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Earnings Management to Exceed Thresholds
Abstract
Investors are keenly interested in financial reports of earnings because earnings provide important information for investment decisions. Thus, executives who are monitored by investors and directors face strong incentives to manage earnings. We introduce consideration of behavioural/institutional thresholds for earnings in this mix of incentives and governance. A model illustrates how thresholds induce specific types of earnings management. Empirical explorations find clear support for earnings management to exceed each of the three thresholds that we consider: positive profits, sustain-recent-performance, and meet-market-expectations. The thresholds are hierarchically ranked. The future performance of firms that possibly boost earnings to just cross a threshold appears to be poorer than that of less suspect control groups.
... Earnings management shows a corporate practice that is a deterrent to value relevance of accounting information (Marquardt and Wiedman, 2004). Existing literature has documented several firm specific and institutional determinants of earning management (Burgstahler and Dichev, 1997;Cheng and Warfield, 2005;Degeorge et al., 1999;García-Meca and Sánchez-Ballesta, 2009;Shen and Chih, 2007). However, limited attention has been paid to examine the impact of investor sentiment on accrual-based earnings management (AEM, hereafter). ...
... Early study by Rajgopal et al. (2007) documents that managers try to cater the prevailing investor demand for earnings surprises by increasing abnormal accruals. Such catering behaviour of managers are related to four incentives, i.e., stock price concerns related to negative earnings surprise, matching the past performance, to maintain repute with the stakeholders, and to either beat or meet the analysts' forecasts (Burgstahler and Dichev, 1997;Degeorge et al., 1999). Consistent with arguments, Hurwitz (2018) find that management earnings forecast optimism increases with optimistic sentiment environment. ...
... In other words, positive (negative) earnings announcement news during optimistic (pessimistic) sentiment periods has more inherent information content. Companies manage earnings upward to avoid reporting losses, earnings declines, or negative earnings surprises on their short-horizon disclosure choices (Burgstahler and Dichev, 1997;Degeorge et al., 1999;Filip and Raffournier, 2014). During lowsentiment periods, managers increase the frequency of long-horizon earnings forecasts to adjust market expectations of future earnings upwards to correct a pessimistic bias in analyst earnings estimates (Bergman and Roychowdhury, 2008). ...
This paper examines the implications of firm-level governance mechanisms and the regulatory environment on the relationship between investor sentiment and accrual-based earnings management. Our findings confirm the positive impact of sentiment on earnings management through accruals. Our results confirm that in the presence of a stringent regulatory environment, the likelihood of abnormal accruals following a positive sentiment environment is low. We document that a stringent regulatory environment reduces the likelihood of abnormal accruals following a positive sentiment environment. Results further confirm that improved governance characteristics like larger board, increased board independence, and stringent related party transaction norms help to monitor corporate behaviour and mitigates opportunistic earnings management activity of managers with an exogeneous effect of market sentiment. Thus, our results have important implications for regulators and policymakers for strengthening the regulatory and monitoring environment. Investors may also use earnings announcement news during an optimistic market sentiment scenario in a more informative way.
... Prior studies suggest that investors exhibit a "threshold mentality" when individuals perceive continuous data in discrete form (Degeorge et al., 1999). The identified thresholds include zero earnings, last year's earnings, and analyst earnings forecasts (Burgstahler & Dichev, 1997;Degeorge et al., 1999). ...
... Prior studies suggest that investors exhibit a "threshold mentality" when individuals perceive continuous data in discrete form (Degeorge et al., 1999). The identified thresholds include zero earnings, last year's earnings, and analyst earnings forecasts (Burgstahler & Dichev, 1997;Degeorge et al., 1999). Recent studies further document that since the mid-1990s, reporting earnings that meet analyst forecasts and increases from last year's earnings become more important than reporting positive earnings (Brown & Caylor, 2005;Herrmann et al., 2011). ...
... Since we hypothesize that sin firms are more likely to manage earnings to just meet the thresholds but not significantly exceed them, we use two alternative sets of dependent variables to examine opportunistic reporting behavior. In addition, we follow Degeorge et al. (1999) and calculate the "bin width" of the areas that are adjacent to the benchmark in both directions (the "just meet" and "just miss" areas). 1* Our first set of dependent variables, Beat, SmBeat, and LgBeat, explores the threshold of consensus analyst forecasts. ...
Social norms deter socially responsible investors from investing in sin firms, i.e., firms that sell unethical products and profit from human vice. Existing literature documents that sin firms are less held by institutional investors and less followed by analysts, and this neglect effect leads to higher expected returns than in other firms. Our study explores the earnings management behavior of sin firms. Our empirical findings suggest that compared to others, sin firms are more likely to report small earrings surprises and small earnings increases, but less likely to report superior earnings. Sin firms’ earnings management behavior is exacerbated by lower non-transient institutional ownership, lower analyst coverage, and greater litigation risks. Additional analyses document that sin firms use both accrual-based management and real activity manipulation to report earnings that just meet earnings thresholds. The overall findings suggest that sin firms’ opportunistic behavior likely increases the information risks and contributes to the documented higher expected returns.
... Studies that adopt this approach usually focus on a specific industry, such as property and casualty insurance (e.g., Petroni 1992;Petroni et al. 2000;Beaver et al. 2003;Gaver and Paterson 2004) or banking (e.g., Wahlen 1994;Cornett et al. 2009;Ahn and Choi 2009). Another accepted approach includes studies that examine the statistical properties of earnings to identify behaviour that might influence the earnings (e.g., Burgstahler and Dichev 1997;Degeorge et al. 1999;Burgstahler and Eames 2006;Kerstein and Rai 2007;Beaver et al. 2007). The following sections briefly discuss the proxies used under such approaches. ...
... Their results also show low frequencies of small losses and earnings declines, unusually high frequencies of small positive earnings as well as earnings increases. Using a similar analysis, Degeorge et al. (1999) find evidence that earnings are managed in order to beat analyst expectations, report profits and sustain earnings growth strings. ...
... These range from the naïve models, such as the models of Healy (1985) and DeAngelo (1986), to more advanced discretionary models, such as the Jones (1991) model and its modifications. In addition, different methodologies and approaches have evolved to overcome the downsides of accruals models, such as those that test a specific accrual or set of accruals or accounts (e.g., McNichols and Wilson 1988;Beneish 1997), or the distribution approach (e.g., Burgstahler and Dichev 1997;Degeorge et al. 1999). ...
The main purpose of this study is to provide further insights into the potential influence of a number of internal and external governance mechanisms in constraining earnings management and determining the agency costs level. In addition, this study attempts to enhance the understanding of a number of issues relating to ownership structure and corporate governance in an emerging country setting. The international corporate collapse and accounting scandals surrounding some prominent large companies (e.g. Enron, Xerox, World.com, HealthSouth, Tyco, Waste management, RiteAid and Subeam) raised concern about the effectiveness of different monitoring devices that protect investors’ interests. The majority of failures have resulted, in part, from accounting manipulation and dereliction of efficient corporate governance mechanisms that control the opportunistic behaviour of management. This study argues that agency conflicts within a firm are considered to be among the influential sources of earnings management activities. In emerging countries with highly concentrated ownership, the prevalence of agency conflicts is more likely to lie mainly between controlling and minority shareholders rather than between managers and outside shareholders. Such conflicts, combined with the weak legal protection of minority shareholders and the flexibility inherent in accounting choices, are likely to induce managers to manipulate the reported earnings and adopt a range of activities that might be contrary to minority stockholders’ interests. Using an original data set for a sample of Egyptian listed firms, the findings of the empirical analyses are in agreement with this argument. It is shown that corporate governance mechanisms do not work in isolation, but they interact to effectively curb earnings management and alleviate different agency conflicts. It is also shown that firm-specific characteristics (e.g., growth opportunities) play a crucial role in understanding the conditional role of such mechanisms and other governance mechanisms, such as dividends and short debt, may help resolve corporate agency problems.
... The method scrutinises EM derived from each financial report without imposing symmetric assumptions on earnings (Dutta & Nezlobin, 2016), as well as allows for broader verification of manipulations in multiple measures (Beretka, 2019). We obtain distributions of standardised difference according to Burgstahler and Dichev (1997) and Degeorge, Patel and Zeckhauser (1999) and compute banks' ratios from the annual reports. The second issue compares the relative magnitude of the managed earnings 'Before' and 'After' the IFRS adoption in 2012. ...
... They suggest that the kink is triggered due to firms' manipulation of their cash flow to boost earnings. Degeorge et al. (1999) observe that earnings that fall closely below the threshold are boosted upwards, while earnings far above the threshold are trimmed downward. They argue that if the manager's remuneration is just a single bonus conditioned on the firm attaining an earning threshold, he would more likely manipulate reports to meet (and surpass) the threshold but any downward manipulation far from the bonus threshold. ...
... Some authors (Leuz et al., 2003;Degeorge et al., 1999;Burgstahler & Dichev, 1997) used statistical constructs to meet or beat thresholds. They suggested that the pattern on the histogram, even if visibly depicted EM, needs to be verified with a standardised difference test under the null of no EM. ...
Earnings management (EM) practice has raised concerns amongst different stakeholders. Analysing financial reports to detect anomalies aims to reduce associated risks to earnings manipulations and safeguard investors’ funds. This study verifies two main issues (a) whether annual reports of the Deposit Money Banks [DMBs] reflect evidence of EM and (b) whether the DMBs engage in more manipulations in periods ‘After’ mandatory adoption of IFRS relative to ‘Prior’ IFRS periods. The study involves all 19 DMBs in Nigeria, but the established selection criteria constrained the final sample to 17 banks. The final sample comprises 319 observations for each bank-ratio form. We compute 14 bank-specific ‘earnings’ ratios for the different years from 2001 to 2020, obtain the distribution of ratios and estimate the Kolmogorov-Smirnov statistics to address two issues. The finding confirms endemic EM but that the manipulations are not consistently a yearly phenomenon. The evidence supposes more EM for the banks' financials prior- relative to the post-IFRS adoption. The evidence supposes implications for banks to attenuate earnings misreporting. We offer those bank supervisory agencies should ensure appropriate monitoring and engagement of officials during the reporting of bank financial records to circumvent opportunistic misreporting.
... I further show that companies in different countries have different incentives to manage reported earnings, and thus have different thresholds. Following DeGeorge et al. (1999) drawing on three psychological theories, I argue that managing earnings against loss, against earnings decrease, and against negative earnings surprise are three common thresholds across countries. ...
... In order to control for the endogenous problems associated with earnings management measures, I follow Burgstahler and Dichev (1997) and DeGeorge et al. (1999) and use the distribution method to measure earnings management. As the only assumption of this method is that the standardized earnings or change in earnings follow normal distribution, it might more precisely capture earnings management in the international setting. ...
... Alternatively, I followDeGeorge et al. (1999), and use f `(xn) as the change of the probability from interval i to interval i+1. I calculate the expected mean of the change across the distribution, assuming the expected change converges to a constant. ...
This study investigates the relation between accounting standards and earnings management around the world. I find that international accounting standards, accrual-based accounting standards, accounting standards with increased disclosure requirements, and separating tax and financial reporting all constrain earnings management. Following previous studies, I treat accounting standard measures as being endogenous, and use instrumental variables to re-estimate the model. I find consistent results. I conclude that accounting standard policy is an important institution in determining the quality of reported financial information. Different from prior international earnings management studies, I directly test whether international firms are managing earnings using the distribution method. I find evidence that firms are managing reported earnings around the world. I also document that high-quality accounting standards decrease analyst forecast error.
... Consequently, it is natural for external stakeholders, such as investors, analysts, banks and creditors, to use thresholds (reference points) as a means of judging and rewarding management performance. The end result is that managers also focus on thresholds, such as positive, consistent earnings and analyst forecasts, when reporting to their stakeholders (Degeorge et al., 1999). ...
... Burgstahler and Dichev (1997b) examined non-financial companies in the US for the period 1976 to 1994 and observed statistically significant irregularities around zero in the distribution of earnings and change in earnings, suggesting that managers were managing earnings to achieve specific earnings thresholds. Following Burgstahler and Dichev (1997b), Degeorge et al., (1999) developed a model to identify earnings management patterns that produce specific breaks and distortions in the distribution of observed earnings. Their model shows how efforts to exceed thresholds induce a unique blueprint of earnings management. ...
... Several studies have criticised the research method and findings of Burgstahler and Dichev (1997b) and Degeorge et al., (1999). McNichols (2000) argues the unlikelihood that the large differences in the narrow intervals around specific earnings thresholds were due to the behaviour of the nondiscretionary component of earnings. ...
The purpose of this study is to determine whether South African managers manage earnings to avoid reporting small losses (small earnings decreases). The study covers all the companies listed on the Johannesburg Stock Exchange (JSE) from 2003 to 2011. In line with Burgstahler and Dichev (1997), the cross-sectional distributions of earnings and changes in earnings are examined and the distributions are shown in histograms. Previous research (using data from the United States) has shown that the distribution curve for both the earnings and the change in earnings variable had noticeably fewer observations just below zero than would normally be expected, and a significantly higher number of observations just above zero. This pattern in the distributions suggests that managers manage reported earnings to ensure that earnings do not fall below a specific threshold, this being zero or the previous year’s performance. Interestingly, and in contrast with the previous literature, using the Burgstahler and Dichev (1997) research model of analysis, our results show no evidence in South Africa of managers managing earnings to avoid reporting small losses or small decreases in earnings. A possible reason for this could be the relatively smaller size of the JSE (compared with stock exchanges in the United States). In addition, and more important, is the possibility that investors and analysts in South Africa may be fixated on other performance indicators, such as revenue and headline earnings per share, rather than on earnings (profits). This study adds to the limited research on earnings management in South Africa, which is a developing economy. Furthermore, previous research shows an inverse relationship between earnings management and earnings quality. The results of this study may therefore be useful to the users and the regulators of financial reports, both are concerned with earnings for the purposes of assessing the cost of capital and how companies utilise their resources.
... Real earnings management stems from actual operational decisions such as cuts in research and development (R&D) spending; price discounts accelerating sales; overproduction decreasing the cost of goods sold; or cuts in selling, general, and administrative expenses. Managers use these techniques mainly to inflate current earnings to avoid presenting losses or to meet or beat earnings targets (Burgstahler and Dichev, 1997;Degeorge et al., 1999;Dechow and Skinner, 2000). ...
... Previous research shows that earnings management is more severe in firm-years with reported earnings marginally above earnings targets (Burgstahler and Dichev, 1997;Degeorge et al., 1999). Moreover, results of other studies (Bushee, 1998;Gunny, 2010;Roychowdhury, 2006) suggest that benchmark-beating firms engage more in real operations manipulation than others. ...
Theoretical models predict that the threat of outside blockholder exit can mitigate agency problems and force managers to undertake actions that would maximize firm value in the long run. We examine whether the institutional blockholder exit threat curbs managerial misbehavior and short-termism reflected in real earnings management. Our study exploits a natural experiment—the Polish pension fund reform of 2013 that encouraged pension funds to trade more actively and imposed a real threat of exit on their portfolio companies. Using a difference-in-differences approach, we provide evidence that the reform significantly decreased the level of real earnings management in “treated” companies, that is, companies with open-ended pension funds (OFEs) playing the role of blockholders. The effect was more significant for firms in a multiple blockholder setting, firms under common ownership, and firms with higher insider’s stakes. Moreover, we confirmed that treated companies that decreased real earnings management in the post-reform period experienced the increased long-term operating performance.
... Prior research by Burgstahler and Dichev (1997), and Degeorge, Patel, and Zeckhauser (1999) found crosssectional evidence that: (1) small reported losses are unusually rare while small reported profits are unusually common, and (2) small declines in reported earnings are unusually rare while small increases in reported earnings, suggesting that managers use their accounting discretion to avoid reporting losses and earnings declines. Managers exercise discretion over earnings to enhance earnings information by allowing communication of private information. ...
... It is most important to avoid losses, but once profitability is achieved it is then important to report increases in quarterly earnings and once increases have been achieved the goal becomes meeti g a al sts ear i gs fore asts. Watt and Zimmerman (1986); Holtahusen (1995); Degeorge, Patel, and Zeckhauser (1999)). Managers of firms that achieve long string of consecutive increases in quarterly earnings per share (EPS), have stronger incentives than mangers of other forms to practice earnings management. ...
Earnings are the powerful indicators of the firm's business activities. Since a company's stock is measured by the present value of its future earnings, investors and analysts look to earnings to determine the attractiveness of a particular stock. Companies with poor earnings prospects will typically have lower share prices than those withgood prospects. So, Earnings management plays a key role to determine the share price of a company as well as direct resource allocation in capital market. This paper specially focuses on earnings management, quality of earnings and various techniques (like cookie jar reserve, big bath, and big bet) that are used to manage earnings in the business entity. Extent and type of earnings management depends on several factors like stock market incentives, personal incentives, political & regulatory motives. Finally, this paper concludes that rigorous accounting standard, awareness of audit committee, corporate governance and consciousness and the morality of the stake holders play a vital role to control earnings management.
... Previous studies' findings demonstrate the impact of beating earnings benchmarks in respect of firms with greater uncertainty regarding the cost of capital. Many studies' findings have indicated the impact of beating earnings on bondholders' future payoffs (Burgstahler and Dichev, 1997;Degeorge et al.,1999;Jaing, 2008;Zhang, 2018) and, hence, this provides the biggest reward in terms of the lower cost of debt. Similarly, previous studies have concentrated on the association between beating earnings benchmarks and equity capital (Kasnik and McNichols, 2002;Bartov et al., 2002;Jensen, 2005;Koonce and Lipe, 2010). ...
... An increasing body of empirical studies have presented the incentives of mangers to mask the true economic performance of their firms through conducting different tools of earnings management (such as: AEM, REM, and CS). They take such actions either to avoid the reporting of losses and reduced earnings decrease (e.g., Burgstahler and Dichev, 1997;Degeorge et al., 1999;Skinner and Sloan, 2002;McVay, 2006;Gore et al., 2007;Koh et al., 2008;Bartov et al., 2009;Osma and Young, 2009;Barua et al., 2010;Fan et al., 2010) or to meet accounting targets (i.e., Graham et al., (2005)). Phillips et al., (2003) have determined many earnings thresholds that motivate managers to engage in earnings management. ...
... Stakeholders, including analysts, investors, and boards, rely heavily on financial reports of earnings. Motivated by specific targets, managers may manipulate earnings, influenced by factors such as the desire to report positive profits, sustain performance levels, and meet analysts' expectations, as identified by Degeorge, Patel, and Zeckhauser (1999). ...
This study bridges a notable gap in the earnings management literature by incorporating R&D expenses into a novel research model. It categorizes earnings management into two types: predictive and opportunistic. This research explores the intricate relationship among earnings management, compensation structures, and firm performance—a triad of persistent concern to regulators, practitioners, and academics alike. Our findings reveal that in Taiwan, an emerging market, corporate governance mechanisms like compensation policies significantly influence executive behavior and overall firm performance. Specifically, we demonstrate that enhancing executive compensation can improve firm outcomes by encouraging executives to engage in predictive earnings management.
... In the manufacturing sector, where raw material costs can fluctuate, income smoothing can be seen as a deliberate signal to demonstrate stability in the face of unpredictable economic conditions. Furthermore, Degeorge et al. (1999) provide empirical evidence supporting the application of signaling theory in the context of financial reporting. The study suggests that companies engage in earnings management to signal private information to the market. ...
This research aims to assess the factors influencing income smoothing practices among manufacturing firms in Kenya. Income smoothing, a financial management strategy used by organizations, intentionally manipulates reported earnings to achieve stable and predictable financial performance. This practice, driven by management incentives and regulatory frameworks, impacts decision-making processes and stakeholder perceptions. This study examines income smoothing practices among manufacturing firms in Kenya and recognizes the unique challenges they face, including fluctuating raw material costs and evolving regulatory environments. Based on theoretical frameworks such as agency theory and signaling theory as well as empirical findings, the factors that influence income smoothing behavior are examined. The most important influencing factors include regulatory frameworks, management incentives, industry competition and economic conditions. The study shows that during economic volatility, companies tend to adopt income smoothing measures to increase stakeholder confidence, while regulatory changes such as the introduction of International Financial Reporting Standards (IFRS) increase transparency and reduce income smoothing. In addition to the compensation structures for executives, competitive pressure and access to capital markets also shape income smoothing practices. Understanding these influencing factors provides insights into the dynamics of income smoothing and its impact on financial transparency and decision-making in the manufacturing sector in Kenya.
... Notes 1 See, e.g. Degeorge et al. (1999), Dechow et al. (2003), Leuz et al. (2003), Burgstahler and Eames (2006), and Burgstahler and Chuk (2017). Measures of small loss avoidance are among the proxies for earnings quality in the review of Dechow et al. (2010) in their Sections 3.1.4 ...
For a long time, the most vivid evidence of earnings management has been a discontinuity of earnings distributions at the threshold of profits and losses, indicating loss-avoidance behavior. In the US, this discontinuity disappeared around the time the Sarbanes-Oxley Act was implemented, suggesting that the reform had successfully pushed back earnings management. In 2006, the EU established its own set of rules for audits, public oversight of audits and investor protection in Directive 2006/43/EC, sometimes referred to as 'European SOX'. We analyse whether the zero earnings discontinuity in Europe has disappeared after the introduction of European SOX and find that this is not the case: In contrast to the US, the discontinuity has remained stable in Europe, and it remains more pronounced in code law countries and in cultures of high uncertainty avoidance.
... Earnings management is explained through the lens of various well-known theories, which complement and interconnect with each other, including agency theory, contract theory, signaling theory, institutional theory, and the threshold theory. Building upon these, the literature considers that earnings management derives from "the game of information disclosure that executives and outsiders must play" (Degeorge et al., 1999). The "game" takes into account the principle that earnings consist of both cash flows and accounting adjustments, which give rise to accruals. ...
This research investigates the nexus between the corporate life cycle (CLC) and accrual-based earnings management (AEM) and real earnings management (REM) practices. Companies listed on the main segment of the Bucharest Stock Exchange between 2007 and 2021 are analyzed through fixed effects and random effects models. The regression analysis uncovers that earnings management practices vary based on the developmental stage of the company. In the introduction stage, Romanian companies tend to prefer AEM techniques, while in the growth and maturity phases, REM practices are more prevalent. The conditions in which firms operate, the pressure from the capital market and the discretion over costs characteristic of each stage of development explain the preference for a certain method of earnings management. Overall, this investigation helps clarify CLC's role in adopting earnings management techniques (AEM/REM) and signals the need to pay particular attention to the quality of financial reporting of companies in the early stages of development. The findings hold significance for auditors, financial analysts, investors, lenders, and regulators alike.
... Several studies provide evidence consistent with the intuition that firms manage earnings upward to avoid reporting losses, earnings declines, or negative earnings surprises that are caused by unfavorable macroeconomic conditions (Ayers, Jiang, & Yeung, 2006;Burgstahler & Dichev, 1997;Degeorge, Patel, & Zeckhauser, 1999;Howe & Houston, 2016). In addition, Filip and Raffournier (2014) and Jenkins, Kane, and Velury (2009) show that macroeconomic conditions affect the information content of accounting data. ...
... (2) indicator variable (Beat/Meet) that equals one if the firm meets or just beats last year's earnings per share, and zero otherwise (Burgstahler and Dichev 1997;DeGeorge, Patel, and Zeckhauser 1999). 12 For ex post measures of misreporting, we use firm-years that are subsequently restated, which should have lower Type I errors (false positives) than ex ante measures, because these firms disclose that they have misstated their financial statements. ...
In common-law systems, firms’ litigation risk depends both on written laws and how courts interpret these laws. Using 321 US circuit court rulings, we introduce a novel measure capturing courts’ attitudes toward defendants in securities lawsuits. Our results confirm that financial misreporting firms in more defendant-friendly circuits face fewer lawsuits. Consistent with lower expected litigation costs, firms in these circuits face less negative market reactions when misreporting is revealed, invest less in preventing misreporting, and are more likely to engage in aggressive misreporting. We conclude that defendant-friendly precedents reduce firms’ legal liability and worsen their financial reporting quality.
... قدم ولقد(Degeorge et al., 1999) ة إدار أن عمى ً يبيا وتجر ً يا نظر ً دليال انخفاض تجنب إلى يميمون ين المدير باح األر ع المحاسبية يعرف ما أو السابقة، المحاسبية ات الفتر ن السمبية ائد العو تحقيق بمفاجئة Negative Earnings Surprise في الرغبة ين المدير لدى أن و ، الماليين، المحممين ات تنبؤ ومقابمة الحالي الشركة أداء عمى لمحفاظ باح األر من األدنى الحد تحقيق بمم ين المدير قيام المفاجئ من ليس ولذلك المستيدفة باح األر لتحقيق الحقيقية باح األر ة إدار ارسات اسة در أظيرت و الشركة. ة إدار أداء تقييم في ذلك عمى المصالح أصحاب العتماد وذلك أيضا المعموماتية القيمة من تحسن ألنيا الجميور و لممساىمين فقط باح لألر في الجميور. ...
... Due to the change in the environment, the companies' performance is worse, which leads to the crisis of survival and the threat of bankruptcy. Degeorge et al. (1999) and Young and Wu (2003) all found that in order to reach the expected performance threshold, companies will further adopt earnings management to make the performance meet the threshold. Jo and Kim (2008) found that long-term performance is inversely related to information disclosure and earnings management. ...
Corporate social responsibility (CSR) has drawn much attention from society and has become an important issue in the market, such as corporate governance, employee protection, and environmental protection. However, firms are not asked to issue CSR reports compulsorily in Taiwan. Moreover, the electronics industry has played an important role in Taiwan's industry. Therefore, this study employs the behavioral theory of the firm to examine what kinds of firms are willing to publish the CSR report. We use the listed firms in the electronic industry from 2005 to 2017 as our sample and build the logit and probit model to investigate the relation between five situations firms faced and the intention of CSR report disclosure. The results show that firms with higher performance gaps are more likely to issue CSR reports. When the performance exceeds the target, the firm is more willing to give a CSR report. Similarly, the firm is more inclined to issue a CSR report when there is a smaller gap between performance and target in a negative performance gap. The firm with more potential slack, higher survival distress, less competitive pressure, and lower bankruptcy threat is more willing to issue a CSR report.
... In the second group, the firms are those that just meet or beat analysts' earnings forecasts. Prior researchers document that there is a discontinuity in earnings distribution around zero (Hayn, 1995;Burgstahler & Dichev, 1997;Degeorge, Patel, & Zeckhauser, 1999;Jacob & Jorgensen, 2007). More specifically, there is a remarkable upward shift in the frequency of earnings going from the left of zero to just the right of zero, and it is interpreted as evidence of earnings management to avoid reporting negative earnings. ...
This study investigates whether corporate governance can mitigate real earnings management. Specifically, this study investigates the role of the board and institutional owners to mitigate real earnings management. In recent years, firms have been switching from accrual-based earnings management to real earnings management, and the incidence of real earnings management has increased. The role of corporate governance to reduce accrual-based earnings management is well documented in the literature; however, there is no firm evidence regarding the role of corporate governance to constrain real earnings management. In order to fill the gap in the literature, this paper examines whether corporate governance, specifically the board of directors and institutional investors, play any role to reduce real earnings management. In this study, I find the evidence that firms engage in real earnings management either to avoid reporting losses or to meet analysts' forecasts. The cross-sectional analysis reveals that these activities are less prevalent for the firms that have larger institutional investors; however, no evidence regarding the role of the board to prevent real earnings management is indicated.
... 상기 연구들은 보험수리적 가정이 재무제표 주석에 공시되므로 측정오류로부터 비교적 자유로움을 강조하였다. 5) 1) 이익목표치를 달성한 보고이익에 대한 시장의 긍정적 반응은 기업가치를 향상시키며 이는 곧 경영자가 보유한 주식 및 옵션의 가치 뿐 아니라 주가와 연동된 경영자 보상의 증가와 같은 경영자 개인에 대한 혜택으로도 이어지게 된다 (Degeorge et al., 1999;Bartov et al., 2002;Kasznik and McNichols, 2002;An et al., 2014). 반면 보고이익이 이익목표치에 미달하는 경우 이익의 미달 정도가 크지 않다하더라도 주가는 큰 폭으로 하락할 가능성이 높다 (Skinner and Sloan, 2002). ...
This study examines whether managers are likely to exercise discretion in determining pension plan actuarial assumptions to meet or exceed earnings targets. According to current accounting standards, managers can exercise broad discretion in setting actuarial assumptions under a defined benefit (DB) pension plan. Existing literature documents that managers can manage earnings upward by manipulating pension plan assumptions. Based on sample firms with DB pension plans from 2011 to 2018, our results reveal the followings. First, managers tend to manipulate pension assumptions optimistically when the unmanaged earnings miss the targets. Second, investors do not recognize the effect of changing assumptions on reported earnings and thus react favorably to the overstated earnings. Third, manipulating firms under-perform in the long run compared to the control group despite favorable short-term performance, which suggests accrual reversal and managerial attribute effects.
... As indicated earlier, middle managers are often given targets for their subunits. Besides these formalized targets, other benchmarks, such as losses, earnings decreases, and missing external expectations, apply (Degeorge et al. 1999). Firms in financial distress are considered to be particularly prone to target beating as they stand to gain the most from this practice (Cheng et al. 2016;Jiang 2008) and try to avoid debt covenant violations (Franz et al. 2014). ...
The accounting process is complex and prone to interference from the various parties involved. Using middle managers, we examine one of the unknowns of this process. They are able to influence earnings long before top executives can, but their actions are virtually untraceable in consolidated financial statements. We gather survey data from 77 middle managers to shed light on their motivations, the extent of their earnings management, and the relevant limitations of the associated practices. Our results indicate that there is no uniform motivation that drives all of these managers equally. The spectrum of reported motivations includes meeting targets, smoothing earnings, and reducing future expectations. Despite this diversity, a large majority of the surveyed middle managers state that they manage earnings substantially but mostly downwards. To this end, they employ both accounting actions, such as adjustments to provisions, and real actions, such as transaction shifts. In the opinions of the middle managers in this sample, the factors that most limit their discretion are auditors and internal controls. The results also reveal the influence of superiors on middle managers’ practices throughout the accounting process.
... These researchers further argued that since management have greater motivation for achieving earnings benchmark, they will make fewer allocation of earnings than anticipated just below the threshold and more allocation than anticipated just above the threshold. They argued further that, these thresholds are in three forms which are: an analysts' consensus forecast, previous year earnings and positive earnings (Burgstahler & Dichev, 1997;Degeorge, Petel, & Zeckhauser, 1999).the earnings management is evident when the earnings allocation is discontinued. ...
Earnings management has attracted considerable research efforts by various scholars across the domain of finance,
management and governance and investigating various jurisdictions. Studies have shown different characteristics of earnings
management by the companies listed on different stock exchanges with some exhibiting income-decreasing (downward earnings
management) while some have exhibited income-increasing (upward earnings management) behavior. This study examines the
extent and form of earnings management exhibited by companies listed on the Nigerian Stock Exchange. To investigate this,
panel data technique is used on a sample of 101 companies across all the sectors of the Nigerian economy, covering the period
2009-2012. The occurrence of earnings management is detected using the Modified Jones Model of detecting discretionary
accruals as a proxy for earnings management. The empirical results show that firms listed on the Nigerian Stock Exchange in
the aggregate over the four year period exhibit a downward earnings management.
Keywords: Earnings Management, Discretionary Accruals, Modified Jones Model, Nigerian Stock Exchange
... The larger values of audit reporting aggressiveness indicate that individual auditors are less willing to issue a modified audit opinion and more tolerant of clients' income-increasing behaviors even if the financial statements of companies are not presented in a reasonable manner (Gul et al., 2013). According to Burgstahler and Dichev (1997), companies are more likely to declare a small profit rather than a small loss because they are required to meet earnings thresholds (Degeorge et al., 1999;Na & Hong, 2017). The presence of a small profit in the audited financial statements of clients indicates that individual auditors are more tolerant of clients exceeding thresholds to obtain some gains (Burgstahler & Dichev, 1997). ...
This study investigates the effect of individual auditors from more religious hometowns on audit quality, utilizing social identity and social norm theories via a sample of Turkish companies listed on the Borsa Istanbul and their associated individual auditors between the years 2010 and 2019. The sample includes a unique hand-collected dataset and secondary data gathered from various sources. The main findings demonstrate that individual auditors from more religious hometowns provide higher quality audit work in terms of the magnitudes of discretionary accruals, audit reporting aggressiveness, and the presence of small profits. In order to overcome potential endogeneity and selection problems, this study employs the Heckman two-stage estimation procedure, instrumental variables, system generalized methods of moments regressions, and propensity score matching-difference and differences method. The results of these additional tests also support the main results. When controlled for the religiosity levels of the province where clients operate and the religiosity levels of the province where individual auditors attended and graduated from universities, the results remain similar. The employment of alternative audit firm size and quality proxies also provides additional supportive evidence. The findings are robust when alternative variables of interest and alternative audit quality measures, such as sanction and restatement, are employed in the main models.
... Several empirical research provide extensive evidence of the use of discretionary accruals by managers for earnings management (Graham et al., 2005, Brown and Caylor, 2005, Dechow et al., 2003, Dechow and Skinner, 2000, Healy and Wahlen, 1999, Degeorge et al., 1999, Burgstahler and Dichev, 1997, Dempsey, 1994. The use of judgment allowed by accounting standards gives managers discretion in their choices of accounting policies. ...
Mandatory disclosure of quarterly financial reports for publicly traded companies, in the majority of jurisdictions around the world, is the direct consequence of applying “timeliness” as presented in the Conceptual Framework for Financial Reporting (the conceptual framework) developed jointly in 2010 by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). Having relevant information available sooner would improve its capacity to influence decisions. However, the interim reports are not required to be audited. In UAE, companies whose securities are listed on a securities and commodities market licensed by the Securities and Commodities Authority (SCA) are required to notify and provide interim financial reports, which are reviewed by the external auditor of the company. The objective of this paper is to analyze, in UAE, the volatility of the fourth-quarter earnings compared with the previous three. This study includes four years (2012-2015) of quarterly financial statements of firms listed in Dubai Financial Market (DFM). In order to determine if interim results are suspect, the paper analyzes the magnitude of differences in fourth quarter earnings and revenues relative to the first three quarters by using the Kiger’s 1974 methodology. Overall, results indicate that the volatility of earnings and revenue in the fourth quarter is significantly higher than those of the first three quarters. This main finding would be explained by the necessary adjustments to the fourth quarter earnings and revenues in order to correct the estimation. In fact, the quarterly financial statements require the use of more estimates than those prepared at the end of the fiscal year. This research would contribute to better understanding the quality of interim reports in an emerging market context.
... Some other companies are affected by debt contracts (Sweeney, 1994). The regulatory cases could also lead to EM practices (Jones, 1991;Cahan, 1992 andKey, 1997), and stock price motives such as stock offering (Teoh, Welch, & Wong, 1998), avoiding losses (Burgstahler & Eames, 2003) and meeting or beating analysts' and management's forecasts (Degeorge, Patel, & Zeckhauser, 1999). Generally speaking, the consequences of using earnings management what are less earnings quality may lead to a greater need for effective corporate governance mechanisms (CGM). ...
... Para que o capital da empresa aumente, é preciso que os investidores estejam dispostos a investir, graças à expetativa que têm de que a empresa terá um desempenho futuro positivo (Joosten, 2012). Neste sentido, as empresas têm interesse em relatar informação financeira que demonstre a sua capacidade de não só gerar resultados positivos e permanentes, como também de atingir as previsões dos analistas (Degeorge et al., 1999). ...
... Fundraising is a process that aims to involve the leaders of various organizations in order to obtain financial benefits from the business (Schipper, 1989). Sometimes leaders participate in the abuse of making money for their own benefit (Bergstresser & Philippon, 2006) and generate some expected wealth in the organization (Degeorge et al., 1999). This can happen due to the weak management system of the company and the management system of the company, in fact the management system of the company is working to guide the company to make the business more efficient and reduce the management opportunities. ...
The purpose of this paper is to investigate the influence of gender diversity on earnings management level and strategy. This study is conducted in the Nigerian context where firms have been pressured since 2018 to appoint more women to boards (Nigerian Code of Corporate Governance, 2018). More specifically, this research is based on a sample of 154 companies listed in the NGX154 from 2008-2022. Several econometric techniques are used including generalized least squares to test the panel regressions. The results suggest that women on boards are ineffective in their monitoring role. Indeed, the findings show an insignificant negative effect of board women's presence on earnings management practices level. However, there is no empirical evidence that gender diversity affects the earnings management strategy. Moreover, the results reveal that some control variables do not influence significantly the earnings management level and strategy. The findings show that the efforts made by the Nigerian regulatory bodies to increase gender diversity on corporate boards are not yielding results. More specific regulations are needed to regulate the promotion of women’s appointment on boards of directors. This paper contributes to the issue of discrimination against women in law and practice. Indeed, the findings highlight the plights of women's participation in power and decision-making positions among the 154 publicly listed firms in Nigeria. This research contributes to the debate around gender diversity on boards. Most prior studies that have analyzed the relationship between gender diversity and earnings management were conducted in a voluntary context of appointing women on boards. This paper extends prior research by addressing this issue differently and in a regulated context, there are no set quotas for female board representation.
This paper offers a comprehensive analysis of earnings management, synthesizing insights from the 100 most cited studies in this significant field of accounting research. Utilizing a robust methodology, we sourced citation counts as of January 1, 2024, from two leading academic databases: Web of Science and Google Scholar. This approach allowed for the identification and examination of pivotal works that have shaped understanding and discussions in the realm of earnings management. The range of citations for these influential studies is remarkable, reflecting their impact and importance in the academic community. The most cited paper in our analysis boasts a staggering 14,571 citations, indicating its central role in shaping the discourse around earnings management. Conversely, the least cited paper, with 599 citations, still contributes substantially to the field, underlining the depth and diversity of research in this area.
Our analysis delves into various themes that emerge from these landmark studies, including the impact of corporate governance on earnings management practices, the influence of global and cultural variations, the role of audit quality, the complex interplay of managerial incentives, market reactions, regulatory changes, and the dichotomy between accrual-based and real earnings management. This thematic exploration not only highlights the nuanced and multifaceted nature of earnings management but also sheds light on the evolving methodologies and analytical approaches adopted by researchers over time.
The findings from this synthesis offer critical insights into the mechanics of earnings management, its underlying motivations, and the broad spectrum of strategies employed by firms in different contexts. This paper contributes to the academic literature by providing a consolidated view of the most influential research in earnings management, drawing connections between various studies, and highlighting areas for future research. Our work serves as a valuable resource for academics, practitioners, and policymakers, offering a thorough understanding of the complexities and implications of earnings management in the contemporary financial reporting landscape.
Overview on Earnings Management Research
This paper analyzes how the plural form business strategy (i.e., simultaneously pursuing a fee-oriented and an equity-based strategy) impacts financial reporting quality of international hospitality firms. Drawing on the agency theory perspective, we analyze a sample of global hospitality companies over 2010-2019 using OLS, entropy balancing, and Heckman two-stage estimations. Our results suggest that greater use of the plural form is positively associated with higher earnings management (i.e., lower financial reporting quality). The plural form induces financial reporting complexity, which increases the likelihood of earnings management. However, the presence of large shareholders, aiming at reducing earnings management practices for reputation purposes, offsets this effect. This study identifies a specific feature of the hospitality industry, namely the pursuit of the plural form business strategy, as triggering more complexity, which results in detrimental lower reporting quality for investors.
Earnings management has been a subject of extensive research, experiencing substantial growth recently and anticipated to continue in the years ahead. This paper employs bibliometric analysis, examining the Scopus database of publications from 1993 to 2021, to enhance our understanding of earnings management. There is a remarkable growth in earnings management research, with 54% of publications emerging from 2016 to 2021, peaking at 226 papers in 2021. Kim Y. and Alahada M. are leading contributors with ten publications each, while Kim J.-B. stands out with an impressive 1,056 citations across eight documents. Active contributors to earnings research are from the US, China, the UK, and Australia. In addition, this paper discusses four distinct themes within earnings management, including the motives and characteristics of earnings management activities, real and accrual-based earnings management, the relationship between corporate governance and earnings management, and earnings management and market performance. More importantly, it highlights future research opportunities, emphasizing the need to explore real earnings management as an alternative measurement and addressing topics like gender diversity, family firms, and leverage in understanding the magnitude of earnings management. Notably, the study’s findings provide insights to develop the research on earnings management, especially in the emerging market finance context.
The aim of this research is to investigate the impact of tax planning on revenue management practices at PT. Merapi Utama Pharmacy, Medan. This research uses quantitative and correlational analysis methods. The scope of this research is limited to the period 2018 to 2022. The data analysis method used in this research is the simple linear regression analysis method. The findings of this research show that tax planning has a positive correlation and influence on laboratory management, thus indicating that improving tax planning will also lead to improved laboratory management. The findings of this research are consistent with rational choice theory and accounting theory. A company needs a superior competitive advantage compared to its business competitors in order to achieve high profitability. One of these advantages lies in the company's ability to manage finances effectively, which in turn will ensure long-term business continuity. The sustainability of this business can be measured from the level of profitability obtained. These are the factors that encourage management to engage in the presentation and reporting of laboratory information, also known as "earnings management".
Over 80% of corporate value is now comprised of intangibles, of which a large component is human capability (HC). Reflecting this, the SEC has recently mandated HC reporting requirements (SEC, Q4 2020). We use machine learning to build a prototype system to analyze HC using SEC filings and applied it to 5,760 companies. The approach algorithmically generates lexicons for HC concepts, and then applies machine learning to extract the relevant text on HC and business outcomes from annual reports, to create a dashboard for each firm on the quantity of reporting over four dimensions of HC: talent, leadership, organization, and human resources operations. This system links HC reporting to measurable business outcomes such as revenue per employee, earnings, Tobin’s Q, and social citizenship. This will enable companies to improve the quality of reporting and governance of HC as well as guide investments in specific areas of HC.
We examine differences in CEOs’ achievement of earnings per share (EPS) targets related to (1) analysts’ forecasts and (2) internal cash bonus payouts. Our focus on firms with different benchmarks for the same performance metric enables us to assess the relative importance of the incentives that each EPS target provides based on its revealed achievement. Most CEOs meet analysts’ final consensus EPS forecasts but are unlikely to meet bonus EPS targets that exceed forecasted EPS. Nearly all CEOs receive some EPS-based cash bonus, even when missing the forecast. Moreover, CEOs with bonus targets that are easier to achieve than the consensus forecast tend to receive more annual pay, suggesting that boards often set more achievable EPS targets to provide extra compensation to CEOs while maintaining the appearance of pay-for-performance. Our results highlight the importance of considering both types of EPS targets simultaneously when assessing their respective incentive properties.
The main objective of the study was to obtain evidence on the influence of fair valuation on earnings management amongst Deposit Money Banks in Nigeria. The design adopted was Ex-post Facto research design, and covered the Banking industry in Nigeria for the period 2015-2021. The target population consists of Deposit Money Banks listed on the Nigerian Stock Exchange (NSE). Thirteen (13) listed banks were selected using purposive sampling technique. Data were obtained from the audited annual accounts and financial reports of the selected banks. Descriptive statistics and multiple regression analysis were used to ascertain the influence and relationship between the dependent and independent variables specified in the model. Results show a positive association between Fair value intensity, levels 2 and 3 of Fair value on earnings management. Adjusted R square for Levels 2 and 3 fair values were 0.688 and 0.79 respectively while fair value intensity had an adjusted R square of 0.662,
This study observes how companies’ fundamental-based asset volatility impacts their financial sustainability. Accounting literature documents that net assets value accumulates previous earnings management. The asset balance change reflects biased earnings measurement, and abnormal asset fluctuation signals aggressive earnings management. This paper uses delisting as a proxy to observe how asset volatility can interact with abnormal earnings fluctuation to impact firms’ sustainability. The study uses two groups of regression and a Principal Component Analysis (PCA) Logistic Regression approach to observe how asset volatility impacts companies’ delisting risk. It borrows the Six Sigma methodologies to measure the volatility of financial statement items. Then the PCA analysis reduces the data dimensions to twelve factors. The analysis shows that assets’ abnormal fluctuation is a risk signal concurring with the extant earnings management literature. One takeaway from this study is that companies must disclose detailed explanations if asset volatility is beyond a red line. As Statement of Financial Accounting Standards (SFAS) 151 requires direct disclosure of abnormal excess capacity costs, companies must disclose abnormal asset volatility. The paper contributes to the literature from two perspectives. First, this paper captures firms’ sustainability from the accounting perspective with fundamental measures from quarterly financial reports. It provides a comprehensive way to detect aggressive earnings management risks. Second, the PCA logistic regression model offers a comprehensive analysis to derive useful information from many attributes.
Bu çalışma Borsa İstanbul şirketlerinin finansal tablolarında raporlanan alacak karşılıklarının karakteristiğini belirlemeyi amaçlamaktadır. Bunun için alacak yönetiminin etkisi ve diğer finansal faktörler kontrol edilerek muhafazakâr raporlama ve kazanç yönetiminin etkisi incelenmiştir. Analiz bulgularına göre alacak karşılıklarının esas belirleyicisi alacak politikaları ve şirketin finansal durumudur. Alacak karşılıklarının kazancı kayda değer ölçüde etkilediği gözlenmiştir. Buna karşın bu tahakkukların kazanç hedeflerine ulaşmak için kullanıldığı söylenemez. Toplam ihtiyari tahakkukların artık karşılıklara etkisi alacakların kazanç yönetiminin bir aracı olduğu görüşünü desteklemektedir. Analiz firmalarında alacaklar için karşılık ayırma ve kayıttan silme prosedürünün etkin olmadığı söylenebilir. Bulgular muhafazakârlığın ayrılan alacak karşılığını artırdığına işaret etmektedir.
The fraud in financial reporting has been raised in recent years and resulted in investor distrust of capital markets. Therefore accurate predicting of earnings manipulation is essential for decision makers of financial statements. In this study Beneish model has been developed using corporate governance variables i. e., audit committee structure, legal inspector and independent auditor, board of director's structure and ownership structure requirements in order to enhance the prediction accuracy of earning manipulation model.
The data of 81 companies listed on TSE during 2012-2018 (567 year-company data) have collected from the Kodal website and Rahavarde Novin software and analyzed by the hybirid method of multilayer perceptron neural network and biogeography-based optimization algorithm with structure of 8-17-1-1 for Beneish model and of 25-17-1-1 for proposed model.
The findings indicates an increase in the prediction accuracy of the model from 59.79 to 79.72% and a decrease in training error of MLP-BBO from 40.92 to 20.28%.
Also, the secondary results of the research indicate that the prediction accuracy of the proposed model by the water cycle algorithm (WCA) has the highest accuracy of 92.06% compared to the other imperialist competitive algorithm (ICA) and biogeography-based optimization (BBO) algorithm and cosmology based algorithms i. e., black-hole based optimization (BH-BO), big bang-big crunch (BB-BC) and galactic swarm optimization (GSO). Therefore, the results of this research were evidence on that the Beneish model lacks the necessary efficiency in predicting earning manipulation in the Iranian capital market due to the high level of prediction error, but the combination of corporate governance system variables in the Beneish model has significantly reduced the prediction error of the model, and this model has predictive power of earning manipulation in Iranian capital market by an error of 7.94%.
افزایش میزان تقلب ودستکاری سود در گزارشگری مالی در سالهای اخیر باعث عدم اعتماد سرمایهگذاران به بازارهای سرمایه شده است. درهمین راستا در این پژوهش مدلی ترکیبی بر مبنای مدل بنیش و افزودن سازههای نظام راهبری شرکتی مشتمل بر ساختارکمیته حسابرسی، بازرس قانونی و حسابرس مستقل، ساختار هیئتمدیره و ساختار مالکیت شرکتی درجهت کشف و شناسایی مدیریت سود ارائه شده است. دادههای 81 شرکت پذیرفته شده در بورس اوراق بهادار تهران طی سالهای 1397-1391 (567 داده سال -شرکت) با استفاده از صورتهای مالی وگزارشات سالانه موجود در سایت کدال ونرم افزارره آورد نوین جمعآوری شده و با روش ترکیبی شبکه عصبی پرسپترون چندلایه والگوریتم بهینهسازی مبتنی برجغرافیای زیستی با ساختار8-17-1-1 برای مدل بنیش و 25-17-1-1 برای مدل پیشنهادی مورد تحلیل قرارگرفته است. یافتههای حاصل از آزمون مدلهای پژوهش نشان میدهد که دقت پیشبینی مدل از59/09 به 79/72 درصد افزایش یافته و به تبع آن خطای آموزش شبکه نیز از40/92 به 20/28 درصد کاهش یافته است. همچنین نتایج فرعی پژوهش نشان میدهدکه دقت پیشبینی مدل پیشنهادی توسط الگوریتم چرخه آب در مقایسه با سایرالگوریتم های رقابت استعماری والگوریتمهای کیهانشناسی شامل ازدحام ذرات کهکشانی، مهبانگ - مهرمب و سیاهچاله دارای بیشترین دقت 92/06 درصد میباشد. بنابراین نتایج حاصل ازاین پژوهش نشان می دهدکه مدل بنیش بدلیل بالا بودن میزان خطای پیش بینی، فاقدکارایی لازم درپیشبینی مدیریت سود در بازارسرمایه ایران بوده ، ولی ترکیب متغیرهای نظام راهبری شرکتی در مدل بنیش کاهش معنی داری در خطای پیشبینی مدل ایجاد نموده واین مدل قدرت پیشبینی مدیریت سود را در بازارسرمایه ایران با خطای 7/94 درصد دارد.
This study aims to determine the effect of information asymmetry as measured by the bid-ask spread method, institutional ownership as measured by the number of shares held by institutions within the company, the proportion of board of commissioners as measured by the percentage of independent commissioners from the total board of commissioners in the company , the size of the board of commissioners as measured by the total of all board of commissioners in the company, on earnings management was measured using a modified Jones model. The population in this study are manufacturing companies listed on the Indonesia Stock Exchange (IDX) in 2015-2017. The sample is determined based on the population method, so there are 127 companies. The data used in this study is secondary data. The analytical method used is multiple regression analysis. The results of the study show that: (1) Information asymmetry has a significant negative effect on earnings management, (2) Institutional ownership has no significant effect on earnings management, (3) The proportion of board of commissioners has no significant effect on earnings management, (4) Board of commissioners size has no effect significant to earnings management. Keywords: Information asymmetry, institutional ownership, earnings management, proportion of board of commissioners, size of board of commissioners Penelitian ini bertujuan untuk mengetahui pengaruh asimetri informasi yang diukur dengan metode bid-ask spread, kepemilikan institusional yang diukur dengan jumlah saham yang dimiliki oleh institusi dalam perusahaan, proporsi dewan komisaris yang diukur dengan persentase komisaris independen dari total dewan komisaris di perusahaan, ukuran dewan komisaris yang diukur dengan total seluruh dewan komisaris di perusahaan, mengenai manajemen laba diukur menggunakan model Jones yang dimodifikasi. Populasi dalam penelitian ini adalah perusahaan manufaktur yang terdaftar di Bursa Efek Indonesia (BEI) pada 2015-2017. Sampel ditentukan berdasarkan metode populasi, sehingga ada 127 perusahaan. Data yang digunakan dalam penelitian ini adalah data sekunder. Metode analisis yang digunakan adalah analisis regresi berganda. Hasil penelitian menunjukkan bahwa: (1) Asimetri informasi berpengaruh negatif signifikan terhadap manajemen laba, (2) Kepemilikan institusional tidak berpengaruh signifikan terhadap manajemen laba, (3) Proporsi dewan komisaris tidak berpengaruh signifikan terhadap laba manajemen, (4) Ukuran dewan komisaris tidak berpengaruh signifikan terhadap manajemen laba. Kata kunci: Asimetri informasi, kepemilikan institusional, manajemen laba, proporsi dewan komisaris, ukuran dewan komisaris
Kar yönetimi, şirketlerin hedeflenen dönem karına ulaşmak için genel kabul görmüş muhasebe ilkeleri, muhasebe standartları ve yasal düzenlemelerdeki esnekliklerden faydalanarak finansal sonuçlarını gerçeğe uygun olmayan bir şekilde raporlamasıdır. Bu çalışmada ekonomik ve finansal sistem içerisinde en önemli role sahip olan bankaların kar yönetimi uygulamalarına başvurup başvurmadıklarının panel veri analizi yöntemiyle tespit edilmesi amaçlanmaktadır. Ayrıca kredi kayıp karşılıkları ile sürdürülen faaliyetler vergi öncesi kar değişkenleri arasındaki nedensellik ilişkisi hem panel geneli hem de panel birimleri için Emirmahmutoğlu ve Köse (2011) Panel Granger Nedensellik Testi kullanılmıştır. Bu amaç doğrultusunda, Borsa İstanbul (BİST)’da işlem gören kamu, özel ve yabancı sermayeli on ticari bankanın 2009-2019 yılları arasındaki çeyrek dönemlik faaliyet raporları örneklem olarak ele alınmıştır. Bankaların anılan faaliyet yıllarını kapsayan finansal tablolarındaki aktif toplamları, krediler ve alacaklar, takipteki krediler, kredi kayıp karşılıkları, sürdürülen faaliyetler öncesi vergi karı veya zararı, net dönem karı veya zararı kalemlerinin tutarları ve ayrıca gayri safi yurtiçi hasıla ile enflasyon oranları makro değişkenler olarak modelde yer almaktadır. Elde edilen bulgulara göre, seçilmiş bankaların kredi kayıp karşılıkları üzerinde; kredi kayıp karşılıklarının kendi gecikmeli değeri, sürdürülen faaliyetler öncesi vergi karı veya zararı, sorunlu krediler ve aktif büyüklüğü istatistiksel olarak pozitif ve anlamlı, sermaye yeterlilik oranı ve ekonomik büyüme oranı ise negatif ve anlamlı bir etkiye sahiptir. Kredi kayıp karşılıkları üzerinde; dönem karı veya zararı, kredi-mevduat oranı ve enflasyon oranı değişkenleri ise istatistiksel olarak anlamlı bir etkiye sahip değildir.
The quantity and complexity of white collar crimes in general and fraud in particular are constantly increasing. According to ACFE, companies lose about 5% of their revenues each year.The aim of this article is to dig deep into the theory of fraud, its factors and techniques, its consequences, methods of its detection and recommendations on how to avoid it.Results of conducted research show that accounting fraud means deliberate material distortions in numbers or disclosures of financial statements for misleading of its users and getting some benefits out of it. The theory of fraud explains factors of fraud using the wide specter of models from the fraud triangle model to the hexagon models. All these models show that impersonal components play a big role as the personal ones. These models, despite of all their shortages, serve as a basis for further research.This paper classified accounting fraud techniques, depicted the most frequent evidence schemes used by management to conceal fraud, showed widespread techniques that can be used for accounting fraud detecting. All these results evoke to the conclusion regarding the indicative list of remedies against accounting fraud. Following to this list can minimize the frequency and cost of accounting fraud significantly.KeywordsAccounting fraudCreative accountingDetection of accounting fraudFinancial crimesTheory of accounting fraud
Background: Research and developmental (RD) expenditure directly affects profits. Therefore, managers are likely to manipulate RD expenditure to meet earnings thresholds.Aim: This study investigates whether managers manipulate RD expenditure to meet earnings thresholds, while analysing whether the prospect theory explains this behaviour.Setting: The setting is 62 South African firms listed on the Johannesburg Stock Exchange (JSE) studied from 2011 to 2019.Method: We collected 379 annual samples from the SP Capital IQ database and applied the earnings distribution model to estimate the effect of the prospect theory on earnings management.Results: Most South African listed enterprises have earnings above zero, or have avoided reporting earnings in decline before earnings manipulation. Furthermore, the study’s findings reveal that enterprises that have earnings above zero, or have maintained their earnings in the previous period after manipulation, are risk lovers, whereas enterprises with earnings below zero, or lower than those in the previous period, are risk averters.Conclusion: South African listed enterprises do not have a tendency to manipulate RD expenditures to achieve earnings above zero or avoid reporting declining earnings. The prospect theory also fails to explain their behaviour.Contribution: This study is the first to analyse how the prospect theory explains the behaviour of earnings manipulation by using a sample of South African listed enterprises and thereby fills a research gap.
Objective: The article aims to determine the relationship between the stage of a business life cycle and the scope and directions of accrual-based earnings management (AEM) in industrial companies listed on the Warsaw Stock Exchange (WSE). Research Design & Methods: The assessment of statistical relationships between the patterns of earnings management in individual stages of an organization’s life cycle (OLC) was carried out based on the Kruskal-Wallis test by ranks and the Mann-Whitney U test. The extraction of discretionary accruals was performed based on the Modified Jones model, while the Dickinson model evaluated OLC stages. The study investigated 297 industrial listed companies listed on the Warsaw Stock Exchange in the 2012-2020 period. Findings: Empirical studies have shown that strategies of intentionally lowering the net result prevailed in the research sample. The scope of the AEM practices, estimated by discretionary accruals, was the largest in industrial companies in the growth and maturity phase. The frequency of big bath reporting was related to the OLC phases, with net losses exceeding 20% of total assets being most often reported among companies in the decline stage. On the other hand, the frequency of reporting small net incomes was even across all tested subpopulations. Implications & Recommendations: The research indicates the need to continue scientific research on the issues of measuring the quality of reported accounting data and prediction tools of various techniques for shaping the financial result. Understanding the underlying motives and determinants that drive enterprises to performance management is a prerequisite for preventing this type of activity in business practice. Contribution & Value Added: The article presents an innovative approach to assessing relationships between AEM and the OLC stages. It referred to examining the frequency of specific techniques of AEM (e.g. big bath and small net income) in companies characterized by specific patterns of generated cash flows.
This research uses accrual and real earnings management strategies in an emerging economy to evaluate how CEO characteristics (i.e. CEO nationality, duality, and compensation) affect earnings management and how the COVID-19 pandemic modifies this connection. The empirical investigation used annual reports from 2011 to 2021 of 118 listed enterprises in thirteen sectors of non-financial organizations in Bangladesh. The study divided the sample further into COVID-19 pandemic and pre-pandemic periods. Findings show that firms tend to engage less in real earnings management during the COVID-19 pandemic period compared to pre-pandemic period. CEO nationality significantly negatively affects accrual-earnings management, but CEO dualism positively affects real-earnings management. CEO compensation significantly impacts accrual and real earnings management. Finally, COVID-19 moderates the association between CEO compensation and real-earnings management positively. The study’s findings contribute to the corporate governance literature by providing insights into the influence of CEO characteristics on earnings management. This is the first study to consider the moderating role of the COVID-19 pandemic on the relationship between CEO traits and earnings management.
Utilizing a large sample of non‐financial public firms in China from 2009 to 2016, we find robust evidence that non‐financial firms smooth their earnings through realized gains and losses on available‐for‐sale (AFS) securities. This effect is more pronounced for firms with weaker internal and external corporate governance. Firms with an incentive to manipulate up their earnings are also less likely to smooth earnings through AFS securities. Moreover, firms with more accrual earnings management or real earnings management tend to smooth earnings to a greater extent through AFS securities. Firms smooth earnings only when their net income is positive or when net income is negative and the gains from AFS securities are large enough to offset negative earnings. We do not find supporting evidence for engaging in big bath earnings management through the realization of losses on AFS securities. These findings suggest that gains and losses on AFS securities allow non‐financial firms to actively smooth their earnings. Last, the accounting standards amendments in 2017 that essentially disable earnings smoothing through AFS securities increase price efficiency.
SYNOPSIS
We show that a firm’s likelihood of appointing auditors with industry expertise or with a larger office increases after the firm is affected by an exogenous reduction in analyst coverage, relative to its matched control firms. This effect is stronger for affected firms with greater reductions in analyst monitoring, for smaller or younger firms, for firms with lower institutional or CEO ownership, and when the lost analysts are more effective monitors. We further show that affected firms that switch to high-quality auditors receive more positive market reaction, experience a smaller decrease in stock liquidity and a smaller increase in cost of equity capital relative to other affected firms, suggesting that audit quality has real payoffs. These results collectively provide causal evidence supporting the agency incentive driven demand for high-quality external auditing.
This research paper talks about the effect of corporate governance on bank performance in the Arabian Peninsula
Although earnings surprises have been studied extensively, they have not been examined in the context of contrarian strategies. Positive and negative earnings surprises affect “best” (high-P/E) and “worst” (low-P/E) stocks in an asymmetric manner that favors worst stocks. Long-term reversion to the mean, in which worst stocks display above-market returns while best stocks show below-market results, regardless of the sign of the surprise, continues for at least 19 quarters following the news. These results are consistent with mispricing (overreaction to events) prior to the surprise, and a corrective price movement after the surprise is consistent with extant research on underreaction. The mispricing-correction hypothesis explains the superior returns of contrarian strategies noted here and elsewhere in the literature.