Long-Term Orientation and Earnings Management Strategies

Haga, Jesper; Huhtamäki, Fredrik; Sundvik, Dennis

doi:10.2308/jiar-52501

Cited by 42 publications

(31 citation statements)

References 59 publications

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“…In this study, we define earnings management (EM) as any managerial activities that change earnings toward a pre-decided target via accruals or real earnings management, since including the two types of EM is crucial for creating potential, but with different costs (Haga et al , 2019).…”

Section: Research Background and Hypotheses Developmentmentioning

confidence: 99%

Culture, institutional quality and earnings management: an international evidence

Yamen

Kuzey

Dinç

2021

EMJB

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PurposeThis paper examines the link between culture, institutional quality and real earnings management and accrual earnings management by combing the study by Hofstede (2001) and Enomoto et al. (2015). The paper tries to test the effect of culture on institutional quality and both real earnings management (REM) and accrual earnings management (AEM).Design/methodology/approachThe sample of the research paper includes 38 countries. Hofstede cultural dimensions are used to measure cultural values. Public governance indicators published by the World Bank are used as a proxy for measuring the institutional quality. Earning management scores constructed by Enomoto et al. (2015, p. 191) are used for measuring real earnings management (REM) and accrual earnings management (AEM). Partial Least Square (PLS) based Structural Equation Modelling (SEM) is used to test the relationship between culture, institutional quality and earnings management.FindingsThe results support the relationship between culture and institutional quality. Also, the results reveal a significant relationship between culture and accrual earnings management, but an insignificant relationship between culture and real earnings management. In addition to that, another important finding is that institutional quality has a significant impact on real earnings management, but has no significant effect on accrual earnings management.Practical implicationsThe results suggest that standard setters need to consider the quality of institutions to improve the quality of financial reports. Also, it highlights the role of both formal and informal cultures in shaping financial reports.Originality/valueFor the best of our knowledge, this the first time to test the link between culture and institutional quality and comparing the impact on both real earnings management and accrual earnings management.

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Section: Research Background and Hypotheses Developmentmentioning

confidence: 99%

Culture, institutional quality and earnings management: an international evidence

Yamen

Kuzey

Dinç

2021

EMJB

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“…In contrast, He (2016) reports that Chinese IPOs and SEO firms, receiving fiscal support in the form of preferential tax treatment, have significantly lower levels of AEM and REM prior to the offering, implying that fiscal support reduces the demand for earnings management. Haga et al (2019) hypothesise and find that firms in short-term-oriented cultures tend to manage earnings through REM to meet or beat earnings benchmarks. However, firms operating in long-term-oriented cultures manage accruals to meet or beat zero and prior year earnings benchmarks.…”

Section: Other Governance Mechanisms and Remmentioning

confidence: 95%

“…Haga et al . (2019) hypothesise and find that firms in short‐term‐oriented cultures tend to manage earnings through REM to meet or beat earnings benchmarks. However, firms operating in long‐term‐oriented cultures manage accruals to meet or beat zero and prior year earnings benchmarks.…”

Section: Determinants Of Remmentioning

confidence: 99%

Real earnings management: A review of the international literature

Habib

Ranasinghe

et al. 2022

Accounting & Finance

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We provide a systematic literature review of the determinants and consequences of real earnings management (REM) in an international context. We provide a theoretical framework for REM, the development of REM measures, and review the determinants of REM, categorising these into financial reporting, auditing, governance and controls, capital market incentives, and regulatory determinants. We then review the empirical literature on the consequences of REM. We provide some suggestions for future research on measurement issues related to REM, and on filling gaps in the empirical research investigating its determinants and consequences.

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“…Makarem et al (2018) find that both small-profit and small-loss firms are engaged in manipulation of accruals as well as real activities. At the same time Haga et al (2019) suggest that manipulation of accruals enables benchmark beating with high precision, while manipulation of cash flows does not. With the exception of Gilliam et al (2015), prior studies discussed above provide evidence of discontinuities in distributions around earnings benchmarks and interpret these as resulting from earnings management.…”

Section: Background and Literature Reviewmentioning

confidence: 99%

An alternative approach to detect earnings management to meet or beat benchmarks

Degiannakis

Giannopoulos²,

Ibrahim³

et al. 2022

JAL

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PurposeThe authors propose an alternative robust technique to test for discontinuities in distributions and provide consistent evidence of discontinuities around zero for both scaled and unscaled earnings levels and changes. The advantage of the proposed test is that it does not rely on arbitrary choice of bin width choices.Design/methodology/approachTo evaluate the power of the test, the authors examine the density function of non-discretionary earnings and detect no evidence of discontinuities around zero in levels and changes of these non-discretionary earnings. As robustness, the authors use pre-managed earnings excluding accrual and real manipulation and find similar evidence.FindingsThe finding using our technique support the Burgstahler and Dichev (1997) interpretation on earnings management, even for smaller sample sizes and reject the theory that discontinuities arise from scaling and sampling methods.Originality/valueThe study provides an overview of those studies that support and those that oppose using “testing for discontinuities” as a way to examine earnings management. The authors advance the literature by providing an alternative methodology supporting the view that the kink in the distribution represents earnings management.

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Long-Term Orientation and Earnings Management Strategies

Cited by 42 publications

References 59 publications

Culture, institutional quality and earnings management: an international evidence

Culture, institutional quality and earnings management: an international evidence

Real earnings management: A review of the international literature

An alternative approach to detect earnings management to meet or beat benchmarks

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