http://www.emeraldinsight.com.libproxy.smu.edu.sg/doi/pdfplus/10.1108/JFC-07-2013-0045

Corporate frauds in India – perceptions and emerging issues.

Gupta, P. K.¹ pkg123@eth.net
Gupta, Sanjeev²

Journal of Financial Crime. 2015, Vol. 22 Issue 1, p79-103. 25p. Continue reading →

http://www.cba.uri.edu/research/workingpapers/documents/2011/WP14_2011.pdf

Posted by Hannah YAP Qing, Year 4 undergrad at the School of Accountancy, Singapore Management University

Corporate Ownership, Debt, and Expropriation: Evidence from China

Yunxia Bai, Bing-Xuan Lin, Yaping Wang, Liansheng Wu Guanghua

Abstract

We provide direct evidence on the dark side of leverage and offer new insights regarding the role of debt in corporate governance. Using a sample of Chinese state-owned enterprises that have experienced a transfer of controlling rights, we find a positive and significant relationship between expropriation and debt usage. Firms controlled by private block shareholders tend to have higher leverage due to excessive expropriation via debt. The evidence we document also suggests that in a weak legal environment, privatization alone will not resolve the agency problem faced by minority shareholders. On the contrary, the agency problem between the controlling shareholder and minority shareholders escalates after privatization.

http://eds.a.ebscohost.com.libproxy.smu.edu.sg/ehost/pdfviewer/pdfviewer?sid=4f4ea990-97e1-4ae0-a161-e0afbf4de5d0%40sessionmgr4002&vid=1&hid=4211

Diamond Foods, Inc.: Anatomy and Motivations of Earnings Manipulation.

Gujarathi, Mahendra R.^1,2

Issues in Accounting Education. Feb2015, Vol. 30 Issue 1, p47-69. 23p. 6 Charts, 3 Graphs.

Abstract:

Diamond Foods is America’s largest walnut processor specializing in processing, marketing, and distributing nuts and snack products. This real-world case presents financial reporting issues around the commodities cost shifting strategy used by Diamond’s management to falsify earnings. By delaying the recognition of a portion of the cost of walnuts acquired into later accounting periods, Diamond Foods materially underreported the cost of sales and overstated earnings in fiscal 2010 and 2011. The primary learning goal of the case is to help students understand the anatomy and motivations of earnings manipulation. Specifically, students will have the opportunity to (1) apply the FASB’s Conceptual Framework to a real-world context, (2) determine the nature of errors and compute their numerical effects on financial statements, (3) understand motivations for earnings management and actions needed for managing earnings of future years, (4) explain the anatomy of financial reporting fraud by reconstructing journal entries, (5) prepare comparative financial statements for retroactive restatements, (6) explain the rationale for clawback provisions in compensation contracts, and (7) understand the difference between the real and accrual-based earnings management.

http://ac.els-cdn.com/S0929119915000140/1-s2.0-S0929119915000140-main.pdf?_tid=6d8b6b82-af6a-11e4-aefe-00000aacb35e&acdnat=1423383416_7c29f0f5118532277231da624c46ae5a

Journal of Corporate Finance Volume 31, April 2015, Pages 67–90

Trading and earnings management: Evidence from China’s non-tradable share reform

Gang Xiao^, 

Highlights

• China’s non-tradable share reform converted non-tradable shares to tradable.
• Earnings management increases after the government enforced the reform.
• Market participants respond less favorably to earnings surprises after the reform.
• Trading by blockholders and insiders explains the rise in earnings management.

Abstract

This paper examines the effect of trading on earnings management under the setting of China’s non-tradable share reform. The government-enforced reform converted non-tradable shares to tradable and thus enabled blockholders and insiders to reduce holdings via public trading. We find significant increases in accruals among Chinese listed companies after the reform. The impact of the reform on earnings manipulations is increasing with the potential for share trading, the degree of information asymmetry and the intensity of stock selling by insiders and blockholders. Our findings support that trading by large shareholders and insiders significantly increases earnings manipulations.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2512329

Thinking Fast versus Thinking Slow: The Effect on Auditor Skepticism

Christopher J. Wolfe Texas A&M University – Department of Accounting

Brant E. Christensen Texas A&M University – Department of Accounting

Scott D. Vandervelde University of South Carolina – Darla Moore School of Business
October 20, 2014

Abstract: 
Based on psychology theory, we propose that intuition can be a key element stimulating auditor skepticism, whereas overreliance on analytical processing can overwhelm auditors’ intuition thereby reducing skepticism. We test our expectations with an experiment containing responses from 85 senior auditors. Our results support our theory. We find that auditors are more likely to judge an asset as potentially impaired if they use their intuition as opposed to analytical processing. When we categorize auditors on their innate use of intuition, our results become more pronounced. We find that auditors using analytical processing, who rarely use their intuition, seldom judge the asset as potentially impaired. Our research suggests that intuition can be of use to auditors, and when ignored, auditors can become less skeptical. These findings should help inform regulators, standard setters, and audit firms as they seek to enhance professional skepticism.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2535809

Competition of the Informed: Does the Presence of Short Sellers Affect Insider Selling?

Massimo Massa INSEAD – Finance

Wenlan Qian National University of Singapore – NUS Business School

Weibiao Xu National University of Singapore (NUS)

Hong Zhang PBC School of Finance; INSEAD – Finance
December 9, 2014
Journal of Financial Economics (JFE), Forthcoming
INSEAD Working Paper No. 2014/63/FIN

Abstract: 
We study how the presence of short sellers affects the incentives of the insiders to trade on negative information. We show it induces insiders to sell more (shares from their existing stakes) and trade faster to preempt the potential competition from short sellers. An experiment and instrumental variable analysis confirm this causal relationship. The effects are stronger for “opportunistic” (i.e., more informed) insider trades and when short sellers’ attention is high. Return predictability of insider sales only occurs in stocks with high short-selling potential, suggesting that short sellers indirectly enhance the speed of information dissemination by accelerating trading by insiders.

Click to access LeeXiao.pdf

Posted by John SOH, Year 4 undergrad at the School of Economics, Singapore Management University

Tunneling Dividends

Chi-Wen Jevons Lee, Xing Xiao

November 2004

Abstract

Numerous findings in the literature suggest that paying cash dividend mitigates agency problem between majority shareholders and minority shareholders. Many common law countries require mandatory cash dividend policy to protect minority shareholder’s interest. This paper provides opposite evidence. We find that state dominant firms in China have high propensity to pay cash dividend but low propensity to subscribe rights offering. Furthermore, state dominant firms often increase cash dividend payment soon after rights offerings. As state-held shares in China are non-tradable, giving up subscription rights and using receipts from rights offering to pay cash dividend are equivalent to selling a portion of the non-tradable shares by the majority shareholders to the minority shareholders. The computed selling price is about three times higher than that of officially approved private placement. Market reacts negatively to the cash dividend announcement of state dominant firms, but positively to others. Our findings suggest that instead of alleviating agency problem, cash dividend might be used as a vehicle for tunneling in state dominant firms.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=918519

Warnings from the Enron Message Board

James Felton Central Michigan University – Department of Finance and Law

Jongchai Kim affiliation not provided to SSRN

Abstract:

As Enron collapsed in the Summer and Fall of 2001, most Wall Street analysts maintained either buy or strong buy recommendations for Enron common stock. The largest bankruptcy in U.S. history was often described as coming without warning, as $60 billion in market capitalization vanished. We searched postings on the Yahoo! Inc. (NASDAQ:YHOO) ! Enron Message Board between 1997 and 2001 for warnings of a crash to come. We found a compelling four-year history of Enron as told by apparent insiders through anonymous posts. Excerpts of 129 posts from Enron’s Yahoo! message board, describing a disturbing corporate culture at Enron, include repeated warnings to investors to get out while they can. Continue reading →

http://eds.b.ebscohost.com.libproxy.smu.edu.sg/eds/pdfviewer/pdfviewer?sid=68eff40e-c507-4a31-80e2-5d1f824f0b67%40sessionmgr111&vid=1&hid=127

Posted by M Laavanya, Year 3 undergrad at the School of Accountancy, Singapore Management University

Narcissus Enters the Courtroom: CEO Narcissism and Fraud.

Rijsenbilt, Antoinette¹ rijsenbilt@ese.eur.nl Commandeur, Harry²

Journal of Business Ethics. Oct2013, Vol. 117 Issue 2, p413-429. 17p. 8 Charts.

Abstract:

This study explores the aspects of the relationship between possible indicators of CEO narcissism and fraud. Highly narcissistic CEOs undertake challenging or bold actions to obtain frequent praise and admiration. The pursuit of narcissistic supply may result in a stronger likelihood of a CEO to undertake bold actions with potential detrimental consequences for the organization. The sample consists of all S&P 500 CEOs from 1992 till 2008 with more than 3 years of tenure. The measurement of CEO narcissism is based on 15 objective indicators and fits the main conceptualization of narcissism. This data collection provides a score for all S&P 500 CEOs according to their narcissistic tendencies. The Accounting and Auditing Enforcement Releases on the SEC’s website are the indicators of managerial fraud. The findings confirm the expected influence of plausible proxies for CEO narcissism on fraud by showing a positive relationship. This confirms the psychologic perspective of CEO narcissism as a potential cause of fraud.