Earnings management in V4 countries: the evidence of earnings smoothing and inflating

Abstract

Earnings management is one of the most challenging, debated and controversial topics in finance and financial management. Organisational, legislative, and social norms regarding the ethics of earnings management may vary significantly, with the views of top management and economic environment playing significant roles in shaping the organisational social norm. Thus, the aim of this research is to assess if earnings management is the common practice of enterprises within V4 countries. A novel approach of the selection process to assess the ability of selected earnings management detection models was applied. To highlight discrepancies and similarities among the countries, the non-parametric alternative of analysis of variance was applied. The research confirmed that enterprises do manipulate earnings, typical is upward manipulation. Furthermore, the research unveiled the extent of manipulation with earnings in unique country samples and thus emphasised the importance of both corporate and national ethical principles and managerial decisions, which affect corporate financial reporting quality. However, it is increasingly challenging to identify various aspects and incentives which forced enterprises operating at the global level to smooth and inflate earnings to improve earnings presented in the financial statements and to misinterpret financial results.

Does the life cycle affect earnings management and bankruptcy?

“…Callao et al (2017) tested thirteen models of accrual earnings management; their results in a sample of companies from the Visegrad Four indicate that although the modified Jones model is the most widely used model, there are other more reliable models such as Jones (1991) or Kasznik (1999). Nevertheless, a study by Kliestik et al (2020a) and Valaskova and Durana (2020) lean towards the generally preferred modified Jones model.…”

“…Brzeszczynski et al (2011) pointed to discontinuity in earn-ings indicating the presence of earnings management practices, with a positive earnings threshold having significant implications for reported profits similar to those in US companies. Kliestik et al (2020a) revealed a growing trend of accounting manipulations in all Central European companies, with earnings reaching a threshold in 2014, 2013 (the Czech Republic) respectively. Cherkasova and Radasi (2017) comparing samples from Central and Eastern Europe also did not reveal any difference in earnings management.…”

Artificial Intelligence-Based Decision-Making Algorithms, Internet of Things Sensing Networks, and Deep Learning-Assisted Smart Process Management in Cyber-Physical Production Systems

“…Manufacturing process monitoring systems have advanced as decentralized reconfigurable networked entities by use of cutting-edge intelligent machines. Sustainable manufacturing Internet of Things enables robust and dynamic planning and monitoring of production systems [165][166][167][168], by leveraging efficient and sound real-time data gathering, handling, and analysis from the industrial unit. Physical entities on the plant are self-governing intelligent logical units carrying out undertakings directed by distributed control functions.…”

Quo Vadis, earnings management? Analysis of manipulation determinants in Central European environment

“…The Polish environment, where there is also the highest number of studies published in the field of earnings management (Kliestik et al, 2021(Kliestik et al, , pp. 1452(Kliestik et al, -1470 is described by different earnings management practices across sectors, legal form (ownership structure) and firm age.…”