Managing earnings using classification shifting: Novel evidence from Jordan

open access journalIn response to McVay calls for more research to provide additional cross-sectional tests of classification shifting, the current paper examines whether Jordanian public companies engage in earnings management through classification shifting. Using a sample consisting of 112 public firms from Jordan during the 2010-2014 period, this study applies McVay (2006) Model to investigate the relationship between the non-recurring items (NREC) and the variation in unexpected core earnings (UCE). This analysis was supplemented with employing Fan et al., (2010) Model as a robustness check. Our empirical results reveal that managers in Jordan misclassify their recurring expenses to inflate their core earnings. More precisely, we find that non-recurring items (NREC) are significantly and positively associated with the variation in unexpected core earnings (UCE); thus, classification shifting is a common practice among Jordanian firms. Additionally, we find out stronger evidence on classification shifting when our sample was restricted to those firms with a more significant opportunity to misclassify recurring items (firms with positive NREC). This study contributes to the body of accounting literature by providing the first empirical evidence in the Middle East region overall on the use of classification shifting by Jordanian firms. We are also the first to apply McVay (2006) and Fan et al., (2010) models in the Middle East region. Our findings have important policy implications for standard setters, regulators, auditors and investors in their attempts to constrain earnings management practices and improve the financial reporting quality in Jordan

Corporate Environmental Disclosure in the Arab Middle Eastern and North African Region: An Institutional Perspective

Prompted by calls to examine social and environmental disclosure beyond developed countries and, in particular, by studies that have begun to investigate practices in the Middle East and North Africa (MENA) region, this study presents a comprehensive analysis of corporate environmental disclosure (CED) by firms in Arab MENA countries. Using a detailed research instrument consisting of 55 items in five categories, a multi-country content analysis of the annual reports of 180 industrial and service sector companies listed on nine of the region’s major stock markets was conducted for a five-year period from 2010 to 2014. Consistent with previous studies that applied balanced panel data, the further statistical analysis was conducted by using Ordinary Least Squares (OLS) technique and supported by carrying out other estimations including a fixed-effects model, lagged-effects model, a weighted disclosure index model, and a two-stage least square (2SLS) model. Theoretically, an institutional framework has been employed to interpret CED practices in the MENA region using the three isomorphic pressures (i.e., mimetic, coercive, and normative). The calculation of an unweighted disclosure index indicates that, although the level of disclosure might be considered relatively low, it increased significantly over the period 2010 to 2014. There are some differences between countries in any given year, but the growth in disclosure is observed to be a region-wide phenomenon. Analysis of five categories of environmental disclosure and the behaviour of different types of the company not only reveals some interesting patterns but also reinforces the picture of a widespread general increase in disclosure. Although firm-specific characteristics (i.e., firm size, profitability, leverage, industry, auditor type) are positively and significantly related to CED in the MENA region, the influence of country-level governance (i.e., voice and accountability, government efficiency, and control of corruption) is heterogeneous in that they may have enhanced or reduced CED levels in annual reports across the nine MENA countries. Additionally, CED reflects the different region-specific pressures (i.e., business cultures and business environment). By using institutional theory, the study argues that country-level institutional factors, representative of the social context of a company’s operational environment may either encourage or discourage the adoption of CED in the countries across the MENA region. Since a relatively comprehensive disclosure index was used, it is unlikely that the study was biased against any particular country or type of company and so it provides a sound basis for comparison across the Arab MENA region. The study also provides a systematic picture for policymakers in the region as well as future researchers

Auditing in the time of social distancing: The effect of COVID-19 on auditing quality

The file attached to this record is the author's final peer reviewed version.Purpose: Our paper aims to discuss the theoretical impact of Covid-19 social distancing outbreak on audit quality. Design/methodology/approach: Our paper uses a desk study method to explore the possible impact of COVID-19 crisis on five key considerations for audit quality during the pandemic. These include audit fees, going concern assessment, auditor human capital, audit procedures and audit personnel salaries. Findings: As many believe that the COVID-19 outbreak is as yet not a financial crisis, we, on the contrary, believe that the effects of the COVID-19 pandemic would be the toughest challenge for auditors and their clients since the 2007-2008 global financial crisis. Specifically, we believe that the COVID-19 social distancing can largely affect audit fees, going concern assessment, audit human capital, audit procedures, audit personnel salaries, and audit effort, which ultimately can pose a severe impact on audit quality. Practical implications: Due to the implementations of work-from-home strategy, audit firms are highly recommended to invest more in digital programs, including artificial intelligence, blockchain, network security, and data function development. This can help them to be more adaptable to working from home experience, which is ultimately expected to enhance the effectiveness and the flexibility of communication between auditors and their clients. Also, we recommend stock markets and other governmental bodies to provide temporary relaxations in compliance requirements to corporations. This procedure is expected to help firms that apply work-from-home strategy to report better earnings figures, which is appeared to be positively associated with audit quality. Originality/value: To date, to the best of our knowledge, there is no academic study that explores the potential impact of the COVID-19 outbreak on audit quality. This paper, therefore, fills an important research gap in the auditing literature. In addition, our paper can be used as a base to construct a research instrument (e.g., questionnaire or interviews) to provide empirical evidence on the potential impact of COVID-19 on audit quality

Do corporate anti-bribery and corruption commitments enhance environmental management performance? The moderating role of corporate social responsibility accountability and executive compensation governance

This study aims to examine the potential impact (substantive or symbolic) of firms' anti-bribery and corruption commitments (ABCC) on environmental management performance (ENVS). We also seek to explore whether this link is contingent on corporate social responsibility (CSR) accountability and executive compensation governance. To achieve these aims, we use a sample of 2151 firm-year observations representing 214 FTSE 350 non-financial companies from 2002 to 2016. Our findings support a positive association between firms’ ABCC and ENVS. In addition, our evidence shows that CSR accountability and executive compensation governance are significant substitutes for ABCC to engender enhanced ENVS. Our study highlights practical implications for organisations, regulators and policymakers, and suggests several avenues for future environmental management research. Overall, our findings are unsensitive to alternative measures of ENVS, different types of multivariate regression methods, namely ordinary least squares (OLS) and two-step generalized method of moments (GMM) regressions, and controlling for industry environmental risk and the implementation of the UK Bribery Act 2010

Exploring Environmental, Social and Governance research in the wake of COVID‐19: A bibliometric analysis of current trends and recommendations for future research

This study offers a systematic review of the evolution and characteristics of research on corporate Environmental, Social, and Governance (ESG) performance, with a particular focus on changes influenced by the COVID‐19 pandemic. Using bibliometric analysis, this research examines 340 scholarly articles on ESG performance published between 2006 and January 2023, documenting the expansion of ESG research in the post‐COVID‐19 era. Our findings identify key ESG themes, including social responsibility, sustainability reporting, corporate strategy, financial performance, and environmental performance. The study introduces a theoretical framework rooted in the resource‐based view, legitimacy, institutional, and stakeholder theories to explore the financial impacts of ESG implementations during and after the COVID‐19 pandemic. It highlights the essential roles played by influential journals, authors, and countries such as China, the USA, and Italy, demonstrating the interdisciplinary growth of ESG studies. Additionally, the research underscores the pandemic's impact on ESG practices, stressing the necessity for standardized ESG metrics and the crucial role of regulatory frameworks. The study recommends adapting ESG frameworks to align with post‐pandemic realities and calls for the inclusion of both qualitative research and a global perspective in future ESG research

EDITORIAL: RECENT TRENDS IN CORPORATE GOVERNANCE AND SUSTAINABILITY RESEARCH

open access articleI am honoured to introduce this second issue of 2021 (Volume 5) of the journal Corporate Governance and Sustainability Review. The nine articles published in this issue discuss various interesting corporate governance and sustainability-related topics. I can appreciate some shared aspects that correspond to three emerging trends in corporate governance and sustainability research. The first trend is apparently essential for our journal. It is represented by examining whether corporate engagement in sustainability activities is attributed to compliance with corporate governance mechanisms in emerging economies, adding to the previous debate by Gerged, Cowton and Beddewela (2018), Elamer, Ntim, and Abdou (2020), Gerged, Beddewela, and Cowton (2021), among others. For instance, Jamel Chouaibi, Yamina Chouaibi, and Noomen Chaabane investigate the expected impact of corporate governance mechanisms on the level of environmental disclosure among a selected sample of Islamic banks in the Middle East and North Africa (MENA) region. In another paper titled “Do Egyptian listed companies support SDGs? Evidence from UNCTAD guidance on core indicators disclosures”, Ahmed M. Abdel Meguid, Khaled M. Dahawy, and Nermeen F. Shehata provide a piece of empirical evidence that examines the extent to which macro-level foundations, including corporate governance regulations, influence sustainable development goals (SDGs) in Egypt. Similarly, Vincent Gagné and Sylvie Berthelot explore the determinants of greenhouse gas (GHG) emissions disclosure, including the influence of the existence of an environmental committee in the Canadian context. The second trend that can be appreciated in some articles on this issue is related to sustainability challenges in the time of COVID-19. Relatedly, Shirley Mo Ching Yeung explores in this issue the key elements of emotion sustainability (ES) and sustainable partnership (SP) post-COVID-19. This paper succeeded to add more perspectives to the academic debate that is established by recent studies, such as Adams and Abhayawansa (2021), Koutoupis, Kyriakogkonas, Pazarskis, and Davidopoulos (2021), Ikram, Zhang, Sroufe, and Ferasso (2020). The third trend focuses on various developments in corporate governance implementations. For example, Hamza El Kaddouri and Modar Ajeeb examine management teams’ perceptions of the role of legal audit in the governance system of French universities and its impact on the managerial latitude of university managers. Likewise, D. M. K. T. Dissanayake and D. B. P. H. Dissabandara analyse the nature and level of the relationship between board characteristics and dividend policy. Likewise, Tien-Chin Wang and Bi-Chao Lee raise the question of whether community security is the key to sustainable governance. These papers empirically contribute to the earlier work by Scott (2018), Yarram and Dollery (2015), Nesadurai (2013), among others. Along with the trends mentioned above in this issue, Udo C. Braendle reviews a book titled “Board of directors: A review of practices and empirical research”, edited by Stefano Dell’Atti, Montserrat Manzaneque, and Shab Hundal (Virtus Interpress, 2020; ISBN: 978-617-7309-16-0). This book review focuses on the main challenges that are associated with board diversity and sustainability issues. I am sure that anyone keen on advanced knowledge of the determinants, consequences, and associations among corporate governance and sustainability issues might find some points to ponder in these articles

Insights into corporate social responsibility disclosure among multinational corporations during host-country political transformations: Evidence from the Libyan oil industry

This study investigates the corporate social responsibility disclosure (CSRD) practices of multinational corporations (MNCs) operating in the Libyan oil industry, particularly amidst significant political transformations within the host-country (HSC). By examining these insights, we aim to shed light on how these corporations navigate and address CSRD considerations in a dynamic and politically evolving environment. To analyse these aspects, we employ various econometric models, including two-stage least squares (2SLS) and propensity score matching (PSM). Our examination covers a dataset of 6000 data points representing 35 multinational oil corporations headquartered in 18 different home countries (HMCs) across five continents, spanning the years from 2008 to 2015. Our findings indicated that the level of institutional quality convergence between MNCs' HMCs and HSC significantly determines the extent of HSC-related CSRD by MNCs. Additionally, the study emphasised that MNCs' internationalisation and business horizon within the HSC are critical factors influencing their CSRD in that country. The findings furthermore suggested that MNCs with a higher CSRD might exert an influence on the political decisions of their HMCs' governments concerning the political crisis in the HSC

Do creditors care about greening in corporations? Do contingencies matter?

This study assesses whether creditors consider ecological practices (i.e., resource usage, emissions, and eco-innovation) when setting interest rates during loan decisions and whether firm-level contingencies play a role in this relationship. Based on a sample of 38,127 firm-year observations of non-financial firms operating worldwide between 2004 and 2019, our evidence indicates that eco-friendly practices have no significant direct effect on the cost of debt. Thus, we consider other theoretically expected channels that moderate this link. Notably, profitability and board gender diversity significantly moderate the relationship between eco-friendly practices and the cost of debt. Further investigation reveals interesting associations between low and high governance systems, low and high financial development environments, code law versus common law systems, and polluting versus non-polluting sectors. We suggest theoretical and practical implications by which firms can reap greater benefits from environmental engagement

Board composition, ownership structure and financial distress: insights from UK FTSE 350

Purpose This study aims to investigate the possible implications of compliance with corporate governance (CG) provisions, including board composition and ownership structures, on the firm’s likelihood of falling into financial distress. Design/methodology/approach The study applies a random-effects logistic regression model as a baseline analysis using a sample of 110 FTSE 350 manufacturing companies from 2014 to 2019. This technique is supported by conducting a two-stage Heckman regression model to overcome the potential existence of endogeneity problems. Findings The empirical evidence suggests that board composition and ownership structure are heterogeneously associated with financial distress probabilities in that they might have either reduced or increased the financial distress of the sampled firms. Specifically, board independence, board gender diversity, audit committee independence and institutional ownership negatively influence the likelihood of financial distress. In contrast, and consistent with the expectations, ownership concentration is positively attributed to financial distress, while the board size, audit committee size and managerial ownership have insignificant impacts on financial distress. Originality/value The study extends the existing body of knowledge by examining the collective effect of board characteristics and ownership structures on firms’ financial distress likelihood among a sample of manufacturing firms within the FTSE 350 index post the 2008 global financial crisis and following the recent CG reforms in the UK during the study period from 2014 to 2019