The certification role of venture capitalists, top underwriters and big-n auditors in ipos

Esta tese avalia o impacto dos principais atores recorrentes durante o processo de IPO, em particular, o venture capitalist, o underwriter, e o auditor, sobre as condições de comercialização das ações da empresa, capturado pelo bid-ask spread, a fração de investidores institucionais que investem na empresa, a dispersão de capital, entre outros. Além disso, este estudo também analisa alguns benefícios que os fundos de Venture Capital (VCs) fornecem às empresas que eles investem. Ele investiga o papel dos VCs em dificultar o gerenciamento de resultados em IPOs e quantifica o papel desempenhado por eles no desempenho operacional das empresas após sua oferta inicial de ações. No primeiro capítulo, os resultados indicam que as empresas inflam seus resultados principalmente nos períodos pré-IPO e do IPO. Quando nós controlamos para os quatro períodos diferentes do IPO, observamos que IPOs de empresas investidas por VCs apresentam significativamente menos gerenciamento de resultados no IPO e em períodos seguintes à orfeta inicial das ações, exatamente quando as empresas tendem a inflar mais seus lucros. Este resultado é robusto a diferentes métodos estatísticos e diferentes metodologias usadas para avaliar o gerenciamento de resultados. Além disso, ao dividir a amostra entre IPOs de empresas investidas e não investidas por VCs, observa-se que ambos os grupos apresentam gerenciamento de resultados. Ambas as subamostras apresentam níveis de gerenciamento de resultados de forma mais intensa em diferentes fases ao redor do IPO. Finalmente, observamos também que top underwriters apresentam menores níveis de gerenciamento de resultados na subamostra das empresas investidas por VCs. No segundo capítulo, verificou-se que a escolha do auditor, dos VCs, e underwriter pode indicar escolhas de longo prazo da empresa. Nós apresentamos evidências que as características do underwriter, auditor, e VC têm um impacto sobre as características das empresas e seu desempenho no mercado. Além disso, estes efeitos são persistentes por quase uma década. As empresas que têm um top underwriter e um auditor big-N no momento do IPO têm características de mercado que permanecem ao longo dos próximos 8 anos. Essas características são representadas por um número maior de analistas seguindo a empresa, uma grande dispersão da propriedade através de investidores institucionais, e maior liquidez através um bid-ask spread menor. Elas também são menos propensas a saírem do mercado, bem como mais propensas à emissão de uma orferta secundária. Finalmente, empresas investidas por VCs são positivamente afetadas, quando consideramos todas as medidas de liquidez de mercado, desde a abertura de capital até quase uma década depois. Tais efeitos não são devido ao viés de sobrevivência. Estes resultados não dependem da bolha dot-com, ou seja, os nossos resultados são qualitativamente similares, uma vez que excluímos o período da bolha de 1999-2000. No último capítulo foi evidenciado que empresas investidas por VCs incorrem em um nível mais elevado de saldo em tesouraria do que as empresas não investidas. Este efeito é persistente por pelo menos 8 anos após o IPO. Mostramos também que empresas investidas por VCs estão associadas a um nível menor de alavancagem e cobertura de juros ao longo dos primeiros oito anos após o IPO. Finalmente, não temos evidências estatisticamente significantes entre VCs e a razão dividendo lucro. Estes resultados também são robustos a diversos métodos estatísticos e diferentes metodologias.

Relação entre governança corporativa e gerenciamento de resultados: um estudo em empresas brasileiras listadas na BM&FBOVESPA

The objective of this work was to identify a possible relation between corporate governance, through the structure of the boards of directors and the levels of earnings management of Brazilian public companies. The study is characterized as a descriptive, of a hypothetical-deductive nature, with quantitative approach guided by the estimation model proposed by Kang and Sivaramakrishnan (1995). The sample was comprised by 56 companies, analyzed in the period from 2011 to 2014. The information on the companies were extracted from Economatica databank. For the data analysis, we used multivariate techniques, such as Pearson correlation and panel data in POLS, Fixed Effects and Random Effects approaches. Furthermore, we applied the mean comparison test ANOVA. The results obtained show that, generally, the organizations tend to follow the profile of boards of directors recommended by the codes of corporative governance. However, the characteristics of the composition of the board, regarding its size and the duality of positions that are not yet sufficient to be considered capable of inhibiting the discretionary practice of the studied companies. Relative the control variables, only size and return on equity presented no significant relation with result management. It is important to highlight that literature point many factors that explain the different impacts caused by the formation of the administration board in different regions or countries. Among the factors pointed, we highlight the legal system of the country, the economic and political development, the importance of the capital market, and the level of accounting education.

Nonlinear dynamics in discretionary accruals: An analysis of bank loan-loss provisions

Several studies have analyzed discretionary accruals to address earnings-smoothing behaviors in the banking industry. We argue that the characteristic link between accruals and earnings may be nonlinear, since both the incentives to manipulate income and the practical way to do so depend partially on the relative size of earnings. Given a sample of 15,268 US banks over the period 1996–2011, the main results in this paper suggest that, depending on the size of earnings, bank managers tend to engage in earnings-decreasing strategies when earnings are negative (“big-bath”), use earnings-increasing strategies when earnings are positive, and use provisions as a smoothing device when earnings are positive and substantial (“cookie-jar” accounting). This evidence, which cannot be explained by the earnings-smoothing hypothesis, is consistent with the compensation theory. Neglecting nonlinear patterns in the econometric modeling of these accruals may lead to misleading conclusions regarding the characteristic strategies used in earnings management.

Report to the Governor and General Assembly : economic opportunity investments /

... annual report to the Governor and the General Assembly regarding economic opportunity investments for the State Universities Retirement System (SURS), as required by Public Act 096-0753.

Report to the Governor and General Assembly : economic opportunity investments /

Under Public Act 96-0753, Illinois encourages its pension funds to promote the economy of Illinois through the use of economic opportunity investments to the greatest extent feasible within the bounds of financial and fiduciary prudence. [Presented here is] the ... annual report to the Governor and the General Assembly identifying the economic opportunity investments made by the Illinois State Board of Investment.

Managerial discretion in distressed firms

This study examines the earnings management behaviour of 455 distressed US firms that filed for bankruptcy during the period 1986-2001. We examine (a) possible earnings management during the years prior to bankruptcy-filing, (b) whether qualified audit opinions cause conservative earnings management behaviour, (c) whether earnings management differs between firms that discontinued operations and firms that survived thereafter, and (d) the effect of earnings management on subsequent stock returns. Our results are consistent with downwards earnings management 1 year prior to the bankruptcy-filing. Results also show that (a) firms receiving unqualified audit opinions 4 or 5 years prior to the bankruptcy-filing event manage earnings upwards in subsequent years, consistent with Rosner [2003. Earnings manipulation in failing firms. Contemporary Accounting Research 20, 361-408], (b) more conservative earnings management seems to be related to the qualified audit opinions rendered in the preceding year, (c) firms with long-term negative accruals the year of bankruptcy-filing have a greater chance to survive thereafter, and (d) more pronounced (negative) earnings management is associated with more negative (next year's) subsequent returns. © 2007 Elsevier Ltd. All rights reserved.

Loan loss provisions, bank valuations and discretion : a comparative study between conventional and Islamic banks

This study investigates the use of reported loan loss provisions (LLP) by investors in their valuations of banks within the Middle East and North Africa region between the years 2006 and 2011. We decompose LLP into discretionary and non-discretionary components to test for differential valuations in the two banking sectors. We use alternative criteria to define the components of LLP in banks: loan quality/size and earnings management/ manipulation incentives. We employ a price-level valuation model estimated using two-stage analyses. We find that LLP has positive value relevance to investors in both banking sectors. Investors in Islamic banks price the discretionary component relatively lower than their conventional counterparts. We attribute this result to differences in product and governance structures as well as to the religious perception of Islamic banking. In both banking sectors, investors construe an increase in the non-discretionary component as irrelevant valuation information. Our results are relevant to bank regulators in showing the signalling effect of LLP to bank value and stability.

Loan loss provisions, bank valuations and discretion:a comparative study between conventional and Islamic banks

This study investigates the use of reported loan loss provisions (LLP) by investors in their valuations of banks within the Middle East and North Africa region between the years 2006 and 2011. We decompose LLP into discretionary and non-discretionary components to test for differential valuations in the two banking sectors. We use alternative criteria to define the components of LLP in banks: loan quality/size and earnings management/manipulation incentives. We employ a price-level valuation model estimated using two-stage analyses. We find that LLP has positive value relevance to investors in both banking sectors. Investors in Islamic banks price the discretionary component relatively lower than their conventional counterparts. We attribute this result to differences in product and governance structures as well as to the religious perception of Islamic banking. In both banking sectors, investors construe an increase in the non-discretionary component as irrelevant valuation information. Our results are relevant to bank regulators in showing the signalling effect of LLP to bank value and stability. © 2013 Elsevier B.V.

Related party transactions, corporate governance and accounting quality in Greece

Related Party Transactions (RPTs) have been considered recently in research as a phenomenon which is associated with several financial scandals, shareholder’s wealth expropriation and is used for earnings management (EM) purposes by the reporting entity. This study aimed to: (i) assess the extent of EM and RPTs i Greece; (ii) investigate the association between RPTs and EM; (iii) investigate the association between corporate governance and EM; (iv) investigate the association between corporate governance and RPTs; and (v) investigate the impact of RPTs on Accounting Quality. Greece was selected for this study as it provides a special context due to poor investor protection, high levels of EM and unhealthy financial reporting environment where wealth extraction and EM are more likely. This study examines the relationship between earnings management and RPTs for the firms listed on the Athens Stock Exchange (ASE). Moreover, it examines the association between earnings management and corporate governance activities. The results show a negative and significant relationship between EM and RPTs. This finding does not support the conclusion that RPTs are necessarily conducted to mask fraud or the extraction of firm resources. The results show that firms audited by one of the Big 4 audit firms are associated with less EM. Additionally, the study investigates the relationship between RPTs and accounting quality. The findings show that that there is no significant difference in accounting quality between RPTs firms and non-RPTs firms. This study contributes to the EM, accounting quality and corporate governance literatures. This research suggests recommendations for researchers, data providers and policy makers on ways to reduce the problems associated with RPTs.

Gender differences in audit committees

Issues related to the composition of audit committees have attracted significant interest from legislators and regulators in recent years. In my dissertation, I examine one overlooked component of audit committee composition – namely, the presence of female directors on the audit committee. I empirically test to see if there are any differences in the functioning of audit committee when there is at least one female director on the audit committee. My dissertation examines three issues: audit committee diligence, audit pricing and earnings management. ^ The absence of females on corporate boards has become the focus of legislators in some countries. Prior research, in a variety of contexts, suggests that women are in general more conservative in their judgments and decisions. The first part of my dissertation empirically shows that the presence of at least one female director on the audit committee makes the audit committee have more meetings. The second essay empirically examines if there is a positive association between audit fees and the presence of female directors in the audit committee. I posit that having a female director on the audit committee will result in higher audit fees. I find no significant evidence to show that audit fees are higher when there is a female director on the audit committee. The third part of my dissertation empirically examines if there an association between the presence of a female director on the audit committee and earnings management. I find no significant evidence to show that the presence of female directors on the audit committee constrains earnings management. Overall, the results suggest that having a female on the audit committee changes the form – if not the substance – of audit committee functioning. ^

Shareholder ratification of the auditor and audit market competition

In my dissertation, I examine factors associated with firms’ submission of auditor selection for shareholder ratification and test if shareholder ratification of auditor selection is associated with the extent of price competition in the audit market (as measured by audit fees) and audit quality (as measured by clients’ earnings management). The dissertation is motivated from the recent recommendation of the U.S. Treasury’s Advisory Committee on Auditing Profession (ACAP) regarding the submission of auditor selection for shareholder ratification votes. The ACAP suggests that this practice may improve the competition in the audit market; yet, there is no empirical evidence supporting the ACAP’s recommendation. My dissertation attempts to fill the gap in the literature on an issue of current interest to the auditing profession. I find that firm size, CEO-Chair duality, insider ownership and institutional ownership are associated with the submission of auditor selection for shareholder ratification vote. However, I do not find an association between audit committee variables and the submission of auditor selection for shareholder ratification vote. The second essay investigates the association between auditor ratification and audit fees. Audit fees are higher in firms that submit auditor selection for shareholder ratification. The finding is not consistent with the increased price competition predicted by the ACAP. The third essay of my dissertation examine whether the submission of auditor selection for shareholder ratification is associated with earnings management. I find that firms that submit auditor selection for shareholder ratification are more likely to have lower level of earnings management. Overall, the results suggest that the same factors that are associated with higher quality monitoring also may be associated with the submission of auditor selection for shareholder ratification vote. The results call into question the one-size-fits-all approach recommended by the ACAP.

Essays on audit report lag

Audit reporting lag continues to remain an issue of significant interest to regulators, financial statement users, public companies, and auditors. The SEC has recently acted to reduce the deadline for filing annual and quarterly financial statements. Such focus on audit reporting lag arises because, as noted by the Financial Accounting Standards Board, relevance and reliability are the two primary qualities of accounting information; and, to be relevant, information has to be timely. In my dissertation, I examine three issues related to the audit report lag. The first essay focuses on the association between audit report lag and the meeting or beating of earnings benchmarks. I do not find any association between audit report lag and just meeting or beating earnings benchmarks. However, I find that longer audit report lag is negatively associated with the probability of using discretionary accruals to meet or beat earnings benchmarks. We can infer from these results that audit effort, for which audit report lag is a proxy, reduces earnings management. The second part of my dissertation examines the association between types of auditor changes and audit report lag. I find that the resignation of an auditor is associated longer audit report lag compared to the dismissal of an auditor. I also find a significant positive association between the disclosure of a reportable event and audit report lag. The third part of my dissertation investigates the association between senior executive changes and audit report lag. I find that audit report lag is longer when client firms have a new CEO or CFO. Further, I find that audit report lag is longer when the new executive is someone from outside the firm. These results provide empirical evidence about the importance of senior management in the financial reporting process.