Improving the measures of real earnings management

Srivastava, Anup

doi:10.1007/s11142-019-09505-z

Cited by 74 publications

(91 citation statements)

References 75 publications

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“…Similar to abnormal cash flows that be regressed with accrual operating revenue, the sharing distribution should be in cash that will be regressed with accrual operating revenue. It supports a statement that states abnormal cash flows is a sign of earnings management (Srivastava, 2019). Therefore, the revenue sharing distributed in income loss statement should be deducted by unpaid revenue sharing.…”

Section: Introductionsupporting

confidence: 71%

Real and accrual-based earnings management in Islamic Banks in Indonesia

Wafaretta

Restuningdiah

2020

JAA

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Islamic banks have tendency to tinker the earnings to present positive income. Therefore, it requires the examination of the relationship between Real Earnings Management (REM) and Accrual-based Earnings Management (AEM) that have contribution in promoting earnings. There are 2 theories used including prospect theory is to explain the negative relationship between REM and AEM, and agency theory is to explain whether the variables can be costs of REM or AEM. There are 63 financial reports of Islamic banks during the 2013-2018 period are determined by using purposive sampling and gathered from the banks' website. Correlation and regression test were conducted. This study found that REM is done through generating operational revenue and reducing distributed revenue sharing beyond the normal activities. REM negatively affects AEM that managers will adjust AEM based on the results of REM during the financial period. These findings confirm the prospect theory when the realized income is less than profit expectation, managers will employ accrual manipulation with the motive of prospect theory to achieve income target. Market share is found as a cost of AEM and institutional shows different result which drives REM more. The implication of this study is to provide findings how Islamic banks engage in earnings management. The relationship between REM and AEM shows the reliability of earnings that needs concern to restrict.

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Section: Introductionsupporting

confidence: 71%

Real and accrual-based earnings management in Islamic Banks in Indonesia

Wafaretta

Restuningdiah

2020

JAA

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“…Real earnings management (REM) is defined as the change in the company operating policy to achieve a short term reporting target and this can be calculated by the difference between the cost of this firm with other competitors in the same industry cost (Srivastava, 2019) 2.5. Board Independence Board independence refers to the number of non-executive board members who have the ability to make an independent judgment in areas that have a probable conflict of interest (Board Independence of Listed Companies, 2007).…”

Section: Corporate Governance and Earnings Managementmentioning

confidence: 99%

Corporate Governance and Earnings Management: Evidence from Listed Firms at Palestine Exchange

Abdelkarim

Zuriqi

2020

Asian Economic and Financial Review

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The agency problem gives an incentive to present corporate governance codes that help reduce the conflict of interest between company owners and managers. This study used corporate governance indicators to assess the relationship between CG and earnings management. Managers use earnings management to overstate or understate the figures to serve their own interests. Data were collected for the 33 sampled companies in this study from the annual reports of the listed companies at the Palestine stock exchange. The modified cross-sectional Jones model was used to define the value of earnings management. The independent variables (CG indicators) were board independence, board size, ownership concentration, CEO duality, and audit quality. In addition, to control variables to account for differences in size and performance of the firm, these variables are company size, return on asset and leverage. By using the regression model, a significant correlation between EM and size for the year 2015 and between EM and ownership concentration, size and return on assets for the year 2016 were found. The overall regression result showed that the model fits with the variable used. The R-squared (coefficient of determination) values showed that approximately 65% and 73% of the variability of earnings management was accounted for by the variables in the model. Contribution/ Originality: This study is one of very few studies to have investigated the relationship between corporate governance and earnings management practiced by Palestinian firms listed at the Palestine Stock Exchange. The findings of the study help explain this phenomenon in an emerging market, given the fact that the code of corporate governance is still relatively new and became effective in 2009.

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“…Exceptions are Cohen et al () and Eldenburg et al (). Srivastava () argues traditional REM measures can be improved by benchmarking on life cycle stage and production technology.…”

mentioning

confidence: 99%

“…Examples of REM studies that have implemented some form of performance matching in their specific setting are Cohen and Zarowin () and Badertscher (). In a recent study, Srivastava () implements matching based on industry cohorts that share the same life cycle stage and production technology.…”

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confidence: 99%

Measuring Real Activity Management

Cohen¹,

Pandit

Wasley

et al. 2020

Contemporary Accting Res

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To test hypotheses about earnings management, many studies investigate managers' manipulation of real activities (real earnings management, REM). Tests using measures of abnormal REM hinge critically on the measurement of normal real activities. Yet, there is no systematic evidence on the statistical properties of commonly used REM measures. We provide such evidence by documenting the Type I error rates and power of the test of the REM measures commonly used in the literature. We find these measures are often misspecified with Type I error rates that deviate from the nominal significance level of the test, especially in samples of firms with extreme performance or firm characteristics. We also compare the specification and power of traditional REM measures with performance‐matched REM measures to see if the latter provide better specified and more powerful tests. While performance‐matched REM measures are not immune from misspecification in all settings, in general they are better specified under the null hypothesis (i.e., in terms of Type I errors) than are traditional REM measures. Comparisons of the power to detect abnormal REM reveal that neither approach, traditional or performance‐matched, is consistently more powerful than the other in terms of detecting abnormal REM ranging from 1 to 10 percent of (lagged) total assets. The absence of a dominant approach to measure abnormal REM leads us to recommend that future researchers report results using both traditional and performance‐matched measures, so that readers are able to clearly assess the reliability of the inferences drawn about the magnitude and significance of the abnormal REM documented in a given study.

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Improving the measures of real earnings management

Cited by 74 publications

References 75 publications

Real and accrual-based earnings management in Islamic Banks in Indonesia

Real and accrual-based earnings management in Islamic Banks in Indonesia

Corporate Governance and Earnings Management: Evidence from Listed Firms at Palestine Exchange

Measuring Real Activity Management

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