Potential Shareholders Research Articles

Incerteza política e gerenciamento de resultados: Evidências de países da América Latina

Abstract Purpose: This article aims to examine whether political uncertainty affects the accounting choices of firms’ managers in the sense of practicing earnings management through discretionary accruals. Originality/value: The research is original for providing evidence on the direction of earnings management practice following periods of political uncertainty and considering emerging countries in Latin America. The study helps signal to capital market agents in those countries the impact of political uncertainty on the quality of accounting aggregates. Design/methodology/approach: The final sample comprised 352 firms (3,005 observations-year), considering the period 1998-2018. Political uncertainty was a proxy for the countries’ presidential election years. At the same time, earnings management was captured by discretionary accruals estimated according to the Jones’ model (1991) modified by Dechow et al. (2012). Multiple linear regression with estimation by System Generalized Method of Moments (Sys-GMM) guided the tests. Findings: It was found that presidential election periods are associated with managers’ decisions to increase earnings by positive discretionary accruals, allowing us to infer that political uncertainty impacts managers’ accounting choices regarding earnings management. The results proved to be robust to different test alternatives. The findings have practical implications for agents who use accounting information as an informational signal in their decisions, whether from the perspective of investors (current shareholders or potential shareholders) or the perspective of other stakeholders associated with the firm (employees, suppliers etc.).

Impact of ISO 14001 and ISO 9001 adoption on corporate performance: evidence on a bank-based system

PurposeThis paper aims to analyze the impact of the adoption of ISO 14001 and ISO 9001 on the performance of Portuguese companies. The sample includes the companies listed on Euronext Lisbon, with economic, financial and specific information – the specific being environmental information and quality information – for the period between 2015 and 2019, which corresponds to the post-Troika period when some economic growth started to be witnessed. The specific information of each area is translated into the environmental certification by the ISO 14001 standard, the quality certification by the ISO 9001 standard, and sustainability reports.Design/methodology/approachTo achieve this aim, four variables were used as a measure of the companies' performance, Return on Assets (ROA), Return on Equity (ROE); Tobin's Q and EBITDA Margin. With this data, different panel models were tested to validate if ISO 9001 and ISO 14001 certifications impact Portuguese listed companies performance. Specifically, the authors have used the Generalized Method of Moments, GMM-System, an estimation method proposed by Arellano and Bover (1995) and Blundell and Bond (1998).FindingsThe results show that, in general, the environment and quality variables fail to explain the dependent variables, that is, ISO certifications do not provide positive or negative variations in the performance of companies, suggesting that they are not yet as much for civil society, as well as for current or potential shareholders. When used as an independent variable, certification according to the ISO 14001 or 9001 standards, negative and significant oscillations were verified in the dependent variable, MgEBITDA, suggesting that only for managers this variable is determinant, but with a negative impact, given the high costs, it entails without pressure from other stakeholders.Originality/valueThis study is the first to analyze the impact of the adoption of ISO 14001 and ISO 9001 on Portuguese companies' performance. This empirical study aims to show all investors, managers, regulators and civil society itself the long path that still needs to be taken toward sustainability.

Equity Financing and Performance of Islamic Commercial Banks in Kuala Lumpur, Malaysia

Equity financing plays a crucial role in the performance of banks by providing a stable and reliable source of capital. With equity financing, banks can strengthen their balance sheets, improve their capital adequacy ratios, and enhance their ability to absorb financial shocks. By issuing new shares or raising equity capital from investors, banks can expand their lending activities, invest in technology and infrastructure, and pursue growth opportunities. Moreover, a higher equity base can increase investor confidence and improve credit ratings, enabling banks to access funding at lower costs. A well-capitalized bank through equity financing is better positioned to navigate economic downturns, mitigate risks, and sustain long-term performance. The study used the descriptive research design. The target population was 20 branches of Islamic commercial banks in Kuala Lumpur, Malaysia. The study did sampling of 15 participants that were chosen from the target population of 20 branches of Islamic commercial banks in Kuala Lumpur, Malaysia. Questionnaires were used to collect the data. It was concluded that equity financing enables investors and the bank to share risks and rewards, and understanding how this affects the risk profile, stability, and profitability of Islamic banks is essential. Identifying areas for improvement and growth in the Islamic banking sector will require ongoing evaluation of the impact of equity financing on various performance indicators, including profitability, risk management, and asset quality. The study recommended that Islamic commercial banks in Kuala Lumpur should focus on strengthening their risk management frameworks to effectively manage the risks associated with equity financing. There should be implementation of robust risk assessment and monitoring systems, conducting thorough due diligence on potential shareholders, and diversifying their equity base to minimize concentration risk. Regulatory frameworks should address issues such as corporate governance, disclosure requirements, and risk management standards to promote transparency, investor confidence, and the overall performance of Islamic commercial banks in Kuala Lumpur. Keywords: Equity financing, performance, Islamic commercial banks, Malaysia

An Interconnection between Earnings Quality and Earnings Management in the Business Environment

This paper reviews the interconnection between earnings quality and earnings management in the business environment, through the use of flexibility in determining the practices and methods as well as accounting estimates, to change the income that affecting disclosure process when preparing the financial statements. Which will be based on many of the misinformation, through corporate management manipulation results of company profits and losses and financial position statement. These multiple reasons include capital market motivations to raise their share prices and attract potential shareholders. In addition, the motives of borrowing loans and funding. All this leads to the loss of the most important characteristics of the quality of representation is sincere of accounting information. Therefore, will negatively affect the quality of accounting profits. This is one of the most important information that concerns the shareholders. By consideration, the earnings quality and earnings management are two related challenging interwoven issues in financial reporting as earnings management is an aspect influencing earnings quality. In this paper, fundamental scientific processes such as analysis, synthesis, induction, and deduction have been utilized in order to achieve the objective of this paper. This paper concluded that earnings management has a negative impact on the quality of earnings if it distorts the information in a way that is less useful for forecasting future cash flows, which in turn result in unreliable financial reports leading to incorrect decision. Also, corporate earnings of high quality are those that have a high level of persistence, are more timely, more predictable, less volatile and have lower level of earnings management. And on the other side it is important to understand that lower earnings quality are not indicators of poor financial situation or the misapplication of accounting policies, judgments, and estimates.

КОЛЬСКИЙ КУПЕЦ АНДРЕЙ ГЕРАСИМОВ И БЕЛОМОРСКАЯ КОМПАНИЯ: НЕСОСТОЯВШЕЕСЯ СОТРУДНИЧЕСТВО И КОНФЛИКТ (1804-1805 гг.)

The article is devoted to the one of the aspects of the history of the White Sea Company: the relationship between management and potential shareholders. Attracting shareholders was an important area of the company's activity, on which the success of the organization of fishing and hunting for sea animals depended. The Kola merchant A. I. Gerasimov since the 1770s was engaged in the organization of whaling and expeditions to Svalbard (Russian Grumant), maritime trade in Northern Norway and in St. Petersburg. Nevertheless, cooperation with such a profitable partner did not work out for the company. The author examines the reasons for this failure, reveals the opposite views of the merchant and the management of the company on the nature of commercial relationships. The research is based on the merchant's letters to the board of the White Sea company in St. Petersburg and to the prominent statesman Count N. P. Rumyantsev, dated 1804-1806.

Pioneer Valley Jazz Shares, Connecticut River Valley, Western Massachusetts, United States

Pioneer Valley Jazz Shares, Connecticut River Valley, Western Massachusetts, United States

The Financial Situation of Enterprises in the Clothing and Footwear Sector in the Face of the COVID-19 Pandemic

Purpose: The purpose of this article is to try to assess the impact of COVID-19 on the financial situation of enterprises in the clothing and footwear sector. Companies listed on the Warsaw Stock Exchange were used as a case study. Design/Methodology/Approach: The study used a synthetic measure based on the zero unitarization method, which allowedfor the classification of the surveyed enterprises from the point of view of their financial condition. Findings: The methods used in the paper turned out to be a helpful tool in determining the financial condition of companies. They showed significant changes resulting from the spread of COVID-19. As the pandemic situation is still not stabilized, such analyses as in this article should be continued in the coming years. That will enable the observation of regularities or their absence, especially after the pandemic has ended. Practical Implications: The results of this kind of research can help managers, as well as current and potential shareholders, understand how the pandemic affects the company and its financial implications. Such information will help make decisions aboutfuture activities. Thus, the study fills the research gap in this area. Originality/Value: The article contributes to the current scientific discussion on the impact of the COVID-19 pandemic on the financial situation of companies in the world.

The turn-of-the-month effect in Pakistani stock market

This research intends to explore the presence of the “turn-of-the-month-effect (TOME)” in the Pakistani stock market. The TOME is the temporary increase in prices of registered shares on the last operating day of the month and the initial 3–4 days of the following month. The selection incorporates the secondary data, which comprises the ending prices of the “KSE-100 Index” for 2013–2018. Contrary to the previous evidence in Pakistan, we run an in-depth year-wise analysis and report an interesting fact that the TOME is significant only during 2013–2016, while it vanishes for 2017 and 2018. We suggest that the “turn-of-the-month” anomaly may disappear during stock market crisis times. The research contains significant importance for potential shareholders because a rational shareholder considers several measures while making his investment decisions and constructing hedging strategies.

Breaking the Silent Treatment


 
 
 The dramatic revelations of the #MeToo movement have ex- posed the extent to which workplace sexual harassment is en- demic and concealed across different industries. #MeToo has also shed light on the use of non-disclosure agreements (“NDAs”) by harassers to conceal their pattern of repeated mis- conduct. While there has been strong public condemnation of NDAs in the wake of the #MeToo movement, there is limited case law on the question of whether contracts such as NDAs are legally enforceable when used to settle claims of sexual har- assment that do not amount to criminal conduct.
 While federal and state legislatures continue to debate the benefits of legislating against such agreements, this Note ana- lyzes the viability of the common law public policy analysis to hold such NDAs unenforceable. Given that most states do not have specific statutes directly addressing sexual harassment NDAs, courts should look to a broad range of state legislation as relevant in considering the public policy interests counseling toward finding such NDAs unenforceable. Accordingly, this Note analyzes public policy considerations derived from three types of state law: restrictions on the use of NDAs in instances of sexual harassment, prohibitions of workplace harassment, and limitations on the concealment of public hazards.
 
 
 
 Even in states without any such legislation, this Note urges state courts, when determining whether to enforce sexual har- assment NDAs, to more actively weigh the benefits of enforcing the contractual will of private parties against potential harms to the public welfare. Workplace sexual harassment is a public policy issue that is worsened by the continued use of NDAs. In concealing workplace sexual misconduct, NDAs prevent soci- ety, through private and state actors, from addressing the problem itself and threaten public safety and welfare by allow- ing offenders to potentially harm future workers. Without NDAs as protection, companies will be exposed to reputational damage and potential shareholder litigation when sexual har- assment news becomes public knowledge. Indeed, this threat of future reputational harm could be an effective way to encour- age corporations to change their internal policies relating to workplace misconduct.
 
 
 
 
 

Public trust and financial reporting gap: evidence from underlined ethical issues

Ensuring highest standards of ethics is crucial in preparing financial reports. Shareholders, potential shareholders and other users of the Financial statements rely heavily on the yearly financial statements to make investment decisions. Many studies have been carried out to address the ethics of accounting and Financial reporting but few have considered the effect of lapses in ethical issues on public trust. The study adopted the explorative research design using primary data. The target audience for the study comprised professional accountants and audit firms in Lagos as at May 2020. The results showed that there is a strong positive correlation between public trust and quality of Financial reporting (r= .959, n=.155,p=.005); there is a strong positive association between truthfulness and fairness and quality of Financial reporting (r=.649, n=155, p=.005); that the ethical code and the activities of professional accountants have a statistical significant linear relationship (r=.897, n=155, p=.005), and that there is a strong and positive linear association between quality of reporting and stakeholders level of decision making (r=.762, n=155, p=.000). The study concludes that ethical consideration and competence of professional accountant positively and significantly influenced quality of financial reporting which in turn would increase the public trust. The study recommended that Accountants must exhibit truthfulness and fairness in the practice of ethical codes and that financial reporting rules must being strengthened to make financial reporting process transparent and conducive to all stakeholders.

What drives board committee structure? Evidence from an emerging market

PurposeBoard committees enable boards to function effectively, as committees improve the quality of corporate governance by fulfilling specific, assigned tasks. This study aims to explore how board structure, CEO duality and audit quality are associated with board committee structure in the context of an emerging market, namely, Turkey.Design/methodology/approachThe sample consisted of 122 firms listed on the Industrial Index of Borsa Istanbul for the years between 2012 and 2014, inclusive, and this yielded 366 firm-year observations. To test the hypotheses, the panel data analysis method was used, which enabled the elimination of certain problems, such as multicollinearity and estimation bias, as well as specification of the time-variant association between the predictor variables and the output variable.FindingsBoard size, board independence and firm size had a positive association with the number and size of board committees, whereas CEO duality had a negative association with the number and size of board committees. Moreover, the appointment of female members on audit and corporate governance committees was more frequent in firms that had a high proportion of women on their boards. Finally, audit quality was positively associated with the existence of risk committee, the overall diversity of board committees and the diversity of corporate governance committees.Research limitations/implicationsThe study is not free from limitations. It covers the time span between 2012 and 2014; thus, readers should be cautious about generalizing these results longitudinally, as a different time periods could possibly yield different results. The second limitation concerns the fact that only industrial firms were sampled; thus, these findings may not be valid in other sectors.Practical implicationsThe paper shifts the attention of researchers from overall board structure to board committee structure. The results of the study provide insights for policymakers, boards and shareholders. Policymakers can formulate boards and committees by considering these findings. Boards can benefit from the conclusions of this study in shaping their own structure and sub-committee structures. Current and potential shareholders may find the results of the study instructive in making investment decisions.Originality/valueThis study investigates the factors associated with the structure of overall and specific board committees. Additionally, while most prior research on board committees has sampled firms that are domiciled in developed countries, this study examines the subject in an emerging country context, namely Turkey. Moreover, this study adds to the literature by examining the association between audit quality and board committee structure, which has been largely neglected in prior literature.

Dividends and taxes: The moderating role of agency conflicts

We find that potential conflicts between majority and minority shareholders strongly influence how dividends respond to taxes. When the controlling shareholder has a smaller stake, the incentives to extract private benefits are stronger – a shareholder conflict that can be mitigated by dividend payout. We study a large and clean regulatory shock in Norway that increases the dividend tax rate for all individuals from 0% to 28%. We find that dividends drop less the higher the potential shareholder conflict, suggesting that dividend policy trades off tax and agency considerations. The average payout ratio falls by 30 percentage points when the conflict potential is low, but by only 18 points when it is high. These lower dividends cannot be explained by higher salaries to shareholders or diverse liquidity needs. We also observe a strong increase in indirect ownership of high-conflict firms through tax-exempt holding companies and suggest policy implications for intercorporate dividend taxation.

Common Characteristics and Differences in External and Internal Auditing

Abstract Many scholars have shown that failure in leading big companies as well as the latest financial crises have led the auditing market to perceive traditional auditing more as a legal requirement rather than as a value added for the company. There are others that do not completely agree to this, but they all accept that the auditing as a profession should accept changes which will affect the value added for the company from auditing. Nowadays the companies are required more accountability rather that it was required before, perversely only financial reports were reported by the companies. Auditing is a process which confirms the statement provided by the company management regarding the information in financial statements that are real and accurate. Auditing has to be based on evidences and logical concept for better understanding. For companies that operate in the market, it is important to provide financial information that is consistent, reliable and complete for all users of the financial statements (banks, potential shareholders and the international community). In daily practice of entities we have two kinds audit, the internal and external audits. Usually, these are interlinked and complementary, with the ultimate aim that the (overall) audit is more effective and the reports that will emerge are fully arguable and meaningful. The internal audit has an important role which is to increase the effectiveness of internal control in private or public company. Internal audit has the responsibility of informing the management of the institution of deficiencies or weaknesses in the internal control system. External auditors are the fist line of the front for companies liadership. They play a key role in verifying the financial information provided to shareholders. External auditors inspect the financial statements prepared by the entity and provide assurance and independent opinion if these statements represent a true and fair view of the entity's condition for the year under review.

Common Characteristics and Differences in External and Internal Auditing

Many scholars have shown that failure in leading big companies as well as the latest financial crises have led the auditing market to perceive traditional auditing more as a legal requirement rather than as a value added for the company. There are others that do not completely agree to this, but they all accept that the auditing as a profession should accept changes which will affect the value added for the company from auditing. Nowadays the companies are required more accountability rather that it was required before, perversely only financial reports were reported by the companies. Auditing is a process which confirms the statement provided by the company management regarding the information in financial statements that are real and accurate. Auditing has to be based on evidences and logical concept for better understanding. For companies that operate in the market, it is important to provide financial information that is consistent, reliable and complete for all users of the financial statements (banks, potential shareholders and the international community). In daily practice of entities we have two kinds audit, the internal and external audits. Usually, these are interlinked and complementary, with the ultimate aim that the (overall) audit is more effective and the reports that will emerge are fully arguable and meaningful. The internal audit has an important role which is to increase the effectiveness of internal control in private or public company. Internal audit has the responsibility of informing the management of the institution of deficiencies or weaknesses in the internal control system. External auditors are the fist line of the front for companies liadership. They play a key role in verifying the financial information provided to shareholders. External auditors inspect the financial statements prepared by the entity and provide assurance and independent opinion if these statements represent a true and fair view of the entity's condition for the year under review.Keywords: External audits, internal audit, management, financial statement, and independent opinion.

Ownership concentration, foreign ownership and corporate performance among the listed companies in East African community: the role of quality institutions

This study examines the role of institutions to stimulate the relationship between foreign ownership and corporate performance for the panel data of 58 non-financial listed firms in EAC over 2007–2015. The panel unit root tests by Im-Pesaran-Shin and Fisher-ADF confirm that data are stationary and are also cointegrated according to Pedroni tests. The regression output using GMM estimator reveals that ownership concentration is negative and statistically significant determinant of corporate performance. Moreover, the significant positive relationship between the interaction term (foreign ownership and institution) and corporate performance indicates that quality institutions stimulate foreign ownership towards superior corporate performance and the protection of minority shareholders. Acknowledging the importance of minority shareholders for capital market development and economic output, this study recommends to the authorities to enforce ownership structure diversity and enforce quality institutions for accelerating the catching up of the potential foreign shareholders towards economic growth.

Dividends and Taxes: The Moderating Role of Agency Conflicts

We find that potential conflicts between majority and minority shareholders strongly influence how dividends respond to taxes. When the controlling shareholder has a smaller stake, the incentives to extract private benefits are stronger – a shareholder conflict that can be mitigated by dividend payout.We study a large and clean regulatory shock in Norway that increases the dividend tax rate for all individuals from 0% to 28%. We find that dividends drop less the higher the potential shareholder conflict, suggesting that dividend policy trades off tax and agency considerations. The average payout ratio falls by 30 percentage points when the conflict potential is low, but by only 18 points when it is high. These lower dividends cannot be explained by higher salaries to shareholders or diverse liquidity needs. We also observe a strong increase in indirect ownership of high-conflict firms through tax-exempt holding companies and suggest policy implications for intercorporate dividend taxation.

СТАНОВЛЕННЯ СІЛЬСЬКОГОСПОДАРСЬКОЇ ОБСЛУГОВУЮЧОЇ КООПЕРАЦІЇ

Аналізуються причини, що стримують становлення і розвиток в Україні сільськогосподарських обслуговуючих кооперативів, передумови виникнення таких кооперативів, можливості їх впливу на загальний рівень цін на сільськогосподарську продукцію, обґрунтовуються способи державної підтримки кооперативів. Показано, що поява обслуговуючих кооперативів у світовій практиці пов'язана з монополізацією сфери закупівель продукції. Створення кооперативів і формування на кооперативних засадах маркетингових каналів було способом протидії монопольно низьким закупівельним цінам. У жодній країні без створення таких кооперативів лише державним регулюванням не вдавалось забезпечити підтримання паритету цін на сільськогосподарську та промислову продукцію. Досліджувався вплив державної підтримки кооперативів. Організаційні зусилля державних органів управління сільським господарством та пряма державна фінансова підтримка сприяли збільшенню кооперативів, однак не мали замітного впливу на обсяги послуг, що надавались кооперативами. Якщо державна фінансова підтримка є визначальним чинником створення кооперативу, то це провокує появу псевдокооперативів, метою створення яких є одержання цієї підтримки. Ідея створення обслуговуючих кооперативів неоднозначно сприймається їх потенційними засновниками – власниками особистих селянських господарств та фермерами. Скептицизм породжує втручання органів державного управління сільським господарством у діяльність обслуговуючих кооперативів, що видається як організаційна підтримка таких кооперативів. Зроблено висновок, що необхідною умовою виникнення та розвитку життєздатних кооперативів є забезпечення ними засновникам та учасникам відчутних переваг. Пропонується на кооперативних засадах формувати інфраструктуру аграрного ринку, а державну фінансову підтримку спрямовувати на кооперативи, якими пропонуватиметься конкурентоспроможна на зовнішньому ринку продукція.

Stock Splits as a Value Creation Vehicle

Stock splits have been for a long time a puzzling phenomenon that can bear particular consequences for stock’s liquidity as well as for a stock price. I perform an analysis of stock splits accomplished between 2000 and May 2011 inclusive by companies listed on the New York Stock Exchange. I seek to identify whether the stock splits under consideration constitute any signal to existing and potential shareholders and whether the stock split can add value to shareholders’ wealth. I use three methods to analyze the impact of splits on subsequent price performance of 629 stocks listed on the New York Stock Exchange, i.e. mean adjusted return method, market model method and market adjusted return method. The data used contain daily rates of return and the event window encompasses the time period of [40;+40], i.e. the interval from the 40th stock exchange trading session preceding the stock split to the 40th session after the stock split, as well as the first session after the stock split. In the wake of the stock split the volatility of abnormal returns as measured with standard deviation declines under three methods employed by: 6.58%, 46.71%, and 48.24%, respectively. This fact is indicative of benefits derived from splitting the shares, e.g. stabilization of the share price and consequently a change in stock’s risk–return profile. In turn, it can alter market participants’ perception of a given stock. What is more, shareholders’ gains as measured with cumulative abnormal rates of return, all 1–percent significant, reached within the event window outperform pre-split benefits, i.e. achieved as a result of a buy–and–hold strategy within the time frame of [–40;–1] as well as those attained in the post–split era, i.e. in the interval [+1:+40], using the same strategy. Investors who pursued the first strategy averaged with the cumulative abnormal rates of returns for three methods used at the level of: 41.76%, 15.28%, and 39.77%, respectively. Therefore the stock split can be viewed as a value creation vehicle. On the other hand, these findings show that managers that expect an improvement in financial health of their companies decide to split the shares thus conveying information what, in turn, is congruent with the signaling hypothesis. Moreover, in the aftermath of the stock split one may observe a substantial increase in the stock price what underlines the fact that stock splits are in general good news.

Corporate Accruals Practices of Listed Companies in Bangladesh**

Corporate accounting scandal is not a new phenomenon and it is the outcome of corporate accruals i.e., accruals by management choice. This study investigated the use of corporate accruals in the financial statements of the listed companies in Dhaka Stock Exchange (DSE) through segregating total accruals into corporate (discretionary) and accounting (non-discretionary) accruals. The average rate of corporate accruals was 35 percent and in many cases, cash flow from operation exceeded the net income, the growth in accounts receivable was faster than sales growth, and inventory growth was not consistent with sales growth. In this context, this study may create awareness of the risk factors of corporate accruals among external users’ of accounting information especially analysts, regulator, policy makers, existing and potential shareholders, lenders, trade creditors, external auditors, researchers, financial advisors, and stock brokers. Consequently, it may reduce the use of management discretion in preparing the financial statements.

The Red Flags of Tax Reporting on the Market Value

The aim of this paper is to provide empirical evidence of the red flags in the level of tax reporting among theShariah Compliance companies in Bursa Malaysia. The convenience sampling method was employed among123 Shariah compliance companies of Bursa Malaysia. Meanwhile, the investigation period in this study hadcovered twelve years of continuous data, starting from the year 2001 until the year 2012. This study adopted theCurrent Based Model to calculate the level of Effective Tax Rate (ETR) as an independent variable while thefirm values as dependent variable. It was revealed that due to the Creative Accounting strategies, there is apossibility of tax fraud occurring during the calculation of taxation level. These activities, which were applied inimplementing tax planning mechanisms is however allowed by the GAAP under MFRS. As is commonly known,the purpose of tax reporting is to safeguard the interest of potential shareholders; however, these practices ofaggressive tax planning strategies will result in differing perceptions from tax payers’ and potential shareholders’perspectives. Therefore, aggressive tax planning strategies could be a red flag to financial fraud activities. Thus,this study would disclose some evidence on how financial fraud could be revealed from tax reporting strategies.