Abstract
This study examines the prevalence of earnings management in Real Estate Investment Trust (REIT) funds in Asia. Discretionary Accruals (DA) is used as the measurement of earnings management. A panel data covering all REIT firms in three countries: Malaysia, Singapore and Hong Kong, from year 2007 to 2015 is used for this purpose. The results show all firms having the absolute value of discretionary accruals indicating that earnings management exists in Asian REITs. Further, independent t-test shows that earnings management activities are significantly prevalent in all these three countries despite the regulatory structure of REITs.
Highlights
In corporate finance or accounting literature, earnings management is a common issue faced by the corporation
The findings from this study show that earnings management, measured via discretionary accruals, is prevalent in Asian Real Estate Investment Trust (REIT) especially in Malaysia, Singapore and Hong Kong
The findings from this study can be used as useful information for regulators of REITs in their effort to mitigate the negative impact of earnings management
Summary
In corporate finance or accounting literature, earnings management is a common issue faced by the corporation. Real Estate Investment Trust, known as REITs, are no exception They face the same problem (Anglin, Edelstein, Gao, & Tsang, 2012; Deng & Ong, 2014) and most previous studies have found that the occurrence of earnings management is driven by the agency problem discussed in the agency theory (Tang & Chang, 2013; Teoh, Wong, & Rao, 1998). The manipulation of earnings using accounting treatment has led to the collapse of Enron (2001) and Lehman Brothers (2008) in U.S The accrual method in accounting provides financial manager’s the discretion in determining the use of accounting standards to report the transaction presented in the financial statement (Subramanyam, 2014). Ambrose & Bian (2010) find that managers manipulate the share price through earnings management in order to attract investors to purchase the shares in U.S REITs
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