The purpose of this study is to investigate the prevalence of both accrual-and activities-based earnings management for Chinese A-share firms surrounding the adoption of substantially IFRS-convergent accounting standards. Since 2007, all listed A-share firms in China have been required to comply with a new set of accounting standards that have substantially conformed to IFRS. The new reform also produced a set of new auditing standards and internal control reporting requirements. Based on a sample of 4,050 firm-year observations from 2002 to 2011, we find that Chinese firms in the post-IFRS period (2007)(2008)(2009)(2010)(2011) are less likely to engage in accrual-based earnings management. The magnitude of discretionary accruals also declines after IFRS adoption. In response, we see firms turning to real activities manipulation as a substitute for upward earnings management. The reduction in accrual-based earnings management could stem from higher quality accounting standards associated with IFRS adoption and/or concurrent changes in the governance regimes introduced with the IFRS mandate. A further analysis, however, indicates that the benefits of IFRS adoption in curbing upward accrual-based earnings manipulation are not evenly distributed across firms. Specifically, the benefit diminishes for firms that are controlled by Chinese central or local governments, are located in less developed regions, and that have weak financial performance and therefore subject to delisting status. We also find that The authors appreciate the valuable comments provided by the benefit is less pronounced for manufacturing firms than for their non-manufacturing counterparts.
Major international financial institutions (FIs) are using contingent convertible (CoCo) bonds in the wake of the 2008 financial crisis to meet stricter national and international capital requirements. Beginning with UniCredit's €500m 9.375% CoCo in July 2010, more than 40 publically held financial institutions headquartered in 16 countries have issued 68 CoCos. This paper examines investors' reactions to the announcements of CoCo bonds issuances by FIs. Using event-study methodology and measuring cumulative abnormal returns (CARs) following the announcements, we find FIs generally experience negative abnormal returns during the post-announcement period; however, the investors' reactions vary in a country-by-country analysis. These different reactions allow the potential for investors to launch global diversification and trading strategies.
Purpose The authors study how shareholder litigation risk impacts a firm’s decision of real earnings management (REM). This paper aims to shed light on how shareholder litigation risk impacts REM. The authors further explore how the intensifying effect varies systematically conditioning on the degree of information asymmetry and the strength of internal corporate governance. Design/methodology/approach In this study, the authors use the 1999 Ninth Circuit Court ruling as a quasi-experiment that reduces shareholder litigation risk to address endogeneity and establish a causal inference. Findings The difference-in-difference tests suggest lower shareholder litigation risk intensifies REM. In other words, higher litigation risk mitigates REM. Cross-sectional test results suggest the negative effect of decreased shareholder litigation is more pronounced when monitoring difficulty is higher, when information environment is more impoverished and when internal corporate governance is weaker. The negative effect is also stronger in firms with higher sensitivity to legal threats. Originality/value Protection of investors’ interest is the focus of corporate governance. Designed as an important corporate governance mechanism, shareholder litigation enables investors to pursue legal actions to recover their losses in the event of corporate misbehaviors. However, whether shareholder litigation is an effective corporate governance tool and beneficial to shareholders and firms is not without controversy. The authors contribute to the debate by providing evidence that supports the argument that shareholder litigation threat significantly disciplines REM, a form of costlier earnings management technique and myopic investment behavior.
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