Financial Manipulation Research Articles

The Relationship between Fair Value Accounting and Presence of Manipulation in Financial Statements

The application of fair value has started early in Jordan, which was a bone of contention among supporters and opponents. This study came to provide empirical evidence on the relationship between fair value and financial manipulation. The study extracted data from 45 companies’ annual reports during a ten-year period (1997- 2006) five years before and after the application of fair value to examine the relationship among the application of fair value accounting and the presence of manipulation in financial statements. The result indicates that the number of firms that manipulated information in the financial statements had increased after applying fair value accounting. The results have policy implications, one of which is that the Jordanian government should either enact new regulations or modify the current regulations in the face of an increasing number of manipulations by firms after the application of fair value accounting. These regulations are needed to increase both the managements’ and accountants’ responsibility towards the firms and to enhance the business ethics of the organization.

The Influence of Unrelated and Related Diversification on Fraudulent Reporting

This study suggests that unrelated diversification has a positive influence on the probability of fraudulent reporting whereas related diversification has a negative influence on the probability of fraudulent reporting. The strength of the influence of these corporate level strategies is contingent on the moral character of the firm. Unrelated diversification provides opportunity for financial innovation within the firm’s internal capital market, which can result in fraudulent reporting. This is more likely when the moral character of the firm is driven by a conscienceless financial self-interest motive, as implied by the firm’s contempt toward the larger community (in terms of damage inflicted on the interests of people outside the firm). In contrast, related diversification, where product divisions focus on mutual sharing and monitoring of operational activities, can reduce the probability of fraudulent reporting. This is more likely when constituents within the firm view themselves as moral citizens, as implied by the firm’s benevolence toward the larger community. Hence, while unrelated diversification focuses the energies of managers within the firm on financial manipulation, related diversification focuses these energies on productive purposes.

Wpływ zjawisk window dressing i kreatywnej księgowości na obraz sprawozdania finansowego przedsiębiorstwa

The purpose of the paper is to present financial manipulation techniques that were popular in Poland in 2013. The paper is based on interviews with entrepreneurs and a review of previous papers on this subject. The paper also contains a review of selected new legal regulations in Poland intended to counteract and prevent certain types of fraud described in the paper.

La Manipolazione Degli Indici Finanziari: Un Illecito in Cerca Di Identità (Manipulation of Financial Indices: A Wrongful Act in Search for Identity)

Since 2011, financial indices manipulation of Libor, Euribor and Tibor has beeen representing a very important subject in the media legal discourse. In particular, some of the more influent banks in the world have been concerned with heavy sanctions by U.S.A. and U.K. Financial Authorities in consequence of their involvement in price index fixing in the recent years. The article focuses on the charateristics of the wrongful act (Libor Fixing) and his causal link with economic losses suffered by whom entered in contracts (mortgages, derivative swaps, financial agreements) indexed to manipulated benchmarks. The prognosis of success on civil litigation should be more complex and critical than the one observed in criminal procecution procedures. The analysis underlines the potentially uncertain and amphibious nature of the case, between antitrust law and Securities Law. The most critical subjects are the evidence and tracks of a collusion, and also the role to be attached to the participants in the fraudolent scheme. This point includes an uncertain choice between primary violators and secondary actors as soon as the litigation constists in antifraud class actions lawsuit (ex Rule 10b-5 of the SEC Reg.). The case of Libor manipulation shows that one can be a primary violator without disclosing directly (or failing to disclose) any information to the marketplace, whereas a scheme to defraud can consist in a silent behavior (price fixing). Another point concerns the recent initiatives in U.K. and European Union in the field of financial benchmark manipulation and market abuse. The emerging trend, in particular in EU, is to introduce specific regulations on financial wrongful acts. As a result, EU and his member states policies could lack (or underestimate) actual civil remedies, antitrust policies/criminal sanctions. From a common law experience, the analysis detected a more responsive and dynamic toolkit.

The Appraisal of Comparative Africa Corporate Governance Standards after Financial Crisis, Corporate Scandals and Manipulation

The Appraisal of Comparative Africa Corporate Governance Standards after Financial Crisis, Corporate Scandals and Manipulation

The Analytical Construction of Limited South Asian Corporate Governance Standards after Financial Crisis, Corporate Scandals and Manipulation

The Analytical Construction of Limited South Asian Corporate Governance Standards after Financial Crisis, Corporate Scandals and Manipulation

The Critical Analysis of Some Comparative Eastern Africa Corporate Governance Standards after Financial Crisis, Corporate Scandals and Manipulation

The Critical Analysis of Some Comparative Eastern Africa Corporate Governance Standards after Financial Crisis, Corporate Scandals and Manipulation

The Critical Appraisal of Limited China Corporate Governance Standards after Financial Crisis, Corporate Scandals and Manipulation

The Critical Appraisal of Limited China Corporate Governance Standards after Financial Crisis, Corporate Scandals and Manipulation

Sociability and Market Making: A Response to LiPuma and Lee

Edward LiPuma and Benjamin Lee emphasize performativity to a fault in their characterization of action within financial markets. Though valuable, their reproduction oriented approach misses financial actors' awareness and self-conscious manipulation of sociability in the destabilizing process of market making. More recognition of complexity in financial realms can be a lever for the identification of critical alternatives for its organization.

The Effect of Financial and Non-Financial Performance Measures on Managerial Data Manipulation and Myopia: Analysis of a Causal Path Model

This study investigates the effect of the use of performance measures on subordinate managers’ short-term behavior. In particular, we examine the relationship between the use of financial (lagging) and non-financial (leading) performance measures and two forms of short-term managerial behavior: data manipulation and myopia. We expect that these forms of short-term behavior can be partially explained by the perceived subjectivity of these measures and by the extent to which they allow budgetary slack. We derive a causal path model that we test through a survey of 112 financial managers. In line with prior research we find that financial measures increase data manipulation and myopia. Non-financial measures, instead, reduce myopia, but have no direct effect on data manipulation. We further find that the relationship between these measures and managerial behavior is partially mediated by perceived subjectivity and perceived slack. These findings add to our understanding of the consequences of performance evaluation systems on short-term managerial behavior as well as the trade-offs that firms face in the design of their performance evaluation system.

Mercantilist origins of capitalism and its legacies: from birth to decline of Western hegemony

In this paper we trace capitalism from its origins in European expansion by commerce and conquest to the financialization of Western economies and the unraveling of Anglo–American hegemony. We emphasize continuities in the domination of metropolitan capital over peripheral production from the slave plantations to the outsourcing of manufacturing to cheap labor locations by multinational corporations. But the subordination of production to powerful agglomerations of commercial and financial capital has now penetrated the Western heartlands of capitalism, where rampant financialization is destroying productive capacity and has precipitated the most serious crisis since the 1930s. This predatory style of capitalism is more concerned with the accumulation of wealth by financial manipulation, mergers and acquisitions, privatization of public assets, and dispossession of peoples in distant lands than with investment in productive capacity. In this sense we may regard contemporary Western capitalism as a return to its mercantile commercial origins.

Measuring Governance Institutions' Success in Ghana: The Case of the Electoral Commission, 1993–2008

The need for state institutions to promote good governance is now a necessary condition for consolidating new democracies. However, achieving this objective represents a daunting challenge for the emerging constitutional bodies in Ghana. This article sets out to examine the Electoral Commission's (EC) efforts at institutionalising good governance in the management of the electoral process. Against the backdrop of failed electoral process in most African countries, the EC has organised four successful general elections with marginal errors. The most distinguishing factors accounting for the EC's success were largely, but not exclusively, the making of the electoral process transparent, fostering agreement on the rules of the game and asserting its autonomy in relation to the performance of its mandate. What needs to be done is electoral reform to overcome challenges posed by delayed adjudication of post-election disputes and executive financial control of the EC. This will require the creation of an electoral court to deal swiftly and impartially with election disputes and a special electoral fund to insulate the EC from government's financial manipulations.

The detection of earnings manipulation: the three‐phase cutting plane algorithm using mathematical programming

AbstractThe primary goal of this study was to propose an algorithm using mathematical programming to detect earnings management practices. In order to evaluate the ability of this proposed algorithm, the traditional statistical models are used as a benchmark vis‐à‐vis their time series counterparts. As emerging techniques in the area of mathematical programming yield better results, application of suitable models is expected to result in highly performed forecasts. The motivation behind this paper is to develop an algorithm which will succeed in detecting companies that appeal to financial manipulation. The methodology is based on cutting plane formulation using mathematical programming. A sample of 126 Turkish manufacturing firms described over 10 financial ratios and indexes are used for detecting factors associated with false financial statements. The results indicate that the proposed three‐phase cutting plane algorithm outperforms the traditional statistical techniques which are widely used for false financial statement detections. Furthermore, the results indicate that the investigation of financial information can be helpful towards the identification of false financial statements and highlight the importance of financial ratios/indexes such as Days' Sales in Receivables Index (DSRI), Gross Margin Index (GMI), Working Capital Accruals to Total Assets (TATA) and Days to Inventory Index (DINV). Copyright © 2009 John Wiley & Sons, Ltd.

The Backbone of European Corporate Governance after Financial Crisis, Corporate Scandals and Manipulation

The Backbone of European Corporate Governance after Financial Crisis, Corporate Scandals and Manipulation

Modernity and the Mobile Phone

Modernity and the Mobile Phone

Enron: Widespread myopia

This article looks at the Enron affair in terms of what investors and experts fail to take into account to being able to predict Enron collapse. The authors show how analysts could have predicted Enron's difficulties in view of the incoherence observed in its strategic decisions, from the viewpoint of the theory of resource-based and competence-based approaches. Certainly, it was hard to suspect that numbers could lie on account of the financial manipulation doubled by the rhetorical discourses of executive managers who succeeded in imposing a flourish image of their company. The authors’ view takes on a political dimension by illustrating the contradictions of the system that sustain the widespread myopia, where everyone is purely alienating himself.

Intrapreneurial Levers in Cultivating Value-innovative Mental Space in Indian Corporations

Many companies across the globe are facing increasingly intense competition posing profitable growth as a great challenge in the recent times. Based on our study of some Indian companies during the last ten years, we sought an answer to the question: “Why do some companies operating under competitive conditions continue to achieve sustained high performance?” Summarily, this study could identify that the generic issue of successful growth lies in how companies approached what we attempt to define in this paper as ‘value innovation’ or ‘corporate intrapreneurship.’ It was significant to note that the difference in approach between companies was not a matter of selecting one analytical tool or strategic choice over another. The fundamentals and implicit assumptions relating to competition really differed between high and low performers. The low-performing companies took a very conventional ‘business as usual’ approach. These companies can basically be positioned in the ‘paradigm-preserving’ cluster. However, strategic thinking of some companies was dominated by myopic manipulation to attain revenue growth and earn profit. They can be positioned under the ‘paradigmstretching’ cluster. Both paradigms — preserving as well as stretching clusters — are confined to securing a fit or convergence into a standard configuration and proceeding in an incremental manner. The most successful companies did not try either to beat their domestic rivals in the market or indulge in financial manipulations; instead, they came up with a new approach — ‘paradigm breaking,’ i.e., to create industry breakpoints — what we term here as the logic of value innovation or corporate intraprenuership. These companies proposed new concepts to the society, initiated quantum changes, and developed new frontiers in business, technology, products, and markets. They acquired knowledge, both tacit and explicit, deployed it strategically, and utilized it across and between the companies. From the beginning, the concept of intrapreneurship has been grounded in the more widely accepted terminology of the entrepreneur, much of the intent being to compare successful strategies with unsuccessful approaches that yield recommendations for avoiding mistakes. These initial research issues typically involved innovation, origination of idea, the experimentation process, and resource commitment with results indicating two dominant forms of innovation: formal product development and individual initiatives (Jones and Butler, 1992; Balkin and Logan, 1988; Sathe, 1985; Burgelman, 1984). With the absence of intrapreneurial programmes as

Different from Himself: Hawthorne and the Masks of Masculinity

Different from Himself: Hawthorne and the Masks of Masculinity

The collapse of Enron and the role of intellectual capital

The collapse of Enron was almost entirely unexpected and shockingly rapid. While the major cause of this and other mega meltdowns has been determined to be financial manipulation and questionable accounting practices, the fall of these organizations has also raised questions about whether, and to what extent, their intellectual capital/intangible asset intensive business models contributed to their failure. This paper examines three core issues affecting the role of intellectual capital that have been highlighted by Enron's business failure: the linked issues of the effect of moving from a more traditional trading model to an intangible intensive trading model and the requirements for a viable intellectual capital/intangibles business model; changes in the accounting framework to ensure the integrity of an intellectual capital/intangibles‐based organization; and the implications of the Financial Accounting Standards Board (FASB) mandated changes in measuring and managing for goodwill and intangibles

THE TROUBLE WITH HEDGE FUNDS

ABSTRACTThis article examines the impact of hedge funds on the workings of international financial markets and their implications for public policy. In contrast to the neoclassical view of hedge funds, which views them as being‘too‐small‐to‐matter, this article argues that the activities of hedge funds are significant for policymakers because of their ability to become extensively overleveraged and to act as market leaders. I consider the role played by hedge funds in financial crises, market volatility, market manipulation and systemic risk. The article concludes with a critical review of recent proposals for dealing with the public policy issues raised by hedge funds.