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1
Burdeos, Angelo O. "Earnings management, corporate governance, and ownership structure of Philippine initial public offerings." Corporate Ownership and Control 18, no. 4 (2021): 175–91. http://dx.doi.org/10.22495/cocv18i4art12.
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Prior studies examined the effect of corporate governance variables on discretionary current accrual, the most widely used measurement of earnings management. The principal-agent conflict implies that the size of the board, the percent of independent directors, CEO duality, and auditor prestige limit discretionary current accruals (DCA). This paper extends past studies by examining the effect of ownership structure on discretionary current accruals. The study determines the level of income-increasing earnings management of initial public offerings (IPOs) in the Philippines and the factors that explain it. Particularly, the paper examines the effect of ownership concentration and largest shareholder ownership on discretionary current accruals. The study uses a final sample of 105 IPO firms in Philippine Stock Exchange (PSE) from 2008 to 2018. Employing the modified Jones’s (1991) model to measure discretionary current accrual and multiple regression analysis, the study finds -4.19% discretionary current accrual on the average. It also reveals that the 2002 Philippine Code of Corporate Governance (PCCG) is ineffective in curbing earnings management. In addition, there is an insignificant relationship between the size of the board, CEO duality, ownership concentration, largest shareholder ownership and auditor prestige, and earnings management. Furthermore, the paper finds a significant relationship between the percent of independent directors, industry sector, return on assets (ROA) and cash flow from operations and earnings management.
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Baber, William R., Sok-Hyon Kang, and Ying Li. "Modeling Discretionary Accrual Reversal and the Balance Sheet as an Earnings Management Constraint." Accounting Review 86, no. 4 (April 1, 2011): 1189–212. http://dx.doi.org/10.2308/accr-10037.
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ABSTRACT This study presents conceptual and empirical analyses of discretionary accrual reversal in the earnings management context. We specifically focus on the extent that income-increasing (decreasing) discretionary accruals initiated in a prior period reverse to become income-decreasing (increasing) accruals in the current period. The analysis suggests that the extent that such reversals constrain the ability to manage toward earnings objectives depends on both the magnitude of past accrual-based earnings management and the reversal speed of past discretionary accruals. To demonstrate the empirical implications of the analysis, we consider discretionary accrual reversal speed as an additional determinant of the balance sheet constraint on earnings management (Barton and Simko 2002). We show that, conditional on the magnitude of net operating asset overstatement, the probability of achieving quarterly earnings forecasts varies inversely with reversal speed.
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Gombola, Michael, Amy Yueh-Fang Ho, and Yi-Kai Chen. "Earnings management and long-term performance: evidence from reverse stock splits." Corporate Ownership and Control 7, no. 2 (2009): 420–39. http://dx.doi.org/10.22495/cocv7i2c4p3.
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This study investigates earnings management and long-term stock performance surrounding reverse stock splits. It is designed to provide evidence on the role of managerial pessimism and discretionary current accruals. Discretionary current accruals are used to measure earnings management. These discretionary current accruals are measured in our study using the balance sheet approach as well as the cash flow statement approach. We find consistent evidence of negative discretionary current accruals prior to reverse stock splits. Such negative discretionary accruals are consistent with managerial pessimism prior to a reverse stock split. Such pessimism is warranted by the observed negative market reaction to a reverse split announcement and the negative abnormal returns observed after reverse splits. Negative discretionary current accruals are also consistent with smoothing of earnings during difficult and challenging periods for the firm. Our study might provide an alternative to the opportunism explanation. It also provides additional evidence buttressing the role of managerial optimism and pessimism in explaining earnings management.
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Meihami, Bahram, Zeinab Varmaghani, and Hussein Meihami. "An Investigation on the Earnings Quality in Companies (Evidence from Iran)." International Letters of Social and Humanistic Sciences 11 (September 2013): 91–99. http://dx.doi.org/10.18052/www.scipress.com/ilshs.11.91.
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A considerable focus of bottom-line income losses is important in the case of investigating quality of earnings. The future of stock returns is all associated with accruements that are in relation with reliability, and negativity. Earning increases that are accompanied by high accruals, suggesting inferiority of earnings, are related with poor future returns. This study describes the investigation of different hypotheses earnings manipulation, extrapolative fundaments about future growth, and under reaction to changes in business conditions to explain accruals’ predictive power. Differentiations between the hypotheses are grounds on operating performance, the behavior of individual accrual items, discretionary versus fixed investment trust components of accruals, and special items. In the main hypothesis we tested stock return and Earning Quality separately. In this investigation firms in according to a mount of accruals. Later on the validity using within-industry comparisons, and data on Tehran stocks was checked. This means that earnings management occurs with a time lag by market participants. In this research it was indicated that components of accruals including changes in accounts receivable, inventory, other current assets, current liabilities and other current liabilities have not significant effect on stock return. It was also indicated that for discretionary accruals, decreasing of stock return is greater than the decreasing of stock return for non-discretionary accruals.
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Di, Hui, and Dalia Marciukaityte. "Earnings smoothing around open-market share repurchases." Review of Accounting and Finance 14, no. 1 (February 9, 2015): 64–80. http://dx.doi.org/10.1108/raf-10-2012-0111.
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Purpose – The purpose of this paper is to examine whether firms engage in earnings decreasing management before share repurchases to mislead investors or to smooth earnings and improve earnings informativeness. Design/methodology/approach – The authors examine discretionary accruals and cash flows around open-market share repurchases. The primary discretionary accruals measure is industry- and performance-adjusted discretionary current accruals estimated from cash-flow data. Findings – Results show that, firms experience temporary increases in operating cash flows and use negative discretionary accruals to smooth earnings before share repurchases. Firms with the highest pre-repurchase cash flows use the lowest pre-repurchase discretionary accruals. Moreover, pre-repurchase discretionary accruals reflect expectations about future operating cash flows. Firms with the strongest deterioration in operating cash flows after repurchases use the lowest pre-repurchase discretionary accruals. These findings suggest that repurchasing firms use earnings management to increase smoothness and predictability of reported earnings rather than to mislead investors. Originality/value – This paper provides an alternative explanation to the finding of negative discretionary accruals before share repurchases. It adds to the literature on repurchases and earnings smoothing by showing that firms use earnings management around share repurchases to smooth earnings.
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Rohman, Abdul. "Analysis Effect of Accrual Discretion Against SILPA (SIKPA) Budget Calculations on Local Government." SRIWIJAYA INTERNATIONAL JOURNAL OF DYNAMIC ECONOMICS AND BUSINESS 2, no. 4 (December 31, 2018): 293. http://dx.doi.org/10.29259/sijdeb.v2i4.293-316.
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The research we carry out is aimed at researching the implementation of measures taken by the local government (discretionary accruals) to the substantial amount of the budget obtained local governments in the current year. The government has issued regulations governing the Home Minister on the implementation of government's implementation of accrual based accounting system. Also, the government has issued Government Regulation No. 71 of 2010 concerning the Government Accounting Standard (PSAP) based on accrual. Governments in developing government accounting standards has also attempted to adopt international public sector accounting standards (IPSAS).Our study is a continuation of a research study before we take on research on the level of accrual in the financial statements of Local Government and research on the effect of discretionary accruals on revenue of local governments. This study uses some model approach
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Hu, Fang, Majella Percy, and Daifei Yao. "Asset revaluations and earnings management: Evidence from Australian companies." Corporate Ownership and Control 13, no. 1 (2015): 1287–96. http://dx.doi.org/10.22495/cocv13i1c11p1.
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This paper examines the association between asset revaluations and discretionary accruals (a proxy for earnings management) using a sample of the largest 300 Australian companies. The results from this study indicate that the revaluation of non-current assets is positively associated with discretionary accruals. This finding is consistent with the argument that revaluation of assets reflects higher agency problems in the form of increased earnings management. Additional findings are that discretionary accruals are higher for firms reporting their non-current assets at fair values appraised by directors, than those of firms that use external appraisers. As well, the choice of auditors and the strength of corporate governance can constrain the opportunistic behaviour of managers in the accounting choice to revalue non-current assets.
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Kao, Lanfeng. "Does Investors' Sophistication Affect Persistence and Pricing of Discretionary Accruals?" Review of Pacific Basin Financial Markets and Policies 10, no. 01 (March 2007): 33–50. http://dx.doi.org/10.1142/s0219091507000945.
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This paper examines whether the sophistication of market investors influences management's strategy on discretionary accounting choice, and thus changes the persistence of discretionary accruals. The results show that the persistence of discretionary accruals for firms face with naive investors is lower than that for firms face with sophisticated investors. The results also demonstrate that sophisticated investors indeed incorporate the implications of current earnings components into future earnings in a more sufficient manner than naïve investors do.
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Al-Mughrabi, Yahia M. "The Impact of Financial Crisis on Earnings Management in Nonfinancial Listed Firms: Evidence from Jordan." International Journal of Business and Management 15, no. 5 (April 23, 2020): 168. http://dx.doi.org/10.5539/ijbm.v15n5p168.
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This paper studies earnings management in Jordan during the global financial crisis. It addresses mainly the question of whether or not financial crisis has an impact on discretionary accruals, using the modified Jones model (1995) for estimating discretionary accruals. By applying Ordinary Least Squares regression model on a sample of 71 nonfinancial listed firms during the period of 2005-2012, I find a conclusive evidence that Jordanian nonfinancial listed firms did not engage in a greater level of earnings management during the financial crisis period. In addition, larger firms are less involved in earnings management practices compared to smaller firms. Moreover, the results suggest a negative significant impact of operating cash flow on discretionary accruals, while it fails to connect current year losses with discretionary accruals. However, the findings indicate that firm’s leverage is positively and significantly associated with discretionary accruals. Overall, the empirical results provided evidence that earnings management practices in Jordanian nonfinancial sectors are relatively small, even smaller in services sector, which raise questions about the validity of the modified Jones model and whether or not different models (such as Deangelo, 1986) should be used in future studies regarding earnings management.
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Kapoutsou, Eftychia, Christos Tzovas, and Constantinos Chalevas. "Earnings management and income tax evidence from Greece." Corporate Ownership and Control 12, no. 2 (2015): 511–29. http://dx.doi.org/10.22495/cocv12i2c5p1.
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The aim of this study is to examine the question of earnings management and, specifically, how this relates to taxation. In order to determine whether there is a correlation between earnings management and taxation, we investigate the discretionary accruals aspect of total accruals, i.e. the portion of profits which can be affected by management accounting choices, as calculated by the Jones (1991) model and the modified Jones model (Dechow et. al, 1995). Furthermore, we examine to what degree a correlation may exist between discretionary accruals and tax income (consisting of current and deferred tax). Our empirical findings demonstrate a statistically significant relationship between the levels of discretionary accruals and of total, current and deferred tax. This suggests that tax in general may be employed as a means to facilitate earnings management. The findings of this study suggest that IFRS provisions regarding taxation provide firms with a scope to get involved in earning management practices
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Anggraeni, Erike, Muslim Marpaung, Ersi Sisdianto, Bayu Tri Cahya, and Muhammad Kurniawan. "The Influence’s Analysis of Deferred Tax Expense, Current Tax and Discretionary Accrual towards Earnings Management (Survey in Manufactured Company Registered at Indonesia Stock Exchange in the Period of 2014 – 2018." Webology 17, no. 2 (December 21, 2020): 568–86. http://dx.doi.org/10.14704/web/v17i2/web17052.
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The study aims to provide an overview of the influence of deferred tax expense, current tax and discretionary accruals to earnings management towards Earnings Management where it was caused by the temporary differences between accounting income and taxable profit. In this PSAK, there is a statement paragraph that can provide freedom of management in determining an earning in deferred tax of the difference between accounting standard and tax regulations in the amount of deferred tax payable related to accounting income in a current perioed or a current fiscal year. The amount of current tax is same with tax expense in SPT. The type of a method of this study is quantitative. Based on the hipothesis testing, it can be concluded that deferred tax expense and discretionary accruals have a significant positive influence toward earnings management while current tax has no significant positive towards Earnings Management in Manufactured Company registered at Indonesia Stock Exchange in the period of 2014 – 2018. The limitation of this study is that it only discusses how much influence the deferred tax expense, current tax and discretionary accruals have on earnings management, as well as the number of samples and populations that are less than 100 samples, thus opening up opportunities for new researchers by adopting the same theme. The implications of this study are expected to be able to add to the state of knowledge relating to the effect of deferred tax expense, current tax and discretionary accruals on earnings management.
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Li, Xu. "Behavioral theories and the pricing of IPOs’ discretionary current accruals." Review of Quantitative Finance and Accounting 37, no. 1 (August 20, 2010): 87–104. http://dx.doi.org/10.1007/s11156-010-0196-x.
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Alhadab, Mohammad M. "Real and Accrual Earnings Management around Initial Public Offerings in Jordan." International Business Research 11, no. 1 (December 27, 2017): 204. http://dx.doi.org/10.5539/ibr.v11n1p204.
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This study examines whether Initial Public Offering (IPO) firms in Jordan utilize real activities and accruals accounting during the offering year to manipulate income. To date the current study is the first to examine real activities and accrual earnings management that undertaken by IPO firms in Jordan. Using a Jordanian sample of 41 IPO firms over the period between 2000 and 2011, this study provides new evidence to the literature that IPO firms in Jordan utilize real activities and accruals accounting to inflate net income that is reported during the offering year. In particular, the findings of current study show that IPO firms report a higher level of earnings manipulation during the offering year that conducted via accrual-based earnings management, sales-based, discretionary expenses-based, and the aggregated measure-based of real activities.
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Choong, Yap Voon, Kok Thim Chan, and John Stanley Murugeshu. "Earnings management, directors’ discretions and information content affecting discretionary accruals of Malaysian publicly listed companies." Corporate Ownership and Control 11, no. 4 (2014): 625–34. http://dx.doi.org/10.22495/cocv11i4c7p5.
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Managers have reporting discretion permitted by accounting standards over a combination of earnings management choices. The objective of this study is to identify the types of discretionary accounting choices that are indicative of earnings management. Based on a sample of 947 companies listed on the Malaysian stock exchange, the results indicate that a number of firm specific financial variables that proxy for agency cost, political costs and information asymmetry capture discretionary accruals behaviour. This study also seeks to examine the explanatory power of the earnings management in predicting future earnings and firm value. The results indicate that discretionary accruals can improve the informativeness of a firm’s current and past earnings when predicting future earnings and share price
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Shaikh, Abdul Mateen, and Syed Zulfiqar Ali Shah . "Institutional Ownership and Discretionary Accruals: Empirical Evidences from Pakistani Listed Non-Financial Companies." Information Management and Business Review 4, no. 4 (April 15, 2012): 217–22. http://dx.doi.org/10.22610/imbr.v4i4.982.
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Current study empirically investigates the impact of institutional ownership on discretionary accruals; we took a sample size of 68 listed non -financial companies from a population of 652 companies listed on Karachi Stock Exchange (KSE). This data was gathered for the period of 5 years, starting from 2006 up to 2010. Modified Jones Model was employed for this study to quantify discretionary accruals while institutional ownership measured by dividing number of shares kept by institutions from total number of shares outstanding. The fix effect model showed that the magnitude of discretionary accruals in Pakistani listed firms tends to significantly decrease for the firms where institutions hold a decent amount of share of that particular firm. Thus the findings of this study are in consensus with our hypothesis, which proposes that institutional ownership is quite an effective tool in aligning insider management and administration to take the right decision for value maximizing of the companies, and thus shareholders.
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Ashbaugh, Hollis, Ryan LaFond, and Brian W. Mayhew. "Do Nonaudit Services Compromise Auditor Independence? Further Evidence." Accounting Review 78, no. 3 (July 1, 2003): 611–39. http://dx.doi.org/10.2308/accr.2003.78.3.611.
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This paper challenges the findings of Frankel et al. (2002) (FJN). The results of our discretionary accruals tests differ from FJN's when we adjust discretionary current accruals for firm performance. In our earnings benchmark tests, in contrast to FJN we find no statistically significant association between firms meeting analyst forecasts and auditor fees. Our market reaction tests also provide different results than those reported by FJN. Overall, our study indicates that FJN's results are sensitive to research design choices, and we find no systematic evidence supporting their claim that auditors violate their independence as a result of clients purchasing relatively more nonaudit services.
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Lim, Lucy. "Reexamining the influence of large clients on office-level auditor reporting decisions." American Journal of Business 31, no. 1 (April 4, 2016): 4–16. http://dx.doi.org/10.1108/ajb-06-2015-0020.
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Purpose – This paper revisits the Reynolds and Francis’ (2001) study via the use of a more current dataset, incorporation of improvements into the accrual model and the use of actual fee data vs estimates. Using the improved analyses, the purpose of this paper is to examine whether more conservative auditors’ reports on larger clients are still evident. Design/methodology/approach – The paper follows Reynolds and Francis (2001) in using a regression model with White-adjusted t-statistics for the discretionary accrual model and a logistic model for going concern analysis. The most current discretionary accrual model is used to improve the original model, use actual fee data (not available previously), and add analyses using the two components of total fees (i.e. audit and non-audit fees). Findings – As opposed to Reynolds and Francis (2001), the results show that the Big Five auditors are less conservative with higher-paying clients as they allow their clients to have more discretionary accruals. While Reynolds and Francis (2001) found that auditors are more likely to report going concern opinions for higher-paying clients, the results in this paper does not show any difference in the propensity of auditors to issue going concern opinions. Originality/value – This study replicates Reynolds and Francis (2001) using more recent US data, applying the most recent discretionary accrual model, using the actual fee data, and adding analyses using total fees decomposition.
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Moardi, Mahdi, Mahdi Salehi, Simin Poursasan, and Homa Molavi. "Relationship between earnings management, CEO compensation, and stock return on Tehran Stock Exchange." International Journal of Organization Theory & Behavior 23, no. 1 (December 19, 2019): 1–22. http://dx.doi.org/10.1108/ijotb-12-2018-0133.
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Purpose The purpose of this paper is to investigate the relationship between earnings management and chief executive officers’ (CEOs) compensation. Owing to the fact that earnings management does not have only opportunistic effects, but signaling effects, this study focuses on accruals quality to examine earnings management incentives. Thus, accruals quality is described against future cash flow. The empirical evidences suggest that a positive relationship between discretionary accruals and future cash flow provides predictive elements for earnings management, whereas a negative relationship between discretionary accruals and future cash implies to opportunistic elements for earnings management. Should there is no significant relationship between discretionary accruals and future cash flow, there will be no earnings management, and such a result suggests that incentives and managers’ performance in these firms differ. Design/methodology/approach The statistical population of this research consists of all listed companies on the Tehran Stock Exchange during 2009–2016. Panel data method is applied in order to estimate the research model. Findings Findings of the study show that there is no significant relationship between discretionary accruals and future cash flow in pharmaceutical and food industries, thus they have neither predictive nor opportunist earnings management, while the results evidence a negative significant relationship between discretionary accruals and future cash flow in machineries, automobile, mineral and chemical industries. Furthermore, it can be alleged that there is no significant difference between CEOs’ compensation in firms with opportunistic earnings management (OEM) and other types of earnings management. It shows that firms do not have appropriate plans for CEOs’ compensation. Moreover, the relationship between earnings management and stock return has been investigated in this study. We document that stock return is influenced by accruals quality and its components. In other words, stock return significantly differs in firms with OEM and firms without any kind of earnings management. Research limitations/implications The authors’ findings provide contributions; for managers, it is noticeable that stock markets have sufficient comprehension about financial statements and the undertaken procedures on them, resulting in a higher return base on fair information. For investors and regulators, using the findings, may have deeper understanding to distinguish between industries that are recognized as opportunistic and non-opportunistic, which, in turn, results in better decision and regulation. Originality/value Previous studies have been mostly investigated OEM, while the current study examines both signaling and opportunistic aspects of earnings management.
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Boina, Terence Machado, and Marcelo Alvaro da Silva Macedo. "Predictive ability of accruals before and after IFRS in the Brazilian stock market." Revista Contabilidade & Finanças 29, no. 78 (August 2, 2018): 375–89. http://dx.doi.org/10.1590/1808-057x201806300.
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ABSTRACT This study aimed to analyze and assess the predictive ability of discretionary accruals (DAs) and non-discretionary accruals (NDAs) for forecasting future cash flows before and after the convergence with International Financial Reporting Standards (IFRS) in Brazil. The study is warranted due to the scarcity of research in Brazil on the subject and is relevant because it aims to shed light on whether the changes occurring due to convergence with IFRS in Brazil have improved accounting quality. The accounting choices of managers and accountants in the Brazilian stock market, enabled by IFRS, contribute to an apparent improvement in accounting quality in terms of reliability, the faithful representation of entities’ equity and financial positions, and in particular, the predictive ability for forecasting future cash flows. The population was composed of publicly traded companies listed on the Bovespa and São Paulo Stock, Commodities, and Futures Exchange (BM&FBovespa) in 2004 to 2007 and 2010 to 2015. The non-probability convenience sample is composed of 715 enterprises, once companies from the “finance and insurance” and “funds” sectors and even those considered as “holding” were excluded. The data were pooled by year, as they contain different companies over the time series (unbalanced panel data). The DAs and NDAs produced prior to full convergence with IFRS are negative and statistically significant for predicting future cash flows in the Brazilian stock market, which indicated opportunistic/contractual earnings management. One of the possible explanations for this would be the influence of government tax authorities on Brazilian accounting norms, which could induce managers to manipulate accounting results with the aim of reducing earnings in order to pay fewer taxes, for example. The DAs and NDAs produced after IFRS are positive and statistically significant for predicting future cash flows in the Brazilian stock market, signaling the motivation of discretionary accounting choices under the informational aspect. Current DAs and NDAs add informational power compared to current aggregate accruals. It has also been observed that the current DAs and NDAs originating after IFRS in Brazil, compared to current aggregate accruals, have an informational gain in relation to those produced before.
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Heidarpoor, Farzaneh, Samaneh Zare Rafiee, and Somayeh Zare Rafiee. "Drivers of Earnings Management: The Profit and Loss before Earning Management." International Journal of Accounting and Financial Reporting 1, no. 1 (July 8, 2014): 23. http://dx.doi.org/10.5296/ijafr.v4i2.5674.
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This study aims to evaluate the effect of two major drivers including: bad company and also the lower benefit from the profits over the previous year on earnings management process of active companies in the capital markets in Iran. Research time period is 6-year (from 2006 till 2011) and the population is all the listed companies in Tehran Stock Exchange. The sample was obtained by screening method includes 199 company. The results of hypotheses testing using panel data showed the probability of using of discretionary accruals in order to show profitable enterprise increases, when the company has loss before using earning management in Iranian market capital. The results also indicate that when the current company's profit is lower than the previous year's profit, the possibility of using the discretionary accruals increases to show positive changes in profitability. Thus, it can be announced that bad and also lower benefit from last year, are as two major driving of earnings management.
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Park, Sun-young. "The Effect Of Short-Term Debt On Accrual Based Earnings Management And Real Earnings Management." Journal of Applied Business Research (JABR) 32, no. 4 (June 30, 2016): 1287–300. http://dx.doi.org/10.19030/jabr.v32i4.9737.
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This study investigates whether short-term debt is related to earnings management. Short-term debt is divided into total current liabilities, debt in current liabilities and short-term borrowings. In addition, this study examines how short-term debt is related to how firms manage their earnings. I use discretionary accruals and real operating decisions as the earnings management method. The study finds that debt in current liabilities only has a statistically significant impact on accrual earnings management, and short-term borrowings are only shown to have a statistically significant impact on real earnings management. These results indicate that managers engage in accrual earnings management of debt included in current liabilities and use real earnings management of short-term borrowings from financial institutions.Therefore, this evidence indicates that managers engage in accrual earnings management of debt in included current liabilities when they face the liquidity risk of short-term debt, and the firms with debt financing constraints are likely to manage real earnings in spite of enhanced firm monitoring by lenders such as financial institutions. The findings in this study may have implications in the debate about the monitoring function of financial institutions such as banks.
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Tucker, Jennifer W., and Paul A. Zarowin. "Does Income Smoothing Improve Earnings Informativeness?" Accounting Review 81, no. 1 (January 1, 2006): 251–70. http://dx.doi.org/10.2308/accr.2006.81.1.251.
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This paper uses a new approach to examine whether income smoothing garbles earnings information or improves the informativeness of past and current earnings about future earnings and cash flows. We measure income smoothing by the negative correlation of a firm's change in discretionary accruals with its change in premanaged earnings. Using the approach of Collins et al. (1994), we find that the change in the current stock price of higher-smoothing firms contains more information about their future earnings than does the change in the stock price of lower-smoothing firms. This result is robust to decomposing earnings into cash flows and accruals and to controlling for firm size, growth, future earnings variability, private information search activities, and cross-sectional correlations.
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Sandrasigaran, Viveksarati, Jalila Binti Johari, Soh Wei Ni, and Bany-Ariffin A.N. "The Moderating Effect of OPEC and Non-OPEC on the Relationship Between Oil Price Volatility and Accrual Earnings Management in the Oil and Gas Industry." Journal of Accounting and Finance in Emerging Economies 6, no. 1 (March 31, 2020): 283–300. http://dx.doi.org/10.26710/jafee.v6i1.994.
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This study is an empirical examination on the relationship between oil price volatility and earnings management in the oil and gas industry, moderated by price-setting abilities of OPEC (Organization of Petroleum Exporting Nations) and price taking abilities of Non-OPEC countries. This study tests discretionary, income-decreasing, current and non-current accruals as a proxy of earnings management. A total sample of 209 firm-year observations from 2008 to 2018 of listed oil and gas firm is collected from the Thomson Datastream database. To incorporate the moderation effect, the samples were divided into two sub-groups, OPEC and Non-OPEC using reserve to production ratio. Firm attributes are included in the analysis as the constant variable such as leverage, current ratio, EBITDA and Growth. The initial results show that, overall, the interaction effect between OPEC/Non-OPEC and oil price volatility is positive and significant to discretionary and income-decreasing accruals. Data samples are limited while comparing OPEC and Non-OPEC countries as not every oil and gas company in OPEC are listed companies and their information is heavily protected. This study contributes to extant earnings management literature regarding political cost, which remains a significant concern to oil and gas companies worldwide.
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Muhammad Iqbal, Abdullah, Iram Khan, and Zeeshan Ahmed. "Earnings Management And Privatisations: Evidence From Pakistan Evidence From Pakistan." Pakistan Development Review 54, no. 2 (June 1, 2015): 79–96. http://dx.doi.org/10.30541/v54i2pp.79-96.
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This study examines the incidence of earnings management around the time of the privatisation of State Owned Enterprises in Pakistan during 1991-2005. Using the modified Jones model and a sample of large privatisations (minimum US$1 million), it shows that the sampled firms experienced increase in earnings, decrease in cash flows, and increase in current discretionary accruals in the year prior to and/or in the year of privatisation. The SOEs used both short term and long term accruals to inflate reported earnings. These accruals were reversed in the post-privatisation period. These findings suggest that managers of the firms slated for privatisation were engaged in earnings management to inflate their firms‘ financial worth to maximise the privatisation proceeds. Hence, we cannot reject the incidence of earnings management during privatisations in Pakistan. The results imply that the investors should carefully evaluate the to-be-privatised firms and keep in view the possibility of earnings management by the SOEs. JEL Classification: G14, G34, G38, L33, M41 Keywords: Earnings Management, Privatisations, SOEs, Pakistan, Accruals
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Chou, De-Wai, Michael Gombola, and Feng-Ying Liu. "Earnings Management and Stock Performance of Reverse Leveraged Buyouts." Journal of Financial and Quantitative Analysis 41, no. 2 (June 2006): 407–38. http://dx.doi.org/10.1017/s002210900000212x.
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AbstractThis study provides further evidence of earnings management around security offerings. We find positive and significant discretionary current accruals coincident with offerings of reverse LBOs. Issuers in the most aggressive quartile of earnings management have a one-year aftermarket return that is between 15% and 25% less than the most conservative quartile. We also find a negative and significant relation between abnormal accruals and post-issue abnormal returns within the first year after the offering. The relation remains after controlling for book-to-market ratio, firm size, offering size, and involvement of buyout specialists or management. Although earnings management has been used to explain post-issue long-term underperformance of IPOs and SEOs, our study shows that earnings management can explain post-offering returns of reverse LBOs, even in the absence of post-offering underperformance.
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Sutrisno, Paulina. "Earnings Management: An Advantage or Disadvantage?" Accounting and Finance Review (AFR) Vol.2(2) Apr-Jun 2017 2, no. 2 (March 12, 2017): 64–72. http://dx.doi.org/10.35609/afr.2017.2.2(9).
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Objective - The purpose of this research is to examine the consequences of accrual based earnings management and real earnings management on future operating performance.The firms studied engage in accrual-based earnings management with discretionary accrual measures using the modified Jones model and some of the following real earnings management activities: (1) Sales manipulation that accelerates the timing of sales through increased price discounts or cutting prices to boost sales in the current period; and/or (2) cutting of discretionary expenditures to increase income in the current period. Furthermore, the study examines the extent to which discretionary accrual and real earnings management affects subsequent operating performance (as measured by both return on assets and operating cash flows). Methodology/Technique - The sample manufacturing firms that engage in financial statement were listed on the Indonesian Stock Exchange between 2012 and 2014. The hypothesis testing method used in this research is multiple regression linear. Findings - The results suggest that accrual-based earnings management, with discretionary accrual measures, and real earnings management through sales manipulation and discretionary expenditures are positively associated with return on assets after one and two years. Meanwhile, accrual-based earnings management and real earnings management through sales manipulation enhances subsequent operating cash flows. However, real earnings management through discretionary expenditures does not influence operating cash flows. Novelty - This research contributes to the existing literature on the subsequent impact of accrual-based earnings management and real earnings management Type of Paper: Empirical Keywords: Discretionary Accrual; Sales Manipulation; Discretionary Expenditure; Return on Assets; Operating Cash Flows JEL Classification: M21, M41.
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Andreas, Enni Savitri, Tatang Ary Gumanti, and Nurhayati. "Earnings management and initial public offerings among Indonesian manufacturing companies." Investment Management and Financial Innovations 18, no. 3 (August 2, 2021): 27–39. http://dx.doi.org/10.21511/imfi.18(3).2021.03.
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Earnings management (EM) refers to the common use of accounting techniques in various economic settings, such as Initial Public Offerings (IPOs), to produce financial statements. This study, therefore, analyzes the effect of firm size, operating cash flow, the used IPO proceeds, earnings changes, and leverage on EM of manufacturing companies on the Indonesia Stock Exchange from 1989 to 2013. This sector comprises the essential chemical industry, miscellaneous organizations, and consumer goods, with 63 firms being used to meet the selection criteria. The regression analysis showed that the intended use of funds and leverage had a negative and significant impact on EM. Furthermore, the process is measured using Friedlan’s (1994) Discretionary Current Accruals model with similar results found in each industry group and their insignificant differences used to regulate the level of discretionary accruals between the three sectors. This study implies that the EM level is qualitatively similar among IPO companies in the three sub-sectors examined. AcknowledgmentsThe authors are grateful to the audience for their comments during the 11th Environmental and Sustainability Management Accounting Network-Asia Pacific (EMAN-AP) Conference held at the Danang University of Economics, Danang, Vietnam, 12-13 August 2019. The early draft was titled “Earnings Management and Initial Public Offerings on Manufacturing Sectors Companies”.
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Sutadipraja, Marista Winanti, Sri Setia Ningsih, and Mardiana Mardiana. "Pajak Kini, Pajak Tangguhan, Aset Pajak Tangguhan, Liabilitas Pajak Tangguhan Terhadap Manajemen Laba." Journal of Applied Accounting and Taxation 5, no. 2 (October 31, 2020): 158–1665. http://dx.doi.org/10.30871/jaat.v5i2.1306.
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The purpose of this study was to examine whether there is an effect of current tax expense, deferred tax, deferred tax assets, and deferred tax liability on earnings management actions in consumer goods companies listed on the Indonesia Stock Exchange (IDX). This study's sample consisted of 27 consumer goods industries listed on the Indonesia Stock Exchange in 2013-2017 using the purposive sampling method. Hypothesis testing in this study using the t-test. Earnings management is proxied by discretionary accruals using the Modified Jones Model. The type of data used is secondary data. Data analysis used OLS (regression equation analysis ordinary least square). The results show that the current tax has a significant effect on earnings management variables. The deferred tax affects earnings management, deferred tax assets affect earnings management, and deferred tax liabilities have no effect on earnings management. Research limitations The sample of companies used is considered less representative of the population because only manufacturing companies are used consumer goods. The research period in measuring earnings management variables is proxied by discretionary accruals for only five consecutive years, according to Jones (1991). profit can be seen if the research period is carried out for eight years. In this study, it is suggested that the research period used can be added, and the sample used can be extended to other company sectors and other measures of earnings management by using proxies.
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Miloud, Tarek. "Earnings Management And Initial Public Offerings: An Empirical Analysis." Journal of Applied Business Research (JABR) 30, no. 1 (December 30, 2013): 117. http://dx.doi.org/10.19030/jabr.v30i1.8288.
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This paper studies the presence of earnings management in initial public offerings (IPOs) of French firms. When the aim of earnings management is to increase the attractiveness of the offered shares it needs to go undetected by market participants. This invisibility makes earnings management difficult to detect in the income statement and the balance sheet, thus investors would benefit from other information that reveals the probability of earnings management. Managers and owners incentives for managing earnings are used to assess the likelihood that earnings management is used before the IPO. Earnings management is tested by observing time-series profiles of accruals. The sample consists of French firms that went public in the years 1995 to 2008 on the Euronext Paris Exchange. The results suggest that IPO firms with the highest discretionary current accruals significantly underperformed, compared to equivalent companies in the third year following the IPOs.
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Lajmi, Azhaar, Wided Khiari, and Khaled Kanzari. "Corporate Governance and Accounting Earnings Management: The Case of Tunisia." International Journal of Accounting and Financial Reporting 9, no. 4 (October 11, 2019): 370. http://dx.doi.org/10.5296/ijafr.v9i4.15616.
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This paper aims to test the impact of some corporate governance characteristics on the management of the accounting earnings measured by discretionary accruals. As for the prior research we treat the level of management of accounting earnings as a "proxy" for the quality of the accounting and financial information published by companies. Empirical analysis is based on the modified Jones model (1995) to estimate discretionary accruals and a panel data model applied to a sample of 21 companies listed on the Tunis Stock Exchange (BVMT) over a period of 3 years from 2008 to 2010. The main findings of the current study reveal that, in the Tunisian context, the affiliation of auditors to a "Big" international network and the independence of the board of directors significantly constrain the practice of managing the accounting earnings and, consequently, they improve the quality of the published result. However, the number of independent members in the audit committee has a negative but not significant impact on the practice of earnings management, whereas the duration of the audit mandate does not affect this practice.Finally, the control variables taken into account in our study have a significant effect on the quality of the accounting result.Thus, the results of this study helped to improve our understanding of earnings management in Tunisian companies, with reference to some characteristics of corporate governance.
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Lin, Yu-Cheng, Yu-Hsin Lu, Fang-Chi Lin, and Yi-Chen Lu. "Net Losses and the Relationship between Auditor Independence and Client Importance: Evidence from a Cubist Regression-Tree Model." Journal of Emerging Technologies in Accounting 14, no. 1 (January 1, 2017): 13–25. http://dx.doi.org/10.2308/jeta-51673.
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ABSTRACT This paper uses a cubist regression-tree model to explore when and why auditors compromise their independence. Using data from companies in Taiwan, we study the association between client importance and auditor independence. The results show a positive relationship between client importance and auditor dependence when clients report net losses in the current year. We also find that auditors allow more important clients to manage their discretionary accruals slightly upward, but the clients still report net losses on their financial statements. This suggests that auditors may impair their independence for clients with certain characteristics and acceptable levels of audit risk.
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Salehi, Mahdi, and Mostafa Bahrami. "The effect of internal control on earnings quality in Iran." International Journal of Law and Management 59, no. 4 (July 10, 2017): 534–46. http://dx.doi.org/10.1108/ijlma-02-2016-0012.
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PurposeThe purpose of the present research is to examine the effect of internal control and risk management on earnings quality of companies listed on the Tehran Stock Exchange (TSE). Design/methodology/approachData were collected from 560 listed firms on TSE, which were selected using systematic sampling. Descriptive statistics, Pearson correlation and panel data regression were used for data analysis during 2009-2014. FindingsThe results showed that earnings management reduces earnings relevance and book value relevance through short-term and long-term discretionary accruals. Originality/valueThe outcomes of the current study are quite interesting to academia and practitioners.
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Hsiao, Daniel F., Yan Hu, and Jerry W. Lin. "The earnings management opportunity for US oil and gas firms during the 2011 Arab Spring event." Pacific Accounting Review 28, no. 1 (February 1, 2016): 71–91. http://dx.doi.org/10.1108/par-03-2014-0013.
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Purpose – This study aims to examine whether US oil and gas companies engaged in earnings management during the 2011 Arab Spring, which resulted in significant increases in both crude oil and gasoline prices. Design/methodology/approach – Following a similar research methodology from prior research, this study tests the existence of earnings management based on discretionary total accruals, current accruals and non-current accruals to determine whether both large petroleum refining firms and relatively small oil and gas-producing firms, jointly and separately, lowered reported earnings. Findings – The results show that, overall, US oil and gas companies as a group engaged in income-decreasing earnings management during the Arab Spring. The results seem to support the political cost hypothesis. However, further analyses indicate that the results are driven by abnormal income-decreasing accruals of the relatively small oil and gas-producing firms, which are politically less sensitive. Research limitations/implications – The findings suggest that there may be other non-political cost incentives, such as income smoothing, for the relatively small oil and gas-producing firms managing earnings downward during periods of large oil price increases. However, the possibility for firms with reversals of income-increasing activity from other quarters is not ruled out. Originality/value – This study not only is the first empirical study of earnings management by oil and gas companies during the Arab Spring, but also contributes to extant earnings management literature regarding political cost hypothesis, which still remains a major concern for US oil and gas companies.
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Saleem Salem Alzoubi, Ebraheem. "Ownership structure and earnings management: evidence from Jordan." International Journal of Accounting & Information Management 24, no. 2 (May 3, 2016): 135–61. http://dx.doi.org/10.1108/ijaim-06-2015-0031.
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Purpose The purpose of this paper is to examine the association between internal corporate governance mechanism and earnings management of Jordanian companies. More specifically, the author examines several hypotheses regarding the relationships between ownership and earnings management. Design/methodology/approach This study measures the magnitude of discretionary accruals as a proxy for earnings management using the cross-sectional modified Jones model. A number of econometric techniques are used including ordinary least squares and generalized least squares to test the relationship between company ownership and earnings management, using a sample of 62 companies listed on the Amman Stock Exchange. Findings The results revealed that insider managerial ownership, institutional ownership, external blockholder, family ownership and foreign ownership have superior influence on financial reporting quality, as it is, to a greater extent, potentially able to curtail earnings management. The findings contended that the aspects of ownership structure have a significant influence on earnings management, which is in agreement with the theories of corporate governance and opinions that have been highlighted through a number of international bodies. Research limitations/implications Due to lack of data, the paper depends on cross-sectional data applied to isolate abnormal accruals. Practical implications The evidence may be conceivably beneficial as a supporting fundamental for regulatory action, particularly those that affect the ownership structure. The findings have significant implications for regulators as well as supervisors, who will benefit by the comprehension of how ownership structure affects earnings management and enhance financial reporting quality. Originality/value The current research produced its essential contribution through empirically displaying that ownership structure has different implications on earnings management. Moreover, the results recommended that both policymakers and researchers would no longer contemplate ownership structure as a whole, given that ownership structure has different implications on earnings management, measured by the discretionary accruals.
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Feldo, Ferix, Rinaningsih Rinaningsih, and Retno Yuliati. "HUBUNGAN KESULITAN KEUANGAN DENGAN MANAJEMEN LABA PADA PERUSAHAAN YANG TERDAFTAR DI BURSA EFEK INDONESIA TAHUN 2010-2016." Jurnal Equity 21, no. 2 (April 13, 2019): 141. http://dx.doi.org/10.34209/.v21i2.640.
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This research aims to know how the relationship between financial distress as measured by manajemen laba using Discretionary value Accruals (DA). This research use quantitative approach and the population used is the all of company listed in the Indonesian Stock Exchange period 20102016. Research conducted using multiple linear regression. The result of the research indicate (1) there is a negative significant relationship between financial distress in distress1 category characterized by a negative net income during the current year with warnings management. (2) there is no significant relationship between financial distress in distress2 category characterized by negative working capital during the current year with manajemen laba, (3) there is on relationship between financial distress in distress3 category characterized by negative net income and working capital during the current year withmanajemen laba.
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Feldo, Ferix, Rinaningsih Rinaningsih, and Retno Yuliati. "HUBUNGAN KESULITAN KEUANGAN DENGAN MANAJEMEN LABA PADA PERUSAHAAN YANG TERDAFTAR DI BURSA EFEK INDONESIA TAHUN 2010-2016." Equity 21, no. 2 (June 19, 2019): 141. http://dx.doi.org/10.34209/equ.v21i2.640.
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This research aims to know how the relationship between financial distress as measured by manajemen laba using Discretionary value Accruals (DA). This research use quantitative approach and the population used is the all of company listed in the Indonesian Stock Exchange period 20102016. Research conducted using multiple linear regression. The result of the research indicate (1) there is a negative significant relationship between financial distress in distress1 category characterized by a negative net income during the current year with warnings management. (2) there is no significant relationship between financial distress in distress2 category characterized by negative working capital during the current year with manajemen laba, (3) there is on relationship between financial distress in distress3 category characterized by negative net income and working capital during the current year withmanajemen laba.
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Outa, Erick Rading, Paul Eisenberg, and Peterson K. Ozili. "The impact of corporate governance code on earnings management in listed non-financial firms." Journal of Accounting in Emerging Economies 7, no. 4 (November 6, 2017): 428–44. http://dx.doi.org/10.1108/jaee-09-2016-0081.
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Purpose The purpose of this paper is to examine whether voluntary corporate governance (CG) code issued in 2002 constrain earnings management (EM) among listed non-finance companies in Kenya. Design/methodology/approach Using a panel data of 338-firm year’s observations between 2005 and 2014, the authors test the hypothesis that CG constrains EM in non-finance firms listed in Kenya. The authors regress discretionary accruals (DA) against a developed Corporate Governance Index (CGI). Findings The overall results show that DA is not significantly related to CG suggesting the voluntary CG code does not deter EM in non-finance companies in Kenya. Practical implications Evidence of income decreasing\increasing accruals implies EM still exists among the listed firms. This suggests that policymakers may need to consider radical actions including alternative or new CG approaches and new institutions to improve the effectiveness of CG. Originality/value This study extends existing studies by including composite CG as possible explanatory variable for constraining EM. The authors contribute to the debate by demonstrating that the voluntary CG code in Kenya is not effective in constraining DA and therefore the current initiatives by the regulator to change the current CG code are appropriately directed.
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Lin, Bingxuan, Rui Lu, and Ting Zhang. "Tax-Induced Earnings Management in Emerging Markets: Evidence from China." Journal of the American Taxation Association 34, no. 2 (January 1, 2012): 19–44. http://dx.doi.org/10.2308/atax-10236.
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ABSTRACT China issued the New Enterprise Income Tax Law in 2007, which changed the corporate income tax rate from 33 percent to 25 percent and came into effect in 2008. Using the simulated marginal tax rate as an indicator of firms' earnings management incentives, and discretionary current accruals as a proxy for earnings management, we find significant tax-induced earnings management in 2007. However, the downward earnings management becomes less obvious for firms that have a greater percentage of shares owned by state-owned enterprises, have an audit committee on the board, and disclose certified internal control reports. Data Availability: All data are available from the second author (contact author) upon request.
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Caton, Gary L., Chiraphol N. Chiyachantana, Choong-Tze Chua, and Jeremy Goh. "Earnings Management Surrounding Seasoned Bond Offerings: Do Managers Mislead Ratings Agencies and the Bond Market?" Journal of Financial and Quantitative Analysis 46, no. 3 (June 2011): 687–708. http://dx.doi.org/10.1017/s0022109011000147.
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AbstractWe study earnings management (EM) efforts surrounding seasoned bond offerings using discretionary current accruals. We find that issuers tend to inflate earnings performance prior to an offering. In order for EM efforts to effectively mislead ratings agencies and the bond market, they must lead to inflated bond ratings and decreased offering yields. Regression results indicate the opposite; aggressive EM efforts are associated with lower initial ratings and higher offering yields. We also find a statistically lower proportion of subsequent downgrades for firms with the most aggressive EM efforts, which is inconsistent with these firms’ inflated initial ratings. While some firms may attempt to mislead ratings agencies and market participants by window-dressing earnings, these efforts appear to be counterproductive.
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Salleh, Zalailah, Hafiza Aishah Hashim, and Nor Raihan Mohamad. "Accrual quality: The presence of women directors on audit committee boards." Corporate Ownership and Control 10, no. 1 (2012): 675–80. http://dx.doi.org/10.22495/cocv10i1c7art3.
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This article examines whether the participation of women on audit committee boards enhances audit committee effectiveness to control earnings management practices. While numerous studies have investigated the effects of women audit committee on earnings management, empirical evidence is rather inconsistent. Therefore, it is imperative to investigate the impact of female representation on audit committee effectiveness. In order to address the objective of the study, we use cross-sectional version of the performance-adjusted current discretionary accruals model to detect earnings management (Kothari, Leone and Wasley, 2005). Using a sample of 356 companies for the year ended 2007; we found a significant negative relationship between the presence of women directors on audit committee boards and earning managements. The results suggest that the presence of women directors on audit committee boards reduces earning management practices.
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Kwon, Soo Young, Chee Yeow Lim, and Patricia Mui-Siang Tan. "Legal Systems and Earnings Quality: The Role of Auditor Industry Specialization." AUDITING: A Journal of Practice & Theory 26, no. 2 (November 1, 2007): 25–55. http://dx.doi.org/10.2308/aud.2007.26.2.25.
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This paper extends prior studies in auditor industry specialization to an international setting and examines if the impact of industry specialist auditors on earnings quality is dependent on the legal environments. Using data for 28 countries over 20 industries from 1993 to 2003, we find that clients of industry specialist auditors have lower discretionary current accruals and higher earnings response coefficients than clients of nonspecialist auditors. In addition, we find that the impact of auditor industry specialization on earnings quality increases as the legal environment weakens. Collectively, the results suggest that the benefits from engaging the services of industry specialist auditors increase as a country's legal environment shifts from a strong to a weak environment. Our results are robust to the inclusion of additional control variables.
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Min, Chung-Ki, and Sun Young Whang. "The Impact of Ownership Structure on Earnings Usefulness: Japanese Evidence." International Area Review 4, no. 1 (March 2001): 109–24. http://dx.doi.org/10.1177/223386590100400108.
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Using a large sample of Japanese firms, this paper examines the impact of the ownership structure on managerial incentives for income smoothing through discretionary accrual choices. Our results show that like US managers, Japanese managers engage in income smoothing in consideration of both current earnings and expected future earnings. More importantly, we find that managers' ability to smooth income through discretionary accrual choices is constrained by external monitoring by financial institutions, while it is enhanced by managerial entrenchment arising from cross-corporate shareholdings.
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Miko, Nuraddeen Usman, and Hasnah Kamardin. "Corporate governance mechanisms, sensitive factors and earnings management in Nigerian oil and gas industry." Corporate Ownership and Control 13, no. 2 (2016): 39–48. http://dx.doi.org/10.22495/cocv13i2p4.
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Oil and gas industry is considered as the sector that contributes a big share to the Nigeria economy. This study investigated the effects of corporate governance mechanisms, sensitive factors on earnings management of quoted oil and gas firms in Nigeria using the sample of nine (9) listed oil and gas firms for the period of ten years (2004-2013). Discretionary current accruals was used as the proxy for earnings management. Corporate governance mechanisms (boards size, chief executive officer (CEO) duality, directors’ ownership, audit committee size, audit committee independence), sensitive factors (corporate tax, corporate profit, corporate social responsibility) served as independent variables. The study concludes that corporate governance mechanisms curves earnings management while sensitive factors increase earnings management. The study recommends that corporate governance regulations should be strengthened to reflect present challenges.
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Goel, Sandeep. "Investment opportunity and anticipatory smoothing in corporate enterprises in India." Journal of Financial Crime 23, no. 3 (July 4, 2016): 655–70. http://dx.doi.org/10.1108/jfc-09-2015-0048.
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Purpose Income smoothing is exercised by the management for numerous reasons. Growth opportunities available to a firm are a very important reason but an undermined area for income smoothing by the management. This paper aims to review the income smoothing practices in corporate enterprises in India with respect to growth pattern of a firm as measured by investment opportunity set (IOS) defined in Fudenberg and Tirole’s (1995) model. In India, the main corporate ownership model is promoter dominated shareholders model. This makes the study unique highlighting the role of board for income smoothing. The study contributes by extending this model to earnings per share definition with IOS by a firm. The study also investigates the level of income smoothing and its impact on the informativeness of earnings in regard to IOS. Design/methodology/approach The enterprises have been chosen on the basis of their performance in terms of profit generation [profit after tax (PAT) performance] for the year 2007-2008 as per Economic Times October 2007 Survey in a private sector. The period to be covered is from 2003-2004 to 2007-2008. 2007-2008 has been a year of global recession which is an indicative reason for income smoothing by the corporate. DeAngelo model has been used for calculating discretionary accruals and detecting income smoothing. Fudenberg and Tirole’s (1995) model has been specifically used in studying the relationship between IOS and income smoothing. Specifically, we use three variables to construct an index of the IOS of each firm, market-to-book assets, market-to-book equity and the earnings price ratio. Findings An examination of the units shows that there is smoothing behaviour exercised by them. Analytical results of anticipatory smoothing and the IOS propose that concern about job security creates an incentive for managers to smooth earnings in consideration of both current and future relative performance. More explicitly, the extent of smoothing is expected to be negatively related to the level of IOS in periods of low current/high future performance and positively related to the level of IOS in periods of high current/low future performance. The empirical results confirmed our predictions. Research limitations/implications The sampling requirements were met by 12 units only of top 25 units, taken for the study. So, the present study was confined to only 12 profit-making corporate enterprises in the private sector in India, leaving all other enterprises. Though these companies constitute a significant size of Bombay Stock Exchange’s market capitalization for completeness of data, still the size can be extended for further study. The present study has not considered public sector units and closely held companies. The scope of the units can be extended to other units in diverse sectors with different size and scale of operations. It would further verify the present discussion and also provide future enlightenment on the issue of income smoothing. The magnitude of discretionary accruals has been analysed in regard to potential earnings management. But, discretionary accruals are not directly available. They are calculated as a proxy using a model. Estimating discretionary accruals is still a tedious task. Practical implications The results clearly indicate that growth opportunities available to a firm are potential indicative of a firm’s income smoothing behaviour. The findings of this study are important to standard setters and regulators, as it highlights the need for an effective regulation for detecting income smoothing. There is a strong need to have well-defined policies and regulatory mechanism with respect to prevent and detect income manipulation practices at an early stage. Standard-setting bodies can consider the attributes of assets and liabilities and changes in them also with the fundamental process of measurement of income. In short, the evidence argues for a revenue/expense and asset/liability view of earnings, rather than the cash-flow view of earnings. The findings of this study are important to policymakers and other stakeholders, as it highlights the need for an effective board in discharging their role qualitatively, rather than quantitatively. Social implications It brings out the importance of fair accounting for shareholders. Originality/value It is an original paper which highlights the income smoothing behaviour in Indian corporate enterprises in terms of growth opportunities available to them.
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Charfeddine, Lanouar, Wided Bouaine, and Housine Smida. "Smooth Earning, Annual Compensation and CEO Characteristics." International Journal of Accounting and Financial Reporting 1, no. 1 (December 1, 2011): 157. http://dx.doi.org/10.5296/ijafr.v1i1.971.
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The systems of compensation remain the main mean to reduce the conflicts of interests between chiefs executives officers (CEOs) and the shareholders. The CEOs compensation is supposed to be positively correlated with the performance of the company. Consequently, the CEOs can managed profits to determine their level of compensation or to increase the part of cash and/or options in compensation. This paper investigates the relationship between the discretionary accruals and annual compensation, current performance, future performance, level of debts and total of assets by using a panel data analysis. Empirical results show that the CEO smoothes results of the company in order to have an evolutionary compensation. Moreover, we showed that the tenure and the proportion of property increase the opportunities of this smoothing and decreases the opportunism of the CEOs as soon as they are rooted.
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Okougbo, Peace Onuwabhagbe, and Elewechi Okike. "Corporate governance and earnings management: Empirical evidence from Nigeria." Corporate Ownership and Control 12, no. 4 (2015): 312–26. http://dx.doi.org/10.22495/cocv12i4c2p7.
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This study contributes to the literature by providing a sub-Saharan African economy perspective on the relationship between corporate governance and earnings management, based on evidence produced from the accounts of listed companies in one of Africa’s largest economies, Nigeria. Using the Modified Jones model to estimate the discretionary accruals, the study examines whether CEO duality, board size and audit committee independence are able to restrain earnings management practices in the private sector in Nigeria. The results reveal there is a positive significant relationship between the size of the board, return on assets and earnings management. The study proposes that policy makers ensure that firms practise maintaining increasing levels of profits and desist from making losses so as to preclude downward management of earnings. This is essential in the current drive to attract foreign investments into the Nigerian economy.
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Toumeh, Ahmad A., Sofri Yahya, Mohammed M. Yassin, and Maha D. Ayoush. "The Moderating Effect of Audit Quality on the Links Between Stock Market Segmentations, Surplus Free Cash Flow, and Income-increasing Discretionary Accruals." Australasian Business, Accounting and Finance Journal 15, no. 4 (2021): 153–74. http://dx.doi.org/10.14453/aabfj.v15i4.9.
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The objective of this paper is to examine the impacts of stock market segmentations (SMS) and surplus free cash flow (SFCF) on income-increasing discretionary accruals. The study also provides the initial evidence regarding the influence of audit quality (AQ) as a moderating variable on those relationships. A sample of non-financial firms was taken from the list of Amman Stock Exchange over the period 2013-2019. Using Huber-White’s sandwich estimator for pooled OLS regression, the current research presents empirical evidence harmonious with the prediction in all hypotheses. Further, the findings document that a Big 4 auditor weakens the SMS-DAC and SFCF-DAC associations, which suggests that the role of Big 4 audit firms is effective in mitigating management’s opportunistic behaviour. However, the reported results provide beneficial information to investors, regulators, external auditors, policymakers, shareholders, and other countries with similar institutional environment.
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Alzoubi, Ebraheem Saleem Salem. "Audit quality and earnings management: evidence from Jordan." Journal of Applied Accounting Research 17, no. 2 (May 9, 2016): 170–89. http://dx.doi.org/10.1108/jaar-09-2014-0089.
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Purpose – The purpose of this paper is to test the association between audit quality and earnings management (EM). Audit quality studies documented that accruals would reduce when the auditor is independent or the audit firm is large. Design/methodology/approach – This paper uses generalised least square regression to investigate the influence of audit quality on EM. The sample contained 86 companies listed on the Amman Stock Exchange from 2007 to 2010. The cross-sectional modified Jones model was employed to measure discretionary accruals as a proxy for EM. Findings – This paper revealed that there is a significantly negative association between audit quality and EM. The result inferred that EM level is significantly lower among companies using the services of independent auditors. Moreover, this study exposed that the level of EM is significantly less among companies hiring a Big 4 audit firm, as compared to companies utilising the service of a non-Big 4 audit firm. Research limitations/implications – The measurement error, which is a rigorous concern for studies on EM, is one of the limitations in this study. Hence, the current study wholly inherited the limits of the modified Jones model. Practical implications – The findings based on the current study would provide beneficial information for regulators in Jordan and other countries with an institutional environment similar to that of Jordan. Moreover, the results provided valuable information to investors in assessing the influence of audit quality on financial reporting quality (FRQ). Originality/value – The current study contributed to auditing and corporate governance literature and its influence on EM among Jordanian companies. This research will be of value to companies seeking to reduce EM and enhance FRQ.
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Gumanti, Tatang Ary, Ari Sita Nastiti, and Ayu Retsi Lestari. "Good corporate governance and earnings management in Indonesian initial public offerings." Corporate Ownership and Control 13, no. 4 (2016): 558–65. http://dx.doi.org/10.22495/cocv13i4c4p5.
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This study investigates the relationship between corporate governance mechanisms and earnings management (as measured by discretionary current accruals) for Indonesian IPO firms. Previous studies have mainly focused on an examination of the effect of corporate governance on the earnings management of publicly traded firms, whilst this study examines newly listed firms. It employs a modified Jones model to measure earnings management as developed by Tykvova (2006). The hypothesis predicts that Indonesian IPO firms with good corporate governance will engage in less earnings management in the periods prior to the IPO year. The sample consists of 75 IPOs and the results show that the proportion of board of commissioners, public ownership, institutional ownership and managerial ownership constrain the extent of earnings management of IPO firms. This study contributes to the literature in showing that corporate governance mechanism is an important determinant in earnings management practices for Indonesian IPO firms.
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Gul, Ferdinand A., Bikki L. Jaggi, and Gopal V. Krishnan. "Auditor Independence: Evidence on the Joint Effects of Auditor Tenure and Nonaudit Fees." AUDITING: A Journal of Practice & Theory 26, no. 2 (November 1, 2007): 117–42. http://dx.doi.org/10.2308/aud.2007.26.2.117.
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This study examines whether the impact of nonaudit fees on auditor independence is contingent on auditor tenure. The results, based on a sample of 4,720 U.S. firms for the years 2000 and 2001, show that there is a positive association between nonaudit fees and positive discretionary current accruals, a proxy for auditor independence, for firms with short auditor tenure of not more than three years. These findings suggest that nonaudit fees may impair auditor independence when auditor tenure is short and not when auditor tenure is long. Furthermore, exploratory analyses show that the positive association between nonaudit fees and earnings management for firms with short auditor tenure is significant for small clients but not for large clients. Taken together, these results suggest that the association between nonaudit fees and auditor independence is contingent upon auditor tenure, and that high nonaudit fees have a negative impact on auditor independence when audit tenure is short and client firm size is small.