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.     

Real and Accrual‐Based Earnings Management in the Pre‐ and Post‐IFRS Periods: Evidence from China

The purpose of this study is to investigate the prevalence of both accrual‐ and activities‐based earnings management for Chinese A‐share firms surrounding the adoption of substantially IFRS‐convergent accounting standards. Since 2007, all listed A‐share firms in China have been required to comply with a new set of accounting standards that have substantially conformed to IFRS. The new reform also produced a set of new auditing standards and internal control reporting requirements. Based on a sample of 4,050 firm‐year observations from 2002 to 2011, we find that Chinese firms in the post‐IFRS period (2007–2011) are less likely to engage in accrual‐based earnings management. The magnitude of discretionary accruals also declines after IFRS adoption. In response, we see firms turning to real activities manipulation as a substitute for upward earnings management. The reduction in accrual‐based earnings management could stem from higher quality accounting standards associated with IFRS adoption and/or concurrent changes in the governance regimes introduced with the IFRS mandate. A further analysis, however, indicates that the benefits of IFRS adoption in curbing upward accrual‐based earnings manipulation are not evenly distributed across firms. Specifically, the benefit diminishes for firms that are controlled by Chinese central or local governments, are located in less developed regions, and that have weak financial performance and therefore subject to delisting status. We also find that the benefit is less pronounced for manufacturing firms than for their non‐manufacturing counterparts.     

Real Earnings Management and Information Asymmetry in the Equity Market

The literature suggests that real earnings management (REM) activities can increase adverse selection risk in capital markets. Due to their opacity and the difficulties in understanding their implications, REM strategies may increase the level of information asymmetry among investors. This paper examines the association between earnings management through real activities manipulation and information asymmetry in the equity market. To estimate the level of adverse selection risk we use a comprehensive index of information asymmetry measures proposed by the market microstructure literature. For a sample of Spanish listed firms, we find that firms’ strategies of increasing earnings through REM are associated with higher information asymmetry in those firms that meet last year’s earnings. Our findings are consistent with the hypothesis that earnings management through real activities manipulation garbles the market, enhances private information production, and exacerbates information asymmetry in the stock market.     

Can voluntary environmental regulation promote corporate technological innovation?

The impact of environmental regulation on technological innovation has been widely discussed in the academic circle. Based on the panel data of 403 Chinese manufacturing firms from 2010 to 2015, this paper explored the role of voluntary environmental regulation in technological innovation. The results showed the following: First, both voluntary environmental information disclosure and environmental management system certification had a positive effect on corporate innovation investment. Second, compared with the impact of environmental information disclosure, the impact of environmental management system certification on corporate innovation investment was more significant. Third, there was a significant positive interaction between environmental information disclosure and environmental management system certification. Finally, the effect of voluntary environmental regulation on corporate technological innovation in heavily polluting industries was stronger than that in lightly polluting industries.     

How Do Financial Constraints Relate to Financial Reporting Quality? Evidence from Seasoned Equity Offerings

This paper examines how constraints on firms’ financing capacity relate to managers’ discretionary accounting choices. Three hypotheses of earnings management – the opportunism hypothesis, the rational expectations hypothesis, and the signaling hypothesis – predict that constrained firms engage in greater upward earnings management than unconstrained firms when selling equity. Using a sample of seasoned equity offerings (SEOs) announced between 1983 and 2014, I find support for this prediction. The relation between financial constraints and earnings management is robust to including controls such as offer size, growth opportunities, analyst following, and chief executive officer equity holdings, as well as to using the instrumental variable approach. Investors’ reaction around and following the SEO announcement supports the rational expectations hypothesis. I find that aggressive earnings management by constrained issuers is associated with lower SEO announcement returns but is not followed by negative abnormal returns in the long run. The evidence suggests that constrained issuers’ aggressive use of income-increasing accruals is an outcome of managerial myopia caused by capital market pressure, not managerial opportunism intended to mislead investors.     

Environmental management accounting in Europe: current practice and future potential

Abstract

We examine the impact of managerial financial reporting incentives on accounting quality changes around International Financial Reporting Standards (IFRS) adoption. A novel feature of our single-country setting based on Germany is that voluntary IFRS adoption was allowed and common before IFRS became mandatory. We exploit the revealed preferences in the choice to (not) adopt IFRS voluntarily to determine whether the management of individual firms had incentives to adopt IFRS. For comparability with previous studies, we assess accounting quality through multiple constructs such as earnings management, timely loss recognition, and value relevance. While most existing literature documents accounting quality improvements following IFRS adoption, we find that improvements are confined to firms with incentives to adopt, that is, voluntary adopters. We also find that firms that resist IFRS adoption have closer connections with banks and inside shareholders, consistent with lower incentives for more comprehensive accounting standards. The overall results indicate that reporting incentives dominate accounting standards in determining accounting quality. We conclude that it is unwarranted to infer from evidence on accounting quality changes around voluntary adoption that IFRS per se improves accounting quality.     

International Financial Reporting Standards adoption and information quality: Evidence from Brazil

This paper examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) in Brazil in 2010 has improved the value relevance of accounting information, information content of earnings, financial analyst forecasting activities, and liquidity. We examine the variables in the pre‐IFRS mandatory adoption sample period, considered herein as 2008 to 2009, and the post‐IFRS adoption period of 2011 to 2012. We provide evidence demonstrating improvement in value relevance of earnings and number of analysts following the firms in the period after IFRS adoption, but we do not find improvements in information content of earnings, accuracy in analyst forecasting, and liquidity in the post‐adoption period. Our findings suggest a positive relationship between IFRS adoption and some areas of information quality in Brazil. By focusing on one important economy as it takes significant steps toward full convergence with IFRS, our study contributes to the growing literature concerning the impact of IFRS adoption around the world.     

Do voluntary disclosures of bad news improve liquidity?

Can managers improve market liquidity and lower the cost of capital by providing voluntary earnings guidance? This study examines the impact of profit warnings on market liquidity and finds that voluntary disclosure of bad news actually improves market liquidity. By conducting an empirical study over the period 1995–2010 on NYSE, NASDAQ and AMEX listed firms, we find that firms that issue profit warnings show enhanced market liquidity during the post-announcement period. We show that profit warnings reduce information asymmetry and lower bid-ask spreads and increase trading volumes. These results are invariant to daily (short run) and monthly (long run) data after controlling for firm specific attributes. The results have major corporate policy implications. By voluntarily disclosing negative earnings guidance by managers, firms will experience significant improvement in market liquidity, thereby lowering the cost of capital. Our results are even more profound for firms that release bad news with extremely negative stock market impact. In other words, voluntary disclosure of bad news is good for market liquidity.     

Valuation effects of earnings management on hotel firm value

This study investigates the valuation effects of earnings quality on a hotel’s firm value between 1991 and 2017. A unique perspective from the financial crisis period is utilized to explore the changes further when hotel firms face financial distress. We adopt the ordinary least squares (OLS) regression method in this study. Generalized Least Squares (GLS) regression and Petersen’s Clustered Standard Error Model to confirm the validity of results. Seemingly unrelated regressions (SUR) analysis is adopted to compare the impact of the financial crisis on subsamples of low and high Altman Z-scores and subsamples of non-Big-4 and Big-4 firms. Substantial evidence supports our assertion that increased discretionary accruals and earnings management bring down earnings quality and, in turn, decrease a hotel’s firm value. Results reinforce that the 2008 financial crisis had an impact on the relationship between earnings management and hotel firm value. The negative effect that discretionary accruals and earnings management have on hotel firm value is mitigated for hotel firms with low credit strength or not audited by one of the Big-4 firms. Stockholders of hotel firms should be aware of the impact and enforce additional measures to control earnings management activities during a financial crisis.     

Audit firm tenure and audit quality: A cross‐European study

Directive 2014/56/EU and Regulation (EU) No. 537/2014, which came into effect in June 2016, introduced the mandatory rotation of audit firms after a maximum period of 10 years with the same client. We conduct a cross‐European study with the aim of assessing whether long audit firm tenures are associated with lower levels of audit quality. The sample for the study is based on the constituents of the Standard & Poor's Europe 350 index for the years between 2009 and 2016, and we utilize three different sets of proxies for audit quality: discretionary accruals, differences between reported earnings and earnings benchmarks, and accounting restatements. The main result of the study finds that companies with more than 10 years of tenure with their auditors do not have a lower audit quality than other firms. In fact, this study provides some evidence of a higher audit quality for these firms. The results are robust to various checks. Therefore, if there does not seem to be a problem of a lack of audit quality associated with long audit firm tenures, the necessity of establishing a maximum tenure, as the new European regulation does, may be questioned.     

内部控制审计强制规则对会计信息价值相关性的影响研究

我国内部控制审计经历了由自愿规则至强制规则的转变,以2007—2021年内部控制审计上市公司为样本,研究不同规则下内部控制审计与会计信息价值相关性之间的关系。研究发现：相对于自愿规则,强制规则减弱了会计信息价值相关性;强制规则在审计意见类型和审计模式对会计信息价值相关性的影响程度上有所不同。盈余质量、机构投资者和分析师关注均可以缓解强制规则对会计信息价值相关性的负向影响。研究结论表明在当前强制规则下,上市公司在加强内部控制建设以获取无保留审计意见的同时,还应关注独立审计模式带来的增量价值;提高盈余质量,充分发挥机构投资者和分析师的作用,也有助于缓解信息不对称,提高会计信息价值相关性。     

Auditor choices and auditor reporting practices: evidence from Finnish small firms

Abstract

This paper examines whether book-tax conformity (i.e. reducing the gap between financial and taxable incomes) can restrain managers from opportunistically reporting financial profits and taxable income. Empirical work on this relation so far is limited and provides contradictory results. Using publicly available financial statements from 1994 to 2007 for 16,739 firms across 32 countries, I construct a new proxy for mandatory conformity and document that high book-tax conformity is associated with lower levels of earnings management and tax avoidance. These results persist even after controlling for firm characteristics and institutional factors, such as legal enforcement, investor protection, legal systems, capital market development, and the adoption of International Financial Reporting Standards (IFRS). Additional tests reveal that the deterrent effect of conformity on earnings management is more pronounced in code-law countries but does not differ between IFRS and non-IFRS adopters, and between developed and developing capital markets.     

Climate change mitigation: Carbon assurance and reporting integrity

Concern about climate change has increased the pressure on firms to be accountable for social impact and to report on environmental, social and governance (ESG) performance. Focusing on the view that sustainability-oriented firms are likely to consider wider stakeholder interests and pursue high financial reporting integrity, this paper examines the association between carbon assurance and earnings management. Using a sample of firms listed on the New York Stock Exchange, we find voluntary adoption of carbon assurance (level), carbon disclosure and gender diverse boards are negatively associated with earnings management. Additional tests using different components of carbon assurance (percent and verification) confirm our main results. Our results suggest that firms that voluntarily invest in carbon assurance, carbon disclosure and gender diverse boards are less likely to engage in earnings management and thus have higher reporting integrity. This aligns with the view that firms' ethical concerns translate into higher quality reporting.     

Earnings Management to Exceed the Threshold: A Comparative Analysis of Consolidated and Parent‐only Earnings*

This paper examines whether consolidated earnings are managed to a greater extent than parent‐only earnings or vice versa in an attempt to exceed the threshold in Japanese firms. The analysis reveals that earnings management to avoid earnings decreases is more pronounced in parent‐only earnings for the period 1980–1999. Further, it reveals that the management of parent‐only earnings has been less pervasive following the introduction of the new consolidated reporting system in March 2000. In addition, this paper provides evidence suggesting that earnings management in consolidated earnings increased after March 2000. These results indicate that the new consolidated reporting system and principles might affect the earnings management behaviors of Japanese firm managers.     

Impact of CO2 Emission Variation on Firm Performance

The quantifying and reporting of greenhouse gas emissions is one of the most important tools for monitoring and auditing proposed to mitigate climate change, and it also directly affects business. It is thus vital that at this time we learn in detail whether firms actually report on greenhouse gas emissions and make the account entries that must be included within it. This research is twofold: first to analyse the reports on greenhouse gas emissions of international firms in the 2007 and 2008 period and to see what kind of variation occurs in CO₂ emissions between 2006–2007 and 2007–2008, and second to determine the impact that this variation (2006–2007) can have on firm performance in four time periods (t, t + 1, t + 2 and t + 3) that correspond to 2007, 2008, 2009 and 2010, taking two variables as a measure of firm performance, ROE and ROA, and considering a time period affected by a financial crisis. The results obtained show that there was a reduction in CO₂ emissions in the 2006–2007 period, and also in the 2007–2008 period. As regards the impact that the variation in CO₂ emissions has on ROE and ROA, CO₂ emission variation is a significant but negative variable only for ROA_2007 and for the rest of the years it is not statistically significant either for ROE or ROA. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment.     

The contractual and value relevance of reported earnings in a dividend-focused environment

This study investigates the relevance of reported earnings in the context of an institutional environment, i.e., Switzerland, in which investors focus on dividends. In conjunction with a dividend focus, the financial reporting environment faced by Swiss firms provides their managers with more accounting discretion than managers of Anglo-Saxon firms typically have. From a contractual perspective, dividendbased earnings management is expected since Swiss corporate law explicitly states that dividends, which must be voted on by stockholders, are to be based upon a firm's reported earnings. From a value perspective, thin trading conditions and a long-term investment horizon are expected to increase the importance of dividend payments and to influence the informativeness of reported earnings. Results indicate that Swiss managers do engage in dividend-based earnings management, that earnings quality signals are used by managers to voluntarily constrain their accounting choices and that the value relevance of earnings is conditional upon dividend payments.     

公司战略与研发支出会计政策选择

利用2009—2015年中国A股非金融上市公司数据考察公司战略对研发活动中会计政策选择盈余管理的影响。研究发现：相比于采取防御型战略的上市公司,采取进攻型战略的上市公司更可能利用研发支出资本化进行盈余操纵。进一步的研究表明,在企业融资需求高、融资难度大时,激进的进攻型战略更可能导致上市公司利用会计政策进行盈余管理。在采用多种方式测试结果稳健性后,结论仍然成立。     

Voluntary management earnings forecasts and discretionary accruals: evidence from Danish IPOs

This paper seeks to determine whether Danish managers exercise discretionary accruals to reach earnings forecast targets they voluntarily specify in conjunction with initial public offerings (IPOs). Because the Danish accounting and legal environment is more permissive than the US, we use Denmark as a natural laboratory for learning how business would occur without strict rules, enforcement and sanctions. Danish managers often volunteer pro forma financial statements for results that are expected to occur subsequent to the IPO. We examine a sample of 58 Danish firms that issue voluntary management earnings forecasts in connection with IPOs that occur between 1984 and 1996. The evidence we uncover strongly suggests that pre-managed earnings are adjusted toward these targets. In contrast with Kasznik's (1999 Kasznik, R. (1999). On the association between voluntary disclosure and earnings management. Journal of Accounting Research, 37: pp. 57–81 [Google Scholar]) results related to voluntarily forecasting American firms, managers of Danish firms exercise discretionary accruals to mitigate earnings forecast errors regardless of whether pre-managed earnings are less, or greater, than the IPO forecast amount.     

Analyst following,financial constraint,and audit opinion shopping: From the perspective of earning management

This study examines the relationships among analyst following, financial constraint, and audit opinion shopping from the perspective of earnings management, taking a sample of Chinese A-share firms from 2008 to 2018. We find that analyst following alleviates firm's accrued earnings management activities which restrain opinion shopping behaviors; on the other hand, it prompts real earnings management activities that encourage firm's effort to audit opinion shopping. Earnings management has a mediation effect on the positive association between analyst following and audit opinion shopping. Corporate financial constraint amplifies the positive effect of analyst following on opinion shopping.     

Communicating environmental management certification: Signaling without signals?

This article analyzes how organizations communicate their voluntary environmental management certification. Previous research suggests that firms use certification to signal and to create a better public image as one of their main objectives in adopting environmental management standards. How organizations communicate their certification to their stakeholders has not been fully researched. To fill this gap, this work focuses on the hospitality industry, one of the most relevant sectors for environmental certification, and Eco‐Management and Audit Scheme, one of the most demanding certification schemes. On the basis of the analysis of the communication practices of 201 certified European hotels and 37 interviews with managers from certified hotels, the findings are surprising. The great majority of organizations included in the study engage in no significant communication activity. The results cast doubt in the idea that improving corporate image is one of the main drivers to adopt third‐party voluntary certification.