Opportunistic Behavior Of Managers Research Articles

Are managers of emerging markets more opportunistic? application of Benford's Law.

The current research analyzes cosmetic earnings management practices in emerging and developed markets before and after the global financial crisis. Using digital analysis, by applying Benford's Law the study analyzes the earnings adjustments that exceed a key reference point to determine whether earnings management anomaly exists or not? Based on a sample of 87165 firm-year observations of UK, US, Brazil, Russia, India, China and Pakistan listed corporations. Findings show that the managers of emerging markets have more incentive to manipulate earnings than their counterparts from developed markets. Further, the implementation of strict governance and legislative measures after the global financial crisis have significantly reduced the opportunistic behaviour of managers to manipulate earnings. However, the impact is lesser in emerging markets as compared to UK and US. The empirical findings of this research are useful for policy making and regulatory authorities, investors and other stakeholders as our findings shed light on the restriction of cosmetic earnings management practices. First study that tried to capture the cosmetic earnings management practices in both emerging and developed countries and in both pre and post financial crisis scenario.

Passive Investment and Share Repurchases

SYNOPSIS We investigate the association between passive investment and share repurchases, both of which are at historically high levels and the subject of increased scrutiny. We first document that firms with more passive ownership exhibit higher levels of repurchase activity. Next, and more importantly, we find that firms with passive ownership conduct more “suspect” repurchases that result in reported earnings that meet or beat analysts’ earnings forecasts, and this effect is more pronounced for firms with performance-based equity compensation incentive plans. We also find that repurchase activity more negatively affects firms’ future employment, capital expenditures, and performance when the firm has more passive owners. We conclude that passive investment is associated with an increase in the quantity and a reduction in the quality of firms’ repurchase activities. Our study provides evidence that passive institutional investment may allow opportunistic management behavior rather than serving the monitoring role traditionally associated with institutional ownership. Data availability: Data are available from the public sources cited in the text. JEL Classifications: M41; G32; G35.

Debt maturity, governance and investment efficiency: new evidence from emerging market

PurposeThis study investigates the combined influence of corporate governance (CG) and debt maturity (DM) on the investment inefficiency among non-financial 506 NSE-listed firms in India between 2009 and 2022. Additionally, this study also investigates the moderating effect of short-term debt (STD) maturity concerning the relationship between CG and investment inefficiency.Design/methodology/approachUtilizing the residuals extracted from the Biddle et al. (2009) investment model, three different forms of investment inefficiency (investment inefficiency, overinvestment and underinvestment) were measured. To measure the internal governance of firms, a new corporate governance index (CGI) was developed using 65 new governance stipulations, whereas STD was measured as short-term debt divided by total debt. Interaction effects between CG and DM were also estimated. Employing CGI and STD along with firm-specific control variables, many pooled regression models were estimated. Endogeneity issues were addressed through two-stage least squares. Robustness checks were also conducted using the two-step system GMM, alternative measures of dependent and independent variables.FindingsThe findings demonstrate that higher CG and shortened DM increase investment efficiency. This evidence implies that firm-level governance and short-term debt reduce information asymmetry and increase management oversight. Additionally, the evidence suggested that shortened DM and CG complement one another to increase investment efficiency, suggesting companies that utilize STD to a greater (lesser) extent demonstrate a greater (lesser) impact of CG in reducing investment inefficiency.Practical implicationsThis work first advocates the establishment and implementation of robust corporate governance mechanisms to control agency conflicts, moral hazard, adverse selection and limit opportunistic behavior of managers for improving investment efficiency. Second, since interaction effects suggest a complementarity between CG and DM, it is advocated that STDs can be used to achieve optimal investment choices to control moral hazards and adverse selection and discourage suboptimal investment levels.Originality/valueThis work provides new evidence concerning the effects of CG and DM on various forms of corporate investment efficiency (investment inefficiency, overinvestment and underinvestment, using alternate measures) in an emerging economy like India having a unique institutional framework and macroeconomic environment using a newly developed firm-specific CG index for a large sample of companies using recent data.

Do successive performance matter for tone management? Evidence from China

ABSTRACT This paper investigates whether managers deliberately adjust the tone of their non-financial disclosure depending on their firm performance over multiple periods. Using 13,995 firm-year MD&As (Management Discussion and Analysis) in annual reports of companies listed on the Shanghai and Shenzhen Stock Exchanges from 2009 to 2019, we first observe a bias towards good news disclosure by managers in their MD&A section. More importantly, we find that this asymmetric tone management is more pronounced when a firm’s performance declines consecutively. In cross-sectional tests, we provide evidence that the relationship between asymmetric tone management and successive performance is weaker for firms with state ownership and those with a high marketability index. We suggest that in non-U.S. markets, such as China, asymmetric tone management is more likely to reflect the opportunistic behaviour of managers. Overall, our study sheds new light on tone management in emerging markets and highlights the importance of a multi-period relation in understanding managers’ tone management behaviour.

Why do managers announce the intention to sell large assets?

AbstractNearly one‐third of asset sale announcements are preceded by a public statement of the intent to sell. These voluntary disclosures generate significant average returns of 1.1%. Pre‐announcements bias returns around the actual asset sales toward zero. Due to opportunistic managerial behavior, pre‐announcements occur after poor stock performance and CEO turnover. Managers also opportunistically exercise options around the pre‐announcements and receive potential benefits from the uptick in stock prices. Although we find no effect of pre‐announcements on long‐term operational performance, we do observe a negative effect on stock returns using three and four‐factor models.

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.

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.