Management reporting complexity and earnings management: evidence from the Baltic markets
ISSN: 1746-5265
Article publication date: 1 October 2020
Issue publication date: 31 December 2020
Abstract
Purpose
This paper explores how the text complexity and content of management discussion and analysis (MD&A) relate to earnings management in Baltic listed companies.
Design/methodology/approach
Using a panel data set of 250 firm-year observations from the Baltic markets in the period 2012–2016, this paper uses linear regression analysis to examine the relation between earnings management and reporting complexity.
Findings
The results show that earnings could be managed in about 6–11% of firm-years, depending on specification, and there is a positive relationship between earnings management and reporting complexity; however, this relationship is confined to more liquid companies. The authors argue that higher scrutiny by market participants in more liquid companies incentivizes managers to obfuscate negative financial results through report complexity.
Originality/value
This paper presents a novel application of the opportunistic perspective of positive accounting theory (PAT) in relation to managers' choice of reporting complexity. The findings of this paper contribute by providing empirical evidence for strategic reporting by managers and can be useful for regulators and investors that should monitor the level of reporting complexity in the listed companies.
Keywords
Citation
Pajuste, A., Poriete, E. and Novickis, R. (2021), "Management reporting complexity and earnings management: evidence from the Baltic markets", Baltic Journal of Management, Vol. 16 No. 1, pp. 47-69. https://doi.org/10.1108/BJM-01-2020-0019
Publisher
:Emerald Publishing Limited
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