Global Analysis
Academic evidence establishes that earnings management and manipulation is more pervasive among companies based outside the United States,1 and that financial statement quality is generally poorer outside the United States.2 Further, recently published academic evidence establishes that Sloan’s accrual anomaly (companies with higher levels of total accruals are at a higher risk of underperformance than companies with lower levels of total accruals) is consistent across non-US based companies as well.3
While convergence between IFRS and US GAAP is expected to occur, inconsistencies between IFRS and US GAAP reporting standards can frequently result in different representations of financial condition. In Voyant’s view, IFRS permits more discretion in the application of certain accounting standards which results in more opportunities for companies to manipulate earnings. Further, in our opinion, foreign countries with strong regulatory environments offer better investor protection and more opportunities to identify catalysts for underperformance.
Global Idea Generation
We employ a systematic three-stage research process to identify companies exhibiting a high risk of underperformance. Stage I is a quantitative measurement of working capital and soft asset account quality, Stage II is an analysis of internal controls and accounting policy, and Stage III is a comprehensive assessment of all risk factors including analysis of potential catalysts for underperformance.
The service’s universe includes over 4,500 global companies with market capitalizations in excess of $1 billion. The primary markets of focus are the United Kingdom, Germany, France, Sweden, Japan, Hong Kong, China, and India.
Global Risk Management
On a monthly basis, clients can expect to receive the following:
- Global Balance Sheet Watch – Preliminary analysis of companies exhibiting risk of earnings disappointments.
- Comprehensive Analysis reports – Detailed analysis of working capital, internal controls, accounting policy.
- Update Analysis reports – Analysis of events materially affecting a thesis.
- Alert Analysis reports – Time-sensitive ideas.
1 Leuz, Nanda, and Wysocki (2003)
2 Barth and Clinch (1996)
3 Pincus Rajgopal Venkatachalam (2007)
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