This paper examines whether firms manage earnings using their corporate philanthropy programs. Specifically, I seek to determine if firms strategically time the funding of their corporate-sponsored foundations (1) to increase earnings in order to report small positive earnings changes or (2) to create cookie jar reserves. I also investigate whether firms with higher stock price sensitivity to earnings news are more inclined to engage in such behavior. A firm records contribution expense when it transfers resources to its corporate-sponsored foundation (“payins”).
The foundation then makes grants (“payouts”) to public charities. Because the economic effect, payouts, is separate from the financial reporting effect, payins, corporate foundations offer an opportunity for managers to exercise discretion to influence reported earnings.
Namibia is currently experiencing an overall balance of payments deficit, which has provoked many questions on potential causes of this imbalance. This is a cause of concern because Namibia, like any other country, aims to maintain a stable equilibrium in the balance of payments as one of the core objectives of macroeconomic policy. Organisations such as the International Monetary Fund (IMF) have been giving a great deal of attention to stable balance of payments situations.
Throughout the years different adjustment mechanisms to balance of payments disequilibria have been developed, namely the monetary approach, the elasticities approach, and the absorption approach (Du Plessis et al., 1998:235). The main aim of this paper is to examine the monetary approach to the balance of payments (MABP), which argues that the balance of payments is a “monetary phenomenon” (Salvatore, 1998:473). This approach flows from the classical price-specie-flow mechanism, and is based on the notion that money plays an important role in causing a disturbance in the balance of payments account as well as serving as an adjustment mechanism to correct the disturbance (Salvatore, 1998:473).
A fundamental factor in wealth creation in an economy is the efficiency with which capital is allocated to investment opportunities. Efficiency is a function of the extent to which firms’ managers allocate capital to positive net present value (NPV) projects, avoid negative NPV projects, and promptly withdraw capital from projects discovered to be losers at some point after project initiation. Economic theories posit that formal financial markets and associated institutions improve the capital allocation process and thus contribute to economic growth. One key economic institution associated with capital markets is the financial accounting system.
How the efficiency of corporate investment decisions around the world varies with properties of financial accounting information is an important, open question. Financial accounting information can facilitate efficient resource allocation decisions by signaling changing investment opportunities to managers and outside investors, disciplining self-interested managers to maximize value, and reducing firms’ cost of capital.
