The aim of this study is to analyze the relationship between opportunistic behaviors (free cash flow and profitability), monitoring mechanism (leverage) and pressure behaviors (financial distress) toward earnings management. There are indeed several factors that could motivate the managers to manage earnings. In this study, it is assumed that the management incline to manage earnings in order to avoid reporting losses or to avoid showing any decreases in the reported earnings. This empirical research with a sample of Malaysian public listed companies from year 2010 to 2012 shows that managers of the companies would engage in earnings management when the company is financially healthy and when the profit of the company is high. The result of this study would provide a valuable explanation on the relationship between variables, thus, would give relevant views to regulators in tightening the rules and regulation in order to promote public confidence in the reliability of financial reporting.

Earnings Management: An Analysis of Opportunistic Behaviour, Monitoring Mechanism and Financial Distress


Purpose
This study aims to explore the relative efficiency of the working capital management (WCM) for Emirati firms before and during the coronavirus crisis. Next, this study explores the potential impact of WCM on the likelihood of financial distress.


Design/methodology/approach
A data envelopment analysis (DEA) was applied to assess the relative efficiency of the WCM. This study uses the emerging market Z-score model to predict the likelihood of financial distress. The logistic regression was applied to investigate the impact of the efficiency of WCM on firms’ financial distress.


Findings
The results of this study model showed a negative and significant influence of the efficiency of WCM on firms’ financial distress likelihood.


Practical implications
The findings have important implications for many stakeholders, including decision makers, WC managers, financiers, investors, financial consultants, researchers and others, in increasing their awareness of firms’ WCM performance before and during the crisis. Further, the results could have implications for trading strategies as investors seek attractive economic gains from their investment in firms that care about WCM.


Social implications
The implications of WCM performance on social interests would cause firms’ decision makers to operate efficiently and achieve the best practices to minimise the probability of firms' financial distress.


Originality/value
This study advances a novel contribution to the literature by introducing a novel model to assess WCM based on DEA technology.


Does the efficiency of working capital management affect a firm’s financial distress? Evidence from UAE

Company/firm size is among the many variables that is significant in assessing the profitability of a company. Therefore, this paper seeks to evaluate the effect of company size on the financial performance of listed agricultural companies in Kenya. The theory of economies of scale that links benefits arising from company size, cost management and production volumes was utilized. Secondary data was extracted from the annual reports comprising of financial statement from the period 2003 to 2013 and analyzed using a pooled OLS model. Company size was measured using the total assets (Log of assets) while financial performance was measured by return on assets (ROA), return on equity (ROE) and earnings per share (EPS). The regression results present the goodness of fit for the regression between log total asset and ROA, ROE and EPS as 0.112, 0.113 and 0.074 respectively. The overall model of ROA, ROE and EPS was significant with F statistic of 9.334, 11.096 and 5.901 respectively. The relationship between log total asset and financial performance measures was positive and significant for ROA (b1= 0.033, p value, 0.003) and ROE (b1= 0.049, p value, 0.001) and. EPS (b1= 3.866, p value, 0.018). These results indicate that company size as measured by total assets affects financial performance of agricultural companies listed in NSE positively and significantly. Company size had positive and statistical significance on all the three indicators of the financial performance disclosing that large companies were found to have a competitive advantage over small firms.

/pdf/relating-company-size-and-financial-performance-in-2t5d76ywg8.pdf

Relating Company Size and Financial Performance in Agricultural Firms Listed in the Nairobi Securities Exchange in Kenya

A Journal article by Dr. Amos Njuguna, Associate Professor and Associate Dean in the Chandaria School of Business at USIU-Africa

Relating Company Size and Financial Performance in Agricultural Firms Listed in the Nairobi Securities Exchange

This study aimed at establishing the determinants of financial distress in the context of listed firms where despite there being strict compliance and regulation rules and the reporting frameworks in place firms still struggled to operate and were faced with financial distress challenges. The specific objectives of the study were to show the influence of liquidity, the influence of financial leverage, the influence of capital structure and the influence of asset structure on financial distress of listed firms at the NSE. A descriptive survey design was adopted and the target population for the study was 65 listed firms and a census was conducted for all the listed firms. Document analysis sheet was used to collect secondary data. Data was analyzed using SPSS and multiple regression showed that Liquidity (β=-1.221, p-value=.004)), Financial leverage (β=5.002, p- value=.031), capital structure (β=0.531, p-value=.025) significantly influence financial distress of listed firms at the NSE whereas asset structure (β=6.051, p=.067) had an insignificant positive effect on financial distress of listed firms at the NSE. The study concluded that liquidity, financial leverage and capital structure were significant determinants of financial distress and thus firms should strive to adopt moderate thresholds that ensure payment of maturing short term obligations while also ensuring maximum returns on investment. The study recommended that firms should strive to maintain an optimal liquidity and debt level that could lower the cost of borrowing such that the earnings generated by debt financing are not exhausted by fixed charge payments such as interest. Lastly the management of firms listed at the NSE should periodically review their capital structure so as to alter it depending on the financial fortunes of the company. The regulatory authority should continuously play their vigilance roles so as to ensure investor’s wealth is safeguarded so as to enhance confidence in the capital markets authority. Key Words: Liquidity, Financial Leverage, Capital Structure, Asset Structure, Financial Distress

Determinants of financial distress among listed firms at the nairobi securities exchange, kenya

The paper assesses the financial distress among listed firms in Nairobi Stock Exchange in Kenya. The Capital MarketAuthority (CMA) has a regulatory responsibility to keep surveillance of firms listed in Nairobi Stock Exchange (NSE) withregards to capital, liquidity and other aspects with overall aim of ensuring financial stability of these firms. Theexpectation is therefore that the firms will be financially prudent and healthy which in turn will attract investors. Therecent crisis where a number of NSE listed companies’ including stock brokers experienced financial distress is anindication that there is a missing link between surveillance and the management of these firms. If this is not rectified thepublic can loose interest in investing in Nairobi Stock Exchange. There is therefore a need to critically assess the financialposition of the listed firms and suggest ways of improving the performance of NSE. This study utilizes the Z’-score multidiscriminantfinancial analysis model which provides the framework for gauging the financial performance of the firms.This is in addition to the use of the ANOVA and correlation tests in support of the evidences from the Z-score model. Thesample constituted selected firms listed in Nairobi Stock Exchange divided into five different sectors. The results clearlyindicated that the financial health of the listed companies needed to be improved. In addition a disjoint was noted in thecorrelation between what is expected of the listed companies in terms of financial performance and the benefits to beaccrued from CMA surveillance on them. On the analysis of the financial statements of the listed firms it was postulatedthat the financial distress experienced by the firms are emanating from functioning of these firms. On the other hand, theCapital Market and NSE role responsibility needs to be strengthened. The study recommended that the NSE should makefinancial stability an integral driverof its policy framework.

Understanding financial distress among listed firms in nairobi stock exchange: a quantitative approach using the z-score multi-discriminant financial analysis model

The paper assesses the financial distress among listed firms in Nairobi Stock Exchange in Kenya. The Capital Market Authority (CMA) has a regulatory responsibility to keep surveillance of firms listed in Nairobi Stock Exchange (NSE) with regards to capital, liquidity and other aspects with overall aim of ensuring financial stability of  these firms. The expectation is therefore that the firms will be financially prudent and healthy which in turn will attract investors. The recent crisis where a number of NSE listed companies’ including stock brokers experienced financial  distress is an indication that there is a missing link between surveillance and the management of these firms. If this is not rectified the public can loose interest in investing in Nairobi Stock Exchange. There is therefore a need to critically assess the financial position of the listed firms and suggest ways of improving the performance of NSE. This study utilizes the Z’-score multi-discriminant financial analysis model which provides the framework for gauging the financial performance of the firms. This is in addition to the use of the ANOVA and correlation tests in support of the evidences from the Z-score model. The sample constituted selected firms listed in Nairobi Stock Exchange divided into five different sectors. The results clearly indicated that the financial health of the listed companies needed to be improved. In addition a disjoint was noted in the correlation between what is expected of the listed companies in terms of financial performance and the benefits to be accrued from CMA surveillance on them. On the analysis of the financial statements of the listed firms it was postulated that the financial distress experienced by the firms are emanating from functioning of these firms. On the other hand, the Capital Market and NSE role responsibility needs to be strengthened. The study recommended that the NSE should make financial stability an integral driver  of its policy framework.

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Understanding financial distress among listed firms in nairobi stock exchange: a quantitative approach using the z-score multi-discriminant financial analysis model

Understanding financial distress among listed firms in nairobi stock exchange: a quantitative approach using the z-score multi-discriminant financial analysis model