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 →

Far Eastern Air Transport (FAT, 遠東航空) refuted a Chinese-language magazine’s claim that the airline’s president hollowed out about NT$500 million of company assets

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http://www.chinapost.com.tw/print/425942.htm

FAT denies Next Media allegations of asset theft by CEO
Thursday, January 8, 2015
The China Post news staff

TAIPEI, Taiwan — Far Eastern Air Transport (FAT, 遠東航空) yesterday refuted a Chinese-language magazine’s claim that the airline’s president hollowed out about NT$500 million of company assets. Continue reading →

Taiwan prosecutors conducted a search on the residence of Lin Rong-jin (林榮錦), the former chairman of pharmaceutical company TTY Biopharm (東洋製藥), on suspicion of hollowing out company assets.

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http://www.chinapost.com.tw/print/426030.htm

Drug tycoon implicated in breach of trust
Friday, January 9, 2015
By John Liu, The China Post

Prosecutors conducted a search on the residence of Lin Rong-jin (林榮錦), the former chairman of pharmaceutical company TTY Biopharm Company (東洋製藥), on suspicion of hollowing out company assets. Continue reading →

Accounting irregularities in S-chip stocks

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http://www.btinvest.com.sg/personal_finance/young-investors-forum/a-re-look-at-china-stocks/

Posted by Amy CHAN Wen Yi, final year undergrad at the School of Accountancy, Singapore Management University

Amy: The BT article “A re-look at China stocks?” provided a good overview on China stock classifications and also discussed about some accounting irregularities that happened to some of the S-chip stocks. Excerpts below:

Discussion question: Do (systematic) accounting irregularities for a group of companies have negative spillover effects for others in the stock exchange, including resulting in a lower credibility and market valuation?

For example, SGX is panned as a place to raise funds in 2015: BT article on Jan 9, 2015

What type of companies tend to be impacted adversely and how to avoid the “infection”? What is the transmission mechanism (e.g. common ownership identity hidden in nominee accounts)? Will the overall market degenerate into a “lemon’s market” over time and how to solve the lemon’s problem?

A re-look at China stocks?

04 Nov 2013 17:39 by CAI HAOXIANG

A lack of confidence

Chinese companies have also chosen to list elsewhere, such as on the Singapore Exchange (SGX) and the New York Stock Exchange. However, many of these stocks have been plagued by a lack of investor confidence, making them easy targets for short-sellers. Continue reading →

Short sellers feel the heat from Chinese solar group Hanergy

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http://www.ft.com/intl/cms/s/0/94ad5524-94d8-11e4-8341-00144feabdc0.html#axzz3OCFl62cx

Earlier articles on Hanergy:

A little-known Hong Kong-listed firm has come out of nowhere to become the world’s largest solar-power company by market value. A tight relationship with its parent company should give investors reason to worry whether its time in the sun will last: Link

The Convoy Financial-Finsoft-Hanergy connection and aggressive accounting: Link

January 8, 2015 12:13 am

Short sellers feel the heat from Chinese solar group Hanergy

Jennifer Hughes in Hong Kong

Short sellers are sitting on potential losses of more than $300m in a little-known Chinese solar company whose stock has soared in spite of their heavy bets to the contrary.

Shares in Hong Kong-listed Hanergy Thin Film Power Group have more than doubled in the past six months, giving the distributor of solar equipment a market capitalisation of almost $15bn — almost as much as the three biggest US solar companies combined.

But several Hong Kong brokers report that hedge funds are still clamouring to borrow the stock, to short sell it: selling borrowed shares in the market in the hope their price will fall, so they can be bought back more cheaply and returned to their original owner. By doing this, short sellers can profit from falling prices — in effect, betting against the company’s shareholders — but lose when prices rise. Continue reading →