Is there any association between real earnings management and crash risk of stock price during uncertainty? An evidence from family-owned firms in an emerging economy

Fatima, Huma; Haque, Abdul; Usman, Muhammad

doi:10.1186/s43093-020-00038-5

Cited by 3 publications

(5 citation statements)

References 56 publications

(73 reference statements)

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“…This is a topic that has not been previously studied, and it has been found that in the years in which the stock market crashes occur and in the years shortly before and after them, the great majority of accounting deception begins. As commented for the first result obtained (the relationship between the scandal and the stock market crash), when a stock market crash occurs, the economy begins to deteriorate, which has a negative effect on many companies, which may encourage them to engage in accounting deception (Fatima et al, 2020).…”

Section: Discussionmentioning

confidence: 98%

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Relationship among economic crisis, stock market crashes and accounting scandals

Lloret Millan,

Arimany Serrat

2023

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Purpose: This work investigates the relationships between stock exchange crashes and accounting scandals.Design/methodology: We analyze the main accounting scandals and stock exchange crashes that occurred between 1980 and 2020. Findings:First of all, it was verified that a stock market crash occurred in the years in which most of the accounting scandals took place (or within the next three years). This evidence is consistent with much of the previous literature. Second, an average of 5.4 years has been estimated as the period of time that elapses between the time a company starts engaging in accounting deception and the moment when it is discovered and the scandal breaks out. Third, it has been found that accounting deception is more likely to occur in years with stock market crashes and in the years immediately following. The literature review revealed no evidence supporting the two latter hypotheses. Research limitations/implications:This exploratory work has several limitations. First of all, only scandals that have been reported on websites in Spanish and English have been analyzed. Therefore, the sample may be biased, giving more weight to companies from Anglo-Saxon and Spanish-speaking countries. Second, the sample was made up of a small number of companies (53), which are those that have met the search criteria used. Practical implications:The findings of this work are relevant today, since a major stock exchange crash has occurred as a result of the coronavirus. Therefore, if the pattern of the most recent decades is repeated, it would be expected that more accounting scandals will come to light in the coming years. Social implications:The conclusions obtained are of great relevance for the different users of the financial information from companies, and also for auditors, consultants and supervisory bodies, since due to the stock exchange crash triggered by COVID-19, they will need to exercise extreme caution in the coming years in relation to financial information. Originality/value:The work provides evidence on the relationship between stock market crashes and accounting scandals, which is a highly relevant topic. The literature review revealed no study using the same methodology or a similar sample of companies.

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Section: Discussionmentioning

confidence: 98%

“…Dai et al (2019) reached the same conclusion in a study focused exclusively on Chinese companies. The same can be said of Fatima et al (2020) in relation to companies in Pakistan.…”

Section: Relationship Between Stock Market Crashes and Accounting Dec...mentioning

confidence: 90%

Relationship among economic crisis, stock market crashes and accounting scandals

Lloret Millan,

Arimany Serrat

2023

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“…On the other hand, concentrated ownership can bring the entrenchment effect and lead to a higher conflict of minority-majority shareholders. Some studies find the entrenchment effect in the family firms that lead to higher earnings management behavior (Alhebri and Al-Duais, 2020;Fatima et al, 2020;Martin et al, 2017;Di Meo et al, 2017;Yang, 2010). Other studies also show the insignificant role of the family to reduce minority-majority shareholders and fail to mitigate earnings management behavior, such as Vieira (2016), who does not find a significant effect of family firms on earnings management or Tai (2017), who find that family directors tend to engage more in accrual earnings management than REM one.…”

Section: Family Firmsmentioning

confidence: 99%

Managerial ability and real earnings management in family firms

Putra¹,

Mela²,

Putra³

2021

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Purpose This study aims to examine the effect of managerial ability on real earnings management (hereafter REM) in family firms. Design/methodology/approach The sample consists of 864 firms-years listed in the Indonesian Stock Exchange. REM is measured by abnormal activities. Managerial ability is measured by data envelopment analysis. Data analysis uses random-effect regression analysis. Findings Family firms reduce the possibility of higher ability managers to engage in REM. Compare to non-family firms, higher ability managers in family firms are more likely to engage in REM to improve future earnings. Research limitations/implications This research only uses efficiency score data envelopment analysis to measure managerial ability while the managerial ability is, by nature, multi-dimensional and unobservable. This research also does not find the role of professional Chief Executive Officer (hereafter CEO) in the family firms in REM behavior because does not consider the professional CEO motivation (e.g. compensation structure). Practical implications This research is expected to help family firms formulate managers' selection based on managerial ability. This research also is expected to help investors and creditors to put their funds in the family firms with higher ability managers that reduce earnings information distortion. Originality/value To the best of the author’s knowledge, this research is the first research that examines the managerial ability on REM in Indonesian family firms. This research also contributes to fil the findings gap in managerial ability and REM.

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“…, 2018). Also, the market environments of such countries are more involved in earnings management practices (Fatima et al. , 2020).…”

Section: Introductionmentioning

confidence: 99%

“…In this sense, emerging or developing nations play a crucial role because the majority of firms in these countries are governed mainly by shareholders with majority shareholdings (Masud et al, 2018). Also, the market environments of such countries are more involved in earnings management practices (Fatima et al, 2020). Furthermore, unlike other countries, for the high transparency of the standards, the listed firms need to disclose the ownership of the firms (Mishra, 2021); thus, these countries are the ideal place for monitoring the role of ownership structure in alleviating opportunistic managerial behavior that is detrimental for investors.…”

Section: Introductionmentioning

confidence: 99%

The moderating role of board diversity on the relationship between ownership structure and real earnings management

Akter,

Wan Yusoff,

Abdul-Hamid

2024

AJAR

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PurposeThis study aims to see the moderating effect of board diversity on the relationship between ownership structure and real earnings management.Design/methodology/approachThis study uses unbalanced panel data of 75 listed energy firms (346 firm-year observations) from three South Asian emerging economies (Bangladesh, India, and Pakistan) from 2015 to 2019. The two-step system GMM estimation is used for data analysis. This study also uses fixed effect regression to obtain robust findings.FindingsThe findings show that firms with a greater ownership concentration and managerial ownership significantly reduce real earnings management. In contrast, the data refute the idea that institutional and foreign ownership affect real earnings management. We also find that board diversity interacts significantly with ownership concentration and managerial ownership, meaning that board diversity moderates the negative link of the primary relationship that reduces real earnings management. On the other hand, board diversity has no interaction with institutional and foreign ownership, implying no moderating effect exists on the primary relationship.Originality/valueTo the best of the authors’ knowledge, this is unique research investigating how different ownership structures affect real earnings management in the emerging nations’ energy sector, which the earlier studies overlook. More specifically, this research focuses on how board diversity moderates the relationships between ownership structure and real earnings management, which could be helpful for future investors.

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Is there any association between real earnings management and crash risk of stock price during uncertainty? An evidence from family-owned firms in an emerging economy

Cited by 3 publications

References 56 publications

Relationship among economic crisis, stock market crashes and accounting scandals

Relationship among economic crisis, stock market crashes and accounting scandals

Managerial ability and real earnings management in family firms

The moderating role of board diversity on the relationship between ownership structure and real earnings management

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