Accounting Performance Measures Research Articles

Properties of accounting performance measures used in compensation contracts

Properties of accounting performance measures used in compensation contracts

Changes Of Productive Returns Against Ownership Structure

Ownership structure has been a prime variable in corporate governance literature. The structure of the ownership of corporate governance, influence the value of the firm. As proposed by agency theory, different ownership structure leads to varied level of managers’ motivation and engagement, which in turn leads to value creation. Using panel data for period 2011-2022 for a sample of listed firms in India, the study attempts to see a how the varied ownership structure influences the productivity of a firm - measured in terms of accounting performance measures while taking firm size, firm age, and leverage as control variable. Being multidimensional variable, the ownership is being analysed along the dimensions such as shareholders’ concentration, identity among others for its effects on the performance.

All losses are not alike: Real versus accounting-driven reported losses

AbstractWe examine the value relevance of accounting-driven losses that result from the immediate expensing of firms’ internally generated intangible investments versus losses occurring irrespective of intangible investments. Contrary to the long-held view that losses are less relevant than profits for valuation, we find that once the accounting bias of intangibles-expensing is undone, earnings of firms reporting intangibles-driven losses are as informative as earnings of profitable firms. Furthermore, contrary to the view that persistent losses decrease earnings relevance, our evidence shows no decrease in the relevance of earnings for firms reporting persistent intangibles-driven losses. We also find that firms reporting intangibles-driven losses subsequently outperform other loss firms and even profitable firms in value creation from investments in technological innovation and human capital. Our evidence further shows that firms reporting intangibles-driven losses have stronger future performance than other firms. Taken together, the results of this study demonstrate the fundamental differences between losses driven by the immediate expensing of internally generated intangible investments and losses reflecting genuine business performance shortfalls. Standard accounting performance measures, however, do not properly reflect these operational differences and their implications.

Does intellectual capital in Islamic banks outperform conventional banks? Evidence from GCC countries

PurposeThis study explores, first, the performance effect (accounting- and market-based performance) of intellectual capital (IC), measured using the value-added intellectual coefficient (VAIC) and its modified version (MVAIC), on Islamic and conventional listed banks in Gulf Cooperation Council (GCC) countries and, second, whether Islamic banks outperform conventional banks in utilising IC.Design/methodology/approachUsing resource-based view theory and literature reviews, regression analyses are conducted on data for the period 2012–2019 on 26 Islamic and 42 conventional banks. For hypothesis testing, the generalised method of moments panel data regression analysis is applied after addressing endogeneity issues.FindingsResults, after controlling for corporate governance, indicate that the performance effects of IC (VAIC and MVAIC) on both bank types largely converge and Islamic banks do not outperform conventional banks in IC use. IC has a stronger effect on accounting performance measures for conventional banks than for Islamic banks, but IC has some effect on market performance measures for Islamic banks alone. Corporate governance variables do not play a significant role in the presence of VAIC and MVAIC although there are differences in corporate governance between the two bank types.Originality/valueThis study bridges the gap in GCC banking sector literature on the association between IC efficiency and performance measures of Islamic and conventional banks, from a comparative perspective. It enhances understanding, about the IC–financial performance nexus, of policymakers, regulators, bank managers and other stakeholders interested in the influence of different business models, financing/investment methods and governance structure on the performance of both bank types.

관리회계시스템 정보 특성이 관리회계실행에 미치는 영향

Purpose: The purpose of this paper is to define the information characteristics of management accounting systems into four categories: scope, timeliness, integration, and aggregation and to verify these characteristics through the dependent variable of MAP.
 Design/Methodology/Approach: Based on a literature review, survey data was collected from 224 management accounting practitioners and executives in small and medium-sized enterprises (SMEs) to validate the study. The logical validity was tested using regression analysis to examine the impact of management accounting system characteristics on managerial performance.
 Findings: The study results indicate that the characteristics of management accounting systems, using four information characteristics that include 17 items, have a significant impact on the degree of application of management accounting performance measurement. Scope, integration, and aggregation of information had significant impacts on the degree of application of management accounting performance measurement, while timeliness did not.
 Limitations: This study contributes to the development of management accounting system research, but it is limited to SMEs with a manufacturing focus and specific organizational environments and cultures. Therefore, further research in other organizational contexts and cultures is needed to validate and test this multidimensional tool.
 Implications: The information characteristics of management accounting systems identified in this study can be used to evaluate and improve performance measurement and benchmarking processes in SMEs.

Properties of Accounting Performance Measures Used in Compensation Contracts

Properties of Accounting Performance Measures Used in Compensation Contracts

The Board of Directors and Firm Performance: Evidence from Palestinian Listed Firms

The aim of this study is to examine the effect of board of directors characteristics on firm performance by firms listed on Palestine Exchange for the financials year 2001. Accounting performance measures including return on assets and return on equity are used to proxy firm performance. Characteristics of board of directors are represented by board independence, size, frequency of meetings, leadership structure and diversity. Ordinary Least Squares regression results indicate that board diversity has a negative and significant association with firm performance. However, remaining characteristics have insignificant effect on firm performance. This indicates that the result is not in the line with agency theory. Keywords: Board of directors, Firm performance, Agency theory, Palestine Exchange DOI: 10.7176/RJFA/13-12-04 Publication date: June 30 th 2022

A meta-analysis of risk taking and corporate performance

Risk-taking is a topic that has been studied for many years in finance under the famous slogan in the financial industry “Higher risk, higher return”. Nevertheless, empirical results have shown different scenarios. Using a sample of 56 researches with 406 studies covering millions of companies globally in the period from 2010 to 2020, this study applies a meta-analysis approach—a synthetic analysis approach to better understand the relationship between risk-taking and corporate return. Specifically, the studied risk-taking variables are: Leverage, Research and Development costs (R&D), and Firm Size; besides, the corporate return variables are Return on Assets (ROA), Return on Equity (ROE), Return on Sales (ROS), and Profit After Tax (PAT) standing for Accounting performance measures and Tobin’s Q and Market to Book Value (MBV) standing for Market performance measures. Finally, the results have shown that Leverage, R&D, and Size have decent impacts on corporate returns, both Accounting performance and Market performance. Despite having some limitations, the study has provided critical insights into the literature review and established a big picture of the relationship between risk-taking and corporate return.

SUSTAINABILITY REPORTING AND THE FINANCIAL PERFORMANCE OF BANKS IN AFRICA

Purpose– This study examined the relationship between sustainability reporting and bank performance in Africa. Unlike previous studies that solely dwelled on accounting measures of performance, this study adopted both accounting (i.e., return on assets) and market-based measures of firm performance (i.e., Tobin's Q). Methodology– The study relied on secondary data gathered from the audited financial statements of listed banks in Africa over ten years from 2010 to 2020. Notably, the financial statements of 20 listed banks (drawn from Ghana, Nigeria, and South Africa) were subjected to quantitative content analysis to quantify the extent of sustainability content. It was guided by the sustainability reporting framework developed by the global reporting initiative. The content analysis aims to identify and classify the extent to which firms report on Economic, governance, social, and environmental dimensions of sustainability. Besides, the financial statement figures aided the computation of a performance measure (return on assets and Tobin's Q) for the banks. Concerning data analysis, the study utilized a panel fixed effect regression model to estimate the relationship between sustainability reporting and firm performance. Findings– The results suggest that economic, social, and governance reporting of sustainability content (in the financial statement) has a significant positive association with Tobin's Q and Return on Assets (ROA). Furthermore, the study's findings suggest that banks ' reportage of environmental sustainability content has a significant positive effect on ROA. However, it has no significant effect on Tobin's Q. Conclusion– Generally, the study concludes that increased sustainability reporting enhances bank performance in the long term. Among others, the study recommends that policymakers develop a sustainability framework specific to the banking industry's needs. Keywords: Sustainability, return on assets, bank performance, framework. JEL Codes: E44, F40, F43

Should I Trust You? Bidder’s Earnings Quality as an Indicator of Trustworthiness in Earnout Agreements

Synopsis The research problem This paper aims to test whether an acquirer’s past earnings quality (proxied by the level of earnings management) serves as an indicator of its trustworthiness in view of the inclusion of an earnout agreement in an acquisition contract. Motivation Prior studies highlighted the benefits of earnout agreements, showing that they help reduce adverse selection problems and valuation risk faced by the acquirers. However, not much attention has been paid to the risks that these contracts entail. The majority of earnouts are based on accounting performance measures, which may be subject to earnings management by the acquirer to reduce, or even avoid, contingent payments. Therefore, the decision to include an earnout in an acquisition may depend on the sellers’ perceived probability that the acquirer will use opportunistic tactics to avoid the contingent payment, as indicated by the acquirer’s past behavior. The test hypotheses H1: The likelihood of inclusion of earnouts in acquisition deals is negatively associated with the level of earnings management in the acquirer’s past financial statements. H2: The relation between earnings management and the use of earnouts is stronger when the bidder has no acquisition track record. Target population M&A advisors, financial analysts, stakeholders of companies engaging in M&A deals. Adopted methodology Logit regressions, propensity score matching analyses for robustness. Analyses Using a sample of 8,968 acquisition deals completed by US listed companies between 2002 and 2014, we examine the association between the use of earnouts and bidder’s earnings quality (proxied by the level of earnings management) controlling for the determinants of the use of earnouts described by previous literature. We collected acquisitions data from Thomson ONE Banker and accounting information from Compustat. Using logit models, we regress the choice to include an earnout in an M&A deal on several earnings management proxies and on the interaction between the latter variables and bidder’s acquisition track record. Findings We find robust evidence that the level of the acquirer’s past earnings management is negatively associated to the probability of inclusion of an earnout in acquisition contracts. This association is stronger if the bidder has no prior acquisition history and is robust to various measures of earnings management and to controls for other external monitoring mechanisms.

Debt Capacity and Financial Performance of Quoted Firms in Nigeria

Introduction: The field of research treating debt capacity can be comprehended as a unique piece of a lot more extensive capital structure hypothesis. This started with the paper of Modigliani/Miller in 1958. There has been a continuous and serious hypothetical dialog about the ideal capital structure of an organization. One generally new piece of the related discussion is debt capacity and potential connection to the capital structure of an organization.
 Purpose: The purpose of the study was to examine the effect of debt capacity and financial performance of quoted firms in Nigeria. This study expected that debt capacity can be a way to characterize and deal with the capital structure of an organization.
 Methodology: The study formulated 3 hypotheses and the least square multiple regression was used for hypothesis testing empirical results based on 2014 to 2018 accounting and marketing data for 20 quoted firms in Nigeria lend some support to the pecking order and static tradeoff theories of optimal capital structure. Data were sourced from the Nigeria Stock Exchange, Security and Exchange Commission, and other relevant data sources. This study investigated, experimentally, if there might be a significant relationship between the debt capacity of organizations and their financial and market performance. 
 Findings: A firm’s debt capacity was found to have a significant impact on the firm’s accounting performance measure. Debt capacity measures have a positive and significant relationship with the market performance measure (Tobin’s Q). A fascinating finding is that all the influence estimates have a positive and exceptionally critical association with the market execution measure (Tobin’s Q), which could somewhat bolster Myers, (1977)’s contention that organizations with high transient obligation to add up to resources have a high development rate and superior.
 Unique contribution to theory, practice and policy: The consequences of this result further affirm some earlier discoveries by different researchers and prior analysts and the exploration work has had the option to discover answers to the examination addresses prior brought up in the basic part in the accompanying ways. It was therefore recommended that Companies can finance themselves with debt and equity capital. By increasing the amount of debt capital relative to its equity capital, a company can increase its return on equity. Also, in transition, the economic environment is more volatile and riskier than in developed markets. Therefore, a management scheme of capital structure that provides for flexibility in financing is preferable.

Performance effects of value stream costing and accounting performance measures in lean production companies – accounting for time compression

The first purpose of this research is to study how and whether the joint use of lean production, value stream costing and accounting performance measures contribute to performance. Comparing a first-order and second-order structural equation model with survey data from 368 American production facilities, we find that lean production and management accounting practices (value stream costing and accounting measures of variance) collectively – rather than additively – affect performance. This finding indicates that organisations obtain greater performance by integrating lean production and management accounting practices into a system. The second purpose of this research is to determine whether the length of time organisations have employed lean production (‘time with lean’) moderates the joint effect of lean production and management accounting practices on performance. We find that the joint performance effect is positively moderated by the time with lean (i.e. we find a positive progressive learning curve). This contradicts the traditional wisdom on learning, which suggests that the benefits from learning are degressive. We argue that this positive moderation derives from the difficulty of understanding relations between multiple variables and the need for organisations to promote system-wide coherence via holistic changes.

CEO pay sensitivities in innovative firms

PurposeThis study aims to investigate whether compensation committees provide the chief executive officers (CEOs) with incentives to undertake “income-decreasing” but potentially “value-enhancing” innovation expenditures. The authors specifically analyze pay–performance relationships for innovative firms relative to all other firms. This study is critical because innovation is expensive and has uncertain outcomes.Design/methodology/approachUsing alternative accounting performance measures and market performance measures, the authors estimate an econometric model of CEO compensation in innovative firms that incorporates the interaction of endogenous innovation and firm performance.FindingsThe authors document an incremental positive association between changes in accounting performance measures and CEO compensation changes in innovative firms relative to other firms. This sensitivity of executive pay to firm performance is higher for firms that innovate. These results support the hypothesis that compensation committees provide incentives to carry out risky innovation by tying executive compensation more closely to firm performance. This finding survives a battery of sensitivity tests.Practical implicationsThe implications of this study are significant. Capital needs to support risky research and development investments (Tidd and Besant, 2018; Baldwin and Johnson, 1995) form the basis of innovative firms' operations. Considering these expenses, if CEOs, who play a critical role in the scanning, adapting and implementing innovative needs in a firm, are not protected and compensated for making risky choices, the entire investment itself will be threatened. Hence, the findings reiterate and support earlier findings that speak to the importance of compensating CEOs to make high-risk investments that will lead to long-term economic and financial gains for the firm when the innovative behaviors result in competitive market shares and profits.Originality/valueThe original work is related to the investigation of pay–performance sensitivity in the presence of innovation, which has not been fully investigated in prior literature.

The Rise of Covenant-Lite Bond Contracting

We investigate the trading and yield effects of covenant-lite (cov-lite) high-yield bond contracts, which have a restricted (lite) set of covenants. The excluded covenants often are those that use accounting performance measures. Although much research has focused on the potential benefits of accounting as a basis for debt contracting, little is known about settings where it may be optimal to exclude accounting performance statistics from public debt contracts. We find that cov-lite high-yield bonds have a higher trading turnover and lower yield spreads. Our findings provide empirical support for theory, which predicts, for optimal bond covenant design, that a trade-off between improving trading ease versus enhanced investor protection needs to be managed. These results enhance our understanding of the limits of accounting’s role in (bond) contracting design.

Determinants of Accounting and Market-based Performance Measures – Case of Croatian Non-financial Listed Companies

Research background: Profitability and the factors that determine it have always intrigued the scholars. Despite the large number of studies dealing with this topic at the international level, this paper sheds a new light on the issue since it deals with the listed companies in an emerging economy confronting two performance measures. Purpose of the article: The aim of this paper is to provide evidence on the performance of Croatian non-financial firms listed on the Zagreb Stock Exchange (ZSE). Methods: The analysis encompassed firms that operated in the 2015 – 2019 period. For this purpose, the authors confronted two performance measures, i.e. accounting-based performance measure represented with return on assets (ROA) whereas Tobin’s Q stands for the market-based measure of performance or firm value. Independent variables that served as potential determinants of listed companies’ performance include inventories management, productivity, liquidity measured with both current and quick ratio, and size calculated on the basis of total assets, and sales. Findings & Value added: After employing static panel analysis, the results reveal statistically significant influence of size variable based on assets in both models though it takes negative sign in the model where performance is measured with Tobin’s Q, whereas its positive impact on performance is recorded in ROA model. Furthermore, size based on total sales also positively affects performance when measured with ROA.

Accounting Information and Contracting Dynamics

I develop a dynamic principal-agent framework to examine the role of accounting information in a long-term contracting relationship with uncertainty over fundamental performance in which intertemporal incentives and termination are jointly determined. Learning and the reversal property embedded in the accounting performance measurement system gives rise to an accounting-driven demand for long-term incentives. Measurement precision directly influences the performance-based vesting behavior of these incentives over the course of the contracting relationship. Furthermore, equilibrium manipulation of the accounting report becomes increasingly positive as the agency approaches termination because such a policy reduces the chance of inefficient termination. My framework allows for falsifiable predictions regarding the relationship between the properties of accounting measurement and the evolving nature of incentives over the manager's tenure, managerial risk-taking activity, and managerial turnover.

The Value relevance of accounting performance measures for quoted family firms: A study in the light of the alignment and entrenchment hypotheses

The present research examines the value relevance of accounting earnings data disclosed by a sample of French family and non-family firms. The major goal of this paper is to find if the value relevance of accounting earnings for investors depends on the nature of the firm. In addition, it intends to check if accounting earnings relevance varies in function of the concentration of ownership in the hands of families.
 The research is based on a longitudinal data set (2009 – 2012) obtained from a sample of 349 firms quoted on the Paris stock market and composing the CAC-All tradable index. Relying on the association studies’ methodology, the main hypotheses are supported as the results show that family firms exhibit more value relevant earnings than non-family firms. This finding could be justified by an alignment effect that may be especially evidenced in the case of moderate family ownership. Conversely, less value relevant earnings are exhibited by highly controlled family firms thus showing evidence for a probable entrenchment by the owning-families.

Accounting information in innovative small cap firms: evidence from London’s Alternative Investment Market

We posit that investors and social media users place more weight on cash flows than on earnings for innovative small cap firms and that, in turn, innovative small cap firms (i) manage cash flows more than earnings, and (ii) disclose more cash flow than earnings information on social media. Using a matched sample of innovative and non-innovative small cap firms listed on the London’s Alternative Investment Market (AIM), we document that the value relevance of cash flows (earnings) is higher (lower) for innovative compared to non-innovative small cap firms. Using Twitter to examine the demand of accounting performance measures, we find that Twitter users more frequently retweet and include as ‘Favorite’ information about cash flows, than information about earnings for innovative small cap firms. We then show that innovative small cap firms engage less intensively in earnings management and exhibit higher abnormal cash flows compared to non-innovative small cap firms. Innovative small cap firms emphasise more information in their tweets about cash flows and less about earnings compared to non-innovative small cap firms. Cross-sectional tests demonstrate that seasoned equity offerings provide additional incentives to engage in increasing abnormal cash flow management activities.

Management control systems in the knowledge economy: Assessing the role of intellectual capital in

The purpose of this paper is to show that intellectual capital (IC) efficiency as measured by the value added intellectual coefficient (VAIC) and its individual components may function as key performance indicators for use in management control and external reporting to capital market participants. We incorporate the VAIC within the Ohlson model (OM), a widely used model for equity valuation, which relates a firm's market value to the book value of equity and net earnings, and allows to include any other information that may affect the market assess-ment of firm value. We then estimate the modified OM on a panel sample of firms continuously listed on the Italian Stock exchange from 2011 to 2017 using a fixed effect (FE) specification. Empirical results indicate that IC efficiency contributes along with the traditional accounting metrics included in the OM to explain the stock market performance of sample firms. This paper suggests that the VAIC and the individual measures of IC efficiency may usefully complement traditional accounting measures of performance.

Organizational and legal institutions, and the performance of microfinance institutions as hybrid entities

PurposeMicrofinance institutions (MFIs) play an important role in economic development, with the dual objectives of social outreach and financial self-sufficiency. The purpose of this study is to examine the influence of organizational structure and variations in legal systems on the MFI dual performance goals.Design/methodology/approachUsing a sample that includes 1,518 MFIs from 105 different countries over a period of 20 years, this study analyzes the data by applying a model that includes six categories of organizational structures and variations of legal systems, including both civil and common law, with accounting performance measures for the dependent variables.FindingsThe analyses provide robust results indicating that MFIs structured as non-governmental organizations (NGOs) have better social outreach than all other types of MFIs and exhibit better financial performance than MFIs registered as commercial banks or credit unions. Legal systems also played a role in MFI effectiveness.Research limitations/implicationsGiven the increasing importance of MFIs on economic development globally, this study has relevance on how the impact of MFI structural characteristics and macro-level influences on their dual performance criteria can be translated into management approaches and governance policies that can increase the effectiveness of these dual (i.e. social and financial) goals.Originality/valueThis study is more comprehensive than prior research in addressing the influence of organizational structures of MFIs and legal systems on MFI dual mission, namely, its financial performance and social outreach, thereby increasing our understanding of policy implications in sustaining the MFI’s developmental role.