Earnings Quality and Earnings Management

Menicucci, Elisa

doi:10.1007/978-3-030-36798-5_3

Cited by 11 publications

(10 citation statements)

References 66 publications

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“…Earnings management can be seen as opportunistic behavior or efficient contracting (Scott, 2014). Opportunistic real earnings management aims to fulfill managers’ self-interest Roychowdhury (2006) provide information distortion (Menicucci, 2020). In this case, opportunistic real earnings management fails to predict future profitability (Bhojraj et al , 2009; Filip et al , 2015; Leggett et al , 2015; Tabassum et al , 2015; Vorst, 2016).…”

Section: Introductionmentioning

confidence: 99%

Crime rate, real earnings management and managerial ability

Simamora

2021

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Purpose This paper aims to examine the effect of managerial ability (MA) on real earnings management and the effect of real earnings management by higher ability managers on future profitability, at a different level of the crime rate. Design/methodology/approach The research sample includes 864 manufacturing firms-years listed on the Indonesian Stock Exchange. MA uses an efficiency score by data envelopment analysis. Real earnings management is measured by abnormal activities. The crime rate is measured by logarithm natural of the number of crimes per 100.000 citizens in the region where the firm is headquartered. Data analysis uses fixed-effect regression. Findings MA increases real earnings management in the region where the firm is headquartered with a higher crime rate while MA will reduce real earnings management in the region where the firm is headquartered with a lower crime rate. Also, real earnings management by higher-ability managers gives a signal of better future profitability in the region where the firm is headquartered with a lower crime rate. Originality/value This research contributes to filling the previous gap of managerial characteristics ability-related on real earnings management by providing regional crime rate as a determinant factor of managers’ ethical behavior. This research is the first one to considers the regional crime rate treatment to the relationship between MA and real earnings management especially in Indonesia. This research also provides new evidence of efficient real earnings management for a lower crime rate group of samples to give a signal of better future profitability.

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Section: Introductionmentioning

confidence: 99%

Crime rate, real earnings management and managerial ability

Simamora

2021

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“…After all the steps detailed above, it is possible, at this point, to state that a measure of discretionary accruals is available, with its due adjustments. The interpretation of discretionary accruals in relation to the quality of earnings is referenced to the absolute value of measured accruals; lower values are used when the quality of earnings is higher (Menicucci, 2020). You should be able to generate the Table 1 statistics.…”

Section: Standard Jones Modelmentioning

confidence: 99%

“…However, in the literature, accountants and financial economists have recognized that reported results may be managed by a variety of idiosyncratic contexts inherent in accounting choices (Cornett, McNutt, & Tehranian, 2009). Discretionary accounting choices may misrepresent or provide more appropriate private information in financial statements (Menicucci, 2020).…”

Section: Introduction Introductionmentioning

confidence: 99%

“…Additionally, we discuss and explain the biases, possible deficiencies, the major limitations, and empirical issues relevant to the metrics' estimates. Most of the highimpact research on earnings components that we present is based on two recent books about earnings management and earnings quality (El Diri, 2017;Menicucci, 2020).…”

Section: Introduction Introductionmentioning

confidence: 99%

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Standard Jones and Modified Jones: An Earnings Management Tutorial

Costa

Soares

2022

Rev. adm. contemp.

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Context: measurement of earnings management usually requires multi-step models for computation. After examining the literature through bibliometrics studies, literature review, and research databases, we found that the Standard Jones model and its subsequent modifications are those that have more prominent use. Much of this research is potentially interesting for business theories related to earnings quality and accounting manipulation; however, it is difficult to be understood by junior researchers and practitioners, because they are not clearly described in the literature or the steps may be easy to confuse. Objective: in this tutorial, we present several key concepts about earnings management and explain, step by step, how to measure it. Method: our tutorial considers measurement using the following models: Standard Jones, Modified Jones, Modified Jones with return on assets (ROA), and Modified Jones using Cash Flows and Accruals Reversals. Conclusions: our main contribution with this tutorial is to provide a step-by-step guide for future studies, so that they can be more comparable with each other when using measurement methods of earnings management.

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“…It indicates that family firms can also allow their higher ability managers to engage in REM. As earnings management consists of opportunistic that reduces earnings quality and efficient contract that improves earnings predictability (Menicucci, 2020) and family firms tend to maintain the earnings quality (Wang, 2006), family firms will allow the higher managerial ability to engage only in efficient REM. Opportunistic REM occurs when it harms firm value and fail to predict the future earnings (Bhojraj et al, 2009;Filip et al, 2015;Leggett et al, 2015;Simamora, 2019;Tabassum et al, 2014;Vorst, 2016), while efficient REM occurs when it can give a signal of better future performance (Gunny, 2010;Herbohn et al, 2010;Simamora, 2019).…”

Section: Hypotheses Developmentmentioning

confidence: 99%

Managerial ability and real earnings management in family firms

Putra¹,

Mela²,

Putra³

2021

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Purpose This study aims to examine the effect of managerial ability on real earnings management (hereafter REM) in family firms. Design/methodology/approach The sample consists of 864 firms-years listed in the Indonesian Stock Exchange. REM is measured by abnormal activities. Managerial ability is measured by data envelopment analysis. Data analysis uses random-effect regression analysis. Findings Family firms reduce the possibility of higher ability managers to engage in REM. Compare to non-family firms, higher ability managers in family firms are more likely to engage in REM to improve future earnings. Research limitations/implications This research only uses efficiency score data envelopment analysis to measure managerial ability while the managerial ability is, by nature, multi-dimensional and unobservable. This research also does not find the role of professional Chief Executive Officer (hereafter CEO) in the family firms in REM behavior because does not consider the professional CEO motivation (e.g. compensation structure). Practical implications This research is expected to help family firms formulate managers' selection based on managerial ability. This research also is expected to help investors and creditors to put their funds in the family firms with higher ability managers that reduce earnings information distortion. Originality/value To the best of the author’s knowledge, this research is the first research that examines the managerial ability on REM in Indonesian family firms. This research also contributes to fil the findings gap in managerial ability and REM.

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Earnings Quality and Earnings Management

Cited by 11 publications

References 66 publications

Crime rate, real earnings management and managerial ability

Crime rate, real earnings management and managerial ability

Standard Jones and Modified Jones: An Earnings Management Tutorial

Managerial ability and real earnings management in family firms

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