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1 – 10 of over 1000
Article
Publication date: 1 May 2023

Ratna Candra Sari, Mahfud Sholihin, Zuhrohtun Zuhrohtun, Ida Ayu Purnama, Patriani Wahyu Dewanti and Umi Syafaatul Udhma

The purpose of this study is to examine the trade-off between accrual and real activity earnings manipulation by considering gender and punishment as one aspect of clawbacks.

Abstract

Purpose

The purpose of this study is to examine the trade-off between accrual and real activity earnings manipulation by considering gender and punishment as one aspect of clawbacks.

Design/methodology/approach

To achieve the research objectives, experimental design research was used, involving 183 professional accountants in Indonesia. This was followed by interviews with board members of public companies in Indonesia.

Findings

After the adoption of clawbacks, the intention to manipulate accruals decreased more among women than among men. However, the possible unintended consequences of clawbacks, particularly an increase in real activity manipulation, did not differ between women and men.

Originality/value

There are still few studies that use experimental designs to examine the consequences of clawback. Our study is expected to provide a novel contribution to the literature on the consequences of clawbacks as we use an experimental method. Besides, previous research that tested the consequences of clawback, using both archival and experimental data, had not considered the gender aspect, thus prompting this study to fill the research gap related to the consequences of clawback adoption by including the gender variable.

Details

Gender in Management: An International Journal , vol. 38 no. 8
Type: Research Article
ISSN: 1754-2413

Keywords

Article
Publication date: 13 May 2022

Apostolos Christopoulos, Ioannis Dokas, Christos Leontidis and Eleftherios Spyromitros

This paper attempts to investigate the effect of corruption on the real and accrual earnings management of target firms in the process of mergers and acquisitions.

Abstract

Purpose

This paper attempts to investigate the effect of corruption on the real and accrual earnings management of target firms in the process of mergers and acquisitions.

Design/methodology/approach

The sample includes target firms from the European area that participate in mergers or acquisitions announced during 2010–2020. The preliminary empirical part estimates the level of earnings management during the period two years before the deal's announcement to identify whether the sample follows the manipulation behavior that the literature suggests for target firms. The primary empirical analysis focuses on the impact of corruption on real and accrual-based earnings management proxies, employing regression models and two alternative proxies for corruption. The existing literature points out that the combination of low levels of corruption and an integrated legal system reduces earnings manipulation.

Findings

The findings provide strong evidence for systematic downwards accounting manipulation practices, whereas the findings for real earnings management are not significant. The findings of the main empirical part show that corruption is positively associated with accrual-based manipulation and negatively related to real earnings management. In essence, in economies with a high level of transparency, managers adopt the manipulation of operating activities as a less detectable practice of earnings management instead of engaging in accounting procedures.

Originality/value

This study contributes to the literature highlighting the diversification of these firms' manipulation strategies according to the national level's corruption status.

Details

EuroMed Journal of Business, vol. 18 no. 4
Type: Research Article
ISSN: 1450-2194

Keywords

Article
Publication date: 26 August 2022

Thi Thu Ha Nguyen, Salma Ibrahim and George Giannopoulos

The use of models for detecting earnings management in the academic literature, using accrual and real manipulation, is commonplace. The purpose of the current study is to compare…

Abstract

Purpose

The use of models for detecting earnings management in the academic literature, using accrual and real manipulation, is commonplace. The purpose of the current study is to compare the power of these models in a United Kingdom (UK) sample of 19,424 firm-year observations during the period 1991–2018. The authors include artificially-induced manipulation of revenues and expenses between zero and ten percent of total assets to random samples of 500 firm-year observations within the full sample. The authors use two alternative samples, one with no reversal of manipulation (sample 1) and one with reversal in the following year (sample 2).

Design/methodology/approach

The authors include artificially induced manipulation of revenues and expenses between zero and ten percent of total assets to random samples of 500 firm-year observations within the full sample.

Findings

The authors find that real earnings manipulation models have lower power than accrual earnings manipulation models, when manipulating discretionary expenses and revenues. Furthermore, the real earnings manipulation model to detect overproduction has high misspecification, resulting in artificially inflating the power of the model. The authors examine an alternative model to detect discretionary expense manipulation that generates higher power than the Roychowdhury (2006) model. Modified real manipulation models (Srivastava, 2019) are used as robustness and the authors find these to be more misspecified in some cases but less in others. The authors extend the analysis to a setting in which earnings management is known to occur, i.e. around benchmark-beating and find consistent evidence of accrual and some forms of real manipulation in this sample using all models examined.

Research limitations/implications

This study contributes to the literature by providing evidence of misspecification of currently used models to detect real accounts manipulation.

Practical implications

Based on the findings, the authors recommend caution in interpreting any findings when using these models in future research.

Originality/value

The findings address the earnings management literature, guided by the agency theory.

Details

Journal of Applied Accounting Research, vol. 24 no. 2
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 31 March 2023

Géraldine Broye and Pauline Johannes

This study aims to examine how the prestige of audit committee (AC) chairpersons influences earnings management.

Abstract

Purpose

This study aims to examine how the prestige of audit committee (AC) chairpersons influences earnings management.

Design/methodology/approach

The sample contains 1,973 firm-year observations of French listed firms for the period 2007–2018. The authors examine the status of AC chairs and CEOs by focusing on the French business elite system. This study tests the association between AC chairs’ (relative) status and the level of earnings management using measures of accrual earnings management and real earnings management (REM).

Findings

The results of this study do not show that high-status AC chairs constrain accruals manipulation. However, the results provide evidence that they play a key role in constraining REM. High-status AC chairs are more likely to enhance the monitoring of this type of manipulation, given their thorough knowledge and understanding of the firm’s business environment and practices. This study also finds evidence that AC chairs with a status higher than CEOs are associated with lower levels of REM. The results suggest that prestigious AC chairs influence lower status CEOs’ strategic decisions.

Originality/value

This study demonstrates that high-status AC chairs play an important role in detecting and constraining deviations from normal business practices. The results have substantial implications for boards, which will benefit from an understanding of how the appointment of high-status chairs affects financial reporting quality.

Details

Managerial Auditing Journal, vol. 38 no. 6
Type: Research Article
ISSN: 0268-6902

Keywords

Open Access
Article
Publication date: 27 July 2023

Samir Trabelsi and Amna Chalwati

This paper examines the relationship between poison pills, real earnings management and initial public offering (IPO) failure.

Abstract

Purpose

This paper examines the relationship between poison pills, real earnings management and initial public offering (IPO) failure.

Design/methodology/approach

The authors sampled 2,997 IPO firms that went public during 1993-2015.

Findings

The authors find that IPO firms manipulate earnings upward using real earnings management. The authors also find that IPO firms exhibiting a higher level of real earnings management have a higher probability of IPO failure. In addition, the authors find that weak shareholders' governance is positively associated with IPO failure.

Practical implications

These results suggest that poor governance structures in failed firms open the door to manipulating real activities and increasing operational risk.

Originality/value

The study findings are of most significant interest to potential investors and other stakeholders affiliated with a firm going public, an auditor, an underwriter, the lawyers who consult with the firm and employees or executives who might consider joining that firm.

Details

China Accounting and Finance Review, vol. 25 no. 4
Type: Research Article
ISSN: 1029-807X

Keywords

Article
Publication date: 15 January 2024

Terry Harris

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.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 19 October 2023

Guotai Chi and Ahmed R. Gooda

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.

Details

Journal of Financial Reporting and Accounting, vol. 22 no. 1
Type: Research Article
ISSN: 1985-2517

Keywords

Book part
Publication date: 30 March 2023

Jap Efendi, Li-Chin Jennifer Ho, L. Murphy Smith and Yu Zhang

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

Abstract

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.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-80455-792-1

Keywords

Book part
Publication date: 23 August 2023

Frista Frista, Sidharta Utama and Sylvia Veronica Siregar

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…

Abstract

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.

Details

Contemporary Issues in Financial Economics: Evidence from Emerging Economies
Type: Book
ISBN: 978-1-80117-839-6

Keywords

Article
Publication date: 23 February 2022

Ahmed Imran Hunjra, Fazal Muhammad and Saber Sebai

Earnings management (EM) plays a vital role in risk management. This paper aims to investigate the impact of real earning management (REM) on credit risk.

Abstract

Purpose

Earnings management (EM) plays a vital role in risk management. This paper aims to investigate the impact of real earning management (REM) on credit risk.

Design/methodology/approach

This paper measures the credit risk by the expected default frequency of Kealhofer, McQuown and Vasicek model. This paper uses data from 2011 to 2020 of Pakistani manufacturing listed firms. This paper applies the fixed effect to analyze the results and generalized methods of moments to handle the heterogeneity issue.

Findings

This paper finds that the impact of REM on corporate credit risk is positive and significant and that of sales manipulation is negative and significant. This paper also reports similar outcomes of the robustness test using dynamic panel regression.

Originality/value

The findings of this study may help managers to modify the EM strategy to minimize corporate credit risk. Furthermore, the findings of this study are important for investors to enhance their understanding of firms’ accounting information, REM activities and cash flow patterns. It further suggests the manager should consider credit risk as an important factor while practicing REM.

Details

Journal of Financial Reporting and Accounting, vol. 21 no. 5
Type: Research Article
ISSN: 1985-2517

Keywords

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