The effect of internal control and risk management regulation on earnings quality: Evidence from Germany

Brown, Nerissa C.; Pott, Christiane; Wömpener, Andreas

doi:10.1016/j.jaccpubpol.2013.10.003

Cited by 75 publications

(52 citation statements)

References 54 publications

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“…Nearly all cross-sectional studies focus on the US and, in particular, on the impact of the Sarbanes-Oxley Act (SOX) on earnings management (e.g., Ashbaugh-Skaife et al, 2008;Bartov and Cohen, 2007;Cohen et al, 2008;Li et al, 2008). Two exceptions are the studies by Brown et al (2008) and Gassen and Ashbaugh-Skaife (2009). The latter document that the internal control reforms in Germany mandated by the KonTraG have positively affected earnings management and improved the monitoring role of audits.…”

Section: Effects Of the Enforcement Reforms On Earnings Qualitymentioning

confidence: 99%

“…Almost all of the previous studies on enforcement focus on common-law countries. Only three recent empirical studies (Brown et al, 2008;Ernstberger et al, 2011;Gassen and Ashbaugh-Skaife, 2009) focus on Germany, which can be seen as a typical code-law country. Two of these studies examine the impact of internal control and audit reforms enacted by the German government in the Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG -Act of Control and Transparency of Enterprises) in 1998, and both find that the reforms have increased the frequency of qualified audit opinions, the information content of first-time going-concern audit reports, the demand for large-scale auditors, the number of auditor lawsuits, and earnings quality.…”

Section: Introductionmentioning

confidence: 99%

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Economic Consequences of Accounting Enforcement Reforms: The Case of Germany

Ernstberger

Stich

Vogler

2012

European Accounting Review

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This study investigates recent reforms in financial reporting enforcement in Germany. The objective of these reforms was to promote a consistent and faithful application of accounting standards. Using a difference-in-differences approach, we find some evidence of a decrease in earnings management, an increase in stock liquidity, and, to a limited extent, an increase in market valuation for companies that fall under the new enforcement regime. Our results also provide some support for the notion that companies characterized by an overall low level of enforcement through other internal and external mechanisms are particularly affected by these reforms. The results are largely robust in several sensitivity analyses, but the results must be interpreted with caution because we cannot completely rule out the possibility of other explanations.

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Section: Effects Of the Enforcement Reforms On Earnings Qualitymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Economic Consequences of Accounting Enforcement Reforms: The Case of Germany

Ernstberger

Stich

Vogler

2012

European Accounting Review

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“…Effective internal control with its information and communication factor will help to solve the problem of information asymmetry [3]. Effective internal control will also help to solve the agency problem.…”

Section: Theory Analysis and Hypothesis Developmentmentioning

confidence: 99%

Does Internal Control in China State-owned Listed Firms Improve Investment Efficiency?

Lin¹

2017

dtssehs

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Abstract:The main board firms listed on Shanghai and Shenzhen stock markets have been required to implement the Basic Criteria of Enterprise Internal Control since the year of 2012. This paper traces China state-owned listed firms the effects of internal control on investment efficiency from the year of 2012 to 2014. We find that under different circumstances, the internal control material weakness firms have the problem of inefficient investment, however, the under-investment and over-investment problems are alleviated in the second year following the year of material weakness. The above discovery shows that the implementing of the Basic Criteria of Enterprise Internal Control by China state-owned listed firms has its positive effects.

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“…For instance, several countries with highly developed financial systems have suffered accounting scandals such as those involving Enron and WorldCom (the U.S.), Tesco (the U.K.), Biovail (Canada), One.Tel (Australia), and Olympus (Japan). In response to such scandals, national financial authorities and legislatures have enacted laws to strengthen audits and internal control systems (Brown, Pott, & Wömpener, ), which have improved the transparency of firms and enabled stakeholders to obtain high‐quality accounting information. These events illustrate how levels of financial development are associated with advances in financial accounting regulation.…”

Section: Introductionmentioning

confidence: 99%

A cross‐country study on the relationship between financial development and earnings management

Enomoto

Kimura

Yamaguchi

2017

Financ Manag Account

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This study investigates whether a country's level of financial development is associated with earnings management in an international setting. Financial development is likely to heighten the monitoring and scrutiny of accounting numbers because of strengthened investor protection laws and regulations as well as sophisticated market participants. Therefore, we first hypothesize that both accrualbased and real earnings management decrease with greater financial development. However, research shows that managers tend to apply real earnings management, instead of accrual-based earnings management, under strict accounting standards, regulations, and close auditor scrutiny. Thus, we explore the alternative hypothesis that accrual-based earnings management decreases but real earnings management increases along with higher financial development. We examine the relationship between financial development and both types of earnings management using 56,830 observations in 37 countries covering the period 2009-2012. The results indicate that both types of earnings management are more restrained under higher levels of financial development.

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The effect of internal control and risk management regulation on earnings quality: Evidence from Germany

Cited by 75 publications

References 54 publications

Economic Consequences of Accounting Enforcement Reforms: The Case of Germany

Economic Consequences of Accounting Enforcement Reforms: The Case of Germany

Does Internal Control in China State-owned Listed Firms Improve Investment Efficiency?

A cross‐country study on the relationship between financial development and earnings management

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