Global Financial Crisis, Institutional Ownership, and the Earnings Informativeness of Income Smoothing

Chen, Ching Lung; Weng, Pei Yu; Lin, Yu Chih

doi:10.1177/0148558x17696759

Cited by 12 publications

(14 citation statements)

References 66 publications

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“…Likewise, Habib et al (2013) provide some evidence that discretionary accruals became less informative during the global financial crisis of 2008 in New Zealand. Based on the Taiwan data, Chen et al (2020) examine whether the informativeness of income smoothing was influenced by the global financial crisis. Their results suggest that income smoothing was less efficient in communicating private information to investors during the crisis period.…”

Section: Related Researchmentioning

confidence: 99%

The impact of COVID-19 pandemic on earnings management and the value relevance of earnings: US evidence

Liu

Sun

2022

MAJ

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Purpose The purpose of this study is to examine whether the COVID-19 pandemic has affected earnings management and the value relevance of earnings in the USA. Design/methodology/approach Discretionary accruals, the explanatory power and slope coefficient of earnings are compared between 2019 (prepandemic year) and 2020 (pandemic year). Univariate and regression analyses are performed. Findings There was a significant decline in discretionary accruals from 2019 to 2020, suggesting that firms engaged in more income-decreasing earnings management to take a big bath in reporting earnings in the pandemic year. Meanwhile, the explanatory power and slope coefficient of earnings both were lower in 2020 than in 2019, consistent with the notion that the pandemic has impaired the value relevance of earnings. Originality/value This study explores the consequences of the pandemic from accounting perspective. It also enriches accounting research on economic crises.

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Section: Related Researchmentioning

confidence: 99%

The impact of COVID-19 pandemic on earnings management and the value relevance of earnings: US evidence

Liu

Sun

2022

MAJ

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“…It also strives to match the goals of management with those of stakeholders. In other words, the majority of decisions in companies are made by managers whose motivations are not always completely aligned with those of outside investors, which means that manager–shareholder disputes are caused by unobservable managerial motivations and behaviors (Chen et al , 2020). In this situation, agency theory supports the use of control techniques to reduce the EM practices, and improve the company performance (Jensen and Meckling, 1976).…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Does earnings management mediate the relationship between audit quality and company performance? Evidence from Jordan

Afifa

Saleh

Haniah

2021

JFRA

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Purpose The purpose of this study is to look at the direct relationship between audit quality, earnings management (EM) practices and company performance, as well as the indirect influence (mediation) of EM practices in the relationship between audit quality and company performance. It offers empirical evidence from the Jordanian market, which is considered an emerging market. Design/methodology/approach The population of this study is represented in Jordanian service companies listed on the Amman Stock Exchange (ASE), with a total of 344 company-year observations. Furthermore, panel data analysis was used in this study, and data for the study were acquired from yearly reports as well as the ASE’s database. Findings Based on generalized method of moments model, the present findings demonstrate that the size of the audit firm and the tenure of the audit firm have a positive and negative influence on EM practices, respectively, but that industry-specialist audit firm has a negative and insignificant effect. EM practices have a negative impact on two company performance proxies (ROA and ROE), but have no effect on earnings per share (EPS). Furthermore, the size of the audit firm has a positive and significant influence on the performance proxies of the company [i.e. return on assets (ROA) and return on equity (ROE)]. The presence of an industry-specialist audit firm has a positive and significant influence on two proxies of company performance (ROE and EPS), but a negative and significant impact on ROA. An audit firm’s tenure has a negative and significant impact on two performance proxies (ROA and EPS), but a positive and significant impact on ROE. Then, EM practices either fully or partially mediate the relationship between audit quality proxies and company performance as assessed by ROA, ROE and EPS. Research limitations/implications The current study’s limitation is that it only searched in Jordanian service companies listed on ASE from 2012 to 2019 to meet the study’s objectives; thus, the authors recommend that future work investigate the study model for other sectors, whether in Jordan or other emerging markets such as the Middle East and North Africa. Another limitation of this study is that the study models lack important variables, which may affect EM and company performance, such as corporate governance and ownership structure characteristics; as a result, the authors recommend that future work includes such variables in future research models to have more explanations in this context. Practical implications Analysts, investors and other strategic decision makers may use the findings of this study to improve the efficiency and efficacy of Jordan’s financial market. These findings will enhance policymakers’ willingness to establish appropriate regulations, which might improve Jordan’s financial market performance and efficacy. These findings may help investors make better judgments by using audit quality proxies and EM indicators, which can forecast business success. Originality/value First, this study distinguishes itself from prior studies through establishing a new research model, by investigating the mediating effect of EM in the relationship between audit quality and company performance. It provides empirical evidence from the Jordanian market; hence, it increases the body of the knowledge in this context. Second, to the best of the authors’ knowledge, this is the first study to look into the link between audit quality, EM and company performance together; hence, the model of this study is developed using agency theory and information asymmetry theory. Third, the current study adds new evidence to the role of audit quality and EM in companies, as well as how audit quality and EM practices affect company performance in emerging markets such as Jordan.

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“…The earnings informativeness of income smoothing decreased after the occurrence of the crisis. High institutional ownership also reduces the informativeness of earnings for firms with income smoothing and supports the institutional investors' opportunism hypothesis (Chen, Weng, & Lin, 2017). In discretionary accrual policy, if it provides earnings informativeness, then the policy increases earnings quality (Dechow & Dichev, 2002).…”

Section: Introductionmentioning

confidence: 60%

Earning Informativeness is Moderating Investment Opportunity, Return on Asset, and Leverage on Prudence Measurement

Malau

2020

Journal of Accounting, Business and Finance Research

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This study aims to analyze whether earning informativeness can moderate the effect investment opportunity, return on asset, and leverage on the prudence measurement. The method used in this study is a panel regression analysis. The sample used in the study was 500 observations using data from manufacturing companies for the period 2014-2018. The results of the first model show that investment opportunity has a significant positive effect on prudence. Return on asset has a significant positive effect on prudence. Leverage has a significant positive effect on prudence. The results of the second model show earning informativeness strengthens the effect of investment opportunity on prudence. Earning informativeness strengthens the effect of return on asset on prudence. Earning informativeness strengthens the effect of leverage on prudence. The implication of this study that funding decisions made inaccurately will cause fixed costs and subsequently result in a low profitability of a company. High profit quality accurately reflects the company's operational performance.

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Global Financial Crisis, Institutional Ownership, and the Earnings Informativeness of Income Smoothing

Cited by 12 publications

References 66 publications

The impact of COVID-19 pandemic on earnings management and the value relevance of earnings: US evidence

The impact of COVID-19 pandemic on earnings management and the value relevance of earnings: US evidence

Does earnings management mediate the relationship between audit quality and company performance? Evidence from Jordan

Earning Informativeness is Moderating Investment Opportunity, Return on Asset, and Leverage on Prudence Measurement

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