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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.

Prior research suggests that firms manipulate earnings through accruals to achieve certain reporting objectives. Recently, especially following the Sarbanes‐Oxley (SarbOx) Act, researchers have turned their attention to real account manipulation as an alternative. However, there is no evidence on whether the likelihood of being detected by outsiders is different for firms using these alternative manipulation methods. The purpose of this paper is to examine this research question in the context of seasoned equity offerings (SEOs).

First, the authors compare SEOs to a matched sample of non‐SEOs to document income‐increasing manipulation. Next, they identify SEOs that prompt lawsuits and compare sued and non‐sued firms to determine whether using a particular method of manipulation is more likely to be detected and associated with litigation.

The authors find evidence of income‐increasing accrual and real manipulation for SEOs in the year prior to the offering in the pre‐SarbOx period, and find some evidence of a shift to real account manipulation post‐SarbOx. The authors examine the subsequent litigation pattern of these SEOs, and find that firms that are subsequently sued have a higher prevalence of income‐increasing discretionary accruals when the lawsuit allegations involve accounting issues. Following SarbOx, investors are paying less attention to accrual manipulation through accounts receivable and there is more scrutiny of real account manipulation.

The implication in this paper is that firms that engage in income‐increasing earnings management are more likely to be sued when they engage in accrual manipulation while other forms of manipulation may be less understood. This finding is important to investors and regulators.

This study aims to investigate the occurrence of pre-merger earnings management for a sample of 197 stock- and cash-financed UK acquirers between 1990 and 2009. It also examines the earnings management behaviour around the change in the Corporate Governance Code in 2003 based on the Higgs recommendations.

Mean and median accrual- and real-based manipulation are examined in the period before the announcement of a merger and acquisition. These are compared across stock and cash acquirers as well as before and after the implementation of the Higgs recommendations. Logistic regressions are also run to examine accrual- and real-based manipulation across stock and cash acquirers after controlling for variables that may affect the acquisition type.

The study found some evidence of upward pre-merger accrual-based earnings management by stock-financed acquirers, which is in line with the findings of Botsari and Meeks (2008). Furthermore, no significant changes were found in the post-Higgs period, which indicates that the recommendations put forth by Higgs may not have been successful in mitigating earnings management. The evidence also shows that cash bidders engage in pre-merger real earnings manipulation through lower discretionary expenses, possibly to enhance cash availability for the bid.

The findings in this study confirm earnings management exists around mergers and acquisitions and provide some evidence that the recommendations set out in the Higgs Report do not appear to have mitigated earnings management activities. This is of interest to regulators as well as investors and academicians.

This provides the first analysis in the UK examining the use of real-based earnings management activities by UK acquirers. It also extends prior research around corporate governance changes that occurred in the UK.

The purpose of this paper is to investigate whether real estate companies manipulate their earnings through the brokerage fee across ownership expropriation or not.

This study considers Kuala Lumpur Stock Exchange listed real estate firms to investigate how the brokerage fee in the real estate industry might affect the earnings management of firms across its ownership expropriation. Using annual report data, the authors investigate the associations over a panel for the period 2008−2012. Robust panel regression is used to divulge the probability values with reference by probit regression.

Overall, the results show that high brokerage fees would drive more events of earnings management and that, generally, the ownership concentration among Malaysian real estate firms significantly affects the earnings management of the firms.

This study shows that firm profitability and brokerage fees enhance the probability of firm’s earnings management. A low brokerage fee would reflect low revenue to the company. Therefore, management would opt to manipulate earnings in order to overstate earnings, which garners more interest from investors.

Real estate values in Malaysia have climbed steadily over the years due to a combination of reasons giving companies a higher brokerage fee. Earnings management has become a big issue for property investors. The study demonstrates the relationship between earnings management and brokerage fee across ownership expropriation which can be considered by shareholders in their own strategic planning and investors in their own investing.

This paper aims to provide new evidence that corporate site visits give institutional investors better opportunities to obtain information and exert monitoring powers, which reduce listed firms’ earnings management.

This paper explores how private communications affect firms’ earnings management by using a sample of institutional investors’ visits to the corporate sites of Chinese listed firms between 2010 and 2018. This study uses the performance-matched Jones model (Kothari et al., 2005) to measure accrual-based earnings management and Roychowdhury’s (2006) method to measure real earnings management. The authors also perform several robustness checks including an alternative measure of accounting accruals, a two-stage instrumental regression and the Heckman two-step approach.

Using a sample of institutional investors’ site visits to Chinese listed firms during the 2010–2018 period, this study finds that institutional investors’ site visits reduce listed firms’ earnings manipulation activities (both accrual-based and real). This association is robust to several checks, including an alternative measure of accounting accruals, a two-stage instrumental regression and the Heckman two-step approach. This study further documents that other private communication approaches such as private in-house meetings and conference calls moderate the effect of site visits.

As the Shenzhen Stock Exchange is one of the few stock markets to mandate that listed firms record and disclose their private communication information, this study also has implications for researchers and policymakers who work in other stock markets.

To the best of the authors’ knowledge, this study is the first comprehensive study of the impact of private communications on earnings management. This study extends the earnings management literature by examining institutional investors’ information acquisition process and revealing a negative association between their site visits and listed firms’ earnings management. Moreover, this study examines the effects not only on traditional accounting accruals but also on real earnings management. In addition to studies that emphasize the effect of corporate site visits on individuals and market reactions, this study examines the effect of site visits on firms’ financial misbehavior. This study shows that institutional investors’ corporate site visits provide external monitoring that mitigates listed firms’ earnings management behavior.

This paper aims to analyze the inhibitory effect of non-controlling shareholders governance mechanism on the retention of self-interest management, which provides theoretical support and practical basis for standardizing the control transfer behavior of listed companies and improving the governance mechanism of non-controlling shareholders.

Taking A-share listed companies with control transfer from 2000 to 2017 as sample, this paper investigates the strategy, path and retention consequence of the target company’s market selected top management who collude with the new controlling shareholder to avoid the risk of being taken over by control transfer.

This research explores that negative earnings management behavior may reduce the real premium of control transfer after deducting the “shell value”. The lower the real premium of control transfer after deducting the “shell value”, the higher the probability of management retention after control transfer. This paper also reveals that the real premium of control transfer after deducting the “shell value” plays complete mediation role between the negative earnings management behavior of the management and their own retention. The mediation effect of “collusion and price reduction” in the control transfer will be inversely moderated by the governance mechanism of noncontrolling shareholders including the old shareholders of the seller.

This paper not only constitutes a supplement to the existing literature but also provides empirical evidence for standardizing the control transfer behavior of listed companies, and making good use of the old shareholders of the seller to improve corporate governance and alleviate agency conflict after control transfer.

This paper aims to study the roles of Muslim CEO, Muslim Chairman and Muslim board of directors in mitigating earnings management via real activities manipulation.

In total, 656 firm year-observations from 2007 to 2014 of Malaysian Top 100 firms listed on Bursa Malaysia is used to examine the relationship between real earnings management (REM) and the religious ethical values of Muslim top leadership of the firms.

The study provides evidence that there was no significant relationship between ethical values and REM measures among Muslim top corporate leaders. However, through additional analysis on sub-sample firms, this study finds that Muslim CEO and Muslim Chairman have a significant and negative association with proxies of REM: RCFO and RPC.

The results show that Muslim CEO and Muslim Chairman are the actors that contribute more control in limiting REM especially in family-owned firms in Malaysia.

This is the first published paper that focuses on Islamic ethical values of corporate top leadership and REM in Malaysia, as previous studies have focused more on accruals earnings management.

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.

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.

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.

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

This study investigates whether exposure to a previous client’s earnings management behavior will impact experienced auditors’ judgments of the risk that a current client’s financial statements are materially misstated. Contrast theory predicts the context of previous information can have a priming effect on a current judgment scenario, where the information for the current judgment is contrasted with the previous information. Guided by contrast theory, we exposed auditors to either positive or negative client ethical earnings management behavior. We found the existence of contrast effects, with the positive (negative) context of the previous client resulting in auditors judging a higher (lower) likelihood of material misstatement in the current client’s financial statements. The results have implications for the effectiveness and efficiency of auditors’ judgments as well as provide insight into auditor training efforts.

The purpose of this paper is to investigate the impact of agency risk implied in case of personal debt obtained by promoters through pledging of their stock on accrual and real earnings management practices.

In this paper abnormal accruals, as suggested in Dechow et al. (1995), and the real earnings management proxies as indicated in Dechow et al. (1998) and Roychowdhury (2006) are used. OLS regression is run over 29,054 firm-years of Indian companies starting from the year 2008 to 2016. Then the occurrence of earnings management is tested in firms in year t where promoters pledge/release their holdings from the pledge in year t+1.

The findings suggest that earnings management increases in the prior year with an increase in the proportion of promoters’ stock pledge in the subsequent year. The authors find evidence for increased earnings management through accruals and also for real earnings management using abnormal cash flows and abnormal discretionary expenses. However, the authors do not find real earnings management using abnormal production cost as a measure.

The paper has considerable implications on managerial behavior toward earnings management because of the flexibility managers have in applying accounting policies and authority in operating decisions under domestic GAAP, and IFRS and earnings are prone to management tactics, fostering agency risk when they relate to the welfare of decision makers.

This paper addresses the consequences of individual borrowing of promoters collateralized by their stake in the firm, which is a global phenomenon, on reporting quality.