scholarly journals The role of earnings management in the relationship between accruals and market value

2018 ◽  
Vol 15 (1) ◽  
pp. 236-244
Author(s):  
Nasim Aryannejad ◽  
Mohammadhossein Ghaemi ◽  
Keyhan Maham
Keyword(s):  
Earnings Management ◽  
Stock Exchange ◽  
Statistical Tests ◽  
Market Value ◽  
Discretionary Accruals ◽  
Expected Return ◽  
Cross Sectional ◽  
Selective Approach ◽  
The Relationship

The paper aims to clarify the role of earnings management in the relationship between accruals and the market value of companies. Previous studies suggest that some managers, for providing a desirable image of their performance, manage their profits through distorting cash or accruals. Consequently, investors rely on this information and estimate inaccurate stability of accruals which lead to mispricing phenomenon. Finally, the returns earned by the investors will not be equal to the expected return and thus the accrual anomaly will be created.To this aim, two hypotheses were developed and three regression models were applied to analyze the data. To analyze and estimate the models employed, the financial information of 110 companies listed on the stock exchange between years 2008 to 2014 is used. A selective approach to test the hypotheses is studying cross-sectional data.After conducting statistical tests, the results showed that discretionary accruals through which earnings management is done are improperly valued by the market, but the issue is not applicable regarding the non-discretionary accruals. Based on the close relationship between earnings management and discretionary accruals it can be found that earnings management can have an effect on the relationship between accruals and market value.

scholarly journals The Relationship Between Accrual-Based Earnings Management and Real Earnings Management: Reference to the Polish Capital Market

2020 ◽  
Vol 20 (2) ◽  
pp. 66-81
Author(s):  
Michał Comporek
Keyword(s):  
Earnings Management ◽  
Empirical Research ◽  
Capital Market ◽  
Stock Exchange ◽  
Negative Relationship ◽  
Discretionary Accruals ◽  
Research Area ◽  
Real Earnings Management ◽  
Cross Sectional ◽  
The Relationship

Abstract Research background: The literature on the subject matter emphasizes the lack of empirical research on the relationships between accrual-based earnings management (AEM) and real earnings management (REM), while studies conducted so far are characterized by highly ambiguous results. Purpose: The main aim of the paper is to present the results of empirical research on the relationships between the AEM and REM practices used to create financial results in industrial public companies listed on the WSE. Research methodology: The research sample concerns 72 listed companies whose shares were traded on the Warsaw Stock Exchange (WSE) for a minimum 13 years in the adopted reference period of 2003–2017. The estimation of AEM and REM practices was made by using: the Jones model, the Kang-Sivaramakrishnan model and the Roychowdhury methodology. Results: The empirical results allowed showing the existence of a statistically significant, negative relationship between discretionary accruals and the abnormal level of an operational cash flow indicator, as well as between discretionary accruals and the total REM indicator. An in-depth cross-sectional analysis showed the existence of significantly differentiated relationships between the studied variables in individual branches of industry. Novelty: Research on the relationship between AEM and REM practices in the context of the Polish capital market has not been carried out so far, hence it can be considered a new research area in which there is a justified need to deepen theoretical and empirical research on the EM phenomenon.

Relationship between earnings management, CEO compensation, and stock return on Tehran Stock Exchange

2019 ◽  
Vol 23 (1) ◽  
pp. 1-22
Author(s):  
Mahdi Moardi ◽  
Mahdi Salehi ◽  
Simin Poursasan ◽  
Homa Molavi
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Significant Relationship ◽  
Stock Return ◽  
Stock Exchange ◽  
Discretionary Accruals ◽  
Content Type ◽  
Future Cash Flow ◽  
Accruals Quality ◽  
The Relationship

Purpose The purpose of this paper is to investigate the relationship between earnings management and chief executive officers’ (CEOs) compensation. Owing to the fact that earnings management does not have only opportunistic effects, but signaling effects, this study focuses on accruals quality to examine earnings management incentives. Thus, accruals quality is described against future cash flow. The empirical evidences suggest that a positive relationship between discretionary accruals and future cash flow provides predictive elements for earnings management, whereas a negative relationship between discretionary accruals and future cash implies to opportunistic elements for earnings management. Should there is no significant relationship between discretionary accruals and future cash flow, there will be no earnings management, and such a result suggests that incentives and managers’ performance in these firms differ. Design/methodology/approach The statistical population of this research consists of all listed companies on the Tehran Stock Exchange during 2009–2016. Panel data method is applied in order to estimate the research model. Findings Findings of the study show that there is no significant relationship between discretionary accruals and future cash flow in pharmaceutical and food industries, thus they have neither predictive nor opportunist earnings management, while the results evidence a negative significant relationship between discretionary accruals and future cash flow in machineries, automobile, mineral and chemical industries. Furthermore, it can be alleged that there is no significant difference between CEOs’ compensation in firms with opportunistic earnings management (OEM) and other types of earnings management. It shows that firms do not have appropriate plans for CEOs’ compensation. Moreover, the relationship between earnings management and stock return has been investigated in this study. We document that stock return is influenced by accruals quality and its components. In other words, stock return significantly differs in firms with OEM and firms without any kind of earnings management. Research limitations/implications The authors’ findings provide contributions; for managers, it is noticeable that stock markets have sufficient comprehension about financial statements and the undertaken procedures on them, resulting in a higher return base on fair information. For investors and regulators, using the findings, may have deeper understanding to distinguish between industries that are recognized as opportunistic and non-opportunistic, which, in turn, results in better decision and regulation. Originality/value Previous studies have been mostly investigated OEM, while the current study examines both signaling and opportunistic aspects of earnings management.

scholarly journals The Relationship Between Financial Flexibility and Market Value Added: The Mediation Effect Role of the Corporate Size (A Practical Study on a Sample of Jordanian Industry Sector Firms)

2020 ◽  
Vol 13 (1) ◽  
pp. 52
Author(s):  
Arshed Fouad Altameemi
Keyword(s):  
Firm Size ◽  
Stock Exchange ◽  
Value Added ◽  
Market Value ◽  
Mediation Effect ◽  
Financial Flexibility ◽  
Corporate Size ◽  
Market Value Added ◽  
The Relationship

The current study aims at testing the effect of ‘Financial Flexibility’ (FF) on the market value-added by the firm size as a mediator variable. This study’s statistic sample consists of 26 companies listed on the Amman stock exchange from 2010 to 2019. The FF and market value-added are independent and dependent variables, respectively. The data analysis was done by the Baron - Kenny methodology (1986) and Sobel-Test to analyze the hypothesizes based on the corporate size’s mediation effect role. The results concluded from the study of the effect of the company size on the relationship between FF and market value-added stated that the FF has a positive statistically significant impact, and there a partial mediation of the firm size effect upon this relationship due to the mediation effect is statistically significant based on Sobel test.

scholarly journals Does the presence of independent directors reduce the practices of earnings management? The moderating role of family ownership concentration

2019 ◽  
Vol 69 (6) ◽  
pp. 638-654
Author(s):  
Deaa Al-Deen Al-Sraheen ◽  
Khaldoon Ahmad Al Daoud
Keyword(s):  
Earnings Management ◽  
Stock Exchange ◽  
Ownership Concentration ◽  
Future Research ◽  
Family Ownership ◽  
Board Independence ◽  
New Ideas ◽  
The Relationship ◽  
Moderating Role

While often criticized, the independence of directors remains a crucial criterion for evaluating the effectiveness of the monitoring role of boards. This study examines the relationship between board independence and earnings management, paying attention to moderation role of family ownership concentration on this relationship using a sample of services companies listed on Amman Stock Exchange ASE. This study documented a significant and negative association between board independence and earnings management. In addition, the moderating role of family ownership concentration on this relationship was also negative. Thus, the board’s monitoring function was inefficient due to the concentration of ownership. These results were obtained through using multiple and sequential regression analysis for the research data from 2013 to 2016. This study provides new ideas for future research such as examining the impacts of the migration of capitals and investors from neighbouring countries such as Syria and Iraq.

scholarly journals Auditor report and earnings management: Evidence from FTSE 350 companies in the UK

2016 ◽  
Vol 6 (4) ◽  
pp. 334-344 ◽  
Author(s):  
Mohammad Alhadab
Keyword(s):  
Earnings Management ◽  
Discretionary Accruals ◽  
Real Earnings Management ◽  
Audit Report ◽  
Audit Firms ◽  
The Uk ◽  
Different Characteristics ◽  
The Relationship

This paper examines the relationship between audit report and real-based and accrual-based earnings management based on a UK sample. Prior research has mostly focused on US data and examined the relationship between auditor report (qualified vs. non-qualified) and earnings management (proxied by discretionary accruals), and found evidence that qualified audit report is positively associated with the level of discretionary accruals. Despite the importance of the role of audit firms to constrain the use of earnings management, there is no research to date has examined the relationship between auditor reports and real earnings management activities based on UK sample. This paper therefore fills this gap in the literature by providing the first evidence for UK FTSE 350 companies that auditor report is positively associated with real and accrual earnings management. The paper also provide evidence that firms received qualified audit report share different characteristics as compared to firms received un-qualified audit report.

scholarly journals The Role of Corporate Governance on the Relationship Between IFRS Adoption and Earnings Management: Evidence From Bangladesh

2020 ◽  
Vol 11 (4) ◽  
pp. 329
Author(s):  
Mohammad Tariq Hasan ◽  
Azhar Abdul Rahman
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Robust Regression ◽  
Stock Exchange ◽  
Random Effect ◽  
Negative Relationship ◽  
Ifrs Adoption ◽  
The Relationship

Purpose: This study investigates the relationship between IFRS adoption and earnings management (EM) i.e. discretionary accruals (DA) and real earnings management (REM) in developing economy like Bangladesh. Moreover, the study examine the relationship between corporate governance (CG) strength and EM as well as moderating role of CG strength on the relationship between IFRS adoption and EM.Design/methodology/approach: The study employs 94 firms listed in Dhaka Stock Exchange (DSE) for 6 years i.e. 564 firm years observation, over two time period as pre (2004-06) and post (2013/14-15/16) adoption of IFRS. Underpinning theory of the study is agency theory which explained the relationship among variables. Based on earlier literature a CG index is developed to measure the strength of CG. The study uses random effect GLS with robust regression in a balanced panel data.Findings: The results show that IFRS and CGI both have significant negative relationship with EM. Moreover, it is documented that the CG strength significantly moderates the relationship between IFRS and REM. It implies that the presence of good CG may help to attain the objectives of IFRS adoptionOriginality/value: To the best of the author’s knowledge, this is one of the first empirical attempts at providing evidence about the role of CG on the relationship between IFRS adoption and EM in Bangladesh. The findings of this study can be beneficial for the member of the regulatory bodies and researchers to formulate new policy and enhance corporate governance practices in Bangladeshi companies as well as develop a better framework for all stakeholders involved in financial reporting. Future studies may also investigate the interacting effect of corporate governance strength on other related variables which may influence the level of earnings management.

scholarly journals FINANCIAL DISTRESS AND EARNINGS MANAGEMENT IN INDONESIA: THE ROLE OF INDEPENDENT COMMISSIONERS

2021 ◽  
Vol 07 (01) ◽  
Author(s):  
Vania Agatha Rusci ◽  
◽  
Setyarini Santosa ◽  
Vita Elisa Fitriana ◽  
◽  
...  
Keyword(s):  
Earnings Management ◽  
Financial Distress ◽  
Stock Exchange ◽  
Secondary Data ◽  
Real Earnings Management ◽  
Earning Management ◽  
Panel Regression ◽  
Relationship Of ◽  
The Relationship

Abstract: This research aims to find out whether the presence of independent commissioner can restrict the manipulation of earnings by management in financially distressed companies. Earning management used in this research is accrual as well as real earning management. This research employs quantitative method with data panel regression model. The sample used in this study is secondary data obtained from consumer goods industry listed on Indonesia Stock Exchange during the period of 2015 until 2019. The result of this study revealed that both accrual earnings management and real earnings management are significantly influenced by financial distress. However, independent commissioner fails to moderate the relationship of financial distress with both accrual earnings management and real earnings management. This research gives an insight and input to the management as the evaluation material, so that the earnings manipulation could be reduced or even not carried out. Abstrak: Penelitian ini bertujuan untuk mengetahui apakah keberadaan komisaris independen dapat membatasi manipulasi laba oleh manajemen pada perusahaan yang mengalami financial distress. Manajemen laba yang digunakan dalam penelitian ini adalah manajemen laba akrual dan manajemen laba riil. Penelitian ini menggunakan metode kuantitatif dengan model regresi data panel. Sampel yang digunakan dalam penelitian ini adalah data sekunder yang diperoleh dari industri barang konsumsi yang terdaftar di Bursa Efek Indonesia selama periode 2015 hingga 2019. Hasil penelitian ini mengungkapkan bahwa baik manajemen laba akrual maupun manajemen laba riil dipengaruhi secara signifikan oleh financial distress. Namun, komisaris independen gagal memoderasi hubungan financial distress dengan manajemen laba akrual dan manajemen laba riil. Penelitian ini memberikan wawasan dan masukan kepada pihak manajemen sebagai bahan evaluasi, sehingga manipulasi laba dapat dikurangi atau bahkan tidak dilakukan.

scholarly journals Sustainable Corporate Ownership Structures and Earnings Management in the Vietnamese Stock Market

2020 ◽  
Vol 12 (15) ◽  
pp. 6089 ◽  
Author(s):  
Daeheon Choi ◽  
Chune Young Chung ◽  
Young-Eun Kim ◽  
Ye Jun Kim ◽  
Paul Moon Sub Choi
Keyword(s):  
Earnings Management ◽  
Stock Exchange ◽  
Sustainability Reporting ◽  
Foreign Ownership ◽  
Corporate Ownership ◽  
Explanatory Variables ◽  
Ownership Structures ◽  
Corporate Social ◽  
The Relationship

We conducted an empirical analysis to verify the relationship between companies’ ownership structures and earnings management. Our sample included 480 nonfinancial companies listed on Vietnam’s Ho Chi Minh Stock Exchange and Hanoi Stock Exchange from 2012 to 2017, and our explanatory variables included several ratios, such as the controlling shareholders’ stake, management ownership stake, state-owned stake, and foreign ownership stake, which represent different ownership structures. We examined the effects of these ratios on earnings management. Our results suggested that earnings management has a significant linear relationship with the state-owned and foreign ownership stakes. Our results can enhance the understanding of the role of companies’ sustainable ownership structures in limiting earnings management, and they can contribute to future studies of the relationship between earnings management and corporate social responsibility and sustainability reporting assurance practices that focus on corporate ownership structures.

Do Corporate Site Visits Constrain Real Earnings Management?

2022 ◽  
pp. 0148558X2110671
Author(s):  
David C. Broadstock ◽  
Xiaoqi Chen ◽  
C. S. Agnes Cheng ◽  
Wenli Huang ◽  
Yujing Ma
Keyword(s):  
Earnings Management ◽  
Stock Exchange ◽  
Real Earnings Management ◽  
Alternative Communication ◽  
Matching Method ◽  
Cross Sectional ◽  
Corporate Misconduct ◽  
Negatively Associated ◽  
The Relationship ◽  
Unique Dataset

This study investigates the relationship between corporate site visits (CSVs) and firms’ real earnings management. Using a unique dataset of site visits to Chinese firms listed on the Shenzhen Stock Exchange from 2009 to 2016, we find that such visits are negatively associated with firms’ real earnings management. The results are robust to using alternative CSV measures, controlling for alternative communication channels, and using the propensity score matching method. In cross-sectional analyses, we find that the negative association between site visits and real earnings management is stronger for more complex firms and firms with greater information asymmetry. In addition, we find that CSVs are negatively associated with both management and corporate misconduct but not with accrual-based earnings management or restatements.

scholarly journals Earnings Management to Avoid Financial Distress and Improve Profitability: Evidence from Jordan

2018 ◽  
Vol 11 (2) ◽  
pp. 222 ◽  
Author(s):  
Mohammad M. Humeedat
Keyword(s):  
Earnings Management ◽  
Financial Distress ◽  
Positive Relationship ◽  
Stock Exchange ◽  
Control Variable ◽  
Negative Relationship ◽  
Discretionary Accruals ◽  
Cross Sectional ◽  
Entire Study ◽  
Equity Ratio

Due to unstable economic and political conditions, many companies in the Middle East are undergoing various financial distress and decline in profitability. This paper examines the role of earnings management to avoid financial distress and improve profitability in 58 industrial corporations listed on Amman Stock Exchange for a period of 2011 to 2016, which constitutes 89% of the whole population. The total number of observations is 413 for the entire study period. The study uses a cross-sectional Jones model that was modified by (Kothari, Leone, and Wasley, 2005); to measuring discretionary accruals that used as a proxy for earnings management.The empirical results indicate that earning management is not affected by the Altman’s Z-score index, but it has a positive relationship with debt to equity ratio. This study also shows a positive relationship between earnings per share, returns on equity, and earnings management. Regarding the control variable, we found a negative relationship between cash flow from operation and discretionary accruals.

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