scholarly journals INVESTOR SENTIMENT AND EARNINGS MANAGEMENT: DOES ANALYSTS’ MONITORING MATTER?

2018 ◽  
Vol 19 (4) ◽  
Author(s):  
KLÉBER F. MIRANDA ◽  
MÁRCIO A. V. MACHADO ◽  
LUCIANA A. F. MACEDO
Keyword(s):  
Earnings Management ◽  
Fixed Effects ◽  
Management Practices ◽  
Earnings Quality ◽  
Investor Sentiment ◽  
Mediating Role ◽  
Market Participants ◽  
Initial Expectation ◽  
Reported Earnings

ABSTRACT Purpose: Under the assumption that managers have incentives to practice earnings management in optimistic moments, this paper aims to analyze whether analysts’ monitoring affects the relation between the discretionary accumulations (accruals) and investor sentiment in the Brazilian capital market. Originality/value: The mediating role of analysts in the relation between investor sentiment and earnings management was not identified in the literature establishing an important gap to be investigated, given the relevance of the reported earnings for the decision-making process of market participants. Design/methodology/approach: Fixed effects regressions (industry and quarter) were estimated from 2010 to 2016, using all data and the subsetting sample according to whether or not companies were monitored by analysts. Findings: The results showed a reduction of earnings management after optimistic moments, which differs from the initial expectation and such behavior is attributed to the presence of analysts following companies. The results were robust to alternative proxies for earnings management and investor sentiment. Analysts have an influence on accounting earnings supporting the best disclosure, so inhibiting the practice of earnings management in optimistic moments. Therefore, although previous studies suggest that earnings management practices increase during optimistic moments, market participants may consider, even in such moments, a better earnings quality when firms are monitored by analysts.

scholarly journals Surplus Free Cash Flow, Stock Market Segmentations and Earnings Management: The Moderating Role of Independent Audit Committee

2020 ◽  
pp. 097215092093406
Author(s):  
Ahmad A. Toumeh ◽  
Sofri Yahya ◽  
Azlan Amran
Keyword(s):  
Stock Market ◽  
Earnings Management ◽  
Cash Flow ◽  
Audit Committee ◽  
Management Practices ◽  
Free Cash Flow ◽  
The Body ◽  
Moderating Role ◽  
Independent Audit

Management engages in earnings manipulation for different reasons. This article argues that low-growth firms with high free cash flow will opt for income-increasing earnings management in order to obscure the low profits derived from their investments in negative net present value (NPV) projects. On the other hand, we argue that the listed companies might be interested in being listed in the first market due to its privileges and to preserve the competitiveness, through managing their earnings upwardly, so that they can satisfy the condition of achieving a particular earnings limit. This article should advance the body of earnings management literature in the Jordanian context by examining the effect of the moderating role of an independent audit committee (IAC) in the association between surplus free cash flow (SFCF) and income-increasing discretionary accruals (DAC). Further, this is the initial empirical attempt to investigate the moderation effect of IAC between stock market segmentations (SMS) and positive DAC. The results of this current study offer original and beneficial information for the Jordanian government and other countries with a similar institutional environment because the study promotes the application of applying IAC as an efficient tool to constrain management behaviour towards manipulation of the accruals. On top of that, this research offers information concerning the prevailing situation of earnings management practices and corporate governance in Jordan, in which shareholders, local and international investors, policymakers, regulators and academic researchers are interested. Finally, panel data analyses and various statistical techniques are employed to derive conclusions.

The role of state ownership on earnings quality: evidence across public and private European firms

2018 ◽  
Vol 19 (2) ◽  
pp. 312-332 ◽  
Author(s):  
Cristina Gaio ◽  
Inês Pinto
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Capital Markets ◽  
Capital Market ◽  
Earnings Quality ◽  
State Ownership ◽  
Public And Private ◽  
Content Type ◽  
Large Sample

Purpose The purpose of this paper is to examine the role of state ownership on financial reporting quality regarding the characteristics of conservatism and earnings management. Design/methodology/approach Using a large sample of public and private European firms during the period 2003-2010, the authors test the hypotheses following Ball and Shivakumar’s (2005) model for conservatism and the modified Jones (1991) model proposed by Dechow and Sloan (1995) for earnings management. To ensure that the results are robust, the authors conduct sensitivity analysis with regard to potential endogeneity and selection bias. Findings The authors find that state-owned firms are less conservative than non-state-owned firms, which is consistent with the idea that there is less need for accounting conservatism due to government protection. The authors also show that capital markets play an important role in shaping the relation between state ownership and earnings management. Among public firms, the authors find that state-owned firms have higher abnormal accruals and worse accruals quality than non-state-owned firms, which suggests that state-owned firms are not immune to capital market pressures. Research limitations/implications The study has two limitations. First, as state-owned and non-state-owned firms face quite different incentive structures, management behavior might be determined by factors that have yet to be identified. Second, prior research results suggest an inverted U-shape relation between ownership concentration and earnings management (Ding et al., 2007). It would be interesting to investigate the impact of different levels of state ownership on earnings quality. Practical implications As the paper investigates the role of state ownership on earnings quality using a sample of European firms, it brings new insights regarding the role of state ownership in accounting quality and firm performance. In addition, it considers the role of capital markets in the relation between the quality of financial reporting and ownership by considering a sample with both public and private firms. Originality/value The study contributes to the debate about state intervention in the corporate sector, by extending the knowledge of the effects of government ownership on earnings quality by using a large sample of European firms. Furthermore, the authors also introduce the effect of capital market forces on managers’ behavior in state-owned and non-state-owned companies by analyzing private and publicly listed firms.

scholarly journals A comparison of ethical perceptions of earnings-management practices

2011 ◽  
Vol 14 (4) ◽  
pp. 422-435 ◽  
Author(s):  
Leonie Jooste
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Earnings Quality ◽  
Harvard Business Review ◽  
Business Managers ◽  
Short Term ◽  
Nelson Mandela ◽  
Sarbanes Oxley ◽  
The Usa ◽  
Accounting Practitioners

In 1990, Bruns and Merchant (1990) surveyed earnings-management practices and asked the readership of the Harvard Business Review to rate the acceptability of those practices. Prior to the Bruns and Merchant (1990) study, the morality of short-term earnings-management was of little concern to researchers and accounting practitioners. However, in the light of increased financial frauds and failures, new and increased emphasis has been placed on the importance of the concepts of earnings quality and earnings-management practices.Despite increased research focusing on business ethics since 1990, there is little evidence that the profession is educating accountants about earnings-management practices. This study compares the results of studies on earnings-management practices. Students and business managers were surveyed at the Nelson Mandela Metropolitan University (NMMU) and these results were compared to studies prior to the Sarbanes-Oxley Act 2002 in the USA. The aim of the study is to determine if there have been changes in attitudes towards earnings-management practices since the acceptance of the Sarbanes-Oxley Act.

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