Determinants Of Earnings Management Research Articles

Determinants of earnings management in India: 2002-2011

The study examines and quantifies the extent of earnings management (EM) in India by studying a cohort of 1,150 publicly listed Indian companies (non-financial) during 2002-2011. The study shows that the average EM in the Indian non-financial corporate sector is 1.5% of the total assets of these firms in the previous year. The study also finds that EM has recorded a growth of 1.7% per annum during 2002-2011. The average discretionary accruals of small-sized firms at 3.7% were substantially higher than medium (1%) and large-sized firms (0.52%). The increases in earnings management (discretionary accruals) among small firms (4.3% per annum) were higher than those of medium (1.6% per annum) and large firms (decline of 0.5%). The empirical analysis also finds that the firm size and EM are negatively correlated. The study also finds relatively higher earnings management among agriculture, construction and services industries.

Corporate Goverance Determinants of Earnings Management: Evidence from Nigerian Quoted Companies

The aim of this study was to classify Nigerian quoted companies into high and low earnings management levels and also to investigate how corporate governance mechanisms relate to these categories of earnings management levels. A sample of 130 companies were drawn from quoted companies on the Nigerian stock exchange over the period of 2005 to 2010 and to identify the unique firm’s corporate governance characteristics and control variables that influence firms’ decision to engage in earnings management, we conducted descriptive statistics, correlation matrix, diagnostic test and binary regressions analyses of the data. The study revealed that, quoted companies in Nigeria prefer to use high earnings management practices; Board independence had a positive and significant influence on the probability of Nigerian companies adopting absolute high earnings management, Audit committee independence had a negative and significant influence on the probability of Nigerian companies adopting absolute high earnings management, Board gender representation had a negative and significant influence on the probability of Nigerian firms adopting absolute high earnings management and Also Board size and CEO shareholding were found to be statistically not significant in influencing the likelihood of Nigerian quoted companies adopting high earnings management levels. The control variables; firm size, auditors type and industry class were found to be positive and statistically significant in determining absolute high earnings management levels of Nigeria quoted companies.. This study recommended that stakeholders in quoted companies in Nigeria should promote sound audit independence, intensify the independence of board composition and encourage more female representation on the board. DOI: 10.5901/mjss.2014.v5n23p553

Earnings management and the contest to the control: an international analysis of family-owned firms

In this paper, we focus on the conflict of interests among shareholders as a possible determinant of earnings management. Using a sample of 3559 listed firms from the United States, Canada, the United Kingdom, France, Spain and Italy between 2008 and 2013, we analyse how the distribution of power among shareholders affects earnings management in family-owned firms. We find that the contest to the dominant family shareholder is relevant: namely, the more challenge to the control of dominant shareholders, the less earnings management in family firms. This contest is more important in civil law countries in which the shareholders rights are less protected. We also find that the nature of the blockholders can be relevant: consistent with the view that non-family shareholders are under more public scrutiny and have more difficulty to agree with the largest family shareholder to extract private benefits, our results suggest that a second or third non-family shareholder can reduce or alleviate earnings management.

Social Desirability Bias and Earnings Management Around the World

In this paper we test whether between-country variation in individuals’ tendency to conform, as measured by a social desirability scale used in the Eysenck Personality Questionnaire, can explain differences in the propensity to employ earnings management in corporations around the world. Such a link is feasible, given that executives seem to feel that they will become penalized for not meeting an earnings target, for reporting a loss, or for providing weaker earnings, and thus engage in the manipulation of earnings. Results demonstrate the existence of a positive relationship between the prevalence of earnings management in a given country and the mean score of individuals from that country on the Eysenck Lie scale, which gives further support that pressure from the capital market is a significant determinant of earnings management.

Determinants of Earnings Management: Evidence from Around the World

The study seeks to investigate the determinants of firm level earnings management (EM) within the context of 44 countries around the world. A sample of 29 430 non-financial companies over the period 1996-2012 were analysed using a series of models that link firm-, industry-, and country-specific characteristics, on the one hand, and EM, on the other. We develop composite measures of accrual (A_EM) and real earnings management (R_EM) using principal component analysis (PCA). To estimate the model parameters we utilise three-stage least square (3SLS) procedures with seemingly unrelated regression (SUR). The study triangulates multiple theories to gain a deeper understanding of firm level EM behaviour and draw policy implications. We find that the nature of the nexus between firm-, industry-, and country-characteristics, on the one hand, EM activity, on the other, is a function of the measure of the EM construct and the reporting environment considered in the analysis. The findings signify that monitoring and reputational concerns, regulatory and market pressures, and information asymmetry issues are drivers behind firm level EM activity around the world.

An empirical analysis of the effect of audit quality on financial reporting fraud

Several highly publicized financial reporting fraud cases (e.g., Enron, Tyco International, and WorldCom) have put the role of external auditors and quality of their audit in ensuring corporate financial reporting quality under considerable scrutiny. Much research has been conducted on the determinants of earnings management. Since earnings management is inherently unobservable, most studies use various measures of accruals as proxies for earnings management. This study examines the relationship between audit quality and a more direct measure of earnings management – financial reporting fraud. Contrary to the concerns that nonaudit services are the primary reason for auditor independence impairment that results in lower audit and earnings quality, this study finds no significant relationship between reporting fraud and fees paid to auditors for various services.

Earnings Management and Contest to the Control: An Analysis of European Family Firms

In this paper we focus on the conflict of interests among shareholders as a possible determinant of earnings management. Using a sample of 3,559 listed firms from the United States, Canada, the United Kingdom, France, Spain, and Italy between 2008 and 2013, we analyse how the distribution of power among shareholders affects earnings management in family owned firms. We find that the contest to the dominant family shareholder is relevant: namely, the more challenge to the control of dominant shareholders, the less earnings management in family firms. This contest is more important in civil law countries in which the shareholders rights are less protected. We also find that the nature of the blockholders can be relevant: consistent with the view that nonfamily shareholders are under more public scrutiny and have more difficulty to agree with the largest family shareholder to extract private benefits, our results suggest that a second or third nonfamily shareholder can reduce or alleviate earnings management.