scholarly journals Does the life cycle affect earnings management and bankruptcy?

2021 ◽  
Vol 12 (2) ◽  
pp. 425-461
Author(s):  
Pavol Durana ◽  
Lucia Michalkova ◽  
Andrej Privara ◽  
Josef Marousek ◽  
Milos Tumpach
Keyword(s):  
Life Cycle ◽  
Earnings Management ◽  
Financial Performance ◽  
Financial Management ◽  
Mixed Model ◽  
Value Added ◽  
Bankruptcy Risk ◽  
Corporate Life Cycle ◽  
The Impact

Research background: Deteriorating economic conditions and a negative outlook increase the pressure on financial management and the need to show high financial performance. According to Positive Accounting Theory, the growing risk of bankruptcy is associated with the phenomenon of earnings management. Bankruptcy risk and the quality of reported profits, along with other aspects of financial performance, vary throughout the company's life cycle. Nevertheless, these factors or their interactions are investigated only to a very small extent. Purpose of the article: The aim of this study is to clarify the impact of corporate life cycle and bankruptcy on earnings management, in order to describe behaviour of companies at different stages of corporate life cycle. Methods: A hierarchical mixed model with a random time and industry effect was chosen as appropriate because it allows the investigation of multilevel data that is not independent. The sample covers the financial indicators of more than 33,000 Central European companies from 2015?2019. The non-sequential Dickinson model, company age, and three models of accrual earnings management were used as proxies for the company's life cycle and quality of reported profit. Findings & value added: Earnings management and bankruptcy risk have a U-shape, indicating that financially distressed firms reduce reported accounting profit at the Introduction, Decline and, to a lesser extent, at the Growth stage. Slovak and Czech companies manipulate profits to a similar extent, Hungarian companies increase accounting profit to a greatest extent than the surveyed countries by controlling bankruptcy ? life cycle effect; however, the variability of accounting manipulations across industries has not been demonstrated. These findings imply that start-ups and declining businesses provide crooked financial statements to obtain more favourable debt covenants, and estimating discretionary accruals using life-cycle subsamples can improve the predictive power of accrual earnings management models.

scholarly journals The Interplay between Working Capital Management and a Firm’s Financial Performance across the Corporate Life Cycle

2020 ◽  
Vol 12 (4) ◽  
pp. 1661 ◽  
Author(s):  
Zanxin Wang ◽  
Minhas Akbar ◽  
Ahsan Akbar
Keyword(s):  
Life Cycle ◽  
Firm Performance ◽  
Financial Performance ◽  
Life Cycle Stage ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Conservative Strategy ◽  
Corporate Life Cycle ◽  
The Impact

The purpose of this study is to examine the impact of working capital management (WCM) and working capital strategy (WCS) on firm’s financial performance across different stages of the corporate life cycle (CLC). We use Pakistani non-financial listed firms nested in 12 diverse industries over a period of 2005–2014 as the research sample and employ the hierarchical linear mixed (HLM) estimator, which can process multilevel data where observations are not completely independent. The empirical findings reveal that, overall, WCM is negatively associated with firm performance. However, this association is not static across different stages of a firm’s life cycle. For example, a negative association is more pronounced at the introduction stage followed by growth and decline stages, whereas WCM does not significantly impact the performance of mature firms. Likewise, WCS also causes varying effects on the financial performance across the CLC. A conservative strategy at the introduction, growth, and decline stages negatively affects firm performance, suggesting that these firms should adopt an aggressive strategy. Nevertheless, management of sample firms did not account for the respective life cycle stage while formulating a WCM strategy, which can seriously compromise their financial sustainability. These findings suggest that firms require customized WCM policies and WCS to attain sustainable financial performance at each stage of firm life cycle. Thus, managers should not overlook the significant role of CLC stages in their financial planning to ensure the sustainable functioning of the enterprise.

scholarly journals Does the corporate life cycle affect earnings management? Evidence from Central European countries

2021 ◽  
Vol 129 ◽  
pp. 03020
Author(s):  
Lucia Michalkova
Keyword(s):  
Life Cycle ◽  
Earnings Management ◽  
Value Added ◽  
Life Cycle Stage ◽  
European Countries ◽  
Central European ◽  
Life Cycle Stages ◽  
Corporate Earnings ◽  
Corporate Life Cycle ◽  
Start Ups

Research background: Earnings manipulations are a global phenomenon, the aim of which is not only to improve the financial position in accordance with Positive Accounting Theory, but also other goals of the company in accordance with the management strategy. However, the diversity of the company’s goals along with the corporate life cycle are crucial factors influencing the quality of corporate earnings and the existence, scope and application of downward and upward earnings management. Purpose of the article: The aim of the paper is to comprehensively analyse and verify the existence and extent of downward and upward earnings management in Central European countries with an emphasis on differences between countries and between life cycle stages. Methods: The study uses Mann-Whitney test and binomial test to verify the existence and extent of downward and upward earnings management. The sample covers discretionary accruals for 2019 estimated by modified Jones and Teoh, et al. models from almost 3,500 companies from four Central European countries. Findings & Value added: The results show that, depending on the life cycle stage or country, companies manipulate profits, but the application of a specific type of earnings management and its scope vary significantly within countries and life cycle stages. Lifecycle manipulation earnings are U-shaped, meaning that start-ups and declining companies use, on average, more significant upward earnings management. On the contrary, mature companies reduce their accounting profit. Nevertheless, the share of companies using upward earnings management is higher than companies with downward earnings management.

scholarly journals Determinants Influencing Financial Performance of Public Hospitals: The Case of Vietnam

2018 ◽  
Vol 3 (1) ◽  
pp. 51
Author(s):  
Manh Dung Tran ◽  
Thi Sen Vu
Keyword(s):  
Financial Performance ◽  
Financial Management ◽  
Quality Standard ◽  
Public Hospitals ◽  
Accounting Data ◽  
Role Quality ◽  
Strategy Planning ◽  
The Impact ◽  
Activity Strategy

The study is conducted to investigate the impact levels of determinants on financial performance of public hospitals in the Northwest of Vietnam in the discipline of management accounting. Data are collected from 43 public hospitals in the Northwest of Vietnam. Regression analysis is employed for determining the impact levels of factors on financial performance of public hospitals in Vietnam. The results show that the impact levels of determinants on financial performance decrease from the factors of efficiency of revenue and expenses, efficiency of staff working, mission role, quality standard, satisfaction of service quality, quality of treatment, service supply, strategic planning, financial management efficiency, mission achievement, activity strategy planning; customer’s expectations, ratio of doctor per patient. Based on the findings, some suggestions are given for improving financial performance of public hospitals in the Northwest in particular and public hospitals in Vietnam in general.

scholarly journals Narcissism of Executive Officer: Profit quality of Government Corporation

2019 ◽  
Vol 23 (6) ◽  
pp. 131-142
Author(s):  
P. Febrina ◽  
T. Wahyudi ◽  
A. Azwardi
Keyword(s):  
Financial Performance ◽  
Chief Executive Officer ◽  
Financial Management ◽  
Stock Exchange ◽  
Chief Executive ◽  
The World ◽  
Widespread Phenomenon ◽  
Mathematical Justification ◽  
The Impact

The study was motivated by the increasingly widespread phenomenon of narcissism of CEOs in various companies throughout the world, including Indonesia.he purpose of this study was to determine the impact of narcissism of the Chief Executive Officer on the profit quality of the company.The study was conducted on the purposive sampling of 20 state-owned companies listed on the Indonesia Stock Exchange in 2015 to 2018. The impact of narcissism of the CEO on the profit quality and the financial performance of the company was assessed.The author provided the mathematical justification of some provisions of the issue. The Modified Jones Model was used to evaluatethe company’s financial management. The data were analyzed by means of Multiple Liner Regression.The study showed that the narcissism of the CEO negatively affects the financial results of the company and leads to lower profits. This is consistent with the Upper Enchelons Theory, which states that the organization is a reflection of the values of its leader.

scholarly journals Unraveling the Bankruptcy Risk‒Return Paradox across the Corporate Life Cycle

2020 ◽  
Vol 12 (9) ◽  
pp. 3547 ◽  
Author(s):  
Minhas Akbar ◽  
Ahsan Akbar ◽  
Petra Maresova ◽  
Minghui Yang ◽  
Hafiz Muhammad Arshad
Keyword(s):  
Life Cycle ◽  
Risk Taking ◽  
Mixed Model ◽  
Linear Mixed Model ◽  
Mature Stage ◽  
Financial Sustainability ◽  
Risk Averse ◽  
Bankruptcy Risk ◽  
Risk Return ◽  
Corporate Life Cycle

Bankruptcy risk is a fundamental factor affecting the financial sustainability and smooth functioning of an enterprise. The corporate bankruptcy risk‒return association is well founded in the literature. However, there is a dearth of empirical research on how this association prevails at different stages of the corporate life cycle. The present study aims to investigate the bankruptcy‒risk relationship at different stages of corporate life cycle by employing Hierarchical Linear Mixed Model (HLMM) regression estimation on the data of listed non-financial Pakistani firms from 12 diverse industrial segments. We grouped the firms into introduction, growth, mature, shake-out, and decline stages of the life cycle using Dickinson’s model. Empirical results assert that corporate risk-taking at the introduction stage yields superior financial performance in the future, while risk at the growth stage positively contributes to a firm’s current performance. Moreover, because of risk-averse and non-diversified managerial behavior, bankruptcy risk at the mature stage is negatively associated with both current and future performance. Likewise, risk-taking at the decline stage has significant negative implications for firm performance as the managers of such firms undertake heavy investments in a turnaround attempt; however, owing to the risk-averse behavior, they may indulge in negative net present value (NPV) projects. The study findings imply that managers synchronize a firm’s risk exposure with the corresponding life cycle stage to avoid going bankrupt. Moreover, excessive risk-taking during the mature and decline stages can considerably harm the financial sustainability of an enterprise. Hence, investors should exercise a degree of caution when investing in highly indebted later-stage (mature and decline) firms. Overall, bankruptcy risk‒return resembles an inverted U-shaped relationship. Our results are robust and can apply to various econometric specifications.

scholarly journals Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan

2019 ◽  
Vol 11 (3) ◽  
pp. 678 ◽  
Author(s):  
Ahsan Akbar ◽  
Minhas Akbar ◽  
Wenjin Tang ◽  
Muhammad Qureshi
Keyword(s):  
Life Cycle ◽  
Mixed Model ◽  
Linear Mixed Model ◽  
Life Cycle Stage ◽  
Mature Stage ◽  
Bankruptcy Risk ◽  
Listed Firms ◽  
Firm Life Cycle ◽  
Corporate Life Cycle ◽  
The Relationship

In this paper we analyze the relationship between bankruptcy risk and the corporate life cycle in Pakistan from 2005 to 2014. For this purpose, we run a Hierarchical Linear Mixed Model (HLM) for a sample of 301 non-financial listed firms in 12 different sectors. The empirical outcomes reveal that firms during introduction, growth and, decline stages (mature stage) of life-cycle experience higher (lower) bankruptcy risk. Moreover, in juxtaposition with growth stage, bankruptcy risk is higher at the introduction stage of life-cycle. These findings suggest that financial managers should be cautious about the financial fragility of the firm at each stage of corporate life-cycle. The results also entail that Pakistani firms do not follow a sequential pattern in their life-cycle, rather they have the tendency to revert to a previous stage or jump to the next stage of life-cycle. This is the first study that empirically examines the association between firm life-cycle stage and corresponding bankruptcy risk and asserts that managers must incorporate the life-cycle effects into their financial planning and decision making for the sustainable working of an enterprise.

scholarly journals Earnings Quality and Accruals over Company´S Life Cycle

2021 ◽  
Vol 92 ◽  
pp. 02043
Author(s):  
Lucia Michalkova
Keyword(s):  
Life Cycle ◽  
Earnings Management ◽  
Earnings Quality ◽  
Explanatory Power ◽  
Value Added ◽  
Specific Factor ◽  
Homogeneity Test ◽  
Qualitative Variable ◽  
Conservative Accounting ◽  
The Impact

Research background: The increasing number of bankruptcies and the growing risk of financial distress highlight the need for quality financial statements, conservative accounting or increase the need for quality tools to detect the occurrence of earnings management. However, the life cycle of a company affects financial performance and key aspects of earnings management, which examined in the international context only to a small extent. Purpose of the article: The paper examines the impact of the life cycle and country-specific factor on the value of discretionary accruals in the tourism sector in the Visegrad countries, which are among the most vulnerable sectors in the coming economic crisis. Methods: This study uses the method of two-way analysis of variance with interaction, while also testing the assumptions of the model by normality tests, homogeneity test and post hoc tests (Scheffé and Tukey methods). Findings & Value added: Earnings quality changes during the life cycle of a business; whereas in the first stages (introduction, growth) and in decline they use downward earnings management. On the contrary, mature and shake-out companies have enough positive earnings before taxes, which is a prerequisite for tax profit optimization. The level of earnings management in tourism varies significantly at different stages of the life cycle, but also in different countries. The results imply that the qualitative variable corporate life cycle in interaction with the country is an important explanatory variable, the implementation of which can improve the explanatory power of earnings management models in Central European developing countries.

scholarly journals When Does Earnings Management Matter? Evidence across the Corporate Life Cycle for Non-Financial Chinese Listed Companies

2020 ◽  
Vol 13 (12) ◽  
pp. 313 ◽  
Author(s):  
Ammar Hussain ◽  
Minhas Akbar ◽  
Muhammad Kaleem Khan ◽  
Ahsan Akbar ◽  
Mirela Panait ◽  
...  
Keyword(s):  
Life Cycle ◽  
Panel Data ◽  
Earnings Management ◽  
Fixed Effects ◽  
Management Practices ◽  
Real Earnings Management ◽  
Earning Management ◽  
Bankruptcy Risk ◽  
Corporate Managers ◽  
Corporate Life Cycle

Information availability, firm performance, idiosyncratic volatility and bankruptcy-risk vary across the Corporate Life Cycle (CLC) stages. The purpose of this paper is to examine whether CLC stages explain firm’s propensity to engage in both accrual base and real earning management practices in the context of China. Panel data of 3250 non-financial Chinese listed firms spanning from 2009 to 2018 is used to investigate the proposed relationship. CLC stages were captured through Dickinson’s model, while earnings management is measured by employing both techniques, i.e., accruals-base earnings management and real earnings management. The data were analyzed through Panel data fixed-effects and random-effects techniques. Results reveal that, when compared to shakeout phase, managers’ response to use both earnings management practices is significantly higher during introduction and decline phases, and lower during growth and mature stages of CLC. It suggests that introductory and later-staged firms distort their factual financial information from creditors to obtain loans without strict debt covenants. Our results are robust to alternate measures and specifications. The core contribution of this research is to add a fresh perspective to the CLC research by uncovering its imperative role in influencing the earning management behavior of corporate managers.

scholarly journals Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan

2019 ◽  
Author(s):  
Ahsan Akbar ◽  
Minhas Akbar ◽  
Wenjin Tang ◽  
Muhammad Azeem Qureshi
Keyword(s):  
Life Cycle ◽  
Mixed Model ◽  
Linear Mixed Model ◽  
Life Cycle Stage ◽  
Mature Stage ◽  
Bankruptcy Risk ◽  
Listed Firms ◽  
Firm Life Cycle ◽  
Corporate Life Cycle ◽  
The Relationship

In this paper we analyze the relationship between bankruptcy risk and the corporate life cycle in Pakistan from 2005 to 2014. For this purpose, we run a Hierarchical Linear Mixed Model (HLM) for a sample of 301 non-financial listed firms in 12 different sectors. The empirical outcomes reveal that firms during introduction, growth and, decline stages (mature stage) of life-cycle experience higher (lower) bankruptcy risk. Moreover, in juxtaposition with growth stage, bankruptcy risk is higher at the introduction stage of life-cycle. These findings suggest that financial managers should be cautious about the financial fragility of the firm at each stage of corporate life-cycle. The results also entail that Pakistani firms do not follow a sequential pattern in their life-cycle rather they have the tendency to revert to a previous stage or jump to the next stage of life-cycle. This is the first study that empirically examines the association between firm life-cycle stage and corresponding bankruptcy risk and asserts that managers must incorporate the life-cycle effects into their financial planning and decision making for sustainable working of an enterprise.

Do disclosure and transparency affect bank’s financial performance?

2019 ◽  
Vol 19 (6) ◽  
pp. 1344-1361
Author(s):  
Isaiah Oino
Keyword(s):  
Risk Management ◽  
Corporate Governance ◽  
Financial Performance ◽  
Financial Institutions ◽  
Content Type ◽  
Loan Portfolios ◽  
Cent Level ◽  
Transparency And Disclosure ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of transparency and disclosure on the financial performance of financial institutions. The emphasis is on assessing transparency and disclosure; auditing and compliance; risk management as indicators of corporate governance; and understanding how these parameters affect bank profitability, liquidity and the quality of loan portfolios. Design/methodology/approach A sample of 20 financial institutions was selected, with ten respondents from each, yielding a total sample size of 200. Principal component analysis (PCA), with inbuilt ability to check for composite reliability, was used to obtain composite indices for the corporate governance indicators as well as the indicators of financial performance, based on a set of questions framed for each institution. Findings The analysis demonstrates that greater disclosure and transparency, improved auditing and compliance and better risk management positively affect the financial performance of financial institutions. In terms of significance, the results show that as the level of disclosure and transparency in managerial affairs increases, the performance of financial institutions – as measured in terms of the quality of loan portfolios, liquidity and profitability – increases by 0.3046, with the effect being statistically significant at the 1 per cent level. Furthermore, as the level of auditing and the degree of compliance with banking regulations increases, the financial performance of banks improves by 0.3309. Research limitations/implications This paper did not consider time series because corporate governance does not change periodically. Practical implications This paper demonstrates the importance of disclosure and transparency in managerial affairs because the performance of financial institutions, as measured in terms of loan portfolios, liquidity and profitability, increases by 0.4 when transparency and disclosure improve, with this effect being statistically significant at the 1 per cent level. Originality/value The use of primary data in assessing the impact of corporate governance on financial performance, instead of secondary data, is the primary novelty of this study. Moreover, PCA is used to assess the weight of the various parameters.

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