Journal of Accounting and Economics
Volume 59, Issue 1, February 2015, Pages 60–79
CEO tenure and earnings management ☆
Ashiq Alia, , , Weining Zhangb,
- Earnings overstatement is greater in the early than in later years of CEOs׳ service.
- This association is less pronounced for firms with greater monitoring.
- Market is uncertain about CEOs׳ ability in their early years of service.
- CEOs try to influence market׳s perception of their ability by overstating earnings.
This study examines changes in CEOs׳ incentive to manage their firms׳ reported earnings during their tenure. Earnings overstatement is greater in the early years than in the later years of CEOs׳ service, and this relation is less pronounced for firms with greater external and internal monitoring. These results suggest that new CEOs try to favorably influence the market׳s perception of their ability in their early years of service, when the market is more uncertain. Also, consistent with the horizon problem, earnings overstatement is greater in the CEOs׳ final year, but this result obtains only after controlling for earnings overstatement in their early years of service.
Local debt accounting made messy by unclear numbers in China
All provinces in China, except for Jiangsu and Shandong, have met the Jan. 5 deadline to submit reports classifying all local borrowings within their borders, including those of local government financing vehicles, to the Ministry of Finance for verification and confirmation, our Chinese-langguage sister paper the China Times reports. Continue reading
The Opinion Pages | OP-ED COLUMNIST
Riddle of the Pyramids: What Is Herbalife?
JAN. 9, 2015
“We’re doing God’s work,” said William Ackman, the hedge fund manager, on CNBC this week. He was referring to his $1 billion bet against Herbalife, the company that he accuses of being an illegal pyramid scheme.
Posted by LIN Liye, Year 4 undergrad at the School of Economics, Singapore Management University
On Friday, there was a Straits Times article on Paradise Group, a successful restaurant chain with operations mainly in Singapore and in other parts of Asia. Paradise Group is a familiar name among Singaporeans with its restaurants serving Chinese cuisine in both fine dining and casual settings. Personally, I was surprised that this unlisted restaurant chain would resort to such measures to defraud a local gas company on one of the most important cost items for a restaurant. Being a successful brand, I thought the CEO would have cared more about the reputation of the brand and himself instead of looking to cut corners by tampering with the gas meters.
This leads me to my main question today: Assuming Paradise Group is a listed company, would you still have enough faith in the financial statements of the company to believe them and invest in the company? Through this incident, the poor character of the management is exposed. As the saying goes, there is never just one cockroach in the kitchen. Who knows where else the management had cut corners, or if they had engaged in fancy accounting measures to make their accounting numbers nicer to minority investors?
Warren Buffett once said this: “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.” In this case, even if Paradise Group had fantastic accounting figures and they are a listed company, I would think twice before investing my money with the company.