PurposeThe purpose of this study is to assess the differential impact on the stock market of statements made by and information about directors and companies who are politically connected, compared to directors and companies with no political connections. The authors also analyze the role played by state-owned enterprises (SOEs), which the authors have identified as politically connected companies because most board members are appointed by political authorities. Furthermore, the boundaries and institutional environment within which SOEs operate are likely to be different from private companies.Design/methodology/approachThe sample is composed of over 60,000 news articles on the boards of directors (both with political roles and without political roles) of listed Italian companies in the period 1998–2013. On that sample the authors run a regression analysis under the signaling theory approach.FindingsResults suggest a positive effect on market capitalization associated with individual political connections. This effect decreases when the political connection extends to the whole enterprise although it still remains, while a negative effect is associated with state-controlled enterprises. The impact of negative news content does not change depending on whether a board member has a political role or not.Originality/valuePrevious research has demonstrated a causal link between stock prices and their reaction to corporate news (Engelberg and Parsons, 2011; Peress, 2014), but no studies have quantified the different reactions that occur when the news mentions politically connected companies and individuals who hold a political role.

Recently many European countries have incurred crises in public finance despite the fact that EU institutions have pushed the national governments toward the sustainability of public finance with compulsory and voluntary rules regarding fiscal governance. This paper investigates the relations between the quality of fiscal governance and the financial virtuosity of national fiscal policy. We proposed a general framework for analyzing the fiscal governance issue and we empirically tested the correlation between the dimensions of fiscal governance and the budgetary performance of EU countries. The results showed a positive correlation between the quality of fiscal governance in the EU countries and financial surplus in the period concerned. However further investigations are needed and an effort should be made to collect uniform data on fiscal governance in the European Union.

This paper investigates the investor reaction to audit reports containing a going concern modification (GCM) in the Italian market following new amendments regarding auditing regulations and public financial information disclosures. We applied the event study (ES) methodology to short event windows considering Italian listed companies during the period 2009–2015. Our findings partially contradict previous studies revealing a systematic negative impact of GCMs, especially when a GCM is attached to unqualified opinions. We clearly observe that Italian auditors have a strong higher propensity to issue a GCM than to express a qualification. Moreover, we find other interesting results that contradict the mainstream literature, detecting a stronger negative reaction in the case of recurring GCMs and when the modification is issued by non-Big 4 auditing firms. These differences could be explained considering the environmental characteristics of the Italian market such as the ownership structure, governance mechanisms and accounting culture, where minority investors act against ownership in accordance with the type II agency problem. Our empirical results suggest that the domestic and international regulatory amendments during the study period have increased the value relevance of GCMs and the usefulness of financial disclosures. This study might be of interest to practitioners and regulators in regard to contributing to the introduction of further regulatory interventions that will enhance both the informativeness of audit reports and awareness of investors in regard to going concern uncertainty.

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The purpose of this paper is to feed the debate regarding investor's reaction to relevant financial information releases as yearly earnings announcements (EAs) with a specific focus on financial distressed firms. Using the event study methodology and adopting two well-known tests in the literature, we analyzed Italian listed companies in the period of 2008-2016, to detect whether there is a market reaction to EAs releases for firms in financial distress, adopting as a measure of financial distress the presence in the audit report of a going concern opinion (GCO). In the Italian legislation, the GCO must be communicated immediately to the market and this can be done before, simultaneously or after EAs. The achieved results shed light on the negative impact of EAs of distressed firms receiving a GCO. On the other hand, the possibility that negative abnormal returns are mainly due to the GCO release cannot be neglected. Hence, through additional tests, we found that effects of EAs are more persistent and significant than GCOs, in accordance with the prevailing literature, which sees, on average, EAs predominant information for investors. Our study is pioneering in disentangling possible effects of confounding events for the Italian stock market. The EAs superior effect confirms the dynamics characterizing weak and small equity markets as Italy where, before GCOs releases, some relevant and more precise information (such as earnings magnitude) is often held by shareholders because of the high percentage of family firms and/or concentrated ownership, demonstrating also the weakness of auditor profession if compared with other developed countries.

The purpose of this research is to investigate earnings management purposes in the banking industry via loan loss provisions using a sample of 156 banks from 19 European countries under the Single Supervisory Mechanism (SSM) over the period 2006-2016. Using regression analysis, banks are tested for income smoothing, capital management, and signaling purposes. This study contributes to the literature exploring the relationship between accounting quality and earnings management objectives by analyzing which one of the latter is the most important determinant. The hypothesis of income smoothing and signaling are strongly approved since loan loss provisions consist as a tool for smoothing the amount of net profit and to convey private information to the market; on the contrary, the capital management purpose is not supported. Additionally, the analysis finds that non-discretionary components of loan loss provisions (essentially non-performing loans) have played an important role, especially during the financial crisis. Furthermore, the research is aimed at investigating the peculiar regulatory and supervisory environment in the banking industry on the basis of a set of indexes included in the “Bank Regulation and Supervision Survey”, carried out by the World Bank. Differently, from previous literature, this study takes into account the last release of the survey, emphasizes the role of an on-site inspection as a main supervisory tool and extends the analysis of the interaction between bank regulation and supervision and earnings management. The results demonstrate that such controls can influence the behavior of bank managers in terms of income smoothing and signaling practices. Therefore they can be considered as effective instruments able at reducing banks’ management accounting discretion, making financial statements more reliable

While more and more businesses incorporate sustainability in their core business strategy, there has recently been a shift from corporate social responsibility (CSR) to the notion of creating shared value (CSV). This thesis investigates the emergence of new hybrid enterprises and innovative business models. Starting from a literature review about CSR and its evolution into the “Big Idea” proposed by Porter and Kramer, the chapter will analyse the link between business and society, especially in the developing countries where this link is stronger. The main aim is to identify the most effective business models that enhance the competitiveness of a company, while simultaneously advancing the economic and social conditions in the communities in which it operates. The general idea is that enterprises should have longer-term perspective on how they operate in relation to the external society and environment, addressing societal needs and challenges through the business itself, within a business model.