scholarly journals The Influence of Executive Compensation Gap on Earnings Management from the Perspective of Media Supervision: Evidence from China

2021 ◽  
Vol 2021 ◽  
pp. 1-10
Author(s):  
Ye Wang ◽  
Fusheng Wang ◽  
Shiyu Liu
Keyword(s):  
High Pressure ◽  
Earnings Management ◽  
Executive Compensation ◽  
Financial Indicators ◽  
Management Behavior ◽  
Media Attention ◽  
Current Period ◽  
Media Supervision ◽  
Compensation Gap ◽  
Accrued Earnings

To pursue higher compensation, the agent’s earnings management behavior may damage the principal’s interests. Can managers whose compensation reaches the expected level seek benefits for the company through earnings management? This study takes China’s A-share listed companies from 2014 to 2018 as samples. The conclusions show that managers with higher compensation levels will carry out earnings management in favor of the company while taking their own interests into consideration. For companies with stronger profitability, the higher the managers’ compensation is, the more they are inclined to reduce accrued earnings in the current period to further reduce taxes and fees. For companies with weaker profitability, managers with higher compensation tend to choose to increase real earnings to further optimize financial indicators. It has been found through further research that high pressure generated by media attention can make well-paid executives restrain the above earnings management behavior, which serves as an effective method to protect investors’ rights and interests.

The practice of using earnings management methods under tax incentives absence and financial incentives restriction conditions

2021 ◽  
Vol 22 (8) ◽  
pp. 868-886
Author(s):  
Lyudmila S. MAKHAN'KO
Keyword(s):  
Earnings Management ◽  
Financial Incentives ◽  
Tax Incentives ◽  
Tax Burden ◽  
External Financing ◽  
Financial Indicators ◽  
Unique Character ◽  
Dividend Payments ◽  
Limited Application ◽  
General Scientific

Subject. This article analyzes the regularities of the processes of application of earnings management methods in the absence of tax incentives and in conditions of limited use of financial incentives. Objectives. The article aims to identify trends in the use of earnings management methods in the absence of tax incentives and in conditions of limited application of financial ones, and substantiate a set of analytical procedures for their identification to enhance the reliability of the organization's financial situation assessment. Methods. For the study, reviewing academic papers on the subject matter, I used the general scientific cognition methods of comparison, generalization, grouping, systematization, and the principle of historicism. Results. The article defines the most important financial incentives, including the tax ones, when earnings management is aimed at reducing or redistributing the tax burden, and financial incentives in terms of positioning in the stock market and adjusting dividend payments. The article finds the regularities of changes in individual financial indicators helping identify enterprises that likely use earnings management methods in terms of accounting for exchange rate differences. Conclusions and Relevance. The research shows that the probability of applying earnings management methods remains in the absence of discernible financial benefits in the short term in terms of reducing the tax burden or the possibility of attracting additional external financing in the financial markets. The unique character of the research lies in the study of the practice of applying earnings management methods in the absence of apparent financial incentives.

Nonprofit expense management and the zero-profit threshold

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Stephanie Monteiro Miller
Keyword(s):  
Earnings Management ◽  
Design Methodology ◽  
Social Implications ◽  
Profit Motive ◽  
Management Behavior ◽  
Content Type ◽  
Nonprofit Firms

Purpose In a wide variety of settings, individuals target round-numbered thresholds, relaxing effort when they are out of reach. This paper aims to investigate whether this phenomenon occurs in nonprofits as well. Design/methodology/approach The paper empirically examines nonprofits’ propensity to cut expenses relative to the attainability of the zero-profit threshold. Findings This paper finds nonprofit firms are more likely to cut expenses when faced with small expected losses than with larger losses, and this pattern varies predictably with incentives to reach the zero-profit threshold. Research limitations/implications This suggests managers are motivated by desire to reach the zero-profit threshold rather than to improve firms’ economic situations, as the propensity to cut expenses is lower when the threshold is out of reach. Social implications Additionally, the results suggest that even the lack of explicit profit motive may not quell earnings management behavior. Originality/value These results begin to close the gap in our understanding of expense management in nonprofit firms, showing how operating expenses can be used to manage earnings.

Earnings management when firms face mandatory contributions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yiyi Qin ◽  
Jun Cai ◽  
Steven Wei
Keyword(s):  
Earnings Management ◽  
Negative Impact ◽  
Investment Strategy ◽  
Fiscal Year ◽  
Management Behavior ◽  
Indicator Variable ◽  
Stock Market Returns ◽  
Content Type ◽  
Early Results ◽  
Reported Earnings

PurposeIn this paper, we aim to answer two questions. First, whether firms manipulate reported earnings via pension assumptions when facing mandatory contributions. Second, whether firms alter their earnings management behavior when the Financial Accounting Standard Board (FASB) mandates disclosure of pension asset composition and a description of investment strategy under SFAS 132R.Design/methodology/approachOur basic approach is to run linear regressions of firm-year assumed returns on the log of pension sensitivity measures, controlling for current and lagged actual returns from pension assets, fiscal year dummies and industry dummies. The larger the pension sensitivity ratios, the stronger the effects from inflated ERRs on reported earnings. We confirm the early results that the regression slopes are positive and highly significant. We construct an indicator variable DMC to capture the mandatory contributions firms face and another indicator variable D132R to capture the effect of SFAS 132R. DMC takes the value of one for fiscal years during which an acquisition takes place and zero otherwise. D132R takes the value of one for fiscal years after December 15, 2003 and zero otherwise.FindingsOur sample covers the period from June 1992 to December 2017. Our key results are as follows. The estimated coefficient (t-statistic) on DMC is 0.308 (6.87). Firms facing mandatory contributions tend to set ERRs at an average 0.308% higher. The estimated coefficient (t-statistic) on D132R is −2.190 (−13.70). The new disclosure requirement under SFAS 132R constrains all firms to set ERRs at an average 2.190% lower. The estimate (t-statistic) on the interactive term DMA×D132R is −0.237 (−3.29). When mandatory contributions happen during the post-SFAS 132R period, firms tend to set ERRs at 0.237% lower than they would do otherwise in the pre-SFAS 132R period.Originality/valueWhen firms face mandatory contributions, typically firm experience negative stock market returns. We examine whether managers manage earnings to mitigate such negative impact. We find that firms inflate assumed returns on pension assets to boost their reported earnings when facing mandatory contributions. We also find that managers alter earnings management behavior, in the case of mandatory contributions, following the introduction of new pension disclosure standards under SFAS 132R that become effective on December 15, 2003. Under the new SFAS 132R requirement, firms need to disclose asset allocation and describe investment strategies. This imposes restrictions on managers' discretion in making ERR assumptions, since now the composition of pension assets is a key determinant of the assumed expected rate of return on pension assets. Firms need to justify their ERRs with their asset allocations.

scholarly journals ANALISA PERILAKU MANAJEMEN TERHADAP PENERAPAN KOMPENSASI PROGRAM OPSI SAHAM EKSEKUTIF

2017 ◽  
Vol 11 (1) ◽  
pp. 19
Author(s):  
Nur Fadjrih Asyik
Keyword(s):  
Earnings Management ◽  
Stock Price ◽  
Compensation Effect ◽  
Phase 1 ◽  
Stock Option ◽  
Management Behavior ◽  
Phase 3 ◽  
Accounting Research ◽  
Earnings Information ◽  
The Difference

The purpose of this study is to investigate whether management who offer stock-based compensation which relatively big proportion to manage earnings information prior to grant date. While, this study also investigate the difference behavior of every step stock option offering. This paper contributes to that stream of accounting research by identifying several factors to manage earnings. The study finds that executives have ability to manage information around option grant date to find benefit stock price decreases before the grant date. Its show that the greater of stock option which granted to employee the more motive to manage decreasing earnings management prior to the grant date. The results are consistent with previous researchs that managers in the firms that offering the greater of stock option have the larger motivation to manage decreasing earnings so that can pay the stock option at the price of cheap (Chauvin & Shenoy, 2000; Baker et al., 2002; Balsam et al., 2003). While, based steps of stock option offering, the results of analysis show that there are the difference of influence of offer of the stock option on earnings management behavior at phase 1 and 2, while phase 3 do not differ from phase 1. The general conclusion is that magnitude of ESOP compensation effect earnings management behavior with supported by several conditional factors.

scholarly journals Effects Of Key Financial Indicators On Earnings Management In Korea’s Ready Mixed Concrete Industry

2017 ◽  
Vol 33 (2) ◽  
pp. 329-342 ◽  
Author(s):  
Geun Bae Jang ◽  
Weon-Jae Kim
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Accounting Information ◽  
Cash Flows ◽  
Financial Indicators ◽  
Ability Level ◽  
Operating Income ◽  
The Relationship ◽  
Ready Mixed Concrete ◽  
Mixed Concrete

Earnings management is the practice of deriving certain benefits by intervening in external financial reporting or misleading certain stakeholders through adjustments to accruals without cash flow involvement or with affecting cash flows through real activities. Using the models of Kothari et al. (2005) and Cohen et al. (2008) for accrual-based earnings management (AEM) and real activities earnings management (REM), respectively, we examined whether relationships exist between key financial indicators, such as cash flows from operations, operating income, and debt dependency level, and AEM and REM in the ready mixed concrete (RMC) industry in Korea. This study is the first to investigate earnings management in Korea’s RMC sector. Results showed that operating income and cash flows from operations are significantly negatively related to AEM and REM, consistent with the findings of previous research. By contrast, debt dependency exhibits no significant relationship with AEM and REM, contradicting the findings of most previous studies. As a moderating variable, operating income affects the relationship between cash flows from operations and earnings management with only REM. On these bases, we can infer that earnings management in the Korean RMC industry responds differently to key financial indicators with regards to AEM and REM practice. Overall, companies in the industry implement aggressive earnings management depending on operating income and cash generation ability level rather than debt dependency level. These findings provide important insights for people who are interested in accounting information on the RMC industry in Korea.

scholarly journals Relationship between Ownership Structures and Earnings Management Behavior in Vietnamese Commercial Banks

2020 ◽  
Vol 7 (9) ◽  
pp. 401-407
Author(s):  
Thinh Quoc TRAN ◽  
◽  
Anh Hoang LY ◽  
Dung Khanh Ngoc NGUYEN
Keyword(s):  
Earnings Management ◽  
Commercial Banks ◽  
Management Behavior ◽  
Ownership Structures

Fair Value Exposure, Auditor Specialization, and Banks’ Discretionary Use of the Loan Loss Provision

2017 ◽  
Vol 35 (2) ◽  
pp. 318-348 ◽  
Author(s):  
Brian Bratten ◽  
Monika Causholli ◽  
Linda A. Myers
Keyword(s):  
Earnings Management ◽  
Banking Industry ◽  
Fair Value ◽  
Loan Loss ◽  
Management Behavior ◽  
Management Tools ◽  
Loan Loss Provision ◽  
Value Reporting ◽  
Auditor Specialization ◽  
Industry Specialist

In this study, we examine whether banks’ use of the loan loss provision (LLP) to manage earnings is associated with (a) the extent to which banks hold assets subject to fair value reporting and (b) the use of an industry specialist auditor. We find that banks with a greater proportion of assets subject to fair value reporting (i.e., higher fair value exposure) use less LLP-based earnings management but more transaction-based earnings management (i.e., earnings management achieved by timing the realization of gains/losses). We also find that banks engaging industry specialist auditors use less LLP-based earnings management. Our findings suggest that banks’ use of the LLP to manage earnings is more limited when they have access to alternative earnings management tools and when they engage an auditor with more industry knowledge. Our results should be informative to regulators, members of the banking industry, and academics interested in the earnings management behavior of banks.

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