Abstract
Research background: In recent years, the world economy has changed. Earnings management, as a modern phenomenon, plays an important role within the financial world under the condition of globalization. The academic community deals with the issue of the informative value of the reported financial results. The informative value of these results becomes questionable when we realize that managers have not only the motivation but also the ability to use the earnings management techniques to influence these results. Purpose of the article: The aim of the contribution is earnings management detection by using a model with the highest explanatory power, as well as verifying hypotheses about the existence of a statistically significant relationship between earnings management practices and financial stability within a sample of companies. Methods: Based on the results of the explanatory power examination, the modified Jones model is recommended for earnings management detection within the sample of V4 companies. Data were obtained from the Amadeus database. The sample contains 1,480 financial reports of companies from 2019 to 2017. Research is focused on V4 companies that have the sum of total assets higher than 2,000,000 EUR, as well as the sum of operating revenue is higher than 100,000 EUR. Also, the Pearson correlation coefficient was used to test the hypotheses about the existing statistically significant relationship between financial stability and earnings management practices. Findings & Value added: The article provides an overview of the earnings management issue within V4 countries. It examines the earnings management practices and the impact of financial stability on the level and direction of earnings management practices.
Highlights
The financial stability of a company is one of the basic principles of its operation
It can be said that the financial stability of the company is affected by a number of factors, as well as a satisfactory level of financial stability is in the interest of the company
If an enterprise seeks to demonstrate the highest possible level of financial stability, it is questionable to what extent this will affect the informative value of its financial statements
Summary
The financial stability of a company is one of the basic principles of its operation. Authors perceive financial stability through the complex of indicators It indicates the overall balance in the company expressed through the results of financial and economic analysis. Based on this statement, it can be said that the financial stability of the company is affected by a number of factors, as well as a satisfactory level of financial stability is in the interest of the company. If an enterprise seeks to demonstrate the highest possible level of financial stability, it is questionable to what extent this will affect the informative value of its financial statements. It could be assumed that the deteriorating financial situation in the company in previous years may affect the level of use of the earnings management practices to improve the image of the company's financial stability. The aim of the contribution is earnings management detection by using a model with the highest explanatory power, as well as verifying hypotheses about the existence of a statistically significant relationship between earnings management practices and financial stability within a sample of companies
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