Do franchise firms manage their earnings more? Investigating the earnings management of restaurant firms

Gim, Jaehee; Kyuwan, Choi; Jang, Soo Cheong

doi:10.1016/j.ijhm.2018.12.013

Cited by 19 publications

(34 citation statements)

References 55 publications

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“…Since then, the interest of scientists in this topic has grown significantly. Gim et al (2019) examined, whether franchising as a firm characteristic causes any meaningful differences in the earnings management behaviour of restaurant firms. The results of their study show that franchise restaurants are generally more inclined towards earnings management, mainly during their growth phase.…”

Section: Literature Reviewmentioning

confidence: 99%

Dependency Analysis Between Various Profit Measures and Corporate Total Assets for Visegrad Group’s Business Entities

et al. 2020

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Background and Purpose: Models of identifying and predicting earnings management in companies by using accruals are in general based on the dependence between total assets of companies and various profit measures. In this paper, we focused on an initial dependency analysis between these business indicators in the Visegrad group’s business entities. We explore the mentioned relationships, verify, and quantify the strength of the dependencies between earnings levels of companies (in terms of economic evaluation of the return on business capital in absolute terms) and the value of their total assets (i.e. business capital tied in the assets without its further classification and analysis).Methodology: We use descriptive statistics as well as a correlation analysis based on the real business data on almost 300 thousand companies in the V4 countries from the Amadeus database, covering the period from 2013 to 2017. Finally, we use a comparative analysis to identify disproportion among the results that were found out for each of the analysed countries.Results: The analysis showed that Slovak companies have the average values of profit measures and total assets comparable to Hungarian companies. Czech and Polish companies have several times higher average values of profit measures and also of total assets than Slovak and Hungarian companies. The analysis of the development of the profit measures and the total assets of the companies over the years showed significant differences across the four countries during the period covered by this study.Conclusion: The analysis of relationships between total assets of the companies and their profit measures showed that the strength of these dependencies among countries is very similar, and over the years, these results did not change. The results of this study can be further used in the creation of the earnings management model in enterprises, both in Slovakia and in other V4 countries.

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Section: Literature Reviewmentioning

confidence: 99%

Dependency Analysis Between Various Profit Measures and Corporate Total Assets for Visegrad Group’s Business Entities

et al. 2020

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“…Their findings provide evidence of positive abnormal accrual, implying that debt covenant restriction does influence accounting choices in the year before the violation. However, Gim et al, (2019) reported that not all leveraged companies have the same pattern (i.e. income-increasing EM).…”

Section: Em Incentivesmentioning

confidence: 99%

“…income-increasing EM). According to another point of view, the control view, companies experiencing a high level of leverage are under the risk of violating their debt covenant; therefore, the boards of those companies impose extra control procedures to ensure that debt transactions are carried out according to accounting policies (Gim et al, 2019). Thus, the adequate control system of leveraged companies helps in reducing the opportunity to exercise EM, indicating that the relationship between leverage and EM in these cases is negative.…”

Section: Em Incentivesmentioning

confidence: 99%

“…The findings of this study revealed that companies with a high level of leverage have a lower level of EM, which supports the control hypothesis that monitoring and governance in highly leveraged companies are effective in reducing EM activities. In similar vein, Gim et al (2019) examined the effect of leverage on EM across franchise companies. They proposed that managements in franchise companies are less induced by the motive to engage in EM.…”

Section: Em Incentivesmentioning

confidence: 99%

“…Previous studies have reported that when the magnitude of EM increases, the quality of earnings decreases, leading to a loss of investors' confidence in the financial reporting system. The literature has documented that EM is driven by factors such an Initial Public Offer (IPO) event, a company's size, and leverage (Gim, Choi, Jang, 2019;Sletten, Ertimur, Sunder, Weber, 2018;Turegun, 2018). The likelihood of EM increases in an environment with a weak rule of law (Beuselinck, Cascino, Deloof, Vanstraelen, 2018;Dyreng, Hanlon, Maydew, 2012).…”

Section: Introductionmentioning

confidence: 99%

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Earnings Management in Saudi Nonfinancial Listed Companies

Shetwi¹

2020

IJBSS

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This study investigates the earnings management practices in Saudi nonfinancial listed companies. It examines the effects of IPO events, company size, and leverage on their earnings management activities. The result of the regression model revealed that Saudi nonfinancial listed companies practice earnings management, and the size of a company is negatively related to its level of earnings management. Testing using the independent-sample T-test finds the result to be robust. The finding is in line with the view that larger companies are more capable of monitoring the incentives that may lead management to exercise earnings management than smaller companies. Further, this result implies that a capital market consisting mainly of small and mid-sized companies, such as the Saudi capital market, needs to update financial rules and regulations related to financial reporting.

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