Appraisal of earnings management across the sectors
Abstract
Financial managers intentionally use the legal manipulation of earnings to the business development. Earnings management is a widespread business finance phenomenon. The approaches and the ways of this practice are marked by many parallels. The main target of the article is to show the clusters with the close approach of the enterprises to the earnings manipulation and demonstrate hidden relations of the earnings management between sectors in the Visegrad Group. The study estimates the earnings management by the Modified Jones model. 52,545 discretionary accruals are computed for Slovak, Czech, Hungarian, and Polish enterprises for 5-year horizon in 19 sectors classified by the NACE. The clusters of close practices of the earnings management are identified based on principal component analysis and cluster analysis in every country of Visegrad Four. Moreover, the results detect the dependences between sectors in the region and the specificity of the sectors.
Keyword : business finance, cluster analysis, discretionary accrual, earnings management, PCA, Visegrad Four
How to Cite
Durana, P., Valaskova, K., Siekelova, A., & Michalkova, L. (2022). Appraisal of earnings management across the sectors. Journal of Business Economics and Management, 23(2), 399–425. https://doi.org/10.3846/jbem.2022.16563
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Donatella, P., Haraldsson, M., & Tagesson, T. (2019). Do audit firm and audit costs/fees influence earnings management in Swedish municipalities? International Review of Administrative Sciences, 85(4), 673–691. https://doi.org/10.1177/0020852317748730
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Gavurova, B., Privara, A., Janikova, J., & Kovac, V. (2021b). Quantification of tourism sector parameters related to competitiveness of countries according to macroeconomic indicators. Journal of Competitiveness, 13(3), 56–72. https://doi.org/10.7441/joc.2021.03.04
Grabusts, P. (2011). The choice of metrics for clustering algorithms. Environment, Technologies, Resources, 2, 70–76. https://doi.org/10.17770/etr2011vol2.973
Grofcikova, J. (2020). Impact of selected determinants of corporate governance on financial performance of companies. Ekonomicko-manazerske spektrum, 14(2), 12–23. https://doi.org/10.26552/ems.2020.2.12-23
Haga, J., Huhtamaki, F., & Sundvik, D. (2019). Long-term orientation and earnings management strategies. Journal of International Accounting Research, 18(3), 97–119. https://doi.org/10.2308/jiar-52501
Hussain, A., Akbar, M., Kaleem Khan, M., Akbar, A., Panait, M., & Catalin Voica, M. (2020). When does earnings management matter? Evidence across the corporate life cycle for non-financial Chinese listed companies. Journal of Risk and Financial Management, 13(12), 313. https://doi.org/10.3390/jrfm13120313
Irwandi, S. A., & Pamungkas, I. D. (2020). Determinants of financial reporting quality: Evidence from Indonesia. Journal of International Studies, 13(2), 25–33. https://doi.org/10.14254/2071-8330.2020/13-2/2
Jackson, A. B. (2018). Discretionary accruals: Earnings management... or not? Abacus, 54(2), 136–153. https://doi.org/10.1111/abac.12117
Kadhim, S. C., Hasan, H. F., & Khalbas, H. N. (2020). The effect of business diversity on the relation between profit sustainability, real earnings management and commercial credit in companies of securities and exchange organization of Iraq. Industrial Engineering & Management Systems, 19(4), 908–915. https://doi.org/10.7232/iems.2020.19.4.908
Khanh, M. T. H., & Thu, P. A. (2019). The effect of financial leverage on real and accrual-based earnings management in Vietnamese firms. Economics and Sociology, 12(4), 299–312. https://doi.org/10.14254/2071-789X.2019/12-4/18
Kim, J., Kim, Y., & Zhou, J. (2017). Languages and earnings management. Journal of Accounting and Economics, 63(2–3), 288–306. https://doi.org/10.1016/j.jacceco.2017.04.001
Kjærland, F., Haugdal, A. T., Sondergaard, A., & Vagslid, A. (2020). Corporate governance and earnings management in a Nordic perspective: Evidence from the Oslo stock exchange. Journal of Risk and Financial Management, 13(11), 256. https://doi.org/10.3390/jrfm13110256
Kliestik, T., Belas, J., Valaskova, K., Nica, E., & Durana, P. (2020a). Earnings management in V4 countries: The evidence of earnings smoothing and inflating. Economic Research-Ekonomska Istraživanja, 1–19. https://doi.org/10.1080/1331677X.2020.1831944
Kliestik, T., Valaskova, K., Nica, E., Kovacova, M., & Lazaroiu, G. (2020b). Advanced methods of earnings management: Monotonic trends and change-points under spotlight in the Visegrad countries? Oeconomia Copernicana, 11(2), 371–400. https://doi.org/10.24136/oc.2020.016
Kot, S., & Rajiani, I. (2020). Testing and identifying variable dependency through the Fisher exact test in central Europe enterprises. Ekonomicko-manazerske spektrum, 14(1), 10–18. https://doi.org/10.26552/ems.2020.1.10-18
Kramarova, K. (2021). Transfer pricing and controlled transactions in connection with earnings management and tax avoidance. SHS Web of Conferences, 92, 02031. https://doi.org/10.1051/shsconf/20219202031
Kundelis, E, & Legenzova, R. (2019). Assessing impact of base erosion and profit shifting on performance of subsidiaries of multinational corporations in Baltic countries. Equilibrium – Quarterly Journal of Economics and Economic Policy, 14(2), 277–293. https://doi.org/10.24136/eq.2019.013
Li, S., & Zhang, Y. T. (2020). Managerial political spending choice and earnings management. Review of Pacific Basin Financial Markets and Policies, 23(04), 2050035. https://doi.org/10.1142/S0219091520500356
Liu, M., Shi, Y., Wilson, C., & Wu, Z. (2017). Does family involvement explain why corporate social responsibility affects earnings management? Journal of Business Research, 75, 8–16. https://doi.org/10.1016/j.jbusres.2017.02.001
Lizinska, J., & Czapiewski, L. (2018). Towards economic corporate sustainability in reporting: What does earnings management around equity offerings mean for long-term performance? Sustainability, 10(12), 4349. https://doi.org/10.3390/su10124349
Lo, K., Ramos, F., & Rogo, R. (2017). Earnings management and annual report readability. Journal of Accounting and Economics, 63(1), 1–25. https://doi.org/10.1016/j.jacceco.2016.09.002
Metzker, Z., & Siekelova, A. (2021). Explanatory power of earnings management models. SHS Web of Conferences, 92, 02041. https://doi.org/10.1051/shsconf/20219202041
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