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Introduction
Empirical evidence suggests the existence of a glass ceiling in the accounting profession. Glass ceiling beliefs in women have important effects on career outcomes such as job satisfaction, organizational commitment, and turnover intentions. That is, to the extent that women believe that there is a glass ceiling, their commitment to the workplace diminishes and they lose their motivation to upgrade their empowerment, which can lead to turnover intentions (Cohen et al., 2020). Glass ceiling beliefs can be so strong that women leave the institution even before they hit the glass ceiling (Lupu, 2012). However, leaving the organization is one of the most costly events that occur in auditing firms and makes the firm incur high tangible and intangible costs (Ganji and Arab Mazar Yazdi, 2021).
Accordingly, the aim of this study is to investigate the effect of female auditors’ glass ceiling beliefs on turnover intentions by considering the mediating role of psychological empowerment.
Research Hypotheses
In this research, based on the theoretical foundations and previous research, the following hypotheses are presented:
H1: Denial has a positive and significant effect on the psychological empowerment of female auditors.
H2: Resilience has a positive and significant effect on the psychological empowerment of female auditors.
H3: Resignation has a negative and significant effect on the psychological empowerment of female auditors.
H4: Acceptance has a negative and significant effect on the psychological empowerment of female auditors.
H5: Psychological empowerment of female auditors has a negative and significant effect on tenure intentions.
H6: Psychological empowerment mediates the relationship between denial and tenure intentions.
H7: Psychological empowerment mediates the relationship between resilience and tenure intentions.
H8: Psychological empowerment mediates the relationship between resignation and tenure intentions.
H 9: Psychological empowerment mediates the relationship between acceptance and tenure intentions.
Methods
A structured questionnaire was used to gather the data for this study. The statistical population of the study consists of female auditors working in member institutions of the Iranian Association of Certified Public Accountants (IACPA). Out of the more than 400 online questionnaires that were sent out, 116 usable responses were returned.
The questionnaire contained two sections. Section A consisted of questions to gain demographic information about the respondents, such as organizational position, work experience, marital status, and age. Section B contained questions related to glass ceiling beliefs, psychological empowerment, and tenure intentions. In order to measure the constructs of denial, resilience, resignation, and acceptance, which are considered as components of glass ceiling beliefs, Smith et al.'s Career Path Survey (2012) was used. Tenure intentions were measured by four items that were adapted from Dalton et al. (2014) and Gim and Ramayah (2020). Finally, psychological empowerment was measured using a six-item questionnaire adopted from Spritzer (1995). In this study, hypotheses testing was conducted by using SmartPLS 3.
Results
This study evaluated the structural model by examining the significance of path coefficients, effect size ( ), coefficient of determination ( ), and variance inflation factor (VIF). It was found H1 was supported, indicating that denial maintains a positive and significant effect on the psychological empowerment of female auditors (b= 0.230, t= 2.219, p= 0.027, 0.042). Resilience also has a significant positive influence on the psychological empowerment of female auditors (b= 0.256, t= 2.337, p= 0.020, 0.070), thus H2 was supported. The results revealed that resignation has no significant effect on the psychological empowerment of female auditors (b= -0.134, t= 1.136, p= 0.256, 0.014), indicating no support for H3. As for H4, in which it was hypothesized that acceptance would have a negative influence on the psychological empowerment of female auditors, the results showed a significant and negative relationship (b = -0.247, t = 2.279, p= 0.023, 0.076). Therefore, H4 was supported. In regards to H5, in which it was hypothesized that psychological empowerment would negatively influence tenure intention, the results also supported this relationship (b= -0.465, t= 5.324, p= 0.000, 0.276).
Also, this study examined the mediating effects of psychological empowerment on the relationships between the four elements of the glass ceiling beliefs and turnover intentions. The findings reveal that there is an indirect mediation (full mediation) effect of psychological empowerment on the relationship between denial (b = -0.107, t = 2.065, p= 0.039) and turnover intentions. Therefore, H6 was supported. There is an indirect mediation effect on the relationship between the resilience (b = -0.119, t = 1.964, p= 0.050) and turnover intentions, thus H7 was supported. The results of testing the eighth and ninth hypotheses indicate that constructs of resignation (b = 0.062, t = 1.189, p= 0.235) and acceptance (b = 0.115, t = 1.757, p= 0.080) due to psychological empowerment do not have a significant effect on turnover intentions. Thus, H8 and H9 were not supported.
Discussion and Conclusion
The aim of the present study was to investigate the effect of female auditors' glass ceiling beliefs on turnover intentions by considering the mediating variable role of psychological empowerment. In order to achieve this goal, nine hypotheses were proposed. The results of testing the hypotheses indicate the positive and significant effect of denial and resilience and the negative and significant effect of acceptance on the psychological empowerment of female auditors. The results also show that the constructs of denial and resilience through the construct of psychological empowerment have an effect on the turnover intentions, but the indirect effect of resignation and acceptance on the turnover intentions is not significant.
The results of this study indicate that part of the higher tendency of female auditors to leave auditing firms than male auditors can be attributed to the beliefs of the glass ceiling. The results of this study show that it is important to pay attention to the beliefs of glass ceiling and create solutions to reduce these beliefs in order to optimally manage human resources.
Keywords: Glass Ceiling Beliefs, Psychological Empowerment, Turnover Intentions, Female Auditors.
Empirical evidence suggests the existence of a glass ceiling in the accounting profession. Glass ceiling beliefs in women have important effects on career outcomes such as job satisfaction, organizational commitment, and turnover intentions. That is, to the extent that women believe that there is a glass ceiling, their commitment to the workplace diminishes and they lose their motivation to upgrade their empowerment, which can lead to turnover intentions (Cohen et al., 2020). Glass ceiling beliefs can be so strong that women leave the institution even before they hit the glass ceiling (Lupu, 2012). However, leaving the organization is one of the most costly events that occur in auditing firms and makes the firm incur high tangible and intangible costs (Ganji and Arab Mazar Yazdi, 2021).
Accordingly, the aim of this study is to investigate the effect of female auditors’ glass ceiling beliefs on turnover intentions by considering the mediating role of psychological empowerment.
Research Hypotheses
In this research, based on the theoretical foundations and previous research, the following hypotheses are presented:
H1: Denial has a positive and significant effect on the psychological empowerment of female auditors.
H2: Resilience has a positive and significant effect on the psychological empowerment of female auditors.
H3: Resignation has a negative and significant effect on the psychological empowerment of female auditors.
H4: Acceptance has a negative and significant effect on the psychological empowerment of female auditors.
H5: Psychological empowerment of female auditors has a negative and significant effect on tenure intentions.
H6: Psychological empowerment mediates the relationship between denial and tenure intentions.
H7: Psychological empowerment mediates the relationship between resilience and tenure intentions.
H8: Psychological empowerment mediates the relationship between resignation and tenure intentions.
H 9: Psychological empowerment mediates the relationship between acceptance and tenure intentions.
Methods
A structured questionnaire was used to gather the data for this study. The statistical population of the study consists of female auditors working in member institutions of the Iranian Association of Certified Public Accountants (IACPA). Out of the more than 400 online questionnaires that were sent out, 116 usable responses were returned.
The questionnaire contained two sections. Section A consisted of questions to gain demographic information about the respondents, such as organizational position, work experience, marital status, and age. Section B contained questions related to glass ceiling beliefs, psychological empowerment, and tenure intentions. In order to measure the constructs of denial, resilience, resignation, and acceptance, which are considered as components of glass ceiling beliefs, Smith et al.'s Career Path Survey (2012) was used. Tenure intentions were measured by four items that were adapted from Dalton et al. (2014) and Gim and Ramayah (2020). Finally, psychological empowerment was measured using a six-item questionnaire adopted from Spritzer (1995). In this study, hypotheses testing was conducted by using SmartPLS 3.
Results
This study evaluated the structural model by examining the significance of path coefficients, effect size ( ), coefficient of determination ( ), and variance inflation factor (VIF). It was found H1 was supported, indicating that denial maintains a positive and significant effect on the psychological empowerment of female auditors (b= 0.230, t= 2.219, p= 0.027, 0.042). Resilience also has a significant positive influence on the psychological empowerment of female auditors (b= 0.256, t= 2.337, p= 0.020, 0.070), thus H2 was supported. The results revealed that resignation has no significant effect on the psychological empowerment of female auditors (b= -0.134, t= 1.136, p= 0.256, 0.014), indicating no support for H3. As for H4, in which it was hypothesized that acceptance would have a negative influence on the psychological empowerment of female auditors, the results showed a significant and negative relationship (b = -0.247, t = 2.279, p= 0.023, 0.076). Therefore, H4 was supported. In regards to H5, in which it was hypothesized that psychological empowerment would negatively influence tenure intention, the results also supported this relationship (b= -0.465, t= 5.324, p= 0.000, 0.276).
Also, this study examined the mediating effects of psychological empowerment on the relationships between the four elements of the glass ceiling beliefs and turnover intentions. The findings reveal that there is an indirect mediation (full mediation) effect of psychological empowerment on the relationship between denial (b = -0.107, t = 2.065, p= 0.039) and turnover intentions. Therefore, H6 was supported. There is an indirect mediation effect on the relationship between the resilience (b = -0.119, t = 1.964, p= 0.050) and turnover intentions, thus H7 was supported. The results of testing the eighth and ninth hypotheses indicate that constructs of resignation (b = 0.062, t = 1.189, p= 0.235) and acceptance (b = 0.115, t = 1.757, p= 0.080) due to psychological empowerment do not have a significant effect on turnover intentions. Thus, H8 and H9 were not supported.
Discussion and Conclusion
The aim of the present study was to investigate the effect of female auditors' glass ceiling beliefs on turnover intentions by considering the mediating variable role of psychological empowerment. In order to achieve this goal, nine hypotheses were proposed. The results of testing the hypotheses indicate the positive and significant effect of denial and resilience and the negative and significant effect of acceptance on the psychological empowerment of female auditors. The results also show that the constructs of denial and resilience through the construct of psychological empowerment have an effect on the turnover intentions, but the indirect effect of resignation and acceptance on the turnover intentions is not significant.
The results of this study indicate that part of the higher tendency of female auditors to leave auditing firms than male auditors can be attributed to the beliefs of the glass ceiling. The results of this study show that it is important to pay attention to the beliefs of glass ceiling and create solutions to reduce these beliefs in order to optimally manage human resources.
Keywords: Glass Ceiling Beliefs, Psychological Empowerment, Turnover Intentions, Female Auditors.
Publication Date: 2023/02/20
پیشرفت های حسابداری (20089988)(2)pp. 39-64
Introduction
Costs are the main driver of company profitability and therefore company value. Therefore, it is important to understand how cost asymmetry affects firm value, since maximizing firm value is considered the primary objective of the firm. During a sales downturn, holding stagnant resources reduces the present value of sales and increases the opportunity cost of holding unused resources, thereby reducing the firm's profitability and negatively affecting firm value. Firms with higher cost stickiness will have lower profits because cost stickiness causes less inventory adjustment when sales decline. This further reduction in profit when activity levels decrease increases the variability of the profit distribution, resulting in lower profit forecasts. Firms with stickier costs have less analyst coverage, and investors rely less on the realized earnings of such firms due to their lower predictive power. Cost stickiness has been shown to increase credit risk. This increase in credit risk leads to an increase in costs and a decrease in profit, which leads to a decrease in the value of the company.
Two currents that increase the intensity of cost stickiness are resource adjustment costs and agency problems. When the demand decreases, the manager can adjust the company's resources according to the changes in the demand level, but this creates adjustment costs, such as the adjustment costs related to labor and equipment. In fact, companies are forced to bear adjustment costs in order to set aside resources and replace the same resources if the demand returns to the original situation. Adjustment costs include such things as compensation for laid-off employees and the costs of searching and training new employees. The authority of the management to determine the level of resources, when the demand decreases, is one of the factors of creating the stickiness of the costs related to these resources. The cost of resource adjustment affects the degree of cost stickiness.
The agency problem occurs due to the mismatch of interests between principals (shareholders) and agents (managers). One consequence of the agency problem is that managers who engage in empire-building activities over represent the firm by retaining unused resources in order to gain base, power, compensation, and prestige. For example, overinvestment in labor (over-hiring or under-firing) can result from managers' desire to engage in empire-building activities while retaining low-performing projects. According to previous literature on agency theory, unused resources are conserved because managers obtain monetary and non-monetary benefits from managing large and complex organizations and try to avoid difficult and time-consuming decisions about discarding unused resources. Therefore, companies that have a specific agency problem have more opportunities to sell costs in operational costs such as administrative costs, which lead to cost stickiness and intensify the effect of it. Cost stickiness is one of the factors affecting the value of the firm, which can be caused by resource adjustment costs or agency problems, and this was the main motivation of this study.
Hypotheses
According to the theoretical foundations and objectives of the research, the hypotheses of the research are as follows:
H1: Cost stickiness has a negative effect on firm value.
H2: The resource adjustment cost increases the intensity of the cost stickiness effect on the firm's value.
H3: Agency problems increase the intensity of cost stickiness effect on firm value.
Method
The statistical population of this study are all companies listed in Tehran Stock Market, in which 102 companies in the period 2013 to 2022 have been selected by systematic elimination method. For data analysis and hypothesis testing, multivariate regression model based on compound data is used.
Result
The research results showed that cost stickiness has a negative effect on firm value. Also, the findings showed that when the resource adjustment cost is high, the effect of cost stickiness on the value of the firm increases. In addition, agency problems do not affect the relationship between costs and firm value.
Discussion and Conclusion
This study, therefore, provides insight and understanding into how managers’ deliberate resource adjustment decisions affect overall financial health and firm value. Perhaps managers need to be more transparent about their resource adjustment decisions, so that investors can incorporate both resource adjustment costs and managerial expectations of future demand, when doing risk assessments related to their investment decisions.
Keywords: Firm Value, Cost Stickiness, Resource Adjustment Cost, Agency Problem.
Costs are the main driver of company profitability and therefore company value. Therefore, it is important to understand how cost asymmetry affects firm value, since maximizing firm value is considered the primary objective of the firm. During a sales downturn, holding stagnant resources reduces the present value of sales and increases the opportunity cost of holding unused resources, thereby reducing the firm's profitability and negatively affecting firm value. Firms with higher cost stickiness will have lower profits because cost stickiness causes less inventory adjustment when sales decline. This further reduction in profit when activity levels decrease increases the variability of the profit distribution, resulting in lower profit forecasts. Firms with stickier costs have less analyst coverage, and investors rely less on the realized earnings of such firms due to their lower predictive power. Cost stickiness has been shown to increase credit risk. This increase in credit risk leads to an increase in costs and a decrease in profit, which leads to a decrease in the value of the company.
Two currents that increase the intensity of cost stickiness are resource adjustment costs and agency problems. When the demand decreases, the manager can adjust the company's resources according to the changes in the demand level, but this creates adjustment costs, such as the adjustment costs related to labor and equipment. In fact, companies are forced to bear adjustment costs in order to set aside resources and replace the same resources if the demand returns to the original situation. Adjustment costs include such things as compensation for laid-off employees and the costs of searching and training new employees. The authority of the management to determine the level of resources, when the demand decreases, is one of the factors of creating the stickiness of the costs related to these resources. The cost of resource adjustment affects the degree of cost stickiness.
The agency problem occurs due to the mismatch of interests between principals (shareholders) and agents (managers). One consequence of the agency problem is that managers who engage in empire-building activities over represent the firm by retaining unused resources in order to gain base, power, compensation, and prestige. For example, overinvestment in labor (over-hiring or under-firing) can result from managers' desire to engage in empire-building activities while retaining low-performing projects. According to previous literature on agency theory, unused resources are conserved because managers obtain monetary and non-monetary benefits from managing large and complex organizations and try to avoid difficult and time-consuming decisions about discarding unused resources. Therefore, companies that have a specific agency problem have more opportunities to sell costs in operational costs such as administrative costs, which lead to cost stickiness and intensify the effect of it. Cost stickiness is one of the factors affecting the value of the firm, which can be caused by resource adjustment costs or agency problems, and this was the main motivation of this study.
Hypotheses
According to the theoretical foundations and objectives of the research, the hypotheses of the research are as follows:
H1: Cost stickiness has a negative effect on firm value.
H2: The resource adjustment cost increases the intensity of the cost stickiness effect on the firm's value.
H3: Agency problems increase the intensity of cost stickiness effect on firm value.
Method
The statistical population of this study are all companies listed in Tehran Stock Market, in which 102 companies in the period 2013 to 2022 have been selected by systematic elimination method. For data analysis and hypothesis testing, multivariate regression model based on compound data is used.
Result
The research results showed that cost stickiness has a negative effect on firm value. Also, the findings showed that when the resource adjustment cost is high, the effect of cost stickiness on the value of the firm increases. In addition, agency problems do not affect the relationship between costs and firm value.
Discussion and Conclusion
This study, therefore, provides insight and understanding into how managers’ deliberate resource adjustment decisions affect overall financial health and firm value. Perhaps managers need to be more transparent about their resource adjustment decisions, so that investors can incorporate both resource adjustment costs and managerial expectations of future demand, when doing risk assessments related to their investment decisions.
Keywords: Firm Value, Cost Stickiness, Resource Adjustment Cost, Agency Problem.
Publication Date: 2023/08/23
پیشرفت های حسابداری (20089988)(1)pp. 227-257
Introduction
Accounting earnings is an appropriate measure for performance evaluation, stock valuation, forecasting and evaluation of expected returns, as well as predicting the company's future performance. Therefore, the announcement of earnings is one of the criteria used to evaluate the reaction of investors to the announced earnings. Like the announcement of earnings, the timing of the earnings announcement also affects the price and returns. Through the timing of the earnings announcement, companies have the possibility to influence the investors' reaction to the reported information, and the market's reaction to the earnings announcement is affected by the time of issuance of the reports. The results of the previous literature show that market reaction to the earnings announcement is influenced by the time of declaring news and reports. The results of these studies show that the announcement of delayed earnings results in negative market reaction, and investors discount this information. This issue can be caused by the reduction of information content of earnings or the possibility of earnings manipulation by managers. Considering the effect of the timing of earnings announcement on the market reaction and also the existence of various motivations for earnings manipulation, it seems necessary to investigate the effect of the timing of the earnings announcement on stock returns and the effect of earnings manipulation on this relationship. Therefore, the purpose of this study is to investigate the effect of the delay in announcing quarterly earnings on abnormal stock returns by considering the moderating role of earnings manipulation.
Hypothesis
According to the literature, the research hypotheses include:
1. The delay of quarterly earnings announcement has a negative effect on abnormal returns at the time of earnings announcement.
Earnings manipulation exacerbates the negative impact of late quarterly earnings announcements on abnormal returns at the time of earnings announcements.
Methods
In this study, to calculate the variables and test the hypotheses, required data has been collected from the annual and quarterly financial statements and its footnotes of listed companies in the Tehran Stock Exchange and the existing databases including “Rahavard Novin” and “Codal”. The sample of this study consists of 126 listed companies in Tehran Stock Exchange during 2012 to 2022. To test hypotheses OLS regression and panel data methods have been used.
Results
The result of the first hypothesis test showed that the delay of quarterly earnings announcement has a negative and significant effect on the abnormal return. Also, according to the second hypothesis, earnings manipulation based on the adjusted model of Beneish (1999) aggravates this negative effect. That is, the delayed earnings announcement in the investors' view can involve earnings manipulation and as a result, the negative reaction to the delay in quarterly earnings announcements will intensify. However, earnings manipulation based on the model of Kothari et al. (2005) did not have a significant effect on the negative market reaction to the delayed earnings announcement.
Discussion and Conclusion
According to the accounting literature, the delayed earnings announcement is accompanied by negative market reaction and investors discount this information. Chen et al. (2021) believe that this negative reaction can be caused by a reduction in the information content of delayed earnings or the possibility of earnings manipulation by managers. Therefore, in this study, the effect of the delay of quarterly earnings announcement on abnormal stock returns by considering the moderating role of earnings manipulation was investigated.The results of the first hypothesis test showed that the coefficient of delayed earnings announcement at the 95% confidence level has a negative and significant effect on the accumulated abnormal return, which shows, the longer the quarterly earnings announcement is delayed, the lower the cumulative abnormal return in the earnings announcement window; then the first hypothesis is not rejected. In other words, the capital market reacts negatively to the delayed earnings announcement. In the second hypothesis, the effect of earnings manipulation on the negative relationship between the delayed earnings announcement and cumulative abnormal return was investigated. The results of the test of this hypothesis showed that earnings manipulation based on the model of Kothari et al. (2005) has no significant effect on the negative relationship between the delayed earnings announcement and abnormal returns, and the second hypothesis is rejected based on this criterion. This result is consistent with Chen et al. (2021). However, according to the earnings manipulation criterion based on the adjusted Beneish model (1999), the coefficient of the interactive variable RLaq × EMB is negative and significant at the 95% confidence level. Considering the negativity of the coefficient of the interactive variable and also the negative effect of the delayed earnings announcement on the accumulated abnormal return (first hypothesis), it can be said that the earnings manipulation based on the adjusted model of Beneish (1999), aggravates the negative effect of the delayed earnings announcement on the abnormal return, so the second hypothesis is not rejected. This shows that the delayed earnings announcement can contain information about the possibility of earnings manipulation, and investors react negatively to this announcement of earnings.
Accounting earnings is an appropriate measure for performance evaluation, stock valuation, forecasting and evaluation of expected returns, as well as predicting the company's future performance. Therefore, the announcement of earnings is one of the criteria used to evaluate the reaction of investors to the announced earnings. Like the announcement of earnings, the timing of the earnings announcement also affects the price and returns. Through the timing of the earnings announcement, companies have the possibility to influence the investors' reaction to the reported information, and the market's reaction to the earnings announcement is affected by the time of issuance of the reports. The results of the previous literature show that market reaction to the earnings announcement is influenced by the time of declaring news and reports. The results of these studies show that the announcement of delayed earnings results in negative market reaction, and investors discount this information. This issue can be caused by the reduction of information content of earnings or the possibility of earnings manipulation by managers. Considering the effect of the timing of earnings announcement on the market reaction and also the existence of various motivations for earnings manipulation, it seems necessary to investigate the effect of the timing of the earnings announcement on stock returns and the effect of earnings manipulation on this relationship. Therefore, the purpose of this study is to investigate the effect of the delay in announcing quarterly earnings on abnormal stock returns by considering the moderating role of earnings manipulation.
Hypothesis
According to the literature, the research hypotheses include:
1. The delay of quarterly earnings announcement has a negative effect on abnormal returns at the time of earnings announcement.
Earnings manipulation exacerbates the negative impact of late quarterly earnings announcements on abnormal returns at the time of earnings announcements.
Methods
In this study, to calculate the variables and test the hypotheses, required data has been collected from the annual and quarterly financial statements and its footnotes of listed companies in the Tehran Stock Exchange and the existing databases including “Rahavard Novin” and “Codal”. The sample of this study consists of 126 listed companies in Tehran Stock Exchange during 2012 to 2022. To test hypotheses OLS regression and panel data methods have been used.
Results
The result of the first hypothesis test showed that the delay of quarterly earnings announcement has a negative and significant effect on the abnormal return. Also, according to the second hypothesis, earnings manipulation based on the adjusted model of Beneish (1999) aggravates this negative effect. That is, the delayed earnings announcement in the investors' view can involve earnings manipulation and as a result, the negative reaction to the delay in quarterly earnings announcements will intensify. However, earnings manipulation based on the model of Kothari et al. (2005) did not have a significant effect on the negative market reaction to the delayed earnings announcement.
Discussion and Conclusion
According to the accounting literature, the delayed earnings announcement is accompanied by negative market reaction and investors discount this information. Chen et al. (2021) believe that this negative reaction can be caused by a reduction in the information content of delayed earnings or the possibility of earnings manipulation by managers. Therefore, in this study, the effect of the delay of quarterly earnings announcement on abnormal stock returns by considering the moderating role of earnings manipulation was investigated.The results of the first hypothesis test showed that the coefficient of delayed earnings announcement at the 95% confidence level has a negative and significant effect on the accumulated abnormal return, which shows, the longer the quarterly earnings announcement is delayed, the lower the cumulative abnormal return in the earnings announcement window; then the first hypothesis is not rejected. In other words, the capital market reacts negatively to the delayed earnings announcement. In the second hypothesis, the effect of earnings manipulation on the negative relationship between the delayed earnings announcement and cumulative abnormal return was investigated. The results of the test of this hypothesis showed that earnings manipulation based on the model of Kothari et al. (2005) has no significant effect on the negative relationship between the delayed earnings announcement and abnormal returns, and the second hypothesis is rejected based on this criterion. This result is consistent with Chen et al. (2021). However, according to the earnings manipulation criterion based on the adjusted Beneish model (1999), the coefficient of the interactive variable RLaq × EMB is negative and significant at the 95% confidence level. Considering the negativity of the coefficient of the interactive variable and also the negative effect of the delayed earnings announcement on the accumulated abnormal return (first hypothesis), it can be said that the earnings manipulation based on the adjusted model of Beneish (1999), aggravates the negative effect of the delayed earnings announcement on the abnormal return, so the second hypothesis is not rejected. This shows that the delayed earnings announcement can contain information about the possibility of earnings manipulation, and investors react negatively to this announcement of earnings.
Publication Date: 2020/12/21
پیشرفت های حسابداری (20089988)(2)pp. 159-190
Journal of Accounting Advances, (2020) 12(1): 1-27
DOI: 10.22099/JAA.2021.40327.2124
Journal of Accounting Advances (JAA)
Journal homepage: www.jaa.shirazu.ac.ir/?lang=en
The effect of Earnings Co-movement on Quarterly Earnings Response Coefficient
Narges Hamidian1
1. Assistant Professor, Department of Accounting, Faculty of Administrative Sciences and Economics, University of Isfahan
ARTICLE INF
ABSTRACT
Received: 2021-04-12
Accepted: 2021-06-22
Prior literature shows that a firm’s earnings tend to move with other firms in the same industry. This concept is called co-movement. So investors will be able to form an expectation of a firm’s earnings from the industry. Given that the reported earnings do reflect the flow of information to the market, the purpose of this study is investigating the effect of earnings co-movement on quarterly earnings response coefficient. The sample of this study consists of 134 listed companies in Tehran Stock Exchange during the period 2008 to 2019. The results of the first hypothesis showed that the response coefficients to quarterly earnings announcement have a positive and significant relationship with the buy and hold returns in the three-day earnings announcement window, and earnings co-movement weakens this relationship. Also, the results of testing the second and third hypotheses showed that when there is good news, earnings co-movement weakens earnings response coefficient, but under bad news, earnings co-movement has no effect on earnings response coefficient.
* Corresponding author:
Narges Hamidian
Assistant Professor, Department of Accounting, Faculty of Administrative Sciences and Economics, University of Isfahan
Email: n.hamidian@ase.ui.ac.ir
1- Introduction
Prior literature shows that firms’ earnings tend to co-move together, so investors will be able to form an expectation of a firm’s earnings from the market (Brown and Ball, 1967). This concept is called co-movement. Given that there is a significant relationship between a firm’s earnings and the earnings of other firms in the market, and the reported earnings do reflect the flow of information to the market, the question is whether this relationship has an effect on earnings informativeness?
There are two different views about how earnings co-movement impacts earnings response coefficient (earnings informativeness). First, some studies imply the higher the degree of earnings co-movement of a firm with other firms in same industry, the less informative that firm’s earnings release will be. In other words, investors will be able to predict a firm’s earnings by using similar firms in the same industry and so there will be less uncertainty about that firm’s earnings (see, e.g. Fischer and Verrecchia, 2000; Jackson et al, 2020). Second, some other papers (such as Heinle and Verrecchia, 2016 and Jackson et al., 2017) show that the more the earnings of a firm co-move with the industry and market, the less likely it is that the firm will issue a biased earnings report. So, the earnings will be more informative to investors.
Therefore, this study attempts to investigate the effect of earnings co-movement on quarterly earnings response coefficient. Also, because of the behavioral biases of investors in reaction to good and bad news, the effect of earnings co-movement on quarterly earnings response coefficient with considering good and bad news has also been investigated.
2- Hypothesis
According to the literature, the research hypotheses include:
Earnings co-movement weakens response coefficient to quarterly earnings announcement.
Under good news, earnings co-movement weakens response coefficient to quarterly earnings announcement.
Under bad news, earnings co-movement strengthens the response coefficient to quarterly earnings announcement.
3- Methods
In this study, in order to calculate the variables and test the hypotheses, required data has been collected from the annual and quarterly financial statements and its footnotes of listed companies in the Tehran Stock Exchange and the existing databases including “Rahavard Novin” and “Codal”. The sample of this study consists of 134 listed companies in Tehran Stock Exchange during 2008 to 2019. To test this hypotheses, the period of 8 years (2012 to 2019) and panel data methods have been used.
4- Results
The results of investigating the first hypothesis showed that the response coefficients to quarterly earnings announcement have a positive and significant relationship with the buy and hold returns in the three-day earnings announcement window, and earnings co-movement weakens this relationship. Also, the results of testing the second and third hypotheses showed that when there is good news, earnings co-movement weakens earnings response coefficient, but under bad news, earnings co-movement has no effect on earnings response coefficient.
5- Discussion and Conclusion
In this paper we investigated the informativeness of a firm’s earnings in the presence of information about other firms’ earnings (i.e., earnings co-movement). Some literatures show the greater the degree of co-movement, the less relevant earnings become as investors do not need to rely on the information signal from the firm because they can predict earnings from alternative sources in the same industry. On the other hand, some studies imply the greater the degree of co-movements, the less opportunity managers have to bias the earnings signal which will lead to the earnings becoming more reliable and more informative.
The results of investigating the first hypothesis showed that the response coefficients to quarterly earnings announcement have a positive and significant relationship with the buy and hold returns and when earnings co-movement is considered, the quarterly earnings response coefficient decreases. This means that when earnings’ firms move with other firms in the same industry, investors can get information from other firms in the industry and better predict the earnings’ firm. So, earnings announcement will contain less unexpected information. As a result, earnings response coefficient decreases. This result is consistent with Jackson et al., (2020).
The results of testing the second hypothesis indicates that when there is good news, earnings co-movement weakens earnings response coefficient. This implies that investors pay more attention to the good news of the industry and react less to the earnings when good news is published by the firm. But the results of testing the third hypothesis showed under bad news, earnings co-movement has no effect on earnings response coefficient. This lack of relationship may be due to the fact that investors do not pay much attention to the bad news of the industry.
For future studies, we suggest to analyze the relationship between co-movement and other variables such as comparability of financial statements, earnings quality, earnings management, fraud, etc. The results of this research can also be done separately by industry to determine in which industries there is more co-movement.
DOI: 10.22099/JAA.2021.40327.2124
Journal of Accounting Advances (JAA)
Journal homepage: www.jaa.shirazu.ac.ir/?lang=en
The effect of Earnings Co-movement on Quarterly Earnings Response Coefficient
Narges Hamidian1
1. Assistant Professor, Department of Accounting, Faculty of Administrative Sciences and Economics, University of Isfahan
ARTICLE INF
ABSTRACT
Received: 2021-04-12
Accepted: 2021-06-22
Prior literature shows that a firm’s earnings tend to move with other firms in the same industry. This concept is called co-movement. So investors will be able to form an expectation of a firm’s earnings from the industry. Given that the reported earnings do reflect the flow of information to the market, the purpose of this study is investigating the effect of earnings co-movement on quarterly earnings response coefficient. The sample of this study consists of 134 listed companies in Tehran Stock Exchange during the period 2008 to 2019. The results of the first hypothesis showed that the response coefficients to quarterly earnings announcement have a positive and significant relationship with the buy and hold returns in the three-day earnings announcement window, and earnings co-movement weakens this relationship. Also, the results of testing the second and third hypotheses showed that when there is good news, earnings co-movement weakens earnings response coefficient, but under bad news, earnings co-movement has no effect on earnings response coefficient.
* Corresponding author:
Narges Hamidian
Assistant Professor, Department of Accounting, Faculty of Administrative Sciences and Economics, University of Isfahan
Email: n.hamidian@ase.ui.ac.ir
1- Introduction
Prior literature shows that firms’ earnings tend to co-move together, so investors will be able to form an expectation of a firm’s earnings from the market (Brown and Ball, 1967). This concept is called co-movement. Given that there is a significant relationship between a firm’s earnings and the earnings of other firms in the market, and the reported earnings do reflect the flow of information to the market, the question is whether this relationship has an effect on earnings informativeness?
There are two different views about how earnings co-movement impacts earnings response coefficient (earnings informativeness). First, some studies imply the higher the degree of earnings co-movement of a firm with other firms in same industry, the less informative that firm’s earnings release will be. In other words, investors will be able to predict a firm’s earnings by using similar firms in the same industry and so there will be less uncertainty about that firm’s earnings (see, e.g. Fischer and Verrecchia, 2000; Jackson et al, 2020). Second, some other papers (such as Heinle and Verrecchia, 2016 and Jackson et al., 2017) show that the more the earnings of a firm co-move with the industry and market, the less likely it is that the firm will issue a biased earnings report. So, the earnings will be more informative to investors.
Therefore, this study attempts to investigate the effect of earnings co-movement on quarterly earnings response coefficient. Also, because of the behavioral biases of investors in reaction to good and bad news, the effect of earnings co-movement on quarterly earnings response coefficient with considering good and bad news has also been investigated.
2- Hypothesis
According to the literature, the research hypotheses include:
Earnings co-movement weakens response coefficient to quarterly earnings announcement.
Under good news, earnings co-movement weakens response coefficient to quarterly earnings announcement.
Under bad news, earnings co-movement strengthens the response coefficient to quarterly earnings announcement.
3- Methods
In this study, in order to calculate the variables and test the hypotheses, required data has been collected from the annual and quarterly financial statements and its footnotes of listed companies in the Tehran Stock Exchange and the existing databases including “Rahavard Novin” and “Codal”. The sample of this study consists of 134 listed companies in Tehran Stock Exchange during 2008 to 2019. To test this hypotheses, the period of 8 years (2012 to 2019) and panel data methods have been used.
4- Results
The results of investigating the first hypothesis showed that the response coefficients to quarterly earnings announcement have a positive and significant relationship with the buy and hold returns in the three-day earnings announcement window, and earnings co-movement weakens this relationship. Also, the results of testing the second and third hypotheses showed that when there is good news, earnings co-movement weakens earnings response coefficient, but under bad news, earnings co-movement has no effect on earnings response coefficient.
5- Discussion and Conclusion
In this paper we investigated the informativeness of a firm’s earnings in the presence of information about other firms’ earnings (i.e., earnings co-movement). Some literatures show the greater the degree of co-movement, the less relevant earnings become as investors do not need to rely on the information signal from the firm because they can predict earnings from alternative sources in the same industry. On the other hand, some studies imply the greater the degree of co-movements, the less opportunity managers have to bias the earnings signal which will lead to the earnings becoming more reliable and more informative.
The results of investigating the first hypothesis showed that the response coefficients to quarterly earnings announcement have a positive and significant relationship with the buy and hold returns and when earnings co-movement is considered, the quarterly earnings response coefficient decreases. This means that when earnings’ firms move with other firms in the same industry, investors can get information from other firms in the industry and better predict the earnings’ firm. So, earnings announcement will contain less unexpected information. As a result, earnings response coefficient decreases. This result is consistent with Jackson et al., (2020).
The results of testing the second hypothesis indicates that when there is good news, earnings co-movement weakens earnings response coefficient. This implies that investors pay more attention to the good news of the industry and react less to the earnings when good news is published by the firm. But the results of testing the third hypothesis showed under bad news, earnings co-movement has no effect on earnings response coefficient. This lack of relationship may be due to the fact that investors do not pay much attention to the bad news of the industry.
For future studies, we suggest to analyze the relationship between co-movement and other variables such as comparability of financial statements, earnings quality, earnings management, fraud, etc. The results of this research can also be done separately by industry to determine in which industries there is more co-movement.