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The purpose of this paper is to investigate whether European banks use commission and fee income (CF) to smooth reported earnings or to persistently increase reported earnings as an income-increasing earnings management strategy.

The author tests the income-smoothing hypothesis following the approach of Stubben (2010) and Ahmed et al. (1999).

The author finds that European banks use CF to smooth reported earnings and this behaviour is pronounced among non-too-big-to-fail (NTBTF) European banks compared to too-big-to-fail (TBTF) European banks. The author also finds a positive and significant correlation between interest income and non-interest income (CF) indicating increased systematic risk due to reduced diversification benefits. The author also finds that the CF of NTBTF banks is procyclical with fluctuating economic conditions but not for TBTF banks. Also, the author finds evidence for income-increasing earnings management in the post-crisis period, for larger European banks and when banks have higher ex post interest income, implying that the propensity to engage in income-increasing earnings management significantly depends on bank size and ex post interest margin considerations. The findings have policy implications.

The author examines alternative financial numbers that banks use to manage earnings. The author focusses on income smoothing via CF among European banks, a context that has not been explored in the literature.

This study aims to investigate the occurrence of pre-merger earnings management for a sample of 197 stock- and cash-financed UK acquirers between 1990 and 2009. It also examines the earnings management behaviour around the change in the Corporate Governance Code in 2003 based on the Higgs recommendations.

Mean and median accrual- and real-based manipulation are examined in the period before the announcement of a merger and acquisition. These are compared across stock and cash acquirers as well as before and after the implementation of the Higgs recommendations. Logistic regressions are also run to examine accrual- and real-based manipulation across stock and cash acquirers after controlling for variables that may affect the acquisition type.

The study found some evidence of upward pre-merger accrual-based earnings management by stock-financed acquirers, which is in line with the findings of Botsari and Meeks (2008). Furthermore, no significant changes were found in the post-Higgs period, which indicates that the recommendations put forth by Higgs may not have been successful in mitigating earnings management. The evidence also shows that cash bidders engage in pre-merger real earnings manipulation through lower discretionary expenses, possibly to enhance cash availability for the bid.

The findings in this study confirm earnings management exists around mergers and acquisitions and provide some evidence that the recommendations set out in the Higgs Report do not appear to have mitigated earnings management activities. This is of interest to regulators as well as investors and academicians.

This provides the first analysis in the UK examining the use of real-based earnings management activities by UK acquirers. It also extends prior research around corporate governance changes that occurred in the UK.

This study examines the rarely investigated association between institutional ownership and income smoothing. The results support the predicted positive association between institutional ownership and the likelihood of firms smoothing earnings towards their earnings trend in general. However, this association is not systematic across all firms. The positive association is most evident among profit firms with pre‐managed earnings above their earnings trend. No significant association is found for profit firms with pre‐managed earnings below their earnings trend and loss firms in general. This study also finds that, in Australia, while institutional ownership has a non‐linear association with income increasing earnings management (Koh, 2003), such association manifests itself within the income smoothing framework. The results of this study highlight the complexities in the association between institutional ownership and earnings management strategies, and future research can benefit by explicitly examining the trade‐offs between alternative earnings management incentives and the factors that affect the relative strength of these incentive trade‐offs.

This paper demonstrates that present value (PV) models can be viewed as multiperiod extensions of accrual income statements (AISs). Failure to include AIS details in PV models may lead to inaccurate estimates of earnings and rates of return on assets and equity and inconsistent rankings of mutually exclusive investments. Finally, this paper points out that rankings based on assets and equity earnings and rates of return need not be consistent, requiring financial managers to consider carefully the questions they expect PV models to answer.

AISs are used to guide the construction of PV models. Numerical examples illustrate the results. Deductions from AIS definitions demonstrate the potential conflict between asset and equity earnings and rates of return.

PV models can be viewed as multiperiod extensions of AISs. Mutually exclusive rankings based on assets and equity earnings and rates of return need not be consistent.

PV models are sometimes constructed without the details included in AISs. The result of this simplified approach to PV model construction is that earnings and rates of return may be miscalculated and rankings based as asset and equity earnings and rates of return are inconsistent. Tax adjustments for asset and equity earnings may be miscalculated in applied models.

This paper provides guidelines for properly constructing PV models consistent with AISs.

PV models are especially important for small to medium size firms that characterize much of agricultural. Providing a model consistent with AIS construction principles should help financial managers view the linkage between building financial statements and investment analysis.

This is the first paper to develop the idea that the PV model can be viewed as a multiperiod extension of an AIS.

We assess the impact of NZ IAS 32 on the financial reporting of convertible financial instruments by retrospective application of the standard to a sample of New Zealand companies over the period 1988 ‐ 2003. NZ IAS 32 has a broader definition of liabilities than does the corresponding current standard (FRS‐31) and it does not permit convertibles to be reported under headings that are intermediate to debt and equity. The results of the study indicate that in comparison with the reported financial position and performance, the reporting of convertibles in accordance with NZ IAS 32 would result in higher amounts for liabilities and higher interest. Thus, analysts using financial statement information to assess risk of financial distress will need to revise the critical values of commonly used measures of risk and performance when companies report under NZ IAS

This paper investigates the presence of the accrual and the cash flow anomalies in the New Zealand stock market for the period of 1987 to 2003. We observe insignificant evidence of the accrual anomaly but find strong evidence of the presence of the cash flow anomaly. However, from 1987 to 1992 – a period before the introduction of the Companies and the Financial Reporting Acts 1993 – the presence of the accrual anomaly was statistically significant suggesting that the introduction of the FRA had a significant impact on the occurrence of the anomaly. We observe further that firms with high discretionary accruals experience significant negative future stock returns. This evidence is consistent with the notion that managers of these firms engage in earnings management.

This study aims to examine the effects of earnings management and audit quality on cost of debt of listed companies in Kazakhstan. The study also investigates the effects of audit quality on earnings management and whether the relationship between earnings management and cost of debt is affected by audit quality in the context of a given emerging economy.

The study sample consists of public companies listed in the Kazakhstan Stock Exchange (KASE) from 2011 to 2016, and all data were obtained from audited financial statements and annual reports downloaded from the webpage of KASE. The study uses the cross-sectional ordinary least squares technique to test the impact of audit quality and earnings management on cost of debt.

The collected empirical evidence shows that earnings management is negatively related to cost of debt. The findings also indicate that higher audit quality leads to a lower cost of debt. However, the results suggest that audit quality has no impact on earnings management and that the effect of earnings management on cost of debt is not different for the companies audited by the Big Four and for the companies audited by other audit firms.

The findings of the study can be of interest to policy-makers, regulators, investors and practitioners in emerging markets with an institutional environment similar to that of Kazakhstan.

The study throws more light on the impact of earnings management and audit quality on cost of debt in Kazakhstan, representing the Central Asian region. This study also extends the current literature by providing empirical evidence that the relationship between earnings management and cost of debt is not affected by audit quality.

This paper examines the impact of International Financial Reporting Standards (IFRS) 9 on earnings management (EM) using data from 2011 to 2019 of 100 commercial banks in Europe.

Using data from 2011 to 2019 of 100 commercial banks in Europe, the authors conducted several empirical investigations to test the mediating role of IFRS 9 on earnings manipulation through loan loss provision (LLP) by banks.

The result shows that the new accounting standards (IFRS 9) significantly affect the way banks report LLP. This paper provides evidence that non-listed banks in the EU engage in EM through LLP following IFRS 9 but experience less volatility of net income following the adoption. The findings indicate that such behaviour by banks cannot be suppressed by level of audit quality; suggesting that an improvement in accounting standards might not always guarantee accounting quality.

This finding has some policy implications; and regulators will need to identify additional tools to regulate or supervise EM behaviour.

This paper aims to explore how external creditors assess firms’ financial aggressiveness in China.

Using bank loan-specific data, the authors investigate whether firms exhibit greater costs of bank loans when they engage in earnings manipulation and whether this association changes when restrictions on lenders’ compensation are promulgated.

The authors find compelling evidence that bank executives charge higher premiums on firms with accrual earnings management to compensate for additional financial risk but do not charge extra loan prices for firms conducting real earnings management (REM). The authors also find that the enactment of Robust Bank Executive Compensation (REBC) enhances the vigilance of bank executives on the overall client firms’ earnings manipulation, with the exception of REM conducted by state-owned firms.

The authors extend the current literature on the cost of external loans by focusing on bank loans and the influence of REBC. This study offers implications for policymakers in China and other emerging economics to control loan default and financial risk.

This paper aims to investigate how transfer pricing (TP) and earnings management affect tax avoidance of firms in Ghana.

The authors use a panel data set from 2008 to 2015 to further shed light on transfer pricing-tax avoidance nexus by examining the complex interaction of three key variables: transfer pricing, earnings management and tax avoidance.

The results show that almost all the sample firms have engaged in some form of transfer pricing strategies and the manipulation of earnings to avoid tax during 2008-2015. There is evidence to suggest that non-financial multinational corporations manipulate more earnings than the financial firms while financial firms also use more TP than non-financial firms. The overall results suggest that the sensitivity of tax avoidance to transfer pricing decreases as firms increase their earnings management. By extension, these results have important policy implication for policymakers in assessing the effectiveness of tax laws relating to transfer pricing.

The authors investigate how transfer pricing and earnings management affect the avoidance of firms operating in Ghana.