Phenomenon Of Earnings Management Research Articles

ESG SCORES, EARNINGS MANAGEMENT AND FINANCIAL PERFORMANCE: EVIDENCE FROM POLAND

The paper's main aim is to investigate the relationship between the ESG activities scores and profitability metrics of 33 public companies listed on the Warsaw Stock Exchange. By utilizing the Refinitiv methodology, we answer whether a company's environmental, social and governance performance perspectives positively affect the ROA, ROE and ROC ratios or whether there is a negative relationship. A secondary objective of the research is to investigate the relationship between profitability and the magnitude of aggregate-based earnings management in the tested sample. The moderating effect of earnings manipulation on the links between ESG performance and a company's profitability metrics is a research gap that has not been well-studied to date.This research demonstrates contradictory results: a positive relationship between the social dimension of ESG activities and the financial performance of companies was observed regarding ROE and ROC ratios. The negative impact of the environmental pillar rank on the ROA ratio was captured only in selected regression analyses. The governance pillar score did not statistically affect the tested profitability metrics. On the other hand, we gathered evidence that public companies with a high range of non-financial disclosures tend to alter earnings via accruals, and discretionary accruals statistically affect the ROA, ROE and ROC ratios. This finding contrasts previous research claiming that the earnings management phenomenon is a typical agency problem and that the policy of non-mandatory disclosures following the ESG assumptions could constrain the asymmetry of information and managerial information advantages.

ASSESSING THE IMPACT OF THE SARS-COV-2 PANDEMIC ON EARNINGS MANAGEMENT BEHAVIOUR IN POLAND

The purpose of this paper is to investigate the impact of the SARS-CoV-2 pandemic turbulence on the extent and intensity of earnings management practices according to the opinions of representatives of non-financial companies listed on the Warsaw Stock Exchange (WSE). Methodology. This study is based on the method of standardised computer-assisted questionnaire interviews (CATI). The research sample consisted of 37.1% of all companies indexed on the WSE Main Market that do not operate in the banking, insurance or capital market services sectors. The target respondents were managers, employees of financial and accounting services and other persons authorised by the company's managerial staff representatives. Results. The survey findings showed that the economic turbulence caused by the SARS-CoV-2 pandemic contributed to an increase in earnings management activities in public companies. Respondents who reported that the companies they represented deliberately manipulated earnings were much more confident about the negative impact of the pandemic crisis on the quality of reported data. An interesting finding of the research is that respondents who had experienced earnings management in their professional practice were more likely to believe that the pandemic had distorted the credibility of reported earnings. Finally, the study provided statistical evidence that respondents from larger companies were more likely than respondents from smaller companies to say that the economic crisis related to the SARS-CoV-2 pandemic contributed to an increase in earnings management activities. Practical implications. This investigation may draw the attention of market participants to the deterioration in the financial reporting of non-financial public companies during the SARS-CoV-2 pandemic. The intensification of profit manipulation may not only distort the current perception of the company's economic performance, but also deteriorate the future value of companies. In addition, the findings provide valuable information for statutory auditors, as they highlight potential audit risks that may arise with the onset of the SARS-CoV-2 pandemic. Value/originality. Unlike most studies on the subject, this research does not focus on the estimated values of discretionary accruals, but on the knowledge and experience of financial professionals who are familiar with the specifics of the Polish capital market. An original contribution to the literature is the inclusion in the study of potential factors that could influence the respondents' perception of the impact of the consequences of the SARS-CoV-2 turbulence on the pattern and intensity of the earnings management phenomenon.

Pengaruh Corporate Governance, Leverage, Dan Profitabilitas Terhadap Manajemen Laba

Financial statements are one of the benchmarks for measuring company performance, and until now the phenomenon of earnings management is still often found. This study aims to examine empirical evidence regarding the effect of corporate governance, the proportion of the board of commissioners, leverage, and profitability on earnings management. Earnings management is an act of manipulating earnings information carried out by management with the aim of benefiting itself. The population of this study were 254 companies in the primary consumer goods sector listed on the Indonesia Stock Exchange in 2019 - 2021. With the purposive sampling data collection method, the research sample was obtained as many as 171 companies. When testing there is residual data that is not normally distributed, outliers are carried out, so that the data processed further is 101 companies. This study provides evidence that managerial ownership and audit committee have a significant negative effect, and institutional ownership has a significant positive effect on earnings management, while the proportion of independent commissioners, leverage, and profitability have no significant effect on earnings management.

Effect of Earning Management on the Stock Price of Enterprises Listed in Ho Chi Minh City in the Period of Covid 2019-2021

Purpose: The aim of this study is to examine the phenomenon of earnings management (EM) and its impact on stock prices, providing valuable empirical evidence in this field. Theoretical framework: Agency theory suggests that profit management behavior comes from conflicts between managers and shareholders. The efficient market theory assumes that information will be reflected in stock prices. Design/methodology/approach: To achieve the research objectives, the study analyzes the financial statements (FRQs) of 74 enterprises listed on the Ho Chi Minh Stock Exchange in Ho Chi Minh City. The data collected in the period from 2019 to 2021, Covid-19 pandemic and analysis by GSEM. Findings: Specifically, the study shows that earnings management exerts a direct negative impact on stock prices. Additionally, it highlights the positive influence of EM on the quality of FRQ information. However, the quality of FRQ news demonstrates a negative effect on stock prices. The study also investigates the role of intermediate variables in the relationship between financial reporting information quality and stock prices. Research, Practical & Social implications: By providing empirical evidence and highlighting the significance of accounting practices in the capital market, the study adds value to academic research, while offering practical insights for investors, regulators, and businesses. Originality/value: By providing empirical evidence and highlighting the significance of accounting practices in the capital market, the study adds value to academic research, while offering practical insights for investors, regulators, and businesses.

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

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.

Wykorzystanie oceny scoringowej w ocenie jakości wyniku finansowego przedsiębiorstw

Purpose – The main objective of the paper is establishing the characteristics of the Q-Test and EQ‑Score measures as alternative tools for assessing the earnings quality of public companies. Research method – The estimation of the earnings quality was prepared basing on the analytical formulas of Putman et al., and Gullet et al. models. The exemplification research studies were conducted for public companies classified in the WIG‑DIV index of the Warsaw Stock Exchange in 2016–2020. Results – There are positive relationships of medium strength between the calculated values of the Q-Test and EQ‑Score indicators. In the analyzed research sample, the average values of the Q-Test indicators were generally higher than the average values of the EQ‑Score indicators and were characterized by a greater degree of dispersion. The EQ‑Score is statistically significantly correlated with the discretionary accruals separated using the Jones and Kasznik models, which indicates its potential for predicting the earnings management phenomenon. Originality / value / implications / recommendations – The study is the first example of empirical verification of the usefulness of the Q-Test and EQ‑Score models in assessing the quality of the financial results of public companies operating on the Polish capital market.

The Growth of Research in Earnings Management Phenomenon

Abstract The practice of earning management is the use of accounting methods to create financial statements that favourably portray a company’s operations and financial standing. The issue of earnings management is theoretically defined in the paper from two angles - theoretical and visual analysis. The paper offers various sources and different earnings management-related elements at the theoretical level. The objective of the paper is to outline the most recent developments in the research field of earnings management, which is a subset of a larger collection of ideas, including financial fraud, employee incentives, and governmental laws to reveal the effects and consequences these practices may have on. The stakeholders and capital market. By expressing the publishing activity in the scientific section of Web of Science over the span of 67 years, the visual portion is also presented using bibliometric analysis- a method for exploring and analysing large amounts of scientific data. The accepted outputs are also particular instances of companies with a history of deception, understood in terms of their revenue report. The theoretical level for the idea of earnings management, as well as a visual comprehension of the significance of this earnings management issue, are presented in a long-term horizon to declare and underline the importance of the research issue in corporate practice.

Is auditor tolerant of earnings management in socially responsible firms? Evidence from China

PurposeThis study examines the effect of audit quality on earnings management to beat earnings targets among Chinese listed firms, taking into account the firms’ corporate social responsibility (CSR) practice.Design/methodology/approachThe sample consists of all A-shares listed in the Chinese stock market from 2001 to 2019, except firms in the financial industry. Probit estimator is employed to observe the effect of audit quality, proxied by a binary variable indicating whether a firm is audited by a Big 4 audit firm, on the behavior of earnings management to beat earnings targets. Industry and year fixed effects are incorporated into the models to control for differences among industries and time periods.FindingsThe result of this study reveals that audit quality disciplines earnings management to beat earnings targets in Chinese firms. This result holds across different specification and endogeneity tests. The authors further find that auditors seem to be more tolerant to earnings-managed firms that actively disclose CSR activities. However, this moderating effect of CSR disclosure only exists among firms that manage earnings less aggressively.Practical implicationsThe findings of this study suggest that market participants should be mindful of the earnings management phenomenon and make their investment decisions after carefully dissecting and confirming the truthfulness of firms’ financial reporting. Regulators should raise the requirement on the capacity of auditing services to ensure the quality of the audit outcome.Originality/valueThis study is the first to investigate the effect of audit quality on earnings management to beat earnings targets in Chinese firms. Moreover, this study pioneers in observing the moderating effect of CSR disclosure on the relationship between audit quality and earnings management.

Design of Financial Management Model Using the Forward Neural Network Based on Particle Swarm Optimization Algorithm.

The financial crisis of listed companies will bring huge losses to investors, so it is very important to establish a financial early warning model for investors and other stakeholders. The forward neural network model of particle swarm optimization is used to model and analyze the financial early warning of listed companies. In terms of data selection, earnings management indicators are substituted into the model for the common phenomenon of earnings management in listed companies. The results show that the accuracy of the model considering earnings management factors is improved from 65% to 70%. In the process of modeling, this paper uses the logistic regression model to further modify the model. The empirical results show that the accuracy of the model can be improved from 70% to 75%. When using the forward neural network model based on particle swarm optimization to make an empirical analysis of financial early warning of listed companies, adding quantitative indicators of earnings management can improve the accuracy of the model. In the demonstration, the correction of logistic regression model can also improve the accuracy of the particle swarm neural network financial early warning model. This greatly reduces the risk that companies with poor financial conditions will face bankruptcy and liquidation.

Quo Vadis, earnings management? Analysis of manipulation determinants in Central European environment

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.

Does the life cycle affect earnings management and bankruptcy?

Research background: Deteriorating economic conditions and a negative outlook increase the pressure on financial management and the need to show high financial performance. According to Positive Accounting Theory, the growing risk of bankruptcy is associated with the phenomenon of earnings management. Bankruptcy risk and the quality of reported profits, along with other aspects of financial performance, vary throughout the company's life cycle. Nevertheless, these factors or their interactions are investigated only to a very small extent.
 Purpose of the article: The aim of this study is to clarify the impact of corporate life cycle and bankruptcy on earnings management, in order to describe behaviour of companies at different stages of corporate life cycle.
 Methods: A hierarchical mixed model with a random time and industry effect was chosen as appropriate because it allows the investigation of multilevel data that is not independent. The sample covers the financial indicators of more than 33,000 Central European companies from 2015?2019. The non-sequential Dickinson model, company age, and three models of accrual earnings management were used as proxies for the company's life cycle and quality of reported profit.
 Findings & value added: Earnings management and bankruptcy risk have a U-shape, indicating that financially distressed firms reduce reported accounting profit at the Introduction, Decline and, to a lesser extent, at the Growth stage. Slovak and Czech companies manipulate profits to a similar extent, Hungarian companies increase accounting profit to a greatest extent than the surveyed countries by controlling bankruptcy ? life cycle effect; however, the variability of accounting manipulations across industries has not been demonstrated. These findings imply that start-ups and declining businesses provide crooked financial statements to obtain more favourable debt covenants, and estimating discretionary accruals using life-cycle subsamples can improve the predictive power of accrual earnings management models.

Diversifikasi Perusahaan, Leverage, Pergantian Chief Executive Officer dan Manajemen Laba Perusahaan Farmasi Dimasa Pandemi

The phenomenon of earnings management is something that often occurs in companies, this is due to the desire of company management to show maximum performance to investors, but by manipulating company profits. This study a.ims to analyze the eff.ect of company diversification, leverage, and CEO turnover on earnings managem.ent. The population in this study were pharmaceutical companies listed on the IDX for the period 2014-2019. Data were collected using the documentation method. The data analysis technique used multiple linear regression analysis with SPSS 20.0 for Windows. The results showed that company diversification and CEO turnover had a positive effect on earnings manag.ement. Leverage has a negat.ive effect on earn.ings managem.ent. So it can be concluded that earnings management in pharmaceutical companies is influenced by company diversification, CEO turnover and leverage.
 Keywords: Company Diversification; Leverage; CEO Turnover; Earnings Management.

Analysis of the Impact of Managerial Ownership, Institutional Ownership, Firm Size, Leverage, Profitability and Sales Growth Toward Earnings Management in Manufacturing Companies Listed on IDX in the 2015-2019 Period

The phenomenon of earnings management is very interesting to research because it can provide an overview of the behavior of managers in reporting their business activities in a certain period, namely the emergence of earnings management caused by managers by manipulating company profits to be higher, lower, or always the same for several periods. Certain motivations encourage them to manage or manage financial data, especially reported earnings. This study aims to analyze a model regarding the effect of Managerial Ownership, Institutional Ownership, Firm Size, Profitability (ROA), Leverage (DER), and Sales Growth toward Earnings Management in Manufacturing Companies listed on the IDX in the 2015-2019 period. The type of non-probability sampling used in this study is purposive sampling because the sampling technique is based on certain considerations. Certain considerations in determining the sample or respondent in this study are manufacturing companies that are consistently listed on the IDX website during the 2015-2019 period and companies that have managerial and institutional share ownership data respectively during the observation period. The number of samples (N) used was 285 data obtained from 57 manufacturing companies with a 5year study period. The result of the study concludes that Managerial Ownership, Institutional Ownership, Company Size, and Leverage (DER) do not affect Earnings Management. Meanwhile, Profitability (ROE) and Sales Growth have a significant positive effect on Earning Management.

Beneish M-score: A measure of fraudulent financial transactions in global environment?

Research background: Earnings is a source of information for capital owners, potential investors, competitors, customer and supplier of the company. Managers have the direct motivation and knowledge and use adequate techniques to adjust legally the reported earnings to meet the specific requirements of the company and achieve stable financial results. Thus, earnings management is currently the most provocative and highly topical issue in the field of finance and accounting at the global perspective. Purpose of the article: The main purpose of the paper is to detect the manipulation with earnings in a specific sector of economy, following the global principles of financial reporting, and to reveal the degree of manipulation of enterprises in the selected countries of the Visegrad grouping. Methods: The model of Beneish M-score is applied using the sectoral data and compares the level of manipulation in the period 2015-2019. The Beneish model is a mathematical-statistical model that uses financial ratios calculated with accounting data of a specific enterprise aimed to detect if an enterprise is likely that the reported earnings of the company were manipulated. Findings & Value added: The paper monitors the development of the manipulation with earnings in the given sector (enterprises tend to manage earnings upwards), and analyses the influences of macroeconomic factors on the phenomenon of earnings management. The detection of earnings management by M-score helps protect business partners of an enterprise against fraudulent behaviour, especially in the global environment.

Earnings management: Local or global phenomenon in the Visegrad Four?

Research background: Increasing number of national scientific studies related to business finance shows that the earnings management phenomenon as a legal apparatus of manipulation business profit plays a significant role in financial reports in conditions of Slovak economy. Slovakia belongs to Visegrad Four, group of very historically and developmentally close countries. That is why it is relevant to compare the issue of earnings manipulation it these countries’ context. Purpose of the article: The main purpose of the article is to confirm global approach to manipulation of earnings in the Visegrad Four’s enterprises and justify that managers incline to earnings management systematically in all analysed group not only at a local level in chosen country. Methods: This econometric investigation used the observations of earnings before interest, taxes, depreciation and amortization of 1,058 Slovak enterprises, 688 Czech enterprises, 1,376 Polish enterprises and 731 Hungarian enterprises. It was investigated nine-years period from 2010 to 2018. Non-parametric time series trend modelling was run by Mann-Kendall test and estimation of the slope of the trend by Sen’s method used a linear model. Findings & Value added: The article focused on nine-years development of earnings before interest, taxes, depreciation and amortization in the Visegrad Four’s enterprises. It was found out the systematic trend manipulation in all analysed countries. This fact highlighted that earnings management is not local phenomenon, but its development is globally preferred tool of business finance.

Earnings Management under Information Asymmetry at Initial Public Offerings in EGYPT: An Empirical Study

Purpose – The purpose of this thesis is to explore earnings management under information asymmetry at initial public offerings (IPO). More specifically, the researcher tried to explain the opportunities and incentives of earnings management at IPO and how firm managers may exploit the discretion available to them in manage earnings. Methodology/Approach – The researcher depended upon the positive approach in analyzing the problem, explaining its causes and predicting the behavior of this phenomenon in the future. Findings –the results indicated that IPO Egyptian firms use earnings management during the year of IPO in order to induce investor to buy their shares to maximize their IPO proceeds and also show that a higher level of increase in accruals is accompanied by a higher level of information asymmetry in the IPO year compared with the Pre-IPO year & the Post- IPO year. Research Limitations – This study is applied on a sample of companies listed on the Egyptian Stock Exchange. All study data and results for Egyptian companies only. Originality/Value – This study contributed to the literature by providing explanation of the phenomenon of earnings management and its motivations at IPO. Moreover, this study exhibits opportunities of earnings management through discussing some techniques of earnings management in details.

Earnings management: a strategic adaptation or deliberate manipulation?

PurposeThis study aims to clarify the relationship between ethical orientation and earnings management perception phenomenon in the organization. It discusses to what extent earnings management is considered as a strategic adaptation or deliberate manipulation in an organization. The study also aims to expand the domain of ethical perspective of earnings management by considering mediating and moderating role of investor sentiment and corporate social responsibility (CSR) as inward pressure and outward commitment surrounding the organization, adopting a combined perspective of strategic management and also accounting discipline than is normally found in the ethics and earnings management literature.Design/methodology/approachThe study opted for literature synthesis to define key concepts surrounding ethics and earnings management perception in the organization. Besides, it attempted to identify influential mediators and moderators in explaining the earnings management phenomenon in the organization. Consequently, the study identified the gaps in current research to draw upon a more holistic conceptual framework. The rationale for the research was justified within the body of research.FindingsThe study suggested research propositions based on the literature synthesis in view of ethics and earnings management perception in the organization. More specifically, it has proposed a conceptual framework, explaining the relationship between ethical orientation and a multi-dimensional view of earnings management perception. It is envisaged that the mediating and moderating role of investor sentiment and CSR incorporated in this conceptual study will improve the predictive value of the proposed framework and offer additional insights about factors that inhibit or advance ethical orientation and earnings management practices in the organization.Research limitations/implicationsThis paper suffers from the obvious limitation of lacking empirical investigation. However, it does provide a theoretical rationale for the argument that alteration of earnings can be controlled if ethical orientation is emphasized in the organization apart from insulating internal and external pressures to manage such phenomenon from happening in the organization. Perhaps, the most important direction for future research is further extension and validation of this framework by performing an empirical investigation to produce newer insights into this phenomenon.Originality/valueThis conceptual study is different from previous studies on the grounds it has considered unexplored issues linking inward pressures and outward commitments in explaining this phenomenon further. To bridge the critical knowledge gap of earnings management phenomenon, a mediating effect of investor sentiment as an inward pressure and a moderating role of CSR as an outward commitment are also integrated within the model. The proposed model neither formulated nor tested empirically in previous studies locally or, perhaps, globally, therefore, stands out as an original contribution in the study of ethical orientation and earnings management perception.

Earnings management in global background

Earnings management is a general term in accounting decisions that may affect the results of the financial statements. Financial statements represent the core of information is used not only by internal but also external entities. Their role is to provide a true picture of the financial situation and the performance of a particular business in an international environment. In practice, however, there may be opportunities to influence accounting information using a variety of methods and techniques, and as a result, the financial statements lose their function and misrepresent the accounting data, resulting in profit manipulation. Profit manipulation is also dealt with by the phenomenon of earnings management, which is a topical topic in the world of finance in the international environment. This is a very complex and multifaceted phenomenon occurring in companies, irrespective of their territory, area of business or size. Several profit models are used to measure and detect earnings management, whose detection capability varies. This paper focuses on the selection of profit models according to individual forms of earnings management and the assessment of variable profit models in the V4 countries.

Global context of disparities in earnings management among enterprises: Evidence from Slovakia

Earnings management is the use of accounting techniques to produce financial reports that present an overly positive view of corporate business activities and financial position. In the context of globalization and internationalisation, the phenomenon of earnings management and legal earnings shifting is an increasingly important issue, particularly in the field of taxation and financial accounting. Earnings management helps to achieve specific targets involving the manipulation of accruals through the discretionary choices of accrual accounting, Thus, the emphasis is given to accrual earnings management, which does not influence the corporate underlying economics but involves the change in the accounting presentation of these economics. The paper depicts the basic concepts of earnings management, reviews the mainstream studies and portrays the genesis of earnings models development. The main aim of the paper is to assess the ability of selected earnings models applied in the national environment of Slovakia, where the issue of earnings manipulation is still unexplored, to detect the problems with earnings manipulation considering individual industry sectors of the national economy. The comparative analysis of the results achieved helps portray the disparities in earnings management among Slovak business entities.

Operating performance and earnings management in Egypt

This research contributes to the literature addressing the phenomenon of earnings management in global markets. The research setting is Egypt, and due to data limitations in this setting, this research examines earnings management based on firm operating performance. In particular, the question of whether ineffectively performing firms engage more in earnings management strategies compared to their effectively performing counterparts is investigated. Sign change ratio analysis, correlation analysis, and regression analysis were employed to determine the extent to which the strength of the relationship between earnings and cash flows differs between ineffectively and effectively performing firms. The results show that considered against effectively performing firms, ineffectively performing firms in the emerging market of Egypt are associated with a greater level of earnings management. Overall, this finding suggests that for listed Egyptian firms, company operating performance is a significant incentive of earnings management. Furthermore, this finding encourages the argument in favour of Egyptian corporate governance reform.