This thesis examines several important aspects of the impact of religiosity, national culture, corporate governance, BIG4 auditors and legal environment on earnings management practices in the U.S. and 63 other countries. First, the study investigates the extent to which religious socials norms of the firms' environment interact with corporate governance and BIG4 audit to affect managers' motivation to engage in expense and revenue misclassification in order to influence reported core earnings. The results show that religiosity decreases misclassification and complements corporate governance and the Sarbanes-Oxley Act (2002) to mitigate classification shifting in high, rural and geographically centralised segment areas. In a religious social norm environment, the study finds that managers have a disincentive to shift revenue items from, and core expenses into, special items to inflate reported core earnings to avoid market penalties and beat analysts' forecasts, even more so in the presence of board independence. In addition, the study shows that the interactive term between religiosity and audit from the big four auditors also lowers the presence of misclassification. Overall, the results show that religiosity lessens misclassification and complements corporate governance and audit against the misclassification of revenue items or core expenses. Second, the study examines the extent to which religiosity, firms' legal environment, and the interaction between these two variables affect accrual-based and real-activities earnings management. The results suggest that religiosity, legal environment and the interaction between them mitigate accrual-based earnings management. In contrast, the study observes a positive association between religiosity and real-activities earnings management, suggesting that religious social norms facilitate real-activities earnings management. However, the positive effect of religiosity on real activities is subdued when the study interacts the legal environment with religiosity. The results also indicate that firms' corporate governance mechanism mitigates both accrual-based and real activities earnings management. Finally, in Chapter four, the study provides new international evidence by examining the relationship between the misclassification of core expenses into special items and country-wide religiosity, the national dimensions of culture, and the legal environment in developed, emerging and developing countries. The study observes that the interaction between religiosity and legal environment, or national cultural dimensions and legal environment, mitigates expense misclassification in developed, emerging and developing countries. Therefore, the positive effect of power distance, masculinity and uncertainty avoidance on earnings management can no longer be demonstrated when national dimensions of culture interact with the legal environment. In Chapter five, the study concludes, summarises and discusses some of its major findings and contributions. The limitations of the study, policy implications and suggestions for future research are also provided.

The perceived capability of corporate organizations to influence politics, although fueling an ongoing public debate, features in literature as a source of probable benefits. According to the majority of the pertinent studies, these benefits, more often than not, materialize with important value-adding implications. In the U.S. context, whereby political money contributions constitute the prevalent way of establishing connections, this can result in a hefty return on a firm's political investment. Our research posits that if political connections formed via monetary donations elevate the donor to a higher status, this should reflect in circumstances whereby a firm needs to assert its quality to other economic agents. This is the case for firms that are plagued by the market newness liability. Whether as a form of insurance from tail risk or entitlement to economic rents, proximity to politics offers legitimacy and a compelling way of introducing a new venture to the marketplace. To prove this conjecture, we mainly draw from IPOs for representing a setting of acute uncertainty. Our findings confirm that both lobbying and PAC (Political Action Committee) expenditure pays off on listing day as donors incur less underpricing; an effect which can be amplified with contribution size and strategic targeting of recipients. Donor IPOs also experience negative offer price revisions and lower aftermarket volatility. Collectively, these results offer new empirical grounding to uncertainty and signaling theories. Subsequently, we frame IPO pricing as an efficiency problem for prospective issuers and develop an approach of general application in finance, where relationships of influence are suspected. Rather than imposing a regression-based framework, we allow relationships to manifest themselves in a data-driven manner. Our analysis reveals nonlinearities between IPO pricing efficiency and the two contribution avenues (justifying the fully nonparametric treatment). We are able to uncover relationships separately according to business sector, which we interpret in terms of varied competitive environments. Broadening up our scope prior to and after the IPO event, we document that connected firms are associated with a longer time to venture or other equity capital financing, attesting to a greater financial autonomy. Additionally, they attain larger market shares and have a superior likelihood of survival in the public domain.

The financial crisis that started in 2008 led to issues of corporate financial distress and bankruptcy. The global financial crisis has resulted in many venerable institutions being rescued by the government. There is an ongoing research debate in law and economic theories about the efficiency of the US bankruptcy code (Senbet and Wang, 2012; Jory and Madura, 2010; Zhang, 2010; Faelten and Vitkova, 2014). Due to the global financial crisis, there is a fundamental issue questioning whether the bankruptcy law (e.g., Chapters 11 and 7 of the US Bankruptcy Code) is efficient in rehabilitating economically efficient but financially distressed firms and liquidating economically inefficient firms (Senbet and Wang, 2012). Mergers and acquisition (hereafter M&A) involving financially distressed targets and bankrupt targets have become a common practise in the US. Theoretically, restructuring is meant to be a way of reorganizing operations and generating extra resources. However, due to the complexity of businesses and recent global financial crises, there is inconsistency in the association of rewards for Chief Executive Officers (CEOs) and management with the firm's performance. This thesis explores the issues about corporate restructuring, performance and governance of firms including banks in the US emanated from the economic crisis. It comprises three empirical pieces of research. The first empirical research is on the wealth creation of bidders and of M&As of financial distressed and bankrupt targets. Our second research is about the earnings management behaviour of managers. Of those that were involved in the restructuring and reorganization of an organization. It is especially related to carve-out, sell-off, spin-off and other types of divestitures. Our third essay is on bank efficiency; taking into consideration the importance and crucial and urgency in the research related areas, such as the pay structure of the top management, and the existence of the internal monitoring. Institutional ownership plays an important role in corporate performance of firms particularly to banks in the US. First, we examine the wealth effects of M&A activities involving financially constrained targets (hereafter FCTs). By interrogating the wealth creation of bidders of these target firms, this study extends the analysis on the relationship between the discount on deal value, and the financial health of bidder firms. Based on sample data between 1985 and 2012, the study finds that bidders of FCTs earn abnormally positive cumulative abnormal returns (CARs) the day of the M&A announcement. This contrasts with the findings of negative to zero CARs accruing to bidders of financially healthy targets, as documented in the literature. The bidder firms benefit from a low M&A premium on these deals. However, in the long run, both their stock and operating performance lag those of bidders of healthy targets. Second, we examine the earnings management (hereafter EM) behaviour of firms engaged in corporate reorganization and restructuring. More specifically, our sample includes carve-outs, spin-offs, asset sell-offs, and divestitures. We follow Anagnostopoulou and Tsekrekos (2015) and Cohen and Zarowin (2010) to calculate the EM variables. This is so especially the accrual-based and real EM variables. To measure firm performance, we use industry-adjusted return on assets (ROA), cumulative abnormal returns (CARs), and Buy-and-Hold Abnormal Return (BHARs). We use the standard deviation of monthly stock returns (SDAR), as the proxy to measure the stock volatility and information asymmetry. We document a direct relationship between firms that manage earnings above the industry-year median EM index, and changes in the ROA, CARs, and BHARs. Conversely, firms that manage their earnings EM are associated with lower standard deviations in the firms' stock returns for carve-outs. Finally, we examine the relationship between the CEO's pay (CPS) and each of the bank's efficiency and risk. We use several measures of CEO pay including the ratio of CEO pay-to-the total pay of the top five managers. The ratio of CEO pay to the total pay of executives who also serve on the firm's board. We use the Stochastic Frontier Analysis (SFA) to measure bank efficiency. To measure firm risk, we compute the Z-Score and standard deviation of daily and annual returns. We document an inverse relationship between CEO pay ratio and bank efficiency. Conversely, high pay disparity is associated with lower insolvency risk, lower Z-scores, and lower standard deviations in the banks' stock returns.

In empirical financial accounting research, there continues to be a debate as to what the best predictors of future earnings and future cash flows might be. Past accruals, earnings and cash flows are the most common predictors, but there is no consensus over their relative contributions, and little attention to the underlying accounting identities that link the components of these three prominent variables. The aim of this thesis is to investigate this controversy further, and to apply an innovative method which yields consistent estimations of future earnings and cash flows, with higher precision and greater efficiency than is the case in published results to date. The estimation imposes constraints based on financial statement articulation, using a system of structural regressions and a framework of simultaneous linear equations, which allows for the most basic property of accounting - double entry book-keeping - to be incorporated as a set of constraints within the model. In predicting future cash flows, the results imply that the constrained model which observes the double entry condition is superior to the models that are not constrained in this way, producing (a) rational signs consistent with expectations, not only in the entire sample but also in each industry, (b) evidence that double entry holds, based on the Wald test that the estimated marginal responses sum to zero, and (c) confirmation of model improvement by way of a higher likelihood and greater precision attached to predictor variables. Furthermore, by then using an appropriately specified model that observes the double entry constraint in order to predict earnings, the thesis reports statistically significant results, across all industries, that cash flows are superior to accruals in explaining future earnings, indicating also that accruals with a lower level of reliability tend to be more relevant in this respect.

No description available.

The aim of this study is to examine why firms may manipulate not just their earnings but also their cash flows, and to investigate the effects of this behaviour in debt markets with respect to the cost of debt. This research addresses current concerns about accounting rules (both GAAP and IFRS) which allow companies discretion in the presentation of their operating cash flow in financial statements. Using a sample of 8,684 UK and 23,935 USA firm-years from 1998 to 2010, the reported operating cash flow is decomposed into two components, unmanaged and managed, in order to examine the association between the estimated discretionary part of operating cash flow and the cost of debt. The results show that the cost of debt has a significantly positive association with the managed component of operating cash flows. By using path analysis, it is further shown that the effect of cash flow management in increasing the cost of debt is largely through its impact on accounting quality. Also it is found that the market positively prices abnormal operating cash flow information when firms experience financial problems, especially when companies are faced with low cash flows.

To the best of my knowledge, there has not been any academic study about capital structure of Turkish REITs so far. This study attempts to fulfill this gap in the literature by analyzing the capital structure choices of Turkish REITs which are listed in Istanbul Stock Exchange (ISE) over the period of 1998 - 2007. The key contribution of this study is to understand whether the firm specific, institutional and country specific factors that affect the capital structures of all institutional firms including REITs in developed and developing countries are also applicable to the Turkish REITs sector. The data analysis demonstrates that Turkish REITs employ little long term debt in their capital structure and there exists strong short term debt dominance in the sector. Employing Tobit regression and panel data models, it is concluded that capital structure determinants that are significant in developed and developing countries are also significant in Turkish REITs&amp / #8217 / debt financing choices. However, we observe inconsistency in the sign and significance of some factors which give a way to understand the different institutional and country specific factors of Turkish real estate market and Turkish REITs.

The objective of the research reported in this dissertation is to conduct an empirical test of the hypothesis that, excluding income tax effects, the cost of capital to a firm is independent of the degree of financial leverage employed by the firm. This hypothesis, set forth by Franco Modigliani and Merton Miller in 1958, represents a challenge to the traditional view on the subject, a challenge which carries implications of considerable importance in the field of finance. The challenge has led to a lengthy controversy which can ultimately be resolved only by subjecting the hypothesis to empirical test. The basis of the test was Modigliani and Miller's Proposition II, a corollary of their fundamental hypothesis. Proposition II, in effect, states that equity investors fully discount any increase in risk due to financial leverage so that there is no possibility for the firm to reduce its cost of capital by employing financial leverage. The results of the research reported in this dissertation do not support that contention. The study indicates that, if equity investors require any increase in premium for increasing financial leverage, the premium required is significantly less than that predicted by the Modigliani-Miller Proposition II, over the range of debt-equity ratios covered by this study. The conclusion, then, is that it is possible for a firm to reduce its cost of capital by employing financial leverage. A secondary conclusion that can be drawn from this study is that earning power is an important variable to consider for inclusion in a regression model intended for use in investigating the effect of financial leverage on the cost of capital. The estimated partial regression coefficient of the earning-power variable was negative and highly significant in every cross-section year. Furthermore, earning power showed strong negative partial correlation with the debt-equity ratio. Therefore, omission of the earning-power variable from the regression model would have introduced upward bias into the estimated regression coefficient of the debt-equity ratio, making it appear that investors were reacting adversely to increasing debt-equity ratio. However, models used in previous tests of the Modigliani-Miller hypothesis have not included earning power.