PurposeThis study investigates how the association between national culture and earnings management compares between developed and emerging countries.Design/methodology/approachThe empirical analysis relies on a sample of 6,313 firm-year observations from 11 emerging markets and 27,605 firm-year observations from 22 developed countries. The authors use ordinary least squares regression methods to test the hypotheses of the study.FindingsBased on Hofstede's (2011) cultural dimensions, the authors find that firms from countries with a higher level of uncertainty avoidance and individualism are less likely to engage in earnings management, but the effect of uncertainty avoidance (individualism) is more (less) pronounced in the emerging countries. Moreover, the authors demonstrate that firms from emerging (developed) countries with higher levels of power distance and masculinity are less (more) likely to engage in earnings management. Finally, the authors find evidence of a trade-off between accruals-based and real earnings management in firms from countries with greater long-term orientation and an indulgence cultural dimension.Originality/valueThis paper adds to the literature by theoretically discussing and empirically analysing the role that developed and emerging countries' development plays on the effect of national culture on earnings management.
Purpose The purpose of this study is to examine the association between financial distress and accruals-based earnings management in emerging markets, and the role that auditors play in that association. Design/methodology/approach This study relies on a sample of 33,455 firm-year observations from 20 emerging markets, covering a large period of analysis of 20 years. A multivariate analysis is performed by considering the level of financial distress as the dependent variable, and the accruals-based earnings management and dummies for the type of auditor as the main independent ones. Findings The authors predict and find empirical evidence that firms facing greater financial distress engage in income-increasing accruals-based earnings management in emerging markets, and that such engagement is lower in firms audited by Big 4 firms compared to those audited by non-Big 4 auditors. The authors also find significant differences across Big 4 audit firms in their role of constraining income-increasing earnings management strategies in firms with high levels of financial distress. Originality/value The study adds to previous literature by investigating the association between financial distress and accruals-based earnings management in a comprehensive sample of 20 emerging markets, by providing important overall cross-country empirical evidence that has not been addressed by previous literature. The authors also bring new knowledge by discussing the role played by the Big 4 audit firms in limiting earnings management practices by firms with high levels of financial distress. Such a limitation serves as an important external corporate governance mechanism to restrain managers’ opportunistic behaviour in firms facing financial distress – especially in emerging economies characterized overall by institutional voids.
This paper investigates the moderating effect of economic instability in the relationship between the concentration of control and market value of firms. For this purpose, we built an unbalanced panel dataset composed of 341 Latin American companies from six countries: Argentina, Brazil, Chile, Colombia, Mexico, and Peru. The results of the dynamic models, estimated using the systemic generalized method of moments, indicate, in general, that concentration of control only reduces the market value of firms in environments with high economic instability. Thus, this study provides empirical evidence that times of economic instability encourage controlling shareholders to act even more strongly in their own interests, which may result in the expropriation of the wealth of smaller shareholders.
O estudo investigou a relação entre os indicadores de desempenho e o valor de mercado das companhias listadas na BM&FBovespa, por meio da análise de seis variáveis de desempenho (giro do ativo, ROA, ROE, margem líquida, EBITDA e margem EBITDA) em correlações de Pearson e regressões lineares múltiplas com dados em painel. Vislumbrando-se atender ao objetivo geral proposto, adotou-se como objetivos específicos: (i) investigar o comportamento dos indicadores de desempenho das firmas, bem como seus valores de mercado, ao longo período analisado e (ii) verificar se a relação entre indicadores de desempenho e valor de mercado das firmas tem comportamento diferenciado em função do setor econômico do qual as empresas estão inseridas. Os dados foram extraídos da base de dados Economática®, o período de análise compreende os anos de 2009 a 2014 e a amostra é composta 88 companhias. Os resultados sugeriram que a margem líquida, o EBITDA e a margem EBITDA são, de modo geral, os indicadores com maior influência sobre o valor de mercado das empresas brasileiras, enquanto giro do ativo, ROA e ROE não se mostraram relevantes para a formação do preço das ações das empresas. Pôde-se apresentar, ainda, evidências de diferenças na significância dos indicadores sobre os valores de mercado das firmas em função dos respectivos setores econômicos.
Purpose This study aims to analyse the association between country-level ethical judgement and earnings management and the role that firm-level enforcement and the quality of accounting standards play in this association. Design/methodology/approach The analyses are based on a sample of 45,889 firm-year observations from 34 countries between 1998 and 2018. Based on the World Values Survey questionnaire, this study constructs a comprehensive index of the ethical judgement of each country. Findings The empirical findings suggest that firms from countries where ethically suspect behaviours are less acceptable are associated with lower levels of accruals-based earnings management and that firm-level enforcement and the quality of accounting standards dampen such association. Practical implications The results contribute to the debate about ethical issues in the accounting profession in an international context, adding to the sustainable development debate given that the creation of long-term value for firms is intrinsically related to business ethics and good quality financial reporting. Social implications When it is known that countries’ ethically-related judgements reduce the level of earnings management, actions can be taken by regulators and other stakeholders to build fairer societies with a more sustainable view, given that the quality of the financial reporting is inextricably linked to how income and wealth are distributed. Originality/value While previous literature documents that ethical judgement at both the individual and organizational levels matter as key determinants of the way managers are involved with unethical accounting practices, this study investigates the role of ethical judgement at the country level in explaining earnings management.
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