How Would the Mandatory Adoption of IFRS Affect the Earnings Quality of U.S. Firms? Evidence from Cross-Listed Firms in the U.S.

2011 ◽  
Vol 25 (4) ◽  
pp. 837-860 ◽  
Author(s):  
Jerry Sun ◽  
Steven F. Cahan ◽  
David Emanuel
Keyword(s):  
Earnings Quality ◽  
Discretionary Accruals ◽  
Earnings Persistence ◽  
Listed Firms ◽  
Ifrs Adoption ◽  
The Cross ◽  
The Impact ◽  
Timely Loss Recognition ◽  
The U.S

SYNOPSIS We examine the impact of IFRS adoption on the earnings quality of foreign firms cross-listed in the U.S. from countries that have already adopted IFRS on a mandatory basis. We use the cross-listed firms as surrogates for the U.S. firms so we can observe the effect of IFRS adoption in the U.S. We examine five measures of earnings quality related to discretionary accruals, target beating, earnings persistence, timely loss recognition, and the earnings response coefficient (ERC). To isolate the effect of IFRS adoption, we use a matched sample design where each cross-listed firm is matched to a U.S. firm. We find the difference in earnings quality from the pre- to post-IFRS period is not different for the cross-listed and matched firms when earnings quality is measured by absolute discretionary accruals, timely loss recognition, or a long-window ERC. However, for the incidence of small positive earnings and earnings persistence, we find significant difference-in-differences, indicating that IFRS adoption led to an improvement in earnings quality for cross-listed firms relative to the matched firms. Our results are slightly surprising since U.S. GAAP is generally viewed as high-quality standards with little room for improvement.

scholarly journals The effects of the International Financial Reporting Standards (IFRS) adoption on earnings quality: evidence from Korea

2017 ◽  
Vol 14 (3) ◽  
pp. 243-250
Author(s):  
Jee Hoon Yuk ◽  
Wook Bin Leem
Keyword(s):  
Financial Reporting ◽  
Institutional Environment ◽  
Earnings Quality ◽  
Financial Statements ◽  
Consolidated Financial Statements ◽  
Listed Firms ◽  
Financial Reporting Standards ◽  
Ifrs Adoption

This study investigates whether earnings quality of Korean listed firms was substantially improved after the IFRS adoption in long-term aspect and which firms listed in KOSPI or KOSDAQ market had been more enjoyed the benefit. Prior studies related to this subject don’t provide consistent results and have a limitation of insufficiency of research periods. Therefore, this study analyzes the positive effect of the IFRS adoption in Korea using long-term based approach and comparative analysis on each Korean stock market. Furthermore, this study considered Korean specific institutional environment in which main financial statements prepared and disclosed by listed firms were changed from individual financial statements to consolidated financial statements after the IFRS adoption. Results of the study found that earnings quality of Korean listed firms had been significantly improved during 5 years after the IFRS adoption. In addition, earnings quality on consolidated financial statements of KOSDAQ listed firms has improved more than that of KOSPI listed firms. The results provide meaningful implications to evaluate the effects of IFRS adoption on earnings quality and to assess accomplishment of fundamental purpose of the IFRS adoption in Korea.

scholarly journals The effect of executive compensation on earnings quality of conglomerates listed in Nigeria

2020 ◽  
Vol 3 (2) ◽  
pp. 6-18
Author(s):  
Abubakar Yayangida ◽  
◽  
Agbi Samuel ◽  
Joshua Okpanachi ◽  
Victor Atabo ◽  
...  
Keyword(s):  
Earnings Management ◽  
Executive Compensation ◽  
Key Words ◽  
Earnings Quality ◽  
Annual Reports ◽  
Listed Firms ◽  
Executive Incentives ◽  
Multiple Regression Technique ◽  
The Impact

This paper is an empirical analysis of the impact of Executive compensation on earnings quality of listed firms in Nigeria for the period of 2015-2019. The study adopts the multiple regression technique. Data were collected from the annual reports and accounts of sampled firms. The findings reveal that Executive compensation positively and significantly affect the earnings quality of listed Conglomerates in Nigeria, the result implies that firms that pay higher emoluments to its executive are likely to improve the quality of earnings. It is recommended that the listed Conglomerates firms should increase the amount paid as emoluments to their executives as the higher emolument paid and received by executives improve the level of earnings quality and reduces earnings management which may be detrimental to the goal and objectives of the firm. Key words: Compensation, Conglomerates, Executive, Incentives, Performance, Shareholders

scholarly journals THE EFFECT OF VOLUNTARY IFRS ADOPTION BY UNLISTED FI RMS ON EARNINGS QUALITY AND THE COST OF DEBT: EMPIRICAL EVIDENCE FROM KOREA

2015 ◽  
Vol 16 (5) ◽  
pp. 931-948 ◽  
Author(s):  
Young Hwan Lee ◽  
Sun A. Kang ◽  
Sang Min Cho
Keyword(s):  
Financial Reporting ◽  
Earnings Quality ◽  
Sample Selection ◽  
Discretionary Accruals ◽  
Cost Of Debt ◽  
Cross Sectional ◽  
Listed Firms ◽  
Ifrs Adoption ◽  
The Cost ◽  
Unlisted Firms

The present study empirically examines how voluntary International Financial Reporting Standards (IFRS) adoption influences the earnings quality and the cost of debt of unlisted firms in Korea. Since 2011, when the adoption of IFRS by listed firms became mandatory, more unlisted firms have adopted IFRS voluntarily, improving the transparency and reliability of their accounting information. Using the sample of unlisted firms with 3year study period of preand post-IFRS adoption, we examine whether IFRS voluntary adopters show both lower discretionary accruals and the cost of debt than those of non adopters, and whether both discretionary accruals and the cost of debt of voluntary adopters decrease after IFRS adoption. We employ the Heckman's two stage approach in order to avoid sample selection bias and cross sectional pooled OLS regression with or without clustering test. We complimentary report the results from firm-fixed effect panel model to generalise the results. The results show that firms which adopt IFRS have a higher earnings quality and a lower cost of debt that those which do not. These findings suggest that when unlisted firms issue bonds and borrow money, IFRS adoption contributes to decreasing the cost of debt.

scholarly journals Audit Quality under Influences of Audit Firm and Auditee Characteristics: Evidence from the Romanian Regulated Market

2021 ◽  
Vol 13 (12) ◽  
pp. 6924
Author(s):  
Mihai Carp ◽  
Costel Istrate
Keyword(s):  
Audit Quality ◽  
Discretionary Accruals ◽  
Audit Opinion ◽  
Audit Firm ◽  
Listed Firms ◽  
Big 4 ◽  
Accruals Quality ◽  
Dependent Variables ◽  
The Impact

We have estimated the impact of some characteristics of the auditors and of the audited companies on audit quality for the Romanian listed firms (943 observations for the 2007–2019 period), using as a proxy for the audit quality the level of discretionary accruals, measured following the Jones (1991) model, and the accruals quality, estimated through the Dechow and Dichey (2002) model. These dependent variables have been related to variables that reflect both the characteristics of the audit firm (for example, Big 4 membership) and the characteristics of the audited firms (dimension, financial leverage, accounting standards applied, growth and profitability). Our results show that the auditor’s Big 4 membership contributes to an increase in discretionary accruals, decreasing the quality of the audit. The transition to IFRS did not have a significant influence on the quality of the audit. The audit opinion may have an effect on the discretionary accruals and the accruals quality in the sense that a modified opinion leads to an increase in the quality of the audit in the following financial year(s).

ERP Systems and Earnings Quality: The Impact of Dominant Shareholdings in China

2016 ◽  
Vol 13 (2) ◽  
pp. 49-69
Author(s):  
Songsheng Chen ◽  
Ling Harris ◽  
Jiao Lai ◽  
Wenying Li
Keyword(s):  
Financial Reporting ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
Erp Systems ◽  
Absolute Value ◽  
Listed Firms ◽  
Enterprise Resources Planning ◽  
Post Test ◽  
The Absolute ◽  
The Impact

ABSTRACT Using a sample of ERP adopters among Chinese publicly listed firms and a one-group pre- and post-test design, this study examines the impact of dominant shareholdings on the relationship between Enterprise Resources Planning (ERP) systems and earnings quality. We use the absolute value of discretionary accruals as a proxy for earnings quality. We predict and find that as the dominant shareholdings increase, Chinese firms show a decrease in the absolute value of total discretionary accruals after ERP implementations. Furthermore, we find that after ERP implementations, discretionary short-term accruals decrease with higher dominant shareholdings, while discretionary long-term accruals increase with higher dominant shareholdings. Our study contributes to research and practice by documenting that dominant shareholdings in China can influence the impact of ERP implementations on earnings quality, suggesting that dominant shareholdings may induce dominant shareholders' self-serving incentives to influence firms' financial reporting via ERP implementations.

Are earnings quality attributes reflected in financial strength ratings?

2014 ◽  
Vol 29 (3/4) ◽  
pp. 293-311 ◽  
Author(s):  
Daniel Ames ◽  
Chris S. Hines ◽  
Jomo Sankara
Keyword(s):  
Insurance Industry ◽  
Earnings Quality ◽  
Earnings Persistence ◽  
Financial Health ◽  
Accrual Quality ◽  
Content Type ◽  
Financial Strength ◽  
Reported Earnings ◽  
The Impact

Purpose – The purpose of this paper is to examine whether earnings quality attributes are reflected in AM best's financial strength ratings (FSRs), a measure widely used in the insurance industry to assess financial health. Design/methodology/approach – Using a sample of insurance companies during the period 2006-2012, the authors measure the quality of reported earnings using three accounting-based measures: earnings persistence, accrual quality, and earnings smoothness. Findings – The authors find that better earnings persistence, higher accrual quality, and less earnings smoothing are reflected in higher FSRs for both public and private insurers, with the magnitude of the effect greater for private insurers. Originality/value – This is the first study of which the authors are aware that seeks to understand the impact, if any, of variations in the quality of reported financial information on the perceived financial health of firms by ratings agencies in the insurance industry. The authors also include a novel research design in assessing the determinants of financial health ratings. Users of FSRs should be aware of the impact of ownership structure on ratings agencies’ propensity to incorporate reported earnings attributes in their ratings.

scholarly journals The Impact of IFRS Adoption on Earnings Quality: A Study Conducted on Foreign Issuers in the United States

2015 ◽  
Vol 8 (11) ◽  
pp. 139 ◽  
Author(s):  
Priscilla Samantha Den Besten ◽  
Georgios Georgakopoulos ◽  
Konstantinos Z. Vasileiou ◽  
Nikolaos Ereiotis
Keyword(s):  
United States ◽  
Financial Reporting ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
The United States ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Us ◽  
The Difference ◽  
The Impact

<p>The worldwide adoption of International Financial Reporting Standards (IFRS) is affecting many countries around the globe as it has become widely spread. Since 2007 the United States (US) allows foreign issuers to voluntarily adopt IFRS. This paper investigates the effect of IFRS adoption on earnings quality after voluntary IFRS adoption was allowed to foreign issuers in the US. More precisely, the discretionary accruals and the small positive earnings are tested for a sample of foreign issuers in the US that are registered and reporting with the SEC, comparing a pre-period from 2002 to 2006 with a post-period from 2008 to 2011. The results from the difference-in-differences regression analysis suggest that in terms of discretionary accruals there is no statistical difference between the pre-IFRS and the post-IFRS period, therefore the earnings quality remains the same. For small positive earnings it is found that, when foreign issuers incorporate IFRS, these are lower, indicating higher earnings quality.</p>

scholarly journals Ownership concentration and earnings quality of banks: Results from a cross-country analysis

2017 ◽  
Vol 15 (1) ◽  
pp. 288-297 ◽  
Author(s):  
Libero Mario Mari ◽  
Manuel Soscia ◽  
Simone Terzani
Keyword(s):  
Earnings Management ◽  
Regression Models ◽  
Earnings Quality ◽  
Ownership Concentration ◽  
Earnings Persistence ◽  
Management Activity ◽  
Country Analysis ◽  
Cross Country ◽  
The Impact

This research investigates the impact of ownership concentration on earnings quality of banks. Previous literature shows that ownership concentration reduces agency costs between property and management, resulting in higher quality and transparency of information, and thus on earnings quality. The reason why we focus on banks lies on the specific constraints and regulations to which financial institutions are subjected, and as well as the different incentives to earnings management activities from management and property. Thus, the main issue of our research is to understand whether ownership concentration has an impact on banks earnings quality. We used a sample of 6,323 bank-year observations, across 35 countries, over the period 2001-2016. In the paper three different regression models are adopted to measure earnings quality according to the existing literature: (1) earnings persistence, (2) cash flow predictability and (3) earnings management to just-meet-or-beat the prior year’s earnings. We used OLS and random effects estimations for model (1) and (2) and logistic estimations for the model (3). Our results show that ownership concentration improves earnings quality of banks; this is true for all three estimated models. Our findings support the idea that the higher the ownership control on management activity, the higher the quality of earnings.

U.S.-Listed Foreign Companies' Choice of a U.S.-Based versus Home Country-Based Big N Principal Auditor and the Effect on Audit Fees and Earnings Quality

2015 ◽  
Vol 29 (3) ◽  
pp. 631-666 ◽  
Author(s):  
Sharad C. Asthana ◽  
K. K. Raman ◽  
Hongkang Xu
Keyword(s):  
Financial Reporting ◽  
Home Country ◽  
Earnings Quality ◽  
Audit Fees ◽  
Foreign Companies ◽  
Two Factors ◽  
Just Price ◽  
Reporting Environment ◽  
The U.S

SYNOPSIS We examine why U.S.-listed foreign companies choose to have a U.S.-based (rather than home country-based) Big N firm as their principal auditor for SEC reporting purposes and the effects of that choice for audit fees and earnings quality. We find that the likelihood of the Big N principal auditor being U.S.-based is decreasing in client size and the level of investor protection in the home country, and increasing in the proportion of income earned outside the home country. We also find compelling evidence that U.S.-based Big N auditors are associated with higher-quality earnings (albeit for a higher fee), despite two factors—the greater distance between the U.S.-based (vis-à-vis home country-based) Big N auditor and the client, and the likelihood that much of the audit work is done outside the U.S.—which potentially could lower the earnings quality of the U.S.-listed foreign client when the Big N principal auditor is U.S.-based. Overall, our study suggests that the higher fees associated with a U.S.-based Big N principal auditor is not just price protection; rather, U.S.-based Big N principal auditors are also improving the financial reporting environment by reporting higher-quality audited earnings for their U.S.-listed foreign clients. JEL Classifications: L11; L15; M42.

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