This thesis researches to which extent companies use earnings management in times of CEO turnover, which is a continuing, complex and rather complicated issue. Earnings management was tested on different attribute such as: firm industry, firm size, CEO’s age, and the CEO’s origin (internal or external). The data was gathered through a quantitative study based on public companies’ financial reports. The sample includes 252 firms listed on Nasdaq OMX Stockholm and have been subject of a CEO change at some occasion during 2005-2011. The statistical result from the mixed-model ANOVA tests showed in general significant result of upward earnings management the year of CEO change, but not the following year. While there are many explanations to the findings of how earnings management is used on the Swedish market, the analysis and conclusion elaborate the reason that ought to be the blueprint of reality.

This paper tests the relationship between ownership/leadership structures and stock returns for firms listed in Taiwan. A ¡§Governance Index¡¨ is built based on four different aspects of the company¡¦s governance structure: 1.) CEO duality, 2.) Size of the board of directors, 3.) Managements¡¦ shareholdings and 4.) Block shareholders¡¦ holding. This index is used as a proxy measure of the effectiveness of corporate governance mechanism. I show that firms identified by the governance index as under sounding governance outperform those under poor governance. The results indicate that the corporate governance index built in this study is a valid measure in evaluating the effectiveness of corporate governance of firms in Taiwan. I demonstrate one additional application of the governance index constructed in this dissertation by showing that firms (identified by the governance index) with strong corporate governance mechanism effectively constrain the propensity of managers to engage in earnings management and improve the quality of reported earnings. Corporate governance is an effective monitoring device of the quality of financial reporting. Firms with poor governance structure are more likely to avoid reporting small losses by reporting small positive earnings. Furthermore, the magnitude of abnormal accruals is significantly related to governance level. Firms with weak corporate governance structures are more likely to use discretionary accruals to raise reported earnings.

Earnings management can be used to respond to a variable economics environment to improve firm performance under efficient contracting perspective but earnings management can also be abused to hurt a firm¡¦s performance under opportunistic behavioral perspective. Investors, therefore, have difficulty to understand and know about the purpose of earnings management, especially for firms in Taiwan that are very likely to engage in earnings management due to poor governance. Although numerous literatures have shed light on managers¡¦ incentives on earnings management and the effects of earnings management on firm performance, little attention has been devoted to disentangle the relation among corporate governance, earnings management and firm performance. The purpose of this dissertation is to unravel manager¡¦s intension on earnings management and to clarify whether proper governance can alleviate the abuse of earnings management and, therefore, enhance firm performance. Without distilling the effect of corporate governance on earnings management, the empirical results indicate that there is an inverse relation between earnings management and firm performance, implying that managers are more likely to exploit the latitude of earnings management to mislead investors and gain opportunistic profit. This dissertation further examines the relation between earnings management and the features of corporate governance including ownership structure and board characteristics. These results show that stronger corporate governance can effectively reduce the abuse of earnings management. Furthermore, this dissertation provides the evidence that the relation between earnings management and firm performance is improved when the use of earnings management is monitored under proper governance.

This dissertation consists of three stand-alone essays on fundamental uncertainty, stock return volatility and earnings management. The first study investigates the role of information about firms?? fundamentals contained in analysts?? forecasts (which I label ??non-accounting information??) in understanding stock return volatility. When combined with Ohlson??s (1995) linear information dynamics, the accounting version of the Campbell-Shiller model (Campbell and Shiller 1988a, 1988b; Vuolteenaho 2002) implies that if current non-accounting information is more uncertain, then future stock returns are expected to be more volatile. The empirical evidence supports the theoretical predictions, and the results are valid for measures of both systematic and idiosyncratic volatility. Additional analysis yields some evidence that both favourable and unfavourable news from non-accounting information increases future stock return volatility. Overall, the results highlight the value relevance of information in analysts?? forecasts beyond what is contained in the current financial statements. The second essay extends the theoretical framework of Callen and Segal (2004) and Vuolteenaho (2002) to investigate the association between the uncertainty of accrual information and stock return volatility. The empirical evidence supports the theoretical prediction that the extent of uncertainty in accounting accruals is increasing with the volatility of future stock returns, and the results are valid for measures of both systematic and idiosyncratic volatility. However, when accrual variability is decomposed into fundamental and unexpected portions, I find that the positive relationship between accrual variability and future stock return volatility is dominated by the fundamental component of accrual variability. The findings therefore suggest that the market places little weight on information conveyed by that component of accounting accruals that is most likely to reflect accounting choices, implementation decisions and managerial opportunism. The final essay argues that the presumed articulation among accruals, cash flows and revenues does not capture decisions on expected accruals when large external financing activities are present. The analysis provides evidence that managers?? ??normal?? operating decisions associated with net external financing activities are likely to lead to measurement errors in unexpected accruals that are part of expected accruals, and erroneous conclusions that significant earnings management exists when in fact there is none. This is especially pertinent in cases where the partitioning variable used to identify instances of earnings management is supposed to be uncorrelated with external financing, when in fact it is correlated. The results underscore the importance of additional specification tests being conducted to control for estimation biases in unexpected accruals associated with external financing. I suggest the use of matched-firm approach using industry and external financing matches in order that reliable and warranted inferences are made.

This study provides evidence between auditors' fees and earnings management in New Zealand. The fee measures used in this study are audit fees, non-audit fees and total fees paid by a client to the audit firm. For each of the three fee measures, I derive client importance fee measures that reflect a client’s economic importance to the auditor relative to other clients of the auditor at the city office and national levels. This study employs both performance adjusted discretionary accruals and current accruals as proxies for earnings management. Using a sample of 224 firm-years comprising firms listed on the New Zealand Stock Exchange (NZX) in fiscal years 2004 and 2005, the results of multivariate tests indicate an adverse association between non-audit fees and earnings management. In other words, non-audit fees paid by a client relative to fees paid by other clients, at the office and national levels, appear to impair the auditor’s independence because clients generating relatively more non-audit fees report greater discretionary and current accruals. Such evidence is more pronounced for income increasing accrual proxies for earnings management. The results also show that audit fee is not related to earnings management. As the results in this study are consistent across both discretionary and current accruals, the validity of the results is strengthened. This study contributes to the literature by providing insight into how auditors’ fee metrics indicating client importance affect earnings management in a legal and institutional environment of a small economy, and where the audit market is largely saturated with little room for growth. This study raises implications for relevant regulatory bodies in New Zealand pertaining to future developments of auditor independence and financial reporting regulations.

Tese (doutorado)—Universidade de Brasília, Universidade Federal da Paraíba, Universidade Federal do Rio Grande do Norte, Programa Multi-Institucional e Inter-Regional de Pós-Graduação em Ciências Contábeis, 2016. / Submitted by Fernanda Percia França (fernandafranca@bce.unb.br) on 2016-09-13T17:26:08Z No. of bitstreams: 1 2016_ViníciusGomesMartins.pdf: 1832204 bytes, checksum: e169603fe95c583dbac26625b6e0b575 (MD5) / Approved for entry into archive by Raquel Viana(raquelviana@bce.unb.br) on 2016-09-20T21:29:51Z (GMT) No. of bitstreams: 1 2016_ViníciusGomesMartins.pdf: 1832204 bytes, checksum: e169603fe95c583dbac26625b6e0b575 (MD5) / Made available in DSpace on 2016-09-20T21:29:51Z (GMT). No. of bitstreams: 1 2016_ViníciusGomesMartins.pdf: 1832204 bytes, checksum: e169603fe95c583dbac26625b6e0b575 (MD5) / A literatura sugere duas abordagens gerais para a explicação da anomalia dos accruals: i) mispricing e ii) fator de risco. As escolhas contábeis oportunistas dos gestores podem agravar tanto o mispricing quanto o fator de risco. Considerando-se que os gestores possuem incentivos atrelados ao mercado de capitais, ao perceberem que os accruals representam um mispricing, podem tentar influenciar os preços das ações por meio de suas escolhas contábeis, com o objetivo de maximizar os seus benefícios. Já sob a hipótese de fator de risco, os gestores que buscarem influenciar os preços dos títulos por meio dos accruals discricionários podem ser penalizados pelo aumento do custo de capital próprio. A literatura (RADHAKRISHNAN; WU, 2014; ECKER; SCHIPPER, 2014) aponta que os investidores institucionais e os analistas de mercado são considerados exemplos de monitores externos, capazes de mitigar as práticas oportunistas dos gestores. Nesse contexto, esta tese teve como objetivo investigar de que forma o monitoramento externo, exercido por investidores institucionais, cobertura e previsão de analistas, influencia a precificação dos accruals sob a forma de mispricing ou fator de risco precificável. Para alcançar esse objetivo, utilizou-se uma amostra de empresas não financeiras listadas na BM&FBovespa no período de 2010 a 2014. Para análise da anomalia dos accruals, fez-se o uso da metodologia de carteiras com a aplicação de modelos de precificação de ativos propostos por Machado e Medeiros (2011) e Fama e French (1993). Adicionalmente, realizou-se a análise por meio dos ativos individuais utilizando a técnica de dados em painel. Para analisar se os accruals representam um fator de risco ou um mispricing, fez-se uso da metodologia de regressão em duas etapas, conforme Core, Guay e Verdi (2008), e, para análise de robustez, utilizou-se o teste de Mishkin. Os resultados demonstraram evidências da anomalia dos accruals, chegando a obter spread de até 8,2% para as empresas pequenas e com baixo monitoramento externo, e que as evidências são mais fortes quando se avalia o componente discricionário, sugerindo que tal fenômeno é intensificado pelas escolhas discricionárias dos gestores. Vale destacar que a variável cobertura de analistas foi a que apresentou melhor consistência em mitigar o efeito da anomalia em todos os testes. A análise por meio da metodologia de regressões em duas etapas não permitiu concluir que os accruals totais e os discricionários representam um fator de risco precificável, indicando que as evidências de anomalia são provocadas por erro de precificação do mercado (mispricing). A análise de robustez, realizada por meio do teste de Mishkin, indicou evidências de mal apreçamento dos accruals discricionários de empresas com baixo monitoramento, implicando mais uma vez que a anomalia dos accruals pode ser explicada pelo mispricing dessa informação. Esses resultados empíricos sugerem que anomalia dos accruals está diretamente relacionada com o componente discricionário dos lucros e que o monitoramento externo, exercido por investidores institucionais e analistas de mercado, age como um mecanismo disciplinador capaz de reduzir os incentivos para escolhas contábeis oportunistas que, consequentemente, contribuem para a qualidade dos accruals reportados bem como para sua correta precificação. ________________________________________________________________________________________________ ABSTRACT / The literature suggests two general approaches to explain the anomaly accruals: i) mispricing and ii) risk factor. The opportunistic accounting choices of managers can aggravate both the mispricing and the risk factor. Considering managers have incentives linked to the capital market, when they realized that the accruals represent a mispricing, they may try to influence stock prices through their accounting choices, in order to maximize its benefits. Already under the risk factor hypothesis, managers who seek to influence the prices of securities through discretionary accruals may be penalized by the increase in the cost of equity. The literature (RADHAKRISHNAN; WU, 2014; ECKER; SCHIPPER, 2014) points out that institutional investors and market analysts are considered examples of external monitors, able to mitigate opportunistic practices of managers. In this context, this thesis aimed to investigate how the external monitoring, exercised by institutional investors, coverage and forecast analysts, influences the pricing of accruals in the form of mispricing or priceable risk factor. To achieve this goal, a sample of non-financial companies listed on the BM & FBovespa in the period 2010-2014 was used. For analysis of anomaly of accruals, portfolio methodology with the application of pricing models of assets proposed by Machado and Medeiros (2011) and Fama and French (1993) was used. Additionally, the analysis was performed using the individual assets using the technique of panel data. To assess whether the accruals represent a risk factor or a mispricing, regression methodology in two stages was used, according to Core, Guay and Verdi (2008), and for robustness analysis, the Mishkin test was used. The results showed evidence of abnormality of accruals, coming to get spread up to 8.2% for small businesses and with low external monitoring, and that the evidence is strongest when evaluating the discretionary component, suggesting that this phenomenon is intensified by discretionary decisions of managers. It is noteworthy that the analysts coverage variable showed the best consistency on mitigating the effect of the anomaly in all tests. The analysis by regression methodology in two stages did not allow to conclude that the total and discretionary accruals represent a priceable risk factor, indicating that the evidences anomaly are caused by market pricing error (mispricing). The robustness analysis, conducted by the Mishkin test, indicated evidence of bad pricing of discretionary accruals of firms with low monitoring, implying again that the anomaly of accruals can be explained by the mispricing of that information. These empirical results suggest that anomaly of accruals is directly related to the discretionary component of the profits and the external monitoring, exercised by institutional investors and market analysts, acts as a disciplining mechanism able to reduce the incentives for opportunistic accounting choices that consequently contribute to the quality of reported accruals as well as their correct pricing.

Previous studies have concluded that mandatory audit firm rotation (MAFR) has not been successful in controlling the outcomes of the auditor-client relationship. Additionally, the literature concludes that high institutional ownership enhances audit quality through monitoring the management-auditor relationship. This paper hypothesizes that better corporate governance in terms of high institutional ownership percentage will enhance audit quality during a MAFR regime. Since countries that have implemented MAFR in the past have their data in their local languages, I use the special case of Arthur Andersen clients based in the US as my treatment group. I carry out a descriptive statistical analysis and run linear OLS regressions with discretionary accruals as a proxy for audit quality as my dependent variable. Results suggest that the percentage of institutional ownership does not have a significant impact on audit quality in a MAFR regime.

Dual-class stock structure is characterized by the separation of voting rights and cash flow rights. The departure from a common “one share-one vote” configuration creates ideal conditions for conflicts of interest and agency problems between controlling insiders (the holders of voting rights) and remaining shareholders. The owners of voting rights have the opportunity to extract private benefits and act in their personal interest; as a result, dual-class firms are often perceived to have low transparency and high information asymmetry. This dissertation investigates the quality of information and the information environment of firms with two classes of stock. The first essay examines the quality of information by studying accruals in dual-class firms in comparison to firms with only one class of stock. The results suggest that the quality of accruals is better in dual-class firms than in single-class firms. In addition, the difference in the quality of accruals between firms that abolish their dual-class share structure by unification and singe-class firms disappears in the post-unification period. The second essay investigates the earnings informativeness of dual-class firms by examining the explanatory power of earnings for returns. The results indicate that the earnings informativeness is lower for dual-class firms as compared to single-class firms. Earnings informativeness improves in firms that unify their shares. The third essay compares the level of information asymmetry between dual-class firms and single-class firms. It is documented that the information environment for dual-class firms is worse than for single-class firms. Also, the finding suggests that the difference in information environment between dual-class firms and single-class firms disappears after dual-class stock unification.

No description available.

The purpose of this research is to examine whether managers of troubled firms engage in income-increasing earnings management for capital market purposes to maintain a listing on the NASDAQ National Market. Troubled firms are defined as those firms whose share price has fallen below the specified dollar-per-share minimum mandated by the market. The two hypotheses attempt to answer two separate, but interrelated questions: First, do managers of troubled firms engage in earnings management more in periods of distress than in periods of non-distress? And second, do managers of troubled firms engage in earnings management more than similar firms not in jeopardy of delisting? Both a time-series and cross-sectional approach is used to answer these questions. The initial grouping consisted of all NASDAQ National Market firms with a share price of $1 or below at some point during the period from March 1997 through September 2002. The final sample consisted of 215 firms for the time-series analysis and 495 firms for the cross-sectional analysis. Two accrual expectation models were used, including the Jones (1991) and the modified Jones Model (Dechow, Sloan, and Sweeney, 1995). The results were unable to confirm that managers engage in this behavior, and similar to the results of DeAngelo, DeAngelo, and Skinner (1994), the findings suggest that managers' accounting choices primarily reflect their firms' financial difficulties, rather than attempts to inflate income through discretionary accruals. After controlling for reverse stock splits, dividend reductions, going-concern issues/bankruptcy, and changes in management, the models found significantly negative abnormal accruals. The dissertation concludes with a discussion of possible interpretations for the findings. / Ph. D.