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.

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Purpose The purpose of this study is to describe the evolution of fraud schemes with historically conducted with fiat money in physical space to the crypto-assets in digital space as follows: ransomware, price manipulation, pump and dump schemes, misrepresentation, spoofing and Ponzi Schemes. To explain how fraud schemes have evolved alongside digital asset markets, this study applies the space transition theory. Design/methodology/approach The methodology used is a review of the media regarding six digital asset fraud schemes that have evolved from physical space to virtual space that are currently operational, as well as a review of the literature regarding the space transition theory. Findings This paper finds that the digital space and digital assets may facilitate pseudonymous criminal behavior in the present regulatory environment. Research limitations/implications The field is rapidly evolving, however this study finds that the conversion from physical to virtual space obfuscates the criminal activity, facilitating anonymity of the perpetrators, and creating new challenges for the legal and regulatory environment. Practical implications This paper finds that the digital space and digital assets may facilitate pseudonymous criminal behavior in the present regulatory environment. An understanding of the six crypto-asset fraud schemes described in the paper is useful for anti-financial crime professionals and regulators focusing on deterrence. Social implications The space transition theory offers an explanation for why digital space leads criminals to be better positioned to conduct financial crime in virtual space relative to physical space. This offers insights into behavior of digital asset fraudster behavior that could help limit the social damage caused by crypto-asset fraud. Originality/value To the authors’ knowledge, this paper is the first to detail the evolution of fraud schemes with fiat money in physical space to their corresponding schemes with digital assets in physical space. This study is also the first to integrate the space transition theory into an analysis of digital asset fraud schemes.

Purpose This paper aims to apply the Capital Market Liability of Foreignness (CMLOF) framework to the audit fees of a sample of foreign firms listed on US exchanges to examine whether American auditors price foreignness. Design/methodology/approach The four components of the CMLOF are institutional distance (civil versus common law system and enforcement), information asymmetry (disclosures and mandatory IFRS adoption), unfamiliarity (exports, English language and geographical distance) and cultural difference [Hofstede (1980) dimensions of culture]. These variables are examined in a regression model that explains audit fees to determine the auditor perception of risk associated with the CMLOF. Findings Examining the factors that mitigate perceived agency costs, this investigation determines that auditors price risk according to each component of the liability of foreignness. Audit fees are higher for shareholders of firms headquartered in countries exhibiting greater institutional distance, unfamiliarity and cultural distance. Audit fees are higher for firms when their home country requires additional disclosures or the adoption of IFRS to reduce information asymmetry. Practical implications CMLOF is costly for capital market participants and has implications for auditors, shareholders of foreign firms and managers considering listing in the US Auditors, and investors should carefully assess this risk for pricing and valuation, and managers should take action, to the extent possible, to reduce the firm-specific level of unfamiliarity and increase transparency. Originality/value This paper is the first to apply the CMLOF to examine whether auditors price aspects of foreignness of their non-US-headquartered clients.