• Asian Journal of Business Environment
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• v.11 no.4
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• pp.5-16
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• 2021

Purpose: This study aims to investigate the impact of auditor-client traffic convenience on accrual -based and real earnings management of the client firms. Research design, data and methodology: Using a sample of firms listed in Shanghai and Shenzhen Stock Exchanges over the period of 2007 to 2018, this paper empirically investigates the association between auditor-client traffic convenience and earnings management. We use three measures of auditor-client traffic convenience: railway traffic convenience, expressway traffic convenience, and air traffic convenience. The accrual-based earnings management is measured by abnormal accruals estimated by industry and year using the Modified Jones Model. Results: Findings indicate that traffic convenience is conducive to detecting and restraining positive accrual earnings management and real earnings management. After changing the measurement of independent variable and dependent variable, including potential omitted variables, the results are statistically unchanged. Further, the research shows that traffic convenience can not only improve audit quality, but also lead to higher fee premiums. Auditors didn't share with clients the cost reduction benefits caused by traffic convenience. Conclusions: Traffic convenience provides auditors with easy access to the client firms, alleviating the information asymmetry and improving corporate earnings quality. The findings have implications for regulators, audit practitioners and stakeholders.

• The Journal of Economics, Marketing and Management
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• v.4 no.4
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• pp.17-24
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• 2016

The purpose of the present study is to investigate the relationship between Management bonuses and earnings stability of the listed companies on the Tehran Stock Exchange (TSE). The population includes 94 firms selected through systematic sampling. The data is collected from the audited financial statements of the firms provided by TSE's website from 2009 to 2016. The results of multiple linear regression analysis show that there is a significant relationship between Management bonuses and earnings stability. The aim of this study primarily investigating the relationship between earnings stability and management bonus. In the case of this target, the next goal of this research is to develop a proposal for legislation in the domain of capital market, students and faculty as well as accounting information users provide research interests. Observations show many companies despite the decline in profitability, bonus managers to continually pay. Increase in listed companies Stock Exchange as well as the importance of communication between earnings quality and bonus managers in Financial Accounting the authors created an incentive to research about this relationship do. The results of this research could be the development of literature done in the past. Thus, more knowledge about the issue of sustainability and its relation to bonus managers the users of accounting information, accounting courses provide students and faculty.

• The Journal of Small Business Innovation
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• v.20 no.3
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• pp.1-17
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• 2017

There is a serious information asymmetry between internal managers and outside investors in the process during IPOs. One mechanism that mitigates this information asymmetry is a high quality auditor. Since prior research document auditors' effect on newly listed firms at the IPO year, what has not yet been revealed in previous studies is the behavior of firms and auditors after listing. In this study, we investigate (i) the firms tendency of contracting with Big N auditors, and (ii) the effect of Big N auditors on accounting quality after the years of IPOs. Using a sample of 7,678 (1,892 firm-years of after IPOs, and 5,786 control firm-years) KOSDAQ observations between 2002 and 2012, we find that the likelihood of contracting with Big N auditor lasts only for two years after IPO compare to that of non-IPO control years. Secondly, we find that the effect of Big N auditors on clients' earnings management lasts for a very short period after IPO. These findings suggest that although prior literature argue that Big N auditors reduce earnings management of their clients, at least the period right after IPO, it is not consistent. Our study contributes to the existing literature in several ways. First, we provide new evidences of firms' auditor selection decisions by investigating years after the listing. In second, as an evidence of accruals reversal, we document decrease in discretionary accruals after IPOs. Third, we find that there is not always a positive relation between Big N auditor and accounting quality by showing the insignificant Big N auditor effect after IPOs. Our results also suggest several implications to IPO related stakeholders. First, to IPO firms, we provide evidences that decisions of hiring auditors affect firms earnings. Also, lead IPO underwriters may consider how these decisions influence future performance. Second, investors may want to use information not only in the preofferings but also after public offerings. Our study insists that auditor hiring decisions affects their own welfare. Finally, accounting standard setters may find these results useful for evaluating how much discretion they should allow corporate managers to hire auditors. In addition, our result casts doubt on auditor designation.

• Journal of Digital Convergence
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• v.14 no.12
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• pp.111-120
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• 2016

PCAOB conducts the direct supervision for the PCAOB registered accounting firm. Therefore, if an accounting firm is registered with the PCAOB, it will thoroughly manage for their quality management systems. The registered auditor can be expected to have better quality of the audit. This study carried out the analysis using the audit fee which proxies for audit quality. The results of analysis are as follows. After controlling for foreign accounting firms affiliated status, company size, risky assets, leverage, ROA, and market-related variables, PCAOB is a significant explanatory variable for the audit fees. The results of this study support the hypothesis that PCAOB-registered auditors will provide a good audit quality.

• Journal of Digital Convergence
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• v.19 no.2
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• pp.51-60
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• 2021

In this study, Based on the analysis of the correlation between internal control quality and earnings management, this article discusses the correlation between internal control quality and real activity earnings management and accrued earnings management. For this study, by introducing the concept, classification, measurement method and model of internal control and earnings management, the research hypothesis of this article was proposed. In this analysis, Use the relevant measurement model to calculate the actual activity earnings management level and accrued earnings management level of the enterprise, as the explained variable, establish a model for regression and were analyzed. Also, this study could find the final results draws a conclusion through empirical research: there is a significant negative correlation between the internal control quality of listed companies, real activity earnings management, and accrued earnings management. On the basis of this conclusion, the analysis of possible causes provides a basis for the development of internal control theory and the supervision and control of earnings management behavior in the future.

• Management & Information Systems Review
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• v.37 no.4
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• pp.1-20
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• 2018

This study aimed to examine earnings quality of firms selected as Global Champs project which has been promoted by the government since 2013 to support small and medium sized enterprises, for the screening year(t-1) and selected year(t). Earing quality is measured as the value of discretionary accruals estimated by Dechow et al.(1995) adjusted Jones model and Kothari et al.(2005) model, respectively. I analyze the differences of earning quality between the Global Champ firms and the paired firms selected through criteria of the similar total assets and the same industry in the screening year and the selected year. This study is motivated by the needs of measurement of the performance of the Project from the accounting transparent point of view. As the results of this study, major findings are summarized as follows. Firstly the earnings quality of the selected firms was lower than that of the paired firms. This can be explained as a result of motivation of earnings management by companies eager to meet the requirements to be selected for the Project. Secondly, in the selected year, the earnings quality was proved to improve, comparing to the screening year. This can be explained by the efforts of companies to reinforce management innovation and transparent management, which in turn led to positive effects on the earnings quality. These findings were found to be consistent in the additional analyses, where the earning quality of the reconstructed sample with only selected companies was compared for the screening year and the selected year, based on the year before the screening year(t-2).

• The Journal of Industrial Distribution & Business
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• v.11 no.4
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• pp.39-46
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• 2020

Purpose: This study looks at the relevance between discretionary revenue and book-tax differences (hereafter BTDs). While the study of earnings management, which focused on discretionary accruals and real earnings management, has largely made, it has not yet been actively researched on discretionary revenues. Therefore, it was believed that discretionary revenue would expand the preceding study by looking at its relevance to BTD, known as financial reporting quality and measures of tax avoidance. In general, prior research suggested that earnings management make BTDs larger. Thus, the relationship between discretionary revenue and the amount of BTD is predicted positive. Research design, data and methodology: To this end, the method of discretionary revenues was used and BTDs measured in four ways. First, Earnings before income tax - estimated taxable income divided by total asset (BTD). Second is fractional rank variable of BTDs (FBTD). Third is Indicator variable equals 1 if the firm-year has a positive BTD, 0 otherwise (PBTD). Fourth is that Indicator variable equals 1 if the firm-year has a BTDs in top(bottom) quartile, 0 otherwise (LPBTD, LNBTD). 4,251 samples were analyzed in the Korean Security market (KOSPI) from 2003 to 2014. Results Empirical analysis shows that BTDs increases as discretionary revenue increases. These results were equally observed when BTDs was measured as a ranking variable or as a indicating variable. These results indicate that earnings management through the revenue of managers exacerbate the quality of financial reporting. Conclusions: In sum, discretionary revenues can be used as an indicator of making BTDs larger and meaningful as the first study of the Korean capital market where discretionary revenues affect accounting information quality. Investors need to increase interest in discretionary revenues because intervention in financial reporting through revenue accounts by managers can increase information asymmetry and agency costs. This means that studies on discretionary revenues that have been relatively small should be expanded. The results also provide important implications for the relevant authorities and investors. Despite these benefits, however, measurement error problems with estimates still appear as limited points, and prudent interpretations are required, and additional follow-up studies are needed in that variables that are not yet considered in this study may affect our findings.

• Journal of Digital Convergence
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• v.15 no.11
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• pp.167-174
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• 2017

These days, people distrust the accounting transparency of firms in Korea. It can .increase the capital costs and reduce profitability of firms. Auditors say that one of causes on the low grades of the accounting transparency is free contracts between auditors and firms. Firms want auditors take low audit fees. In principle, if auditors take low audit fees, they cannot input auditor resources to proper audit. However, there are not any empirical evidence about the relation between the audit fees dumping and the audit quality. This study defines dumping auditors if their audit fees are lower than the average of industries, and examines whether these auditors showed low audit qualities or not. As a result, firms which are audited by dumping auditors presented low abnormal accruals. We can interpret this result as that dumping auditors have low audit qualities. This result helps to make policies to improve the accounting transparency of firms.

• Asia-Pacific Journal of Business
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• v.11 no.3
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• pp.137-151
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• 2020

Purpose - The purpose of this study is to investigate whether financial analysts' cash flow forecasts mitigate the accrual anomaly. In addition, we examine whether the more accurate analysts' cash flow forecasts are the greater the decline of the accrual anomaly. Design/methodology/approach - Data used in the empirical tests are extracted through KIS-VALUE and FN-GUIDE, and the sample consists of firms listed on Korea Stock Exchange for 7 years from 2005 to 2011. We test the hypotheses using multiple regression analysis and we also estimate the regressions with the decile ranks of the explanatory variables to minimize the influence of outliers. Findings - We have failed to capture evidence that the provision of financial analysts' cash flow forecasts itself reduces the accrual anomaly. However, we find the accrual anomaly to be less severe when financial analysts provide more accurate cash flow forecasts. The findings are consistent in the regression models with the decile ranks as well as in the robustness tests that controlled the accruals quality. Research implications or Originality - This study contributes to the expansion of related studies in the Korea by providing empirical evidence partially that the financial analysts' cash flow forecasts mitigate the accrual anomaly.

• Asia-Pacific Journal of Business
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• v.11 no.3
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• pp.1-20
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• 2020

Purpose - This paper shows an unexplored area related to involuntary delisting. Specifically, this research investigates the effect of target firm information asymmetry on the likelihood that the acquirer or newly merged firm will be forcibly delisted post-merger. Design/methodology/approach - The research uses a sample gathered on local US mergers and acquisitions from the Thomson Reuters Securities Data Company (SDC) Platinum Mergers and Acquisitions database. It applies the logistic regression with industry and year effects and corrects the error term using clustering at the industry level. The research also matches the forced delisted firms to control firms based on industry, acquisition completion year, and firm size and then employs a matched sample analysis. Findings - Findings show that M&As between firms where the target firm is opaque and burdened with high information asymmetry issues are likely to be paid for using majority stock and that M&As involving such opaque targets also have a higher likelihood of getting delisted post-merger. Research implications or Originality - Our results are relevant given the very nature of M&As which involve two players: the acquirer and target who both may have different incentives. Acquirers especially have the tendency to suffer losses and even get delisted if they over-pay for or get merged to a poor target which conceals its poor performance evidenced by higher accruals quality.