Bonds Between Earnings Management and Corporate Financial Stability in the Context of the Competitive Ability of Enterprises

Abstract

The financial health of enterprises and their continued profitability and competitiveness in the market are influenced considerably by the level of earnings achieved. Enterprises are forced to report the best possible results to demonstrate financial strength and competitiveness and to provide a good accounting for investors and creditors. Thus, the main objective of the study is to investigate whether there is any mutual dependence between corporate financial stability and earnings management. To measure these categories, Altman’s Z score was used to determine the financial health of enterprises, and the Beneish M-score and modified Jones model were applied to detect earnings manipulation. Using the chi-square test, the results revealed a statistically significant dependence between financial distress and earnings manipulation. Then, a multivariate statistical technique of correspondence analysis was applied to the categorical data to find categories of factors that are mutually correspondent. Based on a dataset of 11,105 enterprises operating in the Visegrad countries, the results found that enterprises that are threatened by bankruptcy or located in the gray zone tend to manipulate their earnings to maintain credibility, creditworthiness, and competitiveness. Because the financial health of an enterprise provides a potential incentive for earnings manipulation, state authorities, regulators, and policy-makers may benefit from the findings of the study.

Impact of management’s irrational expectations on corporate tax avoidance: A mediating effect based on level of risk-taking

“…To ensure the accuracy of the BTD indicators, this study adopted the fixed residual method used by Desai and Dharmapala (2006) ( Tian et al, 2019 ) to calculate the tax difference indicator (CBTD), excluding the impact of accruals in the current year and the impact of earnings management ( Valaskova et al, 2021 ), as a measure of the level of tax aggressiveness of enterprises. The specific model is as follows:…”

“…Drawing on previous research (Hanlon and Heitzman, 2010;Tian et al, 2019), the present study divides the measurement methods for tax avoidance indicators into the effective tax rate method and the tax difference method. Given the existence of many tax incentives and rebates for Chinese listed companies, the accuracy of using the effective tax rate method to measure tax To ensure the accuracy of the BTD indicators, this study adopted the fixed residual method used by Desai and Dharmapala (2006) (Tian et al, 2019) to calculate the tax difference indicator (CBTD), excluding the impact of accruals in the current year and the impact of earnings management (Valaskova et al, 2021), as a measure of the level of tax aggressiveness of enterprises. The specific model is as follows:…”

Does financial transparency substitute corporate governance to improve stock liquidity? Evidence from emerging market of Pakistan

“…earnings management and found that due to the threat of bankruptcy the firm manipulate their earnings to maintain competitiveness and credibility ( Valaskova et al, 2021 ).…”

New Schemes for Investment in of Small and Medium-Sized Enterprises of China: Role of Access to Finance, Innovation, and Sustainability

“…Much focus has been placed on the relationship between the growth of the financial sector and that of the economy in the wake of the global financial crisis in 2008–2009 ( Jakimowicz and Rzeczkowski, 2019 ). This is because the financial system is designed to ensure that long-term business needs are met through capital flows ( Valaskova et al, 2021 ). The crisis demonstrated that the stability of the financial sector and the economy as a whole could be jeopardized by excessive risk-taking and a lack of financial system loss-absorbing capacity ( Hou et al, 2019 ; Latif et al, 2021 ; Iqbal S. et al, 2021 ; Zhang et al, 2021 ).…”