Earnings management and board member tenure, affiliations and re-election term duration: evidence from the UK

PurposeThe direct nexus between board characteristics, earnings management (EM) practices and dividend payout is examined in this study, followed by an examination of the indirect mediation impact of EM practices in the nexus between board characteristics and dividend payout. It aims to provide new empirical evidence from the Jordanian market, which is an emerging market.Design/methodology/approachThe study population consists of all service firms that were listed on the Amman Stock Exchange (ASE) between 2012 and 2019. Due to the lack of availability of their complete data during the period, four service firms were omitted from the population; hence, a sample of 43 service firms was acquired over the time frame (2012–2019), yielding a total of 344 firm-year observations. Moreover, panel data analysis was employed in this study, and data for the study were acquired from yearly reports as well as the ASE's database.FindingsBased on the GMM estimator findings, board size and independence have a negative and significant influence on the EM, but CEO/chairman duality has a positive and significant impact. Simultaneously, the impacts of female representation on the board of directors and the number of board meetings were both positive but insignificant. The findings also found that four board characteristics, including board size, female representation on the board of directors, CEO/chairman duality and the number of board meetings, had a significant negative or positive effect on dividend payout, while board independence did not. Additional findings show that EM practices have a direct negative insignificant effect on dividend payout, whereas EM practices partially mediate the relationship between board characteristics and dividend payout.Research limitations/implicationsThe current study's limitation is that it only searched in Jordanian service firms listed on ASE from 2012 to 2019 to fulfill the study's objectives; thus, we urge that future work explores the study models for other sectors, whether in Jordan or other growing markets such as the Middle East and North Africa.Practical implicationsThe findings of this study may be utilized by analysts, investors and other strategic decision-makers to enhance Jordan's financial market's efficiency and efficacy. These findings will improve policymakers' willingness to impose appropriate constraints, perhaps boosting Jordan's financial market performance and efficacy. These findings may also help investors make more enlightened judgments by utilizing board characteristics and EM factors that predict firm dividend policy.Originality/valueContradictions in the results of earlier investigations inspired the current study, with the findings filling a gap in the existing literature. This study differs from previous studies by constructing a novel research model and analyzing the mediating influence of EM in the nexus between board characteristics and dividend payout.

Earnings management offers an opportunity to hide frauds, which are often associated with key officials of corporate entities. Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) have been implicated in fraudulent earnings management. This study aims to investigate the effect of CFOs’ personality traits on earnings management in non-listed companies facing a debt crisis in Nigeria. The study explores a survey research method involving the administration of copies of a structured questionnaire on CFOs of the sampled companies. Statistical analysis includes computation of means, linear and multiple regression analyses. The findings reveal a high level of upward corporate earnings management and a strong exhibition of narcissistic trait among the CFOs. It was further observed that CFOs’ narcissistic trait is implicated in upward earnings management during the financial crisis. Possible economic implications of these outcomes include misallocation of resources by investors and aggravation of corporate debt crisis. These outcomes have policy implications on the appointment of corporate key officials and the accounting education curriculum. Consequently, the study recommends the personality trait test for individuals to be appointed into upper echelons’ positions in corporate organizations, as well as the inclusion of Element of Psychology in the curriculum of accounting education in Nigeria. AcknowledgmentOur sincere gratitude goes to Covenant University, Ota, Ogun State, Nigeria, for sponsoring the publication of this research paper as a contribution to the body of existing knowledge in corporate financial reporting in Nigeria.

PurposeThe purpose of this paper is to re-examine the motivation to manage earnings in US mergers and acquisitions (M&As) by investigating whether the enactment of Sarbanes-Oxley act (SOX) has affected pre-merger earnings management.Design/methodology/approachThe authors used a sample of over 700 completed M&As of US public firms during 1999-2008. Using quarterly reports, they tracked down earnings management during the four quarters preceding the deal and consequently drew inferences about the implications of SOX on interim reporting practices.FindingsWe report evidence that in the post-SOX era, non-cash acquirers begin pre-merger upwards earnings management in an earlier quarter than in the pre-SOX era. Further, our evidence indicates that in the quarters prior to the takeover, targets engage in more aggressive upwards earnings management in the post-SOX era.Originality/valueUnlike what is anticipated regarding earnings management practices after SOX, the study reveals significant evidence of upward earnings management by firms engaging in M&A in post-SOX era.

This study examines Big N auditors’ client risk management strategy in response to the risk of upward (i.e., income-increasing) earnings management in the post-SOX era. Specifically, we empirically study the relation between clients’ signed discretionary accruals and subsequent audit pricing and auditor resignation decisions. We find that audit fees and resignations are positively associated with the risk of upward earnings management. We document a pecking order of auditor responses and find that auditors are more likely to respond in the order of charging higher abnormal audit fees if the trade-off between upward earnings management risk and return is within an acceptable level, and then resign if the risk is more severe and exceeds the auditors’ tolerance level. Our results are robust to alternative accruals measures, controlling for clients’ internal control quality and corporate governance characteristics.

Environmental, social, and governance (ESG) performance has attracted debates of regulatory bodies and the academic community. Previous studies highlighted the relationship between corporate social responsibility (CSR) disclosure index and earnings management (EM) for non-financial firms. In this paper, we examine the relationship between the ESG performance and EM practices for a sample of US commercial banks over the period 2010–2019. We use two proxies for earnings management: abnormal loan loss provisions (ALLP) and EM to meet the threshold of reporting small positive profit or avoiding losses (SPOS). Consistent with the transparent financial reporting hypothesis, we find that banks reporting higher ESG performance are less likely engaged in income-increasing practice through ALLP. However, no evidence supports that ESG score mitigates EM through loss avoidance. Furthermore, we disaggregate the ESG score into its main three components: environmental, social, and governance. Our findings show that the governance pillar effectively mitigates EM practice under its two proxies. Specifically, the social pillar also seems to be an efficient constraint of banks’ EM through income-increasing abnormal loan loss provisions and loss avoidance activity. However, no supporting evidence of a mitigating role for the environmental pillar is provided. Taken together, our results show that, except the environmental pillar, ESG performance score acts as an efficient mitigating tool for EM practices for US banks. Our findings provide a better understanding of banks’ earnings management practices. Our findings are helpful for managers when undertaking long-term investment strategies in ESG reporting practices, regulators when issuing new standards, and banks’ stakeholders when assessing both the financial and non-financial performance of such entities.

This study aims to examine and analyze the effect of corporate governance and earnings management on expense stickiness. By defining small positive earnings or small earnings increases as the proxy of earnings management and divides the sample into earnings management (upward earnings management) and non-earnings management. This study uses a broad measure of corporate governance by extracting the main factors of corporate governance. The sample obtained is 251 company samples for earnings management samples and 133 companies for corporate governance samples and processed using the Multiple Linear Regression method using the regression model from the research of Xue and Hong (2016). The results showed that corporate governance can reduce the level of expense stickiness. However, the results of this study cannot prove that earnings management can reduce the level of expense stickiness, but this research proves that companies that do not indicate earning management influence the existence of expense stickiness.

Research background:Earnings manipulations are a global phenomenon, the aim of which is not only to improve the financial position in accordance with Positive Accounting Theory, but also other goals of the company in accordance with the management strategy. However, the diversity of the company’s goals along with the corporate life cycle are crucial factors influencing the quality of corporate earnings and the existence, scope and application of downward and upward earnings management.Purpose of the article:The aim of the paper is to comprehensively analyse and verify the existence and extent of downward and upward earnings management in Central European countries with an emphasis on differences between countries and between life cycle stages.Methods:The study uses Mann-Whitney test and binomial test to verify the existence and extent of downward and upward earnings management. The sample covers discretionary accruals for 2019 estimated by modified Jones and Teoh, et al. models from almost 3,500 companies from four Central European countries.Findings & Value added:The results show that, depending on the life cycle stage or country, companies manipulate profits, but the application of a specific type of earnings management and its scope vary significantly within countries and life cycle stages. Lifecycle manipulation earnings are U-shaped, meaning that start-ups and declining companies use, on average, more significant upward earnings management. On the contrary, mature companies reduce their accounting profit. Nevertheless, the share of companies using upward earnings management is higher than companies with downward earnings management.

This study examines the relationship between the Board of Directors' compensation scheme and earnings management practices in the Indonesian banking sector. The main focus is to investigate how bonus components such as distributable profit, operating profit trend, net profit trend, operating profit target, and net profit target affect management behavior in manipulating financial statements. Using multiple regression methods, the study was conducted on 160 banking observations for the period 2020-2023 selected through purposive sampling. Discretionary accruals (DAC) are used as a proxy for earnings management. The results show a significant effect of several bonus components, especially Net Profit Target, on earnings management practices. The findings indicate that an earnings-based compensation scheme can encourage directors to engineer accounting to maximize their bonuses, which underscores the importance of a comprehensive and ethical incentive structure design.

This study investigates the influence of the board chairman’s involvement in the audit committee (AC) (as a proxy of AC independence) on earnings management (EM) practices. We examine Bursa Malaysia listed firms with slight positive earnings for the years 2013 to 2015. Using ordinary least squares regression and the Modified Jones Model by Kasznik as a measure of accruals, this study reveals that an AC that includes its board chairman is associated with greater discretionary accruals and EM. Further, we categorise a board chairman’s involvement in an AC into two types: a board chairman who also serves as the AC chairman (hereafter termed board chairman duality) and a board chairman who sits in the AC as an ordinary member. We find that board chairman duality does not influence EM. However, ACs whose members include the board chairman are associated with EM practices. This study supports agency theory and the initiatives taken by policy-makers to deter board chairmen from serving on ACs. It also alerts policy-makers, firms and their stakeholders, as well as researchers to the importance of having an AC free from the involvement of its board chairman as this will enhance the committee’s effectiveness in curbing EM.

SUMMARY: This study examines Big N auditors' client risk management strategy in response to the risk of upward (i.e., income-increasing) earnings management in the post-SOX era. Specifically, we empirically study the relation between clients' signed discretionary accruals and subsequent audit pricing and auditor resignation decisions. We find that audit fees and resignations are positively associated with the risk of upward earnings management. We document a pecking order of auditor responses and find that auditors are more likely to respond in the order of charging higher abnormal audit fees if the trade-off between upward earnings management risk and return is within an acceptable level, and then resign if the risk is more severe and exceeds the auditors' tolerance level. Our results are robust to alternative accruals measures, controlling for clients' internal control quality and corporate governance characteristics.

The purpose of this study is to investigate the effects of political connections and earnings management and to explore the role of the board of directors’ efficacy on the relationship between political connections and earnings management practices. A panel data set of 365 observations from 73 firms (2018 to 2022) listed on the Nigerian Exchange Group (NGX) was used, and the Driscoll and Kraay standard error fixed effect was employed in testing the hypotheses. The findings indicated that politically connected boards are positively associated with accrual earnings management and negatively associated with real earnings management practices. The study also finds that the board of directors’ efficacy is negatively associated with both accrual earnings management and real earnings management activities and thus plays a significant role in strengthening accrual earnings management practices of politically connected boards. The results are robust to alternative accrual earnings management and real earnings management measures. However, following the reformation of the Nigerian Code of Corporate Governance 2018, this study is among the earliest to examine the effects of board efficacy on earnings management of firms with politically connected boards in Nigeria. As such, the findings might have important implications for policymakers, regulators, and investors, as board efficacy is a significant mechanism in strengthening the accrual earnings management practices, thereby curbing the earnings management of politically connected boards. Additionally, this study is limited to a sample of non-financial service firms in Nigeria for a period of 5 years, resulting in the non-generalizability of the findings in different contexts.

PurposeThe purpose of this paper is to investigate the impact of chief executive officer (CEO) characteristics on the earnings management examined by the discretionary accruals.Design/methodology/approachThe sample includes 151 French firms listed on the CAC ALL shares index from 2006 to 2015. The paper uses the feasible generalized least square regression technique to test the relationship between CEO characteristics and earnings management.FindingsUsing discretionary accruals as a proxy for earnings management, the results obtained from the three models (Jones modified 1995; Kothariet al., 2005; Raman and Shahrur, 2008) indicated that there is a positive and significant relationship between CEO duality, CEO nationality and the quality of financial communication. However, no significant relationship was found between CEO board member, CEO turnover and earnings management.Originality/valueA literature review finds that fewer studies have investigated the relationship between earnings management practices and personal CEO characteristics in the French context. Furthermore, no study yet has examined the influence of CEO nationality and CEO age on earnings management practices. This study provides empirical data about the impact of CEO’s characteristics on earnings management and how these different characteristics can facilitate the transition to manipulate and influence the quality of financial communication.

This research presents a new look at the relationship between CEO compensation structures and earnings management practices within publicly listed companies in Gulf Cooperation Council (GCC) economies between 2015 and 2024. With a quantitative approach, this study differentiates between fixed and performance-based components of compensation and utilizes the Modified Jones Model to estimate discretionary accruals as a proxy for earnings management. Using a multivariate regression analysis, the study found a significant positive relationship between the equity-linked (i.e., performance-based) component of CEO pay, and earnings manipulation, while fixed salaries were positively associated or had no relation at all. These findings suggest that performance-based compensation motivates opportunistic financial reporting to meet performance standards. The study answers major implications for policy makers and boards of directors in the GCC, which may require reforms in the design of executive pay structures with a long-term emphasis on value added for shareholders, accountability, and governance. This research is important as it adds new evidence to the literature from the less studied GCC area of the world and pushes forward global conversations about executive accountability and the quality of financial reporting in emerging market contexts. In addition, it discusses an aspect that has not been much addressed in the literature: the focus on the voluntary or “optional” aspects of board committees in companies.

This paper will start from the motivation of enterprises to manipulate positive and negative earnings management, and combine the characteristics of controlling accruals and real earnings management, so as to make up for the lack of research on the direction, mode and degree of earnings management in the existing literature. At the same time, this study will provide a new explanation for the relationship between equity pledge of major shareholders and different ways of earnings management in different directions. In this paper, the pledge of major shareholders' equity is used as an external governance factor, and the shareholding ratio and equity nature of major shareholders are used as internal governance factors for simultaneous analysis, so as to explore the synergistic effect under the joint action and better explore the relationship between corporate governance and earnings management. This paper uses the A-share listed companies in China's Shanghai and Shenzhen stock markets from 2013 to 2018 as a research sample to explore the impact of Equity pledge on upward earnings management, and the moderating effect of the shareholding ratio of major shareholders on the relationship between equity pledge and upward earnings management.

The purpose of this study is investigating a diagnostic for earnings management using changes in asset turnover and profit margin in 133 listed firms in Tehran Stock Exchange has been in the period 2005 – 2011. Analysis data this study taken with using multivariate linear regression and using the combined data. The results revealed that, during the course of the study, a statistically significant difference between the mean upward earnings management in the company of the two models studied existed. Because difference between upward earnings management and abnormal accruals of the company, increase profit margins and reduce total asset turnover can not simultaneously be a sign of upward earnings management; moreover, Because difference between downward earnings management and abnormal accruals of the company, reduce profit margins and increase total asset turnover cant not simultaneously be a sign of downward earnings management. Due to the inability to model the marginal profit/total asset turnover in detecting earnings management (both upward and downward), it is proposes that the analysts and other participants in the Tehran Stock Exchange in line with diagnosis of management for corporate profits use the models of abnormal accruals and earnings management detecting models.