Modified Jones Model Research Articles

Pengaruh Implementasi XBRL, Ukuran Perusahaan, dan Kepemilikan Manajerial Terhadap Kualitas Laporan Keuangan

This study aims to determine the simultaneous or partial effect of XBRL implementation, company size, and managerial ownership on financial reporting quality using the modified jones model in property and real estate companies listed on the Indonesia Stock Exchange in 2019-2021. This study uses quantitative methods. The unit of analysis used is a group, namely property and real estate companies listed on the Indonesia Stock Exchange in 2019-2021, and are the population in this study. By using the purposive sampling method, 66 companies were selected as research samples. The data analysis method used in this study is descriptive statistics and panel data regression analysis using Eviews 12 software. The results of this study indicate that XBRL implementation, company size, and managerial ownership simultaneously have a significant effect on financial reporting quality. Partially, company size has a significant positive effect on financial reporting quality, while XBRL implementation and managerial ownership have no significant effect on financial reporting quality.

Profitabilitas dan Manajemen Laba selama Pandemi Covid-19: Studi Kasus pada Bank di Indonesia

This research investigates the relationship between profitability and earnings management in Indonesian banks listed on the Indonesia Stock Exchange (IDX) during the Covid-19 pandemic. This article contributes to a novelty by exploring opportunistic behavior during global crisis phenomenon. We use Return on Asset (ROA), Return on Equity (ROE), and Net Profit Margin (NPM) as profitability index and Discretionary Accruals (DACC) as earnings management index. The result of this research can be used to elaborate investment decisions making, especially during economic crisis. We collect financial reports of 2020 and 2021 from the Indonesian Stock Exchange (IDX) and get the final data as much as 40 firm year observations.. The result of regression linear analysis using modified jones model shows that all proxies for profitability (ROA, ROE, and NPM) do not have a significant effect on earnings management. These findings indicate that management tendency to manage earnings during a pandemic is not based on profitability intentions, but rather on the desire to survive in the crisis.

Trends in Earning Management (EM) Practices: A Cross Country and Industrial Analysis

This paper analyzes the trends in earnings management (EM) practices of 500 non-financial firms across 8 major industries operating in both developing and developed economies for the period 2008-2017. It significantly contributes to the literature by identifying the country-specific, industry-specific, and over the time trends in accrual and real earnings management practices prevailing in the non-financial sector of both developed and developing economies of the world. EM trends are analyzed across countries, across industries, and over the sample period. The sample consists of 500 non-financial firms from 8 different industries of 22 developed and developing economies for the period 2007-2018. Accrual and real earnings management are alternatively used in the non-financial sector across the world. This study uses the Modified Jones Model (Dechow et al., 1996) and the Roychowdhury model (2006) to estimate accrual and real earnings management. The analysis of variance (ANOVA) is used to examine the mean differences between countries and industries as well as over the time differences. The country-wise analysis concludes that Pakistan is on the top of the list in managing earnings followed by Canada, particularly in accrual-based earnings management. It may be attributed to poor accounting standards and regulatory frameworks. The industry-wise analysis shows that the mining industry, characterized by high dependency on capital markets and the uncertainty associated with the prospects of mineral reserves, is highly involved in EM. Finally, the year-wise analysis determines that the year 2009 was highly escorted with accrual and real earnings management practices, which may be the result of the global financial crisis of 2007-2008. The findings imply that the policymakers of developing economies should strongly emphasize improving the general macroeconomic environment of the economy by controlling inflation, improving law and order conditions, and ensuring political stability. Additionally, the findings have potential implications for corporate managers while formulating strategies to restrict them from EM that may diminish both firm value and the economy.

CEO Power, Corporate Governance Mechanisms and Earnings Quality

This article investigated the determinants of the firm’s earnings quality (FREQ) using panel data of Egyptian listed firms to address the concerns of endogeneity and heterogeneity. We found that CEO power dynamics negatively impact FREQ. Furthermore, corporate governance’s weakening or substitution role is investigated for the negative association between CEO power dynamics and FREQ. Our findings showed that board-independence significantly weakens the impacts of CEO- ownership and CEO-tenure on FREQ. In contrast, the results fail to support the weakening or substitution role of board-independence for the negative effects of CEO-duality and CEO-political connection on FREQ. Board gender diversity is not significantly associated with FREQ. However, we found that the presence of gender critical mass serves as a substitution mechanism for the negative association between CEO power dynamics and FREQ. Lastly, we observed strong robustness for our primary analysis through propensity matching scores and difference-in-different (DID) techniques. This study brings a novelty to existing research by exploring the negative consequences of CEO power dynamics. Furthermore, it provides an insight into the constraining or weakening of the role of corporate governance. The main findings of the current study are also robust to Modified Jones model (1995) reverse-causality, DID and propensity-matching techniques.

Board Monitoring Mechanisms and Earnings Management of Listed Non-Finance Firms in Nigeria

Management opportunistic behavior has led to manipulations of earnings and thus loss of investments by misguided investors. The board of directors through their supervisory roles tend to monitor and control some of these unbecoming acts of managements. This study therefore examined the effect of board monitoring mechanisms on earnings managements of non-finance firms listed on the floor of the Nigeria Exchange Group from 2012-2021. The independent variable of the study being board monitoring mechanism was proxied by board size (BODS), board independence (BODI) and board gender diversity (BGDV) while the dependent variable being earnings management was proxied by Modified Jones Model (MJON). Furthermore, in line with related extant literature, the study controlled the model goodness of fit by employing the variable of cash flow return from operations (CFOA) The research design adopted for this study was ex post facto, purposive sampling technique was employed and secondary source of data used was obtained from the studied companies’ annual report and Nigeria Exchange Group fact book. Least square variable regression was adopted to analyze and test the three hypotheses formulated for the study. The study revealed that board size, board independence, board gender diversity has significant negative effect on earnings management of non-finance firms listed on the floor of the Nigeria Exchange Group. It was thus concluded that board monitoring mechanisms have significant effect on earnings management of listed non-finance firms in Nigeria. Based on these findings, it was recommended that board size should not be less than ten members, non-executive directors should constitute 80% of total board members and female members should constitute half of the board size as this composition tends to reduce earnings management of the sampled firms.

Effects of Corporate Governance on Creative Accounting Practices: Evidence from NSE-listed Companies in India

This paper investigates the effects of corporate governance on creative accounting practice in Indian NSE-listed public companies. To get insights and analysis of how mitigating effects of governance issues can impact creative accounting practices, a specific set of factors is identified and the multistage technique design is employed to collect samples of 51 companies with 255 firm-year observations for the years 2017–2021. The value of discretionary accrual as estimated using the modified Jones model. The panel data are used for analysis and testing the hypothesis with the help of Stata 15 version statistical software. The results of this study demonstrated that only audit independence has a considerable negative influence on creative accounting practice, indicating that increasing the number of audit independence could reduce unethical accounting manipulation in financial reporting practice. The paper digs further and provides additional details that the board size, return on asset and firm growth significantly appears under a flag of positive creative accounting practices. In contrast, the board’s independence, audit committee, firm size and leverage have no such influence on creative accounting practice. The study also recommends that companies should have an independent audit committee, so as to minimise the accounting irregularities in financial reports.

DEBT RATIO, RETURN ON ASSET, FIRM SIZE AND EARNINGS MANAGEMENT: AGE MODERATION

Earnings management still become a phenomenon both in Indonesia and abroad. Many cases of earnings management practices have occurred and the company's amount of leverage is one of the drivers of earnings management practices. This research aims to examine and describe the relationship between various debt policy, profitability, and company size on earning management moderated by firm age. The selected samples were 102 companies listed on the Indonesia Stock Exchange (IDX) in 2010-2018. The independent variables in this study include DER, bank debt, short-term debt and long-term debt, age, and company size. Earnings management as the dependent variable in this study uses the Modified Jones Model. The results of the regression equation analysis show that all debt policy proxies consistently have a negative and significant effect on earnings management. Furthermore, the company's experience as a proxy for firm age strengthens the relationship between debt policy and earnings management practices. More interestingly, specifically among the three debt policies, bank debt is the policy that is most able to represent the influence on earnings management practices. This indicates that the most effective monitoring of earnings management practices comes from banking institutions. Overall, the profit information shown in financial statements is the product of earnings management, so the level of quality of financial reports is deserving of close inspection and prudence when making decisions based simply on profit information.

The impact of earnings quality on corporate cash holdings: evidence from an emerging economy

Purpose This study aims to inspect the impact of earnings quality on corporate cash holdings of Jordanian companies listed on the Amman Stock Exchange. Design/methodology/approach This study examines a large sample of (98) Jordanian companies listed on the Amman Stock Exchange during the period that ranges from 2009 to 2019. Earnings quality was computed using two different methods; firstly, through the absolute abnormal discretionary accruals (as an inverse measure of earnings quality), which were estimated using the Dechow et al.’s (1995) cross-sectional version of the Modified Jones model and the Kothari et al. (2005) model; and secondly, through earnings persistence as a direct measure of earnings quality. Findings The empirical results of this study reveal that poor accounting quality (high levels of abnormal discretionary accruals) is associated with higher levels of cash holdings, implying that as the quality of earnings decreases, the harmful effects of information asymmetry and adverse selection costs will increase, leading, therefore, Jordanian companies to increase their corporate cash holdings levels to act as a buffer against any cash shortages. Further, the authors document that higher accounting quality (more persistent earnings) is associated with lower levels of cash holdings. In addition, this study found that earnings quality negatively and significantly affects the cash holdings of profitable companies in Jordan. Thus, earnings quality appeared to be a significant determinant of cash holdings for profit-making companies but not for companies enduring losses. Originality/value This study contributes to the limited evidence that investigates the relationship between earnings quality and corporate cash holdings. Where the majority of previous studies have focused on developed economies, to the best of the authors’ knowledge, this study is the first in Jordan to comprehensively explore the relationship between earnings quality, computed by the absolute abnormal discretionary accruals and earnings persistence, and corporate cash holdings. Also, it is the first to explore the nature of the earnings quality-cash holding nexus in loss-making companies compared with their profit-making counterparts to the best of the authors’ knowledge. The results of this study have important policy implications for managers, creditors, investors and academics in Jordan and other emerging economies that share similar characteristics.

PENGARUH LEVERAGE, UKURAN PERUSAHAAN, DAN PERGANTIAN CEO TERHADAP MANAJEMEN LABA PERUSAHAAN PERBANKAN

This study analyzes the effect of Leverage, Firm Size, and CEO Turnover on Earnings Management. This study took sample data from the financial reports and notes on the financial statements of banking companies listed on the Indonesia Stock Exchange (IDX) in the period 2017-2021, with a total sample of 195 samples from 39 companies. Discretionary accruals with the Modified Jones Model measure earnings management variables. The analytical method used in this research is panel regression and uses the EViews analysis program. The study results show that the variables of leverage and CEO turnover have no effect on earnings management. Meanwhile, the firm size variable significantly negatively affects earnings management.

THE IMPACT OF SUSTAINABILITY REPORTING PRACTICES ON EARNINGS MANAGEMENT IN LISTED COMPANIES IN SRI LANKA: PRE & DURING THE COVID-19 SITUATION

This study aimed to evaluate the impact of sustainability reporting practices (SRP) on the Earnings Management (E.M.) of companies that are listed on the Colombo Stock Exchange (CSE) in pre and during the Covid-19 situation under the best sustainability ratings 2021. The population under consideration in this research is the total number of companies selected for the best sustainability ratings in 2021. The study population comprised 66 companies, including financial and non-financial companies listed under the Colombo Stock exchange. The random sampling method is used for selecting the study sample. The sample comprises 45 non-financial companies in Sri Lanka that reported SRP disclosure information for six years during 2016-2021. This research used secondary data from the financial, annual, and sustainability reports issued by the companies. The independent variable is SRP, which consists of economic, environmental, and social indicators. The disclosure index of Sustainability reporting guidelines from GRI G4 and finally developed the sustainability reporting disclosure index (SRDI) use for him. The dependent variable is E.M., measured by discretionary accruals calculated using the Modified Jones Model. Descriptive statistics and panel regression analyses were used to analyse the information in the reports to recognise the impact of SPRs on E.M. Research results suggest that there is a significant negative impact of SRPs on E.M. practices in pre and during the Covid-19 period. Indeed, research evidence shows that companies with higher SRPs are less prone to advance E.M. practices. This study’s findings indicate that all stakeholders can use earnings management practices and sustainability reporting disclosures as sources of information when making decisions. The outcomes of this research show that non-financial sustainability reporting information disclosures are linked with the financial details published by the firm, specifically in earnings management. The study’s other implication is the importance of developing businesses for sustainability reporting disclosure and giving an assurance service for that purpose.

The Estimation and Power of Alternative Discretionary Accruals Models

Discretionary accruals remain decade’s long measures to detect earnings management in empirical accounting research. The correctness of the specifications and test power of the information content for the models remains unexplored based on samples of most emerging market firms. Yet, country’s-based researchers have increasingly used different Jones-based discretionary accruals to proxy earnings management. The paper aims to evaluate four discretionary accruals models and to decide the most appropriate one for the detection of earnings management. For the aim, we apply regression methods to estimate and evaluate four Jones-type discretionary accruals models – simple Jones, modified Jones, extended Jones cash flow model and working capital accruals – based on evidence of a final sample of 1,852 firm-year of 102 firms in Nigeria during 2001–2020. The results disclose that all models are well-specified such that the likelihood of Type I errors is minimum and below the significance level of 5%. In order to demonstrate the power of the test, the simulations completed identify that the modified Jones model exhibits the highest power capability. The implication of this finding is that the modified Jones model is the most appropriate model to detect earnings management based on the Nigerian sample.

Effect of Investment, Free Cash Flow, Earnings Management, Interest Coverage Ratio, Liquidity, and Leverage on Financial Distress

This study aims to provide empirical evidence of the effect of investment, free cash flow, earnings management, interest coverage ratio, liquidity and leverage on financial distress. The dependent variable is financial distress as measured by the Altman Z-score. The independent variables are total assets growth as a proxy for investment, free cash flow, earnings management with modified Jones model, interest coverage ratio, leverage and liquidity. This study was tested using ordinal logistic regression analysis. The sample used in this study were manufacturing companies listed on the Indonesia Stock Exchange in 2016-2020. The sample in this study was selected using purposive sampling with a total of 392 observations. The results of this study indicate that free cash flow, interest coverage ratio and liquidity have a significant effect on financial distress, while investment, earnings management and leverage have no effect on financial distress. The implication of this research is to prove the signal theory and agency theory. The limitation of this study is that there are still errors of type I and II in classifying companies that experience financial distress and non-financial distress

COVID-19 outbreak and earnings management practice: case of Tunisia

PurposeThis article attempts to investigate the impact of COVID-19 outbreak on the earnings management (EM) for listed Tunisian companies.Design/methodology/approachThe study focuses on both accrual-based and real EM (REM) practices. With panel data, the authors employ the multiple regression approach and the generalized least squares (GLS) estimate method. The sample is made up of 41 listed companies observed from the first half of 2016 to the second half of 2020.FindingsThis study finds that, during the pandemic period, Tunisian firms use decreasing income discretionary accruals. Also, with regard to REM, the COVID-19 variable displays a negative response coefficient but of lesser magnitude.Research limitations/implicationsThis study's findings can help Tunisian authorities, listed companies and market investors to better understand EM practices during a negative shock and to better understand the various internal and external factors influencing the quality of financial reporting. These findings may contribute, also, significant EM implications for scholars interested in other emerging markets. As limitations, the authors point out mainly to the small sample size used in this study and that the authors used a single model, namely the modified Jones model (1995), to measure the accounting EM. Also, the authors used a binary variable as a proxy for the COVID- 19 pandemic.Originality/valueTo the best of authors’ knowledge, it is the first in Tunisia, if not in Africa, to examine the impact of the COVID-19 pandemic on EM practices. Second, this study builds on previous work by examining both the accrual-based EM and the REM.

PERAN AUDITOR TERHADAP PRAKTIK EARNINGS MANIPULATION DI KALANGAN PERUSAHAAN LQ45

Using the analysis of fraud theory developed by Reskino (2022), this study examines the relationship between employee diff, the big 4 auditors, auditor switching, the ethnic composition of directors on the board, and the ethnic composition of the audit committee on earnings manipulation. 55 samples of company data that were consistently included in the IDX LQ45 list from the Indonesia Stock Exchange (IDX) were used with the purposive sampling method. Using the Modified Jones Model with ROA which is believed to produce a higher adjusted R2 than the Modified Jones Model. The results of the research show that earnings manipulation that earnings manipulation still occurs within the company in the presence or absence of employee diff, auditor switching, Indonesian national board of directors and audit committee. However, the role of the big 4 auditors can reduce earnings manipulation. This research implies that it is hoped that regulators can issue regulations regarding disclosing more non-financial measures in financial statements so that users of financial reports can directly compare financial and non-financial measures. By knowing non-financial indicators in LQ45 companies, it is hoped that they conciseness make appropriate policies to mitigate risk in LQ45 companies.

Financial distress and accrual and real earnings management in Polish public companies

Purpose: The study aims to assess differences in accrual and real earnings management strategies between financially distressed and non-distressed companies. The research sample includes public non-financial companies in Poland.Methodology/approach: Based on the GICS classification, cross-sectional regressions were estimated. Abnormal accruals were calculated using the Jones model and the modified Jones model. Based on Roychowdhury, real earnings management was proxied: abnormal operating cash flow, abnormal production costs, and abnormal discretionary expenses. Symptoms of financial difficulties were observed with discriminant analysis, net working capital strategy and ability to pay interest. Parametric and non-parametric statistical tests were used.Findings: There were statistically significant differences in earnings management between non-distressed and distressed companies. Financially healthy companies, as well as those with conservative net working capital strategies and a good ability to pay their interest, were more likely to manage earnings. However, they used selected to influence through real transactions.Research limitations/implications: Proxies for earnings management and financial difficulties are commonly recognized in the literature, but none of them is without imperfections. Therefore, many alternative research approaches have been used.Originality/value: Previous Polish research has not addressed the relationship be-tween earnings quality and financial distress. Multiple robustness tests were imple-mented.

THE EFFECT OF FINANCIAL STABILITY, NATURE OF INDUSTRY AND TOTAL ACCRUAL ON FRAUDULENT FINANCIAL STATEMENTS

This study aimed to investigate the impact of Financial Stability (ACHANGE), Nature of Industry (REC), and Total Accruals (TATA) on fraudulent financial statements, using the Modified Jones model as a proxy. The study used the documentation method to collect data from 55 industry companies listed on the Indonesia Stock Exchange in 2020. Annual financial reports were obtained from the IDX website, and a sample of 34 companies was selected using purposive sampling. Multiple linear regression analysis, prerequisite analysis tests, classical assumption tests, and hypothesis testing were used to analyze the data. The multiple linear regression analysis was used to examine the relationship between variables, while the prerequisite test checked the normal distribution of data, the classic assumption test checked for data acceptability, and the hypothesis test determined the acceptance or rejection of hypotheses. The results revealed that Financial Stability (ACHANGE) and Nature of Industry (REC) had a significant impact on fraudulent financial statements, while Total Accruals (TATA) did not have a significant effect.

Impact of earnings management on working capital management efficiency

This study investigates the impact of earnings management (EM) on the efficiency of Working Capital Management (WCM) and its components. The study uses M-Score, based on the Beneish Model, as a proxy for EM and applies generalized method of moments and panel quantile regression methods to a sample of 461 Indian-listed firms. We find that EM may inversely influence the WCM efficiency of Indian firms. Managers who engage in EM tend to operate on longer cash conversion cycle and manage inventory sub-optimally. These findings have been further confirmed by using an alternative EM proxy based on the Modified Jones Model.

Audit partner tenure and earnings management: evidence from Vietnam

Purpose This study aims to examine the relationship between audit partner tenure and earnings management of companies listed on Vietnamese stock exchanges. Design/methodology/approach This study uses a sample of 1,363 observations from 2016 to 2019. This study manually collects data on audit partner tenure. Using Datastream financial data, this study calculates abnormal accruals using the modified-Jones models (Jones, 1991; Dechow et al., 1995; Kothari et al., 2005), which are used as the proxy for earnings management. This study runs Ordinary Least Squares regressions to test this study’s hypothesis. Findings The results show that audit partner tenure is positively related to abnormal accruals. Cross-sectional analyses indicate that the relationship between audit partner tenure and abnormal accruals is more pronounced for firms that are audited by non-Big Four auditors and for firms that have chief executive officer-chairperson duality, suggesting that weak corporate governance is a channel for the established relationship. The evidence also shows that audit partner tenure is negatively associated with the magnitude of income-decreasing accruals but has no relationship with income-increasing accruals. This study’s findings are robust for several tests, including using the propensity score matching approach. Originality/value To the best of the authors’ knowledge, this study is the first to provide evidence of the relationship between audit partner tenure and earnings management in Vietnam.

Do accrual models effectively detect earnings management? A study in the Indian context

Earnings management practices have been a concern for academicians and practitioners for decades now. It occurs when discretion is applied over accounting choices or real economic decisions. Most of the studies in this area concentrate around accrual manipulation. Several models have been developed to measure accruals, the Jones model being the first econometric approach to measure accruals. Over the years, the Jones model has consistently outperformed all other models in detecting earnings management. However, in recent times, this model has been critically examined in different economic settings and found to suffer from limitation such as model misspecification, omitted variables and so on. This paper makes an attempt to critically examine few of the most widely used earnings management models in the Indian context and determine the effectiveness of these models. Jones Model, Modified Jones Model, Kothari Model and Yoon Model are examined in this study. Keywords: Earnings management, accrual earnings management, Jones Model, Modified Jones Model, Kothari Model, Yoon model.

Diamond Fraud Analysis in Detect Financial Statement Fraud in LQ45 Company List on The Indonesia Stock Exchange 2018-2020

LQ45 company is a company that collects 45 certain stocks with high liquidity level and adequate market capitalization. The purpose of this study is to detect the occurrence of fraudulent financial statements through the perspective of diamond fraud in LQ45 companies listed on the Indonesia Stock Exchange in 2018-2020. Indications of financial statement fraud in this study are proxied by earnings management which is measured using the Modified Jones model. The method used in this research is literature study and documentation. The sample in this study was decided by using the purposive sampling method from LQ45 companies listed on the Indonesia Stock Exchange during 2018-2020, resulting in a total of 66 company observations. The data analysis used in this research is multiple linear regression analysis. The results of this study indicate that the pressure and rationalization variables have no partial effect on financial statement fraud. While the opportunity and capability variables have no partial effect on financial statement fraud. Simultaneously, diamond fraud has a significant effect on financial statement fraud.