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This study aims to examine the impact of national culture on classification shifting in Eastern European Member States of EU Eastern European countries (EEU) vis-à-vis the Western Member States of EU (WEU). The EEU provides a unique sample to study the quality of financial reporting that the authors measure with classification shifting given that for more than five decades they were following the model of a centrally planned economy, where market-based financial reporting was absent. Yet, the EEU transitioned to a market-based economy and completed its accession to the EU.

This study uses a panel data set of firm year observations from 1996 and 2020 that covers the full transition of EEU. This empirical analysis is based on fixed effects panel regression analysis where the authors report a plethora of identifications.

This study finds classification shifting in the EEU countries since their transition to the market-based economy, though they have no long record of market-based financial reporting. This study also notices that cultural factors are associated with classification shifting across all Member States of the EU. This study further examines the impact of interactions between cultural characteristics and special items and reveal variability between WEU and EEU. As part of the robustness analysis, this study also tests the impact of culture on real earnings management measures for both WEU vs EEU, confirming the variability of the impact of culture on earnings management.

Future research could explore the role of religion differences in WEU vis-à-vis EEU states, as they are also subject to cultural differences.

The findings are important for regulators, external monitors and investors, as they show that cultural factors affect earnings management with some variability across countries in the EU, and they should be acknowledged in policymaking.

The findings show that cultural differences between EEU and the “old” Member States of the EU could explain classification shifting.

To the best of the authors’ knowledge, this is the first study that sheds light on the impact of national culture on classification shifting in EEU of EU vis-à-vis the “old” WEU of EU.

Since February 2022, the conflict between Ukraine and Russia has significantly influenced global financial markets, altering investor behavior and increasing market volatility. Western countries’ sanctions on Russia have influenced market uncertainty. Academic literature has deeply investigated the market’s reaction to the conflict and demonstrated a diverse range of impacts. Our study delves into how corporate decisions to remain in or exit Russia during the conflict influence analyst sentiment.

Leveraging data on analysts' revision scores (ARS) from Eikon, Refinitiv, our analysis underscores the importance of analysts during periods of uncertainty (Kacperczyk and Seru, 2007; Loh and Stulz, 2018). Using static and dynamic panel analysis, we examine the impact of Russia exposure on ARS while controlling for key variables.

Companies that retain a presence in Russia tend to enhance the overall ARS score, contributing to increased optimism among analysts regarding forecasts for the firms in question. Controlling for endogeneity and underlying dynamics in ARS does not alter the main findings. All in all, the results confirm the absence of an impact on the companies' returns post-announcement to continue or leave Russia after the start of the conflict (Balyuk and Fedyk, 2023).

This research sheds light on the complex relationship between geopolitical events, corporate decisions and investor sentiment, offering valuable insights for stakeholders, policymakers and regulators.

Utilizing a Bayesian vector autoregressive (BVAR) model with time-varying conditional mean equations, we treat our n-dimensional model as a collection of n univariate estimation problems. Cross-dependence is addressed using a student-t skewed distribution with latent autoregressive factors.

This study investigates the relationship between happiness and household debt repayments during the COVID-19 pandemic in the UK.

Our findings suggest that the pandemic has led to a decline in happiness, but an increase in household debt repayments appears to have a positive effect on happiness. Interestingly, various government interventions, including lockdown measures, pharmaceutical interventions such as vaccination policies and financial support measures like income support and debt relief, are associated with increased happiness and life satisfaction. However, stay-at-home policies are linked to heightened anxiety.

Inspired by the framework proposed by Kahneman and Krueger (2006), which emphasizes the importance of assessing well-being through happiness as a lens to unveil household financial preferences, our analysis delves into the intricate interplay between individual happiness, household debt repayments and the dynamics of the pandemic. Acknowledging the complex and evolving dynamics among these variables, we adopt a unique BVAR model, incorporating a student-t, time-varying, skewed copula. This modelling approach offers the necessary flexibility to accurately capture the dynamics of diverse data series, while its estimation techniques remain accessible. Given the dynamic nature of happiness, debt repayments and COVID-19 infections and deaths, the incorporation of a time-varying copula within the BVAR framework is deemed appropriate, treating these variables as endogenous. The subsequent section details our methodology in Section 2. Section 3 presents the data, while Section 4 showcases the results, and Section 5 concludes with insights and policy implications.

This study proposes a new model to measure unexpected core earnings, using Bayesian dynamic latent method.

The Bayesian dynamic latent modelling approach identifies the effects that stem from complex, multidimensional variables related to culture and legal framework, on unexpected core earnings. It also allows testing whether there is persistence over time in unexpected core earnings. We use sequential Bayesian Monte Carlo methods, also known as particle filtering, that simplify estimations.

In an international empirical application, we find evidence of persistence in unexpected core earnings as well as classification shifting. The impact of the legal framework on classification shifting shows variability across samples. Religion reduces classification shifting, whereas the cultural variables of power distance, masculinity, and uncertainty avoidance enhances it. Interestingly, the persistence in unexpected core earnings is strong and moderates the ability of legal framework and religion in abating classification shifting.

In terms of policy implications, we show that strengthening legal framework would improve financial reporting and reduce the scope for manipulation. This could involve stricter enforcement mechanisms, increased penalties for non-compliance, and regular audits to detect and deter classification shifting practices. Given that religion plays a role in moderating classification shifting, policymakers may explore partnerships or collaborations with religious institutions to promote ethical financial practices. Engaging religious leaders and organizations can help emphasize the importance of integrity and ethical behaviour in financial reporting, potentially influencing the behaviour of individuals and organizations.

To the best of our knowledge this is the first study that opts for Bayesian dynamic latent model for an international sample.

The purpose of this study is to empirically investigate the Greek firms' earnings management policies compared with debt, taxation and the financial crisis.

In this paper, the authors show that existed measures of real earnings management, whether corrected for performance or not, rely crucially on strong assumptions. The authors provide a novel modelling that permits panel structure so as to correct for heterogeneity across firms while permitting to determine endogenously the number of underlying firm-groups in the data generating process.

The empirical results indicate that Greek firms are likely to reduce earnings manipulation activities when they face liquidity risk. Taxation and financial crisis have a negative and positive effect on earnings management, respectively.

The effect of debt, taxation and financial crisis on earnings management has never been investigated in Greece. The empirical results offer valuable information to shareholders and investors as they can understand how some main factors, such as debt, taxation and financial crisis, influence firm's accounting practices.

There are variations in religious social norms and legal environments around the world. In this paper, we aim to examine the interaction between variations in religious social norms and legal environments on real activities manipulations and expense misclassification using a global sample of 63 countries. Our inquiry is motivated by a paucity of research on the interaction between legal environment and religion on earnings management practices in an international setting.

This study draws on a global sample of 63 countries to examine the effect of variations in religious social norms and legal environments on the trade-off between expense misclassification and real activities earnings management practices. Firm-specific financial data come from Global Compustat. Religion data are obtained from World Values Surveys of the World Bank. We obtain legal environment scores from the International Country Risk Guide.

Findings suggest that the interaction between law and religion serves as constraints on both classification shifting and real activities manipulation around the world. We find that religion strengthens the weak legal environment and the strong legal environment strengthens the weak religious environment to decrease both real activities manipulation and classification shifting when law and religion interact in an international setting. Therefore, our results contradict Zang's (2012) earnings management trade-off evidence. Again, our results contradict Malikov et al.’s (2018) evidence that mandatory International Financial Reporting Standards (IFRS) adoption is associated with increased real activities manipulation.

The study is limited to 63 countries limiting the generalizability of the findings.

This study provides novel evidence and shows that there is a link between law and religion. The interaction between law and religion decreases expense misclassification and real activities manipulation. We contribute that the interaction between religion and law benefits firms and increases shareholder value as real activities manipulation decreases. Therefore, strengthening the legal environment will complement religion, IFRS and other monitoring mechanisms put in place to mitigate unethical expense misclassification and real activities earnings manipulation around the world.

This paper examines the moderating role of firms’ litigation environment on the association between gender diversity and financial reporting quality.

This study draws on a sample of US firms to examine the moderating role of firms’ litigation environment on the association between gender diversity and financial reporting quality. Firm-specific financial data come from Compustat. To measure the firms’ litigation environment, we use state-level datasets from the Lawsuit Climate Survey conducted for the US Chamber Institute for Legal Reform by the Harris Poll.

Findings suggest that firm litigation environment moderates gender diversity, as defined by female members on the board to subdue our first proxy for financial reporting quality (accruals-based earnings management), but our second proxy for financial reporting quality (real-activities manipulations) increases in a firm’s litigation environment. To the extent that our results hold after controlling for firms’ reputation indicates that female members on the board are sensitive to reputational loss and protect firms’ reputation in a litigation environment.

The study is based on a specific country, limiting the generalizability of the findings.

The findings provide support for promoters and advocates of gender diversity in corporate boards. Specifically, it shows the importance of gender diversity policies in business and society.

This study is the first to examine the moderating role of firms’ litigation environment on the association between gender diversity and financial reporting quality. The study provides novel evidence and shows that the litigation environment moderates gender diversity to improve financial reporting quality in the short-term (by decreasing accruals manipulation). In firms’ litigation environment, when female members on the board are restrained from engaging in accruals earnings management, they shift to value-destroying and costly real activities to maintain reputation and firm performance. To the extent that we control for the potential effects of firms’ reputation and financial performance, our findings suggest that ethical concerns are likely to drive female members on the board to produce high-quality financial reports.

Our study delves into the association between greenhouse gas (GHG) emissions and the quality of financial reporting. Our investigation focuses on understanding how firms’ GHG emissions would impact discretionary accruals and real earnings management. We also test the moderating role of a large board size, and CEO as a board member. Finally, we conduct various robustness checks to ensure the robustness and validity of our findings.

We conducted a study on 476 European companies across 17 countries and various industries between 2005 and 2018. We use panel data estimations, and multiple methods to account for emissions and address endogeneity issues in our tests.

Our findings indicate that greenhouse gas emissions increase earnings management, as measured through discretionary accruals and real earnings management. This leads to lower quality financial reporting. We also find that a larger board size moderates the relationship between GHG emissions and financial reporting, resulting in greater financial transparency.

Our findings provide evidence that firms’ GHG emissions, despite stricter emission regulations in the European Union (EU), would be positively associated with real earnings management. This finding calls for more research in different regions to understand if this is a global trend.

Our results have important implications for financial reporting, corporate governance, and climate change mitigation. For example, high GHG emissions not only indicate polluting firms but might also serve as a signal for identifying firms engaged in earnings management.

Although previous research has examined the relationship between greenhouse gas emissions and the financial performance of firms, to the best of our knowledge, no prior study has investigated whether firms’ GHG tends to manipulate their financial reporting. We also contribute to the literature regarding the determinants of the quality of financial reporting through earnings management literature. Lastly, we provide novel evidence from the EU area, where strict EU climate policy should have affected financial reporting.

This paper aims to investigate the impact of corporate governance practices on cost efficiency and financial stability for a sample of Islamic and conventional banks. In the analysis, the author uses a set of corporate governance variables that include, the board size, board independence, director gender, board meetings, board attendance, board committees, chair independence and CEO characteristics.

The author uses corporate governance data of Islamic banks that is unique in this field. In the analysis, the author also uses stochastic frontier analysis and panel vector autoregression models to quantify long-run and short-run statistical relationships between the operational efficiency of Islamic Banks and corporate governance practices.

According to the results, Islamic and conventional banks exhibit important differences in the effects of corporate governance practices on cost efficiency and financial stability. Results show that with a blind general adoption of corporate governance practices, Islamic banks may suffer a loss in their value since the adoption of the third layer of binding practices, over and above the already existing ones, imposed by the Sharia Board and the Board of Directors, may lead to cumbersome business operations. This conclusion is of importance to Islamic Banks since they struggle to survive in a very competitive international environment.

The author believes that the results may be of a certain value to regulators, policymakers and managers of Islamic banks. Based on the results, the author postulate that Islamic banks should select carefully international corporate governance practices.

Islamic banks should not adopt additional third layer of binding practices as that would result lower performance and instability that would be damaging for the economy

This study employs a unique sample of Islamic banks that includes corporate governance data hand collected. Our findings of the corporate governance impact on Islamic banks performance and stability are therefore unique in the literature.

In this paper, the authors investigate whether coronavirus disease 2019 (COVID-19) impacts household finances, like household debt repayments in the UK.

This paper employs a vector autoregressive (VAR) model that nests neural networks and uses Mixed Data Sampling (MIDAS) techniques. The authors use data information related to COVID-19, financial markets and household finances.

The authors' results show that household debt repayments' response to the first principal component of COVID-19 shocks is negative, albeit of low magnitude. However, when the authors employ specific COVID-19-related data like vaccines and tests the responses are positive, insinuating the underlying dynamic complexities. Overall, confirmed deaths and hospitalisations negatively affect household debt repayments. The authors also report low persistence in household debt repayments. Generalised impulse response functions (IRFs) confirm the main results. As draconian measures, the lockdowns are eased and the COVID-19 shocks are diminishing, and household financial data converge to the levels prior to the pandemic albeit with some lags.

To the best of the authors' knowledge, this is the first study that examines the impact of the pandemic on household debt repayments. The authors' findings show that policy response in the future should prioritise innovation of new vaccines and testing.