Fair Value Accounting Practices in Financial Institutions

International audienc

The impact of home-country institutions and competition on firm profitability

© 2015 Elsevier Ltd. Firm profitability depends on firm characteristics, industry structure and home-country institutions. Firm profitability is negatively associated with institutional quality. The effect of entry regulation on profitability runs through competition, while the effect of legal and political institutions only partially runs through competition.status: publishe

What determines goodwill impairment?

This study investigates determinants of goodwill impairment decisions and their disclosure quality. Under IAS36 goodwill is subject to an annual impairment test in which the carrying amount of goodwill is not allowed to exceed the recoverable amount. However, valuing this recoverable amount is subject to substantial managerial discretion. Therefore, we predict that ownership concentration, corporate governance quality and firm performance provide incentives for managers to engage in goodwill impairment or not, and thus determine financial reporting quality. We construct a sample of firms that should engage in goodwill impairment. Our results convey that better performing firms and firms with stronger corporate governance mechanisms are more likely to impair. Further, ownership structure and governance have a weak impact on the degree of impairment disclosure.status: publishe

What Determines Goodwill Impairment?

This study investigates determinants of goodwill impairment decisions and their disclosure quality. Under IAS36 goodwill is subject to an annual impairment test in which the carrying amount of goodwill is not allowed to exceed the recoverable amount. However, valuing this recoverable amount is subject to substantial managerial discretion. Therefore, we predict that ownership concentration, corporate governance quality and firm performance provide incentives for managers to engage in goodwill impairment or not, and thus determine financial reporting quality. We construct a sample of firms that should engage in goodwill impairment. Our results convey that better performing firms and firms with stronger corporate governance mechanisms are more likely to impair. Further, ownership structure and governance have a weak impact on the degree of impairment disclosure.representation, elections, Parliament, self-employed, employers’organisations

The impact of corporate governance on IFRS adoption choices

We investigate the association between corporate governance strength and EU listed firms’ choices with respect to International Financial Reporting Standards (IFRS) adoption in 2005. We measure governance strength by aggregating variables such as board independence, board functioning and audit committee effectiveness. The firms exhibit heterogeneity in both compliance and disclosure quality; some firms do not even meet the minimum disclosure requirements. Regression results show that stronger governance firms disclose more information, comply more fully and use IAS 39’s carve-out provision less opportunistically. These findings are germane to accountants, managers and regulators in countries soon to adopt IFRS.status: publishe

Employee protection shocks and corporate cash holdings

International audienceWe examine the relation between employee protection legislation and corporate cash holdings. Our rationale rests on the notion that higher labor adjustment costs increase a firm's operating leverage making firms to adjust their liquidity management by increasing precautionary savings. Consistent with this, we show that the staggered passage of legal exceptions to the “at-will” employment doctrine in various U.S. states led to an average increase in cash holdings by 7.2%. Cash increases are higher when unionization rates and industry concentration are lower, and when industry discharge rates and volatility is higher. Consistent with the financial flexibility argument of tighter employment protection increasing corporate cash needs, the value of cash increases after the passage of pro-labor regulations. Moreover, we find that the increase in the value of cash is especially pronounced for financially constrained firms

The Impact of Corporate Governance on IFRS Adoption Choices

We investigate the association between corporate governance strength and EU listed firms' choices with respect to International Financial Reporting Standards (IFRS) adoption in 2005. We measure governance strength by aggregating variables such as board independence, board functioning and audit committee effectiveness. The firms exhibit heterogeneity in both compliance and disclosure quality; some firms do not even meet the minimum disclosure requirements. Regression results show that stronger governance firms disclose more information, comply more fully and use IAS 39's carve-out provision less opportunistically. These findings are germane to accountants, managers and regulators in countries soon to adopt IFRS