Proxy For Management Research Articles

Earnings and discretionary accruals

Earnings management is a concerning issue for investors and regulators as it reduces the informativeness of financial reporting. Discretionary accruals are acknowledged to be proxies for earnings management. The study is conducted on firms in the US markets from 1975 to 2012, and the quantitative methodology is applied. Earnings management is revealed by an abnormal level of accruals relative to the firm's business activity. This paper investigates the earnings pattern and earnings management of the firm based on different models of discretionary accruals as proxies for earnings management: modified Jones, performance‐matched discretionary, and growth‐based cash flow discretionary accruals. Using a novel approach to detect the earnings pattern of firms, we find that firms in the negative earnings group are more involved in earnings management activity.

Earnings management of brazilian firms in the IFRS era: The role of economic and institutional factors

This study investigates whether accounting quality – more specifically regarding the level of earnings management by accruals – is associated with a country’s economic and institutional factors that change over time in IFRS era. Based on a sample of 1,387 Brazilian firm-year observations and data regarding 2011 to 2018, econometric models are estimated considering the absolute amount of discretionary accruals as proxy for earnings management and different aspects related to economic and institutional factors of preeminent importance to an emerging economy. We show that in general, high inflation, stock market volatility, and policy uncertainty rates, as well as lower regulatory quality, on average, are associated with a higher level of earnings management in Brazil. This study contributes to the accounting literature in emerging economies discussing the role of economic and institutional factors on accounting quality in the IFRS era in one of the largest developing country in the world. Compared to developed countries or even to other developing economies, Brazil stands out as an emerging economy of considerable economic and political instability, making it a valuable setting for this analysis.

Effect of Liquidity Management on Banks Profitability

Liquidity management and profitability are very important issues in the growth and survival of businesses including financial institutions and the ability to handle trade-off between the two is a source of concern for financial managers. Hence, this research examines the relationship between liquidity management and bank performance using secondary data from the published annual reports of five (5) sampled Deposit Money Banks in Nigeria for a period of ten years (2009-2018). The proxies for liquidity management include loan to deposit ratio, loan to assets ratio, liquid ratio, while return on assets was the proxy for profitability. Data was analyzed using Auto Regressive Distributed Lag (ARDL) and results from the study showed that there is a negative and significant relationship between loan to deposit ratio with p-value 0.0021 and return on assets (ROA), a positive and significant relationship between loan to asset ratio with p-value 0.0005 and return on assets (ROA) and a positive and insignificant relationship between liquid ratio with p-value 0.1808 and return on assets (ROA). The study concludes that, there is a significant and positive relationship between liquidity management and profitability of banks in Nigeria. It is recommended that banks should always endeavour to administer their credits effectively by adhering strictly to rules on granting of credit.

Inventory management and customers` satisfaction in the public health sector in Delta State, Nigeria: marketing analysis

This study investigates the effects of inventory management on customers` satisfaction with lead time as a moderator variable in government-owned hospitals in Delta State, Nigeria. It aims to contribute to the extant literature on inventory management and customer satisfaction in developing countries, focusing on Delta State in Nigeria. Two hundred and sixty-five (265) questionnaires were distributed, comprising one hundred and five to measure inventory management variables administered among Medical Doctors, Nurses, Pharmacists, and Medical Laboratory Scientist. Similarly, one hundred and sixty questionnaires designed to measure customer satisfaction were administered to Patients. The study adopts multiple regression and structural equation modeling to analyze the data. Also, studying the impact of inventory management on customers` satisfaction some marketing analysis approaches were used. The obtained results support the appropriateness of the model as lead time possesses the qualities of a moderator between strategic supplier partnership, lean inventory, and information technology that are proxies of inventory management and customer satisfaction. Besides, the results record a positive and statistically significant relationship between strategic supplier partnership, lean inventory, and customer satisfaction at a 5 percent level of significance, respectively.In addition, lead time has a positive and statistically significant relationship with customer satisfaction. Impliedly, this study concludes that inventory management proxies and lead time drive customer satisfaction. Thus, the government is recommended to focus on the lead time to avert the dearth of basic inventories in the hospitals.

The Effects of Macroeconomic Business Cycle on Earnings Management: Evidence from Korean Companies

This paper examines the relationship between macroeconomic business cycles and earnings management, specifically, whether firms make more earnings management during the boom period of the macroeconomic business cycle or during contraction period of the business cycle. Earnings management is activities of getting certain benefits by involving in external financial reporting or confusing certain stakeholders through adjustments to accruals without involvement of cash flows or with cash flows through real activities. In examining the relationship, we used the models of Kothari et al. (2005) and Cohen et al. (2008) for accrual-based earnings management (AEM) and real activities earnings management (REM), respectively, for earnings management proxies. We also used composite economic indicators, real GDP growth and BSI for proxies of macroeconomic business cycles. Using a data set for Korean companies listed from 2005 to 2017, we developed and tested a panel regression model with fixed effects to capture the relationship. The results show that companies perform earnings management more often during economic booms than during contraction periods. This is interpreted that firms try to avoid disclosure of lower net income compared to the expectations of analysts or average net income of companies in the same industry. This study is giving insights to external auditors when they perform external audit on the firms’ financial statement, they need to spend more attention on the firms’ earning management behaviors during boom period rather than contract period. It applies the same to analysts of securities.

SHORT-TERM DEBT AND FIRMS' EARNINGS MANAGEMENT CHOICES: THE CASE OF VIETNAM

The primary purpose of this research is to explore the link between short-term debt and firms' earnings management choices. It focuses on understanding how and when short-term debt will improve or reduce the earnings management activity of companies. Our proxy for real earnings management is based on the measure developed by (Roychowdhury, 2006). Using a sample of listed firms in the period of 2009-2018 in Vietnam, the study determines an important positive correlation between short-term debt and real activities manipulation. Our results further show that firms having lower levels of short-term debt tend to use real earnings management activities, but those that have higher levels of short-term debt are prone to use accrual-based earnings management method rather than altering real activities, inducing an inverted U-shaped relationship between short-term debt and real earnings management.

Earnings Management of Insolvent Firms and the Prediction of Corporate Defaults via Discretionary Accruals

Studies on the characteristics of insolvent firms’ earnings management are critical, as the ripple effects of a firm’s opportunistic accounting and insolvency on society can be widespread and significant. This study divides a dataset of unlisted firms into four groups (large firms that have received external audits; small- and medium-sized enterprises (SMEs) that received external audits; SMES that did not receive external audits; private businesses that did not receive external audits) and analyzes whether there are differences in terms of the discretionary accruals between groups. This study also uses discrete time logit regression to determine if the use of discretionary accruals is predictive of whether unlisted firms would become insolvent. This study used several models (a modified Jones model, a Kothari model, and performance matching model by ROA group) to measure discretionary accruals, which was used as a proxy for earnings management. The results of our study showed that, in the one year prior to insolvency, discretionary accruals were largest among non-externally audited private firms, followed by those of non-externally audited SMEs, externally audited SMEs, and externally audited large firms. The discretionary accruals of non-insolvent firms were larger than those of insolvent firms from the period of one year to three years preceding insolvency, and this difference increased as insolvency approached. The discretionary accruals were shown to have the ability to predict whether or not firms would become insolvent in two to three years before the occurrence of insolvency, but they did not support prediction for one year before the occurrence of insolvency. The findings suggest that additional accounting information should be used together to predict insolvency for unlisted firms.

Cost-utility analysis of total shoulder arthroplasty: a prospective health economic study using real-world data.

With increasing health care expenditures, knowledge about the benefit and costs of surgical interventions such as total shoulder arthroplasty (TSA) becomes important for orthopedic surgeons, social insurance programs, and health policy decision makers. We examined the impact of TSA on quality of life (QOL), direct medical costs, and productivity losses and evaluated the cost-utility ratio of TSA compared with ongoing nonoperative management using real-world data. Patients with shoulder osteoarthritis and/or rotator cuff tear arthropathy indicated for anatomic or reverse TSA were included in this prospective study. QOL (European Quality of Life 5 Dimensions 5-Level questionnaire) and shoulder function (Constant score; Shoulder Pain and Disability Index; short version of the Disabilities of the Arm, Shoulder and Hand questionnaire; and Subjective Shoulder Value) were assessed preoperatively and up to 2 years postoperatively. Health insurance companies provided all-diagnosis direct medical costs for 2018 in Swiss francs (CHF), where 1 CHF was equivalent to US $1.02. Indirect costs were assessed using the Work Productivity and Activity Impairment Questionnaire. Baseline data at recruitment and the total costs of the preoperative year served as a proxy for nonoperative management. The incremental cost-effectiveness ratio (ICER) was calculated as the total costs to gain 1 extra quality-adjusted life-year (QALY) based on both the health care system perspective and societal perspective. The relationship between QOL and shoulder function was assessed by regression analysis. The mean preoperative utility index for the European Quality of Life 5 Dimensions 5-Level questionnaire of 0.68 for a total of 150 patients (mean age, 71 years; 21% working; 58% women) increased to 0.89 and 0.87 at 1 and 2 years postoperatively, respectively. Mean direct medical costs were 11,771 CHF (preoperatively), 34,176 CHF (1 year postoperatively), and 11,763 CHF (2 years postoperatively). The ICER was 63,299 CHF/QALY (95% confidence interval, 44,391-82,206 CHF/QALY). The mean productivity losses for 29 working patients decreased from 40,574 CHF per patient (preoperatively) to 26,114 CHF at 1 year postoperatively and 10,310 CHF at 2 years postoperatively. When considering these productivity losses, the ICER was 35,549 CHF/QALY (95% confidence interval, 12,076-59,016 CHF/QALY). QOL was significantly associated with shoulder function (P < .001). Using real-world direct medical cost data, we calculated a cost-utility ratio of 63,299 CHF/QALY for TSA in Switzerland, which clearly falls below the often-suggested 100,000-CHF/QALY threshold for acceptable cost-effectiveness. In view of productivity losses, TSA becomes highly cost-effective with an ICER of 35,546 CHF/QALY.

Does cross‐border acquisition reduce earnings management of emerging market acquirers? Evidence from India

AbstractCross‐border acquisitions by emerging market firms have been increasing at an accelerated pace. The present study examines the impact of cross‐border acquisition on the earnings manipulation of emerging market firms by analyzing the cross‐border deals from India during the period 2000–2015. Using two proxies for earnings management, we find that cross‐border acquisition reduces the incentive to manipulate earnings by way of accruals, but not via real economic transactions. Further, cross‐sectional tests reveal that the incentive to reduce accrual earnings manipulation is more pronounced when the acquisition is made in countries with a strong corporate governance structure. Additional analysis indicates that acquisition results in increased earnings response coefficient for the acquirer firms relative to the control firms. Our finding is robust even after controlling for cross‐listing and endogeneity associated with cross‐border acquisition decision. The results have implications for the literature on the spillover of financial reporting practices across countries due to cross‐border business activities, especially in the context of emerging markets, which are known for their weak investor protection and underdeveloped institutional environment.

CEO Pay Components and Aggressive Non-GAAP Earnings Disclosure

We examine the relation between CEO pay components and aggressive non-GAAP earnings disclosures using CEO pay components as proxies for managers’ short- versus long-term focus. Specifically, we explore the extent to which short-term bonus plan payouts and long-term incentive plan payouts are associated with: (1) Managers’ propensity to exclude expense items in excess of those excluded by equity analysts; and, (2) The magnitude of those incremental exclusions. We find that long-term incentive plan payouts are negatively associated with the likelihood and magnitude of aggressive non-GAAP exclusions. Our results are consistent with managers reporting non-GAAP information less aggressively when they are more focused on long-term, rather than short-term, value.

Earnings Management and Cost of Debt of Brazilian Privately Held Companies

We analyzed the relationship between earnings management and the cost of debt using a sample of 3,503 Brazilian privately held companies. In doing so, we discuss the fundamentals of earnings management and the specific economics of privately held companies in Brazil and then hypothesize how these relationships come about. Our proxies for earnings management were modified Jones and modified Jones with ROA (return on assets). We then ran their residuals as explanatory variables for the cost of debt. Our findings point to the importance of earnings quality in privately held companies and the impact of earnings management on the cost of debt, suggesting that the higher the levels of earnings management, the higher the cost of debt, even when controlling by other variables that can influence this relationship. Our findings may also serve to encourage privately held companies to concern themselves with the quality of accounting earnings and inhibit earnings management practices that could increase their cost of debt.

Excavating Organizational Assumptions about Cultural Change: The Unintended Consequences of Safety Committee Initiatives

This study contributes to the emerging literature on the interplay between safety committees and employee perceptions of organizational safety culture. Creating, managing and maintaining a safety culture in organizations involves significant investment in the establishment of safety committees. The role of such committees in improving safety culture perceptions has remained underexplored in the safety management and organizational literature.This study addresses that gap and focuses on a safety committee within the facilities management operations of a large American academic institution. The objective is to generate understandings of how a committee can influence organizational cultural change and impact employee perceptions of safety.Using Schein’s organizational culture model as a prism, we unpack the employees’ implicit cultural beliefs. Data from over sixty employee interviews revealed that formation of the Safety Committee resulted in unintended consequences in terms of employee perceptions.Employees attributed most safety-related actions to the committee when, in fact, the managers and supervisors had actually carried them out. Thisoverestimationof committee activities and concomitantunderestimationof managerial actions by employees was an unintended consequence of establishing a committee. Employees, in fact, collectively attributed all positive changes in the organizational culture to the committee. The committee ultimately influenced the employees’ basic assumptions, such change being, according to Schein, a prerequisite for organizational cultural change.This study, therefore, contributes to the literature by proposing that unintended consequences can operate in three different ways to support organizational change. First, unintended consequences can promote positive outcomes; second, they can reveal a new understanding of committees, which under certain circumstances can act as a proxy for management and encourage positive perceptions of managerial commitment. Lastly, unintended consequences can provide a means to detect and ‘excavate’ hidden, implicit assumptions that drive organizational culture’s deepest layers.

Credit Risk Management and Bank Performance: With Special Reference to Specialized Banks in Sri Lanka

The adoption of credit risk management is becoming a crucial factor for every bank. The objective of this study identifies the relationship between the credit risk management determinants revealed by banking soundness index indicators CAMEL (Capital adequacy, Assets quality, Management efficiency, Earnings, Liquidity) on the performance of the License Specialize banks in Sri Lanka. This study is based on secondary data from each bank annual reports. The data were collected from six development bank among seven development banks in Sri Lanka. The sample was selected from the population based on the availability, convenience method, and reliability of data over the set period. The panel data of a sixteen-year period from 2000 to 2016 from the selected banks, were used to examine the relationship between credit risk management and performance. The Return on equity is used as a performance indicator and Capital adequacy and Asset quality were used as indicators of credit risk management. The study used multiple regression to analyze the data. With these findings, it revealed there is a strong impact of the CAMEL components on the financial performance of specialized banks in Sri Lanka. As per the findings of analysis Capital Adequacy, and Asset quality has a negative significant relationship between bank performances of ROE. This study also documented that there is a significant relationship between credit risk management by CAMEL Indicators and the financial performance of specialized banks in Sri Lanka. Therefore, this study suggests that the CAMEL model can be used as a proxy for credit risk management in the context of License Specialize banks Sri Lanka.

The Effects of IFRS Compliance on Earnings Reporting Quality of Financial Firms in Ghana

We investigate whether compliance with International Financial Reporting Standards (IFRS) is associated with earnings reporting quality of financial firms operating in Ghana. We modelled earnings reporting quality as a function of IFRS compliance and relevant control variables. Contrary to our hypothesis, IFRS compliance has a positive coefficient with our earnings management proxy for reporting quality. Our result suggests that IFRS does not necessarily improve the quality of financial reporting among Ghanaian financial firms. The result contradicts the idea that IFRS adoption eliminates accounting alternatives. Our results demonstrate that the compulsory adoption of IFRS by financial firms in Ghana has not improved reporting quality.

Corporate Governance and Earnings Management: Evidence from Shareholder Proposals*

ABSTRACTWe examine the causal effects of corporate governance on earnings management using shareholder‐sponsored proposals that pass or fail by a small margin of votes in annual shareholder meetings. This setting provides a causal estimate that overcomes concerns of endogeneity. Specifically, compared with firms whose shareholder proposals fall just short of a majority threshold, firms whose shareholder proposals narrowly pass have similar characteristics but a discretely higher likelihood of implementing improvements in governance. As such, we expect that firms whose shareholder proposals pass the threshold by a small margin exhibit a significantly lower level of earnings management. Employing a regression discontinuity design, we find results that support our expectation based on the propensity to just meet or beat analysts' forecasts by one cent as a proxy for earnings management. In addition, we show that the results are driven by governance changes that increase directors' monitoring. Our results are robust to using discretionary accruals as an alternative measure of earnings management. Collectively, the results suggest that improvements in corporate governance curtail earnings management, and support the underlying premise of regulators that improvements in corporate governance would improve financial reporting.

Earnings management and derivatives reporting: evidence from the adoption of IFRS standards in Europe

ABSTRACT Although the new IFRS standards are considered an improvement for financial transparency, derivatives reporting remains subject to criticism by professional observers due to its complexity. Indeed, derivatives reporting could easily be used for earnings management. In this article, we analyse half a dozen earnings management proxies before and after the mandatory adoption of a battery of IFRS standards in 2013 and 2014 by European firms. Among others, IFRS 13 and IFRS 11 featured impactful requirements for the financial reporting of listed companies. Our results show that following the adoption of these standards, earnings management has faded except for firms using derivatives. These results suggest that the 2013–2014 IFRS standards package has improved the accounting quality of European-listed firms but that the flexibility and lack of guidance in the new standards regarding derivatives reporting are used by managers to manage earnings.

Do stressed PE firms misbehave?

For private equity (PE) firms, follow-on funds provide additional streams of management fees for a considerable time. When prospective investors evaluate the performance of PE firms' latest funds, they have to rely on valuations reported by PE firms. The link between PE firms' fundraising and performance evaluation is thus an area susceptible to manipulation resulting in potentially high stakes. We examine the relationship between PE firms' fundraising pressure and earnings management in portfolio companies, along with heterogeneity in behaviour by reputation and dry powder. To proxy for the degree of fundraising pressure, we develop an index based on PE firms' affiliations, stage in the fundraising cycle, and fundraising frequency. Results suggest that the fundraising pressure leads to more earnings management in portfolio companies, regardless of PE firm reputation. While the reputational effect remains unchanged under a change in funding pressure, dry powder exhibits a strong moderating effect under extreme funding pressure. The results are robust to alternative proxies for earnings management, alternative fundraising indexes, and various controls for endogeneity concerns.

Mutual Fund Competition and Fund Manager Strategy Choice

The increasing number of mutual funds and assets under management of the industry are credited with restricting opportunities and stifling incentives for fund managers to generate alpha. I show that some managers are able to adapt to the more competitive market environment by tilting their investment strategy towards 'quality'. Using the fund's loading on the QMJ factor to proxy for quality management, I find that high quality funds outperform their peers, and generate annual alphas of 2.88%. Besides peer competition, a clientele effect seems to influence the choice of strategy. Clients of high quality funds are more sophisticated and focus on risk-adjusted returns, while those of low quality funds fit the description of uninformed investors, and seem unresponsive to both gross returns and alphas.

Liquidity Management and Financial Performance: Evidence From Commercial Banks in Botswana

The study examined the impact of liquidity management on the financial performance of commercial banks in Botswana. The study used Return on Assets and Return on Equity to measure financial performance. Cash and cash equivalents to total assets ratio, Cash to deposits ratio, Loans to deposits ratio, Loans to total assets ratio, Liquid assets to total assets ratio, and Liquid assets to deposits ratio were used as proxies for liquidity management. The research population was all the 9 commercial banks in Botswana and the study covered a period of 9 years from 2011 to 2019. This descriptive study sourced monthly secondary data from Bank of Botswana Financial Statistics database. Descriptive statistics, correlation and regression analyses were applied to analyse the data. The results from regression analysis show statistically significant positive relationships for Loans to total assets ratio and Liquid assets to total assets ratio with return on assets and return on equity. Loans to deposits ratio and Liquid assets to deposits ratio had statistically significant negative relationships with return on assets and return on equity. Cash and cash equivalents to total assets ratio had statistically insignificant positive relationship with return on assets and return on equity whilst cash to deposits ratio had statistically insignificant negative relationship with return on assets and return on equity. Findings suggest that the commercial banks should try to optimize liquidity variables to boost bank performance. The policy makers also, through the Central Bank, should come up with initiatives such as prescribing minimum liquidity requirements that will help banks to stay profitable.

Pengaruh Asimetri Informasi, Profitabilitas dan Ukuran Perusahaan Terhadap Manajemen Laba Pada Perusahaan Sektor Aneka Industri Di Indonesia

This study aims to determine the effect of asymmetry of information, profitability and the size of the company to the management company's earnings that occurred in various industry sectors listed on the Indonesia Stock Exchange with the observation period 2011-2013. Purposive sampling method obtained a sample of 24 companies. This study uses the independent variable asymmetry of information, profitability and the size of the company and use the variables that are influenced by the independent variable is management earnings as the dependent variable. Researchers measured the earnings management proxy jones modified the model to determine the value discresionary accruals. Variable asymmetry using the relative bid-ask spread, measured by the ratio Profitability Return on Assets (ROA), while the size of the company uses a proxy log of total assets. Through multiple linear regression analysis known that the asymmetry of information and the size of the company does not effect on earnings management while profitability showed positive effect on earnings management. Simultaneously, the three independent variables shows can jointly affect earnings management significantly with Ftabel of 2.74 is smaller than Fhitung 3.921 with a significance level of 0.012