Earnings persistence, accruals and managerial share ownership

We investigate the relationship between earnings persistence and a broad measure of total accruals (TACC). We propose and find that in Australia, TACC is less persistent than cash flows. We further propose that the persistence of accrual components is positively associated with the reliability of those components. However, we find that the least reliable accrual component has the greatest persistence and suggest possible reasons for this. We then investigate the relationship between earnings persistence and managerial share ownership, but find no evidence of a consistent, strong relationship. Rather, for the non-current operating accruals we find evidence consistent with incentive alignment for large firms with high operating cash flows, whereas for small firms we find evidence consistent with efficient contracting.     

The persistence of earnings per share

The persistence of innovations to accounting earnings per share, EPS, has important implications for equity valuation, yet it remains a largely neglected subject. This paper employs various empirical tests in order to measure the persistence of shocks to EPS for the S&P 500 index. Within the I(0)/I(1) paradigm the empirical evidence rejects the I(1) specification, supporting instead a trend-stationary representation. When fractional orders of integration are considered, the results indicate that the detrended series is long memory (d  >  0) and mean reverting (d < 1). The responses decay slowly to zero, albeit 50 quarters after an initial shock the responses remain significantly different from zero. Likewise, the variance ratio evidence suggests that the effect of a shock persists over time spans characteristic of the business cycle.

Firm diversification and earnings management: evidence from seasoned equity offerings

Popular press suggests that diversified firms are more aggressive in managing earnings than non-diversified firms. We examine this claim in the seasoned equity offering (SEO) setting, where firms have been shown to have the incentive to manage earnings upwards. Using the cross-sectional modified Jones [(1991) J Accounting Res 29:193–228] model to measure discretionary current accruals, we find that discretionary current accruals are higher among diversified firms than in non-diversified ones. Our evidence is consistent with the view that the extent of firm diversification is directly related to the degree of earnings management. We further show that diversified issuers with high discretionary accruals underperformed other SEO firms.

Political Connections and Related Party Transactions: Evidence from Indonesia

This paper examines whether politically connected firms use related party transactions as a tunneling mechanism in Indonesia. We further investigate whether the presence of tunneling compels managers to manage earnings to conceal such expropriation of resources. Our study is motivated by conflicting evidence in the extant literature about the role of political connections and related party transactions. Using data from Indonesia, we document that politically connected firms use related party loans to tunnel resources, and that this effect is more pronounced for firms with government connections. We further document that politically connected firms manage earnings to conceal their tunneling activities. By documenting the role of related party transactions as a specific channel through which connected firms expropriate resources, we enrich the political connection and related party transactions literature.     

Earnings benchmark hierarchy

We examine the hierarchy of earnings benchmarks in Australia. Our results demonstrate a disconnect between the actions managers appear to take and the market reaction to firms exceeding or just missing earnings benchmarks. The actions of managers appear consistent with them acting in a manner to avoid making losses and earnings decreases. On the other hand, the market reacts in a manner where the analysts’ earnings forecast is at the top of the earnings benchmark hierarchy. However, for firms without analyst coverage, the reporting of positive earnings is the predominant earnings benchmark.     

Externally reported performance measures and benchmarks in Australia

We survey 116 Australian CFOs from the top 700 Australian Securities Exchange‐listed firms regarding externally reported performance measures and benchmarks. CFO responses are not always consistent with theory, and a comparison with a similar U.S. survey highlights differences consistent with the respective institutional settings. Conditional analyses of responses also find that characteristics such as firm size that differentiate the Australian market from the U.S. market are associated with differences in opinion between the CFOs in each domain. The key message to accounting researchers is that, given significant institutional differences, it is unwise to infer that U.S. findings will apply to Australia and similar market settings.     

Investment bank monitoring and bonding of security analysts’ research

We assess investment banks’ influence over the agreement between their analysts’ research behavior and their clients’ interests, in the post-reform era. Competing banks discipline their analysts with worse career outcomes for producing biased reports, issuing shirking reports, and for involvement in the earnings guidance game, showing meaningful monitoring of their analysts. Highly reputable banks provide more monitoring discipline of their analysts and bonding of their moral hazard than other banks. The findings agree with the banks taking responsibility for aligning analysts’ behavior with clients’ interests.     

我国商业银行贷款集中度的测算及效应分析

近年来,商业银行信贷集中问题逐渐显现,正确认识信贷集中度及其影响对我国经济和金融业的稳定具有重要意义。本文用行业集中度、地区集中度、客户集中度三个指标来衡量我国商业银行的贷款集中度,以15家上市银行为研究样本进行了测算,在此基础上,将其分为三组同质同类银行,采用时间序列截面数据分别建立回归模型,考察了各组同质同类银行的贷款集中度对收益及风险的影响。     

Reversing an impairment loss and earnings management: The role of corporate governance

This paper examines whether the reversal of a previously recognized impairment loss provides an opportunity for earnings management, and whether such behavior is associated with managers' incentives. It also examines whether a corporate-governance mechanism can mitigate this behavior. Since 2005, listed companies in Taiwan have been required to comply with accounting standards, equivalent to International Accounting Standards (IAS) No. 36 “Impairment of Assets,” which allow reversals of asset-impairment losses. Data on a sample of 55 firms that reversed impairment losses between 2005 and the first quarter of 2007 were matched by industry and size with 55 control firms. Empirical results show that firms recognizing more impairment losses are more likely to reverse impairment losses when doing so would avoid an earnings decline in a subsequent period, which is consistent with the “cookie jar” reserve hypothesis. We also show that such behavior is more pronounced for firms with higher debt ratios, consistent with earnings management being associated with the incentive to avoid violation of debt covenants. However, an effective corporate governance mechanism could mitigate such behavior. Our study may contribute to the debate on global convergence with IFRS, especially convergence between IFRS and U.S. GAAP with respect to the “Impairment of Assets,” by providing a rationale for the latter's prohibition of reversals. It may also contribute to the corporate-governance literature by showing the effect of governance mechanisms on deterring earnings management.     

Earnings management and initial public offerings: The case of the depository industry

In a typical IPO, insiders are “net sellers” of IPO shares; however, in a demutualizing thrift, insiders are “net buyers” of IPO shares. Using a sample of mutual depository IPOs, we find evidence consistent with earnings management prior to the conversion of mutual thrifts. We find on average that mutuals report lower ROA and increased loan loss provisions and loan loss reserves in the period prior to the demutualization. Using a two-stage approach, we also find that the level of discretionary loan loss provisions and discretionary reserves are positively related to both the level of insider participation in the IPO and the first-day returns to investors. Our results are consistent with management of mutual thrifts benefiting at the conversion from reduced pre-IPO earnings and book equity resulting from earnings management.