Earning Management

Does the Commercial Banking Industry of UAE Practice Earnings Management Dr. Mohammed Obeidat Introduction It is the right of external users of accounting information to be provided with more adequate information to protect their interests. Many questionable issues concerning the term of earnings management are still available. Auditors, accountants, financial analysts, and other concerned parties may hold the responsibility of detecting external users from the practices of earnings management. Many questionable issues are still available regarding the term of earnings management.Some people may have no enough idea about what practices are classified under earnings management, and what practices can not be classified under this term. Users of accounting information are different but few of them have the ability to detect the practices of earnings management. Because there are different methods of practicing earnings management, detecting the practices of earnings management is one of the difficult issues. The common practice of earnings management by firms and the negative effects of these practices on external users of financial accounting information justify the investigation of this issue.Many users may lose some of their wealth as a result of practicing this phenomenon. Many financial crises appear in our world from time to time, and some reasons of these crises are related to incorrect announced financial information. The problem of the current study will be simpler, if it is presented through the following question: How investors can detect the practices of earnings management, in order to have the ability to protect themselves from the negative effects of these practices?The answer to this question may seem more difficult, so the current study present an example from the Commercial Banking Industry of the United Arab Emirates (UAE). Studying the phenomena of practicing earnings management is important, because this will highlight why managers may practic e this phenomenon. Many incentives may be available to managers and promote them to practice earnings management. These incentives will be highlighted later on in the current study, but when investors are knowledgeable with some of these incentives, they can consider and analyze the financial information of their entities more.Moreover, when users are aware with the methods that are followed by managers to practice earnings management, they will be more eligible to detect these practices. The current study will explore the most available methods of practicing earnings management. The importance of the current study is increased, because it highlights how investors can determine whether there is a practice of earnings management or not. The objectives this study is looking to achieve are as follows: 1. To highlight the incentives standing behind the practice of earnings management by managers. 2.To inform users about the methods available to firms' management to manage the earnings. 3. To determine the qualitative and quantitative available procedures that can be used to detect the practices of earnings management. 4. To determine whether the Commercial Banking Industry of UAE practices or does not practice the phenomenon of earnings management. 5. In a case of earnings management is detected, this study aims to detect whether these practices were upward or downward practices. Our study makes a unique contribution to the literature by using data from the announced financial statement of Commercial Banking Industry of UAE.This study differs from the prior studies in its location, methods, objectives, and nature of data used in the analysis. Because the current study involves the commercial banks of ABU Dhabi, and because all of these commercial banks are listed in Abu Dhabi Stock Market, this study is unique in its location. Just few studies outside Abu Dhabi followed quantitative method to investigate whether there are practices of earnings management or not, t he current study is also different from other prior researches.This study depends on cross sectional data because a time series data will misstate the data, so it is unique in its inputs of data. This paper is organized as follows: The first section defines earnings management, and describes the incentives of its practices by commercial banks, in addition to that, it explores the methods of practice and how these practices can be defected. The second section explores the most related prior researches. The third section presents the hypotheses of the current research. The fourth section describes the followed methodology in the current study.The fifth section presents the results, while the fifth explores the findings. Literature Review and Prior Researches Many people believe that the term of earnings management is understandable in its simple form, but most of those unable to determine whether a selected practice is an earnings management or not. Understanding what earnings managem ent constitutes and why it takes place is important for all users of accounting information. This study highlights the different aspects of earnings management, so it identifies clearly this term, and presents the incentives standing behind its practice.Moreover, the current study determines the methods of earnings management used by firms, and explores how these practices can be detected. Earnings management is defined as the â€Å"intentional misstatement of earnings leading to bottom line numbers that would have been different in the absence of any manipulation (Mohanram, 2003). Based on this definition, the practice of earnings management is an intentional behavior, and if this practice occurs unintentionally, it can not be classified under the practices of earnings management.Moreover, this definition states that the practice of earnings management phenomenon leads to users' misstatement. In other words, practitioners of earnings management have different purposes and they cha nge some accounting numbers to affect users in order to achieve these objectives. Healy and Wahlen (1999) state that earnings management â€Å"occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reporting accounting numbers†.This definition states that this practice is also intentional and purposeful. This definition mentions that contractual issues are incentives for managers to manage earnings. But we have to remember Some concerned people believe that earnings management mean upward manipulation. Actually, earnings management may be exercised either upward or downward. In most cases, the target of earnings determines to a large degree, whether the management of the firm practices earnings management upward or downward.Some people also believe that the all the practice of earnings management are illegal, and no legal practice exists. Actually, there are different practices of earnings management do not violate the generally accepted accounting principles (GAAP). For example, speeding the size of sales during the last month or the fourth quarter is in agreement with the GAAP. Moreover, activating sales during the last month of the accounting period through granting discounts to customers is also in agreement with the GAAP, and is not a violation to the accounting standards.There are different incentives to managements of firms to practice the phenomenon of earnings management. Most of these incentives are related to benchmarks of earnings. Sometimes, the previous period's performance may be the benchmark to the firm. In other cases, the benchmark to the firm may be the expectations of financial analysts. The promised compensations to the firm's management may be the most important incentive of the practice of earnings management. Benchmarks are ne cessary for the determination whether the management deserves or does not deserve the promised compensation.Sometimes, the desire of the firm's management to increase the stock market price may also be one among the incentives to earnings management, especially, when the management is looking for more compensation. The normal positive relation between earnings and stock market price means that as the amount of announced earnings increases, the common stock market price is also increases. Therefore, when a desire exists to the firm's management to affect the common stock market price, the management will manage its earnings. Reducing the amount of income tax may also be one among the incentives of practicing earnings management.In many countries, business entities are subject to high income tax rates, where different categories of expenses are deducted from the income. When these entities are looking toward reducing the amounts of taxes, they practice the phenomenon of earnings manag ement. The practice of earnings management in this case may be through increasing the amounts of tax deductions, or through the decreasing the amounts of earnings. Sometimes, firm's management may manage earnings to simplify the issue of receiving credits from banks and other financial issues.In addition, firms may also manage earnings to reduce the cost of this credit, because when earnings are reasonable, the firm can receive credit smoothly without such obstacles, and at lower costs, but when the firm's earnings are unreasonable, this firm will face many obstacles to receive credit, and it may receive credit at higher costs. These are some of incentives or reasons of the practice of earnings management, but other incentives may be available to some firms, depending on the financial conditions of the firm's management itself.Managements of firms can follow different methods to manage earnings. Changing the assumptions for accounting standards is one of the most common used methods in managing earnings. It is already known that the GAAP are highly flexible, so managements can employ the high degree of flexibility available in these standards. Examples of this flexibility are the inventory flow methods which managements can use one among these, and the available options to depreciate some of the firm's assets, in addition to these; firms can review the assumed lives of these depreciable assets.As a result a variety of options are available to management whenever a desire to manage earnings exists. Managements can manage earnings through the determination to the bad debts provisions. For example, whenever there is a need to announce earnings higher than its actual value, management can determine these bad debts at amounts lower than their actual, while it can announce lower amounts of bad debts whenever there is a need to reduce the announced income. Managing transaction is one among the available options to management when there is a desire to manage earnings. For instance, management can grant high discounts during the last few days of the accounting period to recognize more revenue through sales under the accrual basis. One option is available to managements of firms is to activate sales or services during the last days of accounting period through the adoption to more sales on credit, and through longer period of payment are given to customers. Two approaches are available to detect the phenomenon of earnings management. The first is qualitative, while the second is quantitative approach.Using the two approaches together when this possible leads to more certain conclusions whether a firm or a group of firms manage earnings. Several steps have to be followed when there a need exists to detect earnings management through the qualitative methods. These steps are presented below: (Mohanram, 2003). 1. Identifying the key accounting policies of the firm or industry. Regarding the industry of the current research, the issues of credit risk an d interest rate risk are of crucial importance to banks. 2. Assessing the firm's accounting flexibility.The level of accounting flexibility may be high to some firms or industries, whereas, it may be low to other firms and industries. 3. Evaluating the firm's accounting strategy, and determining how this strategy differs from other competitors. 4. Assessing the firm's quality of disclosure. 5. Identifying the potential red flags. The following is an example of red flags: |Unexplained accounting changes, especially when performance is bad. | |Unexplained profit boosting transactions, such as sale of assets. | |Unusual increase in accounts receivable in relation to sales increase. |Increasing gap between net income and cash flow from operations. | |Increasing gap between net income for reporting and tax purposes. | |Unexpected large asset write-offs or write downs. | |Large fourth quarter adjustment. | |Qualified audit opinion or change in auditors. | |Large related party transactions . | 6. The final step is to undo accounting distortions by reversing out the impacts of dubious accounting wherever possible. Earnings management can be also detected analytically, based on the firm's accruals, which can be defined as the difference between net income and cash flow operations.In occasion, firms with high level of accruals are likely to have inflated earnings. Firms practice the phenomenon of earnings management can be determined through segregating discretionary accruals from non-discretionary accruals. In this case, Jones (1991) model can be used to segregate discretionary from non-discretionary accruals. In the current study we use this model to determine whether, or not, the Commercial Banking Industry practices the phenomenon of earnings management. This model is presented below:Where total accruals can be computed by finding the difference between income before extraordinary items and cash from operations in year t. Revenuest is revenues in year t, while revenu est-1 is the revenues at the end of year t-1. Total assetst-1 is total assets of year t-1. Gross PPEt is gross property, plant, and equipment at the end of year t, and B1, B2, and B3 are industry and year specific parameters to be estimated. The residual value in Jones's Model is the discretionary accruals for a firm in a given year, while the fitted value gives an estimate of the non-discretionary component of earnings.Researchers in the accounting literature have often focused on earnings management. Many researchers studied the issue of earnings management; most of these are focused in the Western or Far East Countries. A study titled † earnings Management: Do Large Investors Care? † and carried out by Senteza, Njoroge, and Gill (2005), deserves to be mentioned in the current study. This study mentions that institutional investment activity and behavior is an area that has become more interesting in recent times and so much work has been done so far.The contribution o f this study in the area of earnings management can be summarized in its documentation to the effect of earnings management activity on institutional investor ownership, especially through distinguishing the ownership changes in response to the direction of earnings management efforts. This study finds that institutional investors increase ownership in firms that manage earnings upwards and decrease ownership in firms that manage earnings downward before end-of-year reporting.Moreover, this study finds that the increases observed during an observed upwards earnings-managing activity are followed by decreases in ownership in these firms in the subsequent quarter, which may suggest resource allocation between large and small investors. In his comments at the practice of earnings management phenomenon, Simon (2005) argues that managing earnings is a wrong practice, in his paper titled â€Å"Earnings Management as A Professional Responsibility Problem†.The author of this paper st ates that managers of public companies often want an increase in current reported earnings per share; though they sometimes prefer a current decrease in the earnings they would otherwise report when it will allow them to show a smoothly increasing pattern of earnings in the future. He adds, on his comments on Schwarcz's paper, that â€Å"the ‘limits of lawyering' are the constraints of law, but having said that, the question remains-what do we mean by law? If we take a narrow, predictive conception of law, the limits will be less restrictive than if we take a broader, purposive view. . He also states that the more ambitious conception is most compatible with the idea of lawyering as a dignified calling. Caramanis and Lennox (2007), carried out a study titled â€Å"Audit Effort and Earnings Management† in their trial to determine the effect of audit hours on the practice of earnings management by the Greece Firms. To measure earnings management, the authors use the Jone s (1991) model based on the balance sheet approach rather than the cash flow statement approach because most Greek companies do not provide cash flow statements.There are three main findings of this study. First, companies are more likely to report income-increasing abnormal accruals than income-decreasing abnormal accruals, when audit hours are lower. Second, the magnitude of income-increasing abnormal accruals is negatively related to audit hours. Third, companies are more likely to manage earnings upwards to just meet or beat the zero earnings benchmark, when auditors work fewer hours. Moreover, this study finds weak or insignificant associations between audit hours and the magnitude of negative abnormal accruals.A study titles â€Å"Detecting Earnings Management† for the purpse of evaluating alternative accrual-based models for detecting earnings management is carried out by Dechow and Sweeney (1995). This paper evaluates the ability of alternative models to detect earnin gs management. Concerning this issue, the paper finds that all the models considered appear to produce reasonably well specified tests for a random sample of event-years. When the models are applied to samples of firm-years experiencing extreme financial performance, all models lead to misspecified tests.The second finding of this paper is that the models all generate tests of low power for earnings management of economically plausible magnitudes. Moreover, this paper reveals that all models reject the null hypothesis of no earnings management at rates exceeding the specified test-levels when applied to sample of firms with extreme financial reporting. The most important finding of this paper is that a modified version of the model developed by Jones (1001) has the most power in detecting earnings management.Kerstein and Rai (2007), carried out a study titled â€Å"Working Capital Accruals and Earnings Management†. The purpose of this study is to reexamine market reactions to large and small working capital accruals. This study involves three hypotheses. First, negative or positive large working capital accruals have no impact on the earnings response coefficient of firms reporting positive small earnings surprises. Second, Positive or negative large working capital accruals have no impact on earnings response coefficients of firms reporting small earnings declines.Third Positive or negative large working capital accruals have no impact on earnings response coefficients of firms reporting large earnings increases or declines. The authors focus on nonlinear relations between returns and large working capital accruals and use raw returns computed as the compounded monthly returns from nine months prior to the fiscal year-end to three months after the fiscal year-end as the dependent variable. They find that the market discounts unexpected earnings when there are small increases in earnings using negative large working capital accruals or negative large wo rking capital accruals.They also find little or no evidence that positive or negative large working capital accruals lead to lower earnings response coefficients in the remaining six situations. In his study titles â€Å"Earnings Management, Earnings Manipulation: Evidence from Taiwanese Corporations†, (2008), Chai-hui Chen differentiates between earnings management and earnings manipulation among the Taiwanese companies. In this study, Chai examines 7 hypotheses based on a sample of 90 public firms throughout 1999-2004.The main findings this study concludes that: (1) unlike the control group, earning manipulators face greater capital market and contract motivations to manage earnings; (2) earnings manipulators are more inclined to appoint fewer independent directors to their boards, to appoint fewer independent supervisors to their supervisory boards, and to posses considerably less managerial ownership; and (3) earnings manipulators are more likely than the control group to express aggressive attitudes and rationalizations to manage earnings changes before interests and taxes, or both.To examine the effect of firm's stock price sensitivity to earnings news, as measured by outstanding stock recommendation, on incentives to manage earnings, Abarbanel and Leahavy (2003) carried out a study titled â€Å"Can Stock Recommendations Predict Earnings Management and Analysts' Earnings Forecast Errors†. This study examines hypotheses concerning (1) the effect of introducing equity-market-based earnings targets on firms' earnings management, and (2) the effects of such earnings management actions on ensuring analysts' forecast errors.In this study, quarterly unexpected accruals are calculated using the modified Jones (1991) model. This study finds evidence that a firm's stock price sensitivity to earnings news, as measured by outstanding stock recommendation, affects its incentives to manage earnings and, in turn, affects analysts' ex post forecast errors. Moreover, this study finds a tendency for firms rated a Sell (Buy) to engage More (less) frequently in extreme, income-decreasing earnings management, indicating that they have relatively stronger (weaker) incentives to create accounting reserves.In contrast, this study finds that firms rated a Buy (Sell) are more (less)likely to engage in earnings management that leaves reported earnings equal to or slightly higher than analysts' forecasts. Zhang (2002) carried out his study titled, â€Å"Detecting Earnings Management – Evidence from Rounding-up in Reported EPS†, for the purpose of evaluating a comprehensive list of metrics propsed for detecting earnings management in a setting where managers manipulate earnings to round up reported earnings per share (EPS).This study provide the evidence that adds to the debate on the abilities of accrual-based models to detect earnings management of small magnitude. The study cast doubt on the abilities of accrual-based models to c atch minor offenses, which is likely to be the norm, rather than exception of various forms of earnings management. The metrics under evaluation of this study are deferred tax expense and discretionary accruals computed from DeAngelo Model, Healy Model, Jones Model, Modified Jones Model, Cross-sectional Jones Model, and Forward-looking Jones Model.This study finds that deferred tax expense is able to detect earnings management in the rounding-up setting while discretionary accruals models are not. Moreover, this study provides the evidence that firms manipulate bad debt expense for the purpose of rounding-up reported EPS. Chan, Jegadeesh, and Sougiannis (2004) carried out a study titled â€Å"The Accrual Effect on Future Earnings† in an attempt to clarify whether current accruals affect future earnings. The authors find a strong negative relationship between accruals and the aggregate future earnings.This study mentions that if firms manage accruals upward by $1 today while h olding current earnings constant, aggregate future earnings will decline, on average, by $ 0. 096 over the following three years and $0. 202 in the long run. This study also examines the accrual effects classified by firm characteristics to test the source of the negative relationship between accruals and future earnings. The study shows that high price-earnings stocks experience an enormous accrual impact on their future earnings, with 39% of current accruals reversing in the long run.Moreover, this study shows that firms with high market-to-book ratios also have large accrual reversals, so when this is grouped by accruals, the accrual effects are significantly stronger for high accrual firms than for low accrual firms. Among the additional important findings of this study is that Jones model significantly underperforms the CF-Jones model in explaining the cross-sectional accrual variability, with only 24% of mean adjusted –R2 for the Jones model compared to 57% for CF-Jones Model.This result shows the CF-Jones model superiority in identifying the manipulated earnings. The most recent study concerning the detection of earnings management relates to Miller (2009) and titled â€Å"The Development of the Miller Ratio (MR): A Tool to Detect for the Possibility of Earnings Management (EM)†. In this study, Miller uses new technique to detect earnings management called â€Å"Miller Ratio†, based on net working capital (NWC) and cash flow from operations (CFO). Miller also compares between the esults reached through his own model and the results revealed based on Modified Jones Model. In this study, the author states that the large body of literature on the topic of earnings management provides discussion of total accruals, discretionary total accruals, and current accruals. The findings of this study indicate that neither the Miller Ratio nor the Modified Jones Model predicted the possibility of earnings management at a statistical acceptable le vel of confidence on the body of data with acknowledged earnings management. .Caramanis, A. , and Lennox, C. , (2008), â€Å"Audit Effort and Earnings Management†, Journal of Accounting and Economics 45, PP. 116-138. 2. Jones, J. , (1991), â€Å"Earnings Management during import relief Investigations†, Journal of Accounting Research 29, pp. 193-228. 3. Dechow, M. , and Sweeney, P. , (1005), â€Å"Detecting Earnings Management†, The Accounting Review, Vol. 70, No. 2, PP 193-225. 4. Kerstein, J. , and Rai, A. (2007), â€Å"Working Capital Accruals and Earnings Management†, Investment Management and Financial Innovation, Vol. 4, Issue 2, PP. 33-47. 5. Chen, C. , (2008), â€Å"Earnings Management, Earnings Manipulation: Evidence from Taiwanese Corporations, Available on Line: 6. Abarbanell, J. , and Lehavy, R. , (2003), â€Å"Can Stock Recommendations Predict Earnings Management and Analysts' Earnings Forecast Errors? â€Å", Journal of Accounting Research , Vol. 41, No. 1, PP. 1-47. 7. Zhang, H. (2002), â€Å"Detecting Earnings Management – Evidence from Rounding-up in Reported EPS†, Available on Line. 8. Chan, K. , Jegadeesh, N. , and Sougiannis, T. , (2004), â€Å"The Accrual Effect on Future Earnings†, Review of Quantitative Finance and Accounting, 22, PP. 97-121. 9. Miller, J. E. , (2009), â€Å"The Development of the Miller Ratio (MR): A Tool to Detect fot the Possibility of Earnings Management (EM)†, Journal of Business ; Economics Research, Vol. 7, No. 1, PP. 79-90. Earning Management Does the Commercial Banking Industry of UAE Practice Earnings Management Dr. Mohammed Obeidat Introduction It is the right of external users of accounting information to be provided with more adequate information to protect their interests. Many questionable issues concerning the term of earnings management are still available. Auditors, accountants, financial analysts, and other concerned parties may hold the responsibility of detecting external users from the practices of earnings management. Many questionable issues are still available regarding the term of earnings management.Some people may have no enough idea about what practices are classified under earnings management, and what practices can not be classified under this term. Users of accounting information are different but few of them have the ability to detect the practices of earnings management. Because there are different methods of practicing earnings management, detecting the practices of earnings management is one of the difficult issues. The common practice of earnings management by firms and the negative effects of these practices on external users of financial accounting information justify the investigation of this issue.Many users may lose some of their wealth as a result of practicing this phenomenon. Many financial crises appear in our world from time to time, and some reasons of these crises are related to incorrect announced financial information. The problem of the current study will be simpler, if it is presented through the following question: How investors can detect the practices of earnings management, in order to have the ability to protect themselves from the negative effects of these practices?The answer to this question may seem more difficult, so the current study present an example from the Commercial Banking Industry of the United Arab Emirates (UAE). Studying the phenomena of practicing earnings management is important, because this will highlight why managers may practic e this phenomenon. Many incentives may be available to managers and promote them to practice earnings management. These incentives will be highlighted later on in the current study, but when investors are knowledgeable with some of these incentives, they can consider and analyze the financial information of their entities more.Moreover, when users are aware with the methods that are followed by managers to practice earnings management, they will be more eligible to detect these practices. The current study will explore the most available methods of practicing earnings management. The importance of the current study is increased, because it highlights how investors can determine whether there is a practice of earnings management or not. The objectives this study is looking to achieve are as follows: 1. To highlight the incentives standing behind the practice of earnings management by managers. 2.To inform users about the methods available to firms' management to manage the earnings. 3. To determine the qualitative and quantitative available procedures that can be used to detect the practices of earnings management. 4. To determine whether the Commercial Banking Industry of UAE practices or does not practice the phenomenon of earnings management. 5. In a case of earnings management is detected, this study aims to detect whether these practices were upward or downward practices. Our study makes a unique contribution to the literature by using data from the announced financial statement of Commercial Banking Industry of UAE.This study differs from the prior studies in its location, methods, objectives, and nature of data used in the analysis. Because the current study involves the commercial banks of ABU Dhabi, and because all of these commercial banks are listed in Abu Dhabi Stock Market, this study is unique in its location. Just few studies outside Abu Dhabi followed quantitative method to investigate whether there are practices of earnings management or not, t he current study is also different from other prior researches.This study depends on cross sectional data because a time series data will misstate the data, so it is unique in its inputs of data. This paper is organized as follows: The first section defines earnings management, and describes the incentives of its practices by commercial banks, in addition to that, it explores the methods of practice and how these practices can be defected. The second section explores the most related prior researches. The third section presents the hypotheses of the current research. The fourth section describes the followed methodology in the current study.The fifth section presents the results, while the fifth explores the findings. Literature Review and Prior Researches Many people believe that the term of earnings management is understandable in its simple form, but most of those unable to determine whether a selected practice is an earnings management or not. Understanding what earnings managem ent constitutes and why it takes place is important for all users of accounting information. This study highlights the different aspects of earnings management, so it identifies clearly this term, and presents the incentives standing behind its practice.Moreover, the current study determines the methods of earnings management used by firms, and explores how these practices can be detected. Earnings management is defined as the â€Å"intentional misstatement of earnings leading to bottom line numbers that would have been different in the absence of any manipulation (Mohanram, 2003). Based on this definition, the practice of earnings management is an intentional behavior, and if this practice occurs unintentionally, it can not be classified under the practices of earnings management.Moreover, this definition states that the practice of earnings management phenomenon leads to users' misstatement. In other words, practitioners of earnings management have different purposes and they cha nge some accounting numbers to affect users in order to achieve these objectives. Healy and Wahlen (1999) state that earnings management â€Å"occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reporting accounting numbers†.This definition states that this practice is also intentional and purposeful. This definition mentions that contractual issues are incentives for managers to manage earnings. But we have to remember Some concerned people believe that earnings management mean upward manipulation. Actually, earnings management may be exercised either upward or downward. In most cases, the target of earnings determines to a large degree, whether the management of the firm practices earnings management upward or downward.Some people also believe that the all the practice of earnings management are illegal, and no legal practice exists. Actually, there are different practices of earnings management do not violate the generally accepted accounting principles (GAAP). For example, speeding the size of sales during the last month or the fourth quarter is in agreement with the GAAP. Moreover, activating sales during the last month of the accounting period through granting discounts to customers is also in agreement with the GAAP, and is not a violation to the accounting standards.There are different incentives to managements of firms to practice the phenomenon of earnings management. Most of these incentives are related to benchmarks of earnings. Sometimes, the previous period's performance may be the benchmark to the firm. In other cases, the benchmark to the firm may be the expectations of financial analysts. The promised compensations to the firm's management may be the most important incentive of the practice of earnings management. Benchmarks are ne cessary for the determination whether the management deserves or does not deserve the promised compensation.Sometimes, the desire of the firm's management to increase the stock market price may also be one among the incentives to earnings management, especially, when the management is looking for more compensation. The normal positive relation between earnings and stock market price means that as the amount of announced earnings increases, the common stock market price is also increases. Therefore, when a desire exists to the firm's management to affect the common stock market price, the management will manage its earnings. Reducing the amount of income tax may also be one among the incentives of practicing earnings management.In many countries, business entities are subject to high income tax rates, where different categories of expenses are deducted from the income. When these entities are looking toward reducing the amounts of taxes, they practice the phenomenon of earnings manag ement. The practice of earnings management in this case may be through increasing the amounts of tax deductions, or through the decreasing the amounts of earnings. Sometimes, firm's management may manage earnings to simplify the issue of receiving credits from banks and other financial issues.In addition, firms may also manage earnings to reduce the cost of this credit, because when earnings are reasonable, the firm can receive credit smoothly without such obstacles, and at lower costs, but when the firm's earnings are unreasonable, this firm will face many obstacles to receive credit, and it may receive credit at higher costs. These are some of incentives or reasons of the practice of earnings management, but other incentives may be available to some firms, depending on the financial conditions of the firm's management itself.Managements of firms can follow different methods to manage earnings. Changing the assumptions for accounting standards is one of the most common used methods in managing earnings. It is already known that the GAAP are highly flexible, so managements can employ the high degree of flexibility available in these standards. Examples of this flexibility are the inventory flow methods which managements can use one among these, and the available options to depreciate some of the firm's assets, in addition to these; firms can review the assumed lives of these depreciable assets.As a result a variety of options are available to management whenever a desire to manage earnings exists. Managements can manage earnings through the determination to the bad debts provisions. For example, whenever there is a need to announce earnings higher than its actual value, management can determine these bad debts at amounts lower than their actual, while it can announce lower amounts of bad debts whenever there is a need to reduce the announced income. Managing transaction is one among the available options to management when there is a desire to manage earnings. For instance, management can grant high discounts during the last few days of the accounting period to recognize more revenue through sales under the accrual basis. One option is available to managements of firms is to activate sales or services during the last days of accounting period through the adoption to more sales on credit, and through longer period of payment are given to customers. Two approaches are available to detect the phenomenon of earnings management. The first is qualitative, while the second is quantitative approach.Using the two approaches together when this possible leads to more certain conclusions whether a firm or a group of firms manage earnings. Several steps have to be followed when there a need exists to detect earnings management through the qualitative methods. These steps are presented below: (Mohanram, 2003). 1. Identifying the key accounting policies of the firm or industry. Regarding the industry of the current research, the issues of credit risk an d interest rate risk are of crucial importance to banks. 2. Assessing the firm's accounting flexibility.The level of accounting flexibility may be high to some firms or industries, whereas, it may be low to other firms and industries. 3. Evaluating the firm's accounting strategy, and determining how this strategy differs from other competitors. 4. Assessing the firm's quality of disclosure. 5. Identifying the potential red flags. The following is an example of red flags: |Unexplained accounting changes, especially when performance is bad. | |Unexplained profit boosting transactions, such as sale of assets. | |Unusual increase in accounts receivable in relation to sales increase. |Increasing gap between net income and cash flow from operations. | |Increasing gap between net income for reporting and tax purposes. | |Unexpected large asset write-offs or write downs. | |Large fourth quarter adjustment. | |Qualified audit opinion or change in auditors. | |Large related party transactions . | 6. The final step is to undo accounting distortions by reversing out the impacts of dubious accounting wherever possible. Earnings management can be also detected analytically, based on the firm's accruals, which can be defined as the difference between net income and cash flow operations.In occasion, firms with high level of accruals are likely to have inflated earnings. Firms practice the phenomenon of earnings management can be determined through segregating discretionary accruals from non-discretionary accruals. In this case, Jones (1991) model can be used to segregate discretionary from non-discretionary accruals. In the current study we use this model to determine whether, or not, the Commercial Banking Industry practices the phenomenon of earnings management. This model is presented below:Where total accruals can be computed by finding the difference between income before extraordinary items and cash from operations in year t. Revenuest is revenues in year t, while revenu est-1 is the revenues at the end of year t-1. Total assetst-1 is total assets of year t-1. Gross PPEt is gross property, plant, and equipment at the end of year t, and B1, B2, and B3 are industry and year specific parameters to be estimated. The residual value in Jones's Model is the discretionary accruals for a firm in a given year, while the fitted value gives an estimate of the non-discretionary component of earnings.Researchers in the accounting literature have often focused on earnings management. Many researchers studied the issue of earnings management; most of these are focused in the Western or Far East Countries. A study titled † earnings Management: Do Large Investors Care? † and carried out by Senteza, Njoroge, and Gill (2005), deserves to be mentioned in the current study. This study mentions that institutional investment activity and behavior is an area that has become more interesting in recent times and so much work has been done so far.The contribution o f this study in the area of earnings management can be summarized in its documentation to the effect of earnings management activity on institutional investor ownership, especially through distinguishing the ownership changes in response to the direction of earnings management efforts. This study finds that institutional investors increase ownership in firms that manage earnings upwards and decrease ownership in firms that manage earnings downward before end-of-year reporting.Moreover, this study finds that the increases observed during an observed upwards earnings-managing activity are followed by decreases in ownership in these firms in the subsequent quarter, which may suggest resource allocation between large and small investors. In his comments at the practice of earnings management phenomenon, Simon (2005) argues that managing earnings is a wrong practice, in his paper titled â€Å"Earnings Management as A Professional Responsibility Problem†.The author of this paper st ates that managers of public companies often want an increase in current reported earnings per share; though they sometimes prefer a current decrease in the earnings they would otherwise report when it will allow them to show a smoothly increasing pattern of earnings in the future. He adds, on his comments on Schwarcz's paper, that â€Å"the ‘limits of lawyering' are the constraints of law, but having said that, the question remains-what do we mean by law? If we take a narrow, predictive conception of law, the limits will be less restrictive than if we take a broader, purposive view. . He also states that the more ambitious conception is most compatible with the idea of lawyering as a dignified calling. Caramanis and Lennox (2007), carried out a study titled â€Å"Audit Effort and Earnings Management† in their trial to determine the effect of audit hours on the practice of earnings management by the Greece Firms. To measure earnings management, the authors use the Jone s (1991) model based on the balance sheet approach rather than the cash flow statement approach because most Greek companies do not provide cash flow statements.There are three main findings of this study. First, companies are more likely to report income-increasing abnormal accruals than income-decreasing abnormal accruals, when audit hours are lower. Second, the magnitude of income-increasing abnormal accruals is negatively related to audit hours. Third, companies are more likely to manage earnings upwards to just meet or beat the zero earnings benchmark, when auditors work fewer hours. Moreover, this study finds weak or insignificant associations between audit hours and the magnitude of negative abnormal accruals.A study titles â€Å"Detecting Earnings Management† for the purpse of evaluating alternative accrual-based models for detecting earnings management is carried out by Dechow and Sweeney (1995). This paper evaluates the ability of alternative models to detect earnin gs management. Concerning this issue, the paper finds that all the models considered appear to produce reasonably well specified tests for a random sample of event-years. When the models are applied to samples of firm-years experiencing extreme financial performance, all models lead to misspecified tests.The second finding of this paper is that the models all generate tests of low power for earnings management of economically plausible magnitudes. Moreover, this paper reveals that all models reject the null hypothesis of no earnings management at rates exceeding the specified test-levels when applied to sample of firms with extreme financial reporting. The most important finding of this paper is that a modified version of the model developed by Jones (1001) has the most power in detecting earnings management.Kerstein and Rai (2007), carried out a study titled â€Å"Working Capital Accruals and Earnings Management†. The purpose of this study is to reexamine market reactions to large and small working capital accruals. This study involves three hypotheses. First, negative or positive large working capital accruals have no impact on the earnings response coefficient of firms reporting positive small earnings surprises. Second, Positive or negative large working capital accruals have no impact on earnings response coefficients of firms reporting small earnings declines.Third Positive or negative large working capital accruals have no impact on earnings response coefficients of firms reporting large earnings increases or declines. The authors focus on nonlinear relations between returns and large working capital accruals and use raw returns computed as the compounded monthly returns from nine months prior to the fiscal year-end to three months after the fiscal year-end as the dependent variable. They find that the market discounts unexpected earnings when there are small increases in earnings using negative large working capital accruals or negative large wo rking capital accruals.They also find little or no evidence that positive or negative large working capital accruals lead to lower earnings response coefficients in the remaining six situations. In his study titles â€Å"Earnings Management, Earnings Manipulation: Evidence from Taiwanese Corporations†, (2008), Chai-hui Chen differentiates between earnings management and earnings manipulation among the Taiwanese companies. In this study, Chai examines 7 hypotheses based on a sample of 90 public firms throughout 1999-2004.The main findings this study concludes that: (1) unlike the control group, earning manipulators face greater capital market and contract motivations to manage earnings; (2) earnings manipulators are more inclined to appoint fewer independent directors to their boards, to appoint fewer independent supervisors to their supervisory boards, and to posses considerably less managerial ownership; and (3) earnings manipulators are more likely than the control group to express aggressive attitudes and rationalizations to manage earnings changes before interests and taxes, or both.To examine the effect of firm's stock price sensitivity to earnings news, as measured by outstanding stock recommendation, on incentives to manage earnings, Abarbanel and Leahavy (2003) carried out a study titled â€Å"Can Stock Recommendations Predict Earnings Management and Analysts' Earnings Forecast Errors†. This study examines hypotheses concerning (1) the effect of introducing equity-market-based earnings targets on firms' earnings management, and (2) the effects of such earnings management actions on ensuring analysts' forecast errors.In this study, quarterly unexpected accruals are calculated using the modified Jones (1991) model. This study finds evidence that a firm's stock price sensitivity to earnings news, as measured by outstanding stock recommendation, affects its incentives to manage earnings and, in turn, affects analysts' ex post forecast errors. Moreover, this study finds a tendency for firms rated a Sell (Buy) to engage More (less) frequently in extreme, income-decreasing earnings management, indicating that they have relatively stronger (weaker) incentives to create accounting reserves.In contrast, this study finds that firms rated a Buy (Sell) are more (less)likely to engage in earnings management that leaves reported earnings equal to or slightly higher than analysts' forecasts. Zhang (2002) carried out his study titled, â€Å"Detecting Earnings Management – Evidence from Rounding-up in Reported EPS†, for the purpose of evaluating a comprehensive list of metrics propsed for detecting earnings management in a setting where managers manipulate earnings to round up reported earnings per share (EPS).This study provide the evidence that adds to the debate on the abilities of accrual-based models to detect earnings management of small magnitude. The study cast doubt on the abilities of accrual-based models to c atch minor offenses, which is likely to be the norm, rather than exception of various forms of earnings management. The metrics under evaluation of this study are deferred tax expense and discretionary accruals computed from DeAngelo Model, Healy Model, Jones Model, Modified Jones Model, Cross-sectional Jones Model, and Forward-looking Jones Model.This study finds that deferred tax expense is able to detect earnings management in the rounding-up setting while discretionary accruals models are not. Moreover, this study provides the evidence that firms manipulate bad debt expense for the purpose of rounding-up reported EPS. Chan, Jegadeesh, and Sougiannis (2004) carried out a study titled â€Å"The Accrual Effect on Future Earnings† in an attempt to clarify whether current accruals affect future earnings. The authors find a strong negative relationship between accruals and the aggregate future earnings.This study mentions that if firms manage accruals upward by $1 today while h olding current earnings constant, aggregate future earnings will decline, on average, by $ 0. 096 over the following three years and $0. 202 in the long run. This study also examines the accrual effects classified by firm characteristics to test the source of the negative relationship between accruals and future earnings. The study shows that high price-earnings stocks experience an enormous accrual impact on their future earnings, with 39% of current accruals reversing in the long run.Moreover, this study shows that firms with high market-to-book ratios also have large accrual reversals, so when this is grouped by accruals, the accrual effects are significantly stronger for high accrual firms than for low accrual firms. Among the additional important findings of this study is that Jones model significantly underperforms the CF-Jones model in explaining the cross-sectional accrual variability, with only 24% of mean adjusted –R2 for the Jones model compared to 57% for CF-Jones Model.This result shows the CF-Jones model superiority in identifying the manipulated earnings. The most recent study concerning the detection of earnings management relates to Miller (2009) and titled â€Å"The Development of the Miller Ratio (MR): A Tool to Detect for the Possibility of Earnings Management (EM)†. In this study, Miller uses new technique to detect earnings management called â€Å"Miller Ratio†, based on net working capital (NWC) and cash flow from operations (CFO). Miller also compares between the esults reached through his own model and the results revealed based on Modified Jones Model. In this study, the author states that the large body of literature on the topic of earnings management provides discussion of total accruals, discretionary total accruals, and current accruals. The findings of this study indicate that neither the Miller Ratio nor the Modified Jones Model predicted the possibility of earnings management at a statistical acceptable le vel of confidence on the body of data with acknowledged earnings management. .Caramanis, A. , and Lennox, C. , (2008), â€Å"Audit Effort and Earnings Management†, Journal of Accounting and Economics 45, PP. 116-138. 2. Jones, J. , (1991), â€Å"Earnings Management during import relief Investigations†, Journal of Accounting Research 29, pp. 193-228. 3. Dechow, M. , and Sweeney, P. , (1005), â€Å"Detecting Earnings Management†, The Accounting Review, Vol. 70, No. 2, PP 193-225. 4. Kerstein, J. , and Rai, A. (2007), â€Å"Working Capital Accruals and Earnings Management†, Investment Management and Financial Innovation, Vol. 4, Issue 2, PP. 33-47. 5. Chen, C. , (2008), â€Å"Earnings Management, Earnings Manipulation: Evidence from Taiwanese Corporations, Available on Line: 6. Abarbanell, J. , and Lehavy, R. , (2003), â€Å"Can Stock Recommendations Predict Earnings Management and Analysts' Earnings Forecast Errors? â€Å", Journal of Accounting Research , Vol. 41, No. 1, PP. 1-47. 7. Zhang, H. (2002), â€Å"Detecting Earnings Management – Evidence from Rounding-up in Reported EPS†, Available on Line. 8. Chan, K. , Jegadeesh, N. , and Sougiannis, T. , (2004), â€Å"The Accrual Effect on Future Earnings†, Review of Quantitative Finance and Accounting, 22, PP. 97-121. 9. Miller, J. E. , (2009), â€Å"The Development of the Miller Ratio (MR): A Tool to Detect fot the Possibility of Earnings Management (EM)†, Journal of Business ; Economics Research, Vol. 7, No. 1, PP. 79-90.

AutoZone’s Stock Essay

AutoZone’s shareholders had enjoyed strong price appreciation since 1997, with an average annual return of 11.5%. Over the previous five years, AutoZone’s stock price has increased dramatically. On February 1. 2012 the stock price was $348 compared to the $125 on February 1. 2007. The strong price appreciation resulted from several occurrences; some of them are U.S. economy recession and share repurchase program. Auto-part business was somewhat counter-cyclical. Company’s growth and stock price were directly related to the economy and number of miles a vehicle had been driven. As the age of car increased, more repairs were required. Because of these reasons, AutoZone’s stock price was significantly improving from 2008. AutoZone’s financial statements reflect the stock price performance. Net sales have increased for 30.85% from 2007 to 2011. Cost of sales also increased during that period, but at lower rate of 27.30%, what helped in additional improv ement of gross profit. AutoZone’s increasing operating profit indicates the efficiency and profitability of the company. Further, the increase of operating profit led to the slight increase of operating margin, from 17.10% in 2007 to 18.52% in 2011. One financial measure that is strongly related to the stock price performance is EPS. EPS, a key driver of stock price, have been increasing at an extremely high rate. From 2007 to 2011, basic EPS have increased for 131%, and diluted EPS have increased for 128%. Another important financial measure is PEG ratio. PEG ratio is been constantly decreasing, which is a good sign for the company and investors. Decrease of PEG ratio signals a greater value for AutoZone’s company, because its investors are going to pay less for each unit of earnings growth. How does a stock repurchase work? Why would a company use this tactic? What impact does it have on: EPS? ROIC? Stock repurchase is one of the methods of returning cash back to its investors. A company buys back its own shares either from marketplace or from their own shareholders who want to sell their shares. Buying a shares back, company is reducing the number of shares outstanding, increasing the shareholders’ value and raising the price of the stock. Company can also use this method to: prevent a hostile takeover cover up poor performance create more attractive financial ratios signal the market that the company is strong create tax efficient way to return investors’ money The biggest impact of share repurchasing program is evident in EPS of the company. EPS is calculated as Net Income divided by the average outstanding shares. Since buying back its own shares is reducing the number of shares outstanding, it automatically increases the EPS. In 2007, AutoZone’s Net Income was $595,672 and the number of shares outstanding was 69,844. This resulted in $8.53 EPS. If we suppose that the income is going to stay the same, but the number of shares outstanding is going to decrease for 5,000, then we get a higher EPS of $9.19. This is how a share repurchase work. It reduces the number of shares outstanding, resulting in improved EPS. Share repurchase also affect the ROIC, which is one of the best metrics to evaluate corporates performance. ROIC eliminates much of the non-economic accounting noise and impacts of financial leverage. AutoZone’s management was very focused on this measurement, because ROIC was a primary way to measure value creation fo r the company’s capital providers. On the balance sheet, a share repurchase will reduce a company’s cash holdings, and therefore reducing the total assets and total shareholders’ equity. As a result, ROIC will improve subsequent to a share repurchase. It is noticeable that the growth was accelerated from 2008, when the economy recession occurred. Together with share repurchase program, this two effect had a large impact on creating a desirable ROIC. Taken all of these into account, AutoZone’s ROIC is indicating that the company offers a strong returns for its investors. How much of AutoZone’s stock price performance should we attribute to the share repurchase program? Share repurchase program is strongly related to the increase of AutoZone’s stock price. Share repurchase program, as mentioned above, reduces the number of shares outstanding, and therefore, creates a strong EPS and increases the price of the stock. EPS is one of the most important measures that investors look at because EPS measures company’s performance. In 2007, AutoZone had 69,844 shares outstanding, while in 2011 the number of shares was reduced to 43,603. This led to an increase of 128% in EPS, from $8.53 in 2007, to $19.47 in 2011. Next, the stock price increased from $120 to $298 in the same time period. Given the same capital value for AutoZone Company, more shares outstanding will result in lower share price, while reduced number of shares outstanding will impact the price of a share to grow. Q#4. Assume that AutoZone is planning to stop its share repurchase program. What would be the best alternative use of those cash flows? Why? If we assume that AutoZone is going to quit its share repurchase program, the best alternative to use the cash flows would be to expand its business,  either by opening a new stores or by acquisition. The first proposition considers opening a new stores in domestic and foreign markets. The expansion is necessary to override the competition and to keep its position of leading retailer of automotive replacement parts and accessories in the United States. Leading retailer position in the U.S. gives AutoZone more motivation to expand overseas. AutoZone already owns some stores outside the U.S., in Puerto Rico and Mexico. Those stores have been operating successfully, giving a company more reasons to continue with its overseas investments. Next AutoZone’s target is Brazilian market. Company’s plan is to expand there over the next several years. Overseas investments can be very profitable for AutoZone, but they also bear a lot of risk. All investments should be developed very carefully, with a high level of cautions and with expertise person for targeted markets in their management. The second proposition is growth by acquisition. U.S. market became oversaturated with auto part stores in the last couple of years. Even though AutoZone’s management was not seeing any signs of oversaturation at that time, that doesn’t mean that they will not see it in the near future. I believe there are still some free attractive locations in the U.S., but at some point, most of the good locations will be covered by the auto parts retail stores, and the remaining locations would not be a profitable investment. Another reason for acquisition is that such stores would be profitable much more quickly than it would be opening of a new stores. The return time for AutoZone would be shorten. So far, AutoZone has acquired over 800 stores from competitors.   What should Johnson do about his holdings of AutoZone shares? Johnson had one of his largest holdings in AutoZone’s company. The fact that Johnson was concerned about is that Lampert, AutoZone’s main shareholder, was rapidly liquidating his stake in the company. Johnson was concerned about the future performance of the stock price. He was not sure what the Lampert’s reason for liquidating his stake was. This can also have a negative influence on other investors. Lumpert’s liquidation is not necessarily a bad sign. The reason for his liquidation might be the need for funds or some other personal reasons. I believe that Johnson should keep his  holdings in AutoZone’s company. AutoZone’s financial measures indicates that the company is been constantly improving. The most important measures for investors, EPS, ROIC and stock price, are been increasing at a desirable rates. AutoZone’s investors have been enjoying strong price appreciation, and I believe they will enjoy it also in the future. Lumpert’s liquidation should not affect the share repurchase program. Company should continue with its share repurchase program even after Lampert liquidates all his stake. There is no signs in financial statements that the company is going to have a decrease in the stock price. AutoZone has created a desirable value for the company over the long time period and I believe in the continuing future growth of this company.

Motivational theories within the workplace Essay

Motivation is ‘a reason or reasons for acting or behaving in a particular way’. Motivation can be defined as a process that helps achieve goals through behaviour that guides and maintains behaviour in order to achieve a positive end result. Motivation leads to actions, such as researching a topic, educate yourself to further your knowledge or working to earn money. Abraham Maslow believed that humans had motivation and drive dependant on their needs. The main need being physiological which is followed by other needs of less importance such as safety, love, esteem and self actualisation. This was then placed into a hierarchy of needs represented into a pyramid (See appendix 1). Maslow believed that the first need had to be met in order to achieve to move forward to the second. Alongside Maslow’s theory of motivation, Herzberg has a two factor content theory of motivation which is also a main theory. From Herzberg’s research he suggested a two-step approach to understanding employee motivation and satisfaction. Herzberg’s two factor theory distinguishes between the motivators and hygiene factors. Hygiene factors are needed for employees to feel comfortable at work if these are not met and are adequate, this can cause dissatisfaction for employees. Hygiene factors include feelings of job security, working conditions, wages and company policy. Overall hygiene factors are needed to ensure employee is not dissatisfied. Motivator factors are needed to create job satisfaction once motivational factors are met this can see employees are performing above what is expected of them. Motivator factors include a sense of personal achievement, opportunity for promotion, responsibility and gaining recognition. Motivator factors are needed to motivate employees to perform at higher level. (Appendix 2†¦) An Advantage of Maslow’s theory is the order that is needed to identify the needs of the employees, ranging from basic to higher needs. Another advantage of Maslow’s theory is that it can be applied to various ways of understanding employee behaviour and deciding rewards at different levels from a management view. Disadvantage of Maslow’s model is that one stage  needs to be met before progress onto another stage can be achieved. Another disadvantage is that Maslow theory may be restricted to western cultures it does not take into account different cultures and the need of those cultures. An Advantage of Herzberg’s theory is identification of factors which will motivate and demotivate employees, factors which can be controlled by management. Herzberg’s model can also be used to identify issues that need to be addressed by management for example; hygiene and cleanliness in the workplace. A Disadvantage of Herzberg’s model is; the model can be seen as a generalisation which may not be applicable to all employees and workforces. Some employees get paid by the hour, therefore may not be interested in motivator factors, rather completing many hours of work which will result in a larger paycheque. Both theorists based their argument on human internal feelings needing to be satisfied, before work of a higher standard can be expected. Both theories suggest similar criteria that motivate employees. Similarities also extend to one stage must be completed before advancing onto the next. Both theories are also influenced by factors such as environmental conditions and employee attitudes. Although both theories have similarities there are also differences, Maslow’s theory has a hierarchy and Herzberg does not have a hierarchy. The main goal of Maslow’s theory is for needs to be met in order for an individual to develop a healthy way of life. Herzberg’s ultimate goal is for motivation to be the attitude of the employee, whilst not focusing on the quality of life for the employee. Maslow’s hierarchy of needs is relevant to Google. Google focuses on the psychological, friendship and esteem needs of Maslow’s theory. Google believes in providing awards for its employees. Google recognises that employees are not alone motivated by pay bonuses. Google provides dining facilities, laundry rooms, massage rooms, haircuts, car washes and dry cleaning services within their workplace for their employees. Google recognises that if employees can get errands done on their work breaks that they will feel much walk accomplished and this will show in their work. Hertzberg’s theory is relevant to Apple. Apple implements aspects of  Hertzberg’s theory within the structure of the company. Apple uses hygiene factors as a foundation that they launch from, these factors in themselves do not motivate staff yet leave them in a neutral state. Building on from this, motivating factors that are used for employees are the knowledge they are gaining working for Apple one of the world’s leading companies in technology. Everything is top-secret employees have regular meetings keeping them refreshed with tasks, not always knowing the full extent of the work they are doing aware we can lead to. Employees are set to work in groups with each other this motivates them together to come up with new ideas, which could possibly be used in technology all over the world. After reviewing both Hertzberg and Maslow’s theory, I believe Maslow’s theory to be more effective when implemented in a work force environment. Maslow’s theory considers a step-by-step needs of the employees, whereas Hertzberg’s theory does have step-by-step needs, it’s simply allows the employee to be a neutral state of mind whilst adding in factors which can motivate them. Maslow’s theory is much more details and when implemented can have higher results. Apple uses the theory of Hertzberg, whereas Google uses the theory of Maslow. Google seem to have a much more content work force stemming from the luxuries they offer. Where as if it wasn’t for the fact that Apple employees were working for such a well-known employer, i believe Hertzberg’s theory would be much less effective within a workforce. Evaluate the usefulness of a motivation theory for managers in achieving organisational performance Management approaches are important to an organisation as they are the voice between the management and workers within an organisation. If management value their workers and make them feel valued, this will produce a positive working environment, which allows employees to perform at their best. Dependant on the approach used this can also increase communication within the workforce, which can lead to spur of the moment ideas which the business benefits from. By delivering a positive management approach to the workforce, organisation will need to invest time and money, which is then put back into the company with a positive workforce. There are three  categories of motivation theories. The first is the satisfaction theory, this is the assumption that satisfied worker is a productive worker. Incentive theories, believe the individual will work harder when good performance is rewarded. Intrinsic theory believes the reward will come from the satisfaction in the work itself, employees enjoy participating in their role and see it as an opportunity to learn. All three theories of motivation believe the individuals need encouragement to perform at their best. Google uses satisfaction theory; they satisfy their workforce by offering them numerous benefits which makes them happy they believe that by workers having perks such as laundry service, car wash, massage etc. available at work, they will perform at the highest standard. Apple uses the intrinsic theory; they believe that their employees should be privileged to work for the company, employees also believe in the reward will come from the satisfaction in the work yourself. Employees will feel motivated by the thought that they are possibly changing future technology. Discuss the impact that different leadership styles may have on motivation in organisations in periods of change Leadership is ‘the action of leading a group of people or an organization’. Leadership can be seen as a person or team with authority who offer guidance to employees which are under their control of management. Democratic leadership allows members of the group to share and contribute ideas. This approach is taken upon the belief that the learning style is usually most effective and will lead to more productive results. Benefit of democratic leadership is that quote members are encouraged to share their thoughts which can lead to better and more creative solutions to problems. The downside of a democratic leadership can be communication failures in group work, also, team members may not have the necessary knowledge needed to make contributions. Autocratic leadership is when an individual takes control over group members. Autocratic leaders will generally make choices based on their own preferences. Benefits of autocratic leadership are decisions can be made without consulting employees. Disadvantage of autocratic leadership is that it can be easily abused by an individual member, which employees may then hold resentment towards. Employees may also feel that there are opinions are not being taken on board. Laissez faire is the style of leadership where management allow employees freedom. Employees have the power and authority to choose their own decisions and goals. Benefits of this approach are that employee’s feel they have been trusted, therefore work harder to achieve a better result. Negative effects of this leadership may lead to employees not managing their schedule effectively enough, costing company’s time and money. Paternalistic leadership is a form of fatherly management style. Generally used by dominant male figures, where employees are expected to be loyal such as the father and son relationship. Benefits of this leadership style are loyal and obedient employees. Disadvantage of this style of leadership are employees not able to contribute their ideas regularly. Laissez faire leadership is consistent with that of Google. Google allow their employees to self manage their own time schedule, they believe this to be the most effective method to get the best results possible. Google believe if employees are allowed to manage their own workload, this will create a more productive workforce. Autocratic leadership is consistent with Apples method of leadership. The decisions are chosen by Steve jobs solely. While Steve would take on opinions from employees the end product decision is his. Democratic leadership has aspects of both Apple and Google leadership styles within it. Both Apple and Google allow their employees to work within team, to discuss ideas and thoughts, allowing employees with certain skill sets to come together and to bounce off each other. Skills needed by a leader are presents, motivation, creating a vision,  creating a good team atmosphere, being able to utilise the skills of different team members. The main skill needed is being able to achieve effective performance from their employees. Explain the nature of team working Groupwork is ‘a number of people or things that are located, gathered, or classed together’. There are two types of groups, formal groups and informal groups. Formal groups are those such as work relations defined by structure. Informal groups such as friends, society are structured. The difference between a team and a group in the workplace is that a group interacts primarily to share information, whereas a team binds individual efforts to perform better together in a group. The goal within groups is to share information; the goal within teams is for collective performance. The synergy between groups can be negative whereas in teams it is mainly positive. The skills within a group are random and varied whereas in a team they are complementary. Research is done by management when organising together a team, so that key skills complement allowing employees to thrive off each other. Whereas groups are always varied, if in a group you fail, you fail your part. If in a team you fail, the whole team suffers as a consequence. There are five stages of group development. Forming, storming, norming, performing and adjourning stage. The forming stage is the first stage, when groups gather; there is much uncertainty about the group from the differing personalities to whom will take charge. The second stage is storming stage where there are many conflicts, as the group get to know each other. Norming stage is the third, where conflicts are generally resolved, closer relationships are formed and employees find ways of tolerating one another. Performing stage is stage four, a team is created where employees know how to motivate each other and recognise one another’s skill set. Adjourning stage is stage five, where activities are wrapped up and finalised. In a team where you have different employees playing different roles, the more variety you have the roles and skills you have, with a better outcome. Factors which can promote effective teams are diversity, communication, leadership and team-building exercises. Diversity can promote an effective  team by embracing different cultures and talents aswell as raising awareness/respect for differences which will then go on to support effective teams. Lacking diversity in teams can lead to team members not able to solve problems as their mindsets are very similar. Effective communication can promote an effective team, if team members feel confident to question each other on the task; this will lead to a more defined overall product. An effective team is supported by leadership, leaders support teams by utilising and coordinating skills, aswell as keeping a positive atmosphere. Belbin was upon the belief that if you bought employees together with a varied skill set, the end result would speak volumes. Belbin decided which roles would need to be fulfilled within a team these are (Appendix 3). Cohesiveness is ‘degree to which group members are attracted to each other and are motivated to stay in the group’. Ways in which group cohesiveness can be increased can be to make the group smaller, so that employees have a closer connection to one another and can communicate more effectively. Increasing time employees spend together will increase motivation to participate. Stimulating competition with rival groups will create good cohesiveness as groups will strive to win. Physically isolating the group in an environment where they can only leave until the task is done, will increase the cohesiveness as the group will all have the same aim in mind of finishing the project a.s.a.p. The overall importance of teams is essential to the both Apple and Google. Much of the process of initiating new ideas for the company is created within teams of employees with specialised skill sets. Discuss what factors may promote or threaten the development of effective teamwork in organisations Ability can affect an employee’s behaviour within the workforce, if they are capable of doing the work at hand; they are likely to accomplish it. If an individual does not feel they have the ability to do the work set, this can affect their behaviour in the workforce as they can become lazy,  un-enthusiastic and brush this off onto their peers. Google work with their employees so that employees can set their own targets, this is an advantage as employees would only set targets they have the ability to achieve. An attitude is ‘a mental’ state an individual has within the workforce, individual behaviour can be affected severely if a person does not have the correct attitude needed for the task, work may be completed to an unsatisfactory level with the maximum time taken to do so, a person’s ambition can also be affected by poor attitude towards their work. (Appendix 4)†¦ Stress and change can have a huge influence on an individual’s behaviour, for somebody who is suffering with stress, this may cause low confidence levels and poor obedience in line with the company’s values classing the employee as a liability.(Appendix 5)†¦ All these factors which can affect an employee’s performance within teamwork, can brush off onto other members of the team with the same negative results. Apple and Google do their best to ensure these negative factors do not occur within their workforce, by the perks which employees are offered. Evaluate the impact of technology on team functioning within the two organisations There are many different ways of technology in which employees of Apple and Google can communicate with each other. Skype, e-mails, messaging, voice calls. Advantages of using technology to communicate within teams is this can be done outside of the workforce, and is available at all times, so if a team member had spontaneous idea, they could relay this to their peers, this also allows employees increased times for decision making aswell as equalisation of team members. Disadvantage of this is employees may then lack professionalism and not focus on the task at hand; the quality of technology responses can be hindered such as an employee replying to a quick e-mail on a Friday afternoon which is likely to be brief. Issues in using today’s technology is that it may not always be reliable, as all employees cannot access the technology at the same time, or if it is under maintenance.

No Child Left behind Policy Review Essay

The No Child Left behind Act, referred to as NCLB was signed into law on January 8th, 2002 during the Bush Administration and was heralded with bipartisan support. It boosted educational spending by the Federal government by approximately 40%. (Carleton University 2008) NCLB’s goal was to attempt to remedy the problem of lack of accountability and school achievement throughout the nation. It was considered a revision of the 1965 Elementary and Secondary Educational Act. The aim of the Law is to close the achievement gap and skills between advantaged and disadvantaged students. The government identified a lack of set standards and testing requirements across the country. Some schools were consistently failing to meet the state standards and the students were subjected to that school’s poor performance due to the location of their residence and school boundaries. Parents were left with no choice or alternative nor recourse to transfer their child from a dangerous or poor performing school to a safer or academically successful school. Lack of local and state control over educational funding and programs implemented and used caused inconsistency among school districts throughout the states. Due to budgetary constraints certain schools, usually in disadvantaged areas, fell below the minimum standards with little hope for change. As well, lack of academic accountability on the local and state level was identified as an overwhelming problem that needed to be addressed. The No Child Left behind Law proposes to close the achievement gap between the advantaged and disadvantaged students. Also it aims to target reading skills and gain proficiency by the end of the 3rd grade and for graduates of high school also to reach a certain level of proficiency in all subjects. Another goal of the law is to hire and retain qualified and skilled teachers for the main academic subjects in schools. The population identified and targeted for the No Child Left behind Act is the economically disadvantaged children and parents in certain poor performing and dangerous schools and school districts across the country. This population was impacted favorably in various ways. Through mandatory state wide testing the schools performances were monitored and problematic schools were identified. Additional funding at the local, state and federal levels were allocated for this lackluster schools to supplement more successful learning programs, hire quality and experienced teachers and if the school’s performance doesn’t improve, the parents have the choice to get supplemental tutoring, after school services or transfer to a better school, with transportation provided. The disadvantaged students with limited proficiency in English are identified and given addition help, impacting them positively. The gap between the advantaged and disadvantaged students is projected to narrow. Some of the positives identified of the NCLB Law include steadily increased student test scores since 2002, especially amongst minority students. Higher qualified teachers and professionals are teaching over 90% of the classes in the country and a little less than half a million students have received additional help such as tutoring or been able to transfer to better performing schools. (Carleton University 2008) Possible negative aspects to the No Child Left behind Law exist also. Since states are mandated to test students yearly, some critics claim the teachers are teaching the testing specifics or â€Å"teaching to the test† in order that the children do better. This is not really ensuring that the students thoroughly understand the subject matter. Different state standards have made interpreting the data difficult as well. Another factor that can hinder the success of the NCLB program is the high dropout rate in many states. According to an Alliance for Excellent Education publication, in the United States, every day up to seven thousand students dropout. This is 1. 3 million annually and appears to be an epidemic. These numbers skew the positive results for the NCLB program. This also has a huge impact on many areas in society, such as crime, cycles of welfare, and shortfalls in the economy. If the dropouts of the school year 2009 had indeed graduated high school, they’d earn an addition $355 over their lifetimes. (Education Week 28, no. 34, 2009) Some claim that a very negative factor of the NCLB has been the lack of funds actually received by the states. What they were promised by the government didn’t always materialize. The requirements of No Child Left Behind are extensive. It is implemented by each state annually testing students according to standards they set and adopt. This is required in grades third through eighth each year for the subjects of math and reading. Science is to be tested three times during a student’s career. Each state must comply with determining if a school district and its schools are achieving 100% of students being successful in meeting the standards. Schools are required to have their teachers be highly qualified in the core academic subjects and use scientifically based education programs and proven and tested strategies. Support is given for students who may be in special at risk categories, such as insufficient knowledge of English, homelessness, truancy and etc. The result of each state’s 3rd through 8th grade reading and math testing will be collected, analyzed and recorded carefully. These results are studied at the local, state and federal level and reported accordingly. This will aid educators at each level in identifying the success of the No Child Left behind Law. New goals can be implemented and areas requiring additional attention and help can be addressed. When schools in need of additional improvement are identified then more attention and aid can be properly allocated quickly and efficiently to maximize results and get the school back on track as soon as possible. Also, using a special system with compiled data to track both graduates and dropouts can be shared locally, statewide and at the national level to analyze trends and adjust areas if needed. Thorough state testing with more uniform standards across the nation will result in a greater ability to analyze the success of the NCLB law. Knowing exactly how the schools are performing can result in stronger accountability. The current administration has adjusted some of the original budgets, standards and goals since the original law No Child Left Behind was passed. President Obama hopes to transform the United States into the most competitive workforce and highest number of college graduates in the world by the year 2020. The U. S Department of Education states its mission is: â€Å"It seeks to promote student achievement and preparation for global competitiveness by fostering educational excellence and ensuring equal access. † (U. S Dept of Education 2010) References

Burumas Murder in Amsterdam and Duboiss Soccer Empire Essay

Burumas Murder in Amsterdam and Duboiss Soccer Empire - Essay Example She feels that the West should not be cowards in proclaiming their system’s superiority. However, she compels the Muslims to adopt the Western values risk as a counterattack. The author shows that the most radical Muslims are not those who immigrate to Europe but those in the second generation and born in Europe. The most radical Muslims grow up rootless, disaffected and most of them are jobless. In the Book â€Å"Soccer Empire† by Dubois, the author explores the history of French football and illuminates the tangled and great history of the relationship between France and its colonies in Africa such as Algeria, Caribbean, and West Africa. Dubois illustrates the role of sport in the evolution of anti-racism and anti-colonial movements. Dubois explores the relationship between sports clubs and political parties and the manner in which they influence racial equality and act as a channel for collective desires and emotions. The author uses two heroes in the modern French games namely Zidane and Lilian Thuram. Thuram is a hero: a diplomat and a football intellectual. He was born in Guadeloupe and committed to both his birthplace and the values of the French Republic. Thuram campaigns against racism because for him dignity is paramount despite all the provocation. According to Thuram, he does not sing the La Marseilaise when presenting France because he feels that it is mo re significant to feel loyalty instead of showing it. Zidane is Dubois’ antihero character in his book. The players from different origins together with Zidane form a great team and win the World Cup in the year. Dubois illustrates that, the football team has come against racism and overcome it fully because the team is a multicultural composition of people from different origins. The team members forget their differences, work hard together to achieve one common goal. The French society in the

Tools and Methods of Psychology in the Workplace Essay

Tools and Methods of Psychology in the Workplace - Essay Example As   we   attempt   to   develop   screening   and   selection   batteries   for   the   future   , not   only   must   they   be   valid   and   reliable   but   they   must   also   fall   within   current   legal   guidelines, which   is   an   arduous task   . This learner feels  that psychological practitioners in order to  contribute must be  well  informed  about many legal guidelines; because these laws are  work-related laws that psychological  practitioners  or psychologist must abide by now and beyond the future. This   learner   feels   that   psychological   practitioners   can   contribute   by   helping   to   create   and   implement   selection   procedures   that   are   predictive,   practical, cost   effective, and   legally   defensible. In addition those   practitioners   can   also   contribute   by   searching   for   vali d   and   unbiased   assessment   methods   , because   those   methods   has   become   a   crucial   issue   in   personnel   selection   ( Schmidt, 1993). ... Structural interviews, which measure a variety of skills and abilities, particularly  non-cognitive  skills, 3. Work samples  which measure job skills such as planning  and  organizing   . , and 4. Assessment centers measure knowledge , skills , and abilities through a series of work samples   / exercises that reflect job content and types of problems faced on the job , cognitive ability tests , personality inventories , and or   job knowledge   tests   . This  learner feels that the most important  fact is the validity and reliability of the tool and the impact that it will have on  applicants. According  to Schmidt and Hunter, combining a general mental ability measure with  a structural interview or with a work sample is likely to yield  the highest  composite validity . (Schmidt & Hunter, 1998). Compare  Ã‚  Ã‚  Ã‚   and   Contrast   a skill , competencies , or tool   and its   implementation   by   either   a human   resource   manager   or   a   psychological   practitioner   . This   learner   would   choose   the   " Cognitive   Ability   Test " , which is a tool that is used   by   psychological   practitioners because   it   measures   mental   abilities   such as   logic   , reading   comprehension   , verbal or   mathematical   reasoning   and   perceptual   abilities   . Cognitive  ability test is implemented by  paper and pencil  or  computer based  instruments. This    tool   carries   a   very   high   validity   rate   when   compared   to   " Conscientiousness   tool   " , which   measures   the   personality   trait   and   is   implemented   by   typically   with   multiple   -choice   or   true   / false   formats   . This learner  , would   use   the help   of a competency   model   that many skills that most applicants should have when

Business Report Coursework Example | Topics and Well Written Essays - 1500 words

Business Report - Coursework Example 50,000. ?25,000 would be borrowed capital, which would be used in refurbishing the retail premises while the other ?25,000 from my savings would be used in the purchase of the required stock as well as the initial running costs. Type of Business The type of business to be established would be a partnership business. In a partnership business, the law requires that at least two partners form the business. According to the Partnership Act 1890, a partnership business should consist of at least two partners with common business with a view of making profits (legislation.gov.uk, 2013). A partnership is typically an agreement between at least two people willing to finance and operate a given business. The minimum number of the people forming the business is two. Unlike some other forms of business such as sole proprietorship, partnership businesses are entities, which are separate from their partners. In a general partnership, losses and profits flow all through to the tax returns of the partners. In this case, the general partners have equal authorities and responsibilities in running the business. All partners need to be involved in everyday activities of the partnership business (Entrepreneur Media, Inc., 2013). All general partners are involved in making decisions. The law also gives any partner to represent the partnership business even without the other partners’ knowledge. ... These procedures are regardless of whether the partnership would be general, limited, family, or incorporated. The following steps would have to be followed: i. First, we have to determine the number of partners. In our case, the business would be formed by two partners, my friend and I. We would agree between ourselves, as the business partners on, the most important or key issues. One of the key issues to be considered is the limits of liabilities. The limits of liability could be set according to our capital investment, contribution to the business, or the use of goodwill. We would also agree on the level of authority that each of us would hold concerning the partnership business and its operations. Such agreement on authority level would mainly reflect on the issue of making binding agreements and signing contracts on the partnership’s behalf (Global Syndicated News, 2012). ii. Secondly, we would draw up a legal Partnership Agreement that would highlight the key aspects of the partnership business including the roles, liabilities, and authority with regard to each partner. Under the same agreement, we would state about the distribution of assets and profits. In the Partnership Agreement, we would consider partnership elements such as the business name, terms of the agreement, capital employed, provisions of profits and losses, salaries and withdrawals, restrictions and management duties, banking, books to be used, voluntary termination, cases of death, as well as arbitration. Each of these elements would be stated clearly in our Partnership Agreement (The Wall Street Journal, 2013). iii. We would then proceed with an application for a Tax File Number (TFN) for our business (The Wall Street Journal, 2013). iv. We would also