The Earnings Quality of High Growth Firms Before and after the Sarbanes-Oxley Act

2013 ◽  
Author(s):  
Roger C. Graham ◽  
Jared A. Moore
Keyword(s):  
Earnings Quality ◽  
High Growth ◽  
Sarbanes Oxley ◽  
Growth Firms ◽  
Before And After

The Spillover of SOX on Earnings Quality in Non-U.S. Jurisdictions

2015 ◽  
Vol 30 (1) ◽  
pp. 23-39 ◽  
Author(s):  
Wouter Dutillieux ◽  
Jere R. Francis ◽  
Marleen Willekens
Keyword(s):  
Earnings Quality ◽  
Control Sample ◽  
Spillover Effects ◽  
Data Availability ◽  
Institutional Setting ◽  
Sarbanes Oxley ◽  
Before And After ◽  
Flow Through ◽  
The U.S

SYNOPSIS In most European countries, U.S.-owned subsidiaries are required by law to file separate entity financial statements in local GAAP. We use this unique institutional setting to examine whether the Sarbanes-Oxley Act of 2002 (SOX) had a flow-through effect on the earnings quality of local GAAP financial reports for a sample of Belgian subsidiaries owned by U.S.-listed firms. Belgium has weaker institutions relative to the U.S. and this is a setting where the spillover effects of SOX might be expected to improve local GAAP earnings quality. Using a difference-in-differences research design, we compare changes in earnings quality before and after SOX for a treatment sample of Belgian subsidiaries owned by U.S.-listed companies (which are subject to SOX), with a control sample of Belgian-owned subsidiaries whose owners are not subject to SOX regulations. We find that the earnings quality of the U.S.-owned subsidiaries improved after SOX (smaller abnormal accruals and more timely loss recognition). In contrast, the earnings quality of the control sample was either unchanged or declined in the pre- versus post-SOX periods. These results suggest that SOX did have a flow-through effect on earnings quality in a non-U.S. jurisdiction, and that SOX has had a broader international effect beyond the original legislative intent. Data Availability: Data are available from sources identified in the paper.

scholarly journals Heterogeneity in earnings quality between different classes of companies after IFRS adoption: evidence from Brazil

2017 ◽  
Vol 28 (73) ◽  
pp. 113-131
Author(s):  
Roberto Black ◽  
Sílvio Hiroshi Nakao
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Earnings Quality ◽  
Economic Incentives ◽  
Net Income ◽  
Accounting Earnings ◽  
Ifrs Adoption ◽  
Before And After

ABSTRACT This paper aims to investigate the existence of heterogeneity in earnings quality between different classes of companies after the adoption of the International Financial Reporting Standards (IFRS). IFRS adoption is generally associated with an increase in the quality of financial statements. However, companies within the same country are likely to have different economic incentives regarding the disclosure of information. Thus, treating companies equally, without considering the related economic incentives, could contaminate earnings quality investigations. The case of Brazil is analyzed, which is a country classified as code-law, in which tax laws determined accounting practice and in which IFRS adoption is mandatory. First, Brazilian companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) were separated into two classes: companies issuing American Depositary Receipts (ADRs) before IFRS adoption and companies that did not issue ADRs until the adoption of IFRS. Then, this second class of companies was grouped, using cluster analysis, into two different subclasses according to economic incentives. Based on the groups identified, the quality of accounting earnings is tested for each class of the companies before and after IFRS adoption. This paper uses timely recognition of economic events, value relevance of net income, and earnings management as proxies for the quality of accounting earnings. The results indicate that a particular class of companies began showing conditional conservatism, value relevance of net income, and lower earnings management after IFRS adoption. On the other hand, these results were not found for the two other classes of companies.

Are CEOs and CFOs Rewarded for Disclosure Quality?

2014 ◽  
Vol 90 (3) ◽  
pp. 1013-1047 ◽  
Author(s):  
Kai Wai Hui ◽  
Steven R. Matsunaga
Keyword(s):  
Boards Of Directors ◽  
Forecast Accuracy ◽  
High Growth ◽  
Effective Communication ◽  
Disclosure Quality ◽  
Management Forecast ◽  
Growth Firms ◽  
Financial Disclosures ◽  
Cfo Compensation

ABSTRACT This study provides evidence regarding the importance that boards of directors place on effective communication with the investor community by examining whether CEO and CFO compensation are related to the quality of the firm's financial disclosures. Using an index derived from analyst forecast characteristics and management forecast accuracy to measure disclosure quality, we find changes in the annual bonus for both the CEO and CFO to be positively associated with changes in disclosure quality. We also find that the relation is stronger for high-growth firms, firms that have stronger governance structures, and for executives with lower equity incentives. Overall, our findings provide insight into the importance that boards place on effective communication with investors as a responsibility of the CEO and CFO and, therefore, provide them with contractual incentives to address the moral hazard problem associated with voluntary disclosures. JEL Classifications: M41.

scholarly journals Earnings quality before and after the implementation of PSAK 69

Accounting ◽  
2021 ◽  
pp. 727-734 ◽  
Author(s):  
Naniek Noviari ◽  
I Gusti Ayu Eka Damayanthi ◽  
I Gusti Ngurah Agung Suaryana
Keyword(s):  
Financial Reporting ◽  
Agricultural Sector ◽  
Stock Exchange ◽  
Earnings Quality ◽  
Fair Value ◽  
Cross Sectional ◽  
Current Period ◽  
Before And After ◽  
Earnings Response

PSAK 69 Agriculture regulates the accounting treatment of agricultural activities in Indonesia. The measurement of biological assets is the most important part of the arrangement of PSAK 69. PSAK 69 deals with biological assets measured at fair value less costs to sell at the beginning and end of the reporting period. Characteristics of growing biological assets will have an impact on the growth in fair value of assets, so there will be differences in fair value at the beginning and end of the financial reporting period. The difference in fair value of biological assets, whether realized or not, is recognized as gain in the current period. This will have an impact on the quality of the company's earnings. This study aims to examine differences in earnings quality before and after the implementation of PSAK 69 in agricultural sector companies listed on the Indonesia Stock Exchange. The research was conducted on 14 agricultural companies listed on the Indonesia Stock Exchange in the 2016-2019 observation period. Earnings quality is measured by the earnings response coefficient. Earnings response coefficients are estimated using the firm specific coefficient model (FSCM) and pooled cross-sectional regression model (CSRM) methods. This study measures the quality of earnings before and after the application of PSAK 69. The quality of earnings before and after the application of PSAK 69 is tested by a paired two-sample t-test. The results of this study found no difference in earnings quality before and after the application of PSAK 69.

scholarly journals Change in earnings quality surrounding ERP implementation

2017 ◽  
Vol 15 (1) ◽  
pp. 8-17
Author(s):  
Bruce Dehning ◽  
Charu Sinha ◽  
Praveen Sinha
Keyword(s):  
Earnings Management ◽  
Enterprise Resource Planning ◽  
Earnings Quality ◽  
High Growth ◽  
Resource Planning ◽  
Case Managers ◽  
Erp Systems ◽  
Erp System ◽  
Growth Firms ◽  
Accounting Accruals

Enterprise Resource Planning (ERP) systems have become widely adopted by companies to fulfil various purposes. ERP systems make information flow more transparent and timelier. From a capital markets perspective, an interesting question is whether the implementation of ERP systems reduces earnings management. One argument is that it will not make any difference for managers who are intent on managing earnings. In this case, managers will find ways to circumvent the constraints imposed by the new system. It may also be argued that ERP makes it easier for the auditors to detect earnings management, thus dissuading any intent on the part of managers to indulge in earnings management. Another argument is that ERP systems will provide managers with the information necessary to anticipate potential problems earlier in the period, allowing them to make operating adjustments, thereby reducing the need for earnings management through accounting accruals. We examine the question of changes in earnings management brought about by ERP system implementation using an alternate measure of earnings management and earnings quality – a firm’s likelihood of a GAAP violation. Our findings are that the probability of a GAAP violation decreases significantly after the implementation of ERP systems, but less for larger firms, and more for high growth firms

scholarly journals SOX Section 404 Twenty Years After: Reviewing Costs and Benefits

2020 ◽  
Vol 9 (1) ◽  
pp. 103-112
Author(s):  
Bianca Fischer ◽  
Bernadette Gral ◽  
Othmar Lehner
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Earnings Quality ◽  
Costs And Benefits ◽  
Section 404 ◽  
Positive Effects ◽  
Sarbanes Oxley

Some issues of the Sarbanes Oxley Act of 2002 are still discussed controversially in literature. Thereof, Section 404 concerning internal control over financial reporting is one of the most criticized parts. This article focuses on costs and benefits of the section and impacts on earnings management. Most authors agree that compliance costs of Section 404 far outweigh its benefits. However, long-term benefits are expected. Regarding earnings management, studies show that the section has positive effects such as increased earnings quality and improved internal control systems. Although the section is heavily debated in literature, there is consensus that SOX Section 404 greatly contributed to the improvement of quality of financial reporting and of corporate governance as a whole.

scholarly journals Entrepreneurial ecosystem elements

2019 ◽  
Author(s):  
Erik Stam ◽  
Andrew van de Ven
Keyword(s):  
The Netherlands ◽  
Measurement Instrument ◽  
High Growth ◽  
Entrepreneurial Ecosystem ◽  
Systems Perspective ◽  
Entrepreneurial Ecosystems ◽  
Growth Firms ◽  
Systems View ◽  
Systems Framework

Abstract There is a growing interest in ecosystems as an approach for understanding the context of entrepreneurship at the macro level of an organizational community. It consists of all the interdependent actors and factors that enable and constrain entrepreneurship within a particular territory. Although growing in popularity, the entrepreneurial ecosystem concept remains loosely defined and measured. This paper shows the value of taking a systems view of the context of entrepreneurship: understanding entrepreneurial economies from a systems perspective. We use a systems framework for studying entrepreneurial ecosystems, develop a measurement instrument of its elements, and use this to compose an entrepreneurial ecosystem index to examine the quality of entrepreneurial ecosystems in the Netherlands. We find that the prevalence of high-growth firms in a region is strongly related to the quality of its entrepreneurial ecosystem. Strong interrelationships among the ecosystem elements reveal their interdependence and need for a systems perspective.

The Audit Committee and Earnings Quality

1996 ◽  
Vol 11 (2) ◽  
pp. 247-276 ◽  
Author(s):  
John J. Wild
Keyword(s):  
Economic Theory ◽  
Empirical Evidence ◽  
Research Design ◽  
Financial Reporting ◽  
Audit Committee ◽  
Earnings Quality ◽  
Nondecreasing Function ◽  
Accounting Earnings ◽  
Before And After

This paper provides empirical evidence on the association between audit committee formation and the quality of accounting earnings. The audit committee is responsible for overseeing the financial reporting and auditing process of the firm. This paper assesses the effectiveness of the audit committee in discharging these responsibilities by comparing the quality, or informativeness, of earnings reports before and after audit committee formation. For this paper, informativeness is measured by the extent to which the market reacts to the release of earnings reports. Economic theory predicts that the magnitude of the market's reaction to earnings is a nondecreasing function of earnings quality. The results show a significant increase in the market's reaction to earnings reports subsequent to the formation of the audit committee. Specifically, the reaction to earnings reports is more than 20 percent greater after the formation of the committee than before. These findings are robust to alternative variations in the research design. Overall, the evidence is consistent with the audit committee providing meaningful oversight of the financial reporting and auditing process.

scholarly journals Post-2001 corporate collapses: Is earnings quality more closely associated with various dimensions of corporate governance?

2011 ◽  
Vol 9 (1) ◽  
pp. 455-476
Author(s):  
Madonna O’Sullivan ◽  
Majella Percy ◽  
Peta Stevenson-Clarke
Keyword(s):  
Corporate Governance ◽  
Audit Quality ◽  
Earnings Quality ◽  
Information Environment ◽  
Four Dimensions ◽  
High Profile ◽  
Before And After ◽  
Reported Earnings ◽  
Economic Considerations

We investigate the association between various dimensions of corporate governance and the quality of reported earnings for Australian companies in 2000 and 2002, before and after a number of large corporate collapses. We create four dimensions of corporate governance (board, committee, ownership and audit quality) using fifteen individual corporate governance attributes. We find only audit quality appears to improve earnings quality, and only in 2002. Further, we find earnings quality is positively related to firm size and information environment, and negatively related to firm leverage, for the combined 2000-2002 sample. We interpret these results as indicative of economic considerations having an overriding impact on earnings quality, compared to corporate governance, despite the shockwaves felt from recent high-profile corporate collapses

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