Search Results (51)

Prior research finds mixed evidence that firms strategically manage their earnings announcement timing to either highlight or obscure financial information. While most prior studies focus on the specific timing and the nature of individual earnings announcements, we instead focus on the variability of firms’ annual earnings announcement dates (hereafter referred to as EADs) over a span of time. Using archival data collected from I/B/E/S and Compustat, we find that firms with fewer resources, weaker internal monitoring systems, and greater financial uncertainty are much more likely to exhibit increased EAD variability. Furthermore, we provide substantial evidence that the capital market’s response to earnings is noticeably weaker when a firm’s EAD variability is higher. Additional in-depth analysis reveals that firms exhibiting higher EAD variability tend to report significantly lower future performance in both the short- and long-term horizons. Consequently, while managers might intentionally alter an earnings announcement date to exploit variations in investor attention, this comprehensive study provides significant evidence that they should also consider how the market perceives and interprets the overall EAD variability. This understanding is crucial to improve strategic financial communication and maintain investor trust. Full article

We investigate how executive pay disparity affects insider profits around earnings news. Our findings reveal that high pay disparity is linked to higher abnormal returns from insider purchases before positive news, suggesting insiders exploit good news for greater gains. Conversely, it is associated with lower abnormal returns from insider sales before negative news, indicating less benefit from such sales. These insights highlight the influence of pay disparity on insider trading and underscore the importance of understanding this dynamic to improve decision-making and reduce misuse of insider information. Full article

This study aimed to analyze the determinants of disclosure tone (DT) in the Saudi business environment during the last nine years. In addition, it tested the impact of earnings management and accounting conservatism on this tone. The study followed a mixed-method approach, “quantitative and qualitative”, to explore the relationships used for the content analysis to analyze the annual reports of a sample of 88 Saudi-listed firms from 2014 to 2022. The results of the study found that there is a positive impact of dividend yield on disclosure tone. Conversely, both firm size and leverage do not have a significant impact. Moreover, earnings management as an accounting practice has a curvilinear effect on disclosure tone, and accounting conservatism as a generally accepted principle positively influences disclosure tone. Full article

Although the relationship between earnings management and firm performance has been well explored in the literature, sustainable performance has not yet been examined. Furthermore, the literature has not addressed the issue of nonlinearity between earnings management and firm performance. Therefore, this paper aims to examine the potential nonlinear relationship between earnings management and sustainable firm performance in Saudi Arabia using a sample of 70 listed firms over the 2015–2022 period. Specifically, it investigates the operational risk disclosure threshold effect in the earning management–sustainable firm performance nexus. To do so, the dynamic panel threshold regression model (DPTR) is performed. The result proves that there is a threshold effect of operational risk disclosure in the relationship between earning management and sustainable firm performance. Specifically, the threshold values of operational risk disclosure for the three models are estimated at 6 between the low- and the high-operational-risk-disclosure regimes. In the lower regime, firm performance decreases when earning management increases; however, in the higher regime, firm performance increases when earning management increases. These outcomes support the predictions of agency and positive accounting theories. Full article

This paper examines the effects of Korea’s compulsory preliminary earnings announcements on stock prices using individual corporate financial disclosure data. Korea’s compulsory preliminary earnings announcements are similar to the US’s fair disclosures in that they are preliminary settlement disclosures. Disclosure regulation aims to prevent insider trading and resolve information asymmetry among investors by promptly disclosing unconfirmed internal settlement information prior to an external audit. The disclosure of such changes in profit or loss is generally expected to affect stock prices. Many studies have analyzed the relationship between accounting profit disclosure and stock prices, but most have focused on the relationship between net profit disclosure and stock price without considering other disclosure information such as sales and operating profit. In addition, previous studies analyzed the information effect of accounting profits based on annual reports, which are based on analysts’ predicted values and limited datasets. This study investigates the impact of Korea’s compulsory disclosure on stock prices through a multiple regression analysis, considering three types of accounting information, including sales, operating profit, and net profit, based on actual announcement data and daily trading volumes. The effect of corporate financial disclosure might vary with stock market type and industry sector. For this reason, we analyze the relationship between financial disclosure and stock prices for different stock market types and industry sectors. Results show that sales information affected KOSPI-listed companies’ stock prices, and operating profit information affected KOSDAQ-listed companies’ stock prices. In terms of financial market efficiency, the results show weak-form efficiency for both the KOSPI and KOSDAQ markets in general. However, this implies that there is still information asymmetry in sales information for the KOSPI, which consists of large and valued stocks and is not completely efficient, whereas information asymmetry might occur in operating profit information for the KOSDAQ, which consists of relatively small-to-medium innovative growing companies. In addition, results show that operating profits affect manufacturing industries’ stock prices, and that trading volumes significantly impact stock prices for all markets and industries. Full article

Environmental, social, and governance (ESG) integration is an increasingly popular and innovative investing strategy that requires companies to be transparent about their ESG practices to facilitate investors’ decisions. In the palm oil sector, companies are addressing ESG risks by adopting and disclosing ESG efforts to improve access to financing. This study seeks to broaden existing research on ESG transparency and firms’ financial indicators by using firm valuation as a financial indicator and investigating the moderating role of firm size in the palm oil sector. It first investigates whether ESG transparency has a direct positive or negative effect on firm valuation. Transparency is measured using the Zoological Society of London’s (ZSL) Sustainability Policy Transparency Toolkit (SPOTT) 2021 assessment, which provides scores for palm oil companies’ total, environmental, social, and governance disclosures. Firm valuation is measured by the price-to-earnings ratio (P/E), a widely used ratio calculated by dividing the share price by earnings per share. The study also explores the moderating role of firm size, using accounting-based measures such as revenue and assets, in strengthening the relationship between ESG transparency and firm valuation. The results show statistically significant negative relationships between ESG transparency and firm valuation. Companies with stronger ESG transparency are valued at a discount relative to companies with weaker ESG transparency. Additionally, the results find that firm size plays a moderating role such that larger firms strengthen the negative relationships between all transparency measures and firm valuation. These findings encourage constructive action for various stakeholders and provide implications for future research to support mainstreaming sustainable palm oil. Full article

Prior research has extensively examined the relationship between religion and accrual-based earnings management. However, there is currently little research on the relationship between religion and real (non-accrual) earnings management, especially in Europe. This paper aims to fill this research gap and examines whether and how the effect of religion could be linked with firms’ real earnings management activities. Four hypotheses are developed and tested, with our results providing indications that the degree of overall religiosity is negatively and significantly associated with real earnings management. Furthermore, when investigating the effects of different religions in Europe, Christianity and Islam have the opposite impact on firms’ real earnings management activities. Overall, our paper indicates that in European countries, the religious environment can mitigate firms’ manipulations on earnings. Full article

Society has gradually realized that companies’ actions have consequences. Companies can fulfill their accountability to society by disclosing information beyond their financial data, providing better decision making for stakeholders. Therefore, this study aims to investigate the impact of corporate social responsibility (CSR) on earnings persistence (EP) for the moderator roles of operational efficiency and financing cost for the companies listed on the Tehran Stock Exchange. For this purpose, the statistical population consists of 714 firm-year observations from 2014 to 2020 (7 years). A multivariate regression method was used based on the panel data analysis method to test the research hypotheses. The results indicate that corporate social responsibility for earnings persistence has a positive and significant relationship with the moderator role of operational efficiency, but is unrelated to the moderator role of financing cost. The majority of the prior research in this field has focused on developing countries. An international perspective is critical, and this study helps draw a more contextualized picture of sustainability than before. Full article

Using the exogenous shock caused by the mandatory corporate social responsibility (CSR) information disclosure policy in 2008, this paper examines the impact of mandatory CSR information disclosure on the earnings management activities of listed firms in China from the perspective of external corporate regulation based on the Difference-in-Differences (DID) method. The results show that mandatory CSR information disclosure can significantly improve the quality of firms’ earnings management. The mechanism analysis shows that the policy’s enhancement of the effectiveness of external regulation by regulators and the media played an important role in curbing firms’ earnings management activities. The heterogeneity analysis shows that the inhibitory effect of mandatory CSR disclosure policy on firms’ earnings management activities is better in firms with lower analyst coverage and lower institutional ownership. The study further extends the mechanism of the impact of mandatory CSR disclosure on firms’ earnings management activities, and provides practical guidance on how to improve the quality of firms’ earnings management and enhance the efficiency of corporate governance. Full article

Earnings management continues to be a critical ethical concern faced by companies. The management that conducts earnings manipulation may adopt environmental, social, and governance (ESG) activities to safeguard themselves from stakeholders. Engagement in ESG is sometimes viewed as a type of managerial misconduct and as a means to cover up manipulative practices. Thus, the key aim of our study is to investigate the association between ESG disclosure and earnings management levels in the context of listed companies in Saudi Arabia. We also investigate the influence of financial distress on the above association. Data were obtained from 304 company-year observations for the years 2014–2021. The results showed that ESG disclosure had a positive and statistically significant effect on earnings management. In addition, financial distress significantly and positively enhanced this effect. This shows that financially distressed companies tend to disclose more ESG practices and engage in earnings management. Moreover, through the division of the three ESG components—environmental, social, and governance—the impacts of both environmental and social factors on earnings management were found to be positive and robust, while the governance score was negative. The results obtained using diverse regression techniques and further tests were robust. This study makes several contributions to the ESG and earnings management literature. It also minimizes the literature gap by focusing on the influences of financial distress on the ESG–earnings management relationship. The study findings have implications for several stakeholder groups, including regulators, decision makers, investors, and auditors. In particular, it warns policymakers that some practices focused on ESG enhancements may be a tool for preventing other questionable practices. Full article

In the circumstances of increasing forms of corporate reporting, the relevance of the financial information is slightly decreasing, as the reporting strategies do not provide evidence of the potential deterioration of reported earnings, but rather try to hide managers’ earnings management practices through various impression management techniques and lower financial transparency. Therefore, the external auditors’ role becomes essential in mitigating the information asymmetry. This article aims to study the association between a quality audit and corporate tax avoidance. The research methodology was based on two essential stages. The first stage consisted of reviewing the specialized literature by applying the bibliometric analysis. In the second stage, we resorted to an exploratory analysis of the KAMs disclosed by European Union firms listed in 2016–2021. The study was carried out based on the information provided by the Web of Science and Audit Analytics databases. In accordance with the obtained results, we emphasize that more attention should be paid to the association between the KAMs disclosed by auditors regarding the extended audit reports and the indication of corporate tax avoidance through different tax planning metrics. At the same time, the study underlines that collections of data on KAMs’ disclosures could help specialists create a common body of knowledge about KAMs and how they should be used as communication tools between auditors, management, and stakeholders (including the state). The contribution of this article consists of providing informational support to the tax authorities to understand the main concerns regarding the business environment so that they can come up with supporting public tax policies that should facilitate the mission of companies to determine the tax burden. In addition, it provides researchers with a starting point to further explore issues related to tax avoidance techniques and the role of a financial auditor in limiting them. Full article

Earnings manipulation is often associated with deceiving public information that is displayed in sustainability reports. Therefore, the current study aims to explore the nexus between earnings management and sustainability reporting practices in the context of Indonesia. This study employs 408 firm-year observations from listed companies in Indonesia during the 2010–2021 period to test the hypothesis using fixed effect regression analyses with standard error estimates. By examining their sustainability reports and financial statements over a specific period, the authors assess the extent to which earnings management influences sustainability reporting practices. This implies that companies engaging in earnings management practices are more likely to exhibit higher-quality sustainability reporting practices. The results contribute valuable and significant empirical insights into the interplay between earnings management and sustainability reporting specifically within the Indonesian context. Furthermore, this study goes beyond examining the relationship itself and delves into potential factors that may influence this relationship. Full article

Disclosing information on environmental, social, and governance (ESG) parameters is voluntary for most firms across the world. Companies disclose their performance on ESG datapoints due to two main reasons—(i) to gain the trust of stakeholders through increased transparency and (ii) to comply with regulations imposed by governments and investment houses. Using a dataset of companies disclosing ESG parameters during 2014–2021 from the S&P BSE 500 index, this study investigates the role of ESG disclosure on firm performance. We divide the constituent securities into three factors—size, value, and disclosure to study the premiums generated by firms on each factor using single-, double-, and triple-sorting approaches. We utilize time series regressions along with GRS tests to empirically test the presence of factor premiums. We find the significant role of factors size, value, disclosure, and a dummy variable for the COVID-19 pandemic period to explain the portfolio returns. The study found a negative ESG disclosure premium stating that firms with high levels of disclosure earn less returns compared with the firms with less disclosures. The findings of this study contrast with multiple studies in the past that have found a positive disclosure premium. Our findings help reconcile the mixed evidence on the disclosure–returns relationship. Full article

This study aims to investigate the nature and intensity of the changes in corporate financial performance due to the corporate social responsibility (CSR) disclosures as a result of certain relationships between corporate governance and company performance in the non-financial sector. This study selected 625 non-financial companies across six organizations for economic cooperations (OECD) countries’ stock markets for the period of 10 years (2012–2021). For this qualitative study, corporate governance, financial performance, and corporate social responsibility score data were collected from the DataStream, a reliable database for examining the research on OECD countries’ listed companies. For the data analysis we applied various statistical tools such as regression analysis and moderation analysis. The findings of the study show that all attributes of the corporate governance mechanism, except for audit board attendance, have significant positive impacts on financial performance indicators for all the selected OECD economies except the country France. France’s code of corporate governance has a significant negative impact on return on asset (ROA) and return on equity (ROE) due to differences in cultural and operational norms of the country. The audit board attendance has no significant impact on ROA. Moreover, all the attributes except board size (BSIZ) have significant positive impacts on the earnings per share (EPS) in Spain, The United Kingdom (UK) and Belgium. The values obtained from the moderation effect show that Corporate social responsibility is the key factor in motivating corporate governance practices which eventually improves corporate financial performance. However, this study advocated the implications, Investors and stakeholders should consider both corporate governance and CSR disclosures when making investment decisions. Companies that prioritize both governance and CSR tend to have better financial performance and are more likely to mitigate risks. Moreover, the policy makers can improve the code of corporate governance in order to attain sustainable development in the stock market. Full article