The relevance of earnings and cash flows in a heavily regulated industry: Evidence from the Greek banking sector

This study examines the informational quality of annual accounting earnings within Greek banking institutions taking into consideration the most significant risks facing by such firms and specifically interest rate risk, credit risk, liquidity risk and solvency risk, alongside with the persistence of earnings and bank size as significant determinants of ERCs. Data analysis over a period of ten years (1995-2004) revealed that earnings have higher incremental importance in explaining stock return movements compared to cash flows since earnings change has been found to affect stock returns positively. Additionally, interest rate risk has a positive but not significant impact on the return-earnings relation but on the contrary solvency risk, credit risk and liquidity risk proved to have a negative impact on the valuation process for both small and big-sized banks. Finally, tests on the incremental informativeness of cash flows when earnings are transitory provide significant results suggesting that investors seek for alternative measures of banks' performance when earnings are characterized by increased extremity but inversely cash flows and earnings seem to be equally value relevant when investors evaluate big-sized banking institutions. The results are generally robust to the specification of the empirical models and the research design employed in our study.     

Pension accrual management and research and development investment

This study investigates whether discretion in reporting pension expenses mitigates research and development (R&D) manipulation. Using a sample of Japanese manufacturing firms during the fiscal years 2001–2011 where both pension costs and R&D expenditures have large impacts on the bottom‐line earnings, I find that higher discount rates are associated with higher R&D investment among firms in which pension expenses could have large impacts on reported earnings. I also find that this relationship is found only among firms in high‐tech industries. These results suggest that pension accrual management substitutes costly R&D manipulation that may hurt future competitive edge.     

银行结构与经济发展的因果关系——基于中国地区面板数据的实证检验

本文基于中国东、中、西部六省(市)1994年到2004年的面板数据对银行结构与经济发展的因果关系进行了实证研究。研究结果显示,在较短时间内是经济发展决定银行结构,而在较长时间内则是银行结构主动地影响到经济发展。所以在经济发展的初期受实体经济发展规模的限制,需要分散的银行结构;而随着经济的发展,特别是到了发达阶段,集中型银行结构能更好地促进经济的发展。     

On the nonlinear relation between product market competition and earnings quality

The literature documents conflicting results regarding the influence of product market competition on earnings quality. We extend this stream of literature by incorporating competition’s effect on both the opportunities and the incentives to manage earnings. The combination of both effects results in a nonlinear relation between product market competition and earnings quality. At low competition levels, additional information associated with one more rival helps reveal earnings irregularity and deter earnings management to a larger extent than its effect on the incentives to manage earnings, suggesting a positive relation between competition and earnings quality. At high competition levels, the latter effect dominates the former. We thus predict a positive (negative) relation between competition and earnings quality at low (high) competition levels. Consistent with our hypothesis, we document an inverted U-shaped relation between earnings quality and product market competition.     

Interfirm differences in earnings variability: an analysis of fundamentals,cash flows and accruals

Prior research shows that the time‐series variability of corporate earnings affects forecasting accuracy and corporate risk, yet little is known about the determinants of earnings variability. This study analyses interfirm differences in earnings variability. Large‐sample evidence shows how the ratio of accrual variability to cash‐flow variability varies across a cross‐section of firms and how these components and the correlation between contemporaneous cash flows and accruals are related to key economic fundamentals.     

Discussion of “Performance, growth and earnings management”

In an economy of firms with varying levels of performance, which firms are more likely to manage their earnings? The conference paper by Lee, Li, and Yue provides a promising approach to disentangle economic performance from earnings management in large-sample settings. The authors develop an analytical signaling model of earnings management in an economy and confront its equilibrium predictions with the data.     

中国金融业与经济增长的稳定性分析

本文通过对金融业增加值增长率和贡献率、M2和金融业机构存贷款余额增长速度、价格波动、金融相关比率变化和股票市值占GDP比重变化等多角度的分析发现,中国金融业与经济增长的稳定性总体存在较大的不确定性。但近十年两者的稳定性和协调性有所提高。     

Use of benchmarks in predicting earnings management?

This study conducts multiple approaches to identify whether earnings benchmarks are an indicator for earnings management within the Australian market. We investigate firms reporting small positive earnings and small positive earnings changes, referred to as benchmark beaters. Accrual quality models, earnings distributions and earnings persistence measures are applied to identify whether benchmark beating firms are manipulating earnings. Our findings suggest that the small positive earnings benchmark attracts earnings managers. However, we do not identify any evidence to indicate that the positive earnings change benchmark is a signal for earnings management.     

Crossed-listed foreign firms' earnings informativeness, earnings management and disclosures of corporate governance information under SOX

The passage of the Sarbanes-Oxley Act (SOX) marks the beginning of the mandatory disclosure of audit-committee composition and other corporate governance information for cross-listed foreign firms. We posit that the provisions of SOX improve the effectiveness of an independent audit committee and other corporate-governance functions in monitoring the earnings quality of cross-listed foreign firms, and we use cross-listed firms' earnings informativeness and earnings management to measure earnings quality. Our findings show earnings informativeness is significantly associated with audit-committee independence as well as with board independence in the post-SOX period. In contrast, we do not find a significant association between earnings informativeness and audit-committee independence in the pre-SOX period. Our findings also show a consistently negative association between earnings management and audit-committee independence after SOX, an association that is not found in the pre-SOX period. Similarly, a negative association between earnings informativeness and the CEO duality as the chair of the board is only found in the post-SOX period. Furthermore, our results show a positive (negative) association between earnings informativeness (earnings management) and an aggregate corporate-governance score as a measure of overall corporate-governance functions in both the pre- and post-SOX periods. Our findings on the change of magnitude in the relationship between earnings informativeness (earnings management) and corporate governance suggest that the SOX provisions improve the effectiveness of cross-listed foreign firms' corporate-governance functions in monitoring the quality of accounting earnings.     

Banking stability,competition, and economic volatility

The paper analyzes the influence of banking stability on the volatility of industrial value added using data for 110 countries. Our results confirm the relevance of lending and asset allocation effects because banking stability reduces the volatility of value added more in industries that have greater external financial dependence and intangible intensity when they are located in countries with more developed financial and institutional systems. Moreover, banking stability helps reduce economic volatility more in countries with less bank market competition. We control for recessions, reverse causality problems, and endogeneity of banking stability.     

Earnings quality at initial public offerings

We show that, contrary to popular belief, initial public offering (IPO) firms report more conservatively. We attribute this to the higher quality reporting demanded of public firms by financial statement users and consequentially higher monitoring by auditors, boards, analysts, rating agencies, press, and litigants, and to greater regulatory scrutiny [Ball, R., Shivakumar, L., 2005. Earnings quality in UK private firms: comparative loss recognition timeliness. Journal of Accounting and Economics 39, 83–128]. We also question the evidence of Teoh et al. [1998b. Earnings management and the subsequent market performance of initial public offerings. Journal of Finance 53, 1935–1974] supporting the alternative hypothesis that managers opportunistically inflate earnings to influence IPO pricing. We conjecture that upward-biased estimates of “discretionary” accruals occur in a broad genre of studies on earnings management around similar large transactions and events.     

公司治理结构与盈余管理模式的互动分析

公司治理结构影响会计信息质量,会计信息质量的高低对公司治理结构的完善起到关键作用.盈余管理通过会计政策的选择与公司治理结构产生关系,公司治理结构对盈余管理模式具有重要影响,这种影响体现在内部治理和外部治理两个方面.同时,不同的盈余管理模式对公司治理结构的完善起着不同的作用.     

Earnings management and earnings quality

Viewing the detection of earnings management from the perspective of a crime scene investigator sheds new light on prior research on earnings management and its close relative, earnings quality. The works of Ball and Shivakumar [2008. Earnings quality at initial public offerings. Journal of Accounting and Economics, in press.] and Teoh et al. [1998. Earnings management and the subsequent market performance of initial public offerings. Journal of Finance 53, 1935–1974.] are used to illustrate the application of seven components of a crime scene investigation to earnings management research.