Earnings Management and Investor Protection: An International Comparison

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Millennials Rising: The Next Great Generation

Earnings Management to Avoid Earnings Decreases and Losses

Coming Up Short on Nonfinancial Performance Measurement

We link the corporate governance literature in financial economics to the agency cost perspective of corporate social responsibility (CSR) to derive theoretical predictions about the relationship between corporate governance and the existence of executive compensation incentives for CSR. We test our predictions using novel executive compensation contract data, and find that firms with more shareholder-friendly corporate governance are more likely to provide compensation to executives linked to firm social performance outcomes. Also, providing executives with direct incentives for CSR is an effective tool to increase firm social performance. The findings provide evidence identifying corporate governance as a determinant of managerial incentives for social performance, and suggest that CSR activities are more likely to be beneficial to shareholders, as opposed to an agency cost.

/pdf/corporate-governance-and-executive-compensation-for-14fgr2o7jq.pdf

Corporate Governance and Executive Compensation for Corporate Social Responsibility

The association between non-financial performance measures in executive compensation contracts and earnings management

Purpose




This study aims to explore the relationship between board governance structure and firm risk. In particular, this study develops a “governance index” based on four aspects of the board: board composition, board leadership structure, board member characteristics and board processes, and it examines how the overall index relates to firm risk.




Design/methodology/approach




The study is conducted using a sample of 268 UK firms from the FTSE 350 index over the period from 2005 to 2010. An index is constructed to capture the overall governance structure of the firm. Regressions of the index on three risk measures are examined.




Findings




This study finds that the governance index that aggregates the four sets of board attributes is significantly and negatively related to firm risk. Robustness tests confirm this result.




Research limitations/implications




A large number of studies have explored the relationship between the attributes of corporate boards and firm performance with mixed results. A much smaller number of studies have looked at board attributes and firm risk, but these have either focused on financial sector firms alone or have included only a single or a limited number of attributes. This study, using a broad agency framework, seeks to extend the work on firm risk and board attributes by both expanding industry sectors examined and using a comprehensive set of board attributes.




Originality value




The findings have policy and practical implications for investors, regulators and chairmen of boards of governors to the extent that they inform these constituencies about the set of board attributes that are associated with firm risk. This study is the first to use a comprehensive measure of governance and relate it to firm risk.

/pdf/corporate-governance-and-firm-risk-3w198nhrrx.pdf

Corporate Governance and Firm Risk

Purpose




The purpose of this paper is to identify the board attributes that significantly increase firm risk. The study aims to find whether board size, percentage of non-executive directors, women on the board, a powerful chief executive officer, equity ownership amongst executive board directors and institutional investor ownership are associated with firm risk. This is the first study that examines which board attributes increase firm risk using a UK-based sample.




Design/methodology/approach




This empirical study collected secondary data from Bloomberg and Morningstar databases. The data sample is an unbalanced panel of 260 companies’ secondary data on FTSE 350 index in the UK, from 2005 to 2010. The data were statistically analysed using STATA.




Findings




The study establishes the board attributes that were significantly related to firm risk. The results show that a board which can increase firm risk is one that is small in size, has high equity ownership amongst executive board directors and has high institutional investor ownership.




Research limitations/implications




The governance culture and regulatory system in the UK is different from other countries. As the data are a UK-based sample, the results can lack generalisability.




Practical implications




The results are useful for investors who invest in large firms, to have the knowledge about the board attributes that can increase firm risk. Regulators can also use the results to strengthen regulatory guidelines.




Originality/value




This study fills the gap in knowledge in UK governance literature on the board attributes that can increase firm risk.

/pdf/boards-attributes-that-increase-firm-risk-evidence-from-the-uqy9imifrh.pdf

Boards attributes that increase firm risk – evidence from the UK

Purpose – Prior research suggests that firms manipulate earnings through accruals to achieve certain reporting objectives Recently, especially following the Sarbanes‐Oxley (SarbOx) Act, researchers have turned their attention to real account manipulation as an alternative However, there is no evidence on whether the likelihood of being detected by outsiders is different for firms using these alternative manipulation methods The purpose of this paper is to examine this research question in the context of seasoned equity offerings (SEOs)Design/methodology/approach – First, the authors compare SEOs to a matched sample of non‐SEOs to document income‐increasing manipulation Next, they identify SEOs that prompt lawsuits and compare sued and non‐sued firms to determine whether using a particular method of manipulation is more likely to be detected and associated with litigationFindings – The authors find evidence of income‐increasing accrual and real manipulation for SEOs in the year prior to the offering 

Real and accrual‐based earnings management and its legal consequences

Prior research has shown the prevalence of measurement error in models used to estimate aggregate discretionary accruals. In these models, the incremental information content of the various components of accruals is ignored. Limited prior research and data gathered from firms under Securities and Exchange Commission (SEC) litigation indicate that managers use either one or more than one component of accruals simultaneously, in a consistent way to manipulate bottom-line earnings in a given direction. I propose two measures that capture the consistency between the discretionary components of accruals and test their significance in earnings management (EM) detection in firms that have artificially added accrual manipulation and firms that were targeted by the SEC for accrual manipulation. There is evidence that this information is incrementally useful in detecting EM. This finding paves the way for improvements in the discretionary accruals measure by including consistency information from the components of aggregate accruals.

Salma Ibrahim

Papers

The association between non-financial performance measures in executive compensation contracts and earnings management

Corporate Governance and Firm Risk

Boards attributes that increase firm risk – evidence from the UK

Real and accrual‐based earnings management and its legal consequences

The usefulness of measures of consistency of discretionary components of accruals in the detection of earnings management