scholarly journals Demystifying Earnings Management Through Accruals Management: An Indian Corporate Study

2012 ◽  
Vol 37 (1) ◽  
pp. 49-56 ◽  
Author(s):  
Sandeep Goel
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Value Added ◽  
Discretionary Accruals ◽  
High Price ◽  
Earnings Manipulation ◽  
Net Income ◽  
Bottom Line ◽  
Earnings Growth ◽  
Management Issues

Earnings, the “bottom line” or “net income,” are the single-most important item in financial statements. They indicate the extent of company's value-added activities. They help in resource mobilization in capital markets. On account of the said importance of earnings, the management of the company is always interested in their reporting. This is where management exercises choices for reporting of earnings. The recent Satyam saga or Enron in the past are prime examples of misuse of flexibility in choosing the accounting methods and treatments by the management. Earnings management occurs when management uses discretion in financial reporting and in structuring transactions with the objective of securing private gains. Earnings management issues related to financial disclosure and reporting are increasingly relevant to the multitude of firm stakeholders. In the wake of these manipulative corporate practices, investors and managers are trying to understand whether there is widespread Enron-like manipulation of financial results among corporations or whether these scandals are just an aberration. A related issue for financial analysts, investors, and corporate executives is how to distinguish between earnings manipulation that ultimately proves to be fraudulent and the day-to-day struggles of managers to meet pre-determined targets by using various accounting flexibilities. An understanding of the financial statement effects of financial engineering transactions will thus help managers try to avoid future Satyams and Enrons and help to improve the climate for a common investor. A very important dimension of earnings management is that earnings manipulation is usually not the result of an intentional fraud, but the culmination of a series of aggressive interpretations of the accounting rules and application of aggressive operating activities. The end result is misstatement of the financial results by the people involved and realization by them when it gets too late. The typical case of earnings manipulation begins with a track record of success. The company or division has posted significant sales and earnings growth over recent years. Their stock price trades at high price earnings multiple but unfortunately, it is becoming more difficult for the company to maintain the sales and earnings growth as per the analysts� expectations. The management goes for creative accounting practices to manage their earnings. This study analyses the earnings management practices in corporate enterprises in India by examining the magnitude of discretionary accruals. DeAngelo Model has been used for calculating discretionary accruals in regard to potential earnings management for the study. It also explores earnings management issues with respect to industry classification in these enterprises. The sample was drawn from the top 25 listed profit-making companies for the year 2007. The period chosen for the study was 2002–03 to 2007–08. An examination of the units shows a definite presence of accrual management in the sample companies. Most of the units have been found to be exercising income-increasing discretionary accruals. The earnings creativity is further strengthened by industry parameters among the units.

scholarly journals Earning management practices in Islamic banking in Indonesia

2020 ◽  
Vol 5 (01) ◽  
pp. 9
Author(s):  
Siti Chanifah ◽  
Hamdani . ◽  
Mutiara Wiedyaningtias
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Banking Sector ◽  
Stock Exchange ◽  
Descriptive Analysis ◽  
Value Added ◽  
Discretionary Accruals ◽  
Islamic Banking ◽  
Analysis Technique ◽  
Quantitative Descriptive

This study discusses to study earnings management practices in Islamic banking which are listed on the Indonesia Stock Exchange for the 2012-2016 period. Research using quantitative descriptive. The population in this study is the Islamic banking sector in Indonesia. Research samples at 11 Sharia Commercial Banks (BUS) reported on the Indonesia Stock Exchange. The data analysis technique used is descriptive analysis, with earnings management calculations using the Friedlan Model. The variable analyzed is earnings management using discretionary accruals. The results of this study show how earnings management practices occur in 11 Islamic banks in Indonesia. Value-added positive discretionary accruals indicate that there are earnings management practices by increasing earnings or increasing revenue and negative value discretionary accruals values indicate how earnings management practices by decreasing earnings or income decreases. Keywords: Earnings Management, Discretionary Accruals, Islamic Banking

scholarly journals HUBUNGAN ANTARA PROFITABILITAS TERHADAP EARNINGS MANAGEMENT PADA SEKTOR UTAMA INDONESIA DI BEI TAHUN 2008-2011

CALYPTRA ◽  
2020 ◽  
Vol 5 (2) ◽  
pp. 92
Author(s):  
Cindy Kristina Hariyono
Keyword(s):  
Earnings Management ◽  
Economic Crisis ◽  
Management Practices ◽  
Discretionary Accruals ◽  
The Other ◽  
Net Income ◽  
The Relationship

Abstrak - Perusahaan yang mengalami kerugian memiliki kecenderungan melakukan upaya yang dapat memberikan manfaat bagi perusahaan, salah satunya dengan melakukan earnings management. Penelitian ini bertujuan untuk mengetahui hubungan antara profitabilitas terhadap earnings management pada perusahaan yang mengalami kerugian saat krisis ekonomi Eropa. Populasi dalam penelitian ini adalah seluruh perusahaan di 9 sektor utama yang terdaftar di BEI dan memiliki net income negatif pada tahun 2008-2011. Perhitungan profitabilitas dalam penelitian ini menggunakan variabel ROA, OPM, DE, OCF, dan Size, sedangkan pendeteksian earnings management menggunakan discretionary accruals dengan menggunakan model Jones (1991). Hasil penelitian ini menunjukkan bahwa terdapat 2 sektor utama yang melakukan earnings management pada saat mengalami kerugian, sedangkan 7 sektor lainnya tidak melakukan earnings management pada saat mengalami kerugian. Kata kunci : profitabilitas, earnings management, krisis ekonomi, sektor utama Abstract - Losses’ companies have a tendency to make efforts that could provide benefits for the company, one of them by performing an earnings management. This study aims to determine the relationship between the profitability of the earnings management practices in the companies have losses during the economic crisis of Europe. The population in this study are all companies in 9 major sectors listed on the BEI and have a negative net income in 2008-2011. For calculate of profitability in this study using ROA, OPM, DE, OCF, and Size, while for detecting earnings management using discretionary accruals by using the model of Jones (1991). These results indicate that there are two main sectors that perform earnings management when the companies have losses, while the other sectors did not perform earnings management when they have losses. Keywords : profitability, earnings management, the economic crisis, main sector

scholarly journals Management Entrenchment, Firm Characteristics and Earnings Management Of Conglomerate Companies In Nigeria

2020 ◽  
Vol 9 (1) ◽  
pp. 1-14
Author(s):  
Temitope Olamide Fagbemi ◽  
Olubunmi Florence Osemene ◽  
Oyinlade Agbaje
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Discretionary Accruals ◽  
P Value ◽  
Secondary Source ◽  
Firm Characteristics ◽  
Ex Post ◽  
Management Entrenchment ◽  
The Impact

Sometimes the rivalry between shareholders and management is an indication of the level of entrenchment within the corporate environment. Managers are believed to routinely manipulate earnings in order to mislead shareholders about their company's actual economic outlook or performance. As a result, the study investigated the impact of managerial entrenchment, firm characteristics and earnings management of conglomerate companies in Nigeria. Employing the ex-post facto research design, the data was gathered from secondary source of the 6 listed conglomerate companies for the 11-year period running (2008-2018). The study used discretionary accruals a proxy for earnings management and to calculate discretionary accruals, the study used modified Jones model. The result showed that management entrenchment and firm characteristics have Impact on multinational firms ' earnings management in Nigeria. Specifically, from the conglomerate’s entrenchment proxies, CEO’s tenure has a positive and significant impact on earnings management (coff. =1.062821, p-value =0.0367) and management entrenchment as measured by CEO’s shareholding has a negative and insignificant effect on earnings management (coff. =-6252391, p-value = 0.4090) while firm size, profitability and leverage indicated a significant and positive impact on earnings management (coff, = 0.124587, p-value = 0.0000; coff. = 0.006647, p-value = 0.0431 and coff. = 0.032065, p-value = 0.0000). The study therefore recommended among others that management should reduce the debt in their capital structure in order to improve their companies’ value and their capital structure should be majorly financed by equity rather than debt and reduce CEOs tenure to minimise earnings management practices.

scholarly journals Earnings management and income tax evidence from Greece

2015 ◽  
Vol 12 (2) ◽  
pp. 511-529 ◽  
Author(s):  
Eftychia Kapoutsou ◽  
Christos Tzovas ◽  
Constantinos Chalevas
Keyword(s):  
Earnings Management ◽  
Significant Relationship ◽  
Income Tax ◽  
Management Practices ◽  
Management Accounting ◽  
Discretionary Accruals ◽  
Earning Management ◽  
Total Current ◽  
Jones Model ◽  
Deferred Tax

The aim of this study is to examine the question of earnings management and, specifically, how this relates to taxation. In order to determine whether there is a correlation between earnings management and taxation, we investigate the discretionary accruals aspect of total accruals, i.e. the portion of profits which can be affected by management accounting choices, as calculated by the Jones (1991) model and the modified Jones model (Dechow et. al, 1995). Furthermore, we examine to what degree a correlation may exist between discretionary accruals and tax income (consisting of current and deferred tax). Our empirical findings demonstrate a statistically significant relationship between the levels of discretionary accruals and of total, current and deferred tax. This suggests that tax in general may be employed as a means to facilitate earnings management. The findings of this study suggest that IFRS provisions regarding taxation provide firms with a scope to get involved in earning management practices

Earnings Management and Stock Liquidity

2021 ◽  
pp. 66-84
Author(s):  
Hakan Özkaya
Keyword(s):  
Stock Market ◽  
Earnings Management ◽  
Trading Volume ◽  
Management Practices ◽  
Positive Association ◽  
Discretionary Accruals ◽  
Market Liquidity ◽  
Stock Liquidity ◽  
Turnover Ratio ◽  
Liquidity Measures

This chapter tests whether the earnings management practices in Turkey are considered informative or opportunistic by outside investors by examining its effect on stock liquidity. Earnings management is measured by discretionary accruals calculated by two different competing methods. Stock liquidity is also proxied by two different measures: the illiquidity measure of Amihud and the turnover ratio. Amihud's illiquidity measure indicates firms' daily price responses associated with the trading volume and the turnover ratio indicates how many times a stock changes its owner in a year. Relevant control variables are also included in the models. A positive association between earnings management and stock liquidity implies informative earnings management and vice versa. Earnings management is found to be positively associated with stock market liquidity. Results favor the informative earnings management view for Turkish firms and are robust to alternative specifications of earnings management and stock liquidity measures.

scholarly journals DETEKSI MANAJEMEN LABA MELALUI PERBEDAAN NILAI ABSOLUT AKRUAL DISKRESIONER SEPUTAR SEASONED EQUITY OFFERINGS

2018 ◽  
Vol 14 (1) ◽  
pp. 54
Author(s):  
Djaja Perdana
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Discretionary Accruals ◽  
Seasoned Equity Offerings ◽  
Rank Test ◽  
Equity Offerings ◽  
Absolute Value ◽  
Discretionary Accrual ◽  
Signed Rank ◽  
Signed Rank Test

Abstrak: Deteksi Manajemen Laba Melalui Perbedaan Nilai Absolut Akrual Diskresioner Seputar Seasoned Equity Offerings. Penelitian ini bertujuan mendeteksi praktik manajemen laba pada perusahaan yang melakukan aksi Seasoned Equity Offerings. Pendeteksian manajemen laba dilakukan melalui pengujian perbedaan nilai absolut akrual diskresioner sebelum dan sesudah aksi Seasoned Equity Offerings (SEO).  Penelitian ini melibatkan total 201 data observasi dari 67 sampel perusahaan yang terdaftar di Bursa Efek Indonesia yang melakukan Seasoned Equity Offerings selama periode 2008-2013 dan dipilih melalui metode purposive random sampling serta menggunakan data Laporan Keuangan periode 2004-2016. Pengujian hipotesis menggunakan Wilcoxon Signed Rank Test. Penelitian ini menunjukkan bahwa terdapat perbedaan yang signifikan nilai absolut akrual diskresioner dalam informasi laba perusahaan antara sebelum dengan sesudah melakukan Seasoned Equity Offerings.  Nilai absolut akrual diskresioner sebelum Seasoned Equity Offerings lebih besar dibandingkan dengan sesudah Seasoned Equity Offerings. Hal ini menunjukkan terjadinya praktik manajemen laba sebagai dampak asimetri informasi antara manajemen perusahaan dengan investor. Kata kunci: Asimetri informasi, Manajemen Laba, Nilai Absolut Akrual Diskresioner, Seasoned Equity Offerings Abstract: Detecting Earning Managemeng by Examining the Changes in Absolute Value of Discretionary Accrual in Relation to Seasoned Equity Offerings. This study aims to detect earnings management practices in companies that perform Seasoned Equity Offerings. Earnings management is detected by examining the change of absolute value of discretionary accrual before and after Seasoned Equity Offerings (SEO). This study utilises 201 observation data from 67 IDX-listed companies which conducted Seasoned Equity Offerings during 2008-2013. The samples were selected by purposive random sampling method and using the data from Financial Report 2004-2016 period. The test was performed by using Wilcoxon Signed Rank Test. This study found the absolute value of discretionary accruals before Seasoned Equity Offerings is greater than after Seasoned Equity Offerings. These earnings management practices as impact of information asymmetry between management and investors. Keywords: Information Asymmetry, Absolute Value of Discretionary Accruals, Earnings Management, Seasoned Equity Offerings

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 Transfer Pricing and Controlled Transactions in Connection with Earnings Management and Tax Avoidance

2021 ◽  
Vol 92 ◽  
pp. 02031
Author(s):  
Katarina Kramarova
Keyword(s):  
Earnings Management ◽  
Income Tax ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Value Added ◽  
Financial Statements ◽  
Discretionary Accruals ◽  
Detection Capability ◽  
Related Party Transactions ◽  
Business Entities

Research background: The way of pricing intra-group transactions (controlled transactions in the terms of transfer pricing) should be in line with the arm´s length principle, whether we consider nationally or transnationally related business entities. If this is not the case, these operations are a tool for earnings management between the companies. It is known that income tax is perceived by businesses as an unproductive withdrawal of own funds without obvious consideration, and therefore managing economic transactions at the level of related-party entities in order to minimize the tax liability is obvious and even expected. Purpose of the article: The aim of the paper is to find out if controlled transactions are used in connection with earnings management and tax avoidance in the selected Slovak company using proxies, which may carry this detection capability (ratios of related party transactions, book-tax differences ratio, and discretionary accruals ratio). Methods: The analytical part of the paper follows the Slovak transfer pricing legislation in force. Following the existing research studies, we test hypothetical relationship between the indicators of earnings management, related party transactions and tax avoidance by applying correlation analysis. We worked mainly with publicly available data from financial statements and notes to financial statements. Findings & Value added: The results indicate that the company managed earnings rather downwards, since the values of discretionary accruals ratio were negative. On the other side, it was not proven that earnings management was carried out purely with the intention of minimizing tax liability.

Pengaruh Adopsi IFRS Terhadap Manajemen Laba Pada Perusahaan Manufaktur Yang Terdaftar Di BEI Tahun 2010-2014

2016 ◽  
Vol 3 (2) ◽  
pp. 190-211
Author(s):  
Deni Wijanarko ◽  
Achmad Tjahjono
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Management Practices ◽  
Stock Exchange ◽  
Growth Control ◽  
Sampling Technique ◽  
Net Income ◽  
Manufacturing Companies ◽  
Control Variables ◽  
The Difference

The purpose of this research is to determine the effect of the adoption of IFRS on earnings management is measured by three proxy smothing income, differentials change in net income (?NI), ratio of the middle of the difference changes the net income in the difference in the change in operating cash flow (?CF) and the correlation between the accrual and cash flow. In this study also uses control variables to capture whether there are other influences that different areas: size, leverage, growth and ROE. The population of this research is all manufacturing companies listed in Indonesia Stock Exchange 2010-2014. Sampling technique in this research is purposive sampling. Samples are 36 companies with a total of as many as 180. The sample observation method of data analysis used is multiple regression analysis. The results showed that there are significant adoption of IFRS on earnings management with significant value 0.023 <0.05. Variable control of size, leverage and ROE affect the behavior of managers in performing earnings management practices with significant value size = 0,030, leverage = 0.000 ROE = 0.014 (<0.05). While the growth control variables do not affect managers in earnings management practices. Keywords: Adoption of IFRS, earnings management

Do market participants value earnings management? An analysis using the quantile regression method

2019 ◽  
Vol 45 (1) ◽  
pp. 103-123 ◽  
Author(s):  
Leon Li ◽  
Nen-Chen Richard Hwang
Keyword(s):  
Quantile Regression ◽  
Earnings Management ◽  
Stock Returns ◽  
Stock Prices ◽  
Discretionary Accruals ◽  
Earnings Manipulation ◽  
Content Type ◽  
Market Participants ◽  
Gains And Losses ◽  
Quantile Regression Method

PurposeThe purpose of this paper is to postulate that market participants’ views on the nature of discretionary accruals as earnings management or earnings manipulation could relate to a rise or a fall in a firm’s stock prices.Design/methodology/approachApplying the quantile regression and measuring gains and losses according to the stock returns, this study shows that the relation between earnings manipulation and stock returns is non-uniform and it varies significantly across various quantiles of the latter.FindingsThe empirical results imply a positive (negative) |DA|-RETURN relation for stocks experiencing a rise (fall) in stock prices. This finding is consistent with the notion that market participants lean towards (become) trend followers (fundamentalists) when their stocks price rise (fall) and, thus, positively reward (negatively punish) discretionary accruals.Originality/valueUsing the behavioural heterogeneity of market participants as a research framework, this paper contributes to the literature by demonstrating that market participants’ decisions to positively reward (negatively punish) earning management behaviour depend on their perceptions on nature of discretionary accruals (earnings management vs earnings manipulation).

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