scholarly journals Does Real Earnings Management Explain Cost of Debt? Evidence from an Emerging Economy

2021 ◽  
Vol 16 (3) ◽  
pp. 221-236
Author(s):  
Nguyen Vinh Khuong ◽  
◽  
Nguyen Thanh Liem ◽  
Bui Thi Ngan Dung ◽  
◽  
...  
Keyword(s):  
Earnings Management ◽  
Generalized Method Of Moments ◽  
Positive Association ◽  
Real Earnings Management ◽  
Cost Of Debt ◽  
Regression Result ◽  
Managerial Behavior ◽  
Listed Firms ◽  
Debt Capital ◽  
The Relationship

This study tested the relationship between real earnings management and debt cost in Vietnam, a developing market. We used the Generalized Method of Moments (GMM) Technique on a sample of 241 listed firms in Vietnam for 7 years from 2010 to 2016, with a total of 1687 observations collected. The regression result showed a positive association between real earnings management and cost of debt. The results of the study revealed that real earnings management is shown through the rising transactions and directly affected financial reports, thereby affecting creditors by affecting their cost of debt. This can be seen as the driving force for listed companies to increase the quality of their financial information. Our study only focussed on earnings manipulation through real earnings management (REM) to affect transaction costs in Vietnam. The research explains the relationship between managerial behavior (real earnings management) and direct influence on creditors' behavior (cost of debt capital). The result would give outside stakeholders an overall view about the usage of REM in Vietnamese listed firms, the reasonable action of investors, financial institutions, banks, etc on the debt market to reduce risk and the signal of warning for regulators and policy-makers. Keywords: real activities earnings management, cost of debt capital

The jinx of real earnings management: evidence from inefficient investments and debt maturity structure in Pakistan

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Umair Saeed Bhutta ◽  
Aws AlHares ◽  
Yasir Shahab ◽  
Adeel Tariq
Keyword(s):  
Earnings Management ◽  
Generalized Method Of Moments ◽  
Emerging Economy ◽  
Real Earnings Management ◽  
Investment Efficiency ◽  
Important Research ◽  
Short Term ◽  
Content Type ◽  
Listed Firms ◽  
The Impact

PurposeThis study aims to investigate two important research questions. First, this research examines the impact of real earnings management on investment inefficiency of the non-financial listed firms in Pakistan. Second, this research further explores the moderating role of short-term debt on the nexus between real earnings management and investment inefficiency. This study attempts to highlight an important research problem i.e. the jinx of real earnings management from the context of an emerging economy.Design/methodology/approachThis study employs the data from non-financial listed firms in Pakistan over the period from 2008 to 2018. The study uses panel data methodologies with firm and year fixed-effects to examine the proposed hypotheses. The results are robust to the use of sensitivity analysis, different estimation techniques and endogeneity issues (using two-stage least squares (2SLS) and generalized method of moments (GMM) techniques).FindingsThe results of the research are twofold. First, consistent with the theoretical arguments, the findings reveal that real earnings management increases investment inefficiency and results in over-investments by the firms. Second, short-term debt attenuates the relationship between real earnings management and investment inefficiency. It implies that a higher level of short-term debt weakens the adverse effects of real earnings management on the investment efficiency of the firm.Originality/valueThis study offers original findings on the issues pertaining to the quality of accounting and financial reporting in an emerging economy like Pakistan, where the implementation of regulations is weak in the corporate world and management frequently exploits shareholders' wealth for the short-term benefits.

scholarly journals Corporate Governance Characteristics and Earnings Management: Empirical Evidence from Chinese Listed Firms

2011 ◽  
Vol 1 (1) ◽  
pp. 133 ◽  
Author(s):  
M. Awais Gulzar ◽  
Wang Zongjun
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Stock Exchange ◽  
Positive Association ◽  
Vital Role ◽  
Earning Management ◽  
Listed Firms ◽  
Concentrated Ownership ◽  
The Relationship

The purpose of this paper is to investigate the efficiency of corporate governance characteristics in reducing earnings management among the listed firms of Shanghai and Shenzhen stock exchange, China. We took abnormal working capital accruals as a proxy for earning management. In this paper, we used modified Jones Model in order to calculate discretionary accruals (DAC). The sample comprises of 1009 firms over the period of 4 years from 2002 to 2006. The study essentially shows that the corporate governance characteristics play a vital role in reducing the earning management. We found a significantly positive association between earning management and different corporate governance characteristics such as CEO duality, board meetings, females directors and concentrated ownership. We lacked evidences to find relationship between board size, director’s shareholdings and proportion of independent directors with DAC as well as between the presence of audit committee and DAC. These studies will broaden the scope of the relationship between earning management and corporate governance characteristics. Very few studies have been conducted in this area especially for the Chinese listed firms with empirical evidences given. A variety of corporate governance variables are used especially board sex ratio in this analysis.

Real Versus Accrual-based Earnings Management

Paradigm ◽  
2017 ◽  
Vol 21 (2) ◽  
pp. 156-174 ◽  
Author(s):  
Ramesh Chandra Das ◽  
Chandra Sekhar Mishra ◽  
Prabina Rajib
Keyword(s):  
Earnings Management ◽  
Firm Size ◽  
Positive Association ◽  
Least Square ◽  
Real Earnings Management ◽  
Group Affiliation ◽  
Complementary Relationship ◽  
Indian Context ◽  
Business Group Affiliation ◽  
The Relationship

This article examines the relationship between accrual-based earnings management (AM) and real earnings management (RM) in the Indian context by considering 673 listed non-financial companies for the period 2009–2013. The article quantifies AM and RM and tests whether Indian companies choose substitute relationship over complementary relationship between AM and RM after factoring firm-specific parameters such as firm size, market-to-book ratio, leverage, accounting flexibility, return on asset (ROA), business group affiliation and absolute accruals. Modified Jones model (1991) and Roychowdhury model (2006) have been used for quantifying AM and RM, respectively. To model the relationship between AM and RM, two-stage least square (2 SLS) regressions method has been used. The results suggest that Indian companies undertake both AM and RM with a higher predisposition towards AM. The positive association between the two supports complementary relationship between two and indicates that Indian companies use AM and RM to garner greater benefit from earnings management.

Earnings management and goodwill impairment

2016 ◽  
Vol 17 (1) ◽  
pp. 120-147 ◽  
Author(s):  
Giuseppe Davide Caruso ◽  
Elisa Rita Ferrari ◽  
Vincenzo Pisano
Keyword(s):  
Earnings Management ◽  
Design Methodology ◽  
Income Smoothing ◽  
Financial Accounting ◽  
Current Debate ◽  
Managerial Behavior ◽  
Content Type ◽  
Listed Firms ◽  
Goodwill Impairment ◽  
Research Questions

Purpose – The purpose of this paper is to understand whether managerial behavior in impairing goodwill arising from M & As has changed after the adoption of IAS/IFRS, searching for evidences of earnings management (EM) practices. Thus, our goal is to provide a response to the following research questions. Are goodwill impairments used by listed firms’ managers to manipulate earnings? If so, what kind of EM practice is mostly used? Design/methodology/approach – In this paper the authors tested the following hypothesis: H1. In the year of the deal’s closure and in the following four years, the management detects impairment of goodwill in difformity with the previous Italian regulations and related accounting practices. Moreover, the authors tried to determine, for each considered firms, potential symptoms of typical DEM practices widely debated in the financial accounting literature (income smoothing, income minimization, income minimization, or big bath accounting). Findings – Our analysis does not prove evidence of certain EM practices, but it highlights very clearly that, after the adoption of IAS/IFRS, managers’ behavior has deeply changed. Moreover, the analysis shows that there is no univocal choice in favor of a specific EM practice and that every firm pursues its own “strategy.” Originality/value – Considering the importance of the topic from both the perspectives of managerial (with regard to M & As valuation processes) and financial accounting (with regard to intangibles valuation fulfilled by applying the impairment test instead of the amortization), this work aims to provide a multi-dimensional contribution to the current debate.

scholarly journals Unconditional Accounting Conservatism and Real Earnings Management

2018 ◽  
Vol 9 (2) ◽  
pp. 203 ◽  
Author(s):  
Han Li
Keyword(s):  
Earnings Management ◽  
Internal Control ◽  
Negative Relationship ◽  
Robustness Analysis ◽  
Accounting Conservatism ◽  
Real Earnings Management ◽  
Audit Risk ◽  
Operation Costs ◽  
Abnormal Operation ◽  
The Relationship

This research examines the relationship between unconditional accounting conservatism and real earnings management in China’s corporations. Using the regression models, the real earnings management proxies are found by the abnormal cash flow of operations, the abnormal operation costs and the abnormal discretionary expenses and the aggregated measures. The research sheds light on the negative relationship between unconditional accounting conservatism and real earnings management after controlling internal control quality and audit risk. The results of these inferences remain the same after dealing with the robustness analysis and the endogeneity concerns.

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