Sustainable Earnings Research Articles

CEO power, corporate risk management, and dividends: disentangling CEO managerial ability from entrenchment

We contribute to the literature on dividend policy by considering two largely ignored, yet important factors, namely CEO power and corporate risk management. We first disentangle CEO managerial ability from entrenchment - the two sources of leadership autonomy that are not normally distinguished in prior literature. Using UK (re)insurance data that allows us to objectively and reliably quantify risk management and to identify powerful stakeholders with monitoring incentives (e.g., shareholders and regulatory body), we find that risk management enables entrenched CEOs to increase dividends to avoid monitoring by shareholders without compromising financial resilience and increasing the risk of regulatory scrutiny. Further, we neither find the degree of CEO managerial ability nor its interaction with risk management to be related to dividends, suggesting that the competing incentives for talented CEOs to pay higher/lower level of dividends cancel out in cross-sectional tests. Nonetheless, we find that the signalling effects of dividends for future accounting earnings only exist in insurers with high ability CEOs. This is consistent with the view that talented CEOs are able to generate sustainable earnings, and when they choose to pay (more) dividends, they do so to externally signal their managerial ability.

Understanding the Utilization of Skills by Returnee Workers in Rupandehi District

This qualitative research study aims to understand how returnee workers' skills are being converted into sustainable earnings by the application of the gained knowledge in different economic activities. The study uses a field survey of returnee workers in Rupandehi District, Nepal, and includes detailed discussions with key stakeholders in the study area. Returnee workers have gained language skills, technical skills, and management skills. These skills are being utilized in different economic activities, including agriculture, tourism, and small businesses. However, returnee workers face challenges related to social reintegration, including cultural differences and a lack of social support. The study recommends that the government should provide support for returnee workers to help them reintegrate into society and utilize their skills effectively. The study's findings are important because they highlight the need for effective utilization of the skills and knowledge gained by returnee workers to promote sustainable economic growth in Nepal. The study also emphasizes the importance of social support for returnee workers to facilitate their reintegration into society. The study's recommendations can help the government and other stakeholders to develop policies and programs that support returnee workers and promote sustainable economic growth in Nepal. Keywords: Returnee workers, Skill utilization, Sustainable earnings, Social reintegration, Economic activities, Nepalese society

Sustainable Earnings among Immigrants, and the Role of Health Status for Self-Sufficiency: A 10-Year Follow-Up Study of Labour Immigrants and Refugees to Sweden 2000-2006.

This study aimed to investigate economic self-sufficiency for immigrants, and how health status affected self-sufficiency. The proportion of self-sufficiency during years 1-10 after receiving a residence permit is presented for all non-European labour immigrants (n = 1259) and refugees (n = 23,859), aged 18-54, who immigrated to Sweden 2000-2006, and compared to a control group of Swedish-born (n = 144,745). The risk of not being self-sufficient in year 10 was analysed with Cox regression models, and the results are presented as hazard ratios (HRs) with 95% confidence intervals (CIs). Moreover, the impact on the self-sufficiency of having a diagnosis from specialised health care during the first five years in Sweden was analysed. The results showed that half of the refugees and three-quarters of the labour immigrants were self-sufficient 10 years after residency. The adjusted risk of not being self-sufficient at year 10 was 80% higher among labour immigrants (HR = 1.8; CI = 1.6-2.0) and more than two-fold among refugees (HR = 2.7; CI = 2.6-2.8) compared to the Swedish-born. Having a diagnosis from specialised health care during the first five years in Sweden had an impact on self-sufficiency in all groups; however, the impact of having a diagnosis did not differ between refugees and Swedish-born. Measures must be taken to increase immigrants' work participation.

Managerial Ability dan Earnings Quality (Studi pada Perussahaan Manufaktur di BEI)

This study aimed to identify factors that can improve earnings quality. Earnings Quality has been measured by three measurements such as; sustainable earnings, earnings persistence and quality accruals. The results showed that managerial ability had a positive effect on earnings quality, managerial abilities were proven to improve earnings quality. Specifically, managers that have better understanding abaout the company's opportunities and risks so that they can generate persistence profits, have better predictive values ​​and accrual estimates. This study contributes to finding one variable that can significantly affect earnings quality, namely managerial ability, besides that this research also contributes to members of the company's board of commissioners to pay attention to managers in managing company efficiency in choosing CEOs.

Corporate social responsibility and non-GAAP reporting

ABSTRACT This study examines the relationship between a firm’s corporate social responsibility (CSR) performance and non-GAAP earnings disclosure. I find that firms with good CSR performance (i.e. CSR firms) are more likely to disclose non-GAAP earnings than firms with poor CSR performance (i.e. non-CSR firms). More importantly, I find that CSR firms provide more informative non-GAAP earnings than non-CSR firms. Furthermore, CSR firms’ decisions to disclose non-GAAP earnings are less affected by the incentives to meet earnings benchmarks or constraints on other earnings management tools. These findings are consistent with the notion that CSR firms communicate with stakeholders about their sustainable earnings through non-GAAP reporting.

Use of ANN model in economies

In this paper, the authors made their contribution by constructing a model for the forecast of average annual net earnings in the EU countries. The model is based on the artificial neural network (ANN) use and for the needs of its creation the authors have presented their proposal for a model entry – economic variables that determine earnings. Generally, implementing an economic policy aimed at preventing stagnation of earnings levels can be achieved by running a sustainable earnings policy and our model can be used as an acceptable tool in the function of keeping that policy.

Investment as the Opportunity Cost of Dividend Signaling

ABSTRACTWe provide evidence that dividends signal sustainable earnings generated by assets-in-place for firms with weak investment opportunities. In the cross-section, both dividend levels and changes contain more earnings information among firms with weaker investment opportunities. Intertemporally, when aggregate investment opportunities in the economy are worse, dividend changes convey more earnings information. In contrast, dividends have a more negative association with investment spending for firms with strong growth options, as funding investment is a higher priority for those firms. Collectively, our findings suggest that dividends serve as a counter-signal, whereby additional information about investment opportunities give rise to signaling that is non-monotonic in firm quality.JEL Classifications: G15; G32; G35.

Short-Termism in Publicly Listed Companies and Corporate Governance

Short-termism is known as sacrificing long-term sustainable earnings for short-term returns. The pressure on management to obtain short-term results usually generates negative medium and long-term outcomes. This is because investors are inclined to sell their stocks when they hear about a shadow of bad news. In this context, business executives can decide to meet short-term shareholders expectations or prioritise the growth of their company. In other words, on the one hand, the company management should consider all possible economic variables within the scope of the necessity of protecting the company’s capital, on the other hand, it should also ensure the participation to the capital that will benefit the financial structure of the company, especially from the cash flow point of view. Short-termism hinders effective company management, particularly for publicly listed companies, due to the convenience of trading stock transactions and more transparent management decisions. Considering abovementioned facts, this study examines the increasing trend in short-termism as an intertemporal choice and discusses solutions that can be offered through corporate governance principles.

Short-Termism in Publicly Listed Companies and Corporate Governance

Short-termism is known as sacrificing long-term sustainable earnings for short-term returns. The pressure on management to obtain short-term results usually generates negative medium and long-term outcomes. This is because investors are inclined to sell their stocks when they hear about a shadow of bad news. In this context, business executives can decide to meet short-term shareholders expectations or prioritise the growth of their company. In other words, on the one hand, the company management should consider all possible economic variables within the scope of the necessity of protecting the company’s capital, on the other hand, it should also ensure the participation to the capital that will benefit the financial structure of the company, especially from the cash flow point of view. Short-termism hinders effective company management, particularly for publicly listed companies, due to the convenience of trading stock transactions and more transparent management decisions. Considering abovementioned facts, this study examines the increasing trend in short-termism as an intertemporal choice and discusses solutions that can be offered through corporate governance principles.

An Investigation of Employment Choice in the Rural Sector of Pakistan

Agricultural sector remained the focus of policy makers in an attempt to improve the rural incomes and reducing rural poverty among highly populated but less developed countries. The paper analyzes the workers’ choice between farm and nonfarm sectors in the rural sector. The study provides a theoretical framework where the employment decision of rural household member in the farm and nonfarm sectors depends on its physical assets including landholding and human capital development. The empirical analysis uses data for Pakistan obtained from PIHS 2001-02 and PSLM 2010-11. The results of the empirical model show that landholding is the major factor that drives the individual towards the farm activity while, education and public policy incentives including connectivity, market access and information spur the nonfarm employment. The findings of the study favor the development of nonfarm sector in order to cope with excessively increasing number of rural semi-skilled young workers. The findings suggest that focus of the policy should be on education and training to provide an enabling environment for sustained earnings of individuals. Nonfarm sector employment may ensure sustainable income of the rural labor as well as production of exportable surplus from rural to urban areas. This is inevitable due to poor economic conditions of rural workers and limited absorption capacity of farm and the urban job markets in the country.

Sustainable Earnings: How Can Herd Behavior in Financial Accumulation Feed into a Resilient Economic System?

The paper applies a methodological tool able to frame national policies with sustainable financial flows between social groups. In effect, exchange entitlement mapping (E-mapping) shows the interdependency of capital and labor earnings across social groups, which is then accounted for in the policy planning of future financial flows for the green transition. First, the paper highlights the extent to which herd behavior feeds into capital and labor earnings by social, occupational, demographic, and regional groups for the United Kingdom, France, and Italy over the past 40 years. Second, learning from these past trends, the paper proposes a policy framing of “sustainable earning trends” to hamper or facilitate financial flows towards sectors, occupations, and regions prone to herd behavior. The paper concludes that for an economic system to be resilient, it should be able to recycle external shocks on group earnings into economic opportunities for the green transition.

Financial Literacy: The Impact on the Profitability of the SMEs in Kuching

This study aims at investigating the financial knowledge, financial behaviour and the attitude towards finance amongst on small medium entrepreneurs (SMEs) in Kuching. More specifically on how these powerful factors affect the profitability on fast growing business enterprises in largest city in the Borneo Island over the last decade. The research takes a descriptive approach fitting its underlying pursue and draws interesting conclusions with over 75% response rate. Analysis of the data collected clearly reveals that the knowledge of finance in general relates significantly stronger to the bottom line of these business entities relative to the owners’ financial attitude and their ensuing behaviour towards financial decision making. Therefore, small medium entrepreneurs are highly recommended to participate in financial education on a regular basis to keep them well informed and equipped with the latest ways of managing the finances of their businesses to ensurebetter financial planning, execution and monitoring of enterprises that inevitably will lead to increased and sustainable earnings.

Explaining Trends and Factors Affecting Export Diversification in ASEAN and SAARC Regions: An Empirical Analysis

This paper examines the role played by country-specific factors in the determination of export product diversification process. To meet this objective, the paper begins by constructing a time series data for export diversification using the Herfindahl index. Then, it applies the fully modified OLS co-integration model to a panel of selected ASEAN and SAARC countries to find out the main determinants of export product diversification. Export diversification pattern shows that since the mid-1980s the ASEAN countries have continuously witnessed export diversification and the SAARC countries embarked on export diversification journey since the early 1990s. Analysis of the determinants suggests that foreign direct investment, domestic investment, competitiveness, real depreciation of domestic currency, financial sector development and institutional strength are significantly and positively related to export product diversification in both regions. These findings have important policy implications for the two regions. They call upon the policymakers for further diversification of exports, especially in the areas of their specialization that are vital for their smooth and sustained foreign exchange earnings as well as economic development. The study also recommends improving international competitive strength via improving business environment to achieve the goal of export product diversification.

Strategy and Earnings Quality

This study explores the relationship between strategy and earnings quality. We focus on firms classified as prospectors or defenders, and we analyze the effects of different strategic choices on various attributes of earnings quality: (accrual and real) earnings management, conditional conservatism, and earnings persistence. Our sample comprises 30 countries for the period 2005–2019 and includes 120,205 firm-year observations. It seems that business strategy is significant-ly linked to earnings quality metrics. Specifically, prospectors systematically exhibit higher val-ues of absolute discretionary accruals, lower abnormal operating cash flows, lower abnormal production costs, and higher discretionary expenses. Moreover, prospectors are more condition-ally conservative and have more sustainable earnings.

The Influence of Sustainable Earnings on Stock Price: Evidence from Publicly Listed Vietnamese Business Enterprises

Expected earnings and stock price are important determinants of investors’ decision. This research is conducted to estimate earnings persistence and examine the relationship between sustainable earnings on price-to-earning (P/E) ratio based on financial statements’ information of 631 publicly listed non-financial companies on Vietnam’s stock market, by using Ordinary Least Squares (OLS) and Logit function. The results show that earnings persistence depends on net operating assets growth, profit margin changes, operating asset turnover changes and past profitability. Besides, both the sustainable and unsustainable components of earnings growth are proved to empirically affect P/E ratio, even though investors underreact to sustainable earnings and overreact to unsustainable earnings. This study helps to improve investors’ perception of their future earnings, investment value and companies’ sustainable growth, particularly in the context of developing stock market of Vietnam which is full of market anomalies.

The Effects of Blockholder Dispersion on the Informativeness of Earnings: Evidence from Korea

This paper studies the relationship between blockholder dispersion and the informativeness of earnings using a sample of Korean companies. Investors prefer less volatile and more sustainable earnings and managers have incentives to manage earnings to meet investor demand. We show evidence that firms with dispersed ownership, which are likely to suffer from high levels of information asymmetry, smooth earnings in order to relieve investors’ concerns regarding information asymmetry. Furthermore, our regression analyses on the relation between returns and future earnings reveal that earnings smoothing conducted by firms with dispersed ownership leads to higher informativeness of earnings. This study provides important implications for various financial statement users in interpreting firms’ earnings sustainability, especially in the East Asian countries where a wide spectrum of ownership concentration structure exists.

Present Status of Shrimp Farming in Satkhira, a Southwestern District of Bangladesh

Shrimp has become one of the most important export products in recent decades due toincreasing international demand. Shrimp farming is performing significant role in thelivelihoods of rural people of southwestern part of Bangladesh which is considered thecore areas for shrimp farming. To continue the trend of exporting shrimp worldwide it isvery much needed to be familiar with the current culture practices with the precautionstaken by the shrimp farmers. A total of 30 shrimp farmers in Shyamnagarupazilla ofSatkhira district were interviewed to understand the present status of shrimp farming alongwith to identify the problems faced by the farmers, and to formulate somerecommendations for better shrimp production development. Study showed thatpolyculture was the only culture technique followed by the shrimp farmers using naturalwater sources like rain and tide. Bagda (Penaeusmondon) was the dominant culturedspecies followed by Harina (Metapenaeusmonoceros) because of their economicsignificance. Although wild post-larvae (PL) are better in quality than hatchery producedPL, farmers collected PL from both sources. Farmers usually used inorganic fertilizers likeUrea and TSP instead of organic one, but they preferred natural feeds for cost efficiencyand management purposes. The study also identified that shrimp diseases (white spot, gillrot and fin rot), lower market price, flood, high mortality and lack of scientific knowledgewere the major constraints in shrimp farming. Government, donor agencies, planners,researchers and NGOs, therefore, should come forward to assist farmers for mitigatingproblems and achieve sustainable shrimp export earnings of Bangladesh.
 Res. Agric., Livest. Fish.7(2): 311-320, August 2020

Foreign Equity Ownership and Income Smoothing

We examine whether foreign investors influence a local firm’s income smoothing, using a sample of Korean firms from 2000 to 2013. We hypothesize that given innate informational difficulties of overseas investments, foreign investors demand less noisy and more sustainable earnings, and to satisfy this demand, managers have strong incentives to smooth earnings. We find that foreign investors’ ownership is positively related to the level of earnings smoothing. We also find that earnings smoothing improves earnings informativeness in the presence of high foreign-investor ownership, consistent with the notion that foreign investors play an important role in local firms’ information environments.

Bank Financial Stability, Bank Valuation and International Oil Prices: Evidence From Listed Russian Public Banks

Using data on 17 listed public banks from Russia over the period 2008 to 2016, we analyze whether international oil prices affect the bank stability in an oil-dependent country. We posit that a decrease in international oil prices has a negative long-run macroeconomic impact for an oil-exporting country, which further deteriorates the bank financial stability. More specifically, a decrease in international oil prices leads for an oil-exporting country as Russia to a currency depreciation and to a deterioration of the fiscal stance. In addition, given the positive correlation of oil and stock prices documented by numerous previous studies, a decrease in international oil prices represents a negative signal for the stock markets investors, negatively affecting banks' share prices and thus, their capacity to generate sustainable earnings. In this context, the bank financial stability can be menaced. With a focus on public listed banks and using a Pool Mean Group (PMG) estimator, we show that an increase in international oil prices and in the price to book value ratio has a long-run positive effect on Russian public banks stability, and conversely. While positive oil-price shocks contribute to bank stability in the long run, an opposite effect is recorded for negative shocks. However, no significant impact is documented in the short run. Our findings are robust to different bank stability specifications, different samples and control variables.

Sustainable Earnings and Its Forecast: The Case of Vietnam

The study aims to provide better understanding of sustainable earnings by a comprehensive analysis of earnings persistence of business firms in Vietnam as an example of developing economies in South-East Asia. Dataset of 1,278 publicly listed firms (excluding banking and financial services firms) on Vietnam Stock Exchange for the period from 2008 to 2017 was collected. By applying fixed effect regression model, the empirical results provided the basis to measure the persistence index (Pers index) and find low level of their earnings persistence. The literature of earnings quality analysis in developed countries suggests earnings persistence as a noteworthy determinant of future earnings forecast and stock valuation. However, research of sustainable earnings in developing countries is still highly underdeveloped. For Vietnamese listed firms, the average Pers index was estimated for the period from 2008 to 2010, indicating low level of earnings persistence. We also incorporated earnings persistence level into future earnings forecast by running the quintile regression model divided the data into four equal levels and conducted each section independently to see the difference in each percentile, thence assessed the factors' influence on the specific model. The findings provide important information on the expected returns of firms, especially helping investors make sound decisions.