Earnings Management in Belgium. a Review of the Empirical Evidence

Earnings are an extensively used summary statistic of a firm’s financial performance. Various corporate reporting scandals (such as Enron and Lernout & Hauspie) have raised concerns regarding the credibility of this performance measure. This paper first discusses the empirical evidence on earnings management practices by Belgian companies. This review indicates that Belgian companies manage earnings to avoid declines in earnings or losses, to influence relations with external financiers and to reduce taxes. Belgian companies quoted on the Brussels Stock Exchange also report significantly less income-decreasing earnings management than their non-quoted counterparts, presumably to meet or beat market expectations. Belgian earnings management studies further report that larger boards and Big6 auditors may constrain the extent of incomedecreasing earnings management.

Resultaatsturing en kapitaalmarkten

Recente financiële rapporteringsschandalen (Enron, Worldcom) hebben de betrouwbaarheid van het gerapporteerde winstcijfer in vraag gesteld. In dit artikel bespreken we hoe ondernemingen hun resultaat kunnen sturen en hoe we dit resultaatsturingsgedrag kunnen detecteren. We geven ook een overzicht van de academische literatuur inzake resultaatsturing voor kapitaalmarktdoeleinden. Hieruit blijkt dat ondernemingen hun winst sturen rond bepaalde beurstransacties (zoals bijvoorbeeld initial public offerings en secondary equity offerings), om bepaalde streefcijfers te halen en om hun winst te egaliseren. Over de gevolgen van resultaatsturing voor beleggers bestaan in de literatuur tegenstrijdige uitkomsten. Sommige studies besluiten dat de beleggers resultaatsturing onmiddellijk doorzien. Andere studies concluderen dat beleggers slechts na verloop van tijd voor resultaatsturing corrigeren

Knowledge networking and growth in service firms

This paper empirically assesses whether knowledge networking affects the growth of small service firms. More specifically, using a large, unbalanced panel data set for the period 1992- 2009, we investigate whether participation in a knowledge network called PLATO is positively related to service firm growth. Our results show that knowledge networking has a highly significant positive effect on the growth in net assets and added value of service firms. Furthermore, we demonstrate that the positive effect of knowledge networking on firm growth is significantly larger for service than for manufacturing firms, indicating that industry drives networking success.networking, growth, service sector, SME, knowledge

Does formal business networking contribute to SME growth? – An empirical examination

This paper provides new empirical evidence on the impact of formal business networking on SME growth. More specifically, using a large, unbalanced panel data set of Flemish SMEs over the period 1992-2008, we examine whether participation in a government-supported program aimed at intense guidance for small business managers affects SME growth. We find that this objective measure of formal business networking is significantly positively correlated with net asset and value added growth. These results confirm that formal business networking contributes to company success.

Trade credit and company performance during the 2008 financial crisis

We investigate whether the 2008 financial crisis had an impact on companies’ trade credit, and whether changes in trade credit mitigated the crisis’ impact on firm profitability. We document that the availability of trade credit decreased, and that this decline is more pronounced, the higher companies’ pre-crisis reliance on short-term debt. We further report evidence that the redistribution hypothesis holds during crisis periods. Finally, we show that the crisis had a negative impact on company performance, but that this impact was lower (greater) for firms which report an increase in trade receivables (payables) in crisis compared to precrisis periods.

The Impact of the Financial Crisis on Insider Trading Profitability in Belgium

The 2007 global financial crisis led to a chaotic financial environment characterized by highly uncertain and volatile stock markets. This created additional uncertainty about the fundamental value of shares and potentially increased the benefit of inside information. In this paper, we use event study methodology to examine whether Belgian corporate insiders were able to benefit from these turbulent market conditions. Given the large weight of financial institutions, the Belgian stock market was especially vulnerable to the financial crisis and provides an interesting environment to test this hypothesis. Our results show that, while insiders are generally able to earn abnormal returns, these returns are significantly higher during the years of the financial crisis.Insider trading, equity markets, market efficiency, information asymmetry, financial crisis, event study, abnormal returns.

Does High-Quality Corporate Communication Reduce Insider Trading Profitability

Manuscript Type: Empirical Research Question/Issue: Using a unique database on insider trading in Belgium, we investigate whether high-quality corporate communication, as proxied by disclosure scores of professional financial analysts, reduces the profitability of insider trading. Research Findings/Insights: We find a significant negative association between corporate communication quality and insider trading profitability. Closer inspection of the different communication channels shows that the quality of press releases and investor relation activities is more relevant in explaining insiders’ abnormal returns than the quality of annual reports and corporate websites. Theoretical/Academic Implications: This study provides evidence that high-quality communication contributes to reducing insider trading profitability and information asymmetry. In addition, the quality of voluntary disclosure channels like press releases and investor relation activities seems to be relatively more effective in reducing information asymmetry than mandatory annual reports. Practitioner/Policy Implications: Our findings demonstrate concrete benefits of high-quality communication. In particular, outside investors benefit from better communication as it creates more of a level playing field between investors. Also, companies benefit from better communication as it reduces information asymmetry, which in turn results in a lower cost of capital.