Analyzing earnings management preferences from business strategies

Purba, Golrida Karyawati; Fransisca, Cornelia; Joshi, Prem Lal

doi:10.1108/jfra-04-2021-0103

Cited by 7 publications

(5 citation statements)

References 56 publications

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“…Research identifies improvements needed in accrual models, highlighting their occasional distortion of economic realities, sensitivity to accounting choices and omission of cash flow data. These models also suffer from limited generalizability due to assumptions not reflecting real-world conditions and vulnerability to changes in variable selection or model specification, questioning their robustness (McNichols and Stubben, 2018; Ogbaisi and Aronmwan, 2022; Dbouk and Zaarour, 2017; Purba et al , 2022; Dechow and Dichev, 2002; Dechow et al , 2012; Peasnell et al , 2000). Despite these critiques, integrating ML presents opportunities to improve financial models’ accuracy and relevance, emphasizing the need for ongoing innovation and critical evaluation in financial analytics.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Identifying new earnings management components: a machine learning approach

Almasarwah,

Aram,

Alhaj-Yaseen

2024

ARJ

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Purpose This study aims to apply machine learning (ML) to identify new financial elements managers might use for earnings management (EM), assessing their impact on the Standard Jones Model and modified Jones model for EM detection and examining managerial motives for using these components. Design/methodology/approach Using eXtreme gradient boosting on 23,310 the US firm-year observations from 2012 to2021, the study pinpoints nine financial variables potentially used for earnings manipulation, not covered by traditional accruals models. Findings Cost of goods sold and earnings before interest, taxes, depreciation and amortization are identified as the most significant for EM, with relative importances of 40.2% and 11.5%, respectively. Research limitations/implications The study’s scope, limited to a specific data set and timeframe, and the exclusion of some financial variables may impact the findings’ broader applicability. Practical implications The results are crucial for researchers, practitioners, regulators and investors, offering strategies for detecting and addressing EM. Social implications Insights from the study advocate for greater financial transparency and integrity in businesses. Originality/value By incorporating ML in EM detection and spotlighting overlooked financial variables, the research brings fresh perspectives and opens new avenues for further exploration in the field.

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Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Identifying new earnings management components: a machine learning approach

Almasarwah,

Aram,

Alhaj-Yaseen

2024

ARJ

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“…In contrast, market competition negatively moderated the prospectors' strategy influence on REM. Purba et al (2022) investigated the preference for earnings management based on business strategies, cost leadership strategies (defenders), and differentiation strategies (prospectors). They analyzed 262 samples of non-financial firms listed on the Indonesian Stock Exchange in 2019.…”

Section: Business Strategy and Real Earnings Managementmentioning

confidence: 99%

“…According to the aforementioned preceding literature, it can be concluded that -Previous studies have rarely examined the influence of a firm's business strategy on engaging in REM in general. Recently, limited studies reviewed the impact of opposing sides of the strategy chain, prospector's and defender's business strategies, on REM (Robiansyah et al, 2020;Purba et al, 2022;Herusetya et al, 2023). However, no studies have investigated such a relationship in Egypt or Middle Eastern countries.…”

Section: ‫ال‬ ‫مجلة‬ ‫المحاسبية‬ ‫بحوث‬ ‫ال‬ ‫العدد‬ ‫يونيو‬ ‫ثانى‬ 2023mentioning

confidence: 99%

“…-Prior research that covered the relationship between a firm's business strategy and REM shows that firms that adopt a prospector business strategy are less likely to perform REM compared to those with a defender strategy (Wu et al, 2015;Robiansyah et al, 2020;Purba et al, 2022;Herusetya et al, 2023).…”

Section: ‫ال‬ ‫مجلة‬ ‫المحاسبية‬ ‫بحوث‬ ‫ال‬ ‫العدد‬ ‫يونيو‬ ‫ثانى‬ 2023mentioning

confidence: 99%

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The Impact of Managerial Ability and Business Strategy on Real Earnings Management: Evidence from Egypt

Elhabashy,

Elkholy,

Eid

2023

مجلة البحوث المحاسبية

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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.

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“…27-48). Logistic regression was performed as described by Purba et al (2021). The least-squares method was used by Ismael and Kamel (2021), Bhutta et al (2021), andChakroun et al (2022, pp.…”

Section: Literature Reviewmentioning

confidence: 99%

The use of Beneish M-scores to reveal creative accounting: evidence from Slovakia

Ďurana

Blazek

Machová

et al. 2022

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Research background: In creative accounting, the primary goal of every enterprise is to increase and strengthen its market position. Over the years, manipulation of financial statements has also reached the territory of Central European countries, including the Slovak Republic. Therefore, an analysis was conducted to identify enterprises that handle accounting. This article focuses specifically on Sector A: agriculture, forestry, and fisheries. Purpose of the article: The aim of the article was to reveal the creative accounting practices of a sample of enterprises operating in the Slovak business environment in a sector using the Beneish model. Methods: The Beneish model was used to calculate the manipulation of enterprises? financial statements. Both variants, that is, the 5-parameter model and 8-parameter model, were used for the calculation. The results of these models were plotted using graphs and receiver operating characteristic (ROC) curves. Findings & value added: Based on the use of both variants of the Beneish model, it was proven that enterprises in the analyzed sector use the possibility of manipulating financial statements. The added value of the article is the detection of the use of creative accounting in a specific sector, which makes the study original in its application and space-time orientation.

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Analyzing earnings management preferences from business strategies

Cited by 7 publications

References 56 publications

Identifying new earnings management components: a machine learning approach

Identifying new earnings management components: a machine learning approach

The Impact of Managerial Ability and Business Strategy on Real Earnings Management: Evidence from Egypt

The use of Beneish M-scores to reveal creative accounting: evidence from Slovakia

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