The relation between R&D accounting treatment and the risk of the firm: Evidence from the Italian market

2014 ◽  
pp. 33-54 ◽  
Author(s):  
Riccardo Cimini ◽  
Alessandro Gaetano ◽  
Alessandra Pagani
Keyword(s):  
Earnings Management ◽  
Fiscal Year ◽  
Investment Strategies ◽  
Capital Assets ◽  
Italian Market ◽  
D Investment ◽  
Firm Evidence

In this paper, we investigate the relation between the different accounting treatments of R&D expenditures and the risk of the entity in order to identify under which treatment insiders are more likely to carry out earnings management. By analysing the R&D investment strategies of a sample of 137 listed Italian entities that complied with the requirements of IAS 38 during fiscal year 2009, following Lantz and Sahut (2005), we calculate several indexes that show the preferences of insiders to account R&D expenditures as costs or capital assets, and we study the relation of such preferences with the risk of the entity, which we measure with the unlevered beta. We hypothesize that the entities, which considered the R&D investments as costs, are the riskiest ones due to the higher probability that insiders carried out earnings management. Our results confirm such hypothesis. This paper could have implications for academics and standard setters that could learn that behind accounting discretion, insiders could opportunistically behave against outsiders.

Earnings management when firms face mandatory contributions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yiyi Qin ◽  
Jun Cai ◽  
Steven Wei
Keyword(s):  
Earnings Management ◽  
Negative Impact ◽  
Investment Strategy ◽  
Fiscal Year ◽  
Management Behavior ◽  
Indicator Variable ◽  
Stock Market Returns ◽  
Content Type ◽  
Early Results ◽  
Reported Earnings

PurposeIn this paper, we aim to answer two questions. First, whether firms manipulate reported earnings via pension assumptions when facing mandatory contributions. Second, whether firms alter their earnings management behavior when the Financial Accounting Standard Board (FASB) mandates disclosure of pension asset composition and a description of investment strategy under SFAS 132R.Design/methodology/approachOur basic approach is to run linear regressions of firm-year assumed returns on the log of pension sensitivity measures, controlling for current and lagged actual returns from pension assets, fiscal year dummies and industry dummies. The larger the pension sensitivity ratios, the stronger the effects from inflated ERRs on reported earnings. We confirm the early results that the regression slopes are positive and highly significant. We construct an indicator variable DMC to capture the mandatory contributions firms face and another indicator variable D132R to capture the effect of SFAS 132R. DMC takes the value of one for fiscal years during which an acquisition takes place and zero otherwise. D132R takes the value of one for fiscal years after December 15, 2003 and zero otherwise.FindingsOur sample covers the period from June 1992 to December 2017. Our key results are as follows. The estimated coefficient (t-statistic) on DMC is 0.308 (6.87). Firms facing mandatory contributions tend to set ERRs at an average 0.308% higher. The estimated coefficient (t-statistic) on D132R is −2.190 (−13.70). The new disclosure requirement under SFAS 132R constrains all firms to set ERRs at an average 2.190% lower. The estimate (t-statistic) on the interactive term DMA×D132R is −0.237 (−3.29). When mandatory contributions happen during the post-SFAS 132R period, firms tend to set ERRs at 0.237% lower than they would do otherwise in the pre-SFAS 132R period.Originality/valueWhen firms face mandatory contributions, typically firm experience negative stock market returns. We examine whether managers manage earnings to mitigate such negative impact. We find that firms inflate assumed returns on pension assets to boost their reported earnings when facing mandatory contributions. We also find that managers alter earnings management behavior, in the case of mandatory contributions, following the introduction of new pension disclosure standards under SFAS 132R that become effective on December 15, 2003. Under the new SFAS 132R requirement, firms need to disclose asset allocation and describe investment strategies. This imposes restrictions on managers' discretion in making ERR assumptions, since now the composition of pension assets is a key determinant of the assumed expected rate of return on pension assets. Firms need to justify their ERRs with their asset allocations.

scholarly journals Risco e transparência no Brasil: um estudo sobre o gerenciamento de resultados

2014 ◽  
Vol 5 (3) ◽  
pp. 203-221
Author(s):  
Leandro De Carvalho Alves ◽  
Fabiolla Valeria Gonçalves ◽  
Fernanda Maciel Peixoto
Keyword(s):  
Earnings Management ◽  
Pricing Model ◽  
Capital Assets

Dentre os mecanismos de Governança Corporativa propostos pela Teoria de Agência, a transparência é aquela que proporciona a redução da assimetria de informações entre gestores e investidores. Este artigo buscou verificar qual a relação existente entre o nível de transparência e o risco das empresas não-financeiras negociadas na BM&FBovespa no período de 2003 a 2012. A dimensão transparência foi medida por meio das variáveis de gerenciamento de resultados (Earnings Management) propostas por Leuz, Nanda e Wysocki (2003) e o aspecto risco foi representado pelo Beta do CAPM (Capital Assets Pricing Model) e pelo Custo Médio Ponderado de Capital (WACC), conforme estudo de Lameira (2012). Como principais resultados, obteve-se uma relação significativa e positiva entre transparência e beta (proxy para o custo do capital próprio) e uma associação significativa e negativa entre transparência e WACC (proxy para o risco da estrutura interna de capital da empresa). Assim infere-se que uma maior qualidade da governança corporativa pode resultar no aumento do custo do capital próprio e, em contrapartida, na redução do custo de capital de terceiros, de tal forma que o custo médio ponderado de capital da firma seja reduzido.

scholarly journals The Influence’s Analysis of Deferred Tax Expense, Current Tax and Discretionary Accrual towards Earnings Management (Survey in Manufactured Company Registered at Indonesia Stock Exchange in the Period of 2014 – 2018

Webology ◽  
2020 ◽  
Vol 17 (2) ◽  
pp. 568-586
Author(s):  
Erike Anggraeni ◽  
Muslim Marpaung ◽  
Ersi Sisdianto ◽  
Bayu Tri Cahya ◽  
Muhammad Kurniawan
Keyword(s):  
Earnings Management ◽  
Stock Exchange ◽  
Discretionary Accruals ◽  
Positive Influence ◽  
Fiscal Year ◽  
Discretionary Accrual ◽  
The Difference ◽  
Deferred Tax ◽  
A Current ◽  
Tax Expense

The study aims to provide an overview of the influence of deferred tax expense, current tax and discretionary accruals to earnings management towards Earnings Management where it was caused by the temporary differences between accounting income and taxable profit. In this PSAK, there is a statement paragraph that can provide freedom of management in determining an earning in deferred tax of the difference between accounting standard and tax regulations in the amount of deferred tax payable related to accounting income in a current perioed or a current fiscal year. The amount of current tax is same with tax expense in SPT. The type of a method of this study is quantitative. Based on the hipothesis testing, it can be concluded that deferred tax expense and discretionary accruals have a significant positive influence toward earnings management while current tax has no significant positive towards Earnings Management in Manufactured Company registered at Indonesia Stock Exchange in the period of 2014 – 2018. The limitation of this study is that it only discusses how much influence the deferred tax expense, current tax and discretionary accruals have on earnings management, as well as the number of samples and populations that are less than 100 samples, thus opening up opportunities for new researchers by adopting the same theme. The implications of this study are expected to be able to add to the state of knowledge relating to the effect of deferred tax expense, current tax and discretionary accruals on earnings management.

scholarly journals Effect of Leverage on Real Earnings Management: Evidence from Korea

2020 ◽  
Vol 12 (6) ◽  
pp. 2232
Author(s):  
Ana Belen Tulcanaza-Prieto ◽  
Younghwan Lee ◽  
Jeong-Ho Koo
Keyword(s):  
Earnings Management ◽  
Stock Price ◽  
Positive Relationship ◽  
Financial Statements ◽  
Least Square ◽  
Real Earnings Management ◽  
Fiscal Year ◽  
Financial Firms ◽  
The Relationship

This study examines how leverage affects real earnings management (REM) in non-financial firms listed on the Korea Composite Stock Price Index from 2010 to 2018 by employing total, short-term, and long-term debt ratios (i.e., leverage) as independent variables and four REM metrics as dependent variables. We find a significant positive relationship between leverage and REM in suspicious firms, whereas the effect of leverage is insignificant in non-suspicious firms. We also find that the positive relationship between both variables is stronger in the second half of the fiscal year, which shows the prevalence of the seasonality of REM, as managers collect high-frequency financial information during this period. These findings are consistent with those in the literature that managers increase firm leverage and REM activities to reduce their probability of being discovered, since financial statements in the interim quarters are not often audited. Our study complements the literature by introducing quarterly data to identify clearly REM activities and detect the strongest effect on the relationship between REM and leverage. Moreover, our results from the two-stage least square (2SLS) regression analysis are consistent with our previous findings.

The characteristics of institutional R&D investment in the STEM field under policy streams over time

2021 ◽  
pp. 147821032098638
Author(s):  
Youngsik Hwang
Keyword(s):  
New Technologies ◽  
New Technology ◽  
Research Direction ◽  
Investment Strategies ◽  
Total Size ◽  
Academic Fields ◽  
Development Expenditure ◽  
The Government ◽  
D Investment ◽  
Over Time

The STEM field has contributed significantly to the development of society because its findings result in new technology, which gives people more efficient tools and methods for a better standard of living. Postsecondary institutions have trained STEM field graduates through advanced curricula and learning environments. Compared to other academic fields, STEM requires more monetary support for research from the institution or the government because STEM research often requires expensive equipment installation or the introduction of new technologies. This paper overviews institutional support for STEM education and research by the regime of recent U.S. governments and examines the characteristics of R&D (research and development) expenditure. The results indicate that the R&D expenditures of the STEM field show continuous support for the different type of institutions, regardless of governments over time. However, they have tried to diversify the R&D investment by the type of R&D field and institutional type. Even though the government has tried to increase the total size of R&D expenditure through various resources, they still need to consider the equity and diversity issues for even further R&D investment strategies. A further research direction would search for the detailed action and strategies to support the STEM field according to their types of support or expectation.

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