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This paper provides evidence on the impact of regulatory environment on financial reporting quality of transitional economies. This study compares the financial reporting quality of Hong Kong firms which are cross-listed in mainland China with those of Hong Kong firms cross-listed in China using specific earnings management metrics (earnings smoothing, timely loss recognition, value relevance and managing towards earnings targets) under pre- and post-IFRS regimes.

The financial reporting quality of Chinese A-share companies and Hong Kong listed companies are examined using earnings management measures. Using 2007 as base year, the study used a cumulative of −5 and +5 years of convergence experience which provide a total of 3,000 firm-year observations. In addition to regression analyses, we used the difference-in-difference analysis to check for the impact of regulatory environments on earnings management.

Through the lens of contingency theory, our results indicate that the adoption of the new substantially IFRS-convergent accounting standards in China results in better financial reporting quality evidenced by less earning management. The empirical results further shows that accounting data are more value relevant for Hong Kong listed firms, and that firms listed in China are more likely to engage in accrual-based earnings management than in real earnings management activities. We established that different earnings management practices that are seemingly tolerable in one country may not be tolerable in another due to level of differences in the regulatory environments.

The findings show that Hong Kong listed companies’ exhibit higher level of financial reporting quality than Chinese listed companies, which implies that the financial reporting quality under IFRS can be significantly different in regions with different institutional, economic and regulatory environments. The results imply that contingent factors such as country’s institutional structures, its extent of regulation and the strength of its investor protection environments impact on financial reporting quality particularly in transitional and emerging economies. As such, these factors need to be given appropriate considerations by financial reporting regulators and policy-makers interested in controlling earnings management practices among their corporations.

This study is a high impact study considering that China plays a significant role in today’s globalised economy. This study is unique as it the first, that we are aware of, to compare real earnings activities against accrual-based earnings management in pre- and post-IFRS adoption periods within the Chinese and Hong Kong financial reporting environments, distinguishing between cross-listed and non-cross-listed firms.

A long-time ethical issue in financial accounting is earnings management. Two popular ways that earnings are managed include use of accruals (Kothari et al., 2016) and real activities management (RM). This study examines the association between RM and short selling and an association between short sellers and RM behavior related to earnings management. Instead of using accruals, RM is accomplished by timing investment or financing decisions and thereby alter reported earnings. Our results show that short sellers avoid targeting firms with a high level of RM, but this only holds for those firms that just meet analysts’ forecasts. This result suggests that short sellers interpret RM as a signal used by companies to convey their “good news” and confidence in their future performance. On the other hand, the authors document that heavily shorted firms engage in a lower amount of RM, which is consistent with the notion that short selling plays an external disciplinary role in constraining firms’ RM behavior for earnings management. This chapter would be of interest to anyone concerned with earnings management, such as financial market analysts, investors, academic researchers, and, in particular, regulators, who are involved in setting rules on short selling.

The practice of real earnings management (REM) or earnings manipulation through the company’s real activities is increasingly widespread. Companies that want to achieve profit targets have switched from accrual-based to REM, especially in the firm family owner, who is an active manager. Our study aims to determine whether family ownership in a company will be a factor in the existence of greater REM practices. The authors collected 2,613 observational data from non-financial companies on the Indonesia Stock Exchange (IDX) during 2013–2018 using a purposive sampling method and then analyzed using panel random effect (RE) regression. The results show that family ownership significantly negatively affects abnormal operating cash flow which means that family firms are more likely to reduce operating cash flow to report higher income than non-family firms. Thus, it can be concluded that family firms in Indonesia are more likely to be involved in REM than non-family firms.

Purpose: This paper aims to study the impact of adoption eXtensible Business Reporting Language (XBRL) on earnings management.

Design/methodology/approach: This study uses a sample of all firms listed on the Indonesian stock exchange, except for finance and real-estate sectors from 2012 to 2019, with a total of 2,560 firms–years with panel data analysis.

Findings: Four findings in this study are listed as follow. First, the surprising result is that accrual earnings management increase after the adoption of XBRL. Second, after the adoption of XBRL, there was an increase in real earnings management. Third, the results of the study prove that the use of Big 4 auditors will weaken the increase in real earnings management after the adoption of XBRL. Finally, this study shows that after the adoption of XBRL, it turns out that both accrual and real earnings management experienced an increase.

Originality/value: This study contributes to providing an evaluation note to IDX regulators that the goals they want to achieve have not been achieved. This study provides empirical evidence for the debate over whether the adoption of XBRL is beneficial.

This study examines associations between accrual earnings management (AEM) and real earnings management (REM), and earnings quality between countries considered under insider economics and outsider economics clusters. Countries included in the outsider economics cluster are Singapore, Malaysia, and Hong Kong. Meanwhile, countries included in the insider economics cluster are Indonesia, the Philippines, and South Korea. Earnings management practices have changed from AEM to REM since the publication of the Sarbanes Oxley Act and DFA 954 implementation of the Claws back provision policy in the United States.

Research data were obtained from the Bloomberg database, 2010–2016. Regression analysis and t-test were utilized. This study compared AEM and REM to determine which is stronger based on country clusters, as well as the association between AEM or REM and earnings quality.

The results of this study indicate that AEM and REM are associated with the quality of earnings in the insider economics cluster. However, AEM and REM are not associated with earnings quality in the outsider economics cluster. Furthermore, associations between AEM and earnings quality are stronger than associations between REM and earnings quality in insider economics cluster.

This study aims to analyze the effect of top management team (TMT) expertise on real earnings management (REM) and accrual earnings management (AEM) activities in companies in Indonesia by examining a hand-collected secondary data from non-financial publicly listed companies in Indonesia in 2016 and 2017. The expertise of TMT members is measured by possession of a master’s degree, understanding and experience of managed core functional areas, and possession of accounting certifications such as CA or CPA. The results of the study show that the expertise of the members of the TMT has no influence on the activity of AEM in companies in Indonesia. Meanwhile, understanding and experience on the managed core functional areas have a positive influence on REM activities through abnormal cash flows. Possession of accounting certification has a positive influence on REM activities in companies that are in accordance with managerial entrenchment effects, as well as a negative influence on REM activities in companies through abnormal discretionary expenses that are in line with incentive-reduction effects.

Earnings management is a common term in the academic community and is likely understood by managers and professional investors, but how the large community of non-professional investors interprets this term is less clear. We examine non-professional investors’ attitudes toward earnings management and their resulting investing behaviors using a 2 × 2 mixed design. We manipulate investor role (prospective vs current) between participants and the method of earnings management within participants. We believe that different investment goals (prevention vs promotion) between current and prospective investors should lead to different investing behaviors. Consistent with our expectations, we find that current investors are more likely to maintain an equity than prospective investors are to invest in the same opportunity. Further, the consistent link between investors’ attitudes and actual investment behavior is only present for prospective investors. The prevention goal drives the current investors to maintain their investment, while the prospective investors remain more objective and focus on a goal of promotion. Importantly, prior research examining investor attitude toward earnings management has failed to link investors’ attitudes with actual investing decisions; our study attempts to fill this void by examining attitudes toward earnings management as well as subsequent investment behavior.

In this study, we investigate whether higher institutional ownership is related to better internal controls and whether better internal control is associated with a higher quality of transparency.

I examine patterns of making or deferring strategic repatriations that firms can use to either meet analysts' forecasts or defer to maintain future reported earnings flexibility. First, I examine the extent to which firms repatriate earnings from high foreign tax subsidiaries to decrease US tax expense, resulting in increased net income and lower cash taxes. Using federal tax return information, I find evidence that firms strategically repatriate these earnings to meet or beat current analysts' forecasts. Next, I find evidence that firms that are able to obtain current year tax reductions defer these repatriations in an attempt to build cookie-jar reserves. Lastly, I find that firms do not disclose high foreign tax repatriations (HTRs), even when required by SEC rules. This study contributes to the earnings management, tax avoidance, and disclosure literature by examining a discretionary tax planning strategy.

This study investigates the impact of business strategy on earnings management practices for financial and non-financial firms in Oman. To assess the research objective, 430 firm-year observations from 2015 to 2019 were employed in the study. Using regression analysis, the findings suggest that differentiation strategy positively affects earnings management in financial sector firms. In addition, cost leadership strategy positively affects earnings management in non-financial sector firms. This indicates that business strategy is associated with company leaders managing their earnings while they are trying to survive through competition. These findings are useful for regulators, as they can introduce mechanisms to curb earnings management practices and instil more faith in investors.