees. This paper also complements the board and audit committee research by examining whether the same factors that affect board and audit committee quality might also affect compensation committee quality.

Details

Managerial Finance, vol. 38 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 3 February 2014

Jerry Sun, George Lan and Guoping Liu

The purpose of this study is to investigate the effectiveness of independent audit committees in constraining real earnings management. This study examines the relationships…

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Abstract

Purpose

The purpose of this study is to investigate the effectiveness of independent audit committees in constraining real earnings management. This study examines the relationships between audit committee characteristics and real activities manipulation.

Design/methodology/approach

US firms with stronger incentives to undertake real earnings management are selected as a sample. Regressions are run for the empirical analyses.

Findings

It is found that audit committee members' additional directorships are positively associated with real earnings management measured by abnormal cash flows from operations, abnormal discretionary expenses and abnormal production costs, suggesting that audit committees with high additional directorships are less effective in constraining real earnings management. The findings are consistent with the notion that audit committee members' busyness impairs their monitoring effectiveness.

Originality/value

This study extends the extant research on audit committees' oversight of real earnings management by using refined research design and updated data. This study also provides further evidence on how audit committee members' additional directorships affect their ability to oversee both accrual and real earnings management.

Details

Managerial Auditing Journal, vol. 29 no. 2
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 31 January 2011

Jerry Sun and Guoping Liu

The purpose of this paper is to examine whether high analyst coverage increases or decreases accounting conservatism.

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Abstract

Purpose

The purpose of this paper is to examine whether high analyst coverage increases or decreases accounting conservatism.

Design/methodology/approach

Sample firms were selected from the Compustat and I/B/E/S databases for years 1989‐2006. The authors used both accrual‐based and market‐value‐based measures of accounting conservatism, also the extent to which negative cash flow from operations is more timely recognized via accruals than positive cash flow from operations to measure accounting conservatism. The regression analyses are conducted to test the hypotheses.

Findings

Strong evidence was found that analyst coverage is positively associated with accounting conservatism. The results suggest that firms choose more conservative accounting methods when they are followed by more analysts than when they are followed by fewer analysts. The results are robust to a battery of sensitivity analyses.

Originality/value

This paper sheds light on how analyst coverage affects firms' accounting choices and extends the limited research on the monitoring role of analyst coverage. The findings are consistent with the notion that analyst coverage plays an important corporate governance role in the financial reporting process. This paper also adds to the literature on the economic determinants of accounting conservatism, and provides some implications for practitioners.

Details

Managerial Finance, vol. 37 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 20 April 2010

Guoping Liu and Jerry Sun

The purpose of this paper is to examine whether the type of ultimate controllers (i.e. private vs state) affects corporate disclosure quality and whether the relationship between…

1974

Abstract

Purpose

The purpose of this paper is to examine whether the type of ultimate controllers (i.e. private vs state) affects corporate disclosure quality and whether the relationship between the type of ultimate controllers and corporate disclosure quality is moderated by the separation of ownership and control.

Design/methodology/approach

This study employs the data of 405 Chinese listed firms in 2005. Annual reports were reviewed to collect the data including the type of ultimate owners, cash‐flow rights, and control rights; and the ratings of corporate disclosure quality were obtained from the Shenzhen Stock Exchange website. Ordered logistic regression tested the hypotheses.

Findings

It was found that corporate disclosure quality is lower for firms ultimately controlled by individuals than for firms ultimately controlled by the state. Also, the negative effect of private ultimate ownership on corporate disclosure quality is stronger for firms with high deviation of cash‐flow rights and control rights.

Practical implications

These findings suggest that privatizing state‐owned companies may increase the expropriation of minority shareholders by controlling shareholders if the privatization does not reduce the separation of cash‐flow rights from control rights. Thus, it may be necessary to strengthen the governance role of minority shareholders and constrain the divergence between cash‐flow rights and control rights of the ultimate owners when state‐owned companies are privatized.

Originality/value

This study contributes to the literature on the expropriation of minority shareholders by examining the main effect of the type of ultimate controllers and the interactive effect of ultimate ownership type and the divergence of ownership and control on corporate disclosure quality.

Details

Managerial Finance, vol. 36 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 19 April 2011

Jerry Sun and Guoping Liu

The purpose of this paper is to examine whether client‐specific litigation risk affects the audit quality differentiation between Big N and non‐Big N auditors. Specifically, the…

3054

Abstract

Purpose

The purpose of this paper is to examine whether client‐specific litigation risk affects the audit quality differentiation between Big N and non‐Big N auditors. Specifically, the authors examine whether higher quality audits of Big N auditors relative to non‐Big auditors is more pronounced for clients with high litigation risk than for clients with low litigation risk.

Design/methodology/approach

The authors develop the hypothesis based on auditors' potential monetary and reputational losses, collect the data of US listed companies from the Compustat and CRSP databases, and conduct regression analyses.

Findings

The authors find that the higher effectiveness of Big N auditors over non‐Big N auditors in constraining earning management is greater for high litigation risk clients than for low litigation risk clients, suggesting that clients' high litigation risk can force big auditors to perform more effectively.

Originality/value

This paper contributes to the literature by providing novel evidence on the effect of client‐specific litigation risk on the audit quality differentiation between Big N and non‐Big N auditors. The authors' findings complement the extant research on the relationship between the audit quality differentiation and country‐level litigation risk.

Details

Managerial Auditing Journal, vol. 26 no. 4
Type: Research Article
ISSN: 0268-6902

Keywords

1 – 10 of 327