Report on financial stability.

At the Informal Ecofin of 11 September 1999 in Turku, ministers and governors agreed to ask the Economic and Financial Committee to check whether the existing regulatory and supervisory structures in the EU can safeguard financial stability, particularly in the context of a rapidly changing financial environment. For this purpose, an ad hoc working group, chaired by the Dutch Deputy Governor Henk Brouwer prepared this report on financial stability under the aegis of the EFC. The organisation of the report is as follows. Section II contains the main conclusions (assessment). The rest of the paper examines the impact of the major financial trends on the stability of the financial system in Europe (section III), as well as the arrangements in the EU aimed at safeguarding financial stability. These arrangements can be divided into two main groups: the first one covers regulations (section IV) and supervisory structures (section V), which are primarily directed at preventing financial instability. The second group of arrangements consists of various types of crisis management, such as liquidity support to individual institutions or to the market as a whole (section VI).efc, economic and financial committee, financial, stability

Internal Governance Structures and Earnings Management

This paper investigates the role of a firm's internal governance structure in constraining earnings management. It is hypothesized that the practice of earnings management is systematically related to the strength of internal corporate governance mechanisms, including the board of directors, the audit committee, the internal audit function and the choice of external auditor. Based on a broad cross-sectional sample of 434 listed Australian firms, for the financial year ending in 2000, a majority of non-executive directors on the board and on the audit committee are found to be significantly associated with a lower likelihood of earnings management, as measured by the absolute level of discretionary accruals. The voluntary establishment of an internal audit function and the choice of auditor are not significantly related to a reduction in the level of discretionary accruals. Our additional analysis, using small increases in earnings as a measure of earnings management, also found a negative association between this measure and the existence of an audit committee.No Full Tex