Corporate Earnings Research Articles

Comparison of Financial Performance Buku III Indonesian Banks Using Risk-Based Bank Rating (RBBR) Method: Case Study of PT. Pan Indonesia Bank, Tbk (Panin) and PT. Bank Mega, Tbk (Mega)

Indonesia has experienced economic crisis in 1997/1998 and 2008, these events motivate the government to have a strong assessment to evaluate the financial health of the company. Related to the banks industry, government of Indonesia through Financial Service Authority or Otoritas Jasa Keuangan (OJK) issued the Circular Letter of OJK No. 14/SEOJK.03/2017 about Risk-Based Bank Rating (RBBR) approach that include the evaluation of risk profile, good corporate governance, earnings, and capital. The purpose of this study is to assess the financial health of the two open recorded non-expressed claimed BUKU III banks in Indonesia, which are Bank PT. Pan Indonesia Bank, Tbk (Panin) and PT. Bank Mega, Tbk (Mega) from year of 2014 to 2018. The methodology used is RBBR approach concerning the Rating of Health of Commercial Banks. The data were collected from the yearly report of the banks, fiscal reports, diaries, and articles of PT. Bank Mega and PT. Bank Panin. During the five year trend, the result of this study reveals that the two banks have performed well. However, Bank Mega has performed better in terms of Loan to Deposit Ratio (LDR) compared to Bank Panin. This study has added the knowledge in the financial literature. It also brings benefit for managers to help them make a better decision to address their company’s problem.

Corporate Governance and Earnings Management: Evidence from listed Malaysian Firms

This paper combines the twin aspects of corporate governance and earnings management by providing deeper insights into the role played by the government as a major stakeholder of Government-Linked Companies (GLCs) in Malaysia. In 2004, the Malaysian government embarked on a transformation exercise for all GLCs in the country. The program was designed to strengthen and deepen the mechanisms of corporate governance and anchor best practices from within. The Malaysian government undertook this exercise as part of its efforts to enhance the effectiveness of Boards of state-owned enterprises. The aims and objectives of this paper therefore are to give detail insights into the corporate governance reforms and provide an in-depth understanding of the impact of corporate governance mechanisms deriving from these transformation programs. In order to provide detailed insights regarding this aspect, our study includes both pre and post transformation data and concludes whether these transformational policies and earnings management activities have contributed to any sort of lingering aftereffects. This study also provides suggestions for any further policy improvements if necessary. This study found that there was a reported increase in earnings management activities during the post transformation period. The study also found that post transformation there was little or no impact resulting from corporate governance measures to subdue earnings management activities, on the other hand, both the leadership structure and frequency of board meetings appeared to have a significant impact. The official get-togethers and separation of functions between the CEO and Chairperson in the organisation appeared to adversely influence and benefit the board respectively during the post-transformation period whereas the association does not appear to hold in the pre-transformation period. Even though our study demonstrated a positive uplift from enhanced corporate governance mechanisms in GLCs, further studies to identify the specific factors that contributed to this feel good factor would appear to be warranted.

Pengaruh Corporate Governance, Kualitas Laba, Ukuran Perusahaan Terhadap Asimetris Informasi

This study aims to examine the effect of corporate governance, earnings quality and firm size on asymmetric information. The sample used in this study was a company registered in the corporate governance perception index (CGPI) in 2014-2018 with a sampling method that is purposive sampling, so a sample of 16 companies was obtained. This study uses multiple regression data analysis techniques by comparing the adjusted R-square of each model used. The results showed that adjusted R-square corporate governance on companies registered with CGPI had a significant negative effect on asymmetric information. While adjusted R-square earnings quality has no effect on asymmetric information and also firm size has no effect on asymmetric information

EXCHANGES RATES, STOCK PRICES AND EARNING MANAGEMENT: EMPIRICAL EVIDENCE OF BLUE-CHIP COMPANIES IN SOUTHEAST ASIA

Stock price is an important part of fundings in a company. On the other hand, this component is very dependent on the macro situation of the company which will affect the management-decision-making. This reflects that management’s actions manage corporate earnings are not based on internal source but also from the external factors. This study discusses about external factors that can affect management’s action is the exchange rate. This research has a purpose to analyze the impact of exhange rate to earning management by using stock price as intervening variable. This research used secondary data. The population in this study are Top Asean Stars blue-chip companies from various industry sectors contained in Asean Exchanges 2015-2017. The population in this study comes from 3 ASEAN countries namely Indonesia, Malaysia and Singapore. The sample are selected using purposive sampling method and there are 161 companies that meet the criteria of the sample. The method used for earning management’s calculation is Modified Jones Model. This study used multiple linear regression methods and path analysis. The results showed that stock prices is not an intervening variable for exchanges rate on earning management.

The association between corporate governance reform and earnings management: empirical evidence from a unique regulatory environment

This study takes advantage of a natural experiment to detect the existence of earnings management and identify some of the regulatory and institutional factors that might contribute to it. A panel dataset of 1322 firm-year observations of non-financial firms listed at the Amman Stock Exchange is investigated. The results suggest that the capital market regulations of Jordanian firms have spurred managers to use adjusted earnings to remain trading in the first market, as well as convert from the second to the first market. It also finds that the level of discretionary accruals is reduced significantly with the passage of the corporate governance code. This study supports positive accounting theory by adding new evidence to the ongoing debate about how governmental regulations may create an incentive for firms to manipulate their earnings. It also corroborates the assumptions of agency theory and extends its application to some developing capital markets.

Editorial: Corporate governance through a prism of multi-disciplinary research

This volume of the journal “Corporate Ownership and Control” is focused on corporate governance, corporate social responsibility, earnings and performance management, ownership concentration, institutional ownership, audit fees, audit quality and independence, cross-cultural management and cultural dimensions, financial instruments risk disclosure, equity incentives, firm performance, shareholder composition and monitoring effects, etc. The topics addressed in this issue highlight the continuing need for knowledge present in academic and non-academic research. The papers published in this issue offer an additional point of view with regard to the most important corporate governance issues.

Innovations in Human Resources Management: Instruments to Eliminate Mobbing

Mobbing in employees’ relationships is a widely researched and analyzed problem, and the concept is still developing. The deliberations mostly concentrate on negative aspects associated with this phenomenon, e.g., deterioration of the relationships between employees, devastating consequences for victims, deterioration of the company’s performance and image. The research on what managerial solutions can help reduce or eliminate the problem is still, however, not very abundant. Also, though many studies confirm the existence of this phenomenon in different sectors of the economy, there is not so much research on mobbing in relationships between employees in the leisure sector organizations. What is equally important, the dysfunction of relationships between employees includes the factors that have a significant impact not only on the quality of communication but also on the services provided in the organizations providing services. Given this fact, this study deals with the prevalence of mobbing in relationships between employees of the leisure sector organizations, distinguishing the most frequent forms of psychological pressure, and shaping the managerial solutions to eliminate the problem. The results of the qualitative research are presented using a semi-structured interview method. The research sample comprises employees of the Lithuanian hotels. The qualitative data analysis was performed using Emic and Etic approaches. The results achieved show that the dynamics of mobbing in the leisure sector organizations can be related to the economic recession, when the number of customers has decreased, corporate earnings shrunk. It affected the staff policy of organizations; it also shows that the relationship between the employees forming within organizations is significantly exposed to external circumstances, the influence of which could be compensated by the change in personnel policy. The originality of this article is presupposed by the fact that a complex, versatile model of managerial solutions designed to eliminate the phenomenon of mobbing is presented as the main result of the studies carried out. Using the proposed model, the practitioners will be able to look at the phenomenon of mobbing from a different angle, and researchers analyzing destructive relationships between the employees will be able to develop strategies of prevention and intervention of mobbing in relationships between employees based on the model. Keywords: mobbing, employee relations, human resource management, managerial solutions, qualitative methods, Lithuania.

Machine Learning Panel Data Regressions with an Application to Nowcasting Price Earnings Ratios

This paper introduces structured machine learning regressions for nowcasting and forecasting with panel data consisting of series sampled at different frequencies. Motivated by the empirical problem of predicting corporate earnings for a large cross-section of firms with macroeconomic, financial, and news time series sampled at different frequencies, we focus on the sparse-group LASSO regularization. This type of regularization can take advantage of the mixed frequency time series panel data structures and we find that it empirically outperforms the unstructured machine learning methods. We obtain oracle inequalities for the pooled and fixed effects sparse-group LASSO panel data estimators recognizing that financial and economic data can have fat tails. To that end, we leverage on a new Fuk-Nagaev concentration inequality for panel data consisting of heavy-tailed $\tau$-mixing processes. Our empirical results show the superior performance of introduced machine learning panel data regressions over analysts' predictions, forecast combinations, firm-specific time series regression models, and unstructured elastic net.

The Effect of Corporate Social Responsibility Activities on Corporate Earnings Persistence: Financial Companies

The Effect of Corporate Social Responsibility Activities on Corporate Earnings Persistence: Financial Companies

The Adequacy of the Auditor’s Report in the Anti-Graft Age: A Forensic View

One of the greatest evils ravaging the economies of developing and developed countries in the information age is financial crime with implications for the adequacy of the auditor’s report. Therefore, this study is designed to qualitatively explore and interrogate available literatures, towards ascertaining whether the scope and content of audit and auditor’s report meet the information needs and/or expectations of financial statement users in the anti-graft age, and to examine whether the conventional audit report can furnish anti-graft agencies with the required information that will enable them fight financial crimes. To achieve the above objectives, the quasi-judicial, credibility, inspired confidence and policeman theory of auditing were explored. Existing literatures revealed an expectation gap (in assurance and content) between auditors and financial statement users. Related literatures also suggest that conventional financial auditing tools and methods, especially audit sampling are not adequate to detect and prevent fraud and errors in the information age, and that the conventional audit report cannot meet the information needs of anti-graft agencies. The conclusion of the study is that conventional auditors, unlike forensic auditors, are mere watch-dogs and not blood-hounds, and as a result cannot proactively detect, prevent and investigate fraud. Consequently, it is recommended that forensic auditing should be deployed in corporate settings to peruse and investigate the facts behind the figures in reported corporate earnings as this would boost not only investors’ confidence but the credibility of financial reports and that conventional auditors should acquire investigative skills and technology.

Les Entreprises Implantées au Cameroun Manipulent-ils Leurs Résultats Pour Eviter de Publier les Petites Pertes ?

The objective of this article is to determine if companies located in Cameroon manipulate their earnings to avoid publishing low losses. Based on a sample of 1,525 companies observed over a three-year period and using statistical tools such as normality histograms and statistical tests, we arrive at the results below. First, we note that there is indeed a discontinuity in the distribution of corporate earnings at the threshold of zero. This discontinuity allows us to identify suspicious companies which represent more than 67% of the companies studied. Also by comparing the number of suspicious businesses located to the right of the threshold to the number of suspicious businesses located to the left of the threshold, we find that there are more suspicious enterprises to the right of the zero earnings threshold. However, unlike studies carried out in European and American contexts, the proportion of suspicious companies located to the left of the threshold is relatively large. We then deepened our research to try to identify among the suspicious companies those which can be qualified as manipulative. This deepening was done through an analysis of the evolution over three years of the earnings of suspicious companies knowing that manipulation refers to the transfer over time of charges and products to obtain short terms changes in the transfer of wealth. This analysis allowed us to obtain, among the suspicious companies, a handling rate of more than 58%. Keywords: earnings management, accounting thresholds, zero result, suspicious companies, manipulative companies. DOI : 10.7176/RJFA/11-2-06 Publication date: January 31 st 2020

Nowcasting Business Cycle Turning Points with Stock Networks and Machine Learning

We propose a granular framework that makes use of advanced statistical methods to approximate developments in economy-wide expected corporate earnings. In particular, we evaluate the dynamic network structure of stock returns in the United States as a proxy for the transmission of shocks through the economy and identify node positions (firms) whose connectedness provides a signal for economic growth. The nowcasting exercise, with both the in-sample and the out-of-sample consistent feature selection, highlights which firms are contemporaneously exposed to aggregate downturns and provides a more complete narrative than is usually provided by more aggregate data. The two-state model for predicting periods of negative growth can remarkably well predict future states by using information derived from the node-positions of manufacturing, transportation and financial (particularly insurance) firms. The three-states model, which identifies high, low and negative growth, successfully predicts economic regimes by making use of information from the financial, insurance, and retail sectors.

Measuring the Cost of Regulation: A Text-Based Approach

We derive a measure of firm-level regulatory costs from the text of corporate earnings calls. We then use this measure to study the effect of regulation on companies’ operating fundamentals and cost of capital. We find that higher regulatory cost results in slower sales growth, an effect which is mitigated for large firms. Furthermore, we find a one-standard deviation increase in our preferred measure of regulatory cost is associated with an increase in firms’ cost of capital of close to 3% per year. These findings suggest that regulatory risk is a major cost to firms, but the largest firms are able to manage that risk better. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Natural Disaster Impedes the Corporate Earnings Management in the U.S.

We examine the timing and magnitude of earnings management following natural disasters to provide new insights into how and when firms manage earnings. Using difference-in-difference regressions and a sample of U.S. publicly listed firms from 1980 to 2017, we find that natural disasters reduce the magnitude of corporate earnings management by 19.5% in the two-year, post-disaster period. Natural disasters attract the attention of investors and intensify external monitoring, which results in reduced levels of corporate earnings management. In addition, we find increased information disclosure quality following disasters. Our findings of reduced earnings management following negative, external shocks contradict the predictions of big bath accounting practices.

Earning Management on Market Performance: The Empirical Study on Dividend and Working Capital

Abstract. This research is to develop the integrated modeling for illustrating the influence of accruals against on the market value of firm performance through the corporate event policy, both the policy of dividend payout and working capital, so this causal relationship involves the quality of accruals. On the side, this research tests the capability skill of investors to detect earnings management by the period of publication, when the issue was released out formally and informally. This research proves the empirical testing, earnings management that are commonly used to sending out the message or signaling to the market about firm performance, this fundamental aim is to match the different perceptions. This research used the statistical models by developing the ANOVA analysis, the path model analysis, and multivariate regression, where our explanatory causal research has two stages of the data analysis. Primarily, we used testing the influence of discretionary accruals by path analysis and multivariate regression. By getting rid of the available error or bias, the object of this research was all the listed company period 2001-2016, where it has the purposive sampling. This research used the Amos and SPSS at the significant level at 5%. Finding, the critical finding that all public firms have a systematic method for earnings management, we distinguished the discretionary accruals, when it had high and low accruals, it is measured by the percentage of the total accruals. The discretionary accruals have a negative influence on the market value significantly, both indirect and direct impact. The indirect could be done by a positive relationship with a dividend and a negative relationship with working capital. The other finding is the impact on the quality of accruals when estimating the risk of the firm and the usefulness of financial reporting. This research tries to prove the dividend policy, based on earnings management, and working capital had been a sensitive indicator for investors. Research limitation, this research based on the fundamental analysis, then developed into accruals testing with Kothari Model. When we used the financial indicators, it so brings so many limitations, like the lag period and time horizon. By ignoring the error in time horizon accruals in the long run, this research testing between the accruals and corporate events policy. Practical Implication, this research has pointed out the financial reporting still be the most valuable document and the high usefulness in taking an investment decision. The investors have the capability to detect earnings management and capable too of making a judgment when the high accruals could be found. When a firm released out the financial reporting, it is just like game theory. When financial reporting have high accruals, so this management used the conservative method in reducing out the risk, as we are commonly known as the quality of accruals. Originality/value, The researchers have developed out a mutual relationship with corporate earnings management policy and market value by proposing the concept of the market value of accruals, high payout dividend yield and quality of accruals. By re-shaping the new paradigms of dividend payout, and increasing capability skills of investors, we develop the matrix of game theory models in illustrating investor and management behavior; include the pattering of the flexibility of the accounting method. Keywords. discretionary accruals; working capital; dividend payout; quality of accruals; the cost of capital.

Impact of External Audit Quality on Earnings Management in Marine Enterprises

Lin, C.; Wang, X., and Chen, Y., 2019. Impact of external audit quality on earnings management in marine enterprises. In: Li, L.; Wan, X., and Huang, X. (eds.), Recent Developments in Practices and Research on Coastal Regions: Transportation, Environment and Economy. Journal of Coastal Research, Special Issue No. 98, pp. XX-XX. Journal of Coastal Research, Special Issue No. 98, pp. 100–103. Coconut Creek (Florida), ISSN 0749-0208.With the rapid increase of marine resources and foreign trade, marine enterprises have shown a tendency to expand. Corporate management may whitewash its performance through earnings management, which is not conducive to the long-term development of marine enterprises. As third-party institutions, external audit can be used as an alternative to the internal control of marine enterprises to curb the earnings management of marine enterprises. Using marine enterprises as an example, this article aims to explore the effect of external audit quality on corporate earnings management. The results show that an external audit has an inhibitory effect on earnings management, which is mainly related to the quality of the external audit; the marine companies with high external audit quality have a stronger inhibitory effect on earnings management, and there is a more significant negative correlation between earnings management of high-quality audit teams and the fulfillment of social responsibility. The research findings provide a theoretical basis for exploring the relationship between external audit quality and earnings management.

Busy boards and corporate earnings management: an international analysis

PurposeBecause of our limited understanding of the incidence and effect of board busyness globally, the mixed evidence of the effect of board busyness obtained in the USA and the divergence of international patterns of director busyness from that observed in the USA, the author contends that there is a strong need to examine board busyness from a global perspective. The literature, however, does not examine the effect of board busyness on reported earnings quality and certainly does not analyze it internationally. Consequently, the purpose of this study is to examine the effect of multiple board appointments on the quality of a firm’s reported earnings.Design/methodology/approachThe research design for this study is empirical. It uses both univariate and multivariate statistical analysis to examine historical corporate accounting, finance and governance data.FindingsConsistent with the busyness hypothesis of corporate governance, the author finds that firms with a higher proportion of busy independent directors or busy CEOs manage their earnings more extensively. Further, the findings of this study present that firms with a higher proportion of busy independent audit committee members have poorer financial reporting quality. Using a sample of American Depository Receipts (ADRs), this study determines that the ineffectiveness of busy boards regarding earnings management is mitigated by the listing regulations imposed by US exchanges.Research limitations/implicationsThe author believes that this study offers new and important evidence regarding the debate whether busy directors provide knowledge, skill and corporate connections, or whether they are overextended and, thus, unable to fully perform their monitoring duties. This study shows that firms with busy directors are associated with poorer financial reporting quality and, consistent with the busyness hypothesis, are less effective as managerial monitors.Practical implicationsThis study provides useful guidance regarding board design and the kinds of policies that firms should adopt regarding multiple boarding.Social implicationsThe social implications focus on the public policy implications regarding the importance of effective corporate governance in the reporting of financial wealth, wealth creation and wealth management.Originality/valueThis is the first study that examines the relation between board/committee busyness and corporate earnings management using a comprehensive set of international firms. Second, the author expands the analysis of audit committee into a new dimension: committee quality as captured by the busyness of its independent members. This study also contributes to the ongoing debate in the corporate finance literature regarding the reputation and busyness hypotheses of multiple directorships.

Does the government’s anti-corruption storm improve the quality of corporate earnings? — Evidence from Chinese listed companies

ABSTRACT This paper uses A-share listed companies as a sample to examine the impact of the exogenous event of the 18th National Congress of the Communist Party of China(CPC) on the substitution effect of three types of earnings management behaviors. Under the impact of the anti-corruption storm, while reducing accrual earnings management behaviors, enterprises switch to more hidden earnings management behaviors,such as real earnings management and classification shifting earnings management. The substitution effect of three types of earnings management behaviors also exists in non-SOEs. However, compared with non-SOEs, the decline in accrual earnings management adopted by state-owned enterprises(SOEs), and the increase in real earnings management and classification shifting earnings management are significantly larger than those of non-SOEs. Further research finds that the significant reduction of corporate political connections after the anti-corruption storm is an important way to generate the substitution effect of earnings management behaviors.

Earnings Pressure and Earnings Management: Analysis Based on a Quasi-natural Experiment from China

Since analysts play an important role in corporate governance, this paper aims to examine the impact of earnings pressure from analysts on corporate earnings management. To verify the relationship of earnings pressure and earnings management, this paper selected the listed companies in China as a sample, and chose the deregulation of short selling mechanism to make conclusion persuasive. This paper shows that the greater earnings pressure perceived by managers, the possibility and degree of corporate earnings management increase. When the Short Selling was deregulated, earnings management can be significantly inhibited due to the decrease of earnings pressure. In addition, the influence of earnings pressure on earnings management is more significant in non-state-owned enterprises, and audit quality doesn’t affect the relationship.

Aggregate Earnings and (Un)employment Rate: Evidence from Nigeria

The purpose of this study is to investigate the association between aggregate accounting earnings of quoted Nigerian firms and (un)employment changes. This study examined the influence of selected macroeconomic variables on the relationship between aggregate earnings and (un)employment change. This study analyzes aggregated earnings of 101 quoted firms and (un)employment rate data from the year 2006 to 2017. Aggregated earnings yearly observations were used in this study, with each yearly observation equal to the cross-sectional sum of sample firms’ yearly earnings. Results show that corporate aggregate earnings growth is (negatively) positively and significantly associate with (un)employment changes. Selected macroeconomic indicators statistically and significantly influence the aggregate earnings growth association with (un)employment changes. Robustness of our analysis in this study allowed us to document in strong terms that in an emerging economy, corporate aggregate earnings significantly associated with (un)employment (i.e., as corporate earnings increases, more investment will be made, and job seekers will be employed thereby reducing the unemployment rate). One implication of our results is that aggregate accounting earnings contain information about (un)employment changes in Nigeria. Our results suggest that effective monetary policies aimed at reducing inflation and interest rate as well as enabling economic policies encouraging and efficient mobilizing of fund from surplus side to deficit side of the economy will reduce unemployment and lead to employment.