A cross‐country study on the relationship between financial development and earnings management

This study investigates whether a country's level of financial development is associated with earnings management in an international setting. Financial development is likely to heighten the monitoring and scrutiny of accounting numbers because of strengthened investor protection laws and regulations as well as sophisticated market participants. Therefore, we first hypothesize that both accrual‐based and real earnings management decrease with greater financial development. However, research shows that managers tend to apply real earnings management, instead of accrual‐based earnings management, under strict accounting standards, regulations, and close auditor scrutiny. Thus, we explore the alternative hypothesis that accrual‐based earnings management decreases but real earnings management increases along with higher financial development. We examine the relationship between financial development and both types of earnings management using 56,830 observations in 37 countries covering the period 2009–2012. The results indicate that both types of earnings management are more restrained under higher levels of financial development.     

Testing neoclassical convergence in regional incomes and earnings

The time-series properties of per capita income and per capita earnings in the regions of the United States are tested for consistency with the neoclassical growth model's prediction of convergence. We find evidence for per capita income convergence for U.S. regions during the 1929–1990 period after allowing for a trend break in 1946. These findings support the neoclassical model's prediction of convergence. The evidence for per capita earnings convergence is, however, less conclusive. Shocks to per capita earnings are found to be more persistent than shocks to per capita income. This implies that the regional distribution of transfer payments tends to smooth the effects of deviation on relative regional per capita earnings and reinforce trends in per capita income convergence.     

On earnings management countermeasures of listing companies in China

This paper overviews earnings management incentive of listed companies, cost in transactions with stockholders and major in researching some countermeasures how management.     

Effect of non‐IFRS earnings reporting guidelines on underlying earnings reporting quality: The case of Australian listed firms

This study investigates Australian Securities Exchange (ASX) 200 firms in the post–Australian Securities and Investments Commission (ASIC) period (2011–2014) to examine how listed firms follow the non–International Financial Reporting Standards (IFRS) earnings reporting guidelines issued by ASIC to communicate underlying earnings reporting quality. We find that firms that do not comply with the ASIC guidelines have lower underlying earnings reporting quality than do firms that comply with these guidelines. Firms that do not follow the ASIC guidelines are found to exclude income‐increasing underlying earnings adjustments to make underlying earnings appear more profitable than IFRS earnings when they miss earnings targets or make current losses, and that they report underlying earnings opportunistically by excluding recurring expenses that persist into future operating earnings. Unlike ASIC non‐compliance firms, ASIC compliance firms attempt to act as responsible reporters by reporting underlying earnings in a responsible manner to demonstrate a judicious use of discretion in informing shareholders. Further, we find that underlying earnings reported by non‐compliance firms are less value‐relevant than underlying earnings reported by compliance firms.     

The effect of earnings forecast precision on firm value and insider trading under voluntary disclosure in Taiwan

Taiwan changed its earnings forecast policy from mandatory to voluntary disclosure in 2005. In this study, the inferences of voluntary earnings forecast are examined based on forecasts issued by listed firms. This study suspects that insiders have a temptation to strategically manipulate financial forecast information to influence markets and thus receive extra rents. Under the new earnings forecast disclosure policy, the number of disclosing firm decreases but the precision of earnings forecast increases. The empirical result from dynamic panel data evidences the forecast error of voluntary disclosure may negatively impact firm values. Furthermore, there is a positive relationship between insiders＇ trading profit and manipulation of earnings forecasts. As volatility in insider manipulation increases, it is difficult for the investors to predict the real intention of insiders, and insiders may achieve greater benefits from trading. This study also observes that many listed companies hold investor conferences to provide earnings guidance in Taiwan. The reason may be that investor conference is more flexible and has less forecast error cost than the formal financial forecast. This study provides important insights into earnings forecast policy in emerging markets. The competent authority should improve corporate governance and develop monitoring functions to abate forecast manipulation.     

The influence of enterprise resource planning (ERP) systems' performance on earnings management

We analyse whether there is a linkage between performance measures of enterprise resource planning (ERP) systems and earnings management. We find that earnings management decreases with the higher performance of ERP systems. The empirical result is as expected. We further analyse how the dimension of the DeLone and McLean model of information systems success affects earnings management. We find that the relationship between the performance of ERP systems and earnings management depends on System Quality after ERP implementation. The more System Quality improves, the more earnings management is reduced.     

Geometrical Interpretation of the Mean and the Constant in a Box-Jenkins Time Series Model

Certain manuals and computer programs mistakenly identify the mean with the constant in Box-Jenkins time series models. In this paper, it will be shown that (a) the mean and the constant have different values in autoregressive models, and (b) they have an algebraic and graphical relationship.     

Executive compensation and earnings management under moral hazard

This paper analyzes executive compensation in a setting where managers may take a costly action to manipulate corporate performance, and whether managers do so is stochastic. We show that an increase in the possibility of manipulation actually calls for executive pay to be more responsive to reported performance. In addition, regulatory reforms that increase the cost involved in manipulation may lead to reduced pay-for-performance sensitivities. The time-series and cross-sectional variations of executive compensation lend support to our model.     

Neural network forecasting of quarterly accounting earnings

This study uses an artificial neural network model to forecast quarterly accounting earnings for a sample of 296 corporations trading on the New York stock exchange. The resulting forecast errors are shown to be significantly larger (smaller) than those generated by the parsimonious Brown-Rozeff and Griffin-Watts (Foster) linear time series models, bringing into question the potential usefulness of neural network models in forecasting quarterly accounting earnings. This study confirms the conjecture by Chatfield and Hill et al. that neural network models are context sensitive. In particular, this study shows that neural network models are not necessarily superior to linear time series models even when the data are financial, seasonal and non-linear.     

盈余管理与审计意见的实证分析

盈余管理一直以来是会计实证研究的一个热点问题,本文主要从上市公司的盈余管理对审计意见的影响进行分析,研究发现,公司的盈余管理行为并未对审计意见的类型产生重要影响。但对于财务状况较差的上市公司而言,其盈余管理程度越高,其被出具非标准无保留审计意见的可能性越大。     

An empirical study on information content of accounting earnings and cash flow

Based on deep analyzing the colluding and checking relation of income statement and cash flow statement, this paper chooses and designs the corresponding profit index, carries on the comparative study of information content between accounting earnings and cash flows. The paper utilizes the financial data of Chinese listed company in manufacturing industry from 2003 to 2005, adopts the price model and analyzes empirical study about two kinds of profit indexes and value relevance. Studies have suggested： accounting earnings and cash flows all have relevant relations to stock prices; however, the relevance between cash flow and stock price is stronger, and cash flows have higher information quality.     

Influence of earnings management on forecasting corporate failure

This paper studies the relationship between corporate failure forecasting and earnings management variables. Using a new threshold model approach that separates samples into different regimes according to a threshold variable, the authors examine regimes to evaluate the prediction capacities of earnings management variables. By proposing this threshold model and applying it innovatively, this research reveals boundaries within which earnings management variables can yield superior corporate failure forecasting. The inclusion of earnings management variables in corporate failure models improves failure prediction capacities for firms that manipulate substantial earnings. Furthermore, an accruals-based variable improves predictions of failed firms, but the real activities-based variable improves predictions of non-failed firms. These findings highlight the importance of indicators of the magnitude of earnings management and the tools used to improve the performance of corporate failure models. The proposed model can determine the predictive power of particular explanatory variables to forecast corporate failure.     

Does the reputation matter？ Corporate reputation and earnings quality

Good corporate reputations are critical not only because of the potential for value creation, but also because their intangible character makes replication by competing firms considerably more difficult. This paper tests the relationship between the reputation and the earnings quality. Through a partial correlation test and a regression test, I do find the evidence that the reputation is not only positively correlated with superior earnings quality, but also does have positive effect on superior earnings quality, as well as the superior total sales do in Chinese public companies.     

Estimation and model adequacy checking for multivariate seasonal autoregressive time series models with periodically varying parameters

We introduce a class of multivariate seasonal time series models with periodically varying parameters, abbreviated by the acronym SPVAR. The model is suitable for multivariate data, and combines a periodic autoregressive structure and a multiplicative seasonal time series model. The stationarity conditions (in the periodic sense) and the theoretical autocovariance functions of SPVAR stochastic processes are derived. Estimation and checking stages are considered. The asymptotic normal distribution of the least squares estimators of the model parameters is established, and the asymptotic distributions of the residual autocovariance and autocorrelation matrices in the class of SPVAR time series models are obtained. In order to check model adequacy, portmanteau test statistics are considered and their asymptotic distributions are studied. A simulation study is briefly discussed to investigate the finite-sample properties of the proposed test statistics. The methodology is illustrated with a bivariate quarterly data set on travelers entering in to Canada.     

Just-in-time inventory systems innovation and the predictability of earnings

Firms that adopt just-in-time (JIT) inventory practices do so in order to realize cost savings and improve product quality, but an unexpected benefit to such firms could be a more predictable earnings stream. We examine the relationship between implementation of just-in-time inventory practices and the predictability of future quarterly earnings for a matched-pair sample of 82 firms, half of which have publicly announced that they have adopted JIT inventory practices. We find that one- and four-step-ahead forecasts of quarterly earnings, using either a Brown–Rozeff [Journal of Accounting Research (1979) 179–189] ARIMA or a seasonal random walk expectation model, are more accurate for the firms that have adopted JIT.     

Options and earnings announcements: an empirical study for the European Options Exchange

In this paper we give an introduction in option pricing theory and explicitly specify the Black-Scholes model. Although market participants use this and similar models to price options, they violate one of the fundamental assumptions of the model. They do not set a constant value for the volatility of the underlying asset over time, but change the volatility even during a day. By means of event study methodology we investigate the volatility of the underlying asset and the volatility implicit in option prices around earnings announcements by firms. We find that the volatility in option prices increases before the announcement date and drops sharply afterwards. The volatility of the underlying stocks is higher only at the announcement dates and we do not observe a higher volatility around these dates. Hence, the constant volatility of the underlying asset, which is one of the assumptions in the Black-Scholes model, does not hold. However, the market seems to correctly anticipate the change in volatility, by correcting option prices.     

Deregulation and labour earnings: Three motor carrier industries in Japan

We empirically examine the effect of product market deregulation on wages. The difference-in-difference approach is used with wage data from three motor carrier industries (the taxi, bus and trucking industries) in Japan to obtain the following findings. First, deregulations in the 1990s and 2000s caused the relative wages of taxi and bus drivers to decline, but this was not the case for truck drivers. Second, the large decline in the relative wages of taxi drivers can be explained by the deterioration of economic conditions; their wages are more sensitive to labour market conditions than those of drivers in other industries.     

The impact of varying types of performance-related pay and employee participation on earnings

Using matched employer-employee data from a nationally representative sample of British establishments, the paper examines the impact of different types of performance-related pay (PRP) on earnings and whether this is moderated by the presence of employee involvement and financial participation schemes. It supports previous work that has suggested that there are strong and complex interactions between employee involvement schemes and compensation mechanisms. In particular, the results indicate that employees' earnings are highest where both individual and work-group PRP schemes are present at a workplace, and where there are congruent PRP and employee participation schemes.     

Liquidity,earnings management,and stock expected returns

This paper examines the relationships among liquidity, earnings management, and stock expected returns by using a sample of Chinese listed firms to investigate 22,022 firm–year observations from 1998 to 2018. Our study reveals that an increase in stock liquidity is associated with a decrease in the degree of earnings management. This result is robust to the use of alternative measures when endogeneity concerns are controlled for. Moreover, the findings indicate that the stock liquidity component of earnings management is positively associated with future stock returns in Chinese firms. Our results reveal that the stock liquidity component of short-termism in managerial decisions plays a critical role in determining future stock returns.     

Testing of unit root and other nonstationary hypotheses in macroeconomic time series

Recently proposed tests for unit root and other nonstationarity of Robinson (1994a) are applied to an extended version of the data set used by Nelson and Plosser (1982). Unusually, the tests are efficient (against appropriate parametric alternatives), the null can be any member of the I(d) class, and the null limit distribution is chi-squared. The conclusions vary substantially across the 14 series, and across different models for the disturbances (which, also unusually, include the Bloomfield spectral model). Overall, the consumer price index and money stock seem the most nonstationary, while industrial production and unemployment rate seem the closest to stationarity.