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

Effect of perceived default risk and accounting information quality on the decision to grant credit to SMEs

ABSTRACT: The present study analyses the influence that perceived default risk and accounting information quality have on the process of credit granting to SMEs. Empirical evidence was obtained from a survey of 471 bank loan officers in Spain, in which they were asked to answer questions relating to audited and not-audited firms. Through a Structural Equations Modeling (SEM) approach, the results confirm that the likelihood that the loan officers are more willing to provide access to credit to SMEs, and to do so in more favourable conditions, is negatively influenced by perceived default risk and positively influenced by the general perception about accounting information quality. Besides, we find that information quality is an antecedent of perceived risk, so that the latter becomes the central element of the research model. Additionally, the perceptions of the decision-makers regarding all the analysed variables are better for the audited SMEs than for the unaudited ones

Financial fragmentation and SMEs’ access to finance

This paper focuses on the impact of financial fragmentation on small and medium enterprises (SMEs)’ access to finance. We combine country-level data on financial fragmentation and the ECB’s SAFE (Survey on the Access to Finance of Enterprises) data for 12 European Union (EU) countries over 2009-2016. Our findings indicate that an increase in financial fragmentation not only raises the probability of all firms to be rationed but also to be charged higher loan rates; in addition, it increases the likelihood of borrower discouragement and it impairs firms’ perceptions of the future availability of bank funds. Less creditworthy firms are even more likely to become credit rationed, suggesting a flight to quality effect in lending. However, our study also documents a potential adverse effect of increasing bank market power resulting from greater integration. This suggests that financial integration could impair firms’ financing, if not accompanied by policy initiatives aimed at maintaining an optimal level of competition in the banking sector

Financial Characteristics of Companies Audited by Large Audit Firms

Purpose “ The purpose of this paper is to examine how financial characteristics associated with the choice of a big audit firm with further investigation on the agency costs of free cash flows.Design/methodology/approach “ The sample used for this work includes industrial listed companies from Germany and France. To test our hypothesis, we used a number of logit models, extending the standard model selection audit firm, to include the variables of interest. Following previous work, our dependent dummy variable is Big4 or non-Big4.Findings “ We observed that most independent variables in the German companies show similar results to previous work, but we did not have the same results for the French industry. Moreover, our findings suggest that the total debt and dividends can be an important reason for determining the choice of a large audit firm, reducing agency costs of free cash flows.Research limitations/implications “ This study has some limitations on the measurements of the cost of the audit fees and also generates opportunities for additional searching.Originality/value “ The paper provides only one aspect to explain the relationship between the problems of agency costs of free cash flow and influence in choosing a large auditing firm, which stems from investors\u27 demand for higher quality audits

Improving eco-efficiency in the steel industry: The ArcelorMittal Gent case

In addition to CO2 released by the combustion of fossil fuel and leading to climate change, large steelworks emit pollutants that have other environmental impacts. ArcelorMittal Gent, an integrated steelwork producing ca. 5 x 10(6) tons of steel per year, not only decreased its specific energy consumption and CO2-emissions, but also reduced the environmental impact of its other emissions. This is illustrated by means of the evolution of 6 partial eco-efficiency indicators for the impact categories acidification, photo-oxidant formation, human toxicity, freshwater aquatic ecotoxicity, eutrophication and water use. The partial eco-efficiency indicators are eco-intensities, defined as the environmental impact in the respective impact category, divided by the amount of liquid steel produced. In the period 1995 - 2005 these indicators decreased by 45, 4, 52, 9, 11 and 33% respectively, whereas the steel production increased by 17%. The net impact of discharges of wastewater is negligible for human toxicity and is negative (concentrations lower than in the canal water used) for freshwater aquatic toxicity and eutrophication. For acidification, human toxicity (only emissions to air) and water use, the decoupling between environmental impact and production was absolute; for photo-oxidant formation, freshwater aquatic ecotoxicity (only emissions to air) and eutrophication, it was relative. (C) 2009 Elsevier Ltd. All rights reserved.status: publishe