Competition, Capital Market Feedback, and Earnings Management: Evidence from Economic Deregulation

2013 ◽  
Author(s):  
Jongsub Lee ◽  
Xiaoding Liu
Keyword(s):  
Earnings Management ◽  
Capital Market ◽  
Market Feedback ◽  
Economic Deregulation

scholarly journals Reaksi Pasar atas Manajemen Laba

2019 ◽  
Vol 2 (1) ◽  
pp. 1
Author(s):  
Fery Friyo Handoko ◽  
Mu'minatus Sholichah
Keyword(s):  
Data Analysis ◽  
Earnings Management ◽  
Empirical Evidence ◽  
Capital Market ◽  
Abnormal Return ◽  
Accounting Information ◽  
Financial Statement ◽  
Agency Conflict ◽  
Manufacturing Company ◽  
Simple Regression

Abstract This research examine the capital market reaction on earnings management.  Agency conflict represented by information asymetry caused earnings management.  Managers have incentive to play accounting method and estimate to gain certain amount of earnings.  Hereafter, investor have interest regarding their invesment decision.  They rely on accounting information that represented in financial statement.Based on premise in Signalling Theory, we then hypothesized that investor would response any information addressed to them.Sample and population that used to test hypothesis taken from listed manufacturing company during 2015-2017.  We documenting data from financial statement items.  We obtain 40 manufacturing company that comply to purposive sampling requirement.  We use simple regression to do data analysis.  We found the empirical evidence that market reac the earnings management indication.  There is empirical fact that cummulative abnormal return decreas when determinate by discretionarry accruals.  This research conclude that market reacting the earnings management indication generally.

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.

Client Relationships, Analyst Coverage, and Earnings Management

2021 ◽  
Author(s):  
Zhi Jin ◽  
Bingxuan Lin ◽  
Chen-Miao Lin
Keyword(s):  
Earnings Management ◽  
Financial Markets ◽  
Capital Market ◽  
Mutual Fund ◽  
Conflicts Of Interest ◽  
Analyst Coverage ◽  
Client Relationships ◽  
Client Pressure ◽  
The Impact ◽  
A Company

Financial analysts have two important roles in the capital market. In addition to their informational role, which has been widely studied, they play an important monitoring role. Similar to their informational role, their monitoring role might be negatively affected when they face conflicts of interest. Using a sample of Chinese firms, we show that if analysts are under pressure (i.e., housed in a brokerage firm where specific mutual funds hold large positions in a company covered by the analyst), their role in lowering the firm earnings management activities is significantly compromised. We find that the closer the business relationship between the mutual fund and the brokerage firm, the greater the firm earnings management. Our findings caution investors and regulators to heed the impact of client pressure on analysts' roles in financial markets.

scholarly journals A New Approach about Earnings Management and Audit Companies: Empirical Evidences from Brazilian Capital Market

2015 ◽  
Vol 8 (4) ◽  
Author(s):  
Eduardo Flores ◽  
Joelson de Oliveira Sampaio ◽  
L. Nelson Carvalho ◽  
Fernando Chiqueto
Keyword(s):  
Earnings Management ◽  
Capital Market ◽  
New Approach

The Importance of Reporting Incentives: Earnings Management in European Private and Public Firms

2006 ◽  
Vol 81 (5) ◽  
pp. 983-1016 ◽  
Author(s):  
David C. Burgstahler ◽  
Luzi Hail ◽  
Christian Leuz
Keyword(s):  
Earnings Management ◽  
Capital Market ◽  
Institutional Factors ◽  
The European Union ◽  
Accounting Quality ◽  
Legal Form ◽  
Public Firms ◽  
Publicly Traded Companies ◽  
Reporting Incentives ◽  
Private And Public

This paper examines how capital market pressures and institutional factors shape firms' incentives to report earnings that reflect economic performance. To isolate the effects of reporting incentives, we exploit the fact that, within the European Union, privately held corporations face the same accounting standards as publicly traded companies because accounting regulation is based on legal form. We focus on the level of earnings management as one dimension of accounting quality that is particularly responsive to firms' reporting incentives. We document that private firms exhibit higher levels of earnings management and that strong legal systems are associated with less earnings management in private and public firms. We also provide evidence that private and public firms respond differentially to institutional factors, such as book-tax alignment, outside investor protection, and capital market structure. Moreover, legal institutions and capital market forces often appear to reinforce each other.

Auditor choice as a commitment device

2018 ◽  
Vol 16 (3) ◽  
pp. 374-394
Author(s):  
Akihiro Noda
Keyword(s):  
Earnings Management ◽  
Capital Market ◽  
Private Information ◽  
Information Acquisition ◽  
Design Methodology ◽  
Limited Attention ◽  
Content Type ◽  
Auditor Choice ◽  
Error Cost ◽  
Commitment Device

Purpose This study aims to examine how firms choose an auditor in the presence of bilateral information asymmetry between insiders and outsiders regarding firms’ economic performance. Design/methodology/approach This study presents a one-period reporting bias game with a firm’s risk-neutral manager and investors in the capital market, in which a manager with private information chooses an auditor and reports earnings to investors who acquire their own information. The analysis focuses on the possibility that the manager engages an auditor to constrain earnings management as a commitment device to minimize reporting error cost. Findings The results show that the manager’s optimal auditor choice is determined based on investor sensitivity to the earnings report, and managerial incentives for earnings management, discounted by the uncertainty of reporting errors. The results for optimal auditor choice are counterintuitive: engaging a higher-quality auditor could seemingly be associated with aggressive earnings management. Originality/value This study advances the understanding of the theoretical basis of firms’ auditor choice in the context of market investors’ information acquisition when auditors exercise their discretion in reporting. This issue has received limited attention in the extant literature.

scholarly journals The Islamic Capital Market Response to the Real Earnings Management

2017 ◽  
Vol 20 (1) ◽  
pp. 61
Author(s):  
Rita Yuliana ◽  
M Nizarul Alim
Keyword(s):  
Regression Analysis ◽  
Earnings Management ◽  
Prospect Theory ◽  
Capital Market ◽  
Stock Exchange ◽  
Real Earnings Management ◽  
Distribution Analysis ◽  
Earnings Distribution ◽  
Management Actions ◽  
The Status

This study aims to prove the effect of the company's status, i.e membership on the Islamic capital market and the status as suspect firm, as a determinant of real earnings management (REM). REM is conducted by abnormally increasing sales, increasing production and reducing discretionary costs in order to achieve a certain earnings target. This study uses Earnings Distribution Analysis (EDA) technique, which refers to the Prospect Theory (Kahneman & Tversky, 1979) to identify the suspect firms. Suspect firms are companies that have small positive earnings. The samples of this research are companies listed on the Indonesia Stock Exchange in 2011 and 2012. Based on the result of regression analysis, hypothesis testing results show that the suspect firms conduct real earnings management in all three types of activities more aggressively than the non-suspect firms. Furthermore, this study also showed empirical evidence that there are differences in real earnings management actions between companies listed in the Islamic capital market compared to conventional capital markets. Then, this study also showed that the Islamic capital market is more appropriate in response to the REM than the conventional capital market.

scholarly journals The Influence Of Public Equity Ownership On Earnings Management Through The Manipulation Of Operational Activities

2014 ◽  
Vol 30 (6) ◽  
pp. 1847
Author(s):  
Yura Kim
Keyword(s):  
Earnings Management ◽  
Capital Market ◽  
Public Debt ◽  
Private Equity ◽  
Real Earnings Management ◽  
Operational Activities ◽  
Public Equity ◽  
Reported Earnings ◽  
The Impact ◽  
Market Pressure

This paper examines whether public equity firms and private equity firms with public debt exhibit different degrees of real earnings management, defined as the manipulation of operational activities in order to influence reported earnings. Public equity firms face intense capital market scrutiny that their private equity counterparts do not. Therefore, this studys comparison of the two types of firms provides insight on the impact of capital market pressure on real earnings management behaviors. My results show that public equity firms are more likely than private equity firms to opportunistically alter normal operations to improve earnings by pushing sales through discounts and promotions, and by lowering costs of sales through overproduction. I find no difference in abnormal discretionary expenses between public equity and private equity firms. Although private equity firms with public debt do not face the same capital market pressure that public equity firms face, they are not immune from incentives to engage in real earnings management. Specifically, I find that private equity firms with public debt engage in real earnings management as their debt moves closer to default. Moreover, private equity firms with public debt that do engage in real earnings management appear to emphasize the zero earnings benchmark, consistent with prior research, suggesting that this benchmark is of primary importance to creditors.

Sign in / Sign up

Export Citation Format

Share Document