Strategies and premises of earnings management in public companies listed on the Warsaw Stock Exchange – the results of survey research

Abstract

Purpose: The paper's main aim is a holistic presentation of genuine motives, strategies and patterns of earnings management phenomenon in public companies listed on the Warsaw Stock Exchange. Design/methodology/approach: The survey was carried out among 124 finance managers and public companies' accounting services representatives from the Polish capital market. The research sample selection was random (exhaustive testing); the survey was conducted in June-August 2023. Findings: During the research, it turned out that 29% of respondents admitted to implementing EM practices in firms they represent. Interviewees declared the use of various accrual-based and real EM instruments in a complementary way. The dominant EM strategies proved to be income smoothing and avoidance of earnings reduction, while the main reasons for EM implementation respondents included creating the image of a more profitable company (compared to the largest competitors), meeting market analysts' expectations regarding the level of reported financial result and showing better development prospects for the company. Research limitations/implications: This paper allows for identifying the level of willingness to implement earnings management practices among executives of public companies and, as well as measuring the awareness of finance managers and representatives of accounting services regarding the possibilities of using particular instruments and techniques of accrual- based and real earnings management in business practice. Originality/value: This study fills a gap in the literature regarding the accounting data quality reported among listed companies in Poland. Most studies on the issue of earnings management focus on estimating the scale and scope of the practices mentioned above using specific regression models. Empirical research based on survey techniques in which respondents professionally responsible for financial reporting in listed companies would present their views or experiences regarding earnings management is rarely seen. Keywords: accrual-based earnings management, real earnings management, public companies, survey research. Category of the paper: research paper.