nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒05‒28
four papers chosen by

  1. Comparability and predictive ability of loan loss allowances: The role of accounting regulation versus bank supervision By Gebhardt, Günther; Novotny-Farkas, Zoltán
  2. The Opening of the Stock Market of Angola and the Challenges for Companies at the Level of the Financial Reporting System and Corporate Governance By Armada Nunes Namuele
  3. Hiding the bankruptcy through creative accounting By Jana Kliestikova; Maria Kovacova; Tomas Kliestik
  4. Accounting-Based Compensation and Debt Contracts By Li, Zhi; Wang, Lingling; Wruck, Karen H.

  1. By: Gebhardt, Günther; Novotny-Farkas, Zoltán
    Abstract: We investigate whether and how the shift from discretionary forward-looking provisioning to the restrictive incurred loss approach under International Financial Reporting Standards (IFRS) in the European Union (EU) affects the cross-country comparability and predictive ability of loan loss allowances. Given bank supervisors' keen interest in comparable and adequate loan loss allowances, we also examine the role of supervisors in determining financial statement effects around IFRS adoption. We find that the application of the incurred loss approach has led to more comparable loan loss allowances. However, some differences persist in countries where supervisors were reluctant to enforce the incurred loss approach. Our results also suggest that the predictive ability of loan loss allowances improved following IFRS adoption. Finally, in supplemental analyses we document that increased comparability of loan loss allowances is associated with the cross-country convergence of the risk sensitivity of bank leverage indicating an improvement in the effectiveness of market discipline in the EU.
    Keywords: comparability,loan loss allowances,IFRS,bank accounting,supervisory intervention
    JEL: M41 M48 G21
    Date: 2018
  2. By: Armada Nunes Namuele (University of Evora, Portugal)
    Abstract: This research aims to analyse the main requirements in terms of financial reporting and corporate governance mechanisms established by the Capital Market Commission (CMC) of Angola to companies operating on the capital market of Angola. Using a qualitative investigation approach, we conclude that, overall, Angola is providing itself with a legal framework that is in convergence with the major orientations of the international organizations, regarding the requirements made to entities operating in the capital market, in terms of governance and oversight of those corporations, of their financial reporting process. However, there is an urgent need for the CMC of Angola to orient or even advocate the mandatory adoption of the IASB’s international accounting standards for entities operating (or intending to operate) in the capital market of Angola. At the Corporate Governance level, we found a fairly convergence of the principles and recommendations of the CMC regarding the OECD Corporate Governance principles.
    Keywords: Corporate Governance; Financial Reporting; Capital Market; Angola
    Date: 2018–03
  3. By: Jana Kliestikova (University of Zilina, Faculty of Operation and Economics of Transport and Communications, Department of Economics); Maria Kovacova (University of Zilina, Faculty of Operation and Economics of Transport and Communications, Department of Economics); Tomas Kliestik (University of Zilina, Faculty of Operation and Economics of Transport and Communications, Department of Economics)
    Abstract: Bankruptcy is one of the most important business externalities. Prediction of corporate failures has become a challenging and discussed issue over the years. However, there is no research dedicated to the opportunity to hide the possible bankruptcy of the company through the creative accounting. Therefore, the main goal of presented study is to identify the challenging scientific gap represented by Earnings management models, through which companies can legally modify, hide and play with their financial data. We focus on the proper literature review in selected issue emphasizing the need to concentrate on the creation of a quality model for the detection and quantification of Earnings Management, which will take into account the specificities of the national environment as well as of the global development trends in the area concerned.
    Keywords: earning management, bankruptcy, creative accounting, insolvency
    JEL: M41 G33
    Date: 2018–04
  4. By: Li, Zhi (Chapman University); Wang, Lingling (University of Connecticut); Wruck, Karen H. (Ohio State University)
    Abstract: Adding accounting-based performance plans to management compensation packages influences borrowing costs and structure of corporate debt contracts. After granting long-term accounting-based incentive plans (LTAPs) to CEOs, firms pay lower spreads and have fewer restrictive covenants in new loans. Lenders impose fewer earnings-based covenants after firms adopt earnings-based LTAPs. Results are stronger for firms with high leverage or bankruptcy risk, and that are difficult for lenders to monitor. Results are robust to alternative borrowing cost measures, including new public bond spreads, credit ratings, and CDS spreads. Overall, evidence suggests that adding LTAPs to compensation packages helps align debtholder and shareholder interests.
    JEL: G30 J33 M41 M52
    Date: 2018–02

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.