Real and accrual‐based earnings management and its legal consequences

Ibrahim, Salma; Xu, Li; Rogers, Genese

doi:10.1108/10309611111148779

Cited by 38 publications

(35 citation statements)

References 34 publications

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“…In line with this, Ibrahim et al (2011) find that the enactment of SOX has an impact in reducing accrual-based earnings management activities in the SEO setting. They stress the substitution effect between accrual-and real-based manipulations.…”

Section: Hypothesis 3bsupporting

confidence: 63%

“…They find that US firms engage in income-increasing accrual manipulation, as well as real-based earnings management activities around SEOs, and that managers trade-off these two activities. Ibrahim et al (2011) …”

Section: Real-based Earnings Managementmentioning

confidence: 99%

“…According to prior US studies by Roychowdhury (2006), Cohen and Zarowin (2010), Ibrahim et al (2011), andZang (2012), real earnings management activities can be undertaken by the following three methods:…”

Section: Real-based Earning Management Measuresmentioning

confidence: 99%

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Accrual and real-based earnings management by UK acquirers

Kassamany

Ibrahim

Archbold

2017

JAOC

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Methodology: Mean and median accrual and real-based manipulation are examined in the period before the announcement of a merger and acquisition. These are compared across stock and cash acquirers as well as before and after the implementation of the Higgs recommendations. We also run logistic regressions to examine accrual and realbased manipulation across stock and cash acquirers after controlling for variables that may impact the acquisition type. Findings:We find some evidence of upward pre-merger accrual-based earnings management by stock-financed acquirers, which is in line with the findings of Botsari and Meeks (2008). Furthermore, we do not find significant changes in the post-Higgs period which indicates that the recommendations put forth by Higgs may not have been successful in mitigating earnings management. Our evidence also shows that cash bidders engage in pre-merger real earnings manipulation through lower discretionary expenses, possibly to enhance cash availability for the bid. 2Practical implications: The findings in this study confirm earnings management exists around mergers and acquisitions and provide some evidence that the recommendations set out in the Higgs Report do not appear to have mitigated earnings management activities. This is of interest to regulators as well as investors and academicians.Originality: This provides the first analysis in the UK examining the use of real-based earnings management activities by UK acquirers. It also extends prior research around corporate governance changes that occurred in the UK. IntroductionEarnings management has been extensively examined through a stream of research that considers firms involved in specific corporate events (such as seasoned equity offerings, initial public offerings and management buyouts). This study extends prior results on earnings management in mergers and acquisitions (hereafter M&As) that engage in either cash or stock bids; and examines the prevalence of accrual and real-based earnings management in this context. Furthermore, we examine whether regulatory changes in the UK following the Higgs (2003) report have an impact on earnings management in this context.Though prior research has examined accrual-based manipulation in the M&A context in the US (such as Erickson and Wang, 1999; Louis, 2004) in the UK (Botsari and Meeks, 2008), and in the Asia-pacific region (Ardekani et al., 2012;Higgins, 2013;Jeong and Bae, 2013), only limited studies have extended its scope to examine whether acquiring firms engage in the manipulation of real activities (e.g. Zhang, 2015). Therefore, a comprehensive study that considers both accrual and real-based earnings management practices is needed to contribute to earnings management research in the UK M&A context. Furthermore, fundamental changes to governance codes around the world have occurred over the past few years. For example, the enactment of the Sarbanes-Oxley Act in the US; the UK Corporate Governance Code in the UK based on the recommendations set out in the Higgs Report (2003)...

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Section: Hypothesis 3bsupporting

confidence: 63%

Section: Real-based Earnings Managementmentioning

confidence: 99%

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Accrual and real-based earnings management by UK acquirers

Kassamany

Ibrahim

Archbold

2017

JAOC

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“…In response to this, new legislations were promulgated to tighten the regulations relating to CG and financial reporting in a number of countries including the US and UK. The Sarbanes Oxley Act enacted July 30, 2002, also known as the "Public Company Accounting Reform and Investor Protection Act" in the US was in response to this phenomenon (Ibrahim, Xu, & Rogers, 2011).…”

Section: The Role Of Institutional Ownershipmentioning

confidence: 99%

The Impact of the UK Corporate Governance Code 2010 on Earnings Management around Mergers and Acquisitions

Banseh¹,

Khansalar²

2016

IJEF

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Several studies revealed earnings management (EM) around mergers and acquisitions (M&As) by both acquirers and target firms. Rosa et al. (2003) suggest that a systematic EM is associated with the use of stock as payment in takeovers. This and other corporate malpractices have prompted authorities to tighten regulations by passing the United Kingdom (UK) Corporate Governance (CG) Code to guide companies in the UK in their corporate management and financial reporting.This study is to investigate the impact of the UK CG Code on accruals EM around M&As in the UK. The study applied the Modified Jones (1991) model as modified by Dechow et al. (1995) and the Pearson Product Moment Correlation in analysing a sample data from 66 companies listed on the LSE that have undertaken M&As within the period of January 2007 to December 2014. The results produced by the modified Jones model indicate some level of income increasing discretionary accruals in the pre-CG period but showed an opposite situation in the post-CG period. A test for significance indicates the means of pre-CG discretionary accruals and post-CG discretionary accruals were different and significant. The hypothesis that "the level of earnings management around mergers and acquisitions in the UK has significantly reduced after the enactment of the UK Corporate Governance code 2010" was therefore accepted.Results from the Pearson Correlation Coefficient were inconclusive on EM but indicate some changes in the level of activities in the earnings between the two periods. This may also points to some effect of CG Code on the reported earnings of these companies. The results from this study is consistent with existing studies that evince the effectiveness of CG in controlling EM as Hsu and Koh (2005);Osma (2008) suggest that best corporate governance practices minimise EM and reduce fraud drastically.

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“…Saat ini, manajemen laba berbasis aktivitas riil telah banyak mendapat perhatian dari para peneliti (Graham et al, 2005;Gunny, 2005;Zang, 2006;Roychowdhury, 2006;Yu, 2008;Cohen dan Zarowin, 2008;Gunny, 2009;Cohen dan Zarowin, 2010;Ratmono, 2010;Subekti et al, 2010;Ibrahim et al, 2011;serta Lee dan Swenson, 2011), karena manajer telah beralih dari manajemen laba berbasis akrual ke manajemen laba riil untuk menghindari deteksi yang dilakukan auditor dan regulator (Graham et al, 2005;Cohen dan Zarowin, 2008;dan Ibrahim et al, 2011). Namun, untuk menguji pengaruh manajemen laba secara keseluruhan, peneliti tidak dapat meneliti satu teknik manajemen laba saja, karena adanya hubungan substitusi antara manajemen laba riil dengan manajemen laba akrual.…”

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Dampak Manajemen Laba Terhadap Perencanaan Pajak Dan Persistensi Laba

Syanthi¹,

Sudarma²,

Saraswati³

2017

EKUITAS

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This study aims to examine the effect of earnings management on tax planning and earnings persistence using firm size as a control variable. The analytical method used is panel data regression using secondary data from the ABSTRAKPenelitian ini bertujuan untuk menguji pengaruh manajemen laba terhadap perencanaan pajak dan persistensi laba dengan menggunakan ukuran perusahaan sebagai variabel kontrol. Metode analisis yang digunakan adalah regresi data panel dengan menggunakan data sekunder dari Bursa Efek Indonesia. Sampel terdiri atas 40 perusahaan manufaktur selama periode 2006-2010. Berdasarkan hasil pengujian ditemukan bahwa baik manajemen laba riil maupun manajemen laba akrual meningkatkan persistensi laba, sedangkan perencanaan pajak tidak mempengaruhi persistensi laba. Perusahaan melakukan manajemen laba riil melalui manipulasi penjualan dan pengurangan beban diskresi tunai untuk mempengaruhi persistensi laba, sedangkan produksi barang secara berlebihan terbukti tidak mempengaruhi persistensi laba. Selain itu, perusahaan terbukti tidak melakukan manajemen laba dalam melakukan perencanaan pajak. Perusahaan yang melakukan manajemen laba akan memiliki laba yang lebih persisten dibandingkan dengan perusahaan yang tidak melakukan manajemen laba. Semakin besar ukuran perusahaan, semakin persisten laba perusahaan. Penelitian ini mendukung teori keagenan yang menjelaskan bahwa manajemen laba dilakukan dengan motivasi signaling.Kata kunci: Manajemen laba, perencanaan pajak, persistensi laba. PENDAHULUANFenomena penggelapan pajak (tax evasion) seperti kasus penggelapan pajak yang dilakukan oleh Grup Asian Agri, Grup Bakrie, Makindo, dan Grup Ramayana (Mathari et al., 2010) merupakan salah satu isu penting yang sering dibahas di Indonesia saat ini. Fenomena ini muncul akibat adanya perbedaan kepentingan antara perusahaan sebagai wajib pajak dengan pemerintah sebagai pemungut pajak, sehingga mendorong wajib pajak untuk cenderung melakukan minimalisasi beban pajak baik secara legal maupun illegal. Wajib pajak

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Real and accrual‐based earnings management and its legal consequences

Cited by 38 publications

References 34 publications

Accrual and real-based earnings management by UK acquirers

Accrual and real-based earnings management by UK acquirers

The Impact of the UK Corporate Governance Code 2010 on Earnings Management around Mergers and Acquisitions

Dampak Manajemen Laba Terhadap Perencanaan Pajak Dan Persistensi Laba

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