Beyond the street EPS surprise – when ‘other surprises’ matter in explaining earnings announcement returns

The Effect of Institutional Ownership on Firm Transparency and Information Production

The research that the researcher conducted has the intention of testing the effect of managerial ownership, institutional ownership, audit committee, the proportion of independent commissioners, and firm size on earnings quality. The intervening variable in this study is earnings management with empirical studies on companies that are included in the IDX list for the 2016-2020 period. There are 193 companies that the researchers made as the population in the research that the researchers held. Purposive sampling is a sampling technique used by researchers and obtained as many as 28 companies as samples. The research carried out by researchers utilizes secondary data taken from annual reports obtained from the Indonesia Stock Exchange or company websites in the 2016-2020 period. The model used in the research is panel data regression using the Eviews 9 application. The results of the research are managerial ownership, institutional ownership, audit committee, and the proportion of independent commissioners simultaneously giving effect to earnings management and earnings quality. In addition, all variables have a significant partial effect on earnings management and earnings quality, except for the proportion of independent commissioners that does not have a significant effect on earnings quality. The mechanism of Good Corporate Governance in this study has a significant effect on earnings quality with earnings management as an intervening variable. However, firm size does not have a significant effect on earnings quality with earnings management as an intervening variable.

The Earnings Announcement Premium as Uncertainty Aversion: Theory and Evidence

This study aims to examine dividend policies for companies listed on the Indonesia Stock Exchange during the 2018-2022 period. Agency theory argues that dividend policy can reduce agency costs and reduce agency conflicts. The percentage of institutional ownership is used as a proxy for agency costs and can be used as a mechanism for lowering agency conflict. The total sample is 44 companies listed on the IDX. The estimation uses the pooling data method and 3SLS. This research develops a simultaneous system econometric model. This study argues that high institutional ownership leads to higher agency conflict, as management and institutions collaborate to prioritize their interests over other shareholders. Conversely, low institutional ownership leads to disputes between management, low institutional, and public shareholders. The entrenchment argument predicts higher conflict in high institutional ownership, while the convergence argument predicts common agency conflict in common institutional ownership.

This study examines whether the characteristic of family or non-family businesses matters in explaining earnings quality. This study analyzed 312 firms listed on the Indonesia Stock Exchange (IDX) for the period 2016–2020. To obtain robust results on the relationship between FB/NFB characteristics and earnings quality, this study measures earnings quality comprehensively, including measurements of available opportunities for earnings management, earnings management practices, earnings persistence, earnings restatement, and investor responsiveness to earnings quality. The regression analysis panel is employed to examine the effect of FB and NFB characteristics on earnings quality. Overall, the results prove that FB earnings quality is better than NFB earnings quality. The results of this study extend the implementation of socioemotional wealth theory in explaining the characteristics of FB, in which the characteristics of FB and non-FB have an impact on earnings quality. The results of this study are useful for financial statement analysts in interpreting earnings quality based on the characteristics of FB and NFB. The results of this study are also useful for investors in understanding financial statements as part of the fundamental analysis of investment decisions. Keywords: Earnings Quality, Family Business (FB), Non-family Business (NFB), Socioemotional Wealth Theory

Earnings Quality of Malaysian IPO firms: The Effect of Share Moratorium Provision and Institutional Ownership

Objective - This study aims to prove whether the earnings quality of family businesses is better than non-family businesses to address two conflicting theories regarding the quality of family business earnings: agency theory and socioemotional wealth theory. Methodology/Technique –. This research uses a regression model to examine the influence of family business/non-family business characteristics on earnings quality. To obtain robust results, this research measures earnings quality using 5 measurement proxies, including measurements of available opportunities for earnings management, earnings management practices, earnings persistence, earnings restatement, and investor responsiveness to earnings quality. The screening sample was carried out on firms listed on the Indonesia Stock Exchange (IDX) for the period 2016–2020, resulting in 932 research observations. Findings - Overall, this research proves that FB earnings quality is better than NFB earnings quality. The results of this study extend the implementation of socioemotional wealth theory in explaining the characteristics of FB, in which the characteristics of FB and non-FB have an impact on earnings quality. Novelty - Financial statement analysts can utilize the results of this study in interpreting earnings quality based on the characteristics of FB and NFB. Type of Paper: Empirical JEL Classification: M41, M49. Keywords: Earnings Quality, Family Business (FB), Non-family Business (NFB), Socioemotional Wealth Theory Reference to this paper should be referred to as follows: Purba, G.K; Surya, A.N; Joshi, P.L; Tyagi, A. (2023). Is the Earnings Quality of Family Businesses Better Than Non-family Businesses?, Acc. Fin. Review, 8(2), 36 – 53. https://doi.org/10.35609/afr.2023.8.2(1)

Purpose – The purpose of this paper is to try to identify the motivation of firms that announce share repurchase but do not follow it up with the actual purchase. The authors conjecture that the long-term earnings quality of such firms is low, which makes them poor candidates for actual stock repurchase. Their intention is to mimic actual repurchasers and their motivation appears to be just to get a bounce in their stock price normally associated with such announcements. Design/methodology/approach – The authors use probit analysis to ascertain whether earnings quality can predict the subsequent repurchase behavior of firms that announce share repurchase. As Gong et al. point out, the relationship between earnings management and the percentage of shares repurchased may be endogenous. In order to mitigate the potential endogeneity bias, the authors use a two-stage instrumental variable probit model adapted for this study from Lee and Masulis (2009). Findings – The results show that non-carry-through firms have lower earnings quality than carry-through firms in the pre-announcement period in all of the metrics the authors use to measure earnings quality. In the post-announcement period, the earnings quality of the non-carry-through firms declines still further and the difference in the quality becomes more pronounced. The results of probit regression show that lower earnings quality increases the likelihood of becoming a non-carry-through company. Research limitations/implications – The finding has interesting implications for investment management as investors can differentiate non-carry-through firms from carry-through repurchasers by examining the firm's earnings quality. Originality/value – The analysis shows that poor long-term earnings quality increases the chance of not carrying through on the repurchase announcement. The authors also find that the poor earnings quality of non-carry-through firms limits their ability to manage earnings downward prior to the repurchase announcement.

This study aims to test and prove the effect of institutional ownership and earnings quality on company performance with earnings management as a moderating variable. The study was conducted on manufacturing companies listed on the Indonesia Stock Exchange (IDX) for the 2020-2022 period. The sampling method used purposive sampling. The number of samples in this study was 20 companies for 3 years with a total of 60 sample data. The data analysis method used was multiple linear analysis and moderated regression analysis (MRA) with the help of IBM SPSS 29 software. The results of the study showed that institutional ownership had no effect on company performance and earnings quality had a significant effect on company performance. Earnings management as a moderating variable was unable to moderate the relationship between institutional ownership and earnings quality on company performance. It is recommended to be able to reduce conflicts of interest between managers and shareholders. This can also reduce the greater opportunistic behavior of managers, so that the company's financial performance becomes more optimal. In addition, institutional investors can increase management supervision and reduce conflicts of interest between shareholders and management.

A key measure of earnings quality is the deviation of net income from operating cash flows. Sloan (1996) finds that firms with high accruals (or a large gap between net income and operating cash flow) experience a decline in earnings performance not anticipated by investors, resulting in predictable future returns. In this paper, I examine whether investors short sell securities with high accruals. Such a strategy is able to directly profit from the predictable lower future returns. Using a sample of U.S traded firms from 1990-1998, I do not find evidence that short sellers trade on the basis of information contained in accruals.

PurposeThe purpose of this paper is to investigate the relationship between book‐tax differences and earnings quality for commercial banks in Taiwan. The paper focuses on the banking industry because industry‐specific accrual models of accounting discretion in the loan loss provisions are available to develop powerful tests of earnings management related to book‐tax differences. In addition, the paper replicates the analysis of book‐tax differences that previous studies conducted on a heterogeneous sample of nonfinancial firms, to ascertain whether prior inferences also hold in the study's sample of banks in an emerging economy.Design/methodology/approachThis paper estimates the magnitude of discretionary loan loss provisions as a proxy for earnings quality (positively correlated with earnings management; therefore, inversely correlated with earnings quality). Then, the study partitions the sample into three subsamples (large positive book‐tax differences, large negative book‐tax differences, and small book‐tax differences) to set the regression models.FindingsThis paper finds that bank‐years with large positive or negative temporary book‐tax differences have discretionary loan loss provisions that are greater than bank‐years with small temporary book‐tax differences. The paper also finds that bank‐years with large temporary book‐tax differences have one‐year‐ahead persistence of current earnings and accruals that are less than those with small temporary book‐tax differences. Additionally, the study does not find a significant relation between permanent book‐tax differences and earnings quality. Overall, the evidence is consistent with the supposition that large temporary book‐tax differences are associated with lower earnings quality.Research limitations/implicationsThe study contributes to the literature on book‐tax differences and earnings quality in two ways. First, the paper provides evidence to ascertain prior inferences that the association between book‐tax differences and earnings quality also hold in the banking industry, it may generalize to the banking sector in other emerging countries. Second, the study utilizes a banking‐specific accrual model to construct more powerful tests of information in book‐tax differences for earnings quality. The study has an inherent limitation arising from small sample size of the banking industry in an emerging economy. Future tax accounting researchers should develop appropriate country‐specific measures of book‐tax differences.Originality/valueThe study focuses on the banking industry because industry‐specific accrual models of accounting discretion in the loan loss provisions are available to develop powerful tests of earnings management related to book‐tax differences. In addition, the study replicates the analysis of book‐tax differences that previous studies conducted on a heterogeneous sample of nonfinancial firms, to ascertain whether prior inferences also hold in the sample of banks in an emerging economy.

This research objectives is determine whether the audit committee's expertise and the numbers of independent commissioners affect the quality of earnings through earnings management as an intervening variable. Earnings management model using the Modified Jones and earnings quality variables use accrual quality indicators. The study’s population are manufacturing companies listed on the Indonesia Stock Exchange from 2014-2018. The sample of this study selected using purposive sampling method. The results of this study indicate that audit committee expertise has an insignificant negative effect on earnings management and earnings quality, the number of independent commissioners has a significant negative effect on earnings management and has a positive effect on earnings quality. While earnings management has an insignificant positive effect on earnings quality. Therefore, earnings management does not mediate the impact between audit committee expertise and number of independent commissioners on earnings quality as intervening variables.

Corporate governance and capital allocations of diversified firms

SYNOPSIS: In this paper I investigate whether nonprofessional investors' beliefs mirror the Securities and Exchange Commission's (SEC) concerns that earnings quality and auditor independence have declined over time. I also examine whether lower perceptions of earnings quality are associated with more or less reliance on a firm's audited financial statements and fundamental analysis of those statements when making investment decisions. My results suggest that the SEC's concerns are valid: Perceived earnings quality for all publicly traded firms has declined overtime, as has perceived auditor independence and the perceived reliability of audited financial information. In contrast, the perceived relevance of audited financial information has increased. In addition, results reveal that lower perceptions of earnings quality are associated with greater reliance on a firm's audited financial statements and fundamental analysis of those statements when making investment decisions. This result suggests either (1) lowe r perceptions of earnings quality lead investors to examine more thoroughly a firm's audited financial statements, or (2) more thorough analysis of a firm's financial statements leads investors to lower their assessments of the firm's earnings quality. Keywords: investor beliefs; earnings quality; auditor independence; reliability; relevance. Data Availability: data and complete survey are available upon request. INTRODUCTION In this paper I investigate whether investors' beliefs mirror the Securities and Exchange Commission's (SEC) concerns that earnings quality and auditor independence have declined over time. (1) I also examine whether lower perceptions of earnings quality are associated with more or less reliance on a finn's audited financial statements and fundamental analysis of those statements when making investment decisions. Within the SEC, Commissioners Isaac Hunt, Jr. and Laura Unger have recently, and repeatedly, expressed their concerns about earnings quality and earnings management (Hunt 2001a, 2001b; Unger 2001a). Their concerns mirror those of former chairman of the SEC, Arthur Levitt, who expressed concern over earnings management and its effect on resource allocation in his 1998 speech, The Numbers Game. In his speech, Levitt notes that management abuses of big bath restructuring charges, premature revenue recognition, cookie jar reserves, and write-offs of purchased in-process R&D threaten the credibility of financial reporting. Levitt reiterates these concerns in his book, Take on the Street (Levitt 2002). To conduct my investigation I surveyed 414 individual investors who are members of the National Association of Investors Corporation (NAIC). Survey-based research complements archival-based research and experimental studies. Archival-based research provides statistical power and cross-sectional variation, but is less suited for examining individual behavior and beliefs. Experimental studies are excellent for determining how changes in variables affect individual behaviors and beliefs, but are less well suited for gathering large amounts of descriptive data on multiple behaviors and beliefs. Surveys offer a balance between archival-based and experimental studies by gathering data on a multitude of beliefs and practices for moderately large samples of individuals. Results from survey research can be used for building and testing theories, for attempting to explain what underlies market-level decision outputs (e.g., prices, returns, or trading frequencies), and for identifying trends in beliefs and practices. As with all types of research, the survey approach has potential drawbacks. Surveys measure beliefs and not necessarily actions, and surveys might be subject to various response biases. I test for potential biases by comparing statistics from my sample to statistics for the national population of NAIC investors, prior archival-based studies, and a market-level performance metric. …

Guided by the evidence that insiders and institutional investors are better informed, I comprehensively investigate the trading behavior and ownership of insiders and institutional investors in Taiwan in an attempt to differentiate between the two types of investors. Insiders gain profits from their filing of selling shareholdings and institutional investors acquire abnormal returns from block trades. Insider and institutional ownership both show positive effects on performance. Firms with high institutional ownership have higher performance, but not lower volatility. The results remain by considering the endogeneity issue and alternative measures of performance. These findings provide evidence that the efficient monitoring effect is more significant than the convergence of interest effect.