Segment earnings and managerial incentives: evidence from foreign firms cross-listed in the USA

IF 3.6 Q1 BUSINESS, FINANCE
Fangjun Sang, Pervaiz Alam, Timothy Hinkel
{"title":"Segment earnings and managerial incentives: evidence from foreign firms cross-listed in the USA","authors":"Fangjun Sang, Pervaiz Alam, Timothy Hinkel","doi":"10.1108/raf-10-2020-0305","DOIUrl":null,"url":null,"abstract":"\nPurpose\nPrior studies find that US firms with managerial incentives may manipulate the earnings gap to obscure higher performing segments to competitors or to hide underperforming segments from external monitors. The purpose of this study is to complement extant research by examining the association between managerial incentives and segment earnings reporting of cross-listed firms in the USA and the impact of country-level characteristics on this association.\n\n\nDesign/methodology/approach\nThe dependent variable is the earnings gap between firm-level earnings and sum of segment-level earnings. Managerial incentives are proxied by proprietary cost and agency cost. Proprietary cost is measured by the Herfindahl index. Agency cost is measured by inefficient resource transfer activities across segments. Foreign firms in this study are companies listed on major US Stock Exchanges with headquarters outside the USA. Comparable US firms are selected using the Propensity Score Matching procedure as a control group.\n\n\nFindings\nThe authors find that 1) proprietary cost motive is not the determinant of earnings gap reporting for cross-listed firms; 2) cross-listed firms motivated by agency costs are more likely to manipulate segment earnings reporting than US firms; and 3) among cross-listed firms motivated by agency costs, firms in weak rule of law countries demonstrate more manipulation in segment earnings than firms in strong rule of law countries.\n\n\nOriginality/value\nExtant research with regard to segment reporting exclusively focuses on US firms, and little is known about the practice of segment reporting by cross-listed firms originating from different legal regimes. This study fills the gap in the literature by comparing cross-listed firms to US firms in the reporting of segment earnings. The results of this study have implications for regulators and investors who are interested in evaluating the extent of cross-listed firms’ financial reporting quality.\n","PeriodicalId":21152,"journal":{"name":"Review of Accounting and Finance","volume":" ","pages":""},"PeriodicalIF":3.6000,"publicationDate":"2022-04-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Accounting and Finance","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1108/raf-10-2020-0305","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0

Abstract

Purpose Prior studies find that US firms with managerial incentives may manipulate the earnings gap to obscure higher performing segments to competitors or to hide underperforming segments from external monitors. The purpose of this study is to complement extant research by examining the association between managerial incentives and segment earnings reporting of cross-listed firms in the USA and the impact of country-level characteristics on this association. Design/methodology/approach The dependent variable is the earnings gap between firm-level earnings and sum of segment-level earnings. Managerial incentives are proxied by proprietary cost and agency cost. Proprietary cost is measured by the Herfindahl index. Agency cost is measured by inefficient resource transfer activities across segments. Foreign firms in this study are companies listed on major US Stock Exchanges with headquarters outside the USA. Comparable US firms are selected using the Propensity Score Matching procedure as a control group. Findings The authors find that 1) proprietary cost motive is not the determinant of earnings gap reporting for cross-listed firms; 2) cross-listed firms motivated by agency costs are more likely to manipulate segment earnings reporting than US firms; and 3) among cross-listed firms motivated by agency costs, firms in weak rule of law countries demonstrate more manipulation in segment earnings than firms in strong rule of law countries. Originality/value Extant research with regard to segment reporting exclusively focuses on US firms, and little is known about the practice of segment reporting by cross-listed firms originating from different legal regimes. This study fills the gap in the literature by comparing cross-listed firms to US firms in the reporting of segment earnings. The results of this study have implications for regulators and investors who are interested in evaluating the extent of cross-listed firms’ financial reporting quality.
分部收益和管理激励:来自在美国交叉上市的外国公司的证据
先前的研究发现,有管理激励的美国公司可能会操纵收入差距,向竞争对手掩盖业绩较高的部门,或向外部监控人员隐藏业绩不佳的部门。本研究的目的是通过研究美国交叉上市公司的管理层激励与部门收益报告之间的关系以及国家层面特征对这种关系的影响来补充现有的研究。因变量是公司层面的收益与部门层面的收益之和之间的收益差距。管理层激励由专有成本和代理成本代表。专有成本由赫芬达尔指数衡量。代理成本是通过跨部门的低效资源转移活动来衡量的。本研究中的外国公司是总部在美国以外的美国主要证券交易所上市的公司。使用倾向得分匹配程序选择可比较的美国公司作为对照组。研究发现:1)自营成本动机不是交叉上市公司盈余差距报告的决定因素;2)受代理成本驱动的交叉上市公司比美国公司更有可能操纵分部收益报告;(3)在受代理成本驱动的交叉上市公司中,法治较弱国家的公司比法治较强国家的公司表现出更多的部门收益操纵行为。原创性/价值现有的关于分部报告的研究只集中在美国公司,对于来自不同法律制度的交叉上市公司的分部报告实践知之甚少。本研究通过比较交叉上市公司与美国公司在分部收益报告方面填补了文献中的空白。本研究的结果对有意评估交叉上市公司财务报告质量程度的监管机构和投资者具有启示意义。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
求助全文
约1分钟内获得全文 求助全文
来源期刊
CiteScore
4.30
自引率
0.00%
发文量
18
×
引用
GB/T 7714-2015
复制
MLA
复制
APA
复制
导出至
BibTeX EndNote RefMan NoteFirst NoteExpress
×
提示
您的信息不完整,为了账户安全,请先补充。
现在去补充
×
提示
您因"违规操作"
具体请查看互助需知
我知道了
×
提示
确定
请完成安全验证×
copy
已复制链接
快去分享给好友吧!
我知道了
右上角分享
点击右上角分享
0
联系我们:info@booksci.cn Book学术提供免费学术资源搜索服务,方便国内外学者检索中英文文献。致力于提供最便捷和优质的服务体验。 Copyright © 2023 布克学术 All rights reserved.
京ICP备2023020795号-1
ghs 京公网安备 11010802042870号
Book学术文献互助
Book学术文献互助群
群 号:481959085
Book学术官方微信