Association between Earnings Management and Earnings Quality: Comparative Study between Insider and Outsider Economics Clusters

Purwaningsih, Anna; Kusuma, Indra Wijaya

doi:10.1108/s1571-038620200000027008

Cited by 6 publications

(11 citation statements)

References 15 publications

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“…Roychowdhury (2006), for example, found evidence that real earnings management was carried out, among others, through the provision of soft credit, selling price discounts to increase total sales, increasing production quantities to increase ending inventory resulting in a decrease in the cost of goods sold (CoGS), and reducing discretionary expenses to increase margins. Accrual and real earnings management have a significant effect on earnings quality in countries having smaller capital market characteristics, weaker investor protection, lower levels of disclosure, a higher concentration of ownership, and weaker law enforcement, such as in Indonesia, the Philippines, and South Korea compared to Singapore, Malaysia, and Hong Kong (Purwaningsih & Kusuma, 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Also, in measuring earnings management, only accrual earnings management (AEM) with the modified Jones model was explored. Likewise, in researching earnings quality, many researchers continue to focus on market reactions to NI earnings information (Purwaningsih & Kusuma, 2020). This current study overcomes the weaknesses of previous research by developing OCI on the separation of OCI items based on the likelihood that they will be realised or not.…”

Section: Introductionmentioning

confidence: 99%

“…Moreover, the OCI item revaluation of assets and defined benefit plans were not included as OCI items. In measuring earnings management, this study used two proxies: accrual earnings management and real earnings management, in line with the research of Purwaningsih and Kusuma (2020) and Asni and Mayasari (2018).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Reclassification of Other Comprehensive Income, Earnings Management and Earnings Quality: Evidence from Indonesia

Kusuma¹,

Chandrarin²,

Cahyaningsih³

2022

APMAJ

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This study empirically proves that standard policies concerning the format of presenting income statements are in the form of additional information. This is particularly relevant to the reclassification of other comprehensive income and profit attribution in increasing transparency and reducing asymmetry information. This study investigated the effect of reclassified items concerning other comprehensive income and net income attributable to owners on earnings management and the quality of earnings. The attribution of earnings to owners was found to have a negative effect on earnings management, along with a positive effect on earnings quality as measured by the earnings response coefficient net and comprehensive income. It was also shown that earnings management does not mediate the effect to earnings quality. Accordingly, this means that the market has responded positively to the reclassification of other comprehensive income and profit attribution. It also precludes the company from carrying out earnings management through the recognition and realisation of other comprehensive income. Reclassification and attribution through increasing transparency and value relevance could consequently reduce asymmetric information. Keywords: reclassification of others comprehensive income, earnings management, earnings quality, Indonesia

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Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Reclassification of Other Comprehensive Income, Earnings Management and Earnings Quality: Evidence from Indonesia

Kusuma¹,

Chandrarin²,

Cahyaningsih³

2022

APMAJ

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“…On the other hand, higher ability managers are more likely to maintain earnings quality (Demerjian et al, 2013). As earnings management associates with lower earnings quality (Purwaningsih and Kusuma, 2020), higher ability managers are less likely to engage in earnings management. Huang and Sun (2017) find that managerial ability has a negative effect on REM.…”

Section: Managerial Ability and Earnings Managementmentioning

confidence: 99%

Managerial ability and real earnings management in family firms

Putra¹,

Mela²,

Putra³

2021

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Purpose This study aims to examine the effect of managerial ability on real earnings management (hereafter REM) in family firms. Design/methodology/approach The sample consists of 864 firms-years listed in the Indonesian Stock Exchange. REM is measured by abnormal activities. Managerial ability is measured by data envelopment analysis. Data analysis uses random-effect regression analysis. Findings Family firms reduce the possibility of higher ability managers to engage in REM. Compare to non-family firms, higher ability managers in family firms are more likely to engage in REM to improve future earnings. Research limitations/implications This research only uses efficiency score data envelopment analysis to measure managerial ability while the managerial ability is, by nature, multi-dimensional and unobservable. This research also does not find the role of professional Chief Executive Officer (hereafter CEO) in the family firms in REM behavior because does not consider the professional CEO motivation (e.g. compensation structure). Practical implications This research is expected to help family firms formulate managers' selection based on managerial ability. This research also is expected to help investors and creditors to put their funds in the family firms with higher ability managers that reduce earnings information distortion. Originality/value To the best of the author’s knowledge, this research is the first research that examines the managerial ability on REM in Indonesian family firms. This research also contributes to fil the findings gap in managerial ability and REM.

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“…With the unified stock markets all over the world, particularly in India and China, the quality of reported earnings is a serious predicament. Also, both AEM and REM are associated with earnings quality of the firm; although the association is almost negligible in more developed markets such as Singapore and Hongkong, but the association is clearly evident in less developed markets such as Indonesia and Philippines (Purwaningsih and Kusuma, 2020).…”

Section: Introductionmentioning

confidence: 99%

Role of corporate governance in constraining earnings management practices: a study of select Indian and Chinese firms

Pandey

Pattanayak

Singh

2021

JIBR

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Purpose The purpose of this paper is to investigate the effect of corporate governance on both accrual-based and real earnings management practices in select firms of the two world's largest economies, i.e. India and China. Design/methodology/approach The study has implemented a feasible generalized least square regression (FGLS) method to analyse the effect of corporate governance on accrual-based and real earnings management. Findings The study exhibits the significant contribution of large board sizes and independent boards in constraining the use of both accruals as well as real earnings management practices. However, audit quality had an impact on accrual earnings management only. The study also documents that accrual earnings management practices are controlled when the government’s potential to develop and enactment of policies increases. Practical implications The findings of the study provide insights to analysts, prospective investors and regulators to evaluate the effectiveness of the board in a new issue firm and help the firm to enhance its corporate governance policies. Originality/value Unlike previous studies who mostly examined the impact of corporate governance factors on accrual earnings management, the present study has, first, considered both accruals as well as real earnings management. Second, the present study has used the unique sample of new issue firms listed on the Indian and Chinese stock market, and third, the study did an additional analysis to examine the impact of country-level governance factors on accrual earnings management.

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Association between Earnings Management and Earnings Quality: Comparative Study between Insider and Outsider Economics Clusters

Cited by 6 publications

References 15 publications

Reclassification of Other Comprehensive Income, Earnings Management and Earnings Quality: Evidence from Indonesia

Reclassification of Other Comprehensive Income, Earnings Management and Earnings Quality: Evidence from Indonesia

Managerial ability and real earnings management in family firms

Role of corporate governance in constraining earnings management practices: a study of select Indian and Chinese firms

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