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1 – 10 of 53Alexandre Esteves and Pedro Piccoli
The purpose of this study is to investigate the influence of firm-specific investor sentiment on Brazilian companies’ accrual-based earnings management between 2010 and 2018. The…
Abstract
Purpose
The purpose of this study is to investigate the influence of firm-specific investor sentiment on Brazilian companies’ accrual-based earnings management between 2010 and 2018. The paper aims to bring deeper insight into the relationship between the investor expectations and managers’ decision-making in an emerging market.
Design/methodology/approach
The authors use the quantitative approach and apply a multiple linear regression model to test the relationship among the abnormal accruals, the firm-specific investor sentiment index and the control variables. The final sample includes data from 175 companies, between 2010 and 2018.
Findings
These results reveal a negative association between firm-specific investor sentiment and accrual-based earnings management, which could mean that the risk propensity of managers to manipulate earnings increases when they face known losses in the capital market.
Research limitations/implications
The research findings provide a valuable understanding of how emerging capital market expectations can influence managerial decisions, such as accrual-based earnings management. The geographical area of study was limited to only Brazil.
Originality/value
Previous studies on developed markets show that market-wide investor sentiment positively influences accrual-based earnings management. However, the present study shows that the firm-specific investor sentiment index has a significant and negative relationship with Brazilian companies’ earnings manipulation, whereas market sentiment indicates contradictory relationship in previous studies in the country.
Propósito
El propósito de este estudio es investigar la influencia del sentimiento de los inversionistas a nivel de empresa en la manipulación contable de las empresas brasileñas entre 2010 y 2018. El documento pretende aportar una visión más profunda sobre la relación entre las expectativas de los inversores y la toma de decisiones de los gestores en un mercado emergente.
Diseño/metodologia/enfoque
usamos el enfoque cuantitativo y aplicamos un modelo de regresión lineal múltiple para probar la relación entre las acumulaciones anormales, el índice de sentimiento de los inversores a nivel de empresa y las variables de control. La muestra final incluye datos de 175 empresas, entre 2010 y 2018.
Hallazgos
Los resultados revelan una asociación negativa entre el sentimiento de los inversores a nivel de empresa y la manipulación contable basada em acumulaciones, lo que podría significar que la propensión al riesgo de los administradores a manipular las ganancias aumenta cuando enfrentan pérdidas conocidas en el mercado de capitales.
Limitaciones/implicaciones de la investigación
los resultados de la investigación proporcionan una valiosa comprensión de cómo las expectativas de los mercados de capitales emergentes pueden influir en las decisiones de gestión, como la manipulación contable basada en acumulaciones. El área geográfica de estudio se limitó únicamente a Brasil y, en consecuencia, los hallazgos y conclusiones del estudio tuvieron sus límites.
Originalidad/valor
estudios anteriores sobre mercados desarrollados muestran que el sentimiento de los inversores a nivel de mercado influye positivamente en la manipulación contable. Sin embargo, el presente estudio muestra que el índice de sentimiento de los inversores a nivel de empresa tiene una relación significativa y negativa con la manipulación de las ganancias de las empresas brasileñas, mientras que el sentimiento del mercado indica una relación contradictoria en estudios anteriores en el país.
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Taha Almarayeh, Beatriz Aibar-Guzman and Óscar Suárez-Fernández
In light of the key role attributed to the board of directors as a monitoring tool to constrain earnings management practices, this study aims to examine the effect of some board…
Abstract
Purpose
In light of the key role attributed to the board of directors as a monitoring tool to constrain earnings management practices, this study aims to examine the effect of some board attributes on accrual-based earnings management and real earnings management in the Middle Eastern and North African (MENA) context, whose institutional, economic and legal environment is markedly different from that of most organization for economic cooperation and development countries.
Design/methodology/approach
The authors selected a sample of 161 nonfinancial companies from nine MENA countries between 2014 and 2021 (corresponding to an unbalanced data panel of 486 observations). The authors used the generalized least squares regression test to examine the relationship between board attributes and earnings management.
Findings
The authors found that three board attributes (size, independence and gender diversity) have no effect on both types of earnings management practices, while CEO duality has no effect on accrual-based earnings management but has a significant and negative effect on real earnings management. Overall, the results suggest that most board attributes do not play a crucial role in reducing earnings management.
Research limitations/implications
The results provide valuable insights into the universal role of corporate governance mechanisms and raise questions about the role of the board of directors in improving reporting quality in the MENA context.
Practical implications
Regulators should adapt corporate governance mechanisms to the characteristics of the institutional context in which they are inserted.
Originality/value
To the best of the authors’ knowledge, this study is the first to examine the effect of various board characteristics on both types of earnings management practices in the MENA context. It also provides the first empirical evidence of the relationship between board gender diversity and earnings management in the MENA region.
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In this study, the author examines the effect of managers’ perception of product market competition on accruals and real earnings management.
Abstract
Purpose
In this study, the author examines the effect of managers’ perception of product market competition on accruals and real earnings management.
Design/methodology/approach
The author develops a new text-based measure of the emphasis managers place on product market competition by conducting a textual analysis of firms’ 10-K filings. Using this measure, the author conducts a battery of econometric analyses and robustness checks to investigate the impact of this measure of product market competition on measures of accruals and real earnings management.
Findings
This study finds robust evidence that when management perceives more competitive threats, they are more likely to engage in accruals-based earnings manipulation but are less likely to engage in real earnings management activity. The author argues that these findings are due to managers’ career concerns enticing them to manage earnings via accrual when competition is high, but that greater product market competition discourages real earning management activity as it can diminish firms’ competitiveness.
Practical implications
The findings of this paper have important policy and practical implications since it signals that managers’ perceptions of product market competition is able to affect accounting choices, information environments and economic outcomes in firms.
Originality/value
This study develops a new text-based measure of managers’ perception of product market competition with the aid of GPT-4. The author then using this measure provides firm-level evidence on how this relates to earnings management.
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Bin Li, Zhao Qizi, Yasir Shahab, Xun Wu and Collins G. Ntim
This study aims to investigate the impact of the development of high-speed rail (HSR) network on earnings management, especially on the trade-off between the usage of…
Abstract
Purpose
This study aims to investigate the impact of the development of high-speed rail (HSR) network on earnings management, especially on the trade-off between the usage of accruals-based earnings management (AM) and real earnings management (RM) techniques, and consequently, examines the extent to which the HSR network–earnings management nexus is moderated by governance and religion factors.
Design/methodology/approach
Using a sample of Chinese A-listed firms over an 11-year period, this study uses regression techniques as the baseline methodology while controlling for industry and year-fixed effects. The authors also use endogeneity tests (including instrumental variable method, Generalized Methods of Moments estimation and difference-in-difference) and different robustness checks.
Findings
The key findings are threefold. First, the HSR network development reduces AM. This suggests that the presence of HSR network is effective in reducing information asymmetry. Second, the use of RM technique increases with the HSR network development. This indicates that managers do not seem to engage in less earnings management with the HSR network development but instead appear to switch from the easy-to-detect AM to the more costly RM approach. Finally, the HSR network and earnings management nexus is moderated by governance and religion factors.
Originality/value
This study provides new evidence on the trade-off between AM and RM by managers and pioneers in examining the impacts of governance and religion factors on the relationship between the HSR network and the trade-off of earnings management techniques.
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Yuri Gomes Paiva Azevedo, Mariana Câmara Gomes e Silva and Silvio Hiroshi Nakao
The purpose of this study is to examine the moderating effect of an exogenous corporate governance shock that curbs Chief Executive Officers’ (CEOs) power on the relationship…
Abstract
Purpose
The purpose of this study is to examine the moderating effect of an exogenous corporate governance shock that curbs Chief Executive Officers’ (CEOs) power on the relationship between CEO narcissism and earnings management practices.
Design/methodology/approach
The authors performed a quasi-experiment using a differences-in-differences approach to examine Brazil’s duality split regulatory change on 101 Brazilian public firms during the period 2010–2022.
Findings
The main findings indicate that the introduction of duality split curtails the positive influence of CEO narcissism on earnings management, suggesting that this corporate governance regulation may act as a complementary corporate governance mechanism in mitigating the negative consequences of powerful narcissistic CEOs. Further robustness checks indicate that the results remain consistent after using entropy balancing and alternative measures of CEO narcissism.
Practical implications
In emerging markets, where governance systems are frequently perceived as less than optimal, policymakers and regulatory authorities can draw insights from this enforcement to shape governance systems, reducing CEO power and, consequently, improving the quality of financial reporting.
Originality/value
To the best of the authors’ knowledge, this is the first study to examine whether a duality split mitigates the influence of CEO narcissism on earnings management. Thus, this study contributes to the corporate governance literature that calls for research on the effectiveness of external corporate governance mechanisms in emerging markets as well as the CEO narcissism literature that calls for research on moderating factors that could curtail negative consequences of narcissistic CEO behavior.
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Giovanna Gavana, Pietro Gottardo and Anna Maria Moisello
The purpose of this paper is to investigate the effect of family control on the association between related party transactions (RPTs) and different forms of accrual-based earnings…
Abstract
Purpose
The purpose of this paper is to investigate the effect of family control on the association between related party transactions (RPTs) and different forms of accrual-based earnings management (AEM) and real earnings management (REM), analyzing the effect of board characteristics on the possible association.
Design/methodology/approach
This paper studies a sample of Italian non-financial listed firms over the 2014–2019 period, by GLS regression models, controlling for the fixed effects of the company's sector of operation and the year.
Findings
Results indicate a different association between RPTs and earnings management (EM) in family and non-family firms. They point out that family firms use RPTs in association with downward AEM and REM perpetrated by abnormal discretionary expenses as well as a substitute of REM via abnormal production costs. For non-family firms, findings indicate only a substitution effect between RPTs and AEM. Furthermore, CEO duality, board gender diversity and the presence of the family on the board positively moderate the association between RPTs and, respectively, REM implemented through sales manipulations, downward AEM and upward AEM.
Originality/value
This study suggests that the socioemotional wealth (SEW) differently affects the relationship between RPTs and EM, according to the form of the latter. It also points out family firms' heterogeneity in earnings manipulations, by providing evidence of the moderating role of board characteristics on the association between RPTs and the various forms of EM.
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This study aims to explore how earnings management techniques are affected by corporate financial debt risk (FDR), internal control (IC) effectiveness and CEO education.
Abstract
Purpose
This study aims to explore how earnings management techniques are affected by corporate financial debt risk (FDR), internal control (IC) effectiveness and CEO education.
Design/methodology/approach
The study uses a sample from listed firms in China from 2010 to 2017, comprising different industries, including agriculture, forestry, livestock farming and fishing; mining; manufacturing; electric power, gas and water production and supply; construction; transport and storage; information technology; the real estate industry; social services; and communication and cultural. The regression analysis is used to test the hypotheses. The two-stage least squares technique is used to check for endogeneity issues.
Findings
The study finds that firms are less likely to manage real earnings when they have more robust IC and FDR. Likewise, companies with weak ICs are more likely to manipulate real earnings. Besides, the study finds an influence of CEO education on the relationship between IC, FDR and real earnings management (REM). These results can be applied to the sectors in the sample covered by the research, and the authors do not overlook the energy industry sector for the importance of its role in the economy.
Research limitations/implications
There are some limitations for the researcher when performing any research, and this study is no exception. Researchers are urged to take these circumstances into consideration when generalizing or comparing the results because the methods used to calculate the measurement variables in each study may differ somewhat from those used in other research. In addition, expanding the current research design to incorporate additional nations may be an area of interest for future research and could aid in evaluating the effects of nation-specific elements (such as inflation, culture, legal systems and political considerations) on the usefulness of IC and decreasing FDR. Second, the current study focuses on the impact of IC and FDR on REM; this paper does not dissect the “black box” of IC and consider how each element affects earnings management. Future research may need to focus specifically on how effective IC would affect earnings management and precisely what IC mechanisms would discourage the management of earnings.
Practical implications
Helping companies listed in China to make decisions and improve investors’ vision of the results of real companies’ businesses, as well as helping management to avoid falling into debt risk and the consequent effects and manipulation of earnings.
Originality/value
By highlighting the significance of IC and debt risk in enhancing information quality in China, the results contribute to the body of work examining the relationship between IC, FDR and REM. In addition, this study uses a CEO’s education to moderate this link.
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Taqwa Al Mawaali, Omar Nasser Khamis Al Hashar, Noof Al Alawi, Tamanna Dalwai, Syeeda Shafiya Mohammadi and Maroua Ben Maaouia
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…
Abstract
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.
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Syed Zulfiqar Ali Shah and Fangyi Wan
This study examines whether country-level financial integration affects firms' accounting choices and the quality of financial information.
Abstract
Purpose
This study examines whether country-level financial integration affects firms' accounting choices and the quality of financial information.
Design/methodology/approach
This study employs Propensity Score Matching (PSM), and panel regressions of a large sample of data from 20 emerging markets over the period 1987–2018.
Findings
This study finds evidence that increased level of financial integration is significantly positively associated with firms' accruals earnings management (AEM) and real earnings management (REM).
Research limitations/implications
Findings in the study have implications for standard-setting bodies that aim to enhance the usefulness of financial reporting quality. The study also has implications for various initiatives by governments in emerging markets aimed at raising investor confidence and fostering stock market development through greater financial integration.
Practical implications
Findings in the study have implications for standard-setting bodies that aim to enhance the usefulness and quality of financial reporting. The findings can be of interest to analysts, auditors and other monitoring institutions who play a crucial role in detecting earnings management and reducing information asymmetry. Finally, the study has implications for various initiatives by governments in emerging markets aimed at raising investor confidence and fostering stock market development through greater financial integration.
Originality/value
Findings in the study reveal how country-level financial integration affects accruals and real earnings management in a sample of firms from 20 emerging markets. Further, the study adds to the growing body of literature on emerging markets where capital markets mechanisms, regulatory environment and firm's corporate governance are distinct to developed markets.
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Charlotte Haugland Sundkvist and Tonny Stenheim
The purpose of this paper is to examine the effect on earnings quality in private firms caused by a negative shock to fundamental performance, while simultaneously addressing…
Abstract
Purpose
The purpose of this paper is to examine the effect on earnings quality in private firms caused by a negative shock to fundamental performance, while simultaneously addressing methodological challenges measuring fundamental performance present in prior accrual-based earnings management literature.
Design/methodology/approach
Fundamental performance is unobservable and, therefore, difficult to measure. Existing research has used proxies that are subject to estimation errors and endogeneity concerns (e.g. DeFond and Park, 1997, Balsam et al., 1995). This study attempts to overcome these issues by taking advantage of the exogenous shock in oil price which occurred in 2014 and by using a difference-in-differences approach to investigate the effect on earnings management caused by a negative shift in fundamental performance.
Findings
The results suggest that a negative shock in fundamental performance, indicated by the oil price shock in 2014, reduces earnings quality. This result holds for various robustness tests such as the use of propensity score matching, and the inclusion of firm fixed effects. Additional analysis suggests that the reduction in earnings quality is driven by an increase in positive discretionary accruals, suggesting that managers of private firms experiencing poor performance manage earnings upwards to conceal true performance.
Originality/value
This study contributes to the literature by examining the effect of a negative shock to performance in a setting of private firms and by addressing methodological challenges in prior literature. Private firms are fundamentally different from public firms, with the consequence that results from public firms may not be generalizable to private firms (e.g. Hope et al., 2012, Burghstahler et al., 2006, Ball and Shivakumar, 2005).
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