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New issue of the Corporate Ownership and Control journal

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The recent issue of the journal Corporate Ownership and Control pays attention to issues of financial crisis, current investments, external auditing, corporate governance mechanism, cash flows volatilities etc. More detailed issues are given below.

Afroditi Papadaki, Christos Tzovas investigate whether firms engage more intensively in earnings management in a period of financial crisis. It was examined a sample of 10.139 observations from 19 European Union countries for the period 2005-2014. Earnings management had been examined on both accrual and real earnings management basis. It appears that in the period of financial crisis firms are less inclined to use accruals for earnings management purposes, while real earnings management is not affected by financial crisis. Yet it seems that the more profitable firms and the firms audited by big auditing firms are less likely to adopt real earnings management practices.

Alicja Brodzka, Krzysztof Biernacki, Magdalena Chodorek analyze the impact of taxation on the effective income tax rates paid by Polish companies. The authors present the results of a study made on the biggest firms, listed on the Warsaw Stock Exchange and included in the WIG20 index. In the research they bring closer the concept of tax aggressiveness – by looking at the effective tax rates (ETRs) achieved by WIG20 companies in years 2010-2014. The study is structured into 5 groups, according to the industry in which the analyzed companies operate. The results prove the sectoral differences in the level of ETRs.

Samin Kohansal, Shoeyb Rostami, Zeynab Rostami examine the impact of corporate governance mechanisms on financial reporting transparency in Tehran Stock Exchange over a seven year period (from 2006 to 2012). In this paper were used ownership concentration, institutional ownership, board independence, board size, CEO duality and CEO tenure as the corporate governance mechanisms. Also was used earnings management behavior by employing Kasznik model (the absolute value of abnormal accruals) as a measure of financial reporting transparency. To test research hypothesis a multiple regression with estimated generalized least square method is employed. The findings indicate that ownership concentration, institutional ownership, board independence and CEO tenure has positively affected financial reporting transparency through earnings management behavior. On the other hand board size and CEO duality has negatively affected financial reporting transparency through earnings management behavior.

Jose Paulo de Angelo Sanchez, Julio Cesar Donadone investigate how the discourse of flexibility could be used instrumentally by organizational elites in their disputes for power within the firms and how this phenomenon can affect some aspects of organizational behavior. The careers of business consultants who worked in a consulting firm operating in Brazil have been searched. Resumes of 239 individuals were analysed and the empirical evidence found allowed to advance in the understanding of the issue under study. The data obtained were analysed from the perspective of institutional logic and power structures established by organizational elites. The results showed that the passage by a renowned consulting firm represents a very effective shortcut to executive positions in organizations of various sectors of activity, especially when associated with a MBA for some prominent international business school, highlighting the use and alignment of the discourse of the interests of the elites to legitimize their organizational claims to rise to positions of power in organizations without having to go through the time-consuming path required for the assimilation of specific knowledge of each type of activity or business.

Efthalia Tabouratzi, Christos Lemonakis, Alexandros Garefalakis run a panel regression model with correction for fixed effects in both the cross-section and period dimensions using as dependent variable the calculated Z-Score of each firm, and as independent variables several financial ratios, as well as the exporting activity and the use of International Financial Reporting Standards (IFRS Accounting Standards). Firms presenting higher performance in terms of ROA and sales and higher leverage levels that enhance their liquidity as well are healthier in terms of Z-score than their less profitable counterparts and acquire lower rates of probability of default: in other words, less risk. The results of the study can lead to policy implications for both Managers and the Government in order to enhance the growth of Greek manufacturing sector.

Lilis Sulistyani, Imam Ghozali, Jaka Isgiyarta examine the effect of diagnostic control system and interactive control system on organizational performance with organizational capability as intervening variable. The respondents were 84 Financial Institutions in Indonesia. The data were analyzed using Structural Equation Model with Warp PLS 3.0. The results show that the diagnostic control system has positive significant effect on organizational capability but no significant effect on organizational performance. Interactive control system is proven to have positive significant effect on organizational capability and organizational performance. Organizational capability is proven not to mediate the association between diagnostic control system and organizational performance, but it mediates partially the association between interactive control system and organizational performance partially.

Massimiliano Farina Briamonte, Felice Addeo, Fabio Fiano, Marco Sorrentino examine the relationship between the practices of earnings management and the adoption of a pyramidal group structure within the Italian financial market. This paper intends to analyses the relationship between the practices of earnings management and the adoption of a pyramidal group structure within the Italian financial market. In particular, the contribution aims to prove whether earnings manipulation practices have been adopted with a higher frequency and a greater intensity within the listed pyramidal groups as well as whether any statistical relationships exist between the pyramidal structure and the earnings management phenomenon.

Ahmad Fahmi Sheikh Hassan, Yusuf Karbhari, Ahmad Afendi Mohamad Isa, Nazrul Hisyam Ab Razak investigate the impact of an important governance mechanism, i.e. the board of directors on performance of 32 Malaysian listed GLCs for the period 2008 to 2013. The board attributes examined include board size, board structure, board independence, board competence, board meetings and directors’ equity ownership. The three proxies of financial performance employed are return on assets (ROA), return on equity (ROE) and earnings per share (EPS) with firm size and leverage being used as control variables. We find board size to have a positive but insignificant relationship with ROA whilst board structure, board independence and board competence indicate a positive relationship with ROE. Board competence also shows a positive relationship with EPS. However, board independence and directors equity ownership report a significant inverse relationship with ROA.

Loai Alsaid focuses on how audit firms handle and learn from errors. In doing so the study used both qualitative and quantitative research methods. First, semi-structured interviews were conducted among Mauritian financial statement auditors. The results of these interviews in combination with the literature review were used as the basis for a survey which was distributed among a large sample of Mauritian auditors. As a result, the research demonstrated that when errors are discovered, audit firms aim to manage the consequences. At the same time, only the members of the respective team benefit from learning effects. Learning from errors is clearly a goal, but the errors and what can be learned from them is typically discussed in stylized and anonymized form only. Also, this research concluded on a generally high degree of error prevention perceived in practice.

Muhannad Akram Ahmad, Hussein Mohammed Alrabba investigate the role of external auditing in activating the governance for controlling banking risk. The study was mainly focused on Jordanian banking sector. Data for this study was collected using structured and non-structured questionnaires. The questionnaires were distributed randomly to internal auditors in different banks in Jordan. To ensure that accurate result was achieved, hypotheses testing was done using sample-t-test where alternative hypotheses were accepted and null hypotheses rejected. The most valid result that was obtained in this study was that external auditing was the main tool that is able to activate the governance of banking risk. The result showed that with the existence of external auditors, the management of a bank has to be very vigilant to ensure that there are no financial risks affecting banking sector of Jordan.

Zahid Irshad Younas, Christian Klein, Bernhard Zwergel examine the relationship between ownership concentration, firm growth and sustainability measures comparatively. These relationships are not linear, but are rather dependent on the prevalent form of ownership concentration (determined by country) and the scale (small, medium or large) of the firm. Approaches to sustainability appear to be influenced by not just the owners / investors but also by the type of control and broader contexts, explaining differing national trends.

Germar Ebner, Johannes Hottmann, Henning Zülch investigate the German enforcement setting whether error announcements lead to abnormal turnover of audit teams and audit firms than comparable non-error firms by using logistic regression and analyzes whether audit team or audit firm turnover results in improved accounting quality. These results do not provide evidence of increased audit firm turnover due to error announcements, thereby contradicting studies from the US; the same holds for changes of the responsible audit teams. However, these results suggest that firms with changes of the audit firm or audit team exhibit an increase in accounting quality, which however takes place already in the time gap between error announcement and auditor change. Consequently, authors interpret auditor changes serving as a signal of improved corporate governance, rather than indeed improving corporate governance.

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