International financial reporting standards compliance and information asymmetries: The role of enforcement authority and audit quality

This paper aims to investigate whether firms operating in Gulf Co-operation Council (GCC) countries with International Financial Reporting Standards (IFRS) compliance enforcement authority vis-à-vis countries without IFRS compliance enforcement authorities exhibit cross-sectional differences in proxy for information asymmetries and market liquidity. In addition, the study examines whether firms operating in the GCC countries that require firms to be audited by two or more auditors vis-à-vis countries that do not require firms to be audited by two or more auditors exhibit cross-sectional differences in proxy for information asymmetries and market liquidity. Using trading volume as a measure of information asymmetries and market liquidity, I find that information asymmetriesare lower for firms operatingin countrieswith IFRS compliance enforcement authority than firms operating in countries without IFRS compliance enforcement authority. I also find that information asymmetries are lower for firms operating in countries that require firms to be audited by two or more auditors than for firms operating in countries that do not require firms to be audited by two or more auditors. The findings of this study suggest that the merit of IFRS is optimal if institutions such as enforcement authorities and auditors enforce adherence to IFRS and provide assurance that financial statements comply with IFRS.This study shed light on the fundamental accounting questions using samples drawn from firms located in countries in the GCC that are often ignored by accounting researchers. Thus, this study helps to widen our knowledge of accounting practices around the globe and understand the accounting and economic issues compared to samples drawn from developed and mature markets

The effect of SOX on audit quality

© 2019, Emerald Publishing Limited. Purpose: This paper aims to investigate two issues. First, the authors test the effect of the Sarbanes–Oxley Act (SOX) on audit quality after 10 years. Second, the authors test whether it was necessary to close all of the Arthur Andersen offices due to the misbehavior of a few (e.g. the Houston and Atlanta offices). Design/methodology/approach: The authors have used conservatism (Basu) as a proxy for audit quality. Findings: The authors find that, over the long run (10 years) after SOX adoption, there is a significant positive change in conservatism as compared to during the previous similar period. In addition, the authors find that only 6 of the 20 city-level offices of Arthur Andersen were less conservative than were their other Big 6 competitors in the same city. Furthermore, the results also suggest that some city-level offices of Arthur Andersen were engaged in more conservative accounting practices than were their competitors and the Houston Andersen offices. Originality/value: This study documents, using empirical evidence, that the implementation of SOX is successful, and that one factor that helped lead to this success might be the harsh punishment on Arthur Andersen

Health risk and the efficient market hypothesis in the time of COVID-19

© 2020 Informa UK Limited, trading as Taylor & Francis Group. In this note, we show that the stock markets do not always incorporate all the available information because in many cases they slowly evaluate the news. Using simple statistical analysis, we show that the response of the markets to the available information in certain time periods is irrational and inefficient. The COVID-19 outbreak gives financial economists an example of health risk underestimation, and of an unexpectedly slow response during a stress period; issues that should be examined in the future under a behavioral view

Impact of Cloud Computing Adoption on Firm Stock Price – An Empirical Research

In this paper, we investigate how cloud computing adoption impacts publicly traded 26 cloud&adopting companies\u27 stocks. In an effort to perform a valid assessment of a firm\u27s cloud adoption initiatives, we also evaluate the stocks of 26 companies, which did not adopt cloud computing and operate in the same industry with similar market capitalization. Our study differs from the previous studies in the area because it uses Fama&French three factor model to d erive the stock abnormal returns for both adopters and non&adopters. Furthermore, given the announced risks of cloud computing in the literature, we analyzed the stock risk between adopters and non&ad opters. Our preliminary analysis implies that businesses adopting cloud computing experience positive cumulative abnormal returns during the time the event was announced. Our research also indicates that both cloud adopting and non&cloud adopting companies suffer from higher stock risk during the announcement but this risk is not statistically significant

AMCIS - Impact of cloud computing adoption on firm stock price - An empirical research

In this paper, we investigate how cloud computing adoption impacts publicly traded 26 cloud&adopting companies\u27 stocks. In an effort to perform a valid assessment of a firm\u27s cloud adoption initiatives, we also evaluate the stocks of 26 companies, which did not adopt cloud computing and operate in the same industry with similar market capitalization. Our study differs from the previous studies in the area because it uses Fama&French three factor model to d erive the stock abnormal returns for both adopters and non&adopters. Furthermore, given the announced risks of cloud computing in the literature, we analyzed the stock risk between adopters and non&ad opters. Our preliminary analysis implies that businesses adopting cloud computing experience positive cumulative abnormal returns during the time the event was announced. Our research also indicates that both cloud adopting and non&cloud adopting companies suffer from higher stock risk during the announcement but this risk is not statistically significant

Impact of cloud computing adoption on firm stock price - An empirical research

In this paper, we investigate how cloud computing adoption impacts publicly traded 26 cloud-adopting companies\u27 stocks. In an effort to perform a valid assessment of a firm\u27s cloud adoption initiatives, we also evaluate the stocks of 26 companies, which did not adopt cloud computing and operate in the same industry with similar market capitalization. Our study differs from the previous studies in the area because it uses Fama-French three factor model to derive the stock abnormal returns for both adopters and non-adopters. Furthermore, given the announced risks of cloud computing in the literature, we analyzed the stock risk between adopters and non-adopters. Our preliminary analysis implies that businesses adopting cloud computing experience positive cumulative abnormal returns during the time the event was announced. Our research also indicates that both cloud adopting and non-cloud adopting companies suffer from higher stock risk during the announcement but this risk is not statistically significant

The impact of ownership structure on earnings quality: the case of South Korea

© 2018, Macmillan Publishers Ltd., part of Springer Nature. This paper investigates the impact of business group ownership structure on the quality of earnings reporting using data from South Korea. In addition, we investigate the impact of ownership disparity and family ownership on earnings quality reporting. Using a self-constructed earnings quality index as a measure of earnings quality, we found that business group ownership structure is significantly associated with higher earnings quality. The result suggests that strong monitoring mechanisms introduced by the government, which are necessary for credibility in external financial markets and beneficial to business group reputation, led to increased transparency in earnings reports. We also found that disparity in ownership between control and cash flow rights in firms, as well as family ownership in group firms, was both associated with lower earnings quality

Essays On Earnings Quality: Evidence From Net Share Issue, Put Option Sales, And Hedging

There are three essays in this research. The main objective of the research is to extend the literature in corporate finance by investigating the quality of earnings around corporate events like net share issues, put option sales by firms on their own stock, and hedging commodities by high input cost group of firms. The first paper is Does Earnings Quality predicts Net Share Issuance . This paper investigates whether quality of earnings predicts net share issuance by corporations. Pontiff and Woodgate (2008) show that annual share issuance (ISSUE) measure is a better predictor of future cross-sectional returns and we use this to measure the if a firm is net issuer of equity or net repurchasers. Market timing due to information asymmetry is one reason why manager issue equity when they perceive that their firms are overvalued. We use earnings quality as a measure of information asymmetry and found that the ISSUE (net equity issuance) has an inverse relationship with quality of the earnings reported by the firms. First, firms with poor (good) earnings quality have higher (lower) information asymmetry and tend to issue more (less) equity and this finding was true for a variety of earnings quality measures used in the literature. Second, firms with negative net issuance (net repurchasers) are more likely to have higher quality of earnings; this is true across all the earnings quality proxies except for one. On the contrary firms with positive net issuance (net issuers) were found to have lower quality of earnings. The second paper is Put Option Sales and Earnings Quality: Evidence of Market Timing . This paper provides evidence that earnings quality is high for the sample of Put Option Selling (POS) firms which are actively timing the market compared to a matching sample of firms. We hypothesize that due to information asymmetry; managers of POS firms have additional private information and estimate their stock was mispriced (undervalued) and thus expect the stock price to increase in the near future, as a result they are less likely to manage abnormal accruals and thus resulting in higher quality of earnings. We provide additional evidence of market timing (mispricing due to undervaluation) using Residual Income Model (RIM). The third paper is Earnings Quality: A case of Hedging Strategies by US Airlines . This paper investigates the quality of earnings in high input cost industries like transportation, coffee which are similar to Airlines. We intend to extend this study to include more industries with similar characteristics of input costs. At this stage the paper the research presents evidence on the performance of firm and quality of earnings in a small sample of US airlines around a specific regulation change. Historically jet fuel prices have fluctuated heavily, specifically over the past few years which significantly affected the US Airlines ability to maintain consistent positive cash flows. The companies used several hedging and abnormal hedging strategies to navigate these volatile periods. We analyze these strategies employed by dichotomizing them into pure hedge positions and abnormal hedging positions and calculate the effect around implementing FASB #133 / IASB #39 on firm value among other variables in each case and identify behaviors leading to these decisions. The main hypoThesis is that firms which are hedging have higher quality of earnings as compared to speculating firms

Effects of financial instability on subjective well-being: a preference-based approach

Purpose: The purpose of this paper is to examine the link between banking crises and the subjective well-being of individuals. In addition, the authors examine the transmission of crises from the banking sector to well-being and show that negative financial shocks have significant adverse effects. Design/methodology/approach: The authors employ agent-based modeling to test for the direct and indirect welfare effects of banking crises. The model includes a support vector machine (SVM) optimized subjective well-being function. The existing literature suggests that this is influenced by both the negative psychological effects of recessions and the adverse economic effects of income loss and increased unemployment. Findings: The authors show that the different choices of policy response to a banking crisis carry different opportunity costs in terms of welfare and that societal preferences should be taken into account. The authors demonstrate that these effects influence different population classes in an asymmetric manner. Finally, the results demonstrate that the welfare loss of a bank failure is much higher than the cost of a bailout. Practical implications: The authors are able to propose to the authorities the best policy mix in order to handle banking crises in the most adequate manner, according to society\u27s preferences between financial stability and public goods. Social implications: The findings extend the existing literature on subjective well-being, by quantifying the welfare cost of banking crises and showing that authorities should reconsider bank bailouts as a policy solution to bank distress. Originality/value: The originality of this article lies in the use of an agent-based model to model the relationship between societal well-being and financial stability. Also, the authors extend existing agent-based methodologies to include machine learning optimization techniques

Lessons for Euro markets from the first wave of COVID-19

Although the coronavirus pandemic hit Europe in the early days of 2020, European stock markets had signaled fluctuations in the days before. This paper assesses the observed volatility on European stock exchanges and searches for its sources during the first four months of 2020. To investigate the issue, a panel VAR model is adopted, and the generalized impulse response function and the variance decomposition methods are used. The estimations show that about 34% of the volatility in European stock markets is due to the Chinese stock market, while 7% is due to international uncertainty, as measured by VIX. The impact of pandemic cases and deaths on European stock markets is negligible, below 1%. This means that the European stock market faced two risk elements: the first is the transmission volatility from the Chinese stock market, and the second is the international uncertainty. The findings also support the view that COVID-19 is more like a systematic risk