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

Abstract

Research background: The paper investigates the earnings management phenomenon in the context of Central European countries, attempting to identify the factors and incentives that can influence earnings management behavior on a sample of 8,156 enterprises from Slovakia, the Czech Republic, Hungary, and Poland.
 Purpose of the article: The main purpose of the manuscript is to prove that there are significant differences in earnings management practices (measured by discretionary accruals) across the countries and to find the firm-specific features that influence the way enterprises manage their earnings.
 Methods: The modified Jones model was used to calculate the discretionary accruals, which are further analyzed across the countries. The statistically significant differences were confirmed across the countries. Thus, the impact of the economic sector, firm size, firm age, legal form, and ownership structure on earnings management behavior is studied by the Kruskal-Wallis test. The Dunn-Bonferroni post hoc tests then revealed the significant differences across the categories of the investigated earnings management determinants. To find the association between the particular earnings management practice (income-increasing or income-decreasing manipulation), correspondence analysis was used to visualize the mutual relations.
 Findings & value added: The results of the realized investigation revealed that the economic sector is one of the most important earnings management determinants, as its statistical significance was confirmed in each analyzed country. The correspondence analysis determined specific sectors, where income-increasing manipulation with earnings is practiced (NACE codes F, J, K, M, N), and vice versa, income-decreasing earnings management is characteristic for enterprises in sectors A, C, D, G or L. In specific economic conditions, firm size is also a relevant indicator (Hungary), or firm age and legal form and ownership structure (Poland). The recognition of crucial earnings management incentives may be helpful for authorities, policymakers, analysts and auditors when identifying various techniques and practices of earnings manipulation which could vary across the sectors and taking necessary measures to mitigate potential financial risks.

Margin Trading Program, External Profit Pressure and Enterprise Financialization—A Quasi-Natural Experiment Based on Double Difference Model

“…Since corporate governance and enterprise investment behavior will affect the financial status and operating results of enterprises to a great extent, more and more scholars pay attention to relevant research. Enterprise financialization is an important investment behavior of enterprises, and it is particularly important to study its influencing factors [26,27]. From the micro-level, Song and Lu [28] and Li et al [29] found that enterprises with high and low performance have a higher degree of financialization, while enterprises with medium performance have a lower trend of financialization.…”

The influence of world oil prices on the Chinese Yuan exchange rate

“…Every country has differences in earning which are cohered to different macroeconomic and microeconomic determinants (Valaskova, 2021). Time series predictions can be used for exchange rate analysis (Machova, Marecek, 2019).…”

“…The importance of the macro-and microeconomic determinants working together we see in the major economies across the world. According to Valaskova (2021) paper factors such as behaviour of managers, comparing the influence of similar factors across countries detect the critical intentions management of earnings. Their own companies, and others, which are based there, influence every country.…”

“…In addition, according to Kharroubi (2021) and Krajčík (2022) rapid developments in science and technology are essential ingredients of globalization, which provides diverse workforce a reality in present day organization. Market development is influenced in individual economic cycles with the support of state and government decisions (Valaskova et al, 2021;Filipova et al, 2016;Dvorsky et al, 2021). For the survival of organizations in the global market is the adoption of a global approach (Kharroubi at al., 2021;Gavurova, 2012;Fedorko et al 2018;Masood et al, 2019).…”

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“…While Kliestik et al [6], referring to Schipper (1989), have emphasized that "The importance of earnings management was underlined by Schipper (1989) whose research focused on three issues: defining the object of earnings management, exploring conditions giving rise to earnings management and designing of empirical tests". Valaskova et al [7] drawing on the work Bin et al (2018), maintain that earnings management is a sound and legal way of managing and reporting business activities aimed at achieving stable and predictable financial results.…”