July'18

Welcome to The IUP Journal of Accounting Research and Audit Practices

Focus

Considering the present state of environmental destruction, civil society is demanding the businesses to play a proactive role in the societal and environmental objectives.

This makes environmental accounting an important tool for the accounting discipline. In the first paper, "Decision Usefulness of Corporate Environmental Reporting and Firm Performance: Evidence from Sri Lanka", the authors, D M M B Dissanayake and E M A S B Ekanayake, attempt to assess the degree to which such corporate environmental reporting contributes to firm performance in Sri Lanka. The authors concentrate on qualitative characteristics, and find that understandability and comparability have higher scores than relevance and faithful representation. The authors use three performance indicators, ROA, ROE and EPS, to measure the decision usefulness of corporate environmental reporting and firm performance, and observe that a two-way positive and significant association exists between the performance of the firms and reporting. The authors conclude that proper policy or environmental management systems will lead to increased yield for corporates in Sri Lanka.

Environmental accounting is an important tool to understand the role played by business enterprises in the economy towards environmental safety and welfare. But this role varies depending upon certain firm characteristics like industry type, age, size, profitability and liquidity, leading to a difference in the extent of environmental information disclosure. With this outlook, the authors, Mahesh Chand Garg and Sandeep Kumar, in the second paper, "The Relationship Between Corporate Environmental Reporting Practices and Company Characteristics: Evidence from India", examine the relationship between the reporting practices and specific firm characteristics for Indian companies. The authors attempt to identify the characteristics having positive effect on information disclosure and find that larger companies disclose more environmental information. The authors find that industry type and size of the company are positively affected by the extent of environmental information disclosure in annual reports.

The next wave of leaders in industrial manufacturing will build an ecosystem that capitalizes on maximizing efficiency for themselves and their customers. In a slow growth environment like India, industrial manufacturers have an opportunity to profit from innovation strategies that build upon advanced manufacturing concepts. Hence they become more aggressive and deliberate in their investments, focusing on developing technology platforms and new operating models that improve efficiency, costs and performance of factories and other capital projects. In the third paper, "Microeconomic and Macroeconomic Determinants of Efficiency: Evidence from Indian Industrial Machinery Sector", the author, Sumit Kumar Maji, attempts to explore different determinants of efficiency for firms in the Indian industrial machinery sector. The author finds that leverage, size, openness, age and inflation are the major determinants of efficiency of the industrial machinery firms operating in India during the study period.

Managers use a variety of methods to manipulate profits, specifically under financial distress. Managers of distressed firms engage more in income decreasing earnings management practices as compared to their healthy firm counterparts. Earnings management is the use of accounting techniques to produce financial reports that present an overly positive view of a company's business activities and financial position. In the fourth paper, "Earnings Management Strategies During Financial Distress", the authors, Neerav Nagar and Kaustav Sen, examine whether financial distress and its severity affect the managers' decisions with respect to the choice of earnings management strategies. The authors find that the managers of distressed firms try to trade off between liquidity, profitability and solvency of the firm using different earnings management strategies.

- P Bhanu Sireesha
Consulting Editor

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Article   Price (₹) Buy
Decision Usefulness of Corporate Environmental Reporting and Firm Performance: Evidence from Sri Lanka
50
The Relationship Between Corporate Environmental Reporting Practices and Company Characteristics: Evidence from India
50
Microeconomic and Macroeconomic Determinants of Efficiency: Evidence from Indian Industrial Machinery Sector
50
Earnings Management Strategies During Financial Distress
50
       
Contents : (July'18)

Decision Usefulness of Corporate Environmental Reporting and Firm Performance: Evidence from Sri Lanka
D M M B Dissanayake and E M A S B Ekanayake

The study attempts to assess the degree to which Corporate Environmental Reporting (CER) contributes to firm performance in Sri Lanka. Four qualitative characteristics of financial information as stated in the Conceptual Framework for Financial Reporting (i.e., relevance, faithful representation, understandability and comparability) and three performance indicators (i.e., ROA, ROE and EPS) have been used to measure the decision usefulness of CER information and firm performance, respectively while three variables, namely, growth, firm size and leverage, were controlled in the study. For this purpose, top 30 companies based on the market capitalization in the Colombo Stock Exchange (CSE) of Sri Lanka were selected as the sample. Data were gathered from the annual reports of these companies during the period from 2013 to 2016, and data analysis was carried out using content analysis, descriptive statistics, Pearson correlation coefficient and multiple regression analysis. The findings show that scores for the two fundamental characteristics (i.e., relevance and faithful representation) were relatively lower than those of the enhancing qualitative characteristics (i.e., comparability and understandability), indicating a lower level of decision usefulness. With regard to the association between CER reporting and firm performance, it was evident that there is a positive association between the two variables. The findings of the study have significant policy implications such as the importance of provision of environmental information for decision making purposes rather than merely satisfying the stakeholders of companies.


© 2018 IUP. All Rights Reserved.

Article Price : Rs.50

The Relationship Between Corporate Environmental Reporting Practices and Company Characteristics: Evidence from India
Mahesh Chand Garg and Sandeep Kumar

This study investigates the extent of environmental information disclosure in the annual reports of companies listed on the stock Dollex-200, and tests whether there is any relationship between the amount of environmental disclosure index and company characteristics such as industry type, age, size, profitability, liquidity and leverage. By using a purposive sampling method, 90 Indian private listed companies were selected as of March 31, 2014. The findings indicate that 62% of the companies have environmental disclosure of 20 to 50% in their annual reports. The results of the study also indicate that industry type and size (total assets, profit after tax and net sales) of the company are positively affected by the extent of environmental information disclosure in annual reports. These results imply that larger companies disclose more environmental information than smaller companies. However, there is no significant relationship between the extent of environmental disclosure and other company characteristics such as market capitalization, age, profitability, liquidity and leverage.


© 2018 IUP. All Rights Reserved.

Article Price : Rs.50

Microeconomic and Macroeconomic Determinants of Efficiency: Evidence from Indian Industrial Machinery Sector
Sumit Kumar Maji

Industrial machinery industry is one of the most important drivers of growth of the manufacturing sector in the Indian economy. The importance of this industry can be understood from the fact that it produces a wide range of machinery that is at the core of other manufacturing industries in India. Moreover, this sector can contribute towards generating foreign earnings and employment. There are 97 listed companies in this segment, which makes this sector highly competitive. Thus, the firms have to be efficient in order to endure in the long run. The present study seeks to evaluate the efficiency of the 43 (44.33%) select industrial machinery firms for the period 2001-02 to 2014-15 with the help of Stochastic Frontier Analysis in the first stage. In the second stage, the determinants (both microeconomic and macroeconomic) of such firm level efficiency are explored using Panel Censored Tobit Regression Model. The results of the study show that leverage, size, openness, age and inflation are the major determinants of the efficiency of the industrial machinery firms operating in India during the period of study.


© 2018 IUP. All Rights Reserved.

Article Price : Rs.50

Earnings Management Strategies During Financial Distress
Neerav Nagar and Kaustav Sen

The paper examines whether financial distress and its severity have a role to play in managers' decisions with respect to the choice of earnings management strategies. The results suggest that firms in initial stages of distress engage in real earnings management through a reduction in the spending on selling and general and administrative expenses, and through classification shifting to increase profitability and liquidity. When distress becomes severe, firms cut back on production, engage in income-increasing accruals management, and increase their spending on selling and general and administrative expenses. Initial under-spending on selling and general and administrative expenses is opportunistic with an intention to show improved performance. In extreme distress, increase in such spending is a sound economic decision. The findings provide insights into how managers of distressed firms trade off between liquidity, profitability and solvency both in the short run and the long run.


© 2018 IUP. All Rights Reserved.

Article Price : Rs.50

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