The growth companies puzzle: can growth opportunities measures predict firm growth?

While numerous empirical studies include proxies for growth opportunities in their analyses, there is limited evidence as to the validity of the various growth proxies used. Based on a sample of 1942 firm-years for listed UK companies over the 1990-2004 period, we assess the performance of eight growth opportunities measures. Our results show that while all the growth measures show some ability to predict growth in company sales, total assets, or equity, there are substantial differences between the various models. In particular, Tobin's Q performs poorly while dividend-based measures generally perform best. However, none of the measures has any success in predicting earnings per share growth, even when controlling for mean reversion and other time-series patterns in earnings. We term this the 'growth companies puzzle'. Growth companies do grow, but they do not grow in the key dimension (earnings) theory predicts. Whether the failure of 'growth companies' to deliver superior earnings growth is attributable to increased competition, poor investments, or behavioural biases, it is still a puzzle why growth companies on average fail to deliver superior earnings growth

Return Predictability: The Dual Signaling Hypothesis of Stock Splits

This paper aims to differentiate between optimistic splits and overoptimistic/opportunistic splits. Although markets do not distinguish between these two groups at the split announcement time, optimistic (over-optimistic/opportunistic) splits precede positive (negative) long-term buy-and-hold abnormal returns. Using the calendar month portfolio approach, we show that the zero-investment, ex-ante identifiable, and fully implementable trading strategy proposed in this paper can generate economically and statistically significant positive abnormal returns. Our findings indicate that pre-split earnings management and how it relates to managers’ incentives, is an omitted variable in the studies of post-split long-term abnormal returns

Where do firms manage earnings?

Despite decades of research on how, why, and when companies manage earnings, there is a paucity of evidence about the geographic location of earnings management within multinational firms. In this study, we examine where companies manage earnings using a sample of 2,067 U.S. multinational firms from 1994 to 2009. We predict and find that firms with extensive foreign operations in weak rule of law countries have more foreign earnings management than companies with subsidiaries in locations where the rule of law is strong. We also find some evidence that profitable firms with extensive tax haven subsidiaries manage earnings more than other firms and that the earnings management is concentrated in foreign income. Apart from these results, we find that most earnings management takes place in domestic income, not foreign income.Arthur Andersen (Firm) (Arthur Andersen Faculty Fund

Earnings Management: The Effect of Ex Ante Earnings Expectations

Yeshttps://us.sagepub.com/en-us/nam/manuscript-submission-guideline

Applying Benford’s law to detect accounting data manipulation in the banking industry

We utilise Benford’s Law to test if balance sheet and income statement data broadly used to assess bank soundness were manipulated prior to and also during the global financial crisis. We find that all banks resort to loan loss provisions to manipulate earnings and income upwards. Distressed institutions that have stronger incentives to conceal their financial difficulties resort additionally to manipulating loan loss allowances and non-performing loans downwards. Moreover, manipulation is magnified during the crisis and expands to encompass regulatory capital

Review: Perspective on high-performing dairy cows and herds

Milk and dairy products provide highly sustainable concentrations of essential amino acids and other required nutrients for humans; however, amount of milk currently produced per dairy cow globally is inadequate to meet future needs. Higher performing dairy cows and herds produce more milk with less environmental impact per kg than lower performing cows and herds. In 2018, 15.4% of the world\u27s dairy cows produced 45.4% of the world\u27s dairy cow milk, reflecting the global contribution of high-performing cows and herds. In high-performing herds, genomic evaluations are utilized for multiple trait selection, welfare is monitored by remote sensing, rations are formulated at micronutrient levels, health care is focused on prevention and reproduction is managed with precision. Higher performing herds require more inputs and generate more waste products per cow, thus innovations in environmental management on such farms are essential for lowering environmental impacts. Our focus is to provide perspectives on technologies and practices that contribute most to sustainable production of milk from high-performing dairy cows and herds

Adaptations in the Temporalis Muscles of Rabbits after Masseter Muscle Removal

Masseter muscles were surgically removed in six young female rabbits so that we could study adaptations of the superficial temporalis muscles (ST) to increased functional requirements. Eight weeks following surgery, we used morphological measurements, histochemistry, contractile properties in situ, and occlusal force in vivo to compare the muscles in the experimental animals and six control rabbits. Analysis of the results demonstrated a decrease in fatigability of ST after masseter myectomy. Incisal occlusal force decreased by 65% during the first two weeks, and no recovery was observed during the following six weeks. At eight weeks post-surgery, the mass, twitch tensions, and tetanic tensions of ST were not significantly different from those of the controls. An increase in the percent of the cross-sectional area composed of fast fatigue-resistant fibers, a slower time-to-peak twitch tension, and a decrease in fatigability suggest an increase in oxidative metabolism. Analysis of these results suggests that muscles used for highly repetitious activities with submaximal loadings adapt to increased functional requirements by increasing fatigue-resistant properties.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/68261/2/10.1177_00220345860650110201.pd

Does Regulatory Environment affect Earnings Management in Transitional Economies? An Empirical Examination of the Financial Reporting Quality of Cross-Listed Firms of China and Hong Kong

This chapter provides evidence on the impact of regulatory environment on financial reporting quality of transitional economies. This study compares the financial reporting quality of Hong Kong firms which are cross-listed in mainland China with those of Hong Kong firms cross-listed in China using specific earnings management metrics (earnings smoothing, timely loss recognition, value relevance and managing towards earnings targets) under pre- and post-IFRS regimes. The financial reporting quality of Chinese A-share companies and Hong Kong listed companies are examined using earnings management measures. Using 2007 as base year, the study used a cumulative of −5 and +5 years of convergence experience which provide a total of 3,000 firm-year observations. In addition to regression analyses, we used the difference-in-difference analysis to check for the impact of regulatory environments on earnings management. Through the lens of contingency theory, our results indicate that the adoption of the new substantially IFRS-convergent accounting standards in China results in better financial reporting quality evidenced by less earning management. The empirical results further shows that accounting data are more value relevant for Hong Kong listed firms, and that firms listed in China are more likely to engage in accrual-based earnings management than in real earnings management activities. We established that different earnings management practices that are seemingly tolerable in one country may not be tolerable in another due to level of differences in the regulatory environments. The findings show that Hong Kong listed companies’ exhibit higher level of financial reporting quality than Chinese listed companies, which implies that the financial reporting quality under IFRS can be significantly different in regions with different institutional, economic and regulatory environments. The results imply that contingent factors such as country’s institutional structures, its extent of regulation and the strength of its investor protection environments impact on financial reporting quality particularly in transitional and emerging economies. As such, these factors need to be given appropriate considerations by financial reporting regulators and policy-makers interested in controlling earnings management practices among their corporations. This study is a high impact study considering that China plays a significant role in today’s globalised economy. This study is unique as it the first, that we are aware of, to compare real earnings activities against accrual-based earnings management in pre- and post-IFRS adoption periods within the Chinese and Hong Kong financial reporting environments, distinguishing between cross-listed and non-cross-listed firms.N/