Frontiers of Finance

Nexus Between Real Earnings Management (REM) and Company's Profitability? An Empirical Analysis of Listed Non-Financial Companies in Sub-Saharan Africa

Saheed AkandeShittu, Olufemi AdebayoOladipo — Wed, 22 Jan 2025 09:55:49 +0800

This study investigates how Real Earnings Management (REM) influences the profitability of companies across six sub-Saharan African countries. The sample includes listed non-financial firms from Ghana, Kenya, Nigeria, South Africa, Tanzania, and Zimbabwe. Profitability is measured using Return on Assets (ROA) and Tobin’s Q, while REM is assessed using the Rowchowdhury model. Secondary data from the annual financial reports of the selected companies were analyzed using panel data regression techniques. Findings reveal that REM has a significant negative effect on both ROA and Tobin’s Q in Nigeria, Ghana, and South Africa. Conversely, REM has a significant positive impact on ROA in Tanzania and Zimbabwe. In Kenya, however, REM shows a negative but statistically insignificant effect on ROA and Tobin’s Q. The study concludes that REM significantly influences profitability among firms in sub-Saharan Africa. Consequently, it recommends the implementation of stronger monitoring and control mechanisms, both internally and externally, to safeguard investors' wealth and promote the economic growth and development of these nations.

How should a government intervene in a digital economy for controlling inflation?

Hussain SyedGowhor — Wed, 22 Jan 2025 09:57:29 +0800

In order to save an economy from the detrimental effect of inflation, the government of that economy must make a full transition from the paper money based traditional economic system to an electronic money based digital economic system. This article proposes a system by which a government can control inflation in a digital economy. The central argument of the article is that a government fails to trace myriad transactions in an economy and hence have to leave the matter of price determination in the hand of the automatic interaction of demand and supply. However, as the digital technologies now allow for tracking every transaction, a government can get involved actively and intensively in the matter of price determination through a central price control system. The article describes the system architecture along with how it works and how the mutual interaction takes place among the various components of the system. It also discusses the major challenges in implementing the proposed system. Finally, it delineates the pricing policy instruments that may be used in overcoming the challenges of the proposed system. The system holds an iconoclastic view of the traditional economic system by proposing the abolition of paper money, price determination by the mutual interaction between demand and supply, the existence of invisible hand, and the laissez faire policy of a government in an economy. Although the idea seems to be utopian and devoid of practical sense at this stage of economic reality, it will make sense in the near future when only digital currency will exist as the sole legal tender money in a digital economy.

Capital gains tax versus wealth tax

Christian Fahrbach — Mon, 17 Feb 2025 10:49:11 +0800

This article provides a financial analysis of capital gains tax and wealth tax and their impact on investors’ decision-making behaviour and corporate finance. First, the capital gains tax is analysed according to current German tax law, revealing a negative impact on firms and the economy. This finding is particularly worrying in an economic crisis, and it highlights the need to consider alternative tax options. A detailed analysis of wealth taxes follows, which shows that a special wealth tax on safe assets represents a promising alternative to current tax practice in view of the ongoing socio-ecological transformation.