Earnings cosmetics in a tax-driven accounting environment: evidence from Finnish public firms

Finnish firms are known to manage earnings downwards to avoid income taxes. This study suggests that they simultaneously manage earnings upwards in a smaller scale. The idea behind this behaviour is that humans may perceive a profit of, say, 301 million as abnormally larger than a profit of 298 million. Consequently, firms tend to adjust the second leftmost digit of earnings to exceed nine in order to make the first digit of earnings larger by one. Such corporate behaviour has been previously documented in New Zealand and in the USA. Our study finds a similar phenomenon in Finland. Our results show that although the largest second digits (eight and nine) are fewer than expected, only sixes and sevens are statistically significantly managed upwards.     

Multi-skilling in small and medium-sized engineering firms: evidence from Wales and Germany

A cross-national empirical study of forty-six engineering SMEs in Wales and two regions of Germany analyses the extent to which multi-skilling of staff is occurring, the underlying reasons for such developments, and how well placed firms are in relation to prevailing labour-market and training infrastructures strategically to develop hybrid occupations. We identify four types of skill accretion, only some of which presage net enhancements of the order of skills exercized. New quality assurance or continuous improvement programmes, and organizational restructuring, were the main reasons for multi-skilling. A majority of companies encouraged skill expansion on an ad hoc basis, yet strategic exploitation of multi-skilling incorporating comprehensive training support remained infrequent, especially in Germany. Nevertheless, a minority of the German multi-skilling leads to the award of innovative 'hybrid' qualifications fusing two skilled occupations. The breadth of German initial craft training both facilitates and inhibits potential for further multi-skilling in practice. In Wales, greater flexibility in occupational and training structures provides largely unrealized potential advantages over Germany in developing multi-skilling, especially as a means to resolve recurrent shortages of skilled workers. Welsh SMEs have preferred tentative, incremental, 'bolt-on' approaches to multi-skilling that facilitate only limited external transferability.     

A dynamic performance measurement system: evidence from small Finnish technology companies

The purpose of this paper is (1) to present a new dynamic integrated performance measurement system (IPMS) based on a managerial view, and (2) to present preliminary empirical evidence on the importance of performance measures in small Finnish technology companies using the IMPS as the framework for the survey. The aim is to develop a useful managerial tool for measuring and improving performance in business firms. The system is intended to include a comprehensive set of relevant factors and dimensions, which together form an integrated managerial system of performance measurement. The proposed IPMS is linked to the idea of activity-based costing (ABC). It consists of seven main factors and the causal chain connecting these factors. The factors are classified as two external factors (financial performance and competitiveness) and five internal factors (costs, production factors, activities, products, and revenues). The main idea of the IPMS is to follow the use (transformation) of resources from the point of the very first (elementary) resource allocation to the point when the results of the allocation are realized as revenues. In the causal chain, the factor at any point along the chain is regarded as a determinant of the factor that succeeds it. Moreover, the next resource allocation decision is dynamically affected by the results of the former decisions, thus allowing for learning-by-doing. The IPMS is also used as a framework for a postal questionnaire completed by 93 small Finnish technology firms. These companies put great emphasis on the importance of the employee motivation (production factors dimension), customer satisfaction (products), product profitability (revenues), company profitability, liquidity, and capital structure (financial performance) in the measurement of performance. Factor analysis is used to classify the companies into three groups on the basis of performance measurement.     

Non-audit services and auditor independence: some evidence from Ireland

This study reports the results of an investigation into the effects of the provision of non-audit services (NAS) on perceptions of auditor independence held within the Irish commercial environment, an environment not previously subject to a study of this nature. The methodology used in the study combined the use of a mail questionnaire and semi-structured interviews to allow both breadth of coverage and the opportunity to probe deeper into the nature of the perceptions held. The principal findings of the study were that perceptions of auditor independence were significantly diminished when NAS were provided to clients by personnel involved in the audit rather than by either a separate department within the audit firm or to non-audit clients only. The study highlighted that users of financial statements were willing to accept some reduction in auditor independence consequent upon the provision of NAS if this resulted in firms obtaining better or more cost-effective advice or if it resulted in a higher standard of audit. Analysis of the interviews provided further insights into the manner in which users of financial statements formed these perceptions and also suggested that, in the opinion of the interviewees, the small size and closeness of the Irish audit market acted to enhance rather than diminish audit independence.     

Evolving corporate governance and firms performance: evidence from Japanese firms

This study is an attempt to investigate the implications of the ownership structure and control transfers in the Japanese corporate market, which are attributed mainly to the government’s liberalization policies during 1990s. It appears that institutional shareholdings—either financial or non-financial corporations—are associated with poor performance, whereas the foreign and domestic private ownerships lead to an improvement in the performance of the firms. We observe that unwinding the cross-shareholding between banks and corporations and mutual transfers among non-financial institutions allows for efficiency gain. Furthermore, the ownership transfer to private and foreign individuals is consistently associated with high market value, which implies that individuals’ transfers lead to an increase in efficiency.     

The impact of M&A experience on strategic HRM practices and organisational effectiveness: evidence from Greek firms

Experience with mergers and acquisitions makes companies develop practices that enable them to handle the process more effectively. This study examines the practices that successful companies, with acquisition experience, adopt when managing their personnel. We examine strategic Human Resource (HR) practices that differentiate top-performing from non-top performing companies, using the 1999 Cranet data. Increased HR involvement in strategic decisions, formalisation of HR practices, building organisational capability through training and development activities, line management devolvement and internal labour market opportunities are the main strategic HR practices adopted by successful companies.     

The impact of human resource management practices and corporate entrepreneurship on firm performance: evidence from Turkish firms

This paper outlines the important role of human resource management practices with a link between corporate entrepreneurship and firm performance. Data were collected from a survey of 124 firms operating in different industries in Turkey. The findings of this study indicated that human resource management (HRM) practices partially mediated the relationship between corporate entrepreneurship and firm performance. In other words, corporate entrepreneurship affects firm performance, both directly and through its effects on HRM practices. In addition to corporate entrepreneurship, it is found that HRM practices explain a significant level of additional variance (9 per cent) in firm performance. The theoretical and managerial implications are discussed.     

Knowledge combination in networks: evidence from the international venturing of four small biotech firms

Although international forms of venturing are critical for the sustained economic growth of small firms, this phenomenon remains surprisingly unexplored in international small business research. This study aims to contribute to this field by shedding light on the underlying factors of the international venturing of these firms. In this endeavor, the study rests on the assumption that knowledge combination in networks is a critical requisite for seizing business opportunities in foreign markets. Hence, the specific purpose of this study is to investigate how knowledge combination in networks underlies the international venturing of four small biotech firms. The findings demonstrate that international venturings are strongly shaped by proactive strategies of identifying and implementing knowledge combinations that span across internationally dispersed network relationships. The findings also reveal that different strategies of knowledge combination in networks are pursued depending on the nature of the venture (namely, international product ventures and international market ventures).     

Why SMEs invest in environmental measures: sustainability evidence from small and medium‐sized printing firms

Why do SMEs invest in environmental measures? From the literature we know that most SMEs are rather slow in adopting these sustainable measures, but then the following question arises: why are other SMEs fast in this respect? From our research, it becomes clear that improving the working conditions is the most important reason why these fast‐going SMEs invest in environmental measures, as this probably improves their employees' motivation and performance. This explanation connects ‘planet’ and ‘people’ with each other, and does not exclude ‘profit’, which completes the traditional sustainability circle. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment.     

Who bribes in public contracting and why: worldwide evidence from firms

We study procurement bribery utilizing survey data from 11,000 enterprises in 125 countries. About one-third of managers report that firms like theirs bribe to secure a public contract, paying about 8 % of the contract value. Econometric estimations suggest that national governance factors, such as democratic accountability, press freedom, and rule of law, are associated with lower bribery. Larger and foreign-owned firms are less likely to bribe than smaller domestic ones. But among bribers, foreign and domestic firms pay similar amounts. Multinational firms appear sensitive to reputational risks in their home countries, but partially adapt to their host country environments.     

Corporate governance and firm efficiency: evidence from China's publicly listed firms

This paper applies a two‐stage, double bootstrapping data envelope analysis approach to investigate whether and to what extent various distinctive corporate governance practices affect productive efficiency in a sample of 461 publicly listed manufacturing firms in China between 1999 and 2002. We find that firm efficiency is negatively related to state ownership while positively related to public and employee share ownership. In addition, the relationship between ownership concentration and firm efficiency is U‐shaped, indicating the presence of tunneling activities by the largest shareholder. Among three types of controlling shareholder, state exerts the most negative impact on firm efficiency, followed by state‐owned legal entities. These results provide strong evidence that political interferences have reduced firm efficiency. It shows that the proportion of outside directors and the number of board meetings are positively associated with firm efficiency, suggesting that board of directors can be an effective internal governance mechanism. Furthermore, provincial market development, a proxy for the strength of external governance mechanism, is positively related to firm efficiency. Overall, our findings illustrate that restructuring state‐owned enterprises via improvements in corporate governance has enhanced firm efficiency, but partial privatization without transfer of ownership and control from the state to the public remains a major source of inefficiency in corporate China. Copyright © 2008 John Wiley & Sons, Ltd.     

Extended external reporting assurance: Current practices and challenges

This paper summarizes the UNCTAD ISAR WBCSD Webinar—Assurance on Sustainability Reports: Current Practices and Challenges, which explored views and practices on assurance of extended external reporting (EER) and identified challenges and potential ways forward. Stakeholders are demanding more accountability, as reflected in increased publication of EER and regulatory developments. EER can play an important role in rebuilding trust by catalyzing corporate focus and disclosure of business‐centric matters material to stakeholders including strategy, business model, governance, and greater transparency on other material non‐financial matters. Relatedly, EER cannot rebuild trust unless disclosures are credible and viewed as credible. Therefore, it is important that assurance, and other credibility enhancing techniques, is developed alongside EER frameworks and takes account of regulatory initiatives. We expand on lessons outlined during the Webinar by highlighting questions posed by participants, providing a historical overview of European regulatory developments (e.g., Directive 2014/95/EU and a forthcoming revision), providing a historical overview of the IAASB’s development of ISAE 3000 and forthcoming guidance on addressing major challenges aimed at supporting EER assurance, and providing an overview of practice‐focused publications addressing EER assurance. We conclude with an assessment of the way forward in regard to possible changes in the EER institutional setting, potential harmonization of EER standards, and the ability to provide reasonable versus limited assurance. Along with our companion paper (Venter and van Eck, 2021, 32), we contribute to the current discussion on EER assurance by providing a comprehensive assessment of the EER assurance landscape.     

Management development practices: empirical evidence from Sri Lanka

Being a South Asian developing country, management development (MD) practices in Sri Lanka has received insufficient attention. The paper reports results of an empirical investigation of 219 managers and 78 human resource (HR) managers on MD practices in Sri Lanka. The study investigated different processes by which MD takes place in organizations, the nature of immediate senior managers' support for MD, the importance given to the HRM function in the organizational strategy and the HR managers' contribution to the organizational strategy on MD aspects. The research findings indicate more similar MD practices across the three forms of ownership – local, foreign and joint venture. The conclusions address the existing practice and implications.     

Sustainability reporting quality and post‐audit financial reporting quality: Empirical evidence from the UK

This study examines whether firms that appear to exhibit high sustainability reporting quality are less likely to engage in earnings management activities, thereby delivering financial information that is more transparent and reliable than that delivered by firms that do not produce high‐quality sustainability reports. I also investigate whether the association between sustainability reporting quality and post‐audit financial reporting quality is conditional on audit effort. Analysis of data drawn from FTSE 350 companies covering 2007 to 2018 indicates that firms that produce high‐quality sustainability reports are significantly and negatively associated with earnings management metrics. More importantly, this association is moderated by audit effort, measured by audit fees, suggesting that sustainability reporting quality reflects factors considered by auditors in their audit risk assessment practices. These results remain robust after several sensitivity analyses. I conclude that firms that devote more resources to producing high‐quality sustainability reports are likely to demonstrate an overall commitment to quality that alleviates auditors' concerns about the opportunistic use of sustainability reporting and reduces business risk, thereby reducing the effort auditors expend to verify financial reports.     

Improving performance through vertical disintegration: evidence from UK manufacturing firms

Unlike previous work on the vertical integration–performance relationship, we investigate the performance consequences of vertical disintegration. We offer a theoretical justification for the disintegration decision and we condition the disintegration effect on performance on the initial degree of firm integration, the timing and the direction of disintegration. Using a sample of UK manufacturing firms and controlling for disintegration endogeneity, we find that disintegration eventually results in improved operating performance, particularly when disintegration occurs as a reaction to poor performance and in cases of forward between‐sector disintegration. However, being highly integrated does not guarantee gains from disintegration. The implications of these findings are discussed. Copyright © 2008 John Wiley & Sons, Ltd.     

High-involvement practices and performance of French firms

This article deals with the relationship between human resource practices (HRPs) and firm performances in France. It focuses on four specific HRPs that are able to involve employees: empowerment, compensation, communication and training. Each HRP taken in isolation is supposed to be positively related to performances because it is a source of motivation and commitment for employees. But there also exists a synergy between these practices: when they are combined into a bundle and are implemented all together, they should lead to better firm performances. A survey carried out among 180 human resource managers of large French companies leads to validation of most of our hypotheses. Contrary to previous research, we do not find a significant link between compensation and firm performance. The other HRPs are all indirectly related to financial performances, with social performance playing a mediating role. When they are combined into a bundle, HRPs have a stronger impact on performance than when they are studied individually. The article concludes with the importance of developing a strategic human resource policy and of implementing coherent and complementary high-involvement practices to increase firm performance.     

Demand for labour inputs and adjustment costs: evidence from Spanish manufacturing firms

This paper studies the structure of the adjustment costs for heterogeneous labour inputs, allowing for asymmetries and interaction effects among them. To do this, I estimate Euler equations for the demands of permanent nonproduction (white collar) and production (blue collar) employees using a sample of Spanish manufacturing firms. These equations are estimated using the subsample of observations for which adjustment is done, controlling for endogenous sample selection. The main results confirm the heterogeneity of adjustment costs for these two labour inputs, and the existence of cross-adjustment effects between them. Weak evidence of asymmetry in permanent nonproduction labour is also found.     

The evidence from Canadian firms on multinational diversification and performance

The purpose of this paper is to identify the effects of multinational diversification on corporate financial performance. This issue is examined for Canadian firms by using four years of individual as well as pooled time-series-cross-sectional data for the years 1992–1994 and 1997. Using three distinct measures of financial performance and two measures of multinational diversification and controlling for size, leverage, growth, and efficiency, we replicate the procedures in prior studies to show that, in general, lower performance is associated with multinationality. However, when a nonlinear specification is used, a hurdle level for foreign assets deployment is identified. Prior to this threshold level, financial performance is inversely related to degree of multinational diversification, but beyond this level, the relationship is positive. We provide an explanation for this U-shaped relationship.     

Employment and wage practices of Japanese firms in the Philippines: convergence with Filipino-Chinese and Western-owned firms

In foreign-owned Philippine firms, human resource approaches and practices tend to converge. Japanese-owned firms localize their human resource practices by emphasizing local standards and practices in compensation, hiring, recruitment, job assignments and the like. On the other hand, Western-owned firms tend to adopt well-known Japanese style practices. Filipino-Chinese-owned firms tend to be traditional, emphasizing both informal and hierarchical control mechanisms which put a premium upon loyalty and trust, through familistic, informal but hierarchical control mechanisms. As the owners of these firms pass on control to the next generation, they tend to hire professional managers. These managers include younger generation Filipino-Chinese educated abroad. They are torn between the rational, and traditional norms and practices insisted upon by their Confucian-oriented elders, and the demands of a competitive and ever-changing technology and economy.

It is quite meaningless to attach adjectives like ‘Japanese’, ‘Filipino-Chinese’ or ‘Western’ to universal concepts like industrial relations and human resource approaches - the search for the best approach in work relations is beyond the issue of convergence or divergence.     

Staffing practices in transition: some empirical evidence from China

Although the reform of staffing practices in China has been discussed in the literature, the rationale behind this reform and changes in this HR activity have received insufficient attention and warrant further examination. This article reviews staffing practices during and after Mao's regime, and reports the results of a survey of staffing practices in Chinese industrial enterprises. The research findings indicate that a free labour market is emerging in China, staffing practices are becoming more decentralized and selection criteria have focused more on job-specific information, such as personal ability and skills, rather than political factors. The empirical results also demonstrate that ownership form does have an impact on staffing practices. The paper concludes by arguing that staffing practices in China have revealed only some resemblance to those conducted in the Western market economies.