Financial Reporting Quality During COVID-19 Pandemic: International Evidence

,; Ismail, Wan Adibah Wan; Ariff, Akmalia M; ,; Kamarudin, Khairul Anuar; ,; Adnan, Nur Shaida Mohd; ,

doi:10.21315/aamjaf2023.19.2.6

AAMJAF

2023

DOI: 10.21315/aamjaf2023.19.2.6

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Financial Reporting Quality During COVID-19 Pandemic: International Evidence

Wan Adibah Wan Ismail,

Akmalia M Ariff,

Khairul Anuar Kamarudin

et al.

Abstract: This paper examines the effect of the COVID-19 pandemic on financial reporting quality proxied by earnings conservatism and value relevance of accounting information. Our final sample consists of 10,510 firm-year observations from 29 countries with a balanced number of 5,255 observations for pandemic and pre-pandemic periods. The results show that during the pandemic, the financial statements of companies with a financial year end of 31 March 2020 have different qualities than those in the pre-pandemic period.… Show more

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2024

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Cited by 3 publications

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Financial reporting quality, industrial revolution 4.0 and social well-being among Malaysian public companies

Wan Ismail,

Madah Marzuki,

Lode

2024

AJAR

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PurposeThis study examines the relationship between financial reporting quality, Industrial Revolution 4.0 and social well-being of stakeholders among public companies in Malaysia.Design/methodology/approachThe sample of the study includes 232 firm-year observations of Malaysian publicly listed companies from 2013 to 2017. Social well-being is measured using social pillar scores from the Environmental, Social and Governance (ESG) data provided by Refinitiv. The study identified companies as an adopter of IR 4.0 based on their disclosure on the use of autonomous robots, simulation, cloud, horizontal and vertical system integration, cybersecurity, additive manufacturing, augmented reality and big data analytics in their financial reports. Financial reporting quality is measured using discretionary accruals.FindingsThis study found that financial reporting quality and IR 4.0 are related to social well-being, particularly the workforce. These results imply that companies with higher adoption of IR 4.0 are more likely to provide more information concerning job satisfaction, a healthy and safe workplace, maintaining diversity, equal and development opportunities for its workforce. Furthermore, the results show that firms with lower discretionary accruals (i.e. higher quality of financial reporting) are more likely to provide more information about social well-being. The results are robust even after addressing endogeneity issues.Research limitations/implicationsThis research contributes new insights into the role of financial reporting quality and IR 4.0 in enhancing social well-being in Malaysia. These findings offer valuable input for regulators striving to advance the United Nations' 2030 Agenda for Sustainable Development.Practical implicationsThis study carries substantial practical implications for policymakers and businesses alike. It underscores the importance of embracing IR 4.0 technologies and integrating them into strategic planning to foster social well-being. These insights can guide policymakers in shaping economic strategies and assist businesses in prioritizing financial reporting quality while engaging stakeholders to promote social well-being.Originality/valueThis is the first study to investigate the combined relationship of financial reporting quality and IR4.0 on social well-being, which provides valuable evidence in this novel domain. While previous studies have primarily explored the relationship of IR4.0 on sustainability from an environmental and human resource perspective, this study sheds light on the specific dimension of social well-being, hence promoting sustainable development goals by the United Nations in 2030.

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Financial reporting quality, industrial revolution 4.0 and social well-being among Malaysian public companies

Wan Ismail,

Madah Marzuki,

Lode

2024

AJAR

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Nonlinear effects of board size and board independence on corporate sustainability performance: international evidence

Kamarudin,

Mohamad Ariff,

Azmi

et al. 2024

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Purpose This study aims to examine the nonlinear effects of board size and board independence on the corporate sustainability performance of listed firms worldwide. Design/methodology/approach This study uses the global environmental, social and governance (ESG) dataset from the Thomson Reuters database, which includes a sample of 23,766 firm-year observations from 33 countries from 2011 to 2022. Findings The results indicate that board size and independence have positive impacts on corporate sustainability performance; however, these relationships are nonlinear. The authors find an inverted U-shaped relationship for board size. After the optimal point, the positive relationship between board size and corporate sustainability performance becomes negative. Board independence, however, has a positive exponential relationship in which the positive effect increases exponentially after the optimal point. The results are robust to a battery of tests, including alternative measures for corporate sustainability performance, board independence and different estimation procedures. Research limitations/implications This study illustrates empirical evidence on the nonlinear effect of board size and board independence on corporate sustainability performance, which explains the mixed evidence involving board size and independence in corporate sustainability literature and offers a complementary research approach in the literature on board dynamics. Practical implications This study has practical implications for investors aiming for sustainable and ethical investment choices, as they should be mindful of matters relating to board composition, particularly the appointment of independent directors and ideal board size. Originality/value Extensive empirical evidence has examined the relationship between corporate governance variables and corporate sustainability performance. This study introduces the effect of the nonlinear relationship between board size and board independence on corporate sustainability performance using international evidence.

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Audit firm tenure and corporate tax avoidance: evidence spanning COVID-19 pandemic

Kamarudin,

Wan Ismail,

Harymawan

et al. 2024

JFC

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Purpose This study aims to examine the effect of audit firm tenure (AFT) on corporate tax avoidance (CTA) and the moderating effect of the COVID-19 pandemic. Design/methodology/approach The sample comprises 41,074 firm-year observations from 32 countries from 2015 to 2020, for which data are collected from various sources: financial data from the Refinitiv database, country corporate tax rates from the Tax Foundation, and other country-level data from the World Bank database. The authors use the book tax difference to measure CTA and multiple proxies for AFT. Findings This study finds that a longer AFT is associated with higher CTA, confirming the notion that long AFT impairs auditor independence. The findings remain robust when considering various AFT proxies, incorporating Hofstede’s cultural factors, using weighted least-squares estimation and addressing endogeneity through propensity score matching. This study also finds a non-linear relationship between extended client and auditor relationships and CTA, supporting the mandatory audit firm rotation regulation and increasing investors’ caution regarding the consequences of extended client–auditor relationships on firm behaviour. Research limitations/implications This study offers new evidence on the effect of the COVID-19 pandemic on the link between AFT and CTA and documents a non-linear relationship between AFT, which has not been addressed in prior studies. Practical implications The findings of this study have several significant practical implications. First, governments and policymakers gain insights into the consequences of extended auditor–client relationships, hence calling for a review of auditing and taxation regulations. Second, the findings provide important insights into the issue of auditor independence, especially during long engagements and crises such as COVID-19. Finally, investors and tax authorities should be more cautious about the risks of aggressive tax avoidance during crisis periods. Originality/value To the best of the authors’ knowledge, this is the first study to use a global data set to investigate the effect of AFT on CTA during the COVID-19 pandemic.

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Financial Reporting Quality During COVID-19 Pandemic: International Evidence

Cited by 3 publications

References 74 publications

Financial reporting quality, industrial revolution 4.0 and social well-being among Malaysian public companies

Financial reporting quality, industrial revolution 4.0 and social well-being among Malaysian public companies

Nonlinear effects of board size and board independence on corporate sustainability performance: international evidence

Audit firm tenure and corporate tax avoidance: evidence spanning COVID-19 pandemic

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