Sustainability measures and earnings management: evidence from Greek municipalities

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sandra Cohen ◽  
Ioanna Malkogianni
Keyword(s):  
Earnings Management ◽  
Local Governments ◽  
Management Practices ◽  
Discretionary Accruals ◽  
Sustainability Indicators ◽  
Financial Sustainability ◽  
Content Type ◽  
Final Sample ◽  
Jones Model ◽  
Corroborative Evidence

PurposeThis study analyses the engagement of Greek municipalities in earnings management activities through the manipulation of their accrual accounts. It aims at identifying whether discretionary accruals are associated with certain financial sustainability measures calculated through financial statement numbers.Design/methodology/approachTo test the hypotheses, the annual financial data of Greek municipalities for the period 2011–2018 are used. The final sample corresponds to an unbalanced panel data sample that includes 1,565 yearly observations. Total accruals and discretionary accruals modelling are based both on the aggregate Jones model and the modified Jones model.FindingsThe findings provide evidence that Greek municipalities engage in earnings management practices through the manipulation of accruals. Moreover, there is corroborative evidence that financial sustainability indicators, such as indebtedness, liquidity and efficiency ratios, are related to the magnitude of earnings management, while earnings management behaviour during the year preceding the municipal elections is more intense.Originality/valueThe paper expands the literature in earnings management in local governments by analysing the relation of financial sustainability indicators to this behaviour.

scholarly journals Earnings management and income tax evidence from Greece

2015 ◽  
Vol 12 (2) ◽  
pp. 511-529 ◽  
Author(s):  
Eftychia Kapoutsou ◽  
Christos Tzovas ◽  
Constantinos Chalevas
Keyword(s):  
Earnings Management ◽  
Significant Relationship ◽  
Income Tax ◽  
Management Practices ◽  
Management Accounting ◽  
Discretionary Accruals ◽  
Earning Management ◽  
Total Current ◽  
Jones Model ◽  
Deferred Tax

The aim of this study is to examine the question of earnings management and, specifically, how this relates to taxation. In order to determine whether there is a correlation between earnings management and taxation, we investigate the discretionary accruals aspect of total accruals, i.e. the portion of profits which can be affected by management accounting choices, as calculated by the Jones (1991) model and the modified Jones model (Dechow et. al, 1995). Furthermore, we examine to what degree a correlation may exist between discretionary accruals and tax income (consisting of current and deferred tax). Our empirical findings demonstrate a statistically significant relationship between the levels of discretionary accruals and of total, current and deferred tax. This suggests that tax in general may be employed as a means to facilitate earnings management. The findings of this study suggest that IFRS provisions regarding taxation provide firms with a scope to get involved in earning management practices

CEO characteristics and earnings management: empirical evidence from France

2020 ◽  
Vol 18 (1) ◽  
pp. 77-110 ◽  
Author(s):  
Dhouha Bouaziz ◽  
Bassem Salhi ◽  
Anis Jarboui
Keyword(s):  
Earnings Management ◽  
Significant Relationship ◽  
Management Practices ◽  
Discretionary Accruals ◽  
Content Type ◽  
Financial Communication ◽  
The Impact ◽  
The Relationship ◽  
Ceo Characteristics

Purpose The purpose of this paper is to investigate the impact of chief executive officer (CEO) characteristics on the earnings management examined by the discretionary accruals. Design/methodology/approach The sample includes 151 French firms listed on the CAC ALL shares index from 2006 to 2015. The paper uses the feasible generalized least square regression technique to test the relationship between CEO characteristics and earnings management. Findings Using discretionary accruals as a proxy for earnings management, the results obtained from the three models (Jones modified 1995; Kothari et al., 2005; Raman and Shahrur, 2008) indicated that there is a positive and significant relationship between CEO duality, CEO nationality and the quality of financial communication. However, no significant relationship was found between CEO board member, CEO turnover and earnings management. Originality/value A literature review finds that fewer studies have investigated the relationship between earnings management practices and personal CEO characteristics in the French context. Furthermore, no study yet has examined the influence of CEO nationality and CEO age on earnings management practices. This study provides empirical data about the impact of CEO’s characteristics on earnings management and how these different characteristics can facilitate the transition to manipulate and influence the quality of financial communication.

scholarly journals COMPARISON OF EARNINGS MANAGEMENT IN EACH NON-FINANCIAL SECTOR OF BUMN LISTED ON THE IDX

2021 ◽  
Vol 2 (2) ◽  
pp. 133-152
Author(s):  
Shintya Fransiska
Keyword(s):  
Earnings Management ◽  
Sampling Method ◽  
Management Practices ◽  
Financial Sector ◽  
Discretionary Accruals ◽  
The Other ◽  
Average Level ◽  
Construction Sector ◽  
Jones Model ◽  
The Difference

This research was conducted to determine whether there are differences in each non-financial sector of BUMN listed on the IDX in carrying out earnings management practices. The research sample includes a saturated sampling method. The research sample consisted of 19 companies were divided into 8 sectors. The amount of data used is 225 data from 2006-2019. Earnings management will be measured using discretionary accruals with a Modified Jones model. The hypothesis was tested using the Kruskal Wallis test and followed by the Dunn test. The results show that there are differences in the level of earnings management in each non-financial sector of BUMN listed on the IDX. The difference is due to the higher level of earnings management carried out by the construction sector compare to the other sectors. Furthermore, the metal sector has the lowest average level of earnings management practices.

Political competition as a motivation for earnings management close to zero: the case of Portuguese municipalities

2020 ◽  
Vol 32 (3) ◽  
pp. 461-485
Author(s):  
Augusta Ferreira ◽  
João Carvalho ◽  
Fátima Pinho
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Political Competition ◽  
Discretionary Accruals ◽  
Quantitative Methodology ◽  
Content Type ◽  
The Public ◽  
Lack Of Information ◽  
Public Resources ◽  
Degree Of Satisfaction

PurposeThe main purpose of this paper is to evaluate if, motivated by political competition, municipalities engage in earnings management practices through discretionary accruals.Design/methodology/approachQuantitative methodology.FindingsResults indicate that, in those municipalities where political competition is greatest, there is a greater tendency to report positive net earnings close to zero. This study also indicates that for such purpose, discretionary accruals are used.Originality/valueThe purpose of this paper is to respond to the lack of information in the area of earnings management in the public sector, to be able to evaluate responsibility, performance and efficiency regarding the allocation of public resources and the degree of satisfaction of citizens/voters' needs-accountability.

scholarly journals The Impact of Financial Crisis on Earnings Management in Nonfinancial Listed Firms: Evidence from Jordan

2020 ◽  
Vol 15 (5) ◽  
pp. 168
Author(s):  
Yahia M. Al-Mughrabi
Keyword(s):  
Financial Crisis ◽  
Earnings Management ◽  
Management Practices ◽  
Global Financial Crisis ◽  
Discretionary Accruals ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Listed Firms ◽  
Jones Model ◽  
The Impact

This paper studies earnings management in Jordan during the global financial crisis. It addresses mainly the question of whether or not financial crisis has an impact on discretionary accruals, using the modified Jones model (1995) for estimating discretionary accruals. By applying Ordinary Least Squares regression model on a sample of 71 nonfinancial listed firms during the period of 2005-2012, I find a conclusive evidence that Jordanian nonfinancial listed firms did not engage in a greater level of earnings management during the financial crisis period. In addition, larger firms are less involved in earnings management practices compared to smaller firms. Moreover, the results suggest a negative significant impact of operating cash flow on discretionary accruals, while it fails to connect current year losses with discretionary accruals. However, the findings indicate that firm’s leverage is positively and significantly associated with discretionary accruals. Overall, the empirical results provided evidence that earnings management practices in Jordanian nonfinancial sectors are relatively small, even smaller in services sector, which raise questions about the validity of the modified Jones model and whether or not different models (such as Deangelo, 1986) should be used in future studies regarding earnings management.

Earnings management in local governments: the role of political factors

2019 ◽  
Vol 20 (3) ◽  
pp. 331-348 ◽  
Author(s):  
Sandra Cohen ◽  
Marco Bisogno ◽  
Ioanna Malkogianni
Keyword(s):  
Public Sector ◽  
Earnings Management ◽  
Local Governments ◽  
Management Practices ◽  
Choice Theory ◽  
Central Government ◽  
Accrual Accounting ◽  
Political Factors ◽  
Content Type ◽  
Management Behaviour

Purpose The purpose of this paper is to examine earnings management practices in local governments (LGs). The implementation of accrual accounting in LGs opens the way for empirical research on the topic, as reporting high surpluses or high deficits can be negatively interpreted by the central government, monitoring authorities, citizens and political opponents. According to public choice theory, the conflicting interests between politicians, who pursue re-election, and voters, who observe politicians’ actions to assess their alignment with social welfare, create fertile ground for earnings management practices. Design/methodology/approach The study calculates discretionary accruals, by using the Jones (1991) model, and relates them to several political variables. It employs a large sample of Greek and Italian LGs. The Greek database covers the period from 2002 to 2015 with about 4,300 observations, and the Italian database includes the period from 2008 to 2015 with about 1,130 observations. Findings The findings from the analysis give evidence that LGs engage in earnings management. The principal factor is the electoral cycle, as earnings management seems to be greater when the mayor is re-elected than when the mayor is elected for the first time. Furthermore, the period before elections create conditions that cultivate earnings management attitudes. Research limitations/implications Previous studies have principally investigated earnings management in the private sector. Considering that many public-sector entities have implemented accrual accounting systems, this study intends to examine earnings management behaviour at the LG level, providing interesting findings for researchers and policy makers. Practical implications A better understanding of the political factors and the financial conditions, which act as obstacles or facilitators, should work hand in hand with the accounting reforms. The usefulness of financial statements for decision making and control presupposes that they are of high quality, an attribute that can be impaired by earnings management. Originality/value This study investigates the influence of political factors on earnings management behaviour in public-sector contexts where self-interest and accountability pressures coexist.

The effect of outside blockholders on earnings management around seasoned equity offerings in French listed companies on the SBF120

2019 ◽  
Vol 17 (3) ◽  
pp. 449-467
Author(s):  
Abir Jerbi Maatougui ◽  
Khamoussi Halioui
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Financial Statements ◽  
Discretionary Accruals ◽  
Seasoned Equity Offerings ◽  
Empirical Literature ◽  
Individual Investors ◽  
Equity Offerings ◽  
Content Type ◽  
The Impact

Purpose The purpose of this study is to test the effect of the presence of outside blockholders on earnings management around seasoned equity offerings (SEOs). Design/methodology/approach Given that SEO can be one of motivations for earnings management, the authors examined the role of outside blockholders in monitoring the opportunistic behavior of managers around 50 SEOs realized by 45 French companies during the 2005-2009 period based on panel data model. Findings The authors found that issuing firms are used for upward earnings management during the pre-offering period. Indeed, the discretionary accruals know a continuous evolution during the three years preceding SEO and peaked in the year prior to the SEO. This result led us to examine the role played by the outside blockholders on earnings management. The results provided empirical evidence that the presence of outside blockholders in SEO firms is able to restrain earnings management practices. Research limitations/implications This study allows to inform investors that French issuing firms are less overvalued in the presence of outside blockholders than in their absence. As a result, investors have an interest in participating in the SEO of firms that hold outside blockholders in their capital structure. Again, based on this study, users of financial statements can trust the reliability of the financial statements published by companies with outside blockholders because of the careful control exercised by these shareholders in the process of producing financial information. However, similar to how any research may suffer from some limitations, this work has two major limitations. Firstly, the authors examined the impact of outside blockholders on earnings management without distinguishing between the different types of blockholders (such as individual investors, pension funds, mutual funds, banks and trusts). Secondly, they have estimated the discretionary accruals by referring to a single model (Kothari et al., 2007). However, the use of two or more models for estimating accruals will lead to more robust results. Originality/value The empirical literature emphasizes the monitoring role played by these shareholders on earnings management. However, it does not distinguish between the circumstances when the monitors either lose or win from exaggerations. This research completes this lack by studying the impact of outside blockholders on earnings management around SEOs.

Earnings management detection over earnings cycles: the financial intelligence in Indian corporate

2017 ◽  
Vol 20 (2) ◽  
pp. 116-129 ◽  
Author(s):  
Sandeep Goel
Keyword(s):  
Earnings Management ◽  
Financial Markets ◽  
Capital Markets ◽  
Stock Price ◽  
Management Practices ◽  
Discretionary Accruals ◽  
Cash Flows ◽  
Future Prospects ◽  
Content Type ◽  
Reported Earnings

Purpose It is largely believed that stock pricing is influenced by disclosure of earnings. This motivates the corporate to exercise earnings management practices. This paper aims to analyse and detect the earnings management practices of Indian firms over earnings cycles. The earnings behaviour of the firms has been analysed at three levels of earnings cycles for the pricing effect: complete, incomplete and prospective. In India, the corporate ownership model is promoter-dominated shareholders’model (PDSHM) which highlights the relevance of the study for earnings-management motivation. This paper contributes by examining earnings management of the units at three levels of earnings cycle with regard to stock pricing. Earnings cycles have been decomposed into three components: complete, incomplete and prospective. While earnings management has been studied extensively, virtually all studies have focused on firm-specific effects. This study relates earnings management to the cycle of the earnings for stock-price effect. Design/methodology/approach The cash-flow model has been used for the computation of accruals (Collins and Hribar, 1999), and D’Angelo model (for calculating discretionary accruals) has been used for detecting earnings management in the present study, being comprehensive in nature and detailed in approach. The results of the “complete earnings cycle”are measured by net income. The results of the “incomplete earnings cycle” are measured by the ratio of gross margin over sales multiplied by inventory. It yields an approximate measure of the unrealized holding gains and losses. The “prospective earnings cycle” stems from the management decision to choose a rate of income growth. Statistical tools have been used for testing the results. These include regression analysis and descriptive statistics like arithmetic mean, median and standard deviation. Findings An examination of the units shows that firms report more discretionary accruals (DACC) at complete cycle, i.e. when financial markets are more certain about their future prospects which influence their securities’ pricing. It verified that unrealized income and growth prospects have very little role to play in determining returns. The results indicated that each of the components of the earnings cycle has a relevance factor for returns. In complete earnings cycle, DACC had the highest significance on returns than operating cash flows (OCF) and non-discretionary accruals (NDACC). Its determination content is the highest. So, the firms report more negative DACC when financial markets are less certain about their future prospects. Stock-price responses to earnings surprises are moderated when firm-level uncertainty is high, consistent with performance being attributed more to chance rather than performance. Research limitations/implications The present study could be confined to only top 12 profit-making corporate enterprises in the private sector in India, leaving all other enterprises due to data non-availability. Of 25 enterprises, there were public sector undertakings too which had to be excluded. The period in the study is of five years (from 2003-2004 to 2007-2008) to highlight earnings management motivation. This period is best suited to identify the effects of global recession on the practice of earnings management in India. Researchers may like to select a different time-period based on their perspective. Practical implications It is hoped that the study would improve the understanding of the manner in which the capital markets process the publicly available earnings and its components for global firms. The findings of this study are significant not only for organisations that function in India but also for other companies that are based in economies with relatively mature corporate governance mechanisms. So, the authors’ findings have important policy implications for the Western world, as the sample companies are multinationals and operate globally. Similar efforts in other countries would be rewarding in controlling the management of reported earnings and enhance the reliability and transparency of reported earnings to promote economic efficiency. Social implications Evidence on this issue could bring a new dimension to how the capital markets interpret these reported earnings and its components (cash flows, DACC and NDACC) at different levels of earnings cycles for minority shareholders in particular. Further, the evidence could also provide insights into the economic incentives for discretionary accounting choice and disclosure of the results of these earnings cycles. Originality/value It is an original paper which highlights the earnings behaviour and its motivation in Indian corporate enterprises for earnings cycles with regard to stock pricing.

scholarly journals Management Entrenchment, Firm Characteristics and Earnings Management Of Conglomerate Companies In Nigeria

2020 ◽  
Vol 9 (1) ◽  
pp. 1-14
Author(s):  
Temitope Olamide Fagbemi ◽  
Olubunmi Florence Osemene ◽  
Oyinlade Agbaje
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Discretionary Accruals ◽  
P Value ◽  
Secondary Source ◽  
Firm Characteristics ◽  
Ex Post ◽  
Management Entrenchment ◽  
The Impact

Sometimes the rivalry between shareholders and management is an indication of the level of entrenchment within the corporate environment. Managers are believed to routinely manipulate earnings in order to mislead shareholders about their company's actual economic outlook or performance. As a result, the study investigated the impact of managerial entrenchment, firm characteristics and earnings management of conglomerate companies in Nigeria. Employing the ex-post facto research design, the data was gathered from secondary source of the 6 listed conglomerate companies for the 11-year period running (2008-2018). The study used discretionary accruals a proxy for earnings management and to calculate discretionary accruals, the study used modified Jones model. The result showed that management entrenchment and firm characteristics have Impact on multinational firms ' earnings management in Nigeria. Specifically, from the conglomerate’s entrenchment proxies, CEO’s tenure has a positive and significant impact on earnings management (coff. =1.062821, p-value =0.0367) and management entrenchment as measured by CEO’s shareholding has a negative and insignificant effect on earnings management (coff. =-6252391, p-value = 0.4090) while firm size, profitability and leverage indicated a significant and positive impact on earnings management (coff, = 0.124587, p-value = 0.0000; coff. = 0.006647, p-value = 0.0431 and coff. = 0.032065, p-value = 0.0000). The study therefore recommended among others that management should reduce the debt in their capital structure in order to improve their companies’ value and their capital structure should be majorly financed by equity rather than debt and reduce CEOs tenure to minimise earnings management practices.

Earnings management and equity incentives: evidence from the European banking industry

2019 ◽  
Vol 27 (2) ◽  
pp. 244-261 ◽  
Author(s):  
Mohammad Alhadab ◽  
Bassam Al-Own
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Banking Industry ◽  
Future Research ◽  
Loan Loss ◽  
Content Type ◽  
Loan Loss Provisions ◽  
Equity Incentives ◽  
European Banking ◽  
European Banks

Purpose This study aims to examine the effect of equity incentives on earnings management that occurs via the use of loan loss provisions by using a sample of 204 bank-year observations over the period 2006-2011. Design/methodology/approach The authors use the data of 39 European banks to test the main hypothesis. Several valuation models and regressions are used to measure the main proxies for executives’ compensation and the determinant factors of loan loss provisions. Findings The empirical results reveal that earnings management that occurs via discretionary loan loss provisions is associated with equity incentives in the banking industry. In particular, European banks’ executives with high equity incentives are found to manage reported earnings upwards by reducing loan loss provisions. The results therefore show that income-increasing earnings management via discretionary loan loss provisions is widely practised by the executives of European banks and that this is partly motivated by executives’ compensation. Practical implications The findings of this paper present important implications for regulators in the European Union, who should take further steps to reform the regulatory environment to monitor and mitigate the earnings management practices that occur via the manipulation of loan loss provisions. Earnings management practices do not just negatively affect subsequent performance but are also found to lead to firms’ failure. Thus, regulators should take the necessary reforms to protect the wealth of stakeholders (investors, creditors, etc.). Originality/value This study provides the first evidence on the relationship between equity incentives and earnings management in the European banking industry. The study sheds more light on an issue of great interest to a broad audience that does not receive much attention in the prior research, thus opening new avenues for future research.

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