The impact of audit quality on real and accrual earnings management around IPOs

Alhadab, Mohammad; Clacher, Iain

doi:10.1016/j.bar.2017.12.003

Cited by 105 publications

(114 citation statements)

References 84 publications

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“…After the Revolution, the external auditors' remuneration has gone up leading to more discretionary space for managers to smooth their net income. Antle et al (2006) found this same result; they considered that the high remuneration of auditors deprives them of their independence, which facilitates the coalition of interests; this high remuneration can occur at the end of each financial year, as shown by Alhadab and Clacher (2018). It can be temporary for one year, specifically for new external auditors after the Revolution, and is called abnormal remuneration.…”

Section: Discussionmentioning

confidence: 81%

Abnormal accounting accrual Management by internal and external Market Discipline: The case of Tunisian banks in the context of the ‘Arab Spring’

Gassouma

2019

JOFRP

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Problem/Relevance: This paper deals with such market disciplinary factors as shareholder ownership, audit committee composition and Basel III prudential regulation affecting accounting manipulation measured by abnormal accruals in Tunisian banks in the event of managerial deviation from regulatory requirements Research Objective/Questions : The aim of this study is to estimate the abnormal accruals that measure the accounting manipulation, and to test the effect of disciplinary and regulatory factors accordingly to The spring Arab revolution, on accounting Manipulation. Methodology:We propose to construct abnormal accruals as an endogenous variable, using the classic Kothari model (2005), in order to explain them by means of the "difference-in-difference" estimation approach (DID), understand the significance of the evolution of the manipulation, and explain these accruals using internal and external disciplinary factors. On the other hand, we use the credit risk portfolio manipulation theory advocated by Nessim (2003) and Repullo (2007), to understand the concept of actual venture capital of Tunisian banks after the Arab Revolution.Major Findings : The results show that the situation of Tunisian banks has dramatically worsened since the Tunisian Revolution. The DID approach showed an exacerbation of abnormal accruals and a manipulation transfer from net income smoothing to credit portfolio value smoothing in order to reach a healthy financial situation. This aggravation is linked to the market discipline deterioration, the shareholders, the external auditors and the supervisory board.Implications: Before the Revolution, accounting manipulation was mainly caused by banking undercapitalization that led managers to offer more risky credit in a diluted ownership market and in an informational asymmetry situation characterized by the absence of the audit committee. After the Revolution, accounting manipulation resulted from an overcapitalization situation, which led managers to grant more risky credit. To circumvent the shareholders' supervisory power, managers manipulated credit portfolio values, offering a low level of credit risk, and circulating false beliefs for shareholders and depositors. This was done when prudential supervision was weak, leading to an information asymmetry and long-term conflict of interest between external auditors and managers through abnormal remuneration and a long relationship.

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Section: Discussionmentioning

confidence: 81%

Abnormal accounting accrual Management by internal and external Market Discipline: The case of Tunisian banks in the context of the ‘Arab Spring’

Gassouma

2019

JOFRP

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“…There exist studies where the real activities manipulation has been tested in other settings, not especially connected with initial public offerings (Graham et al 2005;Roychowdhury 2006;Cohen and Zarowin 2010;Kothari et al 2016). Earnings management through real activities around IPO has been discussed in a limited setting so far (Alhadab and Clacher 2018;Wongsunwai 2013). This study could also be continued by analyzing the trade-off decision between real and accrual-based earnings manipulation (Zang 2012;Kothari et al 2016).…”

Section: Discussion Of Empirical Results and Future Researchmentioning

confidence: 99%

Is Window-Dressing around Going Public Beneficial? Evidence from Poland

Lizińska

Czapiewski

2019

JRFM

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The informativeness of financial reports has been of a great importance to both investors and academics. Earnings are crucial for evaluating future prospects and determining company value, especially around milestone events such as initial public offerings (IPO). If investors are misled by manipulated earnings, they could pay too high a price and suffer losses in the long-term when prices adjust to real value. We provide new evidence on the relationship between earnings management and the long-term performance of IPOs as we test the issue with a methodology that has not been applied so far for issues in Poland. We use a set of proxies of earnings management and test the long-term IPO performance under several factor models (CAPM, and three extensions of the Fama-French model). Aggressive IPOs perform very poorly later and earn severe negative stock returns up to three years after going public. The difference in returns in accrual quantiles is statistically significant in almost half of methodology settings. The results seem to suggest that investors might not be able to discount pre-IPO abnormal accruals and could be overoptimistic. Once the true earnings performance is revealed over time, the market makes downward price corrections.

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“…The characteristics of the audit committee have a positive role on the firm value significantly (Afza and Nazir, 2014). One of the audit functions as a controller, Audit Quality can overcome earnings management actions by companies in manipulating information (Alhadab & Clacher, 2018;Alzoubi, 2018;Muttakin et al, 2017;Alzoubi, 2016;Huguet & Gandia, 2016;Zgarni et al, 2016;Rusmin et al, 2014;Lin et al, 2012;Rusmin, 2010;Prawitt et al, 2009). So the hypothesis of this study is: Hipotesis 4.…”

Section: Hypothesis Development 221 Earnings Management Influence Omentioning

confidence: 94%

“…At this stage, the role of auditors is necessary for investors to get their rights in receiving financial information company (Almutairi et al, 2009). By functioning as a controller, auditor qualified to suppress acts of earnings management by the company (Alhadab & Clacher, 2018;Asthana, 2014;Prawitt et al, 2009;Alzoubi, 2016;Huguet & Gandia, 2016;Rusmin, 2010;Rusmin et al, 2014;Zgarni et al, 2016) are also tax planning actions (Lin et al, 2012) resulting in the quality of financial statements (Alzoubi, 2018) according to regulations (Bepari, 2015) and have a good impact on performance (Hua et al, 2016) and firm value (Afza, 2014;Houmes et al, 2013;Khan et al, 2016),…”

Section: Introductionmentioning

confidence: 99%

The Influence of Earnings Management and Tax Planning on Firm Value with Audit Quality as Moderating Variable

2019

RJFA

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This study aimed to analyze the influence of Earnings Management and Tax Planning on Firm Value with Audit Quality as a moderating variable. With purposive sampling method obtained data from 481 manufacturing firms in Indonesia are taken from the Indonesia Stock Exchange 2013-2017 period. Using multiple regression and moderation analysis found that the Earnings Management have a positive influence on Firm Value and Tax Planning as well as the effect on Firm Value. As a moderating variable, Audit Quality weaken the influence of Earnings Management on Firm Value significantly but not significantly weaken the influence of Tax Planning on Firm Value.

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The impact of audit quality on real and accrual earnings management around IPOs

Abstract: This is a repository copy of The impact of audit quality on real and accrual earnings management around IPOs.

Cited by 105 publications

References 84 publications

Abnormal accounting accrual Management by internal and external Market Discipline: The case of Tunisian banks in the context of the ‘Arab Spring’

Abnormal accounting accrual Management by internal and external Market Discipline: The case of Tunisian banks in the context of the ‘Arab Spring’

Is Window-Dressing around Going Public Beneficial? Evidence from Poland

The Influence of Earnings Management and Tax Planning on Firm Value with Audit Quality as Moderating Variable

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