Earnings management and stock price crashes post-crossdelisting

We test whether cross-delisted firms from the major U.S. stock exchanges experience an increase in crash risk associated with earnings management. Consistent with our prediction, we find that earnings management have a greater positive impact on stock price crash risk post-cross-delisting when compared to a sample of still cross-listed firms. Moreover, our results suggest that this effect is more pronounced for crossdelisted firms from countries with weaker investor protection and poorer quality of their information environment. We further examine whether managers’ ability to manipulate earnings increases post-cross-delisting around seasoned equity offerings. Our evidence shows that cross-delisted firms that engage in earnings management to inflate reported earnings prior to a seasoned equity offering are more likely to observe a subsequent stock price crash.

Equity offerings, stock price crash risk, and the impact of securities regulation: international evidence

We examine whether earnings manipulation around seasoned equity offerings (SEOs) is associated with an increase in the likelihood of a stock price crash post-issue and test whether the enactment of securities regulations attenuate the relation between SEOs and crash risk. Empirical evidence documents that managerial tendency to conceal bad news increases the likelihood of a stock price crash (Jin and Myers, 2006; Hutton, Marcus, and Tehranian, 2009). We test this hypothesis using a sample of firms from 29 EU countries that enacted the Market Abuse Directive (MAD). Consistent with our hypothesis, we find that equity issuers that engage in earnings management experience a significant increase in crash risk post-SEO relative to control groups of non-issuers; this effect is stronger for equity issuers with poor information environments. In addition, our findings show a significant decline in crash risk post-issue after the enactment of MAD that is stronger for firms that actively manage earnings. This decline in post-issue crash risk is more effective in countries with high ex-ante institutional quality and enforcement. These results suggest that the implementation of MAD helps to mitigate managers’ ability to manipulate earnings around SEOs.

Audit quality: does gender composition of audit firms matter?

Using a sample of Portuguese audit firms and their client companies, this study examines the association between gender composition of the partnership structure oaudit firms and audit quality. Audit quality is measured through the earnings quality of audit clients. We find that gender diversity in the partnership structure of audit firms, per se, has no association with audit quality. In turn, we find significant evidence that a predominant presence of female Certified Public Accountants (CPAs) in partner positions in audit firms is associated with higher audit quality. In particular, the results indicate that audit firms with female-dominated partnership structures are negatively related with aggressive accounting practices in audit clients.

Audit quality: a resource-based perspective

This study considers the Certified Public Accountants (CPA) partners of the audit firms as the core producers of these knowledge-based organisations and investigates the effects of audit firm-level of CPA partners’ experience in audit quality. Audit quality was measured through the audit clients’ earnings quality. The main findings suggested that the audit firm-level of CPA partners’ general experience is positively associated with audit quality. Also, the audit firm-level of CPA partners’ experience acquired with prior audit firms significantly improves audit quality. Concerning the effects of audit firm-level of CPA partners’ experience acquired in the current audit firm in audit quality, results were statistically insignificant. Finally, we found that changes in audit firm-level of CPA partners’ general experience also influence audit quality. We verified that the more positive the change in the audit firm stock of CPA partners’ general experience, the higher is audit quality. We interpret this finding as revealing that the year-to-year changes in audit firm’s stock of CPA partners’ general experience is the mechanism allowing these firms to achieve and maintain the critical mass of this resource and reach higher performance levels. We further showed that our main results were not driven by the engagement partner experience.

The real economic effects of cross-delistingfrom the united states: evidence on post-operating performance, financial constraints and stock crash risk

Tese de Doutoramento em Ciências Empresariais.