Does a Manager Respond to a Going-Concern Audit Opinion with an Asymmetry in Gain and Loss?

In this paper, I investigate the relationship between previous going-concern audit opinions and subsequent asymmetric timeliness in accounting. Using the time-series and price-based models and conservatism proxy, I find that firms with going-concern audit opinions subsequently report losses in a more timely manner than firms that did not receive going-concern audit opinions. Furthermore, I also find that firms exiting going-concern audit opinions are more likely to report losses rather than gains in a timely manner, compared to firms non-exiting from going-concern opinions. This study extends the prior research by exploring the association between going-concern opinions and accounting conservatism from the perspective of client firms—that is, how firms behave strategically and conservatively to bypass going-concern opinions, once the firms had received previous going-concern opinions.

Financial reporting quality following the corporate governance reforms: A conditional conservatism perspective

This study examines the quality of financial reporting during the period following the corporate governance reforms in Malaysia, as motivated by the importance of investors’ needs for high-quality financial reporting. Using the asymmetric timeliness of the earnings model, we analysed the sample of 6,819 firm-year observations of Malaysian listed companies from 2002 to 2011. The findings show evidence of the high quality of reporting following the corporate governance reforms. We found that firms have reported a more timely recognition of losses than gains in the post-reform period. Our results suggest that conditional conservatism has been prevalent during the period, and the results are robust even after conducting extensive specification tests. This study suggests that after the corporate governance reforms, Malaysian companies’ financial statements have been more reliable for investors in making investment decisions.

Asymmetric Reporting Timeliness and Informational Feedback

We examine the effects of asymmetric timeliness in reporting good versus bad news on price informativeness when prices provide useful information to assist firms’ investment decisions. We find that a reporting system featuring more timely disclosure of bad news than of good news encourages speculators to trade on their private information. Consequently, it generates a higher expected investment level and firm value. Our analysis generates predictions consistent with empirical findings and provides a justification for the more timely reporting of bad news in the absence of managerial incentive problems. This paper was accepted by Brian Bushee, accounting.

Directors with multiple directorships and accounting conservatism: Evidence from banks in South Asia

This study investigates the effect of directors with multiple directorships on banks’ financial reporting conservatism in South Asia (Bangladesh, India, Pakistan, and Sri Lanka). The paper applied Basu (1997) asymmetric timeliness measure of conditional conservatism for a sample of 93 banks stock listed banks of the four countries. We find that the relationship between directors with multiple directorships and accounting conservatism is an inverse ‘U’ shape. That is, at a low level of multiple directorships, banks follow conservatism in financial reporting (reputation effect), then at a high level of multiple directorships reporting conservatism declines (busyness effect). We also find an optimal level of multiple directorships at which directors influence the most on financial reporting conservatism. In further analysis, the study finds evidence that directors with multiple directorships (DWMDs) in banks with high insolvency risk follow accounting conservatism. The findings of this study remain robust when we modify the definition of multiple directorships and control for multiple directorships by bank chairs and insolvency risk under alternative settings

Asymmetric Timeliness and the Resolution of Investor Disagreement and Uncertainty at Earnings Announcements

ABSTRACT This study finds that greater asymmetric timeliness of earnings in reflecting good and bad news is associated with slower resolution of investor disagreement and uncertainty at earnings announcements. These findings indicate that a potential cost of asymmetric timeliness is added complexity from requiring investors to disaggregate earnings into good and bad news components to assess the implications of the earnings announcement for their investment decisions. Such a disaggregation impedes the speed with which investor disagreement and uncertainty resolve. The findings indicate that asymmetric timeliness also delays price discovery at earnings announcements. We also find a positive relation between asymmetric timeliness and stock returns during the earnings announcement period after the initial price reaction to the announcement, which is consistent with resolution of valuation uncertainty. However, we do not find clear evidence of more net stock purchases during this period by insiders of firms with greater asymmetric timeliness. JEL Classifications: M41; G14.

The quality of reported earnings and the monitoring role of the board: Evidence from small and medium companies

The purpose of this paper is to investigate whether corporate governance initiatives in South Africa that relate to the monitoring ability of the non-executive directors on the board of small and medium companies have improved earnings quality by adopting conservative accounting practices. The sample construct includes the 2008 – 2011 reporting periods of South African companies listed on the Alternative Exchange (AltX). A reverse regression of earnings on returns was used to examine the market-based attributes of earnings quality, i.e. conservatism and the timeliness of earnings. No evidence was found that the boards of small and medium-sized companies are inclined to adopt conservative accounting practices that will result in the asymmetric timeliness of earnings. There is also no evidence that the quality of reported earnings improved as a result of the monitoring ability of the board with reference to the representation of non-executive directors on the board. The findings can be of interest to investors, managers and regulators as the efficiency of corporate boards and the transparency of financial reporting have implications for all of them.