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Infographic: Earnings Management, Developed vs. Emerging Markets

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In terms of ROE distribution, developed markets like the U.S. and U.K. (left) show a fairly even hump skewing just to the positive side of zero. Earnings management happens, but it’s barely visible. Chinese companies (at top, middle) take creative accounting to a whole new level, revealing an unnatural “cliff” at zero.


This turns out to be a common feature of emerging markets. A perfect storm of different reporting standards, weaker auditing and lax enforcement leads to reported numbers that are disconnected from actual results.


A quantitative multi-factor strategy can help investors distinguish companies with solid accounting from those playing fast and loose in their financial reporting, turning a serious risk into a unique opportunity


This post was originally published on LinkedIn


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This document is for information purposes only. It is not a recommendation to buy or sell any financial instrument and should not be construed as an investment advice. Any securities, sectors or countries mentioned herein are for illustration purposes only. Investments involves risk. The value of your investments may fall as well as rise and you may not get back your initial investment. Performance data quoted represents past performance and is not indicative of future results. While reasonable care has been taken to ensure the accuracy of the information, Rayliant does not give any warranty or representation, expressed or implied, and expressly disclaims liability for any errors and omissions. Information and opinions may be subject to change without notice. Rayliant accepts no liability for any loss, indirect or consequential damages, arising from the use of or reliance on this document.


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