The environment is hit when businesses massage books
Revenue management It involves the manipulation of financial reporting by a listed company to misrepresent how well the listed company is actually doing. Companies insert conservative estimates of bad debt or Capital project -Public companies struggling report 1-2 cents of earnings per share in quarterly or annual reports, negative topics and Sale of shares..
Many companies are engaged in it. They are rarely punished. A recent exception was Under Armor, a recent American sports equipment manufacturer. Resolved enforcement measures With the US Securities and Exchange Commission.
Revenue management may be a form of financial fraud, but there are many advocates for accounting standards Allows administrative discretion In reporting revenue. What’s more, when a company manipulates their books, do they hurt themselves more than anyone else?
It seems that there is a shortage of victims that look like this, as many accounting professionals and researchers have concluded that it is not a big deal. But new research reveals a darker story.
Two recent studies show how a company’s obsession with meeting revenue expectations can cost vulnerable employees. One is documented High incidence of workplace injuries and illnesses Companies that meet or exceed analysts’ expectations are the result of increased employee workloads and unusually reduced discretionary costs. The second study is revenue management Corporate wage theftThis happens when a company neglects to pay for overtime or forces it to underreport the number of hours worked.
Increased air pollution
New research Conducted with Hongtao Shen and Yang Zhao of Jinan University in China, Zheng Liu, a PhD student at the Smith School of Business at Queen’s University, has shown a broader impact from revenue management. Long-term health effects..
We conducted our research with the premonition that pollution reduction costs will be a major goal for struggling companies that are feeling the pressure to reach their revenue goals. Most emission reduction spending is variable and can be reduced by turning off the following reduction technologies: Sulfur dioxide scrubber, Switch to full power when inspection is imminent.
From the perspective of companies looking for a quick solution, reducing pollution mitigation costs is often a better alternative than reducing them. Research and Development Or advertising. It may impair medium- to long-term profits. By switching off the scrubber, the company shifts the long-term costs of a more polluted environment to the community in which it operates.
We focused on the selection of listed manufacturers in China. Various initiatives Controls the emission of sulfur dioxide, which causes acid rain and air pollution.
Previously, the primary suspects in accounting operations were those who just met or exceeded analysts’ expectations to identify companies that were under pressure to engage in revenue management. I turned my attention to the investigation.
When we analyzed the data, they told a compelling story. Manufacturers that just met or exceeded analysts’ earnings forecasts had higher sulfur dioxide emissions-an average of 0.26 kilograms more sulfur dioxide per 1,000 CNY emissions than average emissions. Was also almost 27% higher-release the facility.
Regulation was weak
This unethical corporate behavior was most apparent when environmental regulations and oversight were weak. In China Environmental regulators are local agencies that rely on local governments, This depends on the tax revenue from the companies in its jurisdiction. Research has revealed that suspicious companies, which are major contributors to the local economy, have released more sulfur dioxide. The same was true for state-owned enterprises working with the central government to protect them from environmental oversight and enforcement.
The reverse was also true. With tighter scrutiny and enforcement of regulations, companies are less likely to secretly reduce their savings costs.
This was evident in companies in designated acid rain control zones and in cities that hosted events such as: 2008 Beijing Summer Olympics -An opportunity for China to strengthen its environmental monitoring to hone its image on the world stage. This was even more apparent among companies that were required to disclose data related to their corporate social responsibility.
Our findings and other findings convey a message to the directors of public companies that oversee their financial reporting. Studies show Companies with longer-term investors and CEOs with incentives to reward longer-term perspectives are less likely to be involved in any kind of financial ingenuity. To some extent, that means that revenue management can be mitigated by HR management.
It’s time for accounting professionals, researchers and capital market regulators to take revenue management more seriously. To reach our quarterly or annual goals, we need to know what companies are doing to find a few penny per share and who pays for such practices.
Author: Michael Welker-Professor of Financial Accounting, Queen’s University, Ontario | NingZhang-Associate Professor of Financial Accounting, Queen’s University, Ontario