Earnings Management to Avoid Delisting from a Stock Market

We show that firms 'in danger' of being delisted from a stock market (NASDAQ) report higher performance-adjusted discretionary accruals and the inflated accruals are associated with an increased likelihood of maintained listing. Accruals of firms 'in danger' are less positive in fiscal quarters audited by a Big-4 auditor and after the implementation of SOX. In contrast, accruals are higher for firms that benefit most from public listing and for firms with good future prospects. This suggests that managers consider reputation and litigation risk associated with earnings management and they manage earnings only when they believe the firm will recover in near future. The market can thus interpret discretionary accruals as a signal revealing managers' private information about firm quality. Consistent with the signaling explanation we observe a stronger stock price reaction on the announcement of earnings that contain large accruals in threatened firms

Employee welfare, social capital, and IPO firm survival

Peer reviewe

CEO Power, Bank Risk-Taking and National Culture: International Evidence

Using unique hand-collected data for 336 large banks across 48 countries, together with values of national culture, our empirical analysis uncovers three new robust findings. First, variations of bank risk-taking across national culture and CEO power are more pronounced when cultural values and CEO power indicators are high. Second, while the individualism dimension of national culture has a moderating influence, the uncertainty avoidance dimension has a reinforcing effect, on the relationship between CEO power and bank risk-taking. In more detail, the results for the average marginal effect of CEO power on risk for different cultural values show that CEO power has a negative (positive) or insignificant impact on bank risk-taking when the value of individualism (uncertainty avoidance) is low; however, the impact becomes positive (negative) and statistically significant as the value of individualism (uncertainty avoidance) increases. Third, intra-cultural diversity matters: ‘tight’ cultures (e.g., strong social norms) are more pronounced than ‘loose’ cultures (e.g., heterogeneous values) in influencing bank risk

Does Cultural Difference Affect Investment–Cash Flow Sensitivity? Evidence from OECD Countries

We investigate the influence of national culture on corporate investment–cash flow sensitivity. We conjecture that national culture shapes managerial perceptions of information asymmetry and agency problems, thus impacting the investment–cash flow relationship. We document empirical evidence in support of our claim. By linking the investment–cash flow sensitivity to cultural differences, our findings show that, while collectivism has an attenuating influence, uncertainty avoidance, power distance and masculinity have a reinforcing effect on the relationship between cash flow and investment. Our results hold for a sample of 205,268 firm‐years across 24 OECD countries between 1990 and 2017, and are robust after accounting for alternative statistical approaches, sample compositions and measures of cultural dimensions, along with controls for institutional and governmental factors. In addition, by decomposing cash flow into uses and sources of funds in a dynamic multi‐equation model, where firms make financing and investment decisions jointly subject to the constraint that sources must equal uses of cash, we find that national culture shapes how firms react to changes in cash flow

The decision to delist. International empirical evidence

Over the last 20 years, the empirical literature has paid a great deal of attention to firms\u2019 delisting decisions, commonly defined as \u201cgoing private transactions\u201d (GPT) or \u201cpublic-to-private\u201d (PTP) operations. This chapter aims to review the empirical literature on the topic by analyzing 40 studies, mainly published in the last 20 years, and the intention is to give a synoptic view that is as complete as possible by referring to the methodological aspects of empirical tests, the hypotheses, and their consistency with the results obtained. There are essentially three streams of empirical literature on delisting. The first one studies, in voluntary delisting the link between the decision to undertake the operation and the determinants in accordance with the different theoretical models (see Sect. 1.4 for these models). These determinants mainly pertain to the firm\u2019s financial structure and performance characteristics, business characteristics, and stock liquidity. The other two strands highlight the reasons that lead to involuntary delisting and study the effects of delisting on firm value. With reference to this general framework, the chapter is organized as described below. Section 3.2 takes into account the empirical methodologies adopted in the studies examined, as well as their size in terms of geographical coverage and time period of analysis. Subsequent sections analyze the main results. For voluntary delistings, we distinguish them according to determinants and the aim is to quantify the robustness of the hypotheses that have obtained more robust empirical evidence (Sect. 3.3). The last two sections provide a summary of the studies that have investigated the reasons for involuntary delisting and the impact of delisting on a firm\u2019s value