Accrual-based Earnings Management

The study is concentrated on the effect of audit quality on real earnings management of listed consumer goods firms in Nigeria. Real earnings management, involves the manipulation of financial statements to mislead investors and other stakeholders about a firm's true financial performance while audit quality, is the degree of excellence and professionalism with which an audit is conducted. The study adopts a descriptive ex-post facto research design. The study covers a period of 2016-2022. Population includes all the twenty (20) listed consumer goods firm on the floors of the Nigerian Exchange Group (NEG) throughout the period of the study as at December 2022. the results of the pooled Ordinary Least Square (OLS) regression conducted for the study show that audit fees have positive insignificant effect on audit quality of listed consumer goods firm in Nigeria. Again, the result on auditors' industry specialization indicates a negative but significant effect on real earnings management among listed consumer goods firm in Nigeria while the result on audit firm size showed a negative but significant relationship between audit firm size and real earnings management. The study concluded that audit firm size and auditors' industry specialization have a significant influence on real earnings management amongst listed consumer goods firms in Nigeria. It was recommended in the study that Consumer goods firm should consider hiring auditors with industry specialization since they have a better understanding of the specific industry peculiarities and operations distinct from other sectors.

In the current era, in the stock exchange of countries, one of the mechanisms to support investors is the disclosure of information of stock companies. Considering the importance of this issue in Iran's economic system, the current article, with a descriptive-analytical method and based on library studies, examines the concept, subject scope, theoretical foundations, principles, challenges and obstacles of information disclosure of listed companies in Iran and several Another country has investigated. The investigations of this article indicate that among the many theoretical bases expressed for the basis of information disclosure, the protection of investors is considered as the most important legal basis. Also, information disclosure of stock companies follows several principles, such as the principle of timely disclosure of information, the principle of correctness of information and the principle of comprehensibility of information. Although these principles are specified in Iran's legal system or can be construed from existing laws, information disclosure in practice faces many challenges and obstacles, such as the application of information classification system by some companies, avoiding The loss to the company and the conflict of interests of the managers are faced, which in some cases causes the complete non-compliance with the principles of information disclosure. In addition, non-observance of some principles in Iran's legal system lacks a guarantee of sufficient implementation or has a vague guarantee of implementation.

This research delves into the dynamics that underlie the relationship between changes in a company's sales and its cost structure. It also explores the influence of short-term debt, often associated with sales, on a phenomenon known as cost stickiness. Furthermore, we examine the roles of product market competition and various business strategies in shaping these interactions. We used financial data from 153 companies listed on the Tehran Stock Exchange from 2015 to 2021 to conduct a rigorous regression analysis to unearth significant insights. Our findings reveal that short-term debt serves as a mechanism for companies to effectively manage their financial obligations with lenders and creditors, and it is inversely correlated with cost stickiness. Moreover, our results shed light on how the impact of short-term debt on cost stickiness varies in response to the competitive nature of the product market and a company's chosen business strategy. Specifically, when companies adopt a "prospector strategy" to explore new markets and expand their product offerings, the negative association between short-term debt and cost stickiness weakens. In a broader context, our study contributes to comprehending cost stickiness and carries practical implications for industry professionals and future scholarly pursuits.

This study examines the impact of external financing activities on earnings management decisions and further explores the role of enterprise risk management (ERM) as a potential moderating factor in this association. We find that managers use both real-activities and accrual-based earnings management when engaging in equity financing activities. Moreover, when firms have weaker ERM systems, we find that managers are less likely to use real-activities earnings management in their equity financing efforts. Therefore, our policy-relevant findings suggest that weaker ERM systems can signal poor control mechanisms and attract additional investor scrutiny, thus constraining managers' use of real-activities earnings manipulation to harm long-term firm value.

This study examines how managerial ability and a firm's business strategy typology affect real earnings management practices. Fortyfour non-financial firms from the EGX-100 index were sampled, with 220 balanced observations covering the period from 2017 to 2021. The study used three real earnings management proxies as individual and aggregate indicators based on Roychowdhury (2006). It also used Bentley et al.'s (2013) composite strategy index as a proxy for a firm's business strategy, following the business strategy typology of Miles and Snow (2003) as defender and prospector strategies. Managerial ability is measured using the DEA-Tobit approach established by Demerjian et al. (2012). Panel regression models using fixed and random effects models were then used for data analysis. The findings indicate that managers with higher abilities are less prone to participate in real earnings management. The results also show business strategy negatively influences real earnings management proxies, and firms with prospector strategies are less likely to engage in real earnings management practices than those with defender strategies. Likewise, the results show a significant positive influence of the z-score on the preference for real earnings management. Further, the findings support the political costs and debt covenant hypotheses in positive accounting theory, as firm size negatively affects real earnings management proxies, but financial leverage positively affects them, Based on existing literature, there have been limited research studies about the impact of business strategy on real earnings management practices in general. However, no studies have investigated such a relationship in Egypt or Middle Eastern countries. Furthermore, studies investigating how managerial ability affects real earnings management practices are rare in Egypt. This study supports the idea that contingency theory might explain why some organizations prefer certain real earnings management practices over others.

This study examines the effectiveness of audit committee (AC) financial expertise in mitigating accrual and real earnings management (AEM and REM hereafter). Although extant studies have examined the effects of AC expertise on earnings management, findings are inconclusive. Prior studies have also focused mainly on AEM not REM. We used the data for a sample of Hong Kong Hang Seng Composite Index with 1714 firm-year observations between 2010 and 2015, which was analyzed using panel fixed effect regression models. The results show statistically significant negative relationship between AC financial expertise and AEM but surprisingly, we find that AC financial expertise is associated with increase in REM. We argue that whilst AC members have developed monitoring skills on AEM, REMs are relatively recent and are more complicated to detect. We argue that management may be shifting their opportunistic use of earnings management from AEM to REM. A possible reason could be a steep AC's learning curve on the nature of REM. Our investigation provides evidence on the impact of AC expertise on both AEM and REM from a unique context.

This study examines the presence of real activities manipulation (REM) of IPO firms utilizing the cross-sectional regressions on each industry-year (Roychowdhury, 2006). The real activities examined in this paper include sales manipulation, reduction of discretionary expenses and overproduction. We show that IPO firms have significantly negative abnormal cash flows from operations and significantly positive abnormal production costs in the IPO year. The findings suggest that IPO firms not only manipulate accruals to inflate reported earnings, but also engage in real activities manipulation. We also show that IPO firms‟ decisions to manipulate earnings in the IPO year is positively related to the amounts of IPO proceeds and negatively related to the underwriters‟ reputation rankings and the presence of venture capital

We examine the relationship between business strategy typologies and
managers’ involvement in accrual earnings management (AEM) and real activities manipulation (RAM). Furthermore, we investigate whether prospectors (defenders) show a lower (higher) preference for earnings management than defenders (prospectors), both for the AEM and the RAM concurrently. The study sample was selected from publicly held companies in Indonesia from 2012 to 2018. Following Miles and Snow’s (1978, 2003) framework, we use a comprehensive construct of
business strategy to determine each firm’s typology of business strategy based on the score, and we employ multiple regression models to test our hypotheses and robustness checks. Our test results find that prospector-type business strategies have lower AEM and RAM than defender-type business strategies. Next, we find strong evidence that prospectors are less likely to have earnings management preferences than defenders. Our additional tests using the individual RAM level find some evidence that prospectors are less likely to engage in discretionary operating expenses, supporting our main results. Our findings have practical implications for
investors, policymakers, and other stakeholders that prospector-type business strategies that focus on innovation and long-term performance achievements do not necessarily provide incentives for management to engage in earnings management, leading to lower earnings quality.

Objective: Earnings are one of the most important factors influencing economic decisions, so corporate executives may manage the earnings to show stability in improvements and efficiency. Managers can manipulate the earnings by choosing discretionary accruals or regulating company's actual activities. If the accounting system of a company and its results are comparable, managers' motivation for opportunistic behavior of earnings management reduces, and as a result, external users can analyze the company's actual economic performances more accurately. The purpose of this study is to investigate the relationship between accounting comparability and the accrual-based earnings management, and then, the result for real earnings management in the companies listed in the Tehran Stock Exchange, TSE.
Methods: This research is an applied study and the correlation-based in the nature. The sample consists of 122 firms in the TSE in the years 2011 to 2015, chosen by the systematic deletion method of sampling to reach the main sample. To examine the relationship between variables, multiple regression and generalized least squares methods were used.
Results: The results showed that when the company's accounting system provides comparable figures, the company's accrual-based earning management decreases, and so managers to handle their earnings manipulate their real activities, which lead to increase in real earnings management.
Conclusion: Based on the results of the research, firms' managers are recommended to pay more attention to the comparability of financial statements due to its importance in earnings management.