Month: January 2015

‘Dairy Godfather’ Zheng Junhuai has returned to the industry after a spell in jail for embezzlement at Yili Dairy, saying he is the man to clean up the baby milk formula business

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http://www.scmp.com/print/news/china/article/1678318/milkman-rings-twice-zheng-junhuais-return-dairy-industry

http://www.scmp.com/print/news/china/article/1678319/prison-worked-wonders-my-health-says-entrepreneur-zheng-junhuai

The milkman rings twice: Zheng Junhuai’s return to the dairy industry

Sunday, 11 January, 2015, 3:38am

Alice Yan ting.yan@scmp.com

‘Dairy Godfather’ Zheng Junhuai has returned to the industry after a spell in jail, saying he is the man to clean up the baby milk formula business

The man once known as the “Dairy Godfather” of China is making a bid for another title: “Comeback King”.

A decade ago, Zheng Junhuai was one of China’s best-known entrepreneurs. In the late 1980s, he had taken over a dying Mongolian dairy workshop and revived it to become China’s biggest dairy producer in terms of revenue by the early 2000s.

But as Yili’s fortunes grew, Zheng’s standing abruptly fell.

On the afternoon of December 17, 2004 – Zheng remembers the date clearly – he was hauled away by Hohhot prosecutors. One year later he was thrown in jail with a six-year sentence for embezzling more than 16 million yuan (HK$20 million). Continue reading →

Is Tone at the Top Associated with Financial Reporting Aggressiveness?

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http://eds.a.ebscohost.com.libproxy.smu.edu.sg/ehost/pdfviewer/pdfviewer?sid=931db4eb-27a9-43fa-8853-4fe219e9ee30%40sessionmgr4003&vid=0&hid=4113

Journal of Business Ethics

January 2015, Volume 126, Issue 1, pp 3-19

Is Tone at the Top Associated with Financial Reporting Aggressiveness?

Lorenzo Patelli, Matteo Pedrini

Abstract

The discussion about the relationship between tone at the top and financial reporting practices has been primarily focused on the oversight role played by the board of directors and other structural elements of corporate governance. Another relevant determinant of tone at the top is the corporate narrative language, since it is a fundamental way in which the chief executive officer (CEO) enacts leadership. In this study, we empirically explore the association between financial reporting aggressiveness and five thematic indicators capturing different traits of ethical leadership from 535 annual letters to shareholders. We find that aggressive financial reporting is positively associated with CEO letters using a language which is resolute, complex, and not engaging. Our empirical findings highlight the importance of examining discretionary corporate narratives for the auditing process and the role of tone at the top in influencing accounting practices.

Looking Attractive until You Sell: Earnings Management, Lockup Expiration, and Venture Capitalists

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http://onlinelibrary.wiley.com/doi/10.1111/joms.12093/abstract

http://ejournals.ebsco.com.libproxy.smu.edu.sg/Direct.asp?AccessToken=8UPPPPOV0FU430OFJY0WUTX41J0FV0YO9P&Show=Object

Looking Attractive until You Sell: Earnings Management, Lockup Expiration, and Venture Capitalists

Dae-il Nam1,*, Haemin Dennis Park2and Jonathan D. Arthurs3

Journal of Management Studies

Volume 51, Issue 8, pages 1286–1310, December 2014

Abstract

Earnings management occurs when managerial discretion allows managers to influence reported earnings and thus mislead some investors about the underlying economic performance and quality of the firm. This study considers how potential investors may guard against earnings management by observing negative stock price reaction at the lockup expiration period of initial public offering (IPO) firms as a negative signal. Findings from a sample of 160 newly public firms show that earnings management behaviour is stronger in IPO firms backed by venture capitalists (VCs). Moreover, VC reputation negatively moderates this relationship such that IPO firms backed by reputable VCs are less likely to manage earnings, suggesting that reputable VCs serve an auditing function following an IPO. Overall, we provide insights into signalling theory by examining negative signals arising from the behaviour of multiple agents in an IPO firm.

Mutual funds’ holdings and listed firms’ earnings management: Evidence from China

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http://www.sciencedirect.com.libproxy.smu.edu.sg/science/article/pii/S1042444X14000474#

Journal of Multinational Financial Management

Volume 28, December 2014, Pages 62–78

Mutual funds’ holdings and listed firms’ earnings management: Evidence from China ☆

Jing Chia, , , Jingjing Yangb, 1, , Martin Younga, c, 2, 

Highlights

  • Chinese long-term mutual funds’ holdings have an insignificant impact on accruals.
  • Chinese short-term funds’ holdings encourage an increase in earnings management.
  • Long- or short-term funds impact different earnings management measures differently.
  • Funds’ impact on earnings management is stronger in non-state-controlled firms.

Abstract

This study examines the impact of long-term and short-term mutual funds’ ownership on various types of earnings management in China. We find that both long-term and short-term funds’ holdings can lead to reduced non-core income. However, long-term mutual funds’ holdings have an insignificant impact on accrual items, while short-term funds’ holdings encourage an increase in accruals. The positive influence of short-term funds’ holdings on accruals is much stronger than their negative impact on non-core income. Finally, we find the impact of mutual funds’ holdings on earnings management is much stronger in non-state-controlled listed firms than that in state-controlled ones.

CEO tenure and earnings management

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http://www.sciencedirect.com.libproxy.smu.edu.sg/science/article/pii/S0165410114000767#

Journal of Accounting and Economics

Volume 59, Issue 1, February 2015, Pages 60–79

CEO tenure and earnings management ☆

Ashiq Alia, , , Weining Zhangb, 

Highlights

  • 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.

Abstract

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

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http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20150110000128&cid=1203

Local debt accounting made messy by unclear numbers in China

Staff Reporter

2015-01-10

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 →

“We’re doing God’s work”: Riddle of the Pyramids – What Is Herbalife? Is Herbalife a successful marketer of protein shakes or something more terrible than a Ponzi scheme?

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http://www.nytimes.com/2015/01/10/opinion/joe-nocera-riddle-of-the-pyramids.html?ref=opinion&_r=0

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.

Continue reading →

Would you trust a company who tampered with its gas meters to publish accurate financial reports to its investors?

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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.

[Flashback] Satyam Chief Admits Huge Fraud

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http://www.nytimes.com/2009/01/08/business/worldbusiness/08satyam.html?_r=1&

Posted by CHEN Liting, Year 3 undergrad at the School of Accountancy, Singapore Management University

Discussion Questions: (1) Satyam is Hyderabad-based – do regional culture and institutional context matter (Link1, Link2, Link3)? Who are the other Hyderabad-based accounting fraud cases? (2) What does it take to restore trust after the revelation of an accounting fraud? Was Tech Mahindra of the Mahindra Group successful in their turnaround efforts at Satyam? (3) How about Satyam’s auditor PwC?

Satyam Chief Admits Huge Fraud

Ramalinga Raju, chairman of Satyam Computer Services, resigned Wednesday after disclosing he had systematically falsified accounts of the giant outsourcing company.

By HEATHER TIMMONS and BETTINA WASSENER

Published: January 7, 2009

NEW DELHI — Satyam Computer Services, a leading Indian outsourcing company that serves more than a third of the Fortune 500 companies, significantly inflated its earnings and assets for years, the chairman and co-founder said Wednesday, roiling Indian stock markets and throwing the industry into turmoil. Continue reading →

In divvying up assets in bankruptcies, Hong Kong liquidators need sensitive touch; Liquidator runs after mistress of bankrupt former HK chief secretary: “I have the duty to chase all assets of Mr. Hui to return to his creditors”

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http://www.scmp.com/print/business/companies/article/1677793/divvying-assets-bankruptcies-hong-kong-liquidators-need-sensitive

http://www.scmp.com/print/business/companies/article/1677794/liquidator-runs-after-mistress-bankrupt-former-hk-chief-secretary

In divvying up assets in bankruptcies, Hong Kong liquidators need sensitive touch

Friday, 09 January, 2015, 8:43am

Enoch Yiuenoch.yiu@scmp.com

Many people just can’t balance their income and expenses – liquidator Mat Ng

What’s common between fallen chief secretary Rafael Hui Si-yan, convicted inside trader Du Jun and US hedge fund Tiger Asia?

Mat Ng. The Managing director of JLA Asia, he is the liquidator currently handling Hui’s bankruptcy, selling his music record collection and other assets to repay his creditors. Ng has also worked for the Securities and Futures Commission to handle Du and Tiger Asia to compensate the investors who suffered as a result of their insider dealings.

Born in Shanghai, Ng moved to Hong Kong as a child. He grew up here before moving to Australia to attend high school and university and get a degree in accountancy. But rather than opting for mainstream accounting jobs, he focused on insolvency and liquidation. Continue reading →