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1 – 10 of over 1000
Article
Publication date: 18 December 2019

Priyesh Valiya Purayil and Jijo Lukose P.J.

Prior research on earnings management largely assumes that newly public firms manage earnings opportunistically around IPOs. However, only a few studies have empirically examined…

Abstract

Purpose

Prior research on earnings management largely assumes that newly public firms manage earnings opportunistically around IPOs. However, only a few studies have empirically examined the real motives behind newly public firms’ earnings management. The purpose of this paper is to examine the impact of ownership dilution on earnings management among IPO firms. The authors chose the setting of security offerings in an emerging market, which is characterised by unique ownership structure, to examine the possible incentive of owners or pre-IPO shareholders to engage in earnings management.

Design/methodology/approach

The study employs accrual and real transactions measures to check the presence of earnings management among 409 IPO firms from India during the period 2000‒2018. Subsequently, using ordinary least squares regression models with heteroscedasticity-robust standard errors, this paper examines the relationship between earnings management and selling or dilution incentives of pre-IPO shareholders.

Findings

The study finds that the degree of earnings manipulation by issuer firms is positively associated with the ownership dilution at the time of IPO as well as around lockup expiration.

Practical implications

The findings of this study will help the investors and regulators to understand the practice of earnings management among IPO firms and how it is linked to the ownership dilution of pre-IPO shareholders.

Originality/value

The paper contributes to the limited stream of research that investigates the motives of earnings management among IPO firms. It empirically establishes an association between the selling incentive of pre-IPO shareholders and earnings management.

Details

Managerial Finance, vol. 46 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 5 July 2011

Nelson M. Waweru, Ponsian Prot Ntui and Musa Mangena

The purpose of this paper is to examine the factors that determine the choice of multiple accounting methods in Tanzania. The study investigates managers' decisions to choose…

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Abstract

Purpose

The purpose of this paper is to examine the factors that determine the choice of multiple accounting methods in Tanzania. The study investigates managers' decisions to choose accounting methods in a positive accounting theory perspective using panel data covering 60 years from 15 companies listed on the Dar es Salaam Stock Exchange.

Design/methodology/approach

Data were extracted from the companies' annual reports. Possible determinants of the choice of accounting methods are identified based on the positive accounting theory, including firm size, leverage, internal financing, proportion of non‐executive directors, ownership dilution, and labour force intensity. The study then utilises multiple regression analysis to determine the significant factors influencing the manager's choice of accounting methods.

Findings

The results show that the significant factors are company size, internal financing, proportion of non‐executive directors, and labour force. Contrary to the outcome of prior studies, the authors found that company size and internal financing are positively related with income strategy. The study proves statistically that there is a strong association between choice of accounting methods and income strategy.

Originality/value

The paper makes several contributions to the body of knowledge. First, in the Tanzanian context, it determines the factors which affect choice of accounting methods. Second, the study identifies the proportion of non‐executive directors as a new factor impinging on the choice of accounting policies. Finally, this study shows for the first time that the use of ratio of income‐increasing accounting policies to total number of accounting policies can be used as a dependent variable.

Details

Journal of Accounting in Emerging Economies, vol. 1 no. 2
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 11 July 2016

Hyungkee Young Baek, David D. Cho and Philip L Fazio

The purpose of this paper is to explain how family firm ownership and management control affect corporate capital structure strategy after controlling for other significant…

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Abstract

Purpose

The purpose of this paper is to explain how family firm ownership and management control affect corporate capital structure strategy after controlling for other significant variables. The authors argue that, although family ownership has a positive effect on a firm’s leverage, family control through the CEO position and equity performance moderate its impact.

Design/methodology/approach

Using a stratified random sample of 200 US public firms in the S & P Small-Cap 600 index from 1999 to 2007, this study uses random effect panel regressions to test the impact of family ownership on market value and book value debt ratios and the moderating effects of family control and equity performance after controlling for firm, industry, and macroeconomic variables.

Findings

The initial panel regression suggests that family ownership is not related to debt ratios. However, further examination with controls for family CEO and equity performance shows that family ownership is positively related to market and book value debt ratios, but its effect is offset by family control through the CEO position and equity performance.

Research limitations/implications

This study’s methodology can be extended to examine how family firm governance factors affect other firm behaviors such as investment, risk management, and CEO compensation.

Practical implications

Practitioners should consider family ownership and management control factors when establishing financing strategy. The Small Business Administration and other government agencies should make similar considerations when setting policies.

Originality/value

This paper separates ownership and management control factors to explain why family firms use more or less leverage. This study, thus, reconciles the mixed results of prior studies, which do not differentiate between these two governance factors.

Details

Journal of Family Business Management, vol. 6 no. 2
Type: Research Article
ISSN: 2043-6238

Keywords

Article
Publication date: 6 July 2010

Robert M. Hull, Sungkyu Kwak and Rosemary L. Walker

The purpose of this paper is to examine the impact of insider ownership decreases on stock returns for firms undergoing seasoned equity offerings (SEOs).

Abstract

Purpose

The purpose of this paper is to examine the impact of insider ownership decreases on stock returns for firms undergoing seasoned equity offerings (SEOs).

Design/methodology/approach

Insider data were gathered for firms undergoing SEOs and this information used to compute the insider ownership percentage decreases caused by the SEOs. These insider percentage decreases and standard compounded abnormal return methodology were used to test signaling theory.

Findings

It was discovered that the short‐run and long‐run stock returns accompanying SEOs are not consistent with what signaling theory predicts. In particular, for greater decreases in insider ownership percentages, a superior market response for both short‐run tests and long‐run post‐SEO tests was often found.

Research limitations/implications

Prior research has not examined how the change in insider ownership caused by a corporate event influences stock returns. Future research can build on the univariate tests by examining the impact of insider ownership within a multivariate framework.

Practical implications

Investors cannot profit by following the behavior of insiders by selling shares in companies where insiders lower their ownership percentages. This is because insiders appear to have personal agendas that they follow when decreasing their holdings.

Originality/value

This is the first study to examine how changes in insider ownership caused by a significant corporate event affect stock returns. The findings of this empirical examination challenge signaling theory as regards insider knowledge, the ability of insiders to convey their privileged knowledge (if it exists), and the capacity of outsiders to decipher and act on insider actions.

Details

Managerial Finance, vol. 36 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 23 August 2013

Kenneth Yung, Qian Sun and Hamid Rahman

The purpose of this paper is to investigate the role of acquirer's earnings quality on the choice of payment method in mergers and acquisitions (M&A).

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Abstract

Purpose

The purpose of this paper is to investigate the role of acquirer's earnings quality on the choice of payment method in mergers and acquisitions (M&A).

Design/methodology/approach

The paper applies a simultaneous equations model to address the concern of endogeneity between earnings quality and payment method in corporate acquisitions. In addition, a propensity score matching model is used for robustness purpose.

Findings

Previous studies imply that short‐term accruals have a significant impact on the choice of payment method in M&A. In this study, This paper shows that acquisition financing is not significantly affected by short‐term earnings quality once control variables are considered. Instead, this paper finds that it is the long‐term earnings quality of the acquirer that matters. Acquiring firms with poor (good) long‐term earnings quality prefer lower (higher) cash payment in acquisitions. Their results are robust to different definitions of earnings quality.

Research limitations/implications

Researchers should consider the effect of long‐term earnings quality in their future investigations.

Practical implications

Investors should be aware of this issue when evaluating corporate mergers.

Originality/value

This is the first study to examine the impact of long‐term quality of earnings on the choice of payment method in M&A.

Details

Managerial Finance, vol. 39 no. 10
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 19 December 2022

Chee Kwong Lau

This study proposes an alternative perspective on why firms issue convertible debt, to supplement the largely theoretical motives identified in the existing literature. It…

Abstract

Purpose

This study proposes an alternative perspective on why firms issue convertible debt, to supplement the largely theoretical motives identified in the existing literature. It hypothesises that the separate presentation of convertible debt into its equity and liability components has economic consequences and advantage that explain why firms issue convertible over non-convertible debt, consistent with the debt covenant hypothesis. The purpose of this paper is to address the proposed perspective and hypothesis.

Design/methodology/approach

Data on convertible debt, gearing (debt assets and debt equity), debt issuance and retirement, etc. were collected for a sample of 1,104 firms listed on Bursa Malaysia. Regression analyses were then used to assess the hypotheses on how gearing affects the use of convertible debt and the impacts of its use on changes in gearing over the financing cycle.

Findings

Firms with higher gearing, and possibly those close to violating debt covenants, are more likely to issue convertible than non-convertible debt. In addition, the use of convertible rather than non-convertible debt both reduces the increase in gearing when debts are issued and leads to a larger decrease in gearing during debt retirements via conversion.

Practical implications

These effects on gearing provide firms with additional financial flexibility and enhance firms' capacity to borrow more from other sources, a lower-debt advantage.

Originality/value

This study demonstrates the informational role of financial reporting in addressing the stewardship emphasis, as part of the decision usefulness objective of financial reporting in the Conceptual Framework for Financial Reporting.

Details

Asian Review of Accounting, vol. 31 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 9 May 2023

David Audretsch, Maksim Belitski and Candida Brush

Research on financing for entrepreneurship has consolidated over the last decade. However, one question remains unanswered: how does the combination of external finance, such as…

Abstract

Purpose

Research on financing for entrepreneurship has consolidated over the last decade. However, one question remains unanswered: how does the combination of external finance, such as equity and debt capital, and internal finance, such as working capital, affect the likelihood of grant funding over time? The purpose of this study is to analyse the relationship between different sources of financing and firms' ability to fundraise via innovation grants and to examine the role of female chief executive officer (CEO) in this relationship. Unlike equity and debt funding, innovation grants manifest a form of innovation acknowledgement and visibility, recognition of potential commercialization of inovation.

Design/methodology/approach

The authors use firm-level financial data for 3,034 high-growth firms observed in 2015, 2017 and 2019 across 35 emerging sectors in the United Kingdom (UK) to test the factors affecting the propensity of high-growth firms to secure an innovation grant as a main source of fundraising for innovation during the early stages of product commercialization.

Findings

The results do not confirm gender bias for innovation fundraising in new industries. This contrasts with prior research in the field which has demonstrated that access to finance is gender-biased. However, the role of CEO gender is important as it moderates the relationship between the sources of funding and the likelihood of accessing the grant funding.

Research limitations/implications

This study does not analyse psychological or neurological factors that could determine the intrinsic qualities of male and female CEOs when making high-risk decisions under conditions of uncertainty related to innovation. Direct gender bias with regards to access to innovation grants could not be assumed. This study offers important policy implications and explains how firms in new industries can increase their likelihood of accessing a grant and how CEO gender can moderate the relationship between availability of internal and external funding and securing a new grant.

Social implications

This study implicates and empirically demonstrates that gender bias does not apply in fundraising for innovation in new industries. As female CEOs represent various firms in different sectors, this may be an important signal for investors in new product development and innovation policies targeting gender bias and inclusion.

Originality/value

The authors draw on female entrepreneurship and feminist literature to demonstrate how various sources of financing and gender change the likelihood of grant funding in both the short and long run. This is the first empirical study which aims to explain how various internal and external sources of finance change the propensity of securing an innovation grant in new industries.

Details

International Journal of Entrepreneurial Behavior & Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1355-2554

Keywords

Article
Publication date: 21 September 2012

Sazali Abidin, Krishna Reddy and Liehui Chen

Since the initiation of the share split reform by the Chinese Securities Regulatory Commission (CSRC) in 2005, the private placement has become the major source of raising equity…

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Abstract

Purpose

Since the initiation of the share split reform by the Chinese Securities Regulatory Commission (CSRC) in 2005, the private placement has become the major source of raising equity after IPO. The purpose of this paper is to investigate why listed firms in China prefer private placements compared to other options of raising capital.

Design/methodology/approach

The ordinary least squares regression, the piecewise regression and the cross‐sectional regression analysis were undertaken to investigate the determinants and characteristics of the seasoned‐equity offerings announcement effects. Probit regression analysis was taken to estimate the probability of a firm choosing private placements.

Findings

The authors find positive significant announcement abnormal returns for private placement. The findings also indicate that operating performance deteriorates immediately after announcement and poor operating performance is more likely to be contributed by large size portfolios, which suggests size effect.

Research limitations/implications

The paper's evidence contributes to an understanding of the wider implication of the share split reform undertaken by the CSRC.

Practical implications

The paper provides insights for policy makers in China and around the world who have and wish to adopt similar practices within their jurisdictions. Similar research can be conducted in other emerging markets to enable better understanding and implications of seasoned equity offerings on firm financial performance.

Originality/value

The paper is novel in regard to the data and the wider research paradigm used.

Details

International Journal of Managerial Finance, vol. 8 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 7 July 2021

Lenore Palladino

The mainstream framework for corporate governance is that all corporate activity should be directed towards shareholder wealth maximization. This article posits that public policy…

Abstract

Purpose

The mainstream framework for corporate governance is that all corporate activity should be directed towards shareholder wealth maximization. This article posits that public policy should move away from shareholder primacy and instead recognize employees as key contributors to corporate value-creation. One way to implement this approach is to require the creation of Employee Equity Funds (EEFs) at large corporations, which would pay employees dividends alongside external shareholders and establish a collective employee voice in corporate governance. EEFs may reduce economic inequality while improving firm performance and macroeconomic stability. This article provides an original estimate of average employee dividends, illustrating the potential of employee equity funds.

Design/methodology/approach

Analysis of employee dividends for Employee Equity Funds at large U.S. corporations, using publicly available corporate finance data.

Findings

Based on historic dividend payments and employee counts in public 10-K filings, I find that, if EEFs held 20% of outstanding equity, the average employee dividend across this sample would be $2,622 per year, while the median is $1,760. This indicates that employee dividends can be a small but meaningful form of redressing wealth inequality for the low-wage workforce, though it should emphatically not be seen as a replacement for fair wages.

Originality/value

Original data analysis of a proposed policy reform to increase the benefits of employee equity in the United States.

Details

Journal of Participation and Employee Ownership, vol. 5 no. 1
Type: Research Article
ISSN: 2514-7641

Keywords

Article
Publication date: 16 August 2021

Razali Haron, Naji Mansour Nomran, Anwar Hasan Abdullah Othman, Maizaitulaidawati Md Husin and Ashurov Sharofiddin

This study aims to evaluate the impact of firm, industry level determinants and ownership concentration on the dynamic capital structure decision in Indonesia and analyses the…

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Abstract

Purpose

This study aims to evaluate the impact of firm, industry level determinants and ownership concentration on the dynamic capital structure decision in Indonesia and analyses the governing theories.

Design/methodology/approach

This study uses the dynamic panel model of generalized method of moments-System (one-step and two-step) by using a panel data from 2000 to 2014 to examine the relationship between the determinants and leverage. The results are robust to the various definitions of leverage, heterogeneity, autocorrelation, multicollinearity and endogeneity concern.

Findings

Growing firms and firms operating in a highly concentrated industry use high level of debt, taking advantage of the tax shield (trade-off theory). However, if the firms are operating in a highly dynamic environment, they take on less debt as to avoid bankruptcy risk. Firms in Indonesia opt for debt financing perhaps to act as a controlling mechanism to mitigate agency conflicts that may exist between the large controlling shareholders and the minority. Aged and highly profitable firms with high tangible and intangible assets and liquidity level operating in a high dynamic environment follow the pecking order theory.

Research limitations/implications

This study does not perform each industry regression individually. All the industries are pooled together, as the main focus of this study is to examine the factors affecting leverage of firms in general without giving particular attention to individual industry.

Originality/value

The insights on the impact of ownership concentration and industry characteristics are novel especially on Indonesia, thus fill the gap in the literature.

Details

Journal of Asia Business Studies, vol. 15 no. 5
Type: Research Article
ISSN: 1558-7894

Keywords

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