Litigation Risk and Abnormal Accruals

2011 ◽  
Vol 30 (2) ◽  
pp. 231-256 ◽  
Author(s):  
Jeff P. Boone ◽  
Inder K. Khurana ◽  
K. K. Raman
Keyword(s):  
Earnings Management ◽  
Equation System ◽  
Simultaneous Equation ◽  
Litigation Risk ◽  
Securities Litigation ◽  
Simultaneous Equation System ◽  
Specific Risk ◽  
Time Period ◽  
Abnormal Accruals ◽  
Auditor Litigation

SUMMARY In this paper, we examine the relation between auditor litigation risk and abnormal accruals over the 1989–2007 time period. We address potential endogeneity in prior studies by jointly modeling abnormal accruals and litigation risk in a simultaneous equation system. Our findings suggest that client-specific litigation risk affects auditor incentives to acquiesce to client demands for earnings management, i.e., the higher the risk of auditor litigation, the greater the auditor's restraining influence on the abnormal accruals reported by the client. We also find evidence that abnormal accruals increase the likelihood of auditor litigation. We also document that the 1995 Public Securities Litigation Reform Act (PSLRA) lowered the client-specific risk of auditor litigation. Litigation reform remains a topic of ongoing interest. Our findings contribute to a better understanding of the effects of litigation reform (and related changes in legal exposure) on auditor incentives and earnings management.

The Association between Auditor Litigation and Abnormal Accruals

2001 ◽  
Vol 76 (1) ◽  
pp. 111-126 ◽  
Author(s):  
William G. Heninger
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Securities And Exchange Commission ◽  
Financial Condition ◽  
Time Period ◽  
Abnormal Accruals ◽  
Univariate Analyses ◽  
Auditor Litigation

Concern that earnings management erodes the quality of financial reporting has prompted the Securities and Exchange Commission to question the role of the external auditor. To help address that concern, this study examines the relation between earnings management and auditor litigation. While prior research on the relation between auditor litigation and total accruals has yielded inconclusive results, I find that the risk of auditor litigation is positively associated with a sharper measure of earnings management—abnormal accruals. Using a larger and more recent sample, this study provides evidence that the probability of auditor litigation increases as clients report more positive (income-increasing) abnormal accruals. This result holds in: (1) univariate analyses, (2) logit analyses that also control for auditor size, client importance to the auditor, length of the auditor-client relationship, client industry, client financial condition, client size, and client growth, and in (3) the subsample of lawsuits alleging wrongdoing in the more recent time period (1984–1998).

The Links between the Companies Market Price Quality and that of its Management and Business Quality: A System Panel Data Approach

GIS Business ◽  
2016 ◽  
Vol 11 (6) ◽  
pp. 28-38
Author(s):  
Dinis Daniel Santos ◽  
Elias Soukiazis
Keyword(s):  
Panel Data ◽  
Business Performance ◽  
Market Price ◽  
Equation System ◽  
Simultaneous Equation ◽  
System Equation ◽  
Simultaneous Equation System ◽  
Management Quality ◽  
The Relationship

This work uses a simultaneous equation system approach to analyze the relationship between the management and business quality of companies and their market price quality. Using panel data we found that both the management and the business quality of companies positively influence the market price quality of the studied American companies. Additionally, variables like the actual position of the company price quality compared to the industry average, being on the top or the bottom, or the beta value of a company, also influence the market price quality of the respective company. It is shown that the system equation approach is the most appropriate to explain the linkages between price, business, and management quality providing consistent estimates. Also, using ratings to express the three core variables in the system is the most adequate way to define the quality characteristics in terms of price, management, and business performance of the companies considered in this study.

scholarly journals Where does Pro-Poor Growth Occur in Vietnam?

2015 ◽  
Vol 22 (1) ◽  
pp. 20-41
Author(s):  
Bao Nguyen Hoang
Keyword(s):  
Economic Growth ◽  
Gini Coefficient ◽  
Poverty Alleviation ◽  
Poverty Reduction ◽  
Equation System ◽  
Simultaneous Equation ◽  
Poverty Index ◽  
Poor Growth ◽  
Simultaneous Equation System ◽  
The Impact

Although Vietnam’s economic growth and poverty reduction for almost three decades have been remarkable, growth for poverty reduction is unequally distributed across the nation. The paper examines the cause of poverty and the impact of provincial economic growth on poverty alleviation, using the data of 63 provinces in Vietnam. The elasticity of poverty with respect to provincial economic growth is employed (the elasticities of headcount index, poverty gap index, and squared poverty index with respect to provincial economic growth) to identify the provinces where pro-poor growth has occurred. The elasticity of poverty with respect to provincial Gini coefficient is examined to identify the impact of expenditure inequality on poverty. The simultaneous equation system is estimated to analyze not only direct and indirect effects of the related variables, but also the causality effect between economic growth and the poverty elasticity with respect to both growth and the Gini coefficient.

scholarly journals DAMPAK KEBIJAKAN DAN MAKROEKONOMI TERHADAP EFEKTIVITAS PENERIMAAN PAJAK DI BURSA EFEK INDONESIA

2018 ◽  
Vol 8 (2) ◽  
pp. 400
Author(s):  
Mursal Harahap ◽  
Bonar M Sinaga ◽  
Adler H Manurung ◽  
Tubagus Nur Ahmad Maulana
Keyword(s):  
Annual Report ◽  
Stock Exchange ◽  
Equation System ◽  
Simultaneous Equation ◽  
Tax Revenue ◽  
Effective Tax Rate ◽  
Tax Rate ◽  
Simultaneous Equation System ◽  
Seidel Method ◽  
The Impact

Abstract. The purpose of this research is to analyse the impact of policy and macroeconomic change on tax revenue and its effectiveness in Consumer Goods Industry sector (CGI) and Infrastructure, Utilities and Transport (IUT) sector. The analysis employed simultaneous equation system model estimated with 2SLS and simulation with Seidel method. Data was collected from annual report of the companies which listed on Indonesia Stock Exchange. The results showed that the change of tax receipts and effective tax rate (ETR) happened due to changing in policy and macroeconomics in the CGI sector which is greater than the IUT sector. Furthermore, if the rupiah exchange rate depreciates, the policy regarding tax rate increment could increase tax revenue and ETR which is greater than the BI rate reduction policy in both sectors.

scholarly journals Institutional ownership and firm value: A study on BIST manufacturing index

Ekonomika ◽  
2020 ◽  
Vol 66 (4) ◽  
pp. 29-46
Author(s):  
Mesut Doğan
Keyword(s):  
Least Squares ◽  
Firm Value ◽  
Institutional Ownership ◽  
Equation System ◽  
Ordinary Least Squares ◽  
Simultaneous Equation ◽  
Positive Relation ◽  
Two Stage ◽  
Hausman Test ◽  
Simultaneous Equation System

The aim of this research is to test the relation between institutional ownership and firm value. To accomplish this aim, data from 104 firms listed in the BIST (i.e. Borsa Istanbul) industrial index between 2006 and 2018 have been used. Studies on the structure of ownership have problems with endogeneity. In order to avoid these problems, this study adopted Durbin-Wu-Hausman test with advanced econometric techniques, Ordinary Least Squares (i.e. OLS), and Two-Stage Least Squares (i.e. 2SLS). As a result of the simultaneous equation system improved in this study, a positive relation between institutional ownership as an endogenous variable, and firm value has been located. Besides, it has been found that institutional investors are more interested in the firms that have a higher market performance.

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