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Accrual-based and real earnings management before and after IFRS adoption: The case of Greece

Aikaterini C. Ferentinou (School of Business, Economics, and Social Sciences, University of Graz, Graz, Austria)
Seraina C. Anagnostopoulou (Department of Accounting and Finance, Athens University of Economics and Business, Athens, Greece)

Journal of Applied Accounting Research

ISSN: 0967-5426

Article publication date: 8 February 2016




The purpose of this study is to examine the use of accrual-based vs real earnings management (EM) by Greek firms, before and after the mandatory adoption of International Financial Reporting Standards (IFRS). The research is motivated by the fact that past studies have indicated the existence of significant levels of EM for Greece in particular before IFRS.


Accrual-based earnings management (AEM) is examined by assessing performance-adjusted discretionary accruals, while real earnings management (REM) is defined in terms of abnormal levels of production costs, discretionary expenses, and cash flows from operations, for a three-year period before and after the adoption of IFRS in 2005.


The authors find evidence on a statistically significant shift from AEM to REM after the adoption of IFRS, indicating the replacement of one form of EM with the other.

Research limitations/implications

The validity of the results depends on the ability of the empirical models used to efficiently capture the existence of AEM and REM.

Practical implications

IFRS adoption aims to improve accounting quality, especially in countries with high need for such an improvement; however, the tendency to substitute one form of EM with another highlights unintended consequences of IFRS adoption, which do not improve the informational content of financial statements if EM continues under different forms.


Under the expectation that IFRS adoption should lead to improvements in accounting quality, this study examines whether IFRS actually led to a reduction of EM practices for a country with exceptionally high levels of EM before IFRS, by accounting for all possible forms of EM.



JEL Classification — M41, G18

We are grateful to Dr Julia Mundy (the Editor) and two anonymous reviewers for their helpful comments and suggestions. The paper has also benefited from the comments of participants of the Hellenic Finance and Accounting Association annual Conference, held in Thessaloniki, Greece, 2013. Aikaterini Ferentinou further thanks the Onassis foundation, the Leventis foundation and the Vergottis foundation for funding received during her postgraduate studies.


Ferentinou, A.C. and Anagnostopoulou, S.C. (2016), "Accrual-based and real earnings management before and after IFRS adoption: The case of Greece", Journal of Applied Accounting Research, Vol. 17 No. 1, pp. 2-23.



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