Quarterly relative performance reversals and earnings management – Evidence from India

The relationship between corporate social responsibility (CSR) and earnings management (EM) has only emerged recently as a topic of academic research. Literature suggests that firms may strategically use CSR to compensate for EM or to deflect stakeholder attention from EM. Studies on the EM-CSR relationships have so far yielded contradictory results. Additionally, research has largely neglected the influence of industry on this relationship. As scholars of both CSR and EM have suggested that industry effects may play a role, this study examines the relationship between the level of CSR performance of companies, the extent of EM firms are practising and the effect of industry (high vs. low environmental impact as a proxy for experienced stakeholder pressure). Using the Modified Jones model, discretionary accruals are estimated and used as a proxy for EM (accrual-based EM). Firm CSR performance is captured by using the Kinder, Lydenberg, Domino (KLD) database. Using a sample consisting of 5494 observations of US listed companies for the fiscal years 2003 until 2009, this study (1) finds no relationship between EM and CSR and (2) finds that the firms in the category high environmental impact do not seem to practice EM but do display higher levels of CSR performance. Finally, the article reflects critically on the concepts used in studying the EM-CSR relationship and its contribution to the literature.

The purpose of this study was to examine whether there is an effect of current tax expense, deferred tax, deferred tax assets, and deferred tax liability on earnings management actions in consumer goods companies listed on the Indonesia Stock Exchange (IDX). This study's sample consisted of 27 consumer goods industries listed on the Indonesia Stock Exchange in 2013-2017 using the purposive sampling method. Hypothesis testing in this study using the t-test. Earnings management is proxied by discretionary accruals using the Modified Jones Model. The type of data used is secondary data. Data analysis used OLS (regression equation analysis ordinary least square). The results show that the current tax has a significant effect on earnings management variables. The deferred tax affects earnings management, deferred tax assets affect earnings management, and deferred tax liabilities have no effect on earnings management. Research limitations The sample of companies used is considered less representative of the population because only manufacturing companies are used consumer goods. The research period in measuring earnings management variables is proxied by discretionary accruals for only five consecutive years, according to Jones (1991). profit can be seen if the research period is carried out for eight years. In this study, it is suggested that the research period used can be added, and the sample used can be extended to other company sectors and other measures of earnings management by using proxies.

The purpose of this paper is to test the effect of the board characteristics including; its size, independence, the CEO duality and its activity on the earnings management in companies listed on the SBF 250. We use discretionary accruals (DA) as a proxy for the earnings management. To calculate DA, we use two models which are the modified Jones model (and performance-matched discretionary accruals estimated from the modified Jones model. Based on a sample of 70 French listed companies over the period of 4 years from 2008 to 2012, the study finds that the earnings management is negatively associated with the board size. This suggests that large boards are more effective in monitoring a CEO‘s action. The CEO duality is found to have a positive relationship with the earnings management suggesting that, by combining the role of the CEO and that of the chairman of the board helps increase the earnings management because the CEO may reduce the effectiveness of the board and create a conflict between the management and the board that may reduce the earnings management. Moreover, the board activity is found to have a positive relation with the earnings management suggesting that a board meeting more often helps to increase the earnings management. The present study finds no effect of the board independence on the earnings management. This result is in contradiction with previous studies that have found a significant negative relationship between these two variables. Overall, from the result of this study, we conclude that the earnings management takes place in French listed companies.

ABSTRACTThis study looks into the mediating role of earning management on the relationship between corporate social responsibility (CSR), good corporate governance (GCG) and family-owned companies’ performance. This study uses the panel data approach, and 116 family-owned companies on Indonesia Stock Exchange are included as the sample for the period 2014 to 2018 and data were analysed using SPSS and Smart PLS 3.0 software. In this study, CSR is measured using index of ISO 26000, good corporate governance is measured by board size, independent commissioners, board of commissioners and audit quality, while firm performance is measured by return on asset (ROA), Tobin’s Q and earning per share (EPS). Meanwhile, earning management is measured using discretionary accruals (DA) with the modified Jones model. The results show that CSR and GCG can build positive impact on firm performance. The findings also show that earning management mediates the relationship between GCG and firm performance, while it failed to mediate the relationship between CSR and firm performance. Keywords: Corporate Social Responsibility, Corporate Governance, Earning Management, Firm Performance, Family-owned CompaniesABSTRACTThis study looks into the mediating role of earning management on the relationship between corporate social responsibility (CSR), good corporate governance (GCG) and family-owned companies’ performance. This study uses the panel data approach, and 116 family-owned companies on Indonesia Stock Exchange are included as the sample for the period 2014 to 2018 and data were analysed using SPSS and Smart PLS 3.0 software. In this study, CSR is measured using index of ISO 26000, good corporate governance is measured by board size, independent commissioners, board of commissioners and audit quality, while firm performance is measured by return on asset (ROA), Tobin’s Q and earning per share (EPS). Meanwhile, earning management is measured using discretionary accruals (DA) with the modified Jones model. The results show that CSR and GCG can build positive impact on firm performance. The findings also show that earning management mediates the relationship between GCG and firm performance, while it failed to mediate the relationship between CSR and firm performance. Keywords: Corporate Social Responsibility, Corporate Governance, Earning Management, Firm Performance, Family-owned Companies

This paper investigates the association between corporate governance and earnings management. More specifically, the effects of board characteristics on earnings management are examined. A proxy of earnings management, namely discretionary accruals (Modified Jones Model, 1995) is used to measure the level of earnings management. A sample of 103 firms listed on the Athens Stock Exchange during the period 2015-2019 was employed. Using panel data regressions, the authors explore the relationship between the discretionary accruals and five board characteristics as identified in the literature (independence, family directors, female directors, foreign directors, and CEO duality). The main findings of the study suggested that earnings management is restricted in firms with more independent directors and firms in which the same person takes the role of the CEO and the chairman of the board. Empirical results also indicate that in high performing firms earnings management is reduced while in firms with high levels of debt the opposite appears to be the case. The findings of the study have implications for many stakeholders such as regulators, managers, shareholders, etc. This paper contributes to the academic debate on earnings management by complementing the work of other researchers on the impact of corporate governance on earnings management in the wake of a financial crisis.

Earnings management has caught the attention of regulators, policy makers and corporate stakeholders due to soaring accounting frauds. This has caused erosion of investors’ wealth and loss of public confidence in financial reports. In such an alarming situation, the need of the hour is to shield the stakeholders from illusive earnings management practices and accounting frauds. Taking a step ahead in this direction, the present paper makes an attempt to examine the magnitude of earnings management in BSE 500 companies across various industries and sectors of the Indian economy over a period of three years commencing from 2013 to 2015. This study further explores the relation between earnings management varies with the size of the business. Modified Jones Model (1995) has been used to estimate the discretionary accruals which act as a proxy for earnings management. The results of the study demonstrate that average discretionary accruals are 1.789 per cent of total assets of the firm. Further, it is found that manufacturing of food product industry is contributing the highest percentage discretionary accruals in industrial classification. Service sector firms are dominated by income decreasing earnings management whereas non service sectors and small firms have been found to be exercising income increasing earnings management.

Since the late 1980s, the Financial Accounting Standards Board has implemented several new fair value accounting rules that have resulted in unrealized fair value gains or losses in net income. However, accrual-based earnings management models such as the Modified Jones Model (MJM) of Dechow, Sloan, and Sweeney (1995) and other accrual models in the literature do not consider the net income effects of fair value accounting. The fair value hierarchy of Statement of Financial Accounting Standard No. 157 implies that valuation of level 1 and level 2 instruments is subject to observable market inputs, whereas the valuation inputs of level 3 are unobservable. Therefore, with respect to earnings management, level 3 instruments are more likely to be manipulated relative to level 1 and level 2 instruments. In this paper, we adjust the MJM by adding level 1 and level 2 instruments as explanatory variables to nondiscretionary accruals; we classify net income effects of level 3 instruments as discretionary accruals in our Fair Value Adjusted Modified Jones Model (FVAMJM). We show that the FVAMJM is more powerful than the MJM in detecting earnings manipulation based on level 3 instruments and is equally good in detecting expense and revenue manipulations. In addition, the nondiscretionary accruals derived under FVAMJM have incremental explanatory power to firm market value beyond the accruals of the traditional MJM; the discretionary accruals derived under FVAMJM contribute to identifying companies meeting or beating earnings targets after controlling for MJM discretionary accruals.

The purpose of this paper is to examine empirically and detect the extent of practicing Earning management (EM) in Kuwaiti manufacturing companies and to discover the relationship and effects of using earning management practices and declared net income and cash flow in financial statements on stock price in financial markets. The practitioner experience accountant can provide different forms and types of earning and profit in financial statements to users by manipulating with numbers and records and to make benefits out of the flexibility of accounting standards, policies, disclosures and the interference in accounting measurement without violating rules and principles, this paper will focus on analysing the concept of earning management, motivations that stand behind it, methods and techniques that are used to practice it and discussing the different models used to detect these practices, that may give many explanations to the behaviours of managements and accountants, the sample chosen in this study consists of 7 Kuwaiti manufacturing firms listed on the financial market. The modified Jones model (1995) which represents the most favourite model by the researcher was used to estimate the discretionary accruals in order to detect the earnings management practices and to explore the effects of some variable and factors on earning management practices and stock price, a regression model was designed and a statistical analysis was used by (SPSS) to analyse this phenomenon. The results of testing these models on the samples selected showed that the Kuwaiti firms are involved in earning management practices as they exercised the discretionary accruals in a negative way. The tests showed also the negative effect of net income and cash flow that was created from EM practice on stock price. keywords: earning management (EM), net income, cash flow, stock price, and the modified Jones model

Background: Economic value added (EVA) may reflect true performance compared with other conventional accounting indices, it is still measured through financial statements. It is highly probable that EVA motivates managers to manipulate earnings.Aim: The main contribution of this study is the analysis of the association between earnings management and EVA. This study provides shareholders, lenders and creditors (or other categories of investors) with a method for analysing the value of enterprises.Setting: We analyse the association between earnings management through real earnings management (REM) or discretionary accrual (DA) activities and the EVA by African and the Group of Twenty (G20) nations.Methods: The sample for this study was obtained from the COMPUSTAT database between 2009 and 2013. This study also adopted the ordinary least squares (OLS) method.Results: The results indicate that a significantly positive relationship exists between earnings management through DA items and EVA in African nations. In addition, a significantly negative relationship exists between earnings management through DA items or REM activities and EVA in G20 nations.Conclusion: Our results provide critical implications for managers, researchers, investors and regulators of various nations; for example, managers may determine whether to increase the EVA through earnings management, researchers may analyse varying degrees of REM activities and DAs existing in the same nation groups or regulators may determine how to establish laws or rules to prevent earnings management because it is likely that differences in national development, culture or politics exist in these nations.

This study investigates probable effect of conservatism in financial reporting on earnings management. Based on findings of previous studies about effects of conservatism in financial reporting on earnings management all over the world which lead to contradictory results, we are studying this issue whether conservatism facilitates earnings management or limits it. Sampling population of the present study includes 92 accepted companies at Tehran stock exchange which are working in five main industries of food and drink products, chemical materials and products, other nonmetallic mineral products, basic metals, automotive and manufacturing parts in the time period of 2002 to 2010. Givoly and Hayn model was used to measure conservatism variable. Accrual based earnings management variable was measured with two models of discretionary accruals (modified Jones model) and working capital discretionary accruals and real earnings management also was measured with decrease of selling, general and administrative expenses and increase of non-operating income taken from selling long lived assets and over-production. Results indicate that, conservatism limits earnings management except earnings management based on selling, general and administrative expenses in which conservatism facilitates earnings management. Key words: Conservatism, accrual based earnings management, working capital discretionary accrual, real earnings management.

This paper studies earnings management in Jordan during the global financial crisis. It addresses mainly the question of whether or not financial crisis has an impact on discretionary accruals, using the modified Jones model (1995) for estimating discretionary accruals. By applying Ordinary Least Squares regression model on a sample of 71 nonfinancial listed firms during the period of 2005-2012, I find a conclusive evidence that Jordanian nonfinancial listed firms did not engage in a greater level of earnings management during the financial crisis period. In addition, larger firms are less involved in earnings management practices compared to smaller firms. Moreover, the results suggest a negative significant impact of operating cash flow on discretionary accruals, while it fails to connect current year losses with discretionary accruals. However, the findings indicate that firm’s leverage is positively and significantly associated with discretionary accruals. Overall, the empirical results provided evidence that earnings management practices in Jordanian nonfinancial sectors are relatively small, even smaller in services sector, which raise questions about the validity of the modified Jones model and whether or not different models (such as Deangelo, 1986) should be used in future studies regarding earnings management.

Objective - The purpose of this research is to examine the consequences of accrual based earnings management and real earnings management on future operating performance.The firms studied engage in accrual-based earnings management with discretionary accrual measures using the modified Jones model and some of the following real earnings management activities: (1) Sales manipulation that accelerates the timing of sales through increased price discounts or cutting prices to boost sales in the current period; and/or (2) cutting of discretionary expenditures to increase income in the current period. Furthermore, the study examines the extent to which discretionary accrual and real earnings management affects subsequent operating performance (as measured by both return on assets and operating cash flows). Methodology/Technique - The sample manufacturing firms that engage in financial statement were listed on the Indonesian Stock Exchange between 2012 and 2014. The hypothesis testing method used in this research is multiple regression linear. Findings - The results suggest that accrual-based earnings management, with discretionary accrual measures, and real earnings management through sales manipulation and discretionary expenditures are positively associated with return on assets after one and two years. Meanwhile, accrual-based earnings management and real earnings management through sales manipulation enhances subsequent operating cash flows. However, real earnings management through discretionary expenditures does not influence operating cash flows. Novelty - This research contributes to the existing literature on the subsequent impact of accrual-based earnings management and real earnings management Type of Paper: Empirical Keywords: Discretionary Accrual; Sales Manipulation; Discretionary Expenditure; Return on Assets; Operating Cash Flows JEL Classification: M21, M41.

This study investigated the relationship between earnings management and value relevance of accounting information among listed industrial goods firms in Nigeria. Unlike prior studies that incorporated financial leverage as a moderating variable, this research focuses purely on the direct association between earnings management and value relevance, proxied by Market Price per Share and Price Earnings Ratio (P/E). Secondary data were obtained from the annual reports of ten (7) listed industrial goods firms for the period 2018–2024. The modified Jones model was used to estimate discretionary accruals as a measure of earnings management. Multiple regression analysis was conducted to evaluate the relationship between the study variables. The study examined how earnings management affects the value relevance of listed industrial goods firms in Nigeria, using Market Price per Share (MPS) and Price-Earnings Ratio (PER) as measures of value relevance, and Discretionary Accruals (DACC) and Income Smoothing (ISM) as indicators of earnings management. Based on 35 firm-year observations and controlling for Leverage (LEV) and Profitability (PTY), the results revealed that DACC and ISM had no statistically significant effect on MPS, with p- values. However, leverage showed a significant moderating influence, indicating that higher leverage strengthens the relationship between earnings management and value relevance. The results are revealed earnings management practices to significantly affect the market- based indicators of firm value. Similarly, Diagnostic tests confirmed the reliability of the regression results, showing no signs of multicollinearity or heteroskedasticity. The study contributes to the literature on financial reporting quality by providing empirical evidence on how accounting manipulation influences investor valuation decisions in emerging economies. Keywords: Earnings management, Value relevance, Market price per share, Price earnings ratio, Industrial goods firms

The paper investigates the impact of Corporate Governance on firm financial performance in Pakistani listed firms, with earnings management acting as a mediator. The study employed 191 non-financial companies that are listed on the Pakistan Stock Exchange from 2010 to 2019. Several diagnostic tests were run before applying the panel data model to the Ordinary Least Squares (OLS). The four variables used as proxies for Corporate Governance are board size, board independence, audit committee size, and ownership concentration. Financial performance may be approximated by the return on assets (ROA), while earnings management can be approximated by the discretionary accrual (DA). The research relied on Kothari et al., 2005 to determine DA rates. Findings suggest that Board Independence and Audit Committee size are important corporate governance factors for influencing earnings management. Earnings management is also intrinsically linked to a company's performance. The research used a four-stage mediation process developed by (Baron & Kenny, 1986). As earnings management was shown to be the only mediator between board independence and company financial performance, this finding suggests that the presence of independent directors boosts firm performance by reducing earnings management. Earnings management has no effect on the remaining corporate governance variables studied. It is Pakistan's first study to use earnings management as a mediating factor and to calculate discretionary accruals using the Kothari, Leone, and Wasley (2005) method. According to the study, board independence improves a firm's financial performance only by limiting management's earnings management activities

Research background: The paper investigates the earnings management phenomenon in the context of Central European countries, attempting to identify the factors and incentives that can influence earnings management behavior on a sample of 8,156 enterprises from Slovakia, the Czech Republic, Hungary, and Poland.
 Purpose of the article: The main purpose of the manuscript is to prove that there are significant differences in earnings management practices (measured by discretionary accruals) across the countries and to find the firm-specific features that influence the way enterprises manage their earnings.
 Methods: The modified Jones model was used to calculate the discretionary accruals, which are further analyzed across the countries. The statistically significant differences were confirmed across the countries. Thus, the impact of the economic sector, firm size, firm age, legal form, and ownership structure on earnings management behavior is studied by the Kruskal-Wallis test. The Dunn-Bonferroni post hoc tests then revealed the significant differences across the categories of the investigated earnings management determinants. To find the association between the particular earnings management practice (income-increasing or income-decreasing manipulation), correspondence analysis was used to visualize the mutual relations.
 Findings & value added: The results of the realized investigation revealed that the economic sector is one of the most important earnings management determinants, as its statistical significance was confirmed in each analyzed country. The correspondence analysis determined specific sectors, where income-increasing manipulation with earnings is practiced (NACE codes F, J, K, M, N), and vice versa, income-decreasing earnings management is characteristic for enterprises in sectors A, C, D, G or L. In specific economic conditions, firm size is also a relevant indicator (Hungary), or firm age and legal form and ownership structure (Poland). The recognition of crucial earnings management incentives may be helpful for authorities, policymakers, analysts and auditors when identifying various techniques and practices of earnings manipulation which could vary across the sectors and taking necessary measures to mitigate potential financial risks.