Initial losses, corporate governance and earnings management

This thesis examines the relationship between initial loss events and the corporate governance and earnings management behaviour of these firms. This is done using four years of corporate governance information spanning the report of an initial loss for companies listed on the UK Stock Exchange. An industry- and sizematched control sample is used in a difference-in-difference analysis to isolate the impact of the initial loss event during the period. It is reported that, in general, an initial loss motivates an improvement in corporate governance in those loss firms where a relative weakness existed prior to the loss and that these changes mainly occur before the initial loss is announced. Firms with stronger (i.e. better quality) corporate governance have less need to alter it in response to the loss. It is also reported that initial loss firms use positive abnormal accruals in the year before the loss in an attempt to defer/avoid the loss — the weaker corporate governance the more likely is it that loss firms manage earnings in this manner. Abnormal accruals are also found to be predictive of an initial loss and when used as a conditioning variable, the quality of corporate governance is an important mitigating factor in this regard. Once the loss is reported, loss firms unwind these abnormal accruals although no evidence of big-bath behaviour is found. The extent to which these abnormal accruals are subsequently unwound are also found to be a function of both the quality of corporate governance as well as the severity of the initial loss.

Reversal of impairment losses, firm performance and reporting incentives: Evidence from Malaysia

Malaysian Financial Reporting Standard (FRS) No. 136, Impairment of Assets, was issued in 2005. The standard requires public listed companies to report their non-current assets at no more than their recoverable amount. When the value of impaired assets is recovered, or partly recovered, FRS 136 requires the impairment charges to be reversed to its new recoverable amount. This study tests whether the reversal of impairment losses by Malaysian firms is more closely associated with economic reasons or reporting incentives. The sample of this study consists of 182 public companies listed on Bursa Malaysia (formerly known as the Kuala Lumpur Stock Exchange) that reported reversals of their impairment charges during the period 2006-2009. These firms are matched with firms which do not reverse impairment on the basis of industrial classification and size. In the year of reversal, this study finds that the reversal firms are more profitable (before reversals) than their matched firms. On average, the Malaysian stock market values the reversals of impairment losses positively. These results suggest that the reversals generally reflect increases in the value of the previously impaired assets. After partitioning firms that are likely to manage earnings and those that are not, this study finds that there are some Malaysian firms which reverse the impairment charges to manage earnings. Their reversals are not value-relevant, and are negatively associated with future firm performance. On the other hand, the reversals of firms which are deemed not to be earnings managers are positively associated with both future firm performance and current stock price performance, and this is the dominant motivation for the reversal of impairment charges in Malaysia. In further analysis, this study provides evidence that the opportunistic reversals are also associated with other earnings management manifestations, namely abnormal working capital accruals and the motivation to avoid earnings declines. In general, the findings suggest that the fair value measurement in impairment standard provides useful information to the users of financial statements.

Investigation of lactic acid bacteria mediated bioprotection with applications in cereal industry. Case-study: malting process

Antifungal compounds produced by Lactic acid bacteria (LAB) metabolites can be natural and reliable alternative for reducing fungal infections pre- and post-harvest with a multitude of additional advantages for cereal-base products. Toxigenic and spoilage fungi are responsible for numerous diseases and economic losses. This thesis includes an overview of the impact fungi have on aspects of the cereal food chain. The applicability of LAB in plant protection and cereal industry is discussed in detail. Specific case studies include Fusarium head blight, and the impact of fungi in the malting and baking industry. The impact of Fusarium culmorum infected raw barley on the final malt quality was part of the investigation. In vitro infected barley grains were fully characterized. The study showed that the germinative energy of infected barley grains decreased by 45% and grains accumulated 199 μg.kg-1 of deoxynivalenol (DON). Barley grains were subsequently malted and fully characterized. Fungal biomass increased during all stages of malting. Infected malt accumulated 8-times its DON concentration during malting. Infected malt grains revealed extreme structural changes due to proteolytic, (hemi)-cellulolytic and starch degrading activity of the fungi, this led to increased friability and fragmentation. Infected grains also had higher protease and β-glucanase activities, lower amylase activity, a greater proportion of free amino and soluble nitrogen, and a lower β-glucan content. Malt loss was over 27% higher in infected malt when compared to the control. The protein compositional changes and respective enzymatic activity of infected barley and respective malt were characterized using a wide range of methods. F. culmorum infected barley grains showed an increase in proteolytic activity and protein extractability. Several metabolic proteins decreased and increased at different rates during infection and malting, showing a complex F. culmorum infection interdependence. In vitro F. culmorum infected malt was used to produce lager beer to investigate changes caused by the fungi during the brewing processes and their effect on beer quality attributes. It was found, that the wort containing infected malt had a lower pH, a higher FAN, higher β-glucan and a 45% increase in the purging rate, and led to premature yeast flocculation. The beer produced with infected malt (IB) had also a significantly different amino acid profile. IB flavour characterization revealed a higher concentration of esters, fusel alcohols, fatty acids, ketones, and dimethylsulfide, and in particular, acetaldehyde, when compared to the control. IB had a greater proportion of Strecker aldehydes and Maillard products contributing to an increased beer staling character. IB resulted in a 67% darker colour with a trend to better foam stability. It was also found that 78% of the accumulated mycotoxin deoxynivalenol in the malt was transferred into beer. A LAB cell-freesupernatant (cfs), produced in wort-base substrate, was investigated for its ability to inhibit Fusarium growth during malting. Wort was a suitable substrate for LAB exhibiting antifungal activity. Lactobacillus amylovorus DSM19280 inhibited 104 spores.mL-1 for 7 days, after 120 h of fermentation, while Lactobacillus reuteri R29 inhibited 105 spores.mL-1 for 7 days, after 48 h of fermentation. Both LAB cfs had significant different organic acid profiles. Acid-base antifungal compounds were identified and, phenyllactic, hydroxy-phenyllactic, and benzoic acids were present in higher concentrations when compared to the control. A 3 °P wort substrate inoculated With L. reuteri R29 (cfs) was applied in malting and successfully inhibited Fusarium growth by 23%, and mycotoxin DON by 80%. Malt attributes resulted in highly modified grains, lower pH, higher colouration, and higher extract yield. The implementation of selected LAB producing antifungal compounds can be used successfully in the malting process to reduce mould growth and mycotoxin production.

Nutritional status of lactating mothers and their children 6-23 months of age in pre- and post-harvest seasons in two agro-ecological zones of rural Ethiopia

The objective of this study was to assess seasonal variation in nutritional status and feeding practices among lactating mothers and their children 6-23 months of age in two different agro-ecological zones of rural Ethiopia (lowland zone and midland zone). Food availability and access are strongly affected by seasonality in Ethiopia. However, there are few published data on the effects of seasonal food fluctuations on nutritional status and dietary diversity patterns of mothers and children in rural Ethiopia. A longitudinal study was conducted among 216 mothers in two agro-ecological zones of rural Ethiopia during pre and post-harvest seasons. Data were collected on many parameters including anthropometry, blood levels of haemoglobin and ferritin and zinc, urinary iodine levels, questionnaire data regarding demographic and household parameters and health issues, and infant and young child feeding practices, 24 h food recall to determine dietary diversity scores, and household use of iodized salt. Chi-square and multivariable regression models were used to identify independent predictors of nutritional status. A wide variety of results were generated including the following highlights. It was found that 95.4% of children were breastfed, of whom 59.7% were initially breastfed within one hour of birth, 22.2% received pre-lacteal feeds, and 50.9% of children received complementary feedings by 6 months of age. Iron deficiency was found in 44.4% of children and 19.8% of mothers. Low Zinc status was found in 72.2% of children and 67.3% of mothers. Of the study subjects, 52.5% of the children and 19.1% of the mothers were anaemic, and 29.6% of children and 10.5% of mothers had iron deficiency anaemia. Among the mothers with low serum iron status, 81.2% and 56.2% of their children had low serum zinc and iron, respectively. Similarly, among the low serum zinc status mothers, 75.2% and 45.3% of their children had low serum in zinc and iron, respectively. There was a strong correlation between the micronutrient status of the mothers and the children for ferritin, zinc and haemoglobin (P <0.001). There was also statistically significant difference between agro-ecological zones for micronutrient deficiencies among the mothers (p<0.001) but not for their children. The majority (97.6%) of mothers in the lowland zone were deficient in at least one micronutrient biomarker (zinc or ferritin or haemoglobin). Deficiencies in one, two, or all three biomarkers of micronutrient status were observed in 48.1%, 16.7% and 9.9% of mothers and 35.8%, 29.0%, and 23.5%, of children, respectively. Additionally, about 42.6% of mothers had low levels of urinary iodine and 35.2% of lactating mothers had goitre. Total goitre prevalence rates and urinary iodine levels of lactating mothers were not significantly different across agro-ecological zones. Adequately iodised salt was available in 36.6% of households. The prevalence of anaemia increased from post-harvest (21.8%) to pre-harvest seasons (40.9%) among lactating mothers. Increases were from 8.6% to 34.4% in midland and from 34.2% to 46.3% in lowland agro-ecological zones. Fifteen percent of mothers were anaemic during both seasons. Predictors of anaemia were high parity of mother and low dietary diversity. The proportion of stunted and underweight children increased from 39.8% and 27% in post-harvest season to 46.0% and 31.8% in pre-harvest season, respectively. However, wasting in children decreased from 11.6% to 8.5%. Major variations in stunting and underweight were noted in midland compared to lowland agroecological zones. Anthropometric measurements in mothers indicated high levels of undernutrition. The prevalence of undernutrition in mothers (BMI <18.5kg/m2) increased from 41.7 to 54.7% between post- and pre-harvest seasons. The seasonal effect was generally higher in the midland community for all forms of malnutrition. Parity, number of children under five years and regional variation were predictors of low BMI among lactating mothers. There were differences in minimum meal frequency, minimum acceptable diet and dietary diversity in children in pre-harvest and post-harvest seasons and these parameters were poor in both seasons. Dietary diversity among mothers was higher in lowland zone but was poor in both zones across the seasons. In conclusion, malnutrition and micronutrient deficiencies are very prevalent among lactating mothers and their children 6-23 months old in the study areas. There are significant seasonal variations in malnutrition and dietary diversity, in addition to significant differences between lowland and midland agro-ecological zones. These findings suggest a need to design effective preventive public health nutrition programs to address both the mothers’ and children’s needs particularly in the preharvest season.