Corporate Governance Compliance and Discretionary Accruals: New Zealand Evidence

Bhuiyan, Md. Borhan Uddin; Roudaki, Jamal; Clark, Murray B.

doi:10.14453/aabfj.v7i2.7

Cited by 19 publications

(24 citation statements)

References 49 publications

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“…In NZ, there is a tendency in favour of a soft regulation strategy of equal opportunities, peer pressure and knowledge-sharing (Casey et al , 2011). Moreover, NZ corporate regulation is comparatively more flexible than USA where management is strictly monitored, controlled and penalised for wrong forecast and earnings engineering (Bhuyian et al , 2013). A study by Bhuyian et al , 2013 found evidence that the “comply or explain” nature of soft regulation is effective in NZ and that it reduces managerial discretionary accruals.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Research shows that firms with higher corporate governance compliance have reduced opportunistic management attitudes which ensure higher accountability and reporting quality (Aguilera, 2005; Sinha, 2006). A study by Bhuyian et al (2013) found that corporate governance compliance increase management’s accountability and reduce financial discretion in decision-making.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Research studies on corporate governance and earnings management suggest that better corporate governance measures such as having independent directors, supervisory committees (such as audit committee, nomination committee and remuneration committee) and quality external audits, can reduce opportunistic behaviour by management (Bhuyian et al , 2013).…”

Section: Literature Reviewmentioning

confidence: 99%

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Analysis on corporate governance compliance standards in New Zealand – a qualitative study on disclosures using content analysis and interviews

Chang

2018

JFRC

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Purpose This paper aims to provide more insights into the standard of corporate governance in New Zealand. The study intends to uncover how a small country with a well-developed economy with a good system of law and order, good institutional set up and law enforcements and implements the principles contained in the FMA’s corporate governance guidelines in practice. Design/methodology/approach The study is a mixed study one where it employs case study content analysis and augmented by conducting interviews. Large companies are selected to ascertain the level of compliance of NZ companies towards their obligations to report on corporate governance practices within the organisation. At the first stage, the study uses content analysis and looks at contents of company annual reports and publications on websites to determine whether they had disclosed as intended by New Zealand’s corporate governance guidelines. Findings The study found that a high compliance was recorded in areas such as board composition and board committees and low compliance recorded in areas involving costly implementation or when the issue is sensitive such as disclosures regarding remuneration details of directors and what non-audit work was undertaken and whether it compromises auditor independence. Being a small country, NZ has performed well in attracting foreign investment due to its strong tradition of law enforcement and respect for regulations. With greater awareness of the importance of corporate governance to investors, companies may see the benefit of greater compliance with the corporate governance guidelines. This is in line with the stakeholder theory and resource dependency theory where companies will voluntarily disclose information on corporate governance, social and environmental performance over and above mandatory requirements to appease and manage their stakeholders. Research limitations/implications The sample size of this study represents 3 per cent of total listed companies in New Zealand, but the sample is approximately 10 per cent of local NZ listed companies (i.e. not dual listed in Australia). There are 36 large companies in the New Zealand stock market with market capitalisation of 1 billion and above. In addition, the companies selected for this study are well-known in New Zealand, and it is acknowledged that this can be a source of bias in my analysis. Practical implications As was revealed during the interviews with company’s senior officials, Australian companies have achieved a higher level of compliance with the code of corporate governance. In this regard, New Zealand will have to step up and follow Australia’s lead to ensure greater compliance with the New Zealand corporate governance principles and guidelines. It would be in the best interest of the company’s stakeholders if full compliance is achieved. Originality/value Studies on the level of compliance by New Zealand companies on their obligations to meet the full extent of disclosures as stipulated by the New Zealand corporate governance guidelines are rare. This study aims to ascertain the standard of corporate governance reporting in New Zealand and the company’s seriousness to comply or attempt to meet the requirements in the seven stipulated principles.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

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Analysis on corporate governance compliance standards in New Zealand – a qualitative study on disclosures using content analysis and interviews

Chang

2018

JFRC

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“…Support for this analysis is driven by research that indicates the impact of governance characteristics and institutional settings on earnings management behavior (e.g. Koh, 2003;Reverte, 2008;Epps and Ismail, 2009;Kent et al, 2010;Bhuiyan et al, 2013) as well as recent contributions to the UK literature that document the important effect of some corporate governance mechanisms raised by the Higgs Report (2003) in reducing earnings management activities (Iqbal and Strong, 2010;Habbash et al, 2013a;2013b).The findings of the current study show some evidence of income-increasing pre-merger accrual-based earnings management by stock-financed acquirers in the full sample of years 1990-2009. However, there does not appear to be any changes across periods before and after the enactment of the Higgs recommendations.…”

mentioning

confidence: 99%

Accrual and real-based earnings management by UK acquirers

Kassamany

Ibrahim

Archbold

2017

JAOC

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Methodology: Mean and median accrual and real-based manipulation are examined in the period before the announcement of a merger and acquisition. These are compared across stock and cash acquirers as well as before and after the implementation of the Higgs recommendations. We also run logistic regressions to examine accrual and realbased manipulation across stock and cash acquirers after controlling for variables that may impact the acquisition type. Findings:We find some evidence of upward pre-merger accrual-based earnings management by stock-financed acquirers, which is in line with the findings of Botsari and Meeks (2008). Furthermore, we do not find significant changes in the post-Higgs period which indicates that the recommendations put forth by Higgs may not have been successful in mitigating earnings management. Our evidence also shows that cash bidders engage in pre-merger real earnings manipulation through lower discretionary expenses, possibly to enhance cash availability for the bid. 2Practical implications: The findings in this study confirm earnings management exists around mergers and acquisitions and provide some evidence that the recommendations set out in the Higgs Report do not appear to have mitigated earnings management activities. This is of interest to regulators as well as investors and academicians.Originality: This provides the first analysis in the UK examining the use of real-based earnings management activities by UK acquirers. It also extends prior research around corporate governance changes that occurred in the UK. IntroductionEarnings management has been extensively examined through a stream of research that considers firms involved in specific corporate events (such as seasoned equity offerings, initial public offerings and management buyouts). This study extends prior results on earnings management in mergers and acquisitions (hereafter M&As) that engage in either cash or stock bids; and examines the prevalence of accrual and real-based earnings management in this context. Furthermore, we examine whether regulatory changes in the UK following the Higgs (2003) report have an impact on earnings management in this context.Though prior research has examined accrual-based manipulation in the M&A context in the US (such as Erickson and Wang, 1999; Louis, 2004) in the UK (Botsari and Meeks, 2008), and in the Asia-pacific region (Ardekani et al., 2012;Higgins, 2013;Jeong and Bae, 2013), only limited studies have extended its scope to examine whether acquiring firms engage in the manipulation of real activities (e.g. Zhang, 2015). Therefore, a comprehensive study that considers both accrual and real-based earnings management practices is needed to contribute to earnings management research in the UK M&A context. Furthermore, fundamental changes to governance codes around the world have occurred over the past few years. For example, the enactment of the Sarbanes-Oxley Act in the US; the UK Corporate Governance Code in the UK based on the recommendations set out in the Higgs Report (2003)...

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“…The impact of certain performance indicators is quantified to this end, using indicators such as earnings per share (EPS), book-to-market ratio (BMR) [8], leverage and company size [9,10]. Complementary to these financial indicators, an analysis is performed on the dependence of financial information quality (magnitude of DAC) on variables such as the quality of corporate governance [11,52], the specifics of accounting standards, or the auditor's reputation [12].…”

Section: The Role Of Financial Information Quality In Substantiating the Investment Decisionmentioning

confidence: 99%

Companies’ Sustainable Growth, Accounting Quality, and Investments Performances. The Case of the Romanian Capital Market

et al. 2020

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The paper analyzes the influence of sustainable growth (SGR) as a reflection of the manner of strategic business organization, particularly in the quality of reported financial information (magnitude of discretionary accruals—DAC) as an expression of the ethical attitude adopted by companies in the entity–investor relationship, on the investors’ decisions, substantiated in the performance level of the shares held. Using models consecrated in the literature, the results reflect a significant influence, both in the case of separate testing of the two factors (SGR and DAC), and in the case of the conjugated action thereof, on investment performance. The relations were also tested by introducing certain control variables into the analysis, such as: the intangible ratio, quick ratio, company size, as well as the SGR sensitivity function of the level of information quality. In the case of financial information quality, specific indicators from the two consecrated value relevance testing models by Ohlson (1995) and Easton and Harris (1991) were used as control variables. The obtained results are robust, preserving the sense and intensity of the influences. However, in the case of testing for the influence of information quality on share price, it was noticed an insignificant relation, associated with the situation in which, to execute some speculative transactions, investors particularly interpreted conjunctural factors. The study contributes to the development of the specialty literature by highlighting the role of internal growth and information quality as determinant factors in the investors’ analyses, while also offering a potentially practical tool for assessing the opportunity of making placements in the capital of companies.

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Corporate Governance Compliance and Discretionary Accruals: New Zealand Evidence

Cited by 19 publications

References 49 publications

Analysis on corporate governance compliance standards in New Zealand – a qualitative study on disclosures using content analysis and interviews

Analysis on corporate governance compliance standards in New Zealand – a qualitative study on disclosures using content analysis and interviews

Accrual and real-based earnings management by UK acquirers

Companies’ Sustainable Growth, Accounting Quality, and Investments Performances. The Case of the Romanian Capital Market

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