Opportunistic Behavior Of Managers Research Articles

Evaluation of Critical Corporate Governance Issues within Nigeria's Top State-Owned Enterprises

Objective: The objective of the article was to examine and analyze significant corporate governance issues prevalent in Nigeria's leading state-owned enterprises by identifying the key corporate governance issues that exist within State-Owned Enterprises (SOEs), importance of addressing these critical corporate governance issues in relation to SOEs in Nigeria, explore the various factors that hinder the evaluation of these critical corporate governance issues in Nigerian SOEs and put forth recommendations and strategies for effectively managing these critical corporate governance issues within SOEs in Nigeria. Theoretical Framework: Agency Model Principals (Shareholders) Agents (Management) Performs Hires and Delegates Self Interest Self Interest 257 Talat Afza and Mian Sajid Nazir On the whole, agency theory laid emphasis on the opportunistic behavior of managers; managers try to put their interest first by forgoing shareholders’ interests. Method: The study employed a descriptive survey design, wherein 300 employees were selected through a random sampling process from a pool of over 100,000 employees belonging to various organizations such as Power Holding Company of Nigeria, Nigeria Postal Services, Nigerian Railway Cooperation, Nigeria Water Board Cooperation, and Nigeria Television Authority. The selected employees were representative of the six geopolitical zones in Nigeria. A questionnaire consisting of 20 items was utilized as the primary instrument for data collection. To ensure the reliability and validity of the instrument, the validation process involved the application of Lawshe's content validity template, resulting in a content validity ratio (CVR) of 1. The psychometric properties of the instrument were assessed using Cronbach's alpha. A coefficient alpha of .85 was obtained, surpassing the threshold of .70. This indicates that the instrument demonstrates satisfactory reliability. The data was collected in real-time and subsequently analyzed utilizing frequency count and percentage calculations. Findings: The results indicate that employees possess a comprehensive understanding of crucial corporate governance matters within their respective state-owned enterprises in Nigeria. Assessing these critical corporate governance issues has the potential to yield outstanding returns on investment (ROI) and enhance stakeholder satisfaction. Hence, it is of utmost importance to conduct a comprehensive assessment of critical issues pertaining to corporate governance. Conclusion: This evaluation is essential in order to protect the interests of stakeholders, attain anticipated levels of performance, promote fairness and transparency, optimize return on investment, and ultimately enhance the provision of services to citizens.

Does corporate governance affect investment efficiency of Indian firms? Panel evidence from new governance indices

AbstractThis study examines the effects of corporate governance (CG) on investment inefficiency for 506 Indian listed firms. Using new stipulations of CG and globally recognized governance practices, an overall corporate governance index (CGI) and five sub‐indices such as board index (BINDEX), audit index (AINDEX), ownership index (OINDEX), nomination and remuneration index (NRINDEX), and disclosure index (DINDEX) were constructed. Employing newly developed governance indices along with firm‐specific control variables, several pooled regression models were estimated. Robustness checks were conducted using two‐step system GMM and an alternate measure of managerial investment efficiency. The pooled estimated coefficient of CGI and sub‐indices (except OINDEX) on investment inefficiency, overinvestment and underinvest is found to be negative and significant suggesting that effective/robust governance at firm level reduces investment inefficiencies (improves investment efficiency) through effective supervision and monitoring thereby reducing the opportunistic behavior of managers.

Stock Liquidity, Corporate Governance and Dividend Payout: Evidence From Tehran Stock Exchange

The main goal of this article is the impact of Corporate Governance and Stock Liquidity on the Dividend payout. In order to test the hypotheses, a sample of companies accepted in the Tehran Stock Exchange was selected between 2016 and 2021, which was analyzed using R software. The research method is multivariate regression using panel data. According to the research findings, there is not a meaningful relationship between Corporate Governance, Stock Liquidity and Dividend payout. Companies finance through debt regardless of the stock liquidity, therefore, stock liquidity does not have a decisive role in financing. Better corporate governance mechanisms apply more supervision, so that these mechanisms prevent the opportunistic behavior of managers and preventing them from hiding and manipulating information. By testing the mutual effect of stock liquidity and the quality of corporate governance, a significant relationship was found with the dividend payout of companies accepted in the Tehran Stock Exchange. The study tries to contribute to the current literature of corporate governance and stock liquidity by providing new evidence on the causal impacts of stock liquidity and corporate governance quality on dividend payout. Also, this study contributes to the literature on stock liquidity, corporate governance quality and dividend payout by exploring the mechanism of corporate governance quality and dividend payout from equity financing and internal financing.

Community social capital, managerial opportunistic behavior, and information uncertainty in IPO firms

AbstractWe examine whether and how community social capital influences the information uncertainty of a private firm's going‐public process. We find that high social capital of the US counties in which IPO firms are headquartered significantly reduces underpricing and post‐IPO stock volatility. This relation is stronger under lessened disclosure requirements and less reputable underwriting. Further findings suggest that high social capital constrains IPO issuers from practicing opportunistic financial reporting. We document that high social capital is associated with a more readable prospectus, less financial misconduct, more readable annual reports, and better long‐run stock return performance in the years following the IPOs.

Impact of Accounting Conservatism on Income Smoothing: Empirical Evidence from Algeria

Abstract This paper investigates the impact of accounting conservatism on income smoothing as a proxy for accounting manipulation. The study used 993 observations for 133 Algerian companies from 2012 to 2020, where income smoothing was measured by the variations in cash flows relative to earnings. However, conservatism was measured through non-operating accounting accruals, accruals-to-earnings ratio before extraordinary items, and allowances. The results showed that total accruals do not impact income smoothing versus positive impacts from non-operating accruals and allowances to income smoothing. Therefore, the study concluded that accounting conservatism facilitates income smoothing in Algerian companies by extending the discretionary room available for managers to manipulate earnings. These results require accounting regulators to consider the role of conservatism in manipulation when setting or amending accounting standards. They also imply that auditors should give more attention to conservative accounting practices to limit the opportunistic behavior of managers and increase the reliability of financial information.

Standardized corporate social responsibility disclosure, assurance, and real earnings management: evidence from developing countries

Research aims: This study aims to present empirical evidence on the effect of social responsibility disclosure on real earnings management and the role of assurance in this relationship. This is based on a paradox, i.e., companies that publish standardized corporate social responsibility disclosures to project ethical business practices are also associated with accounting and financial scandals.Design/Methodology/Approach: This study was conducted on non-financial sector companies in developing countries that are members of ASEAN-4, namely Indonesia, Malaysia, Thailand, and the Philippines, which issued GRI-based social responsibility disclosures in the period 2013-2019, amounting to 285 companies with a total of 859 observations.Research findings: The results demonstrated that companies with standardized social responsibility disclosures tend to reduce their real earnings management practices. However, the assurance variable mitigates the negative effect of corporate social responsibility on real earnings management, implying that assurance provides false credibility. In an additional analysis, the samples were grouped based on board structure. The findings of this study are consistent with two-tier board structures, suggesting that a one-tier system provides better information quality.Theoretical contribution/Originality: The originality of this study lies in a comprehensive measurement of social responsibility disclosure variables using an index that gauges a combination of accountability and performance aspects. Furthermore, this study takes into account assurance as a variable representing the credibility of information, which surprisingly moderates the negative effect of social responsibility disclosure on real earnings management.Practitioner/Policy implication: The findings of this study underscore the importance of standardized social responsibility disclosure in mitigating managerial opportunistic behavior. The findings also highlight the need to enhance the assurance function to prevent its use as an opportunistic management tactic.

Derivative disclosures and managerial opportunism

AbstractDerivatives are increasingly used by managers not only to hedge risks but also to pursue nonhedging activities for fulfilling opportunistic incentives. The Statement of Financial Accounting Standards No. 161 (SFAS 161) requires firms to disclose their objectives and strategies for using derivatives. Using the adoption of this standard, we examine whether and how derivative disclosures influence managerial opportunistic behavior. We employ insider trades and stock price crash risk to capture managerial opportunism. Applying a difference‐in‐differences research design with hand‐collected data on derivative designations, we find that, after the implementation of SFAS 161, derivative users that comply with SFAS 161 experience a significantly greater decrease in both insider trades and stock price crash risk, compared with a matched control sample of nonderivative‐users. We further provide evidence to suggest that SFAS 161 curbs managerial opportunism via reducing information asymmetry between corporate insiders and outside investors and enhancing the effectiveness of derivative hedging.

Grey Directors and Earnings Management of Selected Quoted Non- Financial Firms in Nigeria

This study examined the effect of grey directors on earnings management of selected non- financial firms in Nigeria. Earnings management was used as dependent variable while grey director’s presence, grey director’s size, grey director’s gender diversity and grey director’s stock holding were used as independent variables. A sample of 44 selected non-financial firms were used for the period of ten years spanning 2012 to 2021. The study employed ex-post facto and cross-sectional research design. The secondary sources of data were collected from annual reports of the selected non-financial firms and four (4) specific objectives and hypotheses were subjected to some preliminary data tests like descriptive statistics, Pearson correlation analysis and Variance Inflation factor (VIF) were analyzed using panel regression analysis after taking cognizance of hausman effect tests. Using a sample of 440 firm-year observations, the result revealed that grey director’s presence and grey directors gender diversity have a negative and significant effect on earnings management of selected quoted non-financial firms in Nigeria which was statistically significant at 5% level of significance respectively while grey directors stock holding has negative but insignificant effect on earnings management of quoted non- financial firms in Nigeria. Based on the findings above, the study recommends among others, that shareholders of non-financial firms in Nigeria should ensure that there is presence of grey directors in their team of management to help curtail the opportunistic behavior of managers and contend earnings management practices. Again, having more women as grey directors in top management should be the priority of every non-financial firms in order to reduce earnings management practices of the firms.

Effect of Growth Opportunity And Good Corporate Governance of Accounting Prudence in State-Owned Companies

This study aims to determine the effect of Growth Opportunity, Independent Commissioners and Audit Committee on Accounting Prudence in State-Owned Enterprises (BUMN) companies listed on the Indonesia Stock Exchange (IDX) for the 2019-2021 period. The data used in this research is secondary data. The sample consists of 27 state-owned companies. The sampling technique in this study used purposive sampling. The analytical tool used to test the hypothesis in this study is multiple linear regression analysis with the help of the SSPS version 26 program. The results of the model feasibility test show that the Growth Opportunity, Independent Commissioner and Audit Committee variables together have no effect on Accounting Prudence. The results of this study contain implications that the results of this study can be a consideration for companies in applying the principles of Prudence Accounting in order to prevent information asymmetry between agents and principals and avoid opportunistic behavior of managers. The results of this study can also be taken into consideration in determining agency costs.

Earnings management to avoid losses: Evidence in non-listed Colombian companies

This paper studies the manipulation of the profits reported by non-listed Colombian companies. First, we examine whether the distribution of profits shows a discontinuity around zero earnings, an empirical fact evident in other countries. Second, we investigate whether this discontinuity results from opportunistic management behavior in manipulating the profit figures to avoid reporting losses or if, on the contrary, it is the result of accounting conservatism in recognizing extraordinary items or the asymmetric effect of the expense of income tax. Moreover, frequency analysis identifies a discontinuity around zero in all analyzed earnings measurements. Additional evidence suggests that while companies use non-operating items discretionarily to exceed the zero-profit threshold, the discontinuity generated by tax expenditure results from its asymmetrical effect.

Content characteristics of key audit matters reported by auditors in Bangladesh and their implications for audit quality

PurposeIn this study the authors examine the nature and contents of key audit matters (KAMs), and the consequences of KAMs reporting on audit quality in the context of a developing country, Bangladesh. The authors’ proxies of audit qualities are discretionary accruals, small positive earnings surprise, audit report lag, earnings management via below the line items and audit fees.Design/methodology/approachThe authors use content analysis of the KAMs for the period 2018–2021 to understand the nature and extent of KAMs reported by auditors in Bangladesh. The authors then use multivariate regression analysis to examine the effect of the number and content characteristics of KAMs on audit quality by using multivariate regression analysis.FindingsAuditors in Bangladesh disclose a higher number of KAMs compared to other countries, disclose short descriptions of KAMs and industry generic KAMs. The authors document significant cross-sectional variations in the number and content characteristics of KAMs reported by auditors in Bangladesh. The authors’ pre-post analysis suggest that audit quality has improved after the adoption of KAMs. Cross-sectional analysis suggests that KAMs number and content characteristics are related to audit quality.Practical implicationsThe authors’ findings imply that the KAMs reporting has the potential to play significant monitoring role in reducing the opportunistic behavior of managers. Hence, KAMs reporting can play a significant role in reducing the agency problem. For regulators, shareholders and corporate managers, the authors’ findings imply that if the audit quality is to be increased, the audit effort should be supported by an appropriate amount of audit fee.Social implicationsThe content characteristics of KAMs significantly influence managerial reporting behavior and affect the level of audit efforts.Originality/valueUnlike developed countries (Gutierrez et al., 2018; Lennox et al. 2022), this study supports that KAMs reporting improves audit quality and control opportunistic behavior of managers in developing countries. The authors show that even though the KAMs disclosure quality is poor, it has the potential to improve financial reporting quality.

Bank capital, earnings smoothing and provisioning practices in Nigeria: IFRS and risk evidence

PurposeThis study empirically tests the use of loan loss provisions (LLPs) for earnings and capital smoothing when emphasis is laid on banks' riskiness and adoption of the International Financial Reporting Standards (IFRSs) in Nigeria.Design/methodology/approachAnnual bank-level data are hand-extracted between 2007 and 2017 from annual reports of a sample 16 deposit money banks (DMBs), and analysed using appropriate panel regression models subsequent to a number of diagnostic tests including heteroscedasticity, autocorrelation and cross-sectional dependence. The use of both reported LLPs (TLLP) and discretionary LLPs (DLLP) for earnings and capital management is tested to advance the practice in the literature.FindingsGenerally, the study finds that Nigerian DMBs manage capital via LLPs, while mixed results are obtained for earnings smoothing. However, during IFRS, Nigerian DMBs' management of capital is identifiable with TLLP, while smoothing of earnings is peculiar to DLLP. Additionally, evidence of the improvement in loan loss reporting quality expected during IFRS for riskier Nigerian DMBs, could not be attained. This is corroborated by the study's findings of the use of both TLLP and DLLP for earnings and capital management during IFRS by DMBs in solvency crisis against the only use of TLLP to manage capital found for the entire period.Practical implicationsThe evidential capital and earnings lopsidedness may subject Nigerian DMBs' going-concern to a lot of questions.Originality/valueThe study sets a foremost record in the empirical test of managerial opportunistic behaviour embedded in earnings and capital concurrently while accounting for loan losses by all categories of Nigerian DMBs in terms of riskiness, following accounting regime change.

REWARDING AND SUCCESS OF INFORMATION SYSTEMS DEVELOPMENT PROJECTS

The purpose of the research is to determine the causes of failure of information systems development projects. We came to the hypothesis that rewarding can improve the success of information systems development projects. For this reason, it is suggested that employment contracts be tied to business results. Extrinsic and intrinsic rewards are a good motivator that affects the improvement of employee performance, i.e. increases productivity, business results and job satisfaction and contributes to increasing the success of information systems development projects. Designers and managers of information systems development projects who participated in the research, gave their views on the impact of rewards on the success of the information systems development project in response to survey questions. The attitudes were evaluated on a five-point Likert scales. We obtained additional data based on conversations with managers and designers who deal with the development of information systems. Through the research design, we determined an independent variable related to the employment contract based on business results, which is the basis for the application of various forms of remuneration, and a dependent variable related to the success of the information systems development project. The main findings of the research are related to the definition of the contract between the owner on the one hand and managers and designers on the other hand, which solves the problems of opportunistic behavior of managers and designers of information systems development project. In addition, the factors of extrinsic and intrinsic rewards that are most often used to motivate managers and designers of information systems development are defined. The practical implications of the research refer to the benefits that the company owner, managers and designers of the information systems development will have. They will receive the best model of employment contract for employees working on the development of an information systems project. In addition, they will receive information about the views of designers and project managers related to reward factors that improve the success of the information systems development project. The originality of the research refers to the creation of a model that links the work contract based on business results with reward factors that help to increase the success of the information systems development project.

Corporate Social Responsibility, Governance and Financial Constraints in Indian Listed Firms

The study examines the effect of corporate social responsibility (CSR) activities on financial constraints by using a balanced panel dataset of 1,496 firms listed on the National Stock Exchange (NSE) in India from 2014 to 2020. It employs a generalized method of moments (GMM) two-step estimator method to analyze the data. GMM analysis is efficient in dealing with the endogeneity issues among firm-level variables. The robustness checks are conducted by the three-step least square (3SLS) regression method to confirm the consistency of results. Whited and Wu index (2006) and the debt-to-asset ratio have been used to classify the firms into financially constrained and unconstrained firms. We find that financially constrained find it difficult to engage in CSR activities. However, CSR spending can help in reducing financial constraints for firms. CSR activities are associated with stakeholder engagement that reduces the likelihood of opportunistic behaviour of managers. Further, stakeholder engagements help firms to enhance their value through their relationship with customers, employees and other stakeholders. The study also finds that corporate governance alleviates financial constraints, implying that firms are becoming more accountable and transparent in disclosing CSR activities. Finally, it confirms that firms engaging in CSR activities face lower financial constraints. The study focuses on the Indian-listed firms only which can be extended to private firms in future research.

How does investor attention affect energy firms' managerial opportunistic behavior? New evidence from China

AbstractThe energy sector plays a crucial role in facilitating the low‐carbon energy transition. However, in the absence of appropriate environmental regulation, managerial opportunistic behavior in energy firms can manipulate ethical investor perceptions and hinder the real transition process towards clean energy. Using Chinese listed energy firms as the research setting, this paper examines the impact of investor attention on energy firms' earnings management practices. In both clean and traditional energy firms, the results show a significant U‐shaped association between investor attention and earnings management, with the U‐shaped curve for clean energy firms being smoother. This U‐shaped relationship is more pronounced in energy firms with larger size and weaker external monitoring. Moreover, the mediating analysis shows that internal control quality transmits the impact of investor attention onto earnings management practices in the energy sector. Our key findings remain robust to a battery of robustness tests and endogeneity controls. Therefore, given the growing attention on the energy sector, this study extends the existing literature on energy firms' managerial opportunistic behavior by analyzing the nonlinear effect for investor attention and provides practical implications for curbing energy firms' managerial opportunistic activities and guiding managerial attention towards making real sustainable investments, thereby promoting clean energy transition and sustainable development.

Goodwill reporting in corporate acquisitions: The effects of managerial discretion under the new accounting rules

Goodwill is a critical issue in the accounting of corporate restructuring activities in terms of both purchase price allocation in corporate acquisitions and the subsequent write-downs. Although the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) new accounting standards provide a reference point for goodwill recognition, the complexity of fair value adjustments and the extensive subjectivity involved in assessing goodwill still make its allocation and the impairment-only approach limitedly transparent. Therefore, this study explores the impact of IFRS 3 (International Financial Reporting Standard 3) on management discretion in goodwill reporting. From a methodological standpoint, the hypotheses are tested on a sample of 68 acquisitions executed by Italian-listed acquirers in the 2012–2020 period. Our results confirm the potential for managerial opportunistic behavior in light of the signaling role of goodwill for investors.

Corporate lobbying: Resource-seeking or rent-seeking? Evidence from audit fees

Theory and prior research suggest that corporate lobbying is a primary means that corporations use to influence government policies either for improving firm performance (i.e., strategic decisions) or for rent-seeking activities (i.e., agency costs) but the evidence between lobbying activities and auditor assessments of audit risk remains unclear. Our results show that lobbying firms are associated with higher audit risks and fees, consistent with the idea that lobbying is related to rent-seeking and higher agency costs. In cross-sectional analyses, we find that the positive association between lobbying and audit fees is weaker for firms with strong corporate governance. Further analysis shows that firm financial returns or low earnings quality mediate the relationship between lobbying and audit fees. The results suggest that practitioners, users of financial statements and regulators could benefit by recognizing that lobbying activities could signal managerial opportunistic behavior.

A Study of Positive Accounting Practice

Financial accounting, as a branch of science from social science, practically describes the behavior of the presenters of financial statements. This study is confirmatory descriptive research, data obtained from the annual reports of banking companies on the Indonesia Stock Exchange. This study constructs a research model using four variables: accounting conservatism, managerial ownership, debt covenants, and political costs. The data is processed using path analysis, and the test is carried out through two stages: testing the direct and indirect effects. The direct effect finding proved that the bonus plan, debt covenant, and political cost hypothesis had been significantly practiced. Another direct influence finding also proved that managerial ownership has a significant effect on debt covenants and that political costs have a significant effect on debt covenants. This research also demonstrated that debt covenants could not mitigate the impact of political costs and managerial ownership on accounting conservatism practice. The board of commissioners, as the highest supervisory body and the supervisory units, has the responsibility to control the opportunistic behavior of managers so that banks can effectively practice a healthy financial statements process and so that public trust in banks increases.

Voluntary Adoption of Audit Committee: Managerial Hegemony Perspective

[Purpose]The purpose of this study is to investigate whether firms establish an audit committee to appoint favorable auditors instead of a full－time auditor or an auditor required by law. Under Korea Commercial Code, the voting rights of majority shareholders are effective up to 3% including specially related persons for inside members of an audit commit but not for outside members of an audit committee. [Methodology]Based on the managerial hegemony theory that perceives audit committee as one of managerial tools to achieve strategic objectives, all non－financial firms from 2012 to 2018 are selected with audit committee, agenda at the shareholders meetings, and total assets. [Findings]I find that firms are more likely to adopt audit committee instead of an full－time auditor or an auditor. I also find that firms whose total assets are slightly below two trillion won increase their total assets, and thereby make an audit committee for granted and avoid the criticism of investors. [Implications]My results suggests that outside members as well as inside members of an audit committee should be elected with grand 3% rule at the time of elections of directors of the shareholder meeting. Also, my results suggests that managerial hegemony theory along with agency theory helps to understand the opportunistic behavior of managers.

Investor institusional dan keinformatifan laba di Indonesia dan Jepang

This study examines the existence of institutional investors who can play a role in increasing earnings informativeness through income increasing-earnings management and income smoothing. The hypothesis was developed on the basis of the view that the motivation behind earnings management decisions is to increase the informativeness of earnings reports. The study employs sample of manufacturing companies listed on the Indonesia Stock Exchange and the Japan Stock Exchange for the period of 2010-2018. Ordinary least square and weighted least square regression models are used in cross-sectional statistical testing, which is carried out annually throughout the 2014-2018 observation period. In Japan, institutional ownership has a positive and significant effect on income increasing- earnings management, and on reverse income smoothing, as well, while these are not the case in Indonesia. This study reveals that in Japan, the institutional investors play a role of monitoring that can encourage managers to increase earnings informativeness through earnings management-income increasing followed by reverse income smoothing. This condition is not found in Indonesia. It is possible that in Indonesia, the institutional investors play a role of controlling, that may promote managerial opportunistic behavior.