Managers’ Segment Financial Reporting Choice: When Aggregated Segment-Level Earnings Differ from Firm-Level Earnings

2010 ◽  
Author(s):  
Dana Hollie ◽  
Shaokun Carol Yu ◽  
Elio Alfonso
Keyword(s):  
Financial Reporting ◽  
Firm Level

scholarly journals Do Reconciliations Of Segment Earnings Affect Stock Prices?

2012 ◽  
Vol 28 (5) ◽  
pp. 1085 ◽  
Author(s):  
Dana Hollie ◽  
Shaokun Carol Yu
Keyword(s):  
Financial Reporting ◽  
Stock Prices ◽  
Firm Growth ◽  
Abnormal Returns ◽  
Cash Flows ◽  
Management Approach ◽  
Firm Level ◽  
Return On Equity ◽  
The Difference ◽  
Segment Disclosures

While SFAS No. 131 is intended to increase the transparency of financial reporting using a management approach, it may reduce shareholders ability to interpret segment disclosures relative to the industry approach employed under SFAS No.14. This study investigates whether segment reconciliation differences affect stock prices and whether abnormal returns can be earned using information about two components of earnings: aggregated segment earnings and segment earnings reconciliations. We compute reconciliations as the difference between firm-level consolidated earnings and aggregated segment-level earnings. Firms that report negative SERs have greater sales and profitability, greater return on equity, as well as more operating cash flows and firm growth. This suggests that firms that report aggregated segment earnings greater than firm-level consolidated earnings may be better off financially. Our findings show that mispricing does occur when firms report positive SERs by the market, underestimating the segment earnings reconciliation component of earnings persistence. Investors can also earn positive abnormal returns when investors take a long (short) position with the portfolio with the highest (lowest) absolute SERs. On the contrary, we find investors earn negative abnormal returns when firms report negative SERs. Collectively, this study provides evidence that mispricing occurs and that investors over/underestimate the importance and/or persistence of segment earnings reconciliations.

The Impact of the CEO's Personal Narcissism on Non-GAAP Earnings

2020 ◽  
Author(s):  
Ahmed M. Abdel-Meguid ◽  
Jared Jennings ◽  
Kari Joseph Olsen ◽  
Mark T. Soliman
Keyword(s):  
Personality Traits ◽  
Financial Reporting ◽  
Performance Measure ◽  
Firm Level ◽  
Prior Literature ◽  
Ceo Narcissism ◽  
The Impact ◽  
Disclosure Practice ◽  
Shed Light

Non-GAAP earnings provide managers the flexibility to exclude GAAP items to either produce a more informative performance measure or provide them the ability to opportunistically exclude recurring expenses from non-GAAP earnings. Prior literature examines the use of this form of disclosure at the firm level, although it is ultimately management's decisions. We extend prior non-GAAP literature by examining whether the use and quality of non-GAAP earnings is influenced by CEO personality traits; namely CEO narcissism. We find narcissistic CEOs are more likely to exclude expenses from non-GAAP earnings and that the magnitude of exclusions is greater. We also find that those non-GAAP exclusions are more persistent, and thus lower quality. Our results shed light on the disclosure practice of non-GAAP earnings and show how narcissistic CEOs are more likely to take advantage of the discretion in financial reporting disclosures in order to benefit the firm and themselves.

scholarly journals Effects of IFRS adoption on tax avoidance

2017 ◽  
Vol 28 (75) ◽  
pp. 407-424 ◽  
Author(s):  
Renata Nogueira Braga
Keyword(s):  
Financial Reporting ◽  
Tax Avoidance ◽  
Publicly Traded ◽  
Corporate Tax ◽  
Firm Level ◽  
Tax Rate ◽  
Publicly Traded Companies ◽  
Accruals Management ◽  
Financial Reporting Standards ◽  
Ifrs Adoption

ABSTRACT This study investigates the association between mandatory International Financial Reporting Standards (IFRS) adoption and corporate tax avoidance. In this study, tax avoidance is defined as a reduction in the effective corporate income tax rate through tax planning activities, whether these are legal, questionable, or even illegal. Three measures of tax avoidance are used and factors at the country and firm level (that have already been associated with tax avoidance in prior research) are controlled. Using samples that range from 9,389 to 15,423 publicly-traded companies from 35 countries, covering 1999 to 2014, it is found that IFRS adoption is associated with higher levels of corporate tax avoidance, even when the level of book-tax conformity required in the countries and the volume of accruals are controlled, both of which are considered potential determinants of this relationship. Furthermore, the results suggest that after IFRS adoption, firms in higher book-tax conformity environments engage more in tax avoidance than firms in lower book-tax conformity environments. It is also identified that engagement in tax avoidance after IFRS adoption derives not only from accruals management, but also from practices that do not involve accruals. The main conclusion is that companies engage more in tax avoidance after mandatory IFRS adoption.

The effect of auditor industry specialization and board independence on the cash flow reporting classification choices under IFRS: evidence from Taiwan

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shuling Chiang ◽  
Gary Kleinman ◽  
Picheng Lee
Keyword(s):  
Cash Flow ◽  
Financial Reporting ◽  
Negative Relationship ◽  
Cash Flows ◽  
Board Independence ◽  
Firm Level ◽  
Industry Specialization ◽  
Content Type ◽  
Auditor Industry Specialization ◽  
Board Of Director

Purpose This study aims to explore the relationship between audit partner and firm industry specialization and board of director independence on the decision by Taiwanese firms to use International Financial Reporting Standards (IFRS) flexibility concerning reporting interest income and expense and dividends received in different sections of the statement of cash flows. This flexibility existed in Taiwan for the first time in 2013, the year that Taiwan switched from its own generally accepted accounting principle to IFRS. Design/methodology/approach Using 2013 data for a sample of 1,227 firms, 354 of whom changed their reporting classification, this study examined the interaction effect of board independence and partner-level and firm-level auditor industry specialization on the cash flow reporting decision using logistic regression. Findings The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specializations have a complementary (but negative) relationship with board independence as to whether the firm is likely to report interest expense paid in the operating or financing activities sections. Practical implications An important implication is that knowing the levels of audit firm and partner specialization and how independent the board is, is useful for researchers and regulators in investigating auditor-client relationships and understanding the influences of variables investigated here on the outcome(s) of accounting policy and regulatory changes. Originality/value This study improved the field’s understanding of the impacts of audit partner and firm specialization, board independence and relevant interactions on cash flow reporting choices.

scholarly journals International Financial Reporting Standards (IFRS): Stress Testing in Financialized Reporting Entities

2017 ◽  
Vol 7 (2) ◽  
pp. 105-108 ◽  
Author(s):  
Colin Haslam
Keyword(s):  
Financial Reporting ◽  
Capital Market ◽  
Financial Stability ◽  
Stress Testing ◽  
Firm Level ◽  
Future Earnings ◽  
Financial Reporting Standards ◽  
Accounting Numbers ◽  
Market Valuations ◽  
Significant Disturbance

Abstract These remarks deal with financialisation of accounting. Financialisation is a process by which windfall capital market gains are crystallised from future earnings over and above those available from current earnings and profit. Accounting numbers reported by business firms are increasingly including the product of windfall gains from capital markets into those accounting numbers. Thus a significant disturbance in market valuations embedded in firm’s assets and earnings could have a significant and material impact upon firm-level financial stability.

scholarly journals The Effects of Financial Reporting on Bank Loan Contracting in Global Markets: Evidence from Mandatory IFRS Adoption

2015 ◽  
Vol 14 (2) ◽  
pp. 45-81 ◽  
Author(s):  
Tai-Yuan Chen ◽  
Chen-Lung Chin ◽  
Shiheng Wang ◽  
Wei-Ren Yao
Keyword(s):  
Interest Rates ◽  
Financial Reporting ◽  
Bank Loans ◽  
Bank Loan ◽  
Accounting Quality ◽  
Firm Level ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Loan Contracting ◽  
The 2008 Financial Crisis

ABSTRACT This study examines the effects of the mandatory adoption of International Financial Reporting Standards (IFRS) on the contract terms of bank loans in a global setting. Using a difference-in-differences design based on 26,474 bank loans in 31 countries during the 2000–2011 period, we find that borrowers who mandatorily adopt IFRS experience an increase in interest rates, a reduction in the use of accounting-based financial covenants, an increase in the likelihood that a loan is collateralized, a reduction in loan maturity, and an increase in the fraction of a loan retained by lead arrangers. These findings are robust to the removal of the 2008 financial crisis from our analysis, as well as to the matching of IFRS and non-IFRS borrowers on various country- and firm-level characteristics. Furthermore, we find that these changes are more pronounced for borrowers with greater financial reporting changes, as well as those with poorer accounting quality after IFRS adoption. JEL Classifications: G15; G21; F34; M41.

Organized Labor and Audit Fees

2017 ◽  
Vol 31 (4) ◽  
pp. 93-108 ◽  
Author(s):  
Lin Cheng ◽  
Santanu Mitra ◽  
Hakjoon Song
Keyword(s):  
Financial Reporting ◽  
Empirical Relationship ◽  
Negative Relationship ◽  
Audit Fees ◽  
Data Availability ◽  
Organized Labor ◽  
Firm Level ◽  
Unionization Rate ◽  
Reporting Decisions ◽  
The Impact

SYNOPSIS This study investigates the empirical relationship between organized labor and audit fees. We find that audit fees are negatively related to the firm-level unionization rate—the higher the unionization rate, the lower the audit fees. We further observe that the unionized firms are less likely to hire Big 4 or industry-specialist auditors. Additional analyses show that the negative relationship between the firm-level unionization rate and audit fees is significantly attenuated for unionized firms with poor financial performance. Our results are consistent with unionized firms preferring less audit scrutiny, which helps them maintain information asymmetry with the labor unions. The study facilitates our understanding of firms' demand for audit services and the consequential effect on audit fees when faced with strong organized labor, and adds to the extant literature investigating the impact of organized labor on various aspects of firms' financial reporting decisions. JEL Classifications: M41; M42. Data Availability: Data used in the analyses are obtained from public sources described in the text.

Do High Ability Managers Mitigate Litigation Related to Financial Reporting?

2020 ◽  
pp. 0000-0000
Author(s):  
Gopal V. Krishnan ◽  
Changjiang Wang ◽  
Wei Yu
Keyword(s):  
Financial Reporting ◽  
Lower Risk ◽  
Bad News ◽  
Financial Statement ◽  
Litigation Risk ◽  
High Ability ◽  
Managerial Ability ◽  
Firm Level ◽  
Negative Relation ◽  
Corporate Resources

We provide empirical evidence that incremental to the commonly used industry-based proxy for litigation risk and firm-level attributes, managerial ability in transforming corporate resources into revenues is associated with lower risk of litigation arising from financial reporting. The negative relation between managerial ability and litigation risk does not seem to stem from more frequent disclosure of bad news. Instead, our results suggest that high ability managers are less likely to engage in opportunistic financial reporting, i.e., lower financial statement errors and abnormal revenues. The contribution of our study is to explicitly offer a managerial human capital perspective in explaining variations in litigation risk related to financial reporting.

Exploring the potentials of clawbacks to check earnings management practices and enhance financial reporting quality: perceptions from the UAE

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kahkashan Mahmood ◽  
Yasser Barghathi ◽  
Alhashmi Aboubaker Lasyoud
Keyword(s):  
Earnings Management ◽  
United Arab Emirates ◽  
Financial Reporting ◽  
Management Practices ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Firm Level ◽  
Content Type ◽  
Set Up ◽  
The Impact

Purpose For investors to wholeheartedly entrust their finances to the supposed executives, there is the need to set up policies to checkmate the excesses of such executives, hence clawback policy. This study aims to explore the perceptions of professionals regarding the impact of clawback provisions on earnings management (EM) and financial reporting quality in the context of the United Arab Emirates (UAE). Design/methodology/approach The application of a qualitative approach in an EM is of great significance in this study. For convenience, perceptions of the professionals were collected through semi-structured face-to-face interviews, internet forums and telephone conversations from which the data were initially transcribed and analyzed using thematic analysis. Findings The findings of the study indicate that clawbacks will have a significant impact on EM and financial reporting quality, and apart from this, other firm-level factors have also been supporting clawbacks. Practical implications EM has been a widespread practice; this research may potentially assist directors and regulatory bodies to comprehend factors that should be considered to reduce it. It may also provide practical insights from professionals regarding clawbacks and their bearing on EM and the quality of financial information from an emerging economy perspective. Originality/value A significant gap in the contemporary literature regarding the impact of clawback provisions on EM and financial reporting quality has been filed by this work, in the context of the UAE economy. Consequently, it provides a great insight into the effect of clawback in a business setting and how it can help checkmate the excesses of company executives.

scholarly journals Stress Testing International Financial Reporting Standards (IFRS): Accounting for Stability and the Public Good in a Financialized World

2016 ◽  
Vol 6 (2) ◽  
Author(s):  
Colin Haslam ◽  
Nick Tsitsianis ◽  
Razvan Hoinaru ◽  
Tord Andersson ◽  
George Katechos
Keyword(s):  
Public Good ◽  
Financial Reporting ◽  
Financial Stability ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Firm Level ◽  
Future Earnings ◽  
Financial Reporting Standards ◽  
European Public ◽  
And Control

AbstractThe recent Maystadt report (2013) challenged the European Parliament to modify governance arrangements surrounding the design and endorsement of international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB). In addition the Maystadt report constructs an argument that accounting information has the capacity to also modify behaviour and that this might not be conducive for the European public good, financial stability and economic development. In this paper we argue that IFRS need to be stress tested for their impact on firm-level financial stability in a financialized world. The financialized firm can revalue a range of assets to their market value crystalizing future earnings into current values but these valuations can become impaired. Asset value impairments will be charged to shareholder equity but this is being hollowed out because a higher proportion of earnings are being distributed to shareholders. Accounting disclosures are not only an information feed to users they inform the stewardship and control of a firm’s resources and in the financialized firm the potential for financial instability is heightened and this can translate into a moral hazard for society.

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