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Article
Publication date: 1 December 2005

Khaled ElMoatasem Abdelghany

Although the academic research on the quality of earnings has been improved by presenting different approaches of measurement, there is no agreed‐upon generally accepted…

Abstract

Purpose

Although the academic research on the quality of earnings has been improved by presenting different approaches of measurement, there is no agreed‐upon generally accepted approach to measure the earning quality. Aims to present results of an empirical study measuring the quality of earnings on companies listed in NYSE.

Design/methodology/approach

Uses a sample of 90 companies listed in the NYSE. The analysis is directed to reach a general assessment of the quality of earnings if there is a complete consistency among the three approaches, and if not, the quality of earnings is questionable and needs further analysis and investigations.

Findings

The results show that different approaches of measuring the quality of earning lead to different assessment, and one industry or one company can not be labeled as having low or high quality of earning based on the result of one approach only. The results also suggest that the stakeholders before making any financing, investing decision or taking any corrective action, have to use more than one approach to assess the quality of earnings.

Originality/value

Indicates that financial analysts and governmental agencies dealing with companies should apply more than one measure for the quality of earning in order to have strong evidence about the level of quality before taking any corrective action or making any decision related to those companies.

Details

Managerial Auditing Journal, vol. 20 no. 9
Type: Research Article
ISSN: 0268-6902

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Book part
Publication date: 1 November 2018

Wasukarn Ngamchom, Malai Kamolsakulchai, Thanomsak Suwannoi and Jutamas Wongkantarakorn

This study provides practical implications for brokerage firms to utilize the importance of corporate governance fundamentals in marketing the equity securities. It models…

Abstract

This study provides practical implications for brokerage firms to utilize the importance of corporate governance fundamentals in marketing the equity securities. It models a structural relationship of board qualification, management competency, transparent corporate disclosure, and earning quality to the intention to invest. Data were collected from 1,410 investors who were asked about their investment intentions in the 13 ASEAN-Stars Thai listed companies. The investors in our model form their investment attitudes based on the company’s earning quality which is determined by its corporate governance attributes. The results show that corporate governance fundamentals significantly influence the investors’ perception on the company’s perceived earning quality and that the perceived earning quality has a significant positive effect on the investors’ intention to invest in the company. Our findings can help marketers at brokerage firms to persuade their customers to invest if they recommend equity securities of good governance companies.

Details

International Corporate Governance and Regulation
Type: Book
ISBN: 978-1-78756-536-4

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Article
Publication date: 27 April 2020

Affaf Asghar, Seemab Sajjad, Aamer Shahzad and Bolaji Tunde Matemilola

Corporate governance (CG) is an ongoing interesting topic getting the attention of market participant, business regulators and researchers in today’s business environment…

Abstract

Purpose

Corporate governance (CG) is an ongoing interesting topic getting the attention of market participant, business regulators and researchers in today’s business environment. The purpose of this study is to analyze the moderating role of earnings management on CG-value and CG-risk relationship in the emerging economy of Pakistan.

Design/methodology/approach

A panel data analysis is used in this study. A panel data of 71 non-financial listed companies of Pakistan for the 2008-2017 period is considered for this study. Secondary data is collected from the annual reports of non-financial firms listed on PSX. Seven econometric equations are developed to test the research hypothesis.

Findings

The results reveal that CG significantly enhances the firm value and performance measures. Moreover, CG mitigates the practices of earning management and eliminates the risk that develops opportunistic behavior among managers to commit frauds.

Practical implications

The results of this study suggest that the board of directors (BODs) should intensify their governance role and ensure that the executives perform their duties to maximize the wealth of the shareholders and not engage in any misrepresentation of accounts that may lower the company position and decrease the firm value. Moreover, the managers should be informed about their accountability and acknowledged that at the end of the year, they would be audited by an expert’s auditors for their responsibilities. Concerning regulatory bodies, regulatory authorities should ensure that there must be at least one independent member on the board. The better-governed system reduces both agency conflicts and enhances firm value.

Originality/value

A number of studies have already been undertaken by multiple investigators to build connection among CG with firm performance, but there is not even a single study in the literature that considers CG, firm value, firm Risk and discretionary earning management as a whole in one model to generalize its results in the emerging economy of Pakistan. A fundamental element of current analyzation process addresses that this is the very first graft of study conducted in Pakistan having combination of four variables together in one revision. There is minimal work that focuses on moderating effects of earning management on the CG-value and CG-risk relationships. This study uses two standard measures of firm performance (i.e. ROA and Tobin’s Q), one proxy of earning management (DEM) and three attributes of CG (board size, audit quality and ownership structure). Previously, researchers have not investigated a model that combines variables (CG as independent and Firm performance and Firm Risk as dependent along with DEM as moderator) in a single study.

Details

Corporate Governance: The International Journal of Business in Society, vol. 20 no. 4
Type: Research Article
ISSN: 1472-0701

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Book part
Publication date: 23 August 2021

Shigufta Hena Uzma and Mohammad Nurunnabi

The study endeavours to bring out a critical synthesis of the effect of quality of financial reporting in the BRICS (Brazil, Russia, India, China, and South Africa…

Abstract

The study endeavours to bring out a critical synthesis of the effect of quality of financial reporting in the BRICS (Brazil, Russia, India, China, and South Africa) countries pertaining to the International Financial Reporting Standards (IFRS) adoption. BRICS is the group composed by the five major emerging countries, which together represent about 42% of the population, 23% of gross domestic product (GDP), 30% of the territory, and 18% of the global trade. The study synthesised 57 quantitative, qualitative, and theoretical studies between the period 2005 and 2020. The findings reflect that the BRICS countries are far way behind with the qualitative and quantitative outcomes on IFRS adoption, which may be on a voluntary basis or mandatory basis. However, there are mixed revelation based on the implications of the domestic convergence of standards with IFRS, which demonstrate that 15 papers’ results revealed a negative impact.

Details

International Financial Reporting Standards Implementation: A Global Experience
Type: Book
ISBN: 978-1-80117-440-4

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Book part
Publication date: 30 September 2019

Masumi Nakashima

This study focuses on a survey of chief financial officers (CFOs) in public firms in Japan concerning the following six points: the importance of the definition earnings…

Abstract

This study focuses on a survey of chief financial officers (CFOs) in public firms in Japan concerning the following six points: the importance of the definition earnings quality; higher quality earnings; the determinants of earnings quality; prevalence, magnitude, and motivation of earnings management; accounting that influences earnings quality; and misrepresenting of earnings. The results are following: first, Japanese CFOs define earnings quality as earnings accurately reflecting economic reality, earnings accurately reflecting the results of operations, and earnings backed by cash flows, earnings sustainability, recurring, and consistent, and earnings reflecting long-term trend importance. Second, Japanese firms consider earnings that reflect consistent reporting choices over time as higher quality. They do not consider that earnings having accruals that are eventually realized as cash flow as higher earnings quality. Third, Japanese CFOs indicate that 30% of earnings quality is impacted by firm characteristics such as firm’s business model, industry, and macroeconomic conditions. Surprisingly, the influence of the board of directors is greater than the impact of their internal controls. Fourth, as for the determinants of earnings quality, CFOs consider that more than 70% of Japanese CFOs do not allow the discretion and that accounting standards limit their ability to report higher earning quality. Fifth, Japanese CFOs consider that higher earnings are influenced by accounting principles such as policies that match expenses with revenues and policies that rely on fair value accounting as much as possible. Sixth, CFOs themselves predict that 50% of Japanese firms use discretions and that they use 20% of earnings per share (EPS). Since there is inside and outside pressure to hit earnings benchmarks, Japanese firms possess the motivation to use earnings to misrepresent economic performance, Japanese managers see a red flag when generally accepted accounting principle’s earnings do not correlate with cash flow from operations.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78973-370-9

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Article
Publication date: 12 January 2021

Ahmad Sahyouni, Mohammad A.A. Zaid and Mohamed Adib

The purpose of this paper is to investigate how much liquidity banks create and how liquidity creation changed over time in the MENA countries and to examine the soundness…

Abstract

Purpose

The purpose of this paper is to investigate how much liquidity banks create and how liquidity creation changed over time in the MENA countries and to examine the soundness of banks in these countries based on the CAME rating system, in addition to investigating the relationship between CAME ratios and liquidity creation of these banks.

Design/methodology/approach

The study regresses the CAME ratios together with other control variables to model liquidity creation. The robustness of the results is evaluated by using a different measure of liquidity creation and by excluding the observations of the Islamic banks.

Findings

The results show that the CAME rating system, as an indicator of bank soundness, is negatively related to bank liquidity creation. Specifically, capital adequacy, management efficiency and earning ability ratios affect the on-balance sheet components of liquidity creation, while asset quality ratio affects its off-balance sheet component.

Practical implications

The paper offers insights to regulators and banks managers in terms of better understanding of the negative relationship between CAME rating system and bank liquidity creation.

Originality/value

This paper sheds more light on the relationship between bank soundness and liquidity creation by using the ratios of the CAMEL rating system as an indicator of bank strength and soundness.

Details

EuroMed Journal of Business, vol. 16 no. 1
Type: Research Article
ISSN: 1450-2194

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Article
Publication date: 19 December 2018

Farzana Akbari, Mahdi Salehi and Mohammad Ali Bagherpour Vlashani

The purpose of this paper is to investigate the relationship between tax avoidance, firm value and managerial ability in Tehran Stock Exchange and Over the Counter (OTC)…

Abstract

Purpose

The purpose of this paper is to investigate the relationship between tax avoidance, firm value and managerial ability in Tehran Stock Exchange and Over the Counter (OTC), according to the related theoretical foundations.

Design/methodology/approach

To calculate the managerial ability in this study, DEA is used based on the accounting data, company profile and industry and the hypotheses are estimated in a period of 12 years during 2004 to 2015 in TSE and OTC. Within the previous studies, to test the hypotheses, only the classical regression method is usually used and most of the times the effect of macroeconomic variables is not considered. In this study, in a new act for testing the hypotheses, three statistical methods are used, that is, classical regression models, mixed effects multilevel models and Bayesian multilevel models. Also in this study, the test of structural change is used to control the effects of macroeconomic variables, like inflation and other economic and political influence, on the results.

Findings

The results of these three methods show that the effect of income smoothing and earnings quality on the relationship between tax avoidance and firm value are significant.

Originality/value

Although several studies are conducted so far on the subject of the study, the current study is the first project which combined Bayesian econometrics. Therefore, the results are quite noble.

Details

International Journal of Organizational Analysis, vol. 27 no. 1
Type: Research Article
ISSN: 1934-8835

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Article
Publication date: 4 August 2020

Maria Kontesa, Andreas Lako and Wendy Wendy

The purpose of this study is to examine the relationship between board capital and firm earnings quality with different controlling shareholders for a sample of 252 listed…

Abstract

Purpose

The purpose of this study is to examine the relationship between board capital and firm earnings quality with different controlling shareholders for a sample of 252 listed firms in Indonesia over the period 2011–2017.

Design/methodology/approach

This study uses a two-step dynamic generalized method of moments panel regression to estimate the board capital effect on earnings quality. The board capital measure is constructed from educational capital, networking capital and experience capital. Meanwhile, discretionary accrual is used as the proxy for earnings quality. All financial data is from the annual report. Board capital data is a combination of an annual report, RelSci data, Linkedin searching and Bloomberg data.

Findings

The findings of this study report that board capital has a significant effect on earnings quality. Higher board capital may result in better earnings quality. In further investigation, this study finds that firms with higher education backgrounds tend to have better earnings quality. Meanwhile, firms with higher experienced board members tend to have bad earnings quality. Additionally, networking capital does not have any impact on earnings quality. The findings of this study also document a strong size effect of controlling shareholders in moderating the relationship between board capital and earnings quality.

Research limitations/implications

This study contributes to upper-echelon, institutional, positive accounting and agency theory. It implies that agency cost plays an important role in that relationship. In a more deep analysis, this study records different board capital effects on earnings quality across controlling shareholders.

Practical implications

Shareholders should elect board directors following their competencies and should note that not all competencies will give a quality earning report. The educational background of board members will enhance earnings quality, but the experience of a board member will reduce the earnings quality. Further, the relationship between board capital and earnings quality is significantly moderated by controlling shareholders, implying that different controlling shareholders need different board capital.

Originality/value

This study examines board capital effects on earnings quality with different controlling shareholders using four major theories. The board capital measure is tedious and detailed allowing to capture the comprehensive human capital.

Details

Accounting Research Journal, vol. 33 no. 4/5
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 16 August 2019

Guofeng Ma and Ming Wu

The purpose of this paper is to mine information on the construction process of previous projects to develop a construction plan that meets both quality requirements and…

Abstract

Purpose

The purpose of this paper is to mine information on the construction process of previous projects to develop a construction plan that meets both quality requirements and schedule constraints.

Design/methodology/approach

This paper uses a failure mode and effect analysis to evaluate the construction quality of 311 apartments in Shanghai. The authors also evaluate construction-scheduling control using the earned value management technique and implement an artificial neural network to correlate the results. The authors then develop a quality risk and schedule correlation model based on Big Data. The model can predict the relationship between the planned schedule and the project quality risk using multiple variables such as the number of layers, the schedule performance index and budget costs.

Findings

The methodology offers an innovative approach for assessment on the relationship between quality risk and project schedule. The authors have also built a multiple regression analysis model for comparative purposes with the model. The results show that the proposed model can better describe the relationship. The model can provide a quantitative quality risk value that changes with the planned schedule, as well as help project managers to understand the relationship between quality risk and project scheduling more accurately.

Research limitations/implications

The research approach only focuses on quality risk under the impact of scheduling. Future efforts might focus on developing a model that connects failure models with project schedules and costs in order to improve the effort of quality management.

Practical implications

The model based on Big Data in this paper is developed using real projects and reflects the relationship between project quality risk and scheduling in real environments. The created application provides support for project managers to develop and adjust quality plans and schedules, thereby reducing deviations in quality and scheduling objectives.

Originality/value

The authors make full use of historical project data from the perspective of both quality and schedule management, and provide a novel method to intelligently and objectively analyze the relationship between quality risk and scheduling.

Details

International Journal of Quality & Reliability Management, vol. 37 no. 1
Type: Research Article
ISSN: 0265-671X

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Article
Publication date: 29 November 2018

Farzana Akbari, Mahdi Salehi and Mohammad Ali Bagherpour Vlashani

The purpose of this paper is to investigate the effect of managerial ability on tax avoidance in Tehran Stock Exchange (TSE) and OTC by classifying the income smoother and…

Abstract

Purpose

The purpose of this paper is to investigate the effect of managerial ability on tax avoidance in Tehran Stock Exchange (TSE) and OTC by classifying the income smoother and non-income smoother companies based on the theoretical approaches.

Design/methodology/approach

To measure the managerial ability the data envelopment analysis is applied based on the accounting data, company and industry characteristics. In this research, hypotheses are tested for the first time by three statistical methods, namely classical regression models, mixed effect multilevel models, and Bayesian multilevel models, which have never been addressed in Persian accounting research studies. The hypotheses are estimated during a 12-year period from 2004 to 2015 in TSE and OTC. In this research, according to Lucas’s critique, structural change test is used in order to control macroeconomic and political variables affecting the results of the study.

Findings

The results of hypothesis testing by employing three statistical methods suggest that only one hypothesis of this investigation is significant, which shows the significant association of type of market’s impact (exchange of OTC) on the relationship between managerial ability and tax avoidance.

Originality/value

Each company’s performance is affected by various factors. The study intends to mention that the performance of listed companies in the stock market depends heavily on its financial reports. And investors with perceived perception by the reports, can indirectly squeeze their stock indexes with their sudden sale of stocks, and question the company’s performance with losses to the company.

Details

International Journal of Emerging Markets, vol. 13 no. 6
Type: Research Article
ISSN: 1746-8809

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