Earnings Management Activities Research Articles

Mediating Role of Corporate Governance on the Effect of Earnings Management and Financial Risk on Firm Value

This study is to determine the effect of earnings management with discretionary accruals indicators and financial risk with debt to equity ratio (DER) indicators on firm value with price earning ratio (PER) indicators with corporate governance as a mediating variable with managerial ownership and institutional ownership indicators. The research method is quantitative with the object of research being the Property and Real Estate sub-sector companies listed on the Indonesia Stock Exchange (IDX) during 2015-2017 with all out observations of 87 information. The test results show that earnings management variables have a negative and significant effect on firm value. The financial risk variable has a negative and significant effect on firm value. The corporate governance variable has a positive and significant effect on firm value. The effect of earnings management on firm value has a negative effect on corporate governance as a mediating variable. This shows that corporate governance can reduce earnings management actions. The effect of financial risk on firm value has a negative effect by the company's administration as a mediating variable. This shows that corporate governance can reduce financial risk. The results of this study provide a theoretical contribution that supports agency theory and corporate governance, which in turn makes a practical contribution to the implementation of good corporate governance in companies.

Tata Kelola, Kepemilikan Keluarga, Auditor Berkualitas, dan Manajemen Laba

This paper examines the relationship between corporate governance quality, family ownership, auditor quality, towards accrual and real earnings management activities among publicly listed firms in Indonesia. Using non-financial industry sector listed firms for the period of 2010-2019, we empirically demonstrate that firms with higher corporate governance quality have lower levels of both real and accruals earnings management activities. Furthermore, there is evidence that a higher level of family ownership is related to a lower level of real earnings management activities but has no significant effect on accrual earnings management activities. Meanwhile, the appointment of the big four public accounting firms has a lower level of accruals earnings management activities but no significant effect on real earnings management activities. Only a firm with high corporate governance quality and a qualified auditor significantly decreases real and accrual earnings management. Furthermore, there is evidence that the mitigating effect of higher corporate governance quality in reducing earnings management activities is more pronounced for family firms. The empirical findings seemed to suggest that family firms in Indonesia want to protect their interests by reducing the potentially harmful real earnings management activities.

The Effects of Cost Stickiness on Real Earnings Management: A Data Analysis of Export Marketers

Purpose Export marketers may have incentives to attempt real earnings management to avoid low reported earnings. Therefore, we attempted to verify the relationship between cost stickiness and real earnings management in the context of export marketing. Design/methodology/approach Data were collected from exporters that settle-accounts in December excluding financial businesses listed on the stock market from 2015 to 2019. Multiple regression analysis were employed to analyze the data. Findings - The results showed that there is a negative relationship between cost stickiness and real earnings management. In addition, the results showed that export marketers little attempt to offset the cost inefficiency caused by the increase in expense because of cost stickiness with opportunistic management activities through real earnings management. Rather, as the level of real earnings management appears lower, exporters showing cost stickiness are expected to report management performance based on actual marketing. Furthermore, exporters with a high level of managerial centrality or high managerial overconfidence little attempt to offset cost inefficiency caused by cost stickiness with real earnings management activities. Research implications or Originality - Our study is the first to investigate the quality of earnings information of exporters with cost stickiness. Based on the results, we suggested efficient marketing strategies for exporters.

Integrated report quality and earnings management – Evidence from South Africa

Background: No prescribed standard disclosure requirements for integrated reporting exist. Instead, the International Integrated Reporting Framework is widely adopted, which provides guidelines for integrated reporting to improve the quality of information reported to end-users. These guidelines, however, allow management a degree of freedom in implementing integrated reporting, making the quality of disclosure thereof dependent on management’s approach to reporting. In contrast to the purpose of integrated reporting stands the management of earnings where management can use judgement to manipulate financial reports to mislead end-users. The conflicting theoretical objectives of integrated reporting and earnings management (EM) pose the question of how these two variables relate to one another.Aim: We examine the association between the quality of integrated reports and EM.Setting: Our sample consists of 238 company-years from 2013 to 2017 that were listed as part of the Johannesburg Stock Exchange (JSE) top 100 companies and were ranked on Ernst and Young (EY’s) annual Excellence in Integrated Reporting Awards. The likely association between integrated report quality (IRQ) and EM was identified based on theoretical frameworks, including the stakeholder and agency theories.Method: We perform a robust, one-way cluster regression on our main empirical model, measuring IRQ on rankings, determined by the annual EY Excellence in Integrated Reporting Awards and EM through discretionary accruals.Results: We find a statistically significant negative association between EM, measured as income increasing accruals, and IRQ.Conclusion: Results suggest that companies with income increasing EM activities are less likely to disclose higher quality integrated reports.

The Impact of Board Characteristics on Earnings Management Practices Through Real Activities: Evidence from The Egyptian Environment

This research aims to demonstrate the relationship between the board of directors’ characteristics and the practices of real earnings management in the companies operating in the market. results: The existence of a statistically significant relationship between the board of directors characteristics and earnings management with real activities through sales, the existence of a statistically significant relationship between the board of directors characteristics and real earnings management activities through production, the necessity of establishing the National Authority for Governance of Business and Governmental Establishments with the aim of eliminating financial, administrative, economic and political corruption at the level of The state.

Can Auditors Reduce Earnings Management Activities?

Can Auditors Reduce Earnings Management Activities?

The Effect of Information Asymmetry and Debt on Accrual Earnings Management: Firm Size as a Moderating Variable

One of the opportunistic manager practices is earnings management. This attitude arises because of the high asymmetry of information between the principal and manager, weak regulation and control. If information asymmetry is high, stakeholders do not have sufficient resources, incentives or access to relevant information to monitor managers' actions. Through the size of the company is expected to see how big the influence of information asymmetry and debt on earnings management actions. This research is included in the third TKT measurement, namely proof-of-concept of important functions and/or characteristics analytically and experimentally. This study aims to examine the impact of the interaction of information asymmetry and debt on earnings management through accrual of working capital with firm size as a moderating variable. This study uses quantitative methods with crosssectional data. This study uses secondary data in the form of financial statements of consumption sector manufacturing companies listed on the Indonesia Stock Exchange (IDX) from 2015 to 2021. The results prove that DER has a positive effect on earnings management and company size is able to moderate the effect of DER on earnings management. However, information asymmetry has no effect on earnings management and firm size is not able to moderate the effect of information asymmetry on earnings management.

Earnings management in times of natural disasters

Purpose The main purpose of this study is to examine the determinants of firms’ earnings management (EM) activities during natural disasters, specifically the 2011 floods in Thailand. The motivation for conducting this study is that although disasters stem from natural processes, such events affect firms’ actions, resulting in adverse economic and social outcomes. Design/methodology/approach Based on data from listed companies in Thailand and using a sample of 5,786 firm-year observations from 2008 to 2013, this study uses the differences-in-differences method to estimate the relation between earnings quality (EQ) and floods. Additionally, this study uses the same research design to observe how fast firms engage in EM, as reflected by the trends in EQ following the floods. Findings This study finds that firms engage in EM to increase their earnings numbers and misrepresent their performance after experiencing the 2011 floods in Thailand. The evidence is consistent with the hypothesis that natural disasters are related to EQ. In addition, this study finds that firms’ responses are observed only in the year after the floods (2012). Originality/value This study contributes to the literature on EM and quality in two ways. First, this study provides new evidence that during crisis situations such as natural disasters, firms strive to signal good news to capital markets, consistent with the market expectation hypothesis. Second, this study shows that natural disasters are as useful and equal as other exogenous shocks such as financial crises for economic research.

Earnings Management Practices in Banks: An Analysis of Participation and Investment Banks in Turkey

Bu çalışmada Türkiye’de faaliyette bulunan katılım ve yatırım bankalarının kâr yönetimi davranışları tespit edilmeye çalışılmıştır. Bankalar kâr yönetim faaliyetlerini genelde mali tablolarında bulunan ve tahakkuk esaslı değişkenler vasıtasıyla gerçekleştirmektedir. Çalışma bu bankaların 2005-2019 yılları arasındaki verileri analiz edilerek yapılmıştır. Analiz yöntemi olarak panel veri analizi kullanılmıştır. Analiz bulgularına göre bankaların mali tablolarında yer alan özel karşılıklar değişkenini kullanarak kâr yönetimi faaliyetinde bulundukları tespit edilmiştir. Ancak özel karşılıklar bağımlı değişkeni ile enflasyon, faiz ve büyüme gibi makroekonomik değişkenler arasında anlamlı istatistiki bir ilişki tespit edilememiştir.

Financial Distress and Earnings Management: The Role of Internal Control as Moderating Variable

Various types of potential risks, such as the COVID-19 pandemic we are currently facing, will ultimately affect the success of business performance. Therefore, in an effort to cover up these problems, managers sometimes make various efforts to maintain corporate image, one of which is earnings management. Earnings management actions are often seen as opportunistic behavior that harms many parties, especially investors. Using a sample of manufacturing companies listed on the Indonesian Stock Exchange for the period 2017-2019, this study investigates the effect of financial distress on earnings management behavior and further investigates the role of internal control as moderation. The results show that companies under higher financial distress pressure tend to have managers practice earnings management to cover up poor performance. In addition, the leverage control variable has an influence on earnings management. Internal control able to moderate the relationship between financial distress and earnings management. This study provides additional information on earnings management and the role of internal control for companies with financial distress. Furthermore, this research also has implications for regulators regarding the importance of internal control standards for companies.

Analyst following, financial constraint, and audit opinion shopping: From the perspective of earning management

AbstractThis study examines the relationships among analyst following, financial constraint, and audit opinion shopping from the perspective of earnings management, taking a sample of Chinese A‐share firms from 2008 to 2018. We find that analyst following alleviates firm's accrued earnings management activities which restrain opinion shopping behaviors; on the other hand, it prompts real earnings management activities that encourage firm's effort to audit opinion shopping. Earnings management has a mediation effect on the positive association between analyst following and audit opinion shopping. Corporate financial constraint amplifies the positive effect of analyst following on opinion shopping.

Kepemilikan Manajerial, Kepemilikan Institusional, dan Kepemilikan Asing terhadap Manajemen Laba

Earnings management in manufacturing companies listed on the Indonesia Stock Exchange for the 2015-2019 period. The sampling technique was purposive sampling and the sample in this study was 10 samples for 5 years. Panel data regression analysis was used to analyze the data. The results of this study prove that institutional ownership and foreign ownership affect earnings management. The implication of institutional ownership is that some investors cooperate with company managers to obtain the desired profit, rather than monitoring to minimize earnings management actions, while foreign ownership which has an effect on the higher the level of foreign ownership shares in a company can reduce earnings management actions. With results indicating an increase in foreign ownership shares can affect earnings management actions.

PENGARUH BEBAN PAJAK TANGGUHAN, ASET PAJAK TANGGUHAN DAN PERENCANAAN PAJAK TERHADAP MANAJEMEN LABA

Abstract— The purpose of this study is to understand and analyze the effect of earnings management variables in terms of taxation by using deferred tax expense, deferred tax assets and tax planning on consumer goods manufacturing companies listed on the Indonesia Stock Exchange from 2016 to 2020. 35 companies become research sample through the selection of purposive sampling method as a method of determining the sample with certain provisions and considerations. Panel data regression method with statistical software views is used in this study. The data collection needed is the published annual report of consumer goods manufacturing companies for the period 2016 to 2020. The researcher used the method of quantitative descriptive analysis of logistic regression. From the results of research that has been done, it is found that in terms of taxation, the burden of deferred tax, assets on deferred tax and tax planning is not significant on earnings management actions. Deferred tax assets show negative results, this is because earnings management is carried out to minimize company expenses. Meanwhile, tax planning shows negative results where tax planning is carried out in order to minimize profits to achieve shareholder goals
 Keywords: Beban Pajak Tangguhan; Aset Pajak Tangguhan; Perencanaan Pajak; Manajemen Laba

Determinants of Earnings Management Actions in Indonesian Banking Companies

Objective – This study aims to examine the influence of Investment Opportunity Set and Corporate Social Responsibility Disclosure through Profitability on Earnings Management. The companies examined are banking companies listed on the LQ45 Index of the Indonesia Stock Exchange (IDX). Methodology – This study used data sourced from annual financial reports of banking companies on the LQ45 Index of the Indonesia Stock Exchange for the 2016-2020 periods. This study used descriptive and verification analysis methods with path analysis and hypothesis testing. Investment Opportunity Set is measured by Market Value to Book Value of Assets, Corporate Social Responsibility Disclosure is measured by Global Reporting Initiative G4 indicators, Profitability is measured by Return on Assets, and Earnings Management is measured by Discretionary Accruals. Findings – The results indicate that Investment Opportunity Set and Corporate Social Responsibility Disclosure and Profitability have no effect on Earnings Management. This implies that Earnings Management actions in companies are more likely to be influenced by other variables which closely related to agency theory and hard to predict the determinants by using only several variables. Novelty - Based on the results of this study, Profitability as an intervening variable does not mediate the effect of Investment Opportunity Set and Corporate Social Responsibility on Earnings Management. This might happens because profitability is quite common for investors and users of financial statements in assessing the company's financial performance so that it is easier for users of financial statements to know the Earnings Management actions done by the company. Type of Paper: Empirical JEL Classification: G11, G20. Keywords: Bank; Investment Opportunity Set; Corporate Social Responsibility; Profitability; Earnings Management. Reference to this paper should be made as follows: Suryani, Arna. Ariayani. (2022). Determinants of Earnings Management Actions in Indonesian Banking Companies, J. Fin. Bank. Review, 7(1), 39 – 50. https://doi.org/10.35609/jfbr.2022.7.1(2)

Founder domination, industry environment, and family firms' earnings management

PurposeBased on socioemotional wealth theory, the authors explore the impact of founder domination (with the founder as the chairman or CEO) on the earnings management activities of family firms and examine the moderating effect of the industry environment on the above relationship.Design/methodology/approachBased on the multivariate regression model, the authors test the theoretical view on the empirical data of Chinese family-owned listed companies.FindingsThe authors propose and find that under founder domination, family firms are unlikely to engage in earnings management activities. Furthermore, the authors find that industry growth enhances the above relationship, while industry competition weakens it.Originality/valueFirst, by clarifying the importance and heterogeneous impacts of the founder serving as chairman or CEO on China's family firms' earnings management, this research contributes to a fuller understanding of the impact of founder domination on the business activities of firms, especially family firms. Second, the authors contribute to the literature that examines the antecedents of earnings management, particularly in family firms. Third, the authors contribute to the study of the boundary conditions of the “founder domination-firms’ business activities” framework.

Substitution between Accrual-Based Earnings Management and Real Activities Manipulation—A Commentary and Guidance for Future Research

ABSTRACTConsidering the voluminous published research confirming and extending the original findings of Cohen, Dey, and Lys (2008), we conclude that Pincus, Wu, and Hwang (2022) make a modest contribution to the earnings management literature. Specifically, their analysis does not incorporate recent advances in the earnings management literature, especially the measurement and estimation of real earnings management activities and the incorporation of the changing information environment. As a result, we conclude that the Pincus et al. (2022) results and conclusions with regards to the substitution between accrual-based and real earnings management activities should be interpreted with caution.JEL Classifications: G10; M4.

Corporate Governance Mechanisms and Earnings Management Activities: Evidence from the UAE Banking Sector

This study investigates the impacts of corporate governance mechanisms (CGMs) on earnings management (EM). Data covering 12 years (2009–2020) were collected via annual reports of the listed national banks in the UAE. Data were analyzed using descriptive statistics, correlation analysis, ordinary least squares (OLS) estimator, generalized least square (GLS) estimator and panel-corrected standard error (PCSE) estimator. Discretionary accruals were estimated using the adjusted Jones model as suggested by Dechow ( Contemporary Accounting Research, 1996, vol. 13, pp. 1–36). The overall findings of the study indicate that audit committee and ownership structure are not effective in mitigating managers’ opportunistic earnings management activities in the UAE banking sector. Hence, the assumption that audit committee and ownership structure have a negative impact on earnings management could not be ascertained. However, board characteristic was found to exert a diminishing effect on earnings management. Given that weak CGMs could fail to deter earnings management practices, the policymakers of the financial institution such as the banking sector should ensure that the CGMs are strengthened, and efforts should be exerted to facilitate strict adherence to measures that will diminish earnings management activities. The present study has contextual limitations to the UAE. Hence, the interpretation of the result is limited within this context.

Intellectual Capital Affects Earnings Quality With Earnings Management as Intervening Variables

The management makes financial statements that provide the final profit result as a form of accountability for using the resources entrusted. Management supported by intellectual capital will produce excellent and satisfactory performance. However, the presence of intellectual capital can help control earnings management actions if the financial statements are still insufficient. This study examines the effect of intellectual capital on earnings quality mediated by earnings management. The variables in this study were each measured by Value Added Intellectual Capital (VAIC), Discretionary Accruals (DA), and Real Earnings Management (REM). The object of this research is manufacturing companies listed on the IDX in a row in 2017-2020. The data analysis used in this study is multiple linear regression analysis and path analysis assisted by the statistical application of IBM SPSS Statistics 23. The results show that intellectual capital has a significantly positive effect on earnings quality but becomes significantly negative on earnings quality when mediated by earning management. This research is expected to be useful for companies to add insight into intellectual capital and earnings management so that the earning quality of the company can become more qualified.  

Earnings Management and the Reputation of Nomads Around IPOs: The Experience of the UK Alternative Investment Market

The research problem We examined whether the reputation of the nominated advisor (Nomad) impacts the accrual and real earnings management of initial public offering (IPO) firms on the Alternative Investment Market (AIM) of the London Stock Exchange in the UK. Motivation and theoretical reasoning While the role of Nomads on the AIM is a significant determinant in ensuring the integrity of the financial reporting quality of their advisee firms, to date, there has been no analysis of the impact of Nomads on such reporting activities. The test hypothesis The main hypothesis of this study tested whether IPO firms that appoint a more reputable Nomad exhibit a lower level of accrual-based and real-based earnings management during the IPO. Target population The initial sample of this study consisted of all IPO firms that went public on the AIM between January 1998 and December 2008. After restricting the sample to non-financial IPO firms with the necessary data available to estimate accrual and real earnings management and Nomad reputation, the final sample consisted of 432 IPO firms that are backed by 80 Nomads over the sample period. Adopted methodology Two real earnings management activities were examined: sales-based manipulation and discretionary expenses–based manipulation. Discretionary accruals were estimated as a proxy of accrual earnings management. To construct the unweighted index of Nomad reputation (NOMAD), data were manually collected for the number of IPOs backed by a Nomad, proceeds of IPOs backed by the Nomad, the Nomad’s age, and the Nomad’s credit score. Analyses Following prior research, several techniques and regressions were employed to test the hypothetical relation between Nomad reputation and accrual and real earnings management. As for robustness, both Heckman and instrumental variable (IV) regressions were used to control for sample selection bias, and a three-stage least squares (3SLS) estimation approach was used to test for the two-way interaction between Nomad reputation and earnings management. Findings This paper found evidence that more reputable Nomads on the AIM play a significant role in constraining the use of accrual-based and real-based earnings management during the IPO year by their advisee IPO firms. This is also the first evidence on the significant role of reputable financial institutions and intermediaries in monitoring the financial reporting quality in less regulated markets such as the AIM in the UK.

Deferred Tax On Real Profit Management With Tax Planning As Moderating

This research examines the.effect.of current taxes, deferred.tax.and.tax amnesty on real earnings management.and tax planning as moderating. The sample is from.the property;and;real;estate;companies;listed;on;IDX-IC during 2013 until 2019. Based on purposive sampling, the selected sample is 23 companies, the total sample is 138 observations. The hypothesis is carried out using MRA through Eviews 10. The;results;of this;study;indicate;that;current;taxes, deferred;tax;expense, ;tax amnesty;and;tax;planning have;a;positive;effect;on;real;earnings;management. In addition, this study reveals that there is moderating effect of tax planning on the relationship;between;current;tax;and deferred;tax;expense;with;real;earnings;management. In addition, management can use the results of this study as consideration in deciding whether to take real earnings management actions or not, which in turn will affect the sustainability of the company.