How the 2007 global financial crisis changed the financial disclosure behavior

Abstract

Purpose The purpose of this paper is to investigate how the 2007 global financial crisis (GFC) changed financial disclosure behavior using a sample of US equity real estate investment trusts (REITs) from 2000 to 2015. Design/methodology/approach The authors use panel data spanning from 2000 to 2015 to examine the impact of the GFC on REITs’ earnings management (EM) after controlling for other factors (including the market shock in 2007 and 2008). The measurements of EM are estimated by using the models developed from literature such as modified Jones models. The static panel data regression models are used to estimate the impact of GFC on the REITs’ EM. Findings The authors find that REITs are more likely to engage in income-increasing EM to embellish their financial reports during the GFC. However, the magnitude of the use of EM to manipulate disclosed financial information decreased following the GFC, indicating an improvement in the quality of financial disclosure as a consequence of the enhancement of the regulatory environment. REITs also changed the manner in which their EM behavior responded to the main factors in the market following the outbreak of GFC. Research limitations/implications This study contributes to the finance and accounting literature by providing the first empirical test results concerning how the financial disclosure behavior and quality of listed portfolios and companies such as REITs have changed corresponding to the enhancement of the regulatory environment and adverse market conditions brought by GFC. Practical implications This study provides references for investors, auditors, and regulators to help them make adjustments for and improve the interpretation of the disclosed financial information. Originality/value This is one of the first empirical study testing the impact of the GFC on EM. It is also the first empirical study investigating the impact of GFC on the financial disclosure behavior of REITs.

Pass-Through Business Entity Choice and Earnings Management: Evidence From Uk Real Estate Investment Trust Conversion

“…where "EM" stands for the absolute term of AEM and REM measurements in the natural log, and the coefficient "β 1 " is the estimated impact of having REIT status on EM measurements. The choice of control variables " , ' i t x " is consistent with previous literature (Ambrose & Bian, 2010;Anglin et al, 2013;Liang & Dong, 2018;Liang & Dong, 2014;Liang et al, 2021) and they include total asset "Size," leverage ratio "LVR," change in operating income "ChangeOI," the market-to-book value "MTB, " change of revenue "ChangeREV," change of total asset size "Change-Size," cash from Operation "CFO," and a dummy variable indicating if the firm suffers from loss "Dloss." We also include dummy variables "DGFC" and "IFRS" to control for the impact of GFC and IFRS adoption.…”

Does Corporate Social Responsibility Vary by Real Estate Asset Types? Evidence from Real Estate Investment Trusts

“…The control variable "X " represents REITs' financial information using return on assets ("ROA"), a dummy variable on whether a REIT suffers a financial loss ("DLoss"), firm size ("Size") by logged total assets, and leverage ratio ("Leverage"), and the amount of acquisition scaled by the total asset ("Acquisition") to account for the other strategic actions undertaken by a REIT that may affect its CSR engagement at a specific point in time. The choice of these control variables is consistent with the previous literature [68][69][70]. We include country-fixed effect to control for the diversity of jurisdiction and countries (δ c ).…”

Information asymmetry and REITs’ excess dividends: US and European market comparison

“…Alternatively, Liang and Dong (2018) indicate that greater transparency forces REITs to adopt more conservative strategies in handling accruals on financial reports and engage in more real earnings management through the manipulation of business activities and decide to adopt these values as a proxy for REITs' financial disclosure.…”