scholarly journals A comparison of ethical perceptions of earnings-management practices

2011 ◽  
Vol 14 (4) ◽  
pp. 422-435 ◽  
Author(s):  
Leonie Jooste
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Earnings Quality ◽  
Harvard Business Review ◽  
Business Managers ◽  
Short Term ◽  
Nelson Mandela ◽  
Sarbanes Oxley ◽  
The Usa ◽  
Accounting Practitioners

In 1990, Bruns and Merchant (1990) surveyed earnings-management practices and asked the readership of the Harvard Business Review to rate the acceptability of those practices. Prior to the Bruns and Merchant (1990) study, the morality of short-term earnings-management was of little concern to researchers and accounting practitioners. However, in the light of increased financial frauds and failures, new and increased emphasis has been placed on the importance of the concepts of earnings quality and earnings-management practices.Despite increased research focusing on business ethics since 1990, there is little evidence that the profession is educating accountants about earnings-management practices. This study compares the results of studies on earnings-management practices. Students and business managers were surveyed at the Nelson Mandela Metropolitan University (NMMU) and these results were compared to studies prior to the Sarbanes-Oxley Act 2002 in the USA. The aim of the study is to determine if there have been changes in attitudes towards earnings-management practices since the acceptance of the Sarbanes-Oxley Act.

scholarly journals The Ethics Of Managing Short-Term Earnings: Business Managers And Business Students Rate Earnings Management Practices Implications For Academia

2006 ◽  
Vol 3 (7) ◽  
Author(s):  
Don E. Giacomino ◽  
Jodi L. Bellovary ◽  
Michael D. Akers
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Business Students ◽  
Earnings Quality ◽  
Harvard Business Review ◽  
Business Managers ◽  
Academic Journals ◽  
Short Term ◽  
Management Actions ◽  
Accounting Practitioners

In 1990, Bruns and Merchant surveyed the readership of the Harvard Business Review (HBR).  Their survey asked HBR readers to rate the acceptability of earnings management practices. Prior to that study, researchers and accounting practitioners paid little attention to the morality of short-term earnings management.  However, in the wake of highly publicized financial frauds and failures, the profession and academic journals have emphasized the importance of the concepts of earnings quality and earnings management.The Bruns and Merchant survey provided 13 earnings management situations and asked the HBR readers to rate the acceptability of those practices.  In this study, we surveyed students and business managers to measure their perceptions about the morality of specific earnings management actions to determine if their perceptions are different from those of the HBR readers 15 years ago.  This article also compares the results of our study with several other studies that used the Bruns & Merchant instrument during the most recent 15 years.    Based on our findings, we discuss implications for academia.

scholarly journals Accounting ethics – an empirical investigation of managing short-term earnings

2011 ◽  
Vol 13 (1) ◽  
pp. 98-111 ◽  
Author(s):  
Leonie Jooste
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Empirical Investigation ◽  
Accounting Students ◽  
Accounting Ethics ◽  
Ethical Practice ◽  
Business Managers ◽  
Short Term ◽  
Sarbanes Oxley ◽  
Significant Difference

Short-term earnings are managed in most, if not all, companies. The management of short-term earnings is vulnerable to misinterpretation, manipulation or deliberate deception even if these misleading accounting practices are prohibited by accounting regulations. Hence, the problem with managing short-term earnings is that it becomes an ethical practice, regardless of who is or may be affected by the practice or the information that flows from it. As a result of the publicity received by Enron and WorldCom on financial failures and fraud, and the subsequent legislation, the Sarbanes-Oxley Act in 2002, students are expected to understand the morality issues of earnings-management practices. Therefore, the ethics of earnings-management practices affects the accounting educator. Accounting students and business managers were surveyed and the findings indicated that there is no significant difference between gender regarding the ethicality of twenty earning management practices. The results, however, show that there is a significant difference between the perceptions of business managers and students regarding the morality of earnings-management practices. However, no significant differences were found between genders.

scholarly journals Influence of board interlocking on earnings management

2017 ◽  
Vol 28 (74) ◽  
pp. 179-196 ◽  
Author(s):  
Paulo Roberto da Cunha ◽  
Marcio Roberto Piccoli
Keyword(s):  
Earnings Management ◽  
Board Member ◽  
Management Practices ◽  
Earnings Quality ◽  
Sao Paulo ◽  
Centrality Measures ◽  
Board Members ◽  
Degree Centrality ◽  
Management Behavior ◽  
Governance Practices

ABSTRACT The participation of directors on more than one board is called “board interlocking”. This phenomenon contributes to the spread of management and governance practices, through directors sharing their knowledge and experiences on other boards. Thus, directors could “carry” the earnings management practices present in one company into another in which they sit on the board. It is assumed that the greater directors’ direct or indirect connections on boards, the greater the sharing of information, especially information that can be reflected in company earnings quality. In light of the above, the aim of this study is to verify the influence of board interlocking on earnings management in companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBovespa). The study is characterized as descriptive, quantitative, and documentary, and uses a sample of companies listed on the BM&FBOVESPA between 2011 and 2013. For earnings management, the model from Kang and Sivaramakrishnan (1995) was used, while for interlocking, degree centrality measures were used for direct board member connections, and intermediation centrality for indirect connections. The results indicate that earnings management is influenced by the interlocking of board members. It is concluded that the greater the degree centrality, the greater positive earnings management is, and that variations in positive and negative accruals are influenced by board member intermediation. The results reinforce the idea that earnings management behavior can be transferred between companies by the directors that make up their boards.

Effects of capital structure and institutional–financial characteristics on earnings management practices

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jorge Andrés Muñoz Mendoza ◽  
Sandra María Sepúlveda Yelpo ◽  
Carmen Lissette Velosos Ramos ◽  
Carlos Leandro Delgado Fuentealba
Keyword(s):  
Earnings Management ◽  
Financial Development ◽  
Latin American ◽  
Management Practices ◽  
Short Term ◽  
Financial Policies ◽  
Financing Policy ◽  
Content Type ◽  
Financial Characteristics ◽  
Systematic Control

PurposeThe purpose of this article is to analyze the effects of financing policy and countries' institutional–financial characteristics on earnings management (EM) practices in Latin American companies.Design/methodology/approachThe GMM estimator was used according to Arellano and Bover (1995) for panel data on a sample of 983 Latin American companies between 1995 and 2017.FindingsLeverage and short-term debt have a negative and nonlinear effect on EM practices. Nonlinearity suggests that firms with high levels of leverage and short-term debt carry out positive discretionary accruals. Countries' institutional and financial development reduces EM practices. Mandatory IFRS adoption also reduces these practices and mitigates the effects of the low institutional and financial development on EM.Originality/valueThese results reveal the relevance of companies' financing policy as a means of controlling EM practices. Results also suggest that policy effectiveness decreases with leverage and short-term debt. It is suggested that policymakers design financial policies aimed to promote institutional and financial development as a means of systematic control over EM activities, which also includes IFRS.

scholarly journals Historical Development of Earnings Management Models

2021 ◽  
Vol 92 ◽  
pp. 02058
Author(s):  
Anna Siekelova
Keyword(s):  
Earnings Management ◽  
Historical Development ◽  
Management Practices ◽  
Current Issue ◽  
Value Added ◽  
Added Value ◽  
Management Issue ◽  
Management Models ◽  
The Usa ◽  
The 1960S

Research background: Contribution responds to the current issue of Earnings Management (hereafter „EM“) initiatives. Authors have been dealing with EM initiatives since at least the 1960s. Initial studies came from the USA. Due to the globalization, awareness of EM techniques and models created abroad is also reaching European countries. Especially after the recent economic fluctuations (financial crisis in 2009; COVID-19 in 2020), the application of EM principles in companies with an effort to achieve a balanced profit can be assumed. The issue of earnings management has begun to be associated with the issue of its measurement. The problem is a large number of models, so choosing one is not easy. Although earnings management issue has been investigated under various hypotheses, there is no agreement on a uniform detection or measurement of earnings management practices. A number of earnings management models can be found in studies. Many of them were created recently, others are older. Most originated abroad. Purpose of the article: The aim of the paper is to clarify the historical development of earnings management models. Methods: Bibliometric analysis for historical development of EM models. Findings & Value added: The added value of the contribution is in the clarification of the historical development of the EM model as well as clarify the development of profit models.

scholarly journals Public Accountants’ Perceptions Of The Acceptability Of Earnings Management Practices Through The Employment Of GAAP In The Post-Sox Period

2010 ◽  
Vol 26 (1) ◽  
Author(s):  
John E. McEnroe
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Financial Statements ◽  
Securities And Exchange Commission ◽  
Font Size ◽  
Generally Accepted Accounting Principles ◽  
Sarbanes Oxley ◽  
Accounting Scandals ◽  
Audit Opinions ◽  
Certification Requirements

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">Over fifteen years ago, Martens and McEnroe (1992) conducted a behavioral study involving earnings management through the use of Generally Accepted Accounting Principles (GAAP). Their findings indicated that auditors issued unqualified audit opinions on those financial statements and perceived little risk to litigation as a result. A decade later they conducted a similar study (Martens and McEnroe 2002) with the expectation that increased attention to earnings management by then chairman of the Securities and Exchange Commission (SEC), Arthur Levitt, would reduce auditors’ perceptions that the letter of GAAP is in itself an aegis or “safe harbor” against litigation. Although the authors found that auditors had become more conservative, they still issued unqualified opinions on financial statements in which transactions were reported in their form rather than their substance. Given the accounting scandals of Enron and WorldCom, among others, and the enactment of the Sarbanes-Oxley Act (SOX) in 2002, especially with its officers’ certification requirements, it was posited that auditors would exhibit a much more conservative approach than in either of the two previous studies. The results indicate that although auditors are more conservative than in the 1992 study, they still allow clients to engage in earnings management practices through the use of GAAP by issuing unqualified audit opinions on their financial statements. <strong style="mso-bidi-font-weight: normal;"></strong></span></span></p>

scholarly journals INVESTOR SENTIMENT AND EARNINGS MANAGEMENT: DOES ANALYSTS’ MONITORING MATTER?

2018 ◽  
Vol 19 (4) ◽  
Author(s):  
KLÉBER F. MIRANDA ◽  
MÁRCIO A. V. MACHADO ◽  
LUCIANA A. F. MACEDO
Keyword(s):  
Earnings Management ◽  
Fixed Effects ◽  
Management Practices ◽  
Earnings Quality ◽  
Investor Sentiment ◽  
Mediating Role ◽  
Market Participants ◽  
Initial Expectation ◽  
Reported Earnings

ABSTRACT Purpose: Under the assumption that managers have incentives to practice earnings management in optimistic moments, this paper aims to analyze whether analysts’ monitoring affects the relation between the discretionary accumulations (accruals) and investor sentiment in the Brazilian capital market. Originality/value: The mediating role of analysts in the relation between investor sentiment and earnings management was not identified in the literature establishing an important gap to be investigated, given the relevance of the reported earnings for the decision-making process of market participants. Design/methodology/approach: Fixed effects regressions (industry and quarter) were estimated from 2010 to 2016, using all data and the subsetting sample according to whether or not companies were monitored by analysts. Findings: The results showed a reduction of earnings management after optimistic moments, which differs from the initial expectation and such behavior is attributed to the presence of analysts following companies. The results were robust to alternative proxies for earnings management and investor sentiment. Analysts have an influence on accounting earnings supporting the best disclosure, so inhibiting the practice of earnings management in optimistic moments. Therefore, although previous studies suggest that earnings management practices increase during optimistic moments, market participants may consider, even in such moments, a better earnings quality when firms are monitored by analysts.

Earnings management and corporate investment efficiency: does the board of directors matter?

2019 ◽  
Vol 17 (4) ◽  
pp. 650-670 ◽  
Author(s):  
Bilel Bzeouich ◽  
Faten Lakhal ◽  
Neila Dammak
Keyword(s):  
Earnings Management ◽  
Board Of Directors ◽  
Management Practices ◽  
Earnings Quality ◽  
Theoretical Perspective ◽  
Negative Relationship ◽  
Corporate Investment ◽  
Investment Efficiency ◽  
Content Type ◽  
The Relationship

PurposeThe purpose of this paper is to examine the relationship between earnings management and the efficiency of French firms’ investments. It also investigates the moderating effect of board of directors’ features on this relation.Design/methodology/approachThis study is based on a sample of French listed companies from 2011 to 2015, i.e. 435 firm-year observations. The authors use the instrumental variable method based on 2SLS models.FindingsThe authors show that there is a negative relationship between earnings management and investment efficiency. This finding supports the theoretical perspective of the agency theory, as the propensity of firms to engage in earnings management practices is associated with high managerial opportunistic behavior and asymmetric information issues, leading to the problem of under and overinvestment. The findings also show that board size, independence and gender diversity are positively associated with investment efficiency. These board features moderate the relationship between earnings management and investment efficiency suggesting that earnings quality plays a more prominent role in guiding managers to choose the right investments when the corporate governance environment is strong.Research limitations/implicationsThe negative relationship between earnings management and investment efficiency suggests that firms with lower earnings quality are exposed to high information asymmetries. They are then more likely to deviate from their expected level of investments. In addition, the results highlight the importance of corporate financial transparency and board monitoring to reduce agency costs and ensure the efficiency of corporate investments, particularly in a setting where investors’ interests are poorly protected.Originality/valueThis paper is the first to the best of the authors’ knowledge to examine the effect of earnings management, a metric for earnings quality, on the corporate investment efficiency in France. Besides, they extend previous literature by investigating how board features are able to monitor managerial actions and decisions and therefore to moderate the effect of earnings management on investment efficiency.

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