scholarly journals Impacts of financial distress on real and accrual earnings management

2018 ◽  
Vol 22 (2) ◽  
pp. 222
Author(s):  
Danella Rachel Muljono ◽  
Kim Sung Suk
Keyword(s):  
Earnings Management ◽  
Financial Distress ◽  
Listed Companies ◽  
Production Costs ◽  
The Other ◽  
Real Earnings Management ◽  
Financial Health ◽  
Other Hand ◽  
Management Approaches ◽  
The Impact

This research investigates the impact of financial distress on the magnitude of different earnings management approaches, namely real earnings management and accruals earnings management. This research utilizes a total of 2002 firm-year observations from 259 publicly-listed companies and 20 sub-industries in Indonesia from the year 2005 to 2014. Financial distress causes a significant increase of real earnings management and a significant decrease of accruals earnings management. It means that the healthier the company, the bigger the magnitude of real earnings management that is conducted through managing production costs and discretionary expenses. On the other hand, the lower the financial health of the company, the bigger the magnitude of accruals earnings management that is conducted through managing discretionary component of accruals.

scholarly journals The impact of audit quality on real earnings management in the UK context

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Syed Numan Chowdhury ◽  
Yasser Eliwa
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Production Costs ◽  
Real Earnings Management ◽  
Sampled Data ◽  
Content Type ◽  
Listed Firms ◽  
Big 4 ◽  
The Uk ◽  
The Impact

Purpose The purpose of this paper is to examine whether audit quality influence real earnings management activities using a sample of UK listed firms that have strong incentives to manage earnings upward through meeting past year’s earnings as a benchmark in the post-adoption period of International Financial Reporting Standards (IFRS). Design/methodology/approach The authors use a sample of 4,774 firm-year observations of UK listed firms during the period 2005–2018. Univariate and multivariate analyses have been conducted to test the association after controlling for firm characteristics and institutional variables. Findings The study reports that the presence of Big 4 auditors is significantly and positively related with greater levels of sales and discretionary expenses manipulation. Though the authors do not find any conclusive evidence on production costs manipulation, the aggregated measure of real earnings management shows a significant positive association with the presence of Big 4 auditors. Practical implications The study implies that managers who have incentives to manage earnings upward around the UK firms take advantage of the accounting flexibility in defining policies while reducing information asymmetry among the investors to signal better future performance. The approach to detect earnings manipulation as described in the auditing standards fails to limit the managerial use of real activities due to limited scope and unclear guidance. Thus, due to the significant impact on public policies, the results should, therefore, be of interest to the regulators and standard setters. Originality/value To the best of the authors’ knowledge, this is the first study that examines the association between audit quality and real earnings management for the UK all-purpose operational firms in sampled data that just meet past year’s earnings as a benchmark in the post-IFRS period.

Research on methods of IPO earnings management: case of Guirenniao

2016 ◽  
Vol 7 (4) ◽  
pp. 491-509 ◽  
Author(s):  
Ye Liu ◽  
Changjiang Lyu
Keyword(s):  
Earnings Management ◽  
Initial Public Offerings ◽  
Financial Statements ◽  
Listed Companies ◽  
Cash Flows ◽  
Production Costs ◽  
Real Earnings Management ◽  
Content Type ◽  
Jones Model ◽  
Industry Peers

Purpose The performance of the first batch of listed companies since the restart of new initial public offerings (IPOs) in January 2014 and their accounting information face repeated and volatile questioning from different sides. This paper aims to take Guirenniao (China) Co. Ltd. (GRN for short), one of the first batch of listed companies in 2014 that suffered performance decline, as an example to analyze how it managed earnings before IPO. Design/methodology/approach This paper examines earnings management signs that exist in GRN through analysis of its financial statements compared to those of its industry peers. This paper then uses the modified Jones model to detect its accrual earnings management and build three models, which are abnormal levels of cash flows from operations, abnormal production costs and abnormal discretionary expenses, to detect real earnings management. Findings This paper finds that GRN managed earnings through accrual and real activities in 2012 and 2013. Finally, this paper provides evidence on the specific methods of earnings management, which are easing credit policy to recognize revenue in advance, abnormal expansion, decreasing costs and connected transactions. Originality/value This paper examines earnings management signs exist in GRN through analysis of its financial statements comparing to those of its industry peers. This paper then uses the modified Jones Model to detect its accrual earnings management and build three models which are abnormal levels of cash flows from operations, abnormal production costs and abnormal discretionary expenses to detect real earnings management.

scholarly journals Real earnings management and stock returns: moderating role of cross-sectional effects

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Manish Bansal ◽  
Asgar Ali ◽  
Bhawna Choudhary
Keyword(s):  
Earnings Management ◽  
Stock Returns ◽  
Stock Prices ◽  
Production Costs ◽  
Real Earnings Management ◽  
Cross Sectional ◽  
Content Type ◽  
The Impact ◽  
Moderating Role

PurposeThe study aims at investigating the impact of real earnings management (REM) on the cross-sectional stock return after considering the moderating role of market effect, size effect, value effect and momentum effect.Design/methodology/approachThe study uses weekly and monthly data of 3,085 Bombay Stock Exchange listed stocks spanning over twenty years, from January 2000 to December 2019. REM is measured through metrics developed by Roychowdhury (2006), namely, abnormal levels of operating cash flows, production costs and discretionary expenditure. The study employs univariate and bivariate portfolio-level analysis.FindingsThe findings deduced from the empirical results demonstrate that investors perceive downward REM as an element of risk; hence, they discount the stock prices at a higher rate. On the contrary, results show that investors positively perceive upward REM; hence, they hold the stocks even at a lower rate of return. This anomaly is found to be robust for all kinds of considered moderations.Practical implicationsThe findings have important managerial implications as investors are found to assign different weights to different forms of REM, depending upon the perception regarding the magnitude of risk involved in different forms. Managers can accommodate this information during their short- and long-term corporate planning.Originality/valueFirst, the study is among the earlier attempts to examine the association between REM and stock returns by considering the moderating role of cross-sectional effects. Second, the study considers the direction and endogenous nature of REM while investigating the issue.

scholarly journals The impact of board characteristics on earnings management

2021 ◽  
Vol 10 (3) ◽  
pp. 8-17
Author(s):  
Mahmoud Mohmad Aleqab ◽  
Maha Mohammad Ighnaim
Keyword(s):  
Regression Analysis ◽  
Earnings Management ◽  
Board Of Directors ◽  
Stock Exchange ◽  
The Other ◽  
Real Earnings Management ◽  
Board Members ◽  
Amman Stock Exchange ◽  
The Board Of Directors ◽  
The Impact

This study explores the effect of the board of directors’ characteristics on real earnings management in Jordanian non-financial companies listed on the Amman Stock Exchange. The sample size is 131 companies during the period of 2015–2017. The study uses a board of directors’ size, board members’ independence, board members’ financial experience, number of board meetings, membership in more than one board, and the ownership of board members of company shares to represent the board of directors’ characteristics. Real earnings management is measured using the Roychowdhury model (2006). A multiple regression analysis (panel data) is used to investigate the effect of the board of directors’ characteristics on real earnings management. The study found a negative and statistically significant impact for both: board members’ independence and board members’ financial experience on earnings management through real activities against the previous studies’ findings, this research measured the impact of real activities. On the other hand, the study did not find any statistically significant effect of the additional earnings management variables through actual activities

scholarly journals The Impact of Managerial Ability on the Relation between Real Earnings Management and Future Firm’s Performance: Applied Study

2019 ◽  
pp. 59-96
Author(s):  
Mohamed Hessian
Keyword(s):  
Earnings Management ◽  
Negative Impact ◽  
Cash Flows ◽  
Production Costs ◽  
Real Earnings Management ◽  
Managerial Ability ◽  
Firm Resources ◽  
Sales Revenue ◽  
Operational Activities ◽  
The Impact

This study aims to investigate the managerial ability of executives’ managers’ role on mitigating the negative impact of real earnings management on future firm’s performance. The researcher operationalizes managerial ability by using a measure developed by Demerjian, Lev, and McVay (2012). This measure captures managers’ ability to efficiently convert firm resources into sales revenue relative to their industry peers. In other words, higher-ability managers are more likely to generate more sales revenue for a given set of resources compared to lower-ability managers. The researcher follows Roychowdhury (2006) and Kothari et al. (2016) to calculate abnormal sales, abnormal production costs, and abnormal discretionary expenses. To capture the total effects of three REM methods an aggregate REM that is a proxy for real earnings activities was used. Following Gunny (2010) and Huang & Sun (2017) future performance proxies are ROA and operating cash flows to total assets (CFO) for the next three years each year. Using a panel sample of 605 firm-year observations from 2005 to 2015. The study concluded that there is a positive significant relationship between the managerial ability of managers and earnings management through manipulating of real operational activities.

Real earnings management or “just business”

2017 ◽  
Vol 9 (3) ◽  
pp. 268-283
Author(s):  
Angel Arturo Pacheco Paredes ◽  
Clark Wheatley
Keyword(s):  
Earnings Management ◽  
Negative Impact ◽  
Production Costs ◽  
Real Earnings Management ◽  
Business Practices ◽  
Sales Growth ◽  
Content Type ◽  
Future Performance ◽  
Future Return ◽  
The Impact

Purpose The purpose of this study is to refine what is characterized as real earnings management. Research on real earnings management (REM) has expressed concerns that firms deviating from normal business practices may endure a negative impact on future performance. Not all studies have, however, found a negative impact of REM on future performance. As a consequence, a new stream of research is emerging that examines whether actions that would mechanically be identified as REM are truly earnings management or are simply efficient business activities. The authors further this stream of inquiry by identifying factors, i.e. restructurings and expectations of future sales growth, that can be useful in making a distinction between earnings management and “just business”. Design/methodology/approach To measure REM, the authors rely on two of the proxies of Roychowdhury (2006), abnormal discretionary expenses and abnormal production costs, and regress interactions of these with measures of restructurings and expectations of future sales growth, on future performance. Findings The authors find that when they control for restructurings, reductions in discretionary expenses that would ordinarily be indicative of REM are instead associated with improved future return-on-assets and security returns. They further find that when they control for future sales growth, overproduction is also associated with improved return on sales as it is with future increases in cost of goods sold. Originality/value Together, the results may explain the contradictory results presented in prior research with respect to the impact of REM on future performance – that is, some of what has been identified as REM in prior studies may, in fact, be “just business”.

scholarly journals The credibility of earnings announced by new stock companies: accrual and real earnings management

Equilibrium ◽  
2021 ◽  
Vol 16 (3) ◽  
pp. 661-677
Author(s):  
Tomasz Sosnowski
Keyword(s):  
Earnings Management ◽  
Initial Public Offering ◽  
Financial Reporting ◽  
Value Added ◽  
Financial Statements ◽  
Discretionary Accruals ◽  
Cash Flows ◽  
Production Costs ◽  
Real Earnings Management ◽  
The Impact

Research background: An initial public offering (IPO) creates an excellent opportunity to research the impact of changes in the institutional environment of companies on the trustworthiness of the information disclosed in financial statements. Purpose of the article: The main aim of the study is to analyze the use of accrual and real earnings management to inflate earnings, revenue, or total assets around the going public event. Therefore, this paper contributes to the stream of study on the quality of financial reporting of new stock companies. Methods: Two main approaches reflect the use of various types of earnings management activities, i.e., discretionary accruals and real earnings management. In both cases, it was necessary to use proper OLS method estimated models to identify the normal level of categories that affect the results reported in financial statements. Findings & value added: Based on a sample of 183 IPOs from the Warsaw Stock Exchange between 2005 and 2015, generally, managers of newly-listed companies actively use discretionary accruals, reduce production costs and certain discretionary expenses, and abnormal cash flows from operations ? i.e., all proxies of earnings management used in the paper ? in the periods around the IPO. In the period prior to the IPO, managers more often introduce techniques typical of the real sphere of the company's operations, in particular, the deliberate modeling of certain discretionary costs. In turn, the use of discretionary accruals dominates in the year after the IPO.

SCENARIOS FOR AN EXPANDING DEMAND OF TOURISM ON THE COASTS OF CUBA

2017 ◽  
Author(s):  
Oscar Gutiérrez-Bolívar ◽  
Oscar Gutiérrez-Bolívar ◽  
Pedro Fernández Carrasco ◽  
Pedro Fernández Carrasco
Keyword(s):  
United States ◽  
The Other ◽  
Sudden Increase ◽  
Tourist Destination ◽  
Other Hand ◽  
The Usa ◽  
The Impact

The opening of relationships between United States and Cuba could be a drive for a huge increase in the affluence of tourism to Cuba and especially to the coast areas. Cuba has been for many years an important tourist destination for people from many countries, but almost forbidden for US citizens. The proximity of the USA, its amount of population as well as their great acquisition power will increase in a very substantial way the demand for accommodation and other uses in the proximity of the coasts. There will be a need to implement a package of measures that reduce the impact of such sudden increase in the coastal line. On the other hand that augment in tourism could be an opportunity to improve the standard of life of Cubans. The consideration of different possibilities of such development, the analysis of the damages that each one could cause as well as the measures that could avoid, ameliorate or compensate such effects are the goals that are going to be presented in this paper.

Laughter on the Fringes

2019 ◽  
Author(s):  
Anna Peterson
Keyword(s):  
The Other ◽  
Literary Canon ◽  
Autobiographical Writing ◽  
Treasure Trove ◽  
Old Comedy ◽  
Other Hand ◽  
Aggressive Humor ◽  
The One ◽  
The Individual ◽  
The Impact

This book examines the impact that Athenian Old Comedy had on Greek writers of the Imperial era. It is generally acknowledged that Imperial-era Greeks responded to Athenian Old Comedy in one of two ways: either as a treasure trove of Atticisms, or as a genre defined by and repudiated for its aggressive humor. Worthy of further consideration, however, is how both approaches, and particularly the latter one that relegated Old Comedy to the fringes of the literary canon, led authors to engage with the ironic and self-reflexive humor of Aristophanes, Eupolis, and Cratinus. Authors ranging from serious moralizers (Plutarch and Aelius Aristides) to comic writers in their own right (Lucian, Alciphron), to other figures not often associated with Old Comedy (Libanius) adopted aspects of the genre to negotiate power struggles, facilitate literary and sophistic rivalries, and provide a model for autobiographical writing. To varying degrees, these writers wove recognizable features of the genre (e.g., the parabasis, its agonistic language, the stage biographies of the individual poets) into their writings. The image of Old Comedy that emerges from this time is that of a genre in transition. It was, on the one hand, with the exception of Aristophanes’s extant plays, on the verge of being almost completely lost; on the other hand, its reputation and several of its most characteristic elements were being renegotiated and reinvented.

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