CFO Outside Directorship and Financial Misstatements

2019 ◽  
Vol 33 (4) ◽  
pp. 59-75
Author(s):  
Sarfraz Khan
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Learning Opportunities ◽  
Financial Reporting Quality ◽  
Firm Characteristics ◽  
Board Membership ◽  
Lower Likelihood ◽  
Financial Misstatements ◽  
Organizational Embeddedness ◽  
Jel Classifications

SYNOPSIS I study an important accounting consequence—financial misstatements—of CFO outside board membership. I find that firms with CFOs holding outside directorships have a lower likelihood of misstatements. These results likely reflect the benefits accruing to CFOs' home firms in terms of improved financial reporting quality. These findings are based on several methods that control for unobserved factors that may affect both incidence of CFO outside directorships and a firm's financial misstatements. I also provide some preliminary insights into CFO and home firm characteristics that determine CFO outside board directorships. My findings are consistent with the inter-organizational embeddedness perspective, suggesting that inter-firm networks provide sources for counseling and learning opportunities, which executives can use to improve their home firms' performance. JEL Classifications: M41.

scholarly journals Firm Characteristics and Financial Reporting Quality: A Case of Property and Real Estate Companies listed in Indonesian Stock Exchange

2020 ◽  
Vol 2 (3) ◽  
pp. 193-202
Author(s):  
Cut Widy Aulia Putri ◽  
Mirna Indriani
Keyword(s):  
Real Estate ◽  
Multiple Regression ◽  
Financial Reporting ◽  
Firm Size ◽  
Stock Exchange ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Firm Characteristics ◽  
The Impact

Objective – This study aims to investigate the impact of firm characteristics, namely leverage, profitability, and firm size, on financial reporting quality as measured by discretionary accruals.Design/methodology – This sample of this study is Property and Real Estate companies listed in the Indonesian Stock Exchange (IDX) for the period of 2015 to 2017. In total, there are 36 firms chosen as the samples for this study or 108 observations. The data was analyzed using the multiple regression method.Results – This study demonstrates that the leverage and profitability have significant impact on financial reporting quality, while firm size has no significant impact on financial reporting quality.

Cultural Diversity of Audit Committees and Firms’ Financial Reporting Quality

2021 ◽  
Author(s):  
Robert Felix ◽  
Mikhail Pevzner ◽  
Mengxin Zhao
Keyword(s):  
Cultural Diversity ◽  
Financial Reporting ◽  
Audit Committee ◽  
Culturally Diverse ◽  
Reporting Quality ◽  
Financial Accounting ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Complex Environments ◽  
Lower Likelihood

We examine the effect of audit committees’ cultural diversity, as measured through ancestral cultural diversity of audit committee members, on firms’ financial reporting quality. We find that audit committee cultural diversity is associated with a lower likelihood of financial accounting restatements. Our results are driven by firms operating in more complex environments, which suggests that audit committee cultural diversity may be particularly important when the firm is inherently complex. We also find that cultural diversity is associated with a lower likelihood of restatements for companies with more powerful CEOs, suggesting that more culturally diverse audit committees are more effective in restraining CEO accounting opportunism. Additionally, we document that audit committee cultural diversity is associated with an array of other measures of higher reporting quality. Our study thus highlights the importance of cultural diversity in audit committee effectiveness.

scholarly journals Regulatory changes and reporting quality: the moderating role of firm characteristics

2019 ◽  
Vol 17 (2) ◽  
pp. 32-50 ◽  
Author(s):  
Salau Abdulmalik ◽  
Ayoib Che-Ahmad
Keyword(s):  
Financial Reporting ◽  
Unobserved Heterogeneity ◽  
Generalized Method Of Moments ◽  
Reporting Quality ◽  
Audit Fees ◽  
Financial Reporting Quality ◽  
Regulatory Change ◽  
Political Connection ◽  
Firm Characteristics ◽  
Regulatory Changes

The objective of this study is to investigate the effect of regulatory changes on financial reporting quality and audit fees and to further test whether this effect was moderated by firm characteristics (i.e. abnormal audit fees, political connections and overlapping directorship) in Nigeria. This study utilized the data of 90 companies listed on the Nigerian stock exchange over the period 2008–2013. Using Generalized Method of Moments (GMM) technique that takes into account the endogeneity nature of financial reporting quality and audit fees model, the results indicated that financial reporting quality improved in the regulatory changes period. However, abnormal audit fees, political connection and overlapping directorship deteriorated the effect. Accordingly, future regulatory reforms must be cognizant of these factors. Even though there are abundant empirical studies on financial regulatory changes and their effects on financial reporting quality, this study provides additional insights into the regulatory change literature by investigating how firm characteristics (abnormal audit fees, political connection and overlapping directorship) moderate the effect of regulatory changes particularly in Nigeria, one of the less developed and underresearched capital markets in the world. Further, the findings of this study are robust with respect to the issues of unobserved heterogeneity and endogeneity, which previous studies had failed to consider.

scholarly journals Firm Characteristics and Financial Reporting Quality: The Moderating Role of Malaysian Corporate Governance Index

2018 ◽  
pp. 924-932
Author(s):  
Rokiah Ishak ◽  
Noor Afza Amran ◽  
Kamarul Bahrain Abdul Manaf
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Cash Flow ◽  
Financial Reporting ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Large Firms ◽  
Firm Characteristics ◽  
Big 4

The principle role of financial reporting is to provide investors with useful information for investment decision makings. In this study, we examine whether corporate governance moderates the relationship between firm characteristics and financial reporting quality. We use earnings management as measure for financial reporting quality. This study uses secondary data obtained from Thompson Database. The sample of this study is firms listed on the Main Market of Bursa Malaysia from 2012 to 2015. The results of our study reveal that there is a positive value of abnormal cash flow which indicates that companies do practice earnings management through manipulation of cash flow from operations. Large firms are practicing earnings management. Factors such as many business segments and business complexity have encouraged large firms to manage their earnings by manipulating their cash flow from operation. In contrast, firms with high leverage and firms audited by Big 4 are less likely to involve with earnings management. Interestingly, when corporate governance index is used as moderating variable, our result shows that only firms audited by Big 4 are related to earnings management. In terms of the contribution of the study, this study is important for the development of Malaysian capital market and it help investors to better understand how the impact of corporate governance mechanisms on financial reporting quality varies across firms.

Effects of Incentive Scheme and Working Relationship on Whistle-Blowing in an Audit Setting

2016 ◽  
Vol 35 (4) ◽  
pp. 23-38 ◽  
Author(s):  
El'fred Boo ◽  
Terence Bu-Peow Ng ◽  
Premila Gowri Shankar
Keyword(s):  
Prospect Theory ◽  
Financial Reporting ◽  
Social Stigma ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Working Relationships ◽  
Incentive Scheme ◽  
Working Relationship ◽  
Whistle Blowing ◽  
Jel Classifications

SUMMARY We examine the joint effects of incentive schemes and working relationships on auditors' propensity to report an audit partner's wrongdoing that impairs financial reporting quality in an experiment involving 90 audit seniors and managers. We predict and find that, relative to a control condition without an incentive scheme, a reward-based career-related incentive scheme is less likely to increase auditors' whistle-blowing propensity in the presence of a close working relationship with the wrongdoer than in its absence. In contrast, a penalty-based career-related scheme increases auditors' whistle-blowing propensity relative to the control condition regardless of the presence of a close working relationship. These results are consistent with a heightened social stigma associated with whistle-blowing on someone close for personal gains, and a preference to avoid losses rather than to acquire gains as predicted by prospect theory. The findings have useful implications for practice and suggest boundary conditions under which an incentive scheme can promote whistle-blowing. JEL Classifications: M40; M42.

scholarly journals Financial Reporting Quality of Chinese Reverse Merger Firms: The Reverse Merger Effect or the Weak Country Effect?

2016 ◽  
Vol 91 (5) ◽  
pp. 1363-1390 ◽  
Author(s):  
Kun-Chih Chen ◽  
Qiang Cheng ◽  
Ying Chou Lin ◽  
Yu-Chen Lin ◽  
Xing Xiao
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Legal Enforcement ◽  
Reverse Merger ◽  
Gain Access ◽  
Country Effect ◽  
Jel Classifications

ABSTRACT In this paper, we examine why Chinese reverse merger (RM) firms have lower financial reporting quality than U.S. IPO firms. We find that the financial reporting quality of U.S. RM firms is similar to that of matched U.S. IPO firms, but Chinese RM firms exhibit lower financial reporting quality than Chinese ADR firms. We also find that Chinese RM firms exhibit lower financial reporting quality than U.S. RM firms. These results indicate that the use of the RM process is associated with poor financial reporting quality only in firms from China, where legal enforcement and investor protection are weak. In addition, we find that compared with Chinese ADR firms, Chinese RM firms have weaker bonding incentives (as measured by CEO turnover-performance sensitivity) and poorer corporate governance. These factors, in turn, contribute to the lower financial reporting quality of Chinese RM firms. Overall, our results suggest that the less scrutinized RM process allows the Chinese firms with weak bonding incentives and poor governance to gain access to U.S. capital markets, resulting in poor financial reporting quality. JEL Classifications: G15; G24; G34; G38.

scholarly journals Financial Reporting Quality and Dual-Holding of Debt and Equity

2019 ◽  
Vol 95 (5) ◽  
pp. 351-371
Author(s):  
Leila Peyravan
Keyword(s):  
Financial Reporting ◽  
Institutional Investors ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Excess Returns ◽  
Earnings Announcement ◽  
Additional Information ◽  
Jel Classifications

ABSTRACT I investigate whether the financial reporting quality (FRQ) of a firm influences the propensity of institutional investors to simultaneously hold the firm's debt and equity (dual-holding). I predict that the underlying reason for institutional dual-holding is access to the better information that is available to lenders in firms with low FRQ. Accordingly, I find that dual-holders are more likely to participate in firms with low FRQ. Additionally, I predict and find that dual-holders trade on the additional information received from borrowers. I find that dual-holders achieve excess returns of 8 percent on their trades in the borrower's equity, and that the direction of their trades predicts the direction of borrowers' news on the earnings announcement day. Finally, I demonstrate that dual-holders' trades generate excess returns only in firms with low FRQ, suggesting that investors become dual-holders in firms with low FRQ because informed trades in such firms offer higher returns. JEL Classifications: G14; M41.

The Impact of Going Concern on Financial Reporting Quality: Evidence from Vietnam

2018 ◽  
Vol 34 (3) ◽  
Author(s):  
Phung Anh Thu ◽  
Nguyen Vinh Khuong
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Financial Distress ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Viet Nam ◽  
Listed Firms ◽  
Going Concern ◽  
Debt Covenant

The investigation was conducted to contribute empirical evidence of the association between going concern and financial reporting quality of listed firms on the Vietnam stock market. Based on data from 279 companies listed on the HNX and HOSE exchanges in Vietnam for the period 2009-2015, the quantitative research. Results found that the relationship between the going concern and financial reporting quality of listed firms. Research results are significant for investors, regulators to the transparency of financial reporting information. Keywords Going concern, financial reporting quality, listed firms References Agrawal, K., & Chatterjee, C. (2015). Earnings management and financial distress: Evidence from India. Global Business Review, 16(5_suppl), 140S-154S.Bergstresser, D., & Philippon, T. (2006). CEO incentives and earnings management. Journal of Financial Economics, 80(3), 511–529.Burgstahler, D., & Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics, 24(1), 99–126.Charitou, A., Lambertides, N., & Trigeorgis, L. (2007a). Earnings behaviour of financially distressed firms: The role of institutional ownership. Abacus, 43(3), 271–296.Chen, Y., Chen, C., & Huang, S. (2010). An appraisal of financially distressed companies’ earnings management: Evidence from listed companies in China. Pacific Accounting Review, 22(1), 22–41Dechow, P., & Dichev, I. (2002). The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors. The Accounting Review, 77, 35-59.DeFond, M., & Jiambalvo, J. (1994). Debt covenant violation and manipulation of accruals. Journal of Accounting and Economics, 17(1), 145–176.DeFond, M.L., & Park, C.W. (1997). Smoothing income in anticipation of future earnings. Journal of Accounting and Economics, 23(2), 115–139.Dichev, I., & Skinner, D. (2004). Large sample evidence on the debt covenant hypothesis. Journal of Accounting Research, 40(4), 1091–1123.Đinh Thị Thu T., Nguyễn Vĩnh K. (2016). Tác động của hành vi điều chỉnh thu nhập đến khả năng hoạt động liên tục trong kế toán: Nghiên cứu thực nghiệm cho các doanh nghiệp niêm yết tại Việt Nam, Tạp chí phát triển khoa học và công nghệ, Quí 3, tr.96-108.Đỗ Thị Vân Trang (2015). Các mô hình đánh giá chất lượng báo cáo tài chính, Tạp chí chứng khoán Việt Nam, 200, tr 18-21.Habib, A., Uddin Bhuiyan, B., & Islam, A. (2013). Financial distress, earnings management and market pricing of accruals during the global financial crisis. Managerial Finance, 39(2), 155-180.Jaggi, B., & Lee, P. (2002). Earnings management response to debt covenant violations and debt restructuring. Journal of Accounting, Auditing & Finance, 17(4), 295–324.Kasznik, R., (1999). On the association between voluntary disclosure and earnings management. Journal of accounting research, 37(1), pp.57-81.Lu, J. (1999). An empirical study of earnings management by loss-making listed Chinese companies. KuaijiYanjiu (Accounting Research), (9), 25–35.McNichols, M.F. and Stubben, S.R., (2008). Does earnings management affect firms’ investment decisions?. The accounting review, 83(6), pp.1571-1603.Selahudin, N.F., Zakaria, N.B., & Sanusi, Z.M. (2014). Remodelling the earnings management with the appear- ance of leverage, financial distress and free cash flow: Malaysia and Thailand evidences. Journal of Applied Sciences, 14(21), 2644–2661.Skinner, D.J., & Sloan, R. (2002). Earnings surprises, growth expectations, and stock returns or don’t let an earnings torpedo sink your portfolio. Review of Accounting Studies, 7(2/3), 289–312.Sweeney, A.P., (1994). Debt-covenant violations and managers' accounting responses. Journal of Accounting & Economics, 17(3): 281-308.Trần Thị Thùy Linh, Mai Hoàng Hạnh (2015). Chất lượng báo cáo tài chính và kỳ hạn nợ ảnh hưởng đến hiệu quả hoạt động của doanh nghiệp Việt Nam, Tạp chí phát triển kinh tế, 10, tr.27-50.Trương Thị Thùy Dương (2017). Nâng cao chất lượng báo cáo tài chính công ty đại chúng, Tạp chí tài chính, 1(3), tr.55-56.Uwuigbe, Ranti, Bernard, (2015). Assessment of the effects of firm’s characteristics on earnings management of listed firms in Nigeria, Asian Economic and Financial Review,5(2):218-228.

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