International Journal of Managerial and Financial Accounting (14 papers in press)
Employee Ownership, Corporate Social Responsibility and Financial performance: Evidence from the UK
by Assem Orazayeva, Muhammad Arslan
Abstract: This study examines the impact of employee ownership on corporate social responsibility (CSR) and financial performance of 72 publicly listed UK firms for the period from 2011 to 2020. The objective of this study is to evaluate the magnitude and significance of the relationship. Prior literature presents limited evidence of the effects of employee ownership on social and financial aspects of firm performance, with focus on other ownership types. However, recent turbulent years caused by the global pandemic put employees as a stakeholder group under the spotlight, not only showing their importance but also vulnerability, thereby motivating this study to address employee-related issue. Contrary to the initial predictions of this study, we found small negative statistically significant coefficient between employee ownership and CSR. The link between CSR and financial performance was also observed to be negative, though the result lacks statistical significance. The study makes both theoretical and practical contributions by expanding current literature on employee ownership effects, as well as adding evidence for practitioners who consider changes in the ownership structure.
Keywords: corporate social responsibility; CSR; financial performance; UK; ownership; employee; stakeholders.
Impact of Stakeholders as Board Members on Sustainability and Social Outreach of Microfinance Institution (MFI) in Developing Markets
by Muhammad Delwar Hussain, Muhammad Mohiuddin, Iftekhar Ahmed, Md. Tareq Bin Hossain
Abstract: Purpose of this study is to explore how stakeholders on board contribute to sustainability and outreach of microfinance institutions (MFI). Stakeholders as board members can influence the social outreach and sustainability of microfinance institutions (MFIs). By applying a multi-theoretical approach to a longitudinal dataset from a developing country perspective, this study analyses stakeholder involvement on the MFI board and its impact on double-bottom-line performance. The results suggest that independent directors on the board have significantly positive effects on achieving microfinance institutions dual missions: sustainability and outreach. However, some stakeholders have produced mixed results. Employees, donors, and female board members play significant roles, although their impacts are moderated by the age and size of MFIs. CEO duality contributes to MFI sustainability but inversely affects outreach. The results support the stakeholder, stewardship, and resource dependence theories. This study recommends the appointment of an independent board member as a social director to widen the range of stakeholders involvement in the boards of MFIs and contribute to achieving its objectives in a developing market context.
Keywords: governance; microfinance institutions; MFIs; stakeholders.
Linear discriminant analysis and logistic regression for default probability prediction: The case of an Italian local bank
by Antonio D'Amato, Emiliano Mastrolia
Abstract: This paper presents methods to estimate the probability of default (PD), a crucial parameter in bank credit risk management, rating estimation and loan pricing. Based on a sample of 505 firms from the loan portfolio of an Italian local bank and using financial indicators, we develop a linear discriminant model for predicting firm default, and we use logistic regression to directly estimate PD. The results highlight that both estimated models can correctly classify over 95% of sampled firms. However, the logistic model performs better in reducing type I error. Notably, the logistic model provides the PD estimate that is most in line with the banks estimate of ex post PD. The results are robust to several checks. Therefore, in small banks, logistic regression represents a useful tool for estimating firm PD and for improving pricing and credit monitoring strategies.
Keywords: default probability; PD; credit scoring; discriminant analysis; logistic regression; Italy.
Reshaping Gender Quotas in Boardroom: Womens Participation and Accounting Conservatism in Indonesia
by Kiki Khoifin, Marziana Madah Marzuki, Chatrudee Jongsureyapart
Abstract: In Indonesia, a womans role is often referred to as a wife, a mother, and a housewife instead of a career position. Thus, womens participation in the boardroom is found low. The board gender diversity exhibits advantages such as providing good financial reporting quality. Therefore, this study examines accounting conservatism as a good financial reporting quality and explores the association between womens participation, firm-specific controls, and accounting conservatism in Indonesian manufacturing companies. The study finds that Indonesian manufacturing companies are not conservative in financial reporting. The result demonstrates that hiring more women in the boardroom can enhance accounting conservatism. Hence, reshaping gender quotas to include more women in the boardroom should be imposed. The result also highlights that in the absence of the conservatism principle, risk disclosure can be a substitute for conservatism, especially in the case of firms higher profits.
Keywords: board gender diversity; accounting conservatism; manufacturing company; Indonesia.
Strategy, Intellectual Capital, and Operating Performance
by Vassilios-Christos Naoum, Dimitrios Ntounis, Orestes Vlismas
Abstract: This study explores the relationship between intellectual capital (IC) and future operating performance under the prism of different strategic orientations (i.e., prospectors versus defender) and explanations (i.e., investing versus signalling). Our data sample consists of 11,085 firm-year observations of US listed firms for the period 2000 to 2019. We employed organisational capital and R&D capital as measures of a firms IC intensity. It seems that strategy affects the likelihood of a firm to be classified as a low or high IC intensive. Organisational capital improves future operating performance across firms with the same or with different strategic orientations. R&D capital affects primarily prospectors future operating performance. Depending on the measure of IC intensity or operating performance, the positive relationship between IC and future operating performance can be explained because either the IC expenditures operate as investments that improve future performance or expectations for improved future operating performance trigger increased IC expenditures.
Keywords: strategy; intellectual capital; operating performance.
Disclosure quality of goodwill impairment testing: evidence from Turkey
by Caner Akbaba, Cemal ?bis, Serhat Yanik, Yusuf Ayturk
Abstract: Goodwill-related disclosure quality is an emerging research question that needs to be investigated. In practice, audit firms control the disclosures in financial reports by using a checklist that results in a boilerplate reporting format of insufficient information. This study examines possible determinants of goodwill-related disclosure quality in Turkey. We use a unique hand-collected panel dataset of listed Turkish non-financial companies for the period between 2014 and 2018 and calculate a disclosure index. Our results show that firm-specific variables of size, ownership structure, and level of debt are related to disclosure quality of goodwill impairment testing and the magnitude of the goodwill reported is positively linked to disclosure quality. More important, our results indicate that auditor size improves the disclosure quality and boilerplate goodwill-related disclosures are prevalent among Turkish public companies.
Keywords: goodwill impairment; disclosure quality; auditor size; Turkey.
Discriminants of Risk Tolerance among Indian Investors: A Dichotomous Discriminant Approach
by Biswajit Prasad Chhatoi, Munmun Mohanty
Abstract: Financial risk tolerance is dynamic in nature, differs across demographic considerations and depends on time horizon and considered as the most vital factor of sustainable investment decision. The volatility of FRT poses major challenge for the investment industry in designing a suitable portfolio and advising an investor to invest in it based on the risk-taking ability to fulfil investment objective at micro-level. The existing study emphasises on identification of causes of risk discrimination. Data source are primary and cross-sectional in nature, and collected from 552 investors selected from small cities. To assess the FRT classification Dichotomous discriminant analysis was referred. The most striking finding of the study to be the conforming discriminating factors for male and female. The discriminating factor classifying the males into Risk taker or Risk Avoider was found to be the understanding of risk whereas for the females it was the understanding of returns.
Keywords: financial risk tolerance; discriminant analysis; risk taker; risk avoider; demographics.
The Nexus between Aggressive Tax Planning and Earnings Management in different Political Systems and the Moderating Role of Corporate Governance
by Soufiene Assidi, Omar Al Farooque, Khaldoon Albitar
Abstract: This paper explores first the relationship between aggressive tax planning (TP) and earnings management (EM) in European listed companies and then compares this relationship between different political systems. It also examines the moderating role of board governance on aggressive TP and EM relationship. Using panel data of 105 companies listed on the EURONEXT 100 and NEXT 150 for the period 2011 to 2018 and alleviating endogeneity concern, the results show a significant positive relationship between aggressive TP and EM, where firms that tend to use EM practices have lower effective tax rate (ETR). Such relationship is more pronounced in countries with a Presidential system compared to parliamentary/quasi-parliamentary system. Again, board governance variables (i.e. board size and independence) show significantly negative moderating effect, suggesting that board plays an effective role in deterring EM practices by weakening the relationship between ETR and EM. These findings have important policy implications for respective stakeholders.
Keywords: aggressive tax planning; TP; earnings management; EM; effective tax rate; ETR; political system; European.
The Influence of Audit Committee Characteristics on Investment in Internal Audit: The Moderating Role of Family Ownership
by Muqadddam Oyetunji Ali, Wan Amalina Wan Abdullah
Abstract: This paper examines the influence of audit committee (AC) characteristics on investment in internal audit function (IAF) in Malaysia. Furthermore, the moderating role of family ownership on the relationship between investment in IAF and AC characteristics was examined in this study. A balanced panel data was employed. The data was obtained from the annual reports of the top 150 public listed companies in Bursa Malaysia from 2011 to 2019. The findings shows that investment in IAF is positively related to the frequency of AC meetings, but negatively related to the presence of accounting expert, percentage of independent directors and the average tenure of AC members. Also, the findings show that family ownership moderates the relationship between the characteristics of AC and investment in IAF. This result has implications for policy makers as the study suggest that IAF and AC are important corporate governance mechanism in ensuring quality of financial reporting.
Keywords: investment; internal audit function; audit committee characteristics; family ownership.
Does Financial Crisis Really Affect French Economic Growth Fresh Insights from Nonlinear Approach
by Tarek Sadraoui, Nidhal Mgadmi, Nassireddine CHETTI
Abstract: In this paper, we attempt to analyse the financial crisis impact on the French economic growth in France. For this end, we use the industrial production index, the consumer price index, the money market rate and the transactions volume during the period from 2000 to 2015. We also employ to nonlinear approach to study such effect and identify the existence of a nonlinear long-term relationship between variables. The empirical results clearly show that the linear and nonlinear coefficients of the shifted residuals for a single period have negative and positive signs. Therefore, French economic growth has a nonlinear dynamic towards its fundamental value.
Keywords: financial crisis; French; economic growth; nonlinear models.
Impact of Corporate Governance and Audit Quality on Financial Performance: Listed Vs Unlisted Tunisian Companies
by Ines Kateb, Olfa NAFTI, Nesrine B.E.N. SALAH
Abstract: The paper aims to analyse the impact of governance mechanisms and external audit quality on the financial performance of listed and unlisted Tunisian companies in a post-revolutionary context. Using panel data econometric model, the results show that board size affects differently the performance of listed and unlisted firms. Institutional ownership affects positively listed firm performance, whereas the variables related to the audit affect only unlisted firm performance. These findings lead us to confirm that in a post-revolutionary context, listed companies have resorted to debt to mitigate losses incurred by economic instability. The political uncertainties and the fragility of the judicial system that characterised Tunisia during the period of democratic transition have negatively affected investors confidence in auditors. Consequently, Tunisian listed companies substitute external audit quality with other governance mechanisms like board size and institutional ownership. However, post-revolutionary context doesnt affect the impact of audit quality on the unlisted firms financial performance characterised principally by family ownership. The study results could guide future regulatory initiatives in developing appropriate mechanisms to improve performance in Tunisia and countries having similar political and economic environments.
Keywords: governance mechanisms; audit quality; financial performance; listed and unlisted companies.
Board characteristics, assurance auditing services role and earning management: Evidence from Vietnam
by Nguyen Thi Kim Tuyen, Pham Tuan Anh
Abstract: The study examines the effect of corporate governance and assurance auditing services on earnings management in the case of Vietnam. We investigate that higher earnings manipulation is associated with higher board meeting frequencies and CEO/board chair position separation. Moreover, the qualified assurance auditing service insignificantly negatively affects earnings management. This finding suggests that pre-eminent perspectives of corporate governance systems from developed economies may not be a good fit for emerging markets like Vietnam. Generally, our paper emphasises the importance of the Vietnam policymakers role in building effective monitoring mechanisms in the capital market by disciplining and supervising listed companies current corporate governance applications. In addition, it is essential that the quality of assurance auditing services need to be enhanced to improve the transparency level in the capital market.
Keywords: earning management; board meeting; auditing services; CEO duality; Vietnam.
Board Gender Diversity and Firm Risk-Taking: The Moderating Role of Board Size
by Hussain Muhammad, Stefania Migliori
Abstract: This paper provides new insights into the relationship between board gender diversity and firm risk-taking by examining whether board size (BS) alters the influence of gender diversity on firm risk-taking. This study employs a quantitative method with a sample of 192 non-financial listed firms in Italy from 2016 to 2020. Based on our results, board gender diversity does not exert a consistent influence on firm risk-taking. Instead, its effect is contingent upon BS. Given that larger and smaller boards differ in building and employing their strategic decisions. We find that smaller boards are willing to ratify risky policy choices aligned with the shareholders interest. Notwithstanding, we failed to find any significant gender diversitys effect on risk-taking in firms with smaller boards. On the other hand, larger boards are found to be less discrete and more inclined to form middle-ground, moderate, and safe decisions to reduce firm risk-taking. Our results reveal that larger boards accentuate the risk reduction effect of gender diversity, showing that Italian non-financial firms are better off with larger and gender-diverse boards. Larger boards with more female members enhance problem-solving and market insights, facilitate adherence to the government or regulatory policies and help reduce the firms risk.
Keywords: board gender diversity; board size; BS; firm risk-taking; agency theory; resource dependency theory; non-financial firms; Italy.
Environmental, Social and Governance Literature: A Bibliometric Analysis
by Mahender Yadav, Mohit Saini
Abstract: This article aims to illustrate the evolution of academic research and future research goals in the environmental, social, and governance (ESG) domain of business and management. A quantitative systematic review was conducted using a contemporary technique, bibliometric analysis, in which the study examined the most significant articles, authors, journals, institutions, and nations in ESG research and identified current topics by reviewing publications on the Web of Science database. The findings reveal that ESG research has been steadily rising in recent years. Most of the study was conducted in industrialised nations such as the USA, the UK, and Australia. By separating research themes using a bibliographic coupling, this paper highlights future research agendas that research scholars may undertake in further studies. The contribution of this publication is to study the diffusion trend & map the intellectual structure of ESG research by bibliometric tools, which makes it unique.
Keywords: environmental; social; and governance; ESG; environmental; social; governance; bibliometric analysis; Web of Science; disclosures.