BBK2213 Evaluation of two Journal Articles

The main aim of the report is the analysis as well as evaluation of two journal articles and these articles are related to the subject of Finance. It needs to be mentioned that there are three parts for both of the articles. The first part involves in the analysis of the learning points of these two articles. The aim of the second part of the report is the comparison of these two articles with the learning theory. The aim of the third part of the report is the comparison of these two articles with some other articles in the same field in order to reach to the conclusion.

Article 1 

Learning Point of the Article

            The name of the first article is “Disclosure quality and earnings management: evidence from Jordan” by Ebraheem Saleem Salem Alzoubi.  The main purpose of this report can be found in the investigation of effects of the quality of disclosure on the degree of earnings management within the companies of Jordan. In order to achieve this objective, the researcher has used the cross-sectional version of the modified Jones model with the use of discretionary accruals (Alzoubi 2016). In this context, it needs to be mentioned that there is a specific learning point of this research.

The main learning point of the research indicates towards the fact that one can observe a pessimistic relation between the quality of disclosure and earnings management. This particular aspect indicates towards the fact that in case there is high level of disclosure, reduction in the extent to the earnings management can be seen. For this reason, this whole aspect helps in increasing the quality of financial reporting of the companies of Jordan (Kim and Sohn 2013). It can also be seen from the article that the results of the research have consistency with the framework of agency theory where it is assumed that high quality of disclosure helps.

in the reduction of information irregularity so that the investors become able in the detection of earnings management activities. On the contrary, as per this article, the quality of disclosure creates influence on earnings management on negative manner that leads to the improvements in the quality of financial reporting. Thus, on the basis of the learning point of the report, it can be suggested to the companies that they are needed to ensure high quality of disclosure for effective financial reporting within the business organizations (Alzoubi 2016).  

Comparison of the Article with the Learning Theory

            While comparing the outcomes of the learning theory, it can be observed that there are some major similarities in these two aspects. As per the learning theory, it can be seen that earnings management is a negative aspect for the companies as the managements of the companies use to manipulate the financial reporting for unnatural financial gain (Ball 2013). Thus, in order to stop the scope for earnings management, the companies are needed to maintain the high quality of the disclosure of financial information and other financial aspects.

The similarity of this learning theory can be seen with the learning points of this article. Both the learning points of the article and the learning theory agree on the fact that there is a negative connection between quality disclosure and earnings managements as effective disclosure of the financial information creates obstacles for the managements of the companies to manipulate the financial reporting for natural gains. There is not any scope to differ this fact from the learning theory (Kothari, Mizik and Roychowdhury 2015).   

Comparison of the Article with other Similar Articles

            This article can be compared with other articles. As per the article named “Earnings management practices from the perspective of external and internal auditors Evidence from Jordan”, every business organization involves in rightful earnings management either for the increase or decrease of the organizational income, but the auditors believe that the business organizations involve in earnings management only for the purpose to increase the income.

            As per another article named “Incentives and Opportunities to Manage Earnings around Option Grants”, the managers of the business organizations apply different kinds of strategies inclosing the strategy of earnings management with the aim to lower the option exercise prices on the grant date.

            According to another article “Corporate Governance, Firm Characteristics and Earnings Management in an Emerging Economy”, highly leveraged business organizations are more likely to involve in the process of earnings management with the aim to increase their business earnings (Waweru and Riro 2013).

            Thus, it can be said based on the above discussion that though earnings management is an illegal activity in the accounting process, many business organizations involve in this process with different aims. However, there is not any scope to deny the fact that the presence of high quality of disclosure helps in the reduction of the scope of earnings management in the business organizations.

Article 2 

Learning Point of the Article

            The name of the second article is “The impact of international financial reporting standards on fund performance” and the names of the authors are Dmitrij Rubanov and Matthias Nnadi. The analysis of the report indicates towards the fact that the main purpose of the research is the examination of the impacts of International Financial Reporting Standards (IFRS) on the financial performance of the investment close-end trust funds of United Kingdom (UK) with the focus on domestic equity (Rubanov and Nnadi 2018).

For this reason, the researchers have used Carhart’s Four-Factor model. It needs to be mentioned that this research is largely based on the effective market hypothesis. According to the learning point of the article, it can be seen that on the average basis, the investments trusts of UK neither involves in generating abnormal returns nor constant performance. Another major learning point of the research is the fact that investment trusts did not produce any positive abnormal return from the period January 1997 to December 2014. It can also be seen from the analysis of the report that there is not any consistent pattern of constant (Rossi 2015).

Thus, based on the above discussion, it can be suggested that the performance of the investment trust funds is not constant. Apart from this, investors or the business organizations should not use the prior investment trust performance as an pointer for the future performance of the investment trusts. This whole aspect indicates towards the fact that the investors should not make the decisions for investment based on the previous performance of the investment funds and the main reason of this fact is that there is not any constant pattern of the performance of the investment trusts (Rubanov and Nnadi 2018).

Comparison of the Article with the Learning Theory

            At the time to consider the learning points of this particular research article, it is needed to take into consideration the learning theories. One of the major aspects of the learning theories in this context is the efficient market hypothesis. Efficient market hypothesis is a major theory related to investment and financial economics (Hamid et al. 2017). The theory of efficient market hypothesis states that the prices of the assets fully reflect all accessible information.

Thus, it is not possible to beat the market on risk adjustment basis as the market price should only react to the new information. However, difference of this learning theory can be seen with the learning points of the article as the learning points indicate towards the fact that there is not any constant pattern of the performance of the investment trust funds. For this reason, it is not always the case where the investment trust funds fully reflect all obtainable information about the performance of the fund (Westerlund and Narayan 2013).  

Comparison of the Article with other Similar Articles

            The comparison of this article can be drawn with some other article to reach to better conclusion. The article named “Multi-Period Performance Persistence Analysis of Hedge Fund” indicates towards the fact that there is maximum persistency at the quarter horizon and this aspect indicates towards the fact that the hedge fund managers have short-term persistency.

            According to another article named “The impact of international financial reporting standards on fund performance”, the investment trusts of UK do not produce abnormal returns and there is not any persistency in the performance.

            As per another article named “Exploring the Persistence of UK Equity Close-End Fund Performance”, the presence of persistence in the value added as well as performance ability can be seen in the equity close-end funds of UK (Fletcher 2016). Thus, based on the above discussion, it can be said that the adoption of effective IFRS regulations helps in the effective performance of the investment funds. 

Conclusion

            The above discussion involves in the analysis as well as evaluation of two articles in the field of financial management. It can be concluded from the analysis of the first article that in spite of the illegal nature of earnings management, some companies adopt this strategy for either increasing or decreasing the earnings. After that, it can be concluded from the analysis of the second article that the investors should not determine the performance of the investment funds based on their previous performance.

References

Alzoubi, E.S.S., 2016. Disclosure quality and earnings management: evidence from Jordan. Accounting Research Journal, 29(4), pp.429-456.

Ball, R., 2013. Accounting informs investors and earnings management is rife: Two questionable beliefs. Accounting Horizons, 27(4), pp.847-853.

Fletcher, J., 2016. Exploring the persistence of UK equity closed-end fund performance. Advances in Investment Analysis and Portfolio Management, (7), pp.185-213.

Hamid, K., Suleman, M.T., Ali Shah, S.Z., Akash, I. and Shahid, R., 2017. Testing the weak form of efficient market hypothesis: Empirical evidence from Asia-Pacific markets.

Kim, J.B. and Sohn, B.C., 2013. Real earnings management and cost of capital. Journal of Accounting and Public Policy, 32(6), pp.518-543.

Kothari, S.P., Mizik, N. and Roychowdhury, S., 2015. Managing for the moment: The role of earnings management via real activities versus accruals in SEO valuation. The Accounting Review, 91(2), pp.559-586.

Rossi, M., 2015. The efficient market hypothesis and calendar anomalies: a literature review. International Journal of Managerial and Financial Accounting, 7(3-4), pp.285-296.

Rubanov, D. and Nnadi, M., 2018. The impact of international financial reporting standards on fund performance. Accounting Research Journal, 31(1), pp.102-120.

Waweru, N.M. and Riro, G.K., 2013. Corporate governance, firm characteristics and earnings management in an emerging economy. Journal of Applied Management Accounting Research, 11(1), p.43.

Westerlund, J. and Narayan, P., 2013. Testing the efficient market hypothesis in conditionally heteroskedastic futures markets. Journal of Futures Markets, 33(11), pp.1024-1045.