Female Auditors and Accruals Quality

Purpose: This study aims to replicate the findings of Ittonen et al. (2013) on the relationship between female audit partners and accruals quality, which showed that firms audited by female partners had lower abnormal accruals. While their study focused on the Scandinavian context, known for its progressive gender norms, this research assesses the generalizability of their results by extending the analysis to Italy, a country with different cultural views on gender roles. Design/methodology/approach: Using an OLS regression model, this study analyzes Italian listed firms during the 2013-2022 period. We sourced financial data from Aida, provided by Bureau Van Dijk, and we manually collected audit partner names from corporate governance reports. Our final sample includes 1,068 firm-year observations from 232 firms. Findings: Our results are consistent with those of Ittonen et al. (2013), who found that female audit partners are associated with lower abnormal accruals. We observed similar results when including female audit committee chairs. No gender-based differences emerged in reducing income-increasing earnings management. However, female audit partners were associated with lower income-decreasing manipulations, indicating greater diligence and precision. Originality/value: We replicate the study by Ittonen et al. (2013) within the distinct cultural and legal framework of the Italian market, with a broad time period for analysis. Our findings underscore the importance of gender diversity in auditing and provide robust evidence for a different context. Future research can investigate other countries and factors affecting audit quality to further deepen the understanding of gender dynamics.

본 연구는 국민연금의 수탁책임에 따른 주주행동주의가 최고경영자의 경영권집중에 따른 이익조정에 미치는 영향을 분석하고자 하였다. 국민연금이 기업의사결정에 바람직하게 주주권을 행사한다면 경영권집중에 따른 이익조정에 대한 통제력을 행사하고 있다고 추정할 수 있다. 주요변수 중에서 종속변수인 발생액의 질(Dechow and Dichev, 2002；Francis et al., 2005)이 높을수록(잔차의 표준편차가 클수록, 이익조정이 많을수록) 이익조정을 하는 것으로 추정할 수 있고 국민연금과 음(-) 상관관계가 예측된다. 이 경우 국민연금은 이익조정에 대한 통제력을 가진다고 해석한다. 그리고 최고경영자의 경영권집중도가 높을수록 이익조정이 쉽기 때문에 경영권집중과 발생액의 질(이익조정)은 양(＋)의 관계가 예상된다. 또한 국민연금과 경영권집중을 결합하였을 때 이익조정에 미치는 영향이 음(-)의 관계를 나타냈을 때 국민연금의 이익조정 통제효과는 더욱 분명하게 확인할 수 있다. 분석결과, 최고경영자 경영권집중과 이익조정(발생액의질)검증에서 경영권집중도가 높을수록 이익조정의 유의적인 양(＋)에 영향이 나타났으며, 단순한 국민연금과 이익조정간의 분석에서는 통계적 유의성이 나타나지 않았다. 반면, 국민연금의 이익조정 통제효과를 명확히 확인하기 위해 국민연금이 5% 이상 지분참여하는 기업일수록 경영권집중도에 따른 이익조정을 감소시키는 것으로 분석되었다. 본 연구는 최고경영자의 경영권집중도가 높을수록 재량권이 많이 부여되므로 정보비대칭은 심화되고, 이익조정의 가능성도 높을 것이다. 따라서 본 연구는 이런 기업들에 대해 국민연금이 적극적으로 바람직한 주주권 행사에 참여하는 것이 경영자의 기회주의적 이익조정을 통제할 수 있다는 것을 제시하였다는 점에서 연구의 의의가 있다.The purpose of this study was to analyze the impact of shareholder activism on the earnings management caused by the concentration of the CEO’s managerial centrality. Based on the study by Bebchuk et al. (2011), it tried to verify that the shareholder action of the national pension fund controls the profit adjustment of the CEO’s managerial centrality. If the National Pension Service exercises shareholder rights in favor of corporate decisions, it can be assumed that it is exercising control over earnings management based on CEO’s managerial centrality. Among the major variables, the quality of accruals was measured using the Dechow and Dichev (2002) model (DD model) and the modified Jones model (1991). The larger the measure of quality of the accrual, the more an entity’s earnings management can be expected. The analysis was made to see if the National Pension Service controlled earnings management based on concentration of managerial control in companies with investment of 5% or more. In the preceding studies, the higher the CEO’s managerial centrality, the more likely it was to be exposed to earnings management, so it is expected that a positive relationship will emerge. As a result of the analysis, it was found that CEO’s managerial centrality had a positive effect on the quality of the accruals (DD model), so the higher CEO’s managerial centrality, the easier it was to be exposed to an entity’s earnings management. However, seen from the perspective of the modified Jones model, it was positive but not statistically significant. Next, it was confirmed that shareholder activism of the NPS has been shown to control earnings management by the CEO’s managerial centrality. Analysis of the combination variables of the national pension and the concentration of managerial control revealed a significant negative effect on profit adjustment. This study can be said to be significant in that the shareholder activism of the National Pension Service can have control over earnings management for companies with a high CEO’s managerial centrality.

This study empirically investigates the impact of auditor gender on audit fees in a unique audit regulatory environment, namely France, where joint audit is mandatory by law. Apart from the fact that male and female auditor engagement partners have distinctive behaviors and style, the question also arises at to whether coordination problems between two competing audit firms are exacerbated or mitigated by the presence of a female auditor in the joint auditor pair composition. This issue could be more challenging in the context of International Financial Reporting Standards adoption, which increases audit task complexity, audit risk, and audit effort required for an audit engagement. Using a matched sample of firms from the CAC All‐Shares Index listed on Euronext Paris from 2002 to 2010, we find that, when a female auditor is paired with a male auditor, the difference in audit fees stems not only from the presence of the female auditor partner but also from male–female interaction within the joint auditor pair composition. In a supplementary analysis, we show that the impact on audit fees of both the presence of a female partner and male–female auditor interaction is dependent, but in a different way, on the number of Big 4 audit firms in the auditor pair composition.

The paper examined the accounting quality in the financial statement, concerning earnings management practices by managers. The financial statements provide critical information that is useful to various groups, investors, standard setters, shareholders and government. The practices of various methods of earnings management are classified into accounting-based and market- based earnings management. The study classified the earnings management techniques in various ways that affect the quality of financial statements in the pre and post-IFRS adoption. The introduction of IFRS and its accompanying standards in the area of earnings management might imply real improvements in the financial statements about the quality. The earnings management techniques include the following: earnings management towards a target, earnings smoothing, discretionary accruals, accruals quality, and timely loss recognition as against other proxies of accounting quality. These are opportunities managers have to get quality Financial Statements that accomplish their intentions. The essence is that they use them to achieve their objectives either getting the desired level of profit or not recording losses for the business. The review results are that in the pre-IFRS the earnings management in use was the accrual-based earnings technique in which managers adjust assumptions and estimates the accounting system. In the post-IFRS, managers revert to real transactions based earnings management which involves the timing and structuring actual business activities to achieve a desired financial reporting result (for example, the timing of the sale of equipment that will result in a gain in a quarter in which extra earnings are needed, delaying major repairs, advertising, research, and development expenses write–off, and foregoing capital projects that positive net present value).

We examine earnings manipulation via discretionary accruals and real earnings management prior to the release of cash reserves back to shareholders. Previous research indicates that firms manage earnings upward when they increase dividends, creating a coordinated signal to the market. We study earnings management surrounding dividend initiation to determine whether management is manipulating earnings downward to avoid the discipline imposed by dividends in the years ahead or whether they are signaling to the market. We suggest that the aim of earnings management is not to reduce earnings but that earnings are more likely managed to preserve financial flexibility, create earnings reserves, and postpone shareholders’ expectations for initiating recurring dividends. Rather than signaling with upward earnings management, we find that dividend initiating firms manage earnings downward, consistent with the free cash flow theory. Our results explain findings in prior literature for the surprisingly stable earnings performance and accrual quality in the period just after dividend initiation. Furthermore, the market day stock price reaction is inversely related to earnings management, contradicting the purpose of signaling. We provide evidence that the managerial inertia for initiating dividends represents unique agency concerns compared with an increase in existing dividend payout and to the extent that downward real earnings management does not reverse, we identify a cost to shareholders for the quasi contract of recurring dividend payout.

This paper investigates the link between earnings management and earnings quality for the Chinese firms listed in the Shanghai and Shenzhen stock exchanges from 2003 to 2007. The earnings quality is measured by four separate earnings attributes: accruals quality, earnings persistence, earnings predictability, and earnings smoothness. We find that the stressed/bankrupt firms prefer opportunistic earnings management; the non-stressed/non-bankrupt firms are more likely to choose more efficient earnings management than the stressed/non-bankrupt firms. We find that earnings management performs better than earnings quality in predicting future profitability. We also find that the earnings quality has deteriorated over the sample period; the number of stressed/bankrupt firms increased and the number of non-stressed/non-bankrupt firms decreased.

Given the growing importance of environmental protection in China, this study investigated the determinants of the financial reporting quality of environmental, social and governance (ESG) firms listed in China. The quality of financial reporting shows how informative the accounting numbers are for decision-making. Because business outlook can influence financial reporting quality, this study examined predictable, moderately predictable and unpredictable business outlooks. The study randomly selected 100 firms from the 2021 China ESG Top 500 Outstanding Enterprises published by the Sina Finance ESG Rating Centre and then analysed those firms in 2018, 2019 and 2020. It investigated determinants (financial health, governance and earnings management), controlling for the influence of known variables (firm age and firm-specific risk) on financial reporting quality measured as accruals quality and earnings smoothness. Ordinary robust least square regression was conducted. Financial health had a negative influence, but governance variables and earnings management did not affect financial reporting quality. Firm-specific risk had a positive effect, but firm age did not influence financial reporting quality. Changes in business outlook had no impact on the determinants' effect on financial reporting quality. The study found that ESG firms did not engage in earnings management and aggressively manage earnings, pointing to ethical behaviour. This is the first study to contribute to understanding the financial reporting quality of ESG firms listed in China. It examined different business outlooks to understand ESG firms' behaviour towards financial reporting quality. The findings invite replicable studies outside China to understand the contextual validity and reliability of the financial reporting quality of ESG firms, and to investigate the effect of determinants not examined in this study.

Financial Crisis And Earnings Management: The European Evidence

This article examines whether the participation of women on audit committee boards enhances audit committee effectiveness to control earnings management practices. While numerous studies have investigated the effects of women audit committee on earnings management, empirical evidence is rather inconsistent. Therefore, it is imperative to investigate the impact of female representation on audit committee effectiveness. In order to address the objective of the study, we use cross-sectional version of the performance-adjusted current discretionary accruals model to detect earnings management (Kothari, Leone and Wasley, 2005). Using a sample of 356 companies for the year ended 2007; we found a significant negative relationship between the presence of women directors on audit committee boards and earning managements. The results suggest that the presence of women directors on audit committee boards reduces earning management practices.

We examine the role of earnings management by issuers prior to making initial public offerings (IPOs). Our results indicate that pre-IPO abnormal accruals are positively related to initial firm value. Entrepreneurs may seek to increase their offering proceeds, temporarily deceiving investors by opportunistically manipulating earnings through accruals management before going public. This would imply a negative relationship between abnormal accruals around the offer date and subsequent firm performance. Confirming earlier studies, we find that abnormal accruals during the offer year are significantly negatively related to subsequent firm stock returns. In addition, we find that abnormal accruals in the preceding year are also significantly negatively related to subsequent performance. Moreover, this result persists even for returns that are risk-adjusted using the multifactor CAPM of Eckbo, Masulis, and Norli (2000). Thus, it appears that aggressive pre-IPO earnings management both increases IPO proceeds and decreases subsequent returns to investors.

The Relation between Earnings Management and Pro Forma Reporting

Research aims: The annual increase in the number of female auditors in partner positions has been particularly pronounced in Southeast Asian countries, with Thailand being a notable example. This study, thus, investigates the quality of female audit partners compared to male audit partners in terms of how clients manage earnings.Design/Methodology/Approach: The researchers hand-collected gender data of audit partners from the audit reports of all listed firms on the Stock Exchange of Thailand and obtained 424 firm-year observations. The researchers applied two models to test the hypotheses, using cross-sectional time-series OLS and logistic regression data analyses. The researchers also performed additional analyses and robustness checks to support the main tests.Research findings: The study revealed no substantial disparity in the female and male auditors’ quality at the partner levels, as measured by accrual earnings management and earnings distribution approaches. The findings indicate that female and male audit partners have similar audit quality in preventing earnings management and earnings benchmark likelihood. The study adds to the existing research in East (Southeast) Asia, showing that female partners in these countries have audit quality that is at least comparable to male partners.Theoretical contribution/Originality: The researchers extend prior studies on the behavior distinction in audit quality of the auditor gender at the partner level, which is under-researched in Southeast Asia.Practitioner/Policy implication: The study has important implications for stakeholders and standard-setters to keep strengthening female leadership in the auditing industry and promoting higher gender parity in the growing industry of the future.

This article surveys the literature examining the earnings management behaviour of Australian corporations. While numerous motivations for earnings management are proposed in this literature, current period CEO turnover is the only phenomenon for which there is consistent empirical support. A number of studies report discontinuities in the distribution of earnings around benchmarks such as the zero profit level. However, there is no evidence that these discontinuities are associated with abnormal accrual behaviour. Evidence regarding the ability of various governance mechanisms to constrain earnings management is also mixed. While several studies report a negative relation between auditor size and earnings management, no Australian studies attempt to control for the likely endogenous nature of this relationship. Papers report that board independence and audit committee independence constrain earnings management in Australian corporations, although evidence is not consistent across studies. The article shows that many Australian studies of earnings management use very noisy and, in some cases, biased measures of abnormal accruals which may partly explain the inconsistency of results across studies, adding further uncertainty regarding the implications of this field of research for standard setters, investors and scholars.

Board Monitoring and Earnings Management: Do Outside Directors Influence Abnormal Accruals?

7 - Earnings management and the long-run performance of Spanish initial public offerings