Earnings management: a three-decade analysis and future prospects

Abstract

PurposeThis paper undertakes an extensive and systematic review of the literature on earnings management (EM) over the past three decades (1992–2022). Furthermore, the study identifies emerging research themes and proposes future avenues for further investigation in the realm of EM.Design/methodology/approachFor this study, a comprehensive collection of 2,775 articles on EM published between 1992 and 2022 was extracted from the Scopus database. The author employed various tools, including Microsoft Excel, R studio, Gephi and visualization of similarities viewer, to conduct bibliometric, content, thematic and cluster analyses. Additionally, the study examined the literature across three distinct periods: prior to the enactment of the Sarbanes-Oxley Act (1992–2001), subsequent to the implementation of the Sarbanes-Oxley Act (2002–2012), and after the adoption of International Financial Reporting Standards (2013–2022) to draw more inferences and insights on EM research.FindingsThe study identifies three major themes, namely the operationalization of EM constructs, the trade-off between EM tools (accrual EM, real EM and classification shifting) and the role of corporate governance in mitigating EM in emerging markets. Existing literature in these areas presents mixed and inconclusive findings, suggesting the need for further theoretical development. Further, the study findings observe a shift in research focus over time: initially, understanding manipulation techniques, then evaluating regulatory measures, and more recently, investigating the impact of global accounting standards. Several emerging research themes (technology advancements, cross-cultural and cross-national studies, sustainability, behavioral aspects and non-financial indicators of EM) have been identified. This study subsequent analysis reveals an evolving EM landscape, with researchers from disciplines like data science, computer science and engineering applying their analytical expertise to detect EM anomalies. Furthermore, this study offers significant insights into sophisticated EM techniques such as neural networks, machine learning techniques and hidden Markov models, among others, as well as relevant theories including dynamic capabilities theory, learning curve theory, psychological contract theory and normative institutional theory. These techniques and theories demonstrate the need for further advancement in the field of EM. Lastly, the findings shed light on prominent EM journals, authors and countries.Originality/valueThis study conducts quantitative bibliometric and thematic analyses of the existing literature on EM while identifying areas that require further development to advance EM research.

Застосування Економіко-Математичного Моделювання Для Виявлення Та Запобігання Шахрайству У Фінансовій Звітності

“…Academic research continues to refine and extend Markov models in financial contexts. Journals like the "Journal of Financial Crime" and "Journal of Banking and Finance" often publish studies exploring advanced applications of Markov chains in financial risk management, (Bansal, 2023;Soltani and Abbes, 2023). Our models are useful, but they have limitations.…”

Assessing the Practice of Earnings Management in COVID-19 Era. Landscape of European Companies: An International Comparison

“…We use methodology based on accruals to detect and estimate the discretionary part of accruals, as indicated by the literature, the accruals approach is still the most commonly used to estimate earnings manipulation, see for example, Zhang (2002), Siregar and Utama (2008), Callao, Jarne and Wroblewski (2014), Bansal (2023). Accruals are defined as the portion of revenues and expenses that do not imply collections and payments, and are calculated indirectly as the difference between profit and operating cash flows 2 .…”