Real Earnings Management: A Review of Literature and Future Research

Ali, Belal; Kamardin, Hasnah

doi:10.5296/ajfa.v10i1.13282

Cited by 28 publications

(23 citation statements)

References 48 publications

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“…The earnings management literature reports several techniques used by company managers to affect reported earnings. These techniques are considered to be key indicators of earnings quality and consequently financial reporting quality (Ali and Kamardin, 2018b;Jeong and Choi, 2019). Earnings management is defined severally in the literature, but a comprehensive definition was introduced by Healy and Wahlen (1999): "Earnings management occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers" (p. 368).…”

Section: Real Earnings Managementmentioning

confidence: 99%

Audit Committee Chair’s Legal Expertise and Real Activities Manipulation: Empirical Evidence From Malaysian Energy and Utilities Sectors

Ghaleb

Al-Duai

Hashed

2020

IJEEP

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Recent studies claim that improvements in regulations and corporate governance law in different countries are restricting accrual-based earnings management and encouraging managers to shift to real earnings management (REM). However, it is not yet clear whether audit committee (AC) directors with legal expertise are associated with higher or lower REM. Thus, this study aims to investigate the relationship between the AC chair's legal expertise and REM in the energy and utilities sectors in Malaysia. The study uses a sample of all energy and utilities companies listed on Bursa Malaysia between 2013 and 2018. Ordinary least squares (OLS) regression is applied to analyse the study data. The study finds that AC chairs with legal expertise are positively and significantly associated with REM, suggesting that they have not yet ceased REM practices. The findings add to the corporate governance and earnings management literature, and inform regulators and other readers of financial reports about the monitoring role of the AC chair.

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Section: Real Earnings Managementmentioning

confidence: 99%

Audit Committee Chair’s Legal Expertise and Real Activities Manipulation: Empirical Evidence From Malaysian Energy and Utilities Sectors

Ghaleb

Al-Duai

Hashed

2020

IJEEP

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“…Earnings management, which is a key indicator of financial reporting quality (Ali and Kamardin, 2018) has become a major concern for the past two decades. The occurrence of financial scandals and the collapse of high profile companies as a result of financial reporting fraud have made earnings management a central issue to various stakeholders who massively use accounting information (Callao et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

Earnings management: a strategic adaptation or deliberate manipulation?

Baskaran

Nedunselian

et al. 2020

JFC

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Purpose This study aims to clarify the relationship between ethical orientation and earnings management perception phenomenon in the organization. It discusses to what extent earnings management is considered as a strategic adaptation or deliberate manipulation in an organization. The study also aims to expand the domain of ethical perspective of earnings management by considering mediating and moderating role of investor sentiment and corporate social responsibility (CSR) as inward pressure and outward commitment surrounding the organization, adopting a combined perspective of strategic management and also accounting discipline than is normally found in the ethics and earnings management literature. Design/methodology/approach The study opted for literature synthesis to define key concepts surrounding ethics and earnings management perception in the organization. Besides, it attempted to identify influential mediators and moderators in explaining the earnings management phenomenon in the organization. Consequently, the study identified the gaps in current research to draw upon a more holistic conceptual framework. The rationale for the research was justified within the body of research. Findings The study suggested research propositions based on the literature synthesis in view of ethics and earnings management perception in the organization. More specifically, it has proposed a conceptual framework, explaining the relationship between ethical orientation and a multi-dimensional view of earnings management perception. It is envisaged that the mediating and moderating role of investor sentiment and CSR incorporated in this conceptual study will improve the predictive value of the proposed framework and offer additional insights about factors that inhibit or advance ethical orientation and earnings management practices in the organization. Research limitations/implications This paper suffers from the obvious limitation of lacking empirical investigation. However, it does provide a theoretical rationale for the argument that alteration of earnings can be controlled if ethical orientation is emphasized in the organization apart from insulating internal and external pressures to manage such phenomenon from happening in the organization. Perhaps, the most important direction for future research is further extension and validation of this framework by performing an empirical investigation to produce newer insights into this phenomenon. Originality/value This conceptual study is different from previous studies on the grounds it has considered unexplored issues linking inward pressures and outward commitments in explaining this phenomenon further. To bridge the critical knowledge gap of earnings management phenomenon, a mediating effect of investor sentiment as an inward pressure and a moderating role of CSR as an outward commitment are also integrated within the model. The proposed model neither formulated nor tested empirically in previous studies locally or, perhaps, globally, therefore, stands out as an original contribution in the study of ethical orientation and earnings management perception.

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“…This approach is most likely to happen when such expenses do not generate immediate income. Literature has documented that R&D spending is significantly less when the ability to report positive or increasing income in the current period is jeopardized (Gunny, 2015;Osma, 2008;Ali & Kamardin, 2018). Trejo-Pech et al (2015 found that firms reduce spending on R&D toward the end of their tenure to increase short-term earnings.…”

Section: Literature Reviewmentioning

confidence: 99%

Accounting Manipulation of Financially Distressed Firms: Malaysian Evidence

Nia¹,

Ghazali

Shafie

et al. 2022

MJSSH

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Firms approaching deterioration in financial performance may make income-increasing accounting choices in an attempt to survive what is probably deemed by the management as a temporary bad period. This study attempts to empirically examine real activities-based earnings manipulation among financially troubled firms in Malaysia over the years prior and after being officially designated as a “financially distressed firm.” The study detects real activities manipulation by investigating patterns in cash flow from operations (CFO), discretionary expenses, and production costs. Results reveal that CFO and discretionary expenses are unusually low for the years preceding the official designation as a financially distressed firm. This evidence suggests that distressed firms temporarily increase sales and reduce discretionary expenditures to improve reported margins. Moreover, having likely exhausted the opportunities for accounting manipulation, distressed firms manipulate real activities, such as sales and discretionary expenditures, highly aggressively in the years after being identified as a financially distressed firm. This study contributes to literature by going beyond the examination of abnormal accruals derived from accruals models to gain insight into the measurement of operational elements of income rather than the implementation effects of the accounting system.

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Real Earnings Management: A Review of Literature and Future Research

Cited by 28 publications

References 48 publications

Audit Committee Chair’s Legal Expertise and Real Activities Manipulation: Empirical Evidence From Malaysian Energy and Utilities Sectors

Audit Committee Chair’s Legal Expertise and Real Activities Manipulation: Empirical Evidence From Malaysian Energy and Utilities Sectors

Earnings management: a strategic adaptation or deliberate manipulation?

Accounting Manipulation of Financially Distressed Firms: Malaysian Evidence

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