The Influence of Corporate Governance in Chinese Companies on Discretionary Accruals and Real Earnings Management

This study investigates whether short-term debt is related to earnings management. Short-term debt is divided into total current liabilities, debt in current liabilities and short-term borrowings. In addition, this study examines how short-term debt is related to how firms manage their earnings. I use discretionary accruals and real operating decisions as the earnings management method. The study finds that debt in current liabilities only has a statistically significant impact on accrual earnings management, and short-term borrowings are only shown to have a statistically significant impact on real earnings management. These results indicate that managers engage in accrual earnings management of debt included in current liabilities and use real earnings management of short-term borrowings from financial institutions.Therefore, this evidence indicates that managers engage in accrual earnings management of debt in included current liabilities when they face the liquidity risk of short-term debt, and the firms with debt financing constraints are likely to manage real earnings in spite of enhanced firm monitoring by lenders such as financial institutions. The findings in this study may have implications in the debate about the monitoring function of financial institutions such as banks.

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Political and financial background in board interlocking and earnings management in Brazil

RAUSP Management Journal ◽

10.1108/rausp-10-2020-0245 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Cristian Baú Dal Magro ◽

Roberto Carlos Klann

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Financial Reporting ◽

Management Practices ◽

Accounting Information ◽

Real Earnings Management ◽

The Political ◽

Content Type ◽

Quality Of Accounting Information

Purpose Although board interlocking underlying forces are largely hidden, the purpose of this paper is to provide managers, auditors, analysts, regulators and other stakeholders with sociological board interlocking information considering the different backgrounds of their members. Design/methodology/approach The research sample gathered 1,606 observations from 2010 to 2017. For data analysis, the direct and indirect board interlocking linkages, considering the different backgrounds of board members, established the centrality indicators. Subsequently, the authors used these indicators according to each measured background in the regression models. Findings The results indicate that the political background of board interlocking members is positively related to real earnings management practices, while the financial background has a mitigating effect on such practices. Research limitations/implications The findings suggest that individual skills and interests conveyed across the corporate social network have shaped corporate governance, with distinct impacts on the quality of accounting information. Practical implications The authors conclude that both backgrounds could have implications on agency conflicts, increasing (policy) or reducing (financial) information asymmetry between the company and its various stakeholders, which indicates that the authors must consider sociological and not just economic aspects within corporate governance. Social implications The sociological background of individuals is necessary for the congruence of monitoring mechanisms, and consequently, the quality of accounting information. Originality/value This study examines the influence of the political and financial background of board interlocking members on real earnings management practices in Brazilian publicly traded companies in the International Financial Reporting Standards post-adoption period.

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The effect of financial distress and earnings management on tax aggressiveness with corporate governance as the moderating variable

International Journal of Research in Business and Social Science (2147-4478) ◽

10.20525/ijrbs.v9i7.965 ◽

2020 ◽

Vol 9 (7) ◽

pp. 167-176

Author(s):

Ratih Pujirahayu Nugroho ◽

Sutrisno T Sutrisno ◽

Endang Mardiati

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Financial Distress ◽

Stock Exchange ◽

Real Earnings Management ◽

Audit Committees ◽

Manufacturing Companies ◽

Sample Collection ◽

Financial Reports ◽

Tax Aggressiveness

This study aims to verify the correlation between financial distress and earnings management of tax aggressiveness moderated by corporate governance. This study uses a population of manufacturing companies that publish their financial statement on the Indonesia Stock Exchange from 2017 until 2018. Sample collection was performed using a purposive sampling method, resulting in a total of 212 populations that published complete financial reports. This study was tested by using the Multiple Regression Analysis test. This research gave empirical proofs that financial distress and real earnings management positively influenced the tax aggressiveness was supported, the proportion of independent commissioners weakened the financial distress and negatively impacted the tax aggressiveness was supported, the total audit committees weakened the financial distress and negatively influenced the tax aggressiveness was not supported, the proportion of independent commissioners and total audit committees weakened the real earnings management and negatively affected the tax aggressiveness was not supported

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CORPORATE GOVERNANCE DAN MANAJEMEN LABA RIIL PERBANKAN ISLAM INDONESIA DAN MALAYSIA

JMM UNRAM - MASTER OF MANAGEMENT JOURNAL ◽

10.29303/jmm.v7i4.344 ◽

2018 ◽

Vol 7 (4) ◽

Author(s):

M. Zubaedy Sy ◽

Nuryati Nuryati ◽

Surifah Surifah

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Audit Committee ◽

Stock Exchange ◽

Cash Flows ◽

Profit Sharing ◽

Least Square ◽

Real Earnings Management ◽

Annual Reports ◽

Islamic Banks

The main objective of this research is to create good corporate governance that is able to restrictopportunistic REM. The specific objectives of this study are 1) to provide evidence of difference inthe practices of CG and REM in Indonesian and Malaysian Islamic banks,and 2) to provide empirical evidence of the influence of CG on the REM of Indonesian and Malaysian Islamic banks. The study was conducted on Indonesian and Malaysian Islamic banks from 2011 to 2016by using purposive samplingmethod. The research data is secondary data in the form of annual reports and financial reports originating from the Indonesian Banking Directory, the Indonesia Stock Exchange and the Malaysia Stock Exchange. The analysis method used to test the differences between CG and real earnings management is the Man Whitney test whilethe method used to test the effect of CG on the REM of Islamic Banks in Indonesia and Malaysia is the multiple regression analysiswithordinary least square. The results show that the practices of corporate governance in Indonesia and Malaysia have their own strengths and weaknesses. CG mechanism of Indonesia and Malaysia shows lower level in some parts and higher level in other parts. Malaysia’s REM islower than Indonesia’sREM through operating cash flow, investment profit sharing, and discretionary costs. The experimental results show that CG generally does not affect real earnings management and only the independent audit committee who is able to restrictreal earnings management through operating cash flows. Riset ini menguji hubungan antara corporate governance (CG) dan manajemen laba berdasar aktivitas riil atau disebut real earnings management (REM) bank-bank Islam di Indonesia dan Malaysia. Tujuan jangka panjang riset ini adalah terciptanya good corporate governace yang mampu membatasi REM oportunistik. Target khusus penelitian ini adalah 1) memberi bukti empiris perbedaan praktik CG dan REM bank Islam Indonesia dan Malaysia. 2) memberi bukti empiris pengaruh CG terhadap REM bank Islam Indonesia dan Malaysia. Metode penelitian menggunakan metode ilmiah - kuantitatif, dengan membangun satu atau lebih hipotesis berdasarkan pada suatu struktur atau kerangka teori dan kemudian menguji hipotesis-hipotesis tersebut secara empiris. Penelitian dilakukan pada bank Islam Indonesia dan Malaysia periode waktu 2011 sampai 2016. Metode pengambilan sampel secara purposive sampling. Data penelitian merupakan data sekunder berupa annual report dan laporan keuangan yang berasal dari Directory Perbankan Indonesia, Bursa Efek Indonesia dan Bursa Efek Malaysia. Teknik analisis untuk menguji perbedaan CG dan manajemen laba riil adalah uji beda Man Whitney, sedangkan untuk menguji pengaruh CG terhadap REM Bank Islam Indonesia dan Malaysia menggunakan analisis regresi berganda ordinary least square. Hasil menunjukkan bahwa praktik corporate governance Negara Indonesia dan Malaysia, masing masing memiliki kelebihan dan kelemahan. Mekanisme CG ada yang lebih rendah, maupun lebih tinggi antara Negara Indonesia dengan Malaysia. REM Malaysia lebih rendah signifikan dari pada Indonesia, baik melalui arus kas operasi, bagi hasil investasi, maupun biaya diskresioner. Hasil uji menunjukkan bahwa pada umumnya mekanisme CG tidak berpengaruh terhadap manajemen laba riil. Hanya Independensi komite audit yang mampu menekan manajemen laba riil melalui arus kas operasi.Keywords:Corporate governance, real earnings management, Islamic banking.

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The impact of ownership type on the relationship between corporate governance and earnings management: An empirical study

Corporate Ownership and Control ◽

10.22495/cocv16i4art3 ◽

2019 ◽

Vol 16 (4) ◽

pp. 31-44

Author(s):

Ahmed Boghdady

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Cash Flows ◽

Real Earnings Management ◽

Ownership Type ◽

Moderation Effect ◽

Corporate Governance Mechanisms ◽

The Impact ◽

The Relationship ◽

Privately Owned

This study investigates the effect of ownership type on the relation between corporate governance and earnings management. While previous literature has mainly examined the relationship between corporate governance and both accrual and real earnings management, no study to date, to the researcher’s best knowledge, focused on the moderation effect of ownership type on this relationship. Three proxies for measuring accrual and real earnings management, namely discretionary accruals (DA), abnormal cash flows (ACFO), and abnormal discretionary expenses (ADISX) are employed. Three empirical models (i.e. DA, ACFO, and ADISX) are developed in which the earnings management proxies represent the dependent variables and are tested using a sample of non-financial companies containing state-owned and privately owned companies over the period from 2010 to 2017, with 1030 firm-year observations. The results show a positive relationship between ownership type and both accruals manipulation and sales manipulation. In general, the results suggest that the ownership type moderates the relationship between corporate governance and earnings management. The results suggest also that corporate governance mechanisms may not play an almost the same role in monitoring and mitigating real earnings management (REM) practices as they do for accrual earnings management (AEM) in Egypt. Moreover, no evidence is found supportive of the trade-off effect which means that managers in Egyptian firms use both types of earnings management jointly to reach the target levels of earnings

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The Effect of Board of Director Composition and Audit Committee Expertise on The Real Earnings Management in Indonesia

Muhammadiyah Riau Accounting and Business Journal ◽

10.37859/mrabj.v2i1.2102 ◽

2020 ◽

Vol 2 (1) ◽

pp. 110-117

Author(s):

Feby Astrid Kesaulya ◽

Weny Putri ◽

Dewi Sri

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Audit Committee ◽

Good Governance ◽

Real Earnings Management ◽

The Real ◽

Board Of Director ◽

Good Corporate Governance ◽

Board Director ◽

Real Activities Manipulation

The Objective of this research was to prove that the implementation of good corporate governance will have an effect on the real activities manipulation which was done by the management. The implementations of good governance used by this research are board of director composition and audit committee expertise. This research was conducted in Indonesia by using 306 firm years’ observations. The result of this research showed a different result from previous researches. This research showed that the implementation of good corporate governance in the form of board director composition and audit committee expertise do not impact the practice of real activities manipulation. Or, in other words some of the good corporate governance tool could not mitigate the real activities manipulation in the company.

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Does corporate governance influence earnings management in listed companies in Bahrain Bourse?

Journal of Asia Business Studies ◽

10.1108/jabs-06-2017-0082 ◽

2018 ◽

Vol 12 (4) ◽

pp. 551-570 ◽

Cited By ~ 4

Author(s):

Bahaaeddin Alareeni

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Design Methodology ◽

Empirical Support ◽

Asian Country ◽

Listed Companies ◽

Discretionary Accruals ◽

Board Independence ◽

Content Type ◽

Practical Implications

PurposeThis paper aims to consider data for listed companies in Bahrain Bourse to determine whether companies practice earnings management (EM). Further, the effect of a set of corporate governance characteristics on EM practices is examined.Design/methodology/approachThe EM level was measured using discretionary accruals (DA) [calculated using the Modified Jones (1995) Model]. The study sample consisted of 20 companies listed during the period 2011-2015. Panel regression model was used to test the study hypotheses and achieve the study aims.FindingsEM is negatively correlated with board size, confirming that a larger board is associated with a lower level of EM practices. Further, board independence is positively correlated with EM, suggesting that the larger the number of independent directors, the higher the level of EM practices. In addition, internal ownership is positively related to EM, confirming that the higher level of internal ownership increases EM practices. CEO duality does not appear to have any effect on EM in Bahrain Bourse. More interestingly, the findings reveal that companies practice EM through income-increasing DA.Research limitations/implicationsFinancial data and data related to other corporate governance characteristics are lacking.Practical implicationsThe results of this study provide empirical support for the development of new regulations and amendments and necessary corrective decisions regarding the effectiveness of applying corporate governance code in Bahrain Bourse. More specifically, this study reveals an urgent need for new amendments to restrict EM practices in Bahrain Bourse.Originality/valueThis study enriches the EM literature by covering Bahrain as an Asian country, which has not been sufficiently examined in relation to this topic. Further, this study provides a clear picture of the level of EM practices in Bahrain Bourse to multiple parties.

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Business cycles and earnings management strategies: a study in Brazilian public firms,

Revista Contabilidade & Finanças ◽

10.1590/1808-057x201806870 ◽

2019 ◽

Vol 30 (80) ◽

pp. 216-233 ◽

Cited By ~ 1

Author(s):

Edilson Paulo ◽

Renato Henrique Gurgel Mota

Keyword(s):

Business Cycles ◽

Business Cycle ◽

Earnings Management ◽

Management Strategies ◽

Accounting Information ◽

Discretionary Accruals ◽

Real Earnings Management ◽

Economic Environment ◽

Opportunistic Behavior ◽

The Business Cycle

ABSTRACT This study contributes to the literature dealing with the influence of macroeconomic factors on accounting information quality, since it analyzes the earnings management strategies of firms, specifically identifying different discretionary behaviors among economic cycles: 1) different levels of earnings management through accruals between phases of the business cycle, and 2) the trade-off between earnings management through accruals and real earnings management. The results indicate that the accounting information reported should be analyzed with greater caution by its users, especially in periods of great economic oscillations, when managers can increase or reduce opportunistic behavior. The research population comprised non-financial companies with shares traded on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBovespa) and the sample was composed of 247 firms per year, covering the period from 2000 to 2015 and totaling 2,501 observations. The phases of business cycles were used as a proxy for the economic environment and were based on Schumpeter's (1939) study, which divides an business cycle into four distinct phases: expansion, recession, contraction, and recovery. Discretionary accruals were estimated according to the Pae (2005) and Paulo (2007) models. Real earnings management was estimated as described by Roychowdhury (2006), using only the abnormal behavior of production costs and operational decisions. The results of this research show that earnings management strategies, using either accruals or real manipulation, as well as the choice between these strategies, are impacted by the economic environment. The evidence suggests that managers have different opportunistic behavior in each phase of the business cycle. Specifically, they increase the level of discretionary accruals in contractionary phases and reduce it during recoveries, while they manage earnings downwards via real manipulation in recessions and contractions.

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Audit committee effectiveness, audit quality and earnings management: a meta-analysis

International Journal of Law and Management ◽

10.1108/ijlma-01-2015-0006 ◽

2016 ◽

Vol 58 (2) ◽

pp. 179-196 ◽

Cited By ~ 20

Author(s):

Zgarni Inaam ◽

Halioui Khamoussi

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Audit Committee ◽

Audit Quality ◽

Good Governance ◽

Meta Analysis ◽

Negative Relationship ◽

Real Earnings Management ◽

Institutional Setting ◽

Content Type

Purpose – Many researchers, in several contexts, have investigated the influence of audit committee effectiveness and audit quality variables on reducing the extent of earnings management, and empirical evidence is rather inconsistent. Design/methodology/approach – The aim of this paper is to meta-analyze the results of 58 prior studies that examined whether differences in results are related to moderating effects associated with corporate governance mechanisms or measures of earnings management. Findings – The findings show that the meta-analysis identifies many significant relationships. The independence of the audit committee, its size, expertise and the number of meetings have a negative relationship with earnings management. Similar negative relationships exist between auditor size, specialization and earnings management. Research limitations/implications – This study contributes to the corporate governance literature. Further, recognizing the function of an audit committee and audit quality shows the value of considering an institutional setting in governance research. This study is significant to academic and practitioner literatures, policy makers and professional accounting bodies as it shows that governance reforms promote companies to adopt good governance practices. The results also give useful information to investors in examining the effect of audit committee characteristics and audit quality on earnings quality. Originality/value – This study extends existing research on audit committee and audit quality to oversee both accrual and real earnings management using meta-analysis. Thus, this study has the potential to help stakeholders, board of directors, regulators and auditors, who are related with enhancing the supervision of firms and reducing the opportunities given to managers, to engage in earnings management.

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