Earnings Management and Corporate Performance in the Scope of Firm-Specific Features

Abstract

Various models have been created all around the world to identify enterprises that manipulate their earnings. These earnings management techniques aid businesses in enhancing their financial performance or gaining some competitive advantages. The primary goal of this article was to identify the firm-specific characteristics that affect how businesses manage their earnings using a sample of 15,716 businesses from various economic sectors in the Slovak environment during a 3 year period. The level of earnings management was measured by discretionary accruals using the Kasznik model. In this paper, a correspondence analysis using the chi-square distance measure was applied to find the dependence between the earnings management practices and firm-specific features (firm size, legal form, and sectoral classification). The results of the study indicate that aggressive (income-increasing) earnings management practices are typical of small enterprises with a public limited ownership structure, mostly in sectors R and M (using the NACE sectoral classification). Conservative (income decreasing) practices can be observed in enterprises in the sectors J or F, and they are also used by medium-sized enterprises and those with private limited ownership structure. The results revealed that large enterprises do not tend to manipulate their earnings, as well as enterprises operating in sector K. The insights of this study may provide important and useful information for shareholders and regulators in evaluating determinants that are effective in mitigating earnings management practices. Authorities, regulators, analysts, and auditors may find the importance of the discovered variances helpful in identifying various strategies and techniques for earnings manipulation that may differ among industries according to their typical characteristics.

An Analysis of Ownership Structure and Corporate Governance Indicators on Discretionary Accruals

“…Corporate governance improves the executive's execution by administering and checking the board execution and furthermore guarantees the executive's responsibility based on administrative structure (Muda et al, 2016). The work done by Gajdosikova et al (2022), Kalbuana et al (2021), Shan (2015), Xue and Hong (2016) and Riwayati and Siladjaja (2015) had significantly contributed towards earning management and its relationship with corporate governing indicators.…”

“…As indicated by (Kausalty et al, 2013), it was uncovered that corporate governance concerns the structure, standards, and techniques by which an organization is governed. Corporate governance provides guidance and control to the organization to satisfy the objectives that might hold the organization on right track for the betterment of all stakeholders (Gajdosikova et al, 2022;Muda et al, 2018).…”

“…Sarbanes-Oxley Act in the United States of America, combined code in the United Kingdom, and Pakistan CG code of best practices. However, there is a systematic and considerable research in the field of corporate governance related to the apparent association among ownership structure and earning management practices (Gajdosikova et al, 2022;Kazemian & Sanusi, 2015).…”

Roles of board of directors and earnings management across SMEs life cycle: evidence from the UK

“…Although, previous literature provides evidence of how board characteristics influence EM practices in large enterprises (Abdou et al , 2021; Alves, 2023; Chatterjee and Rakshit, 2023; Chee and Tham, 2021; Cho and Chung, 2022; Cornett et al , 2009; Elsheikh et al , 2023; Goel and Kapoor, 2022; Liu and Lu, 2007; Mensah and Boachie, 2023; Mensah and Onumah, 2023; Musa et al , 2023; Prencipe and Bar-Yosef, 2011; Widagdo et al , 2022; Roy and Alfan, 2022; Sáenz González and García-Meca, 2014; Sehrawat et al , 2019; Sultana et al , 2017) and EM practices in small- and medium-sized enterprises (SMEs) (Balachandran et al , 2021; Chansarn and Chansarn, 2016; Chiu and Wei-Hua, 2020; Duarte, 2022; Gajdosikova et al , 2022; Gandía and Huguet, 2021; Höglund and Sundvik, 2016; Huang et al , 2022; Maglio et al , 2020; Martinez-Martinez et al , 2021; Park et al , 2021; Séverin and Veganzones, 2021). However, there is little research examining the link between the roles of BOD and earning management practices among SMEs (Chiu and Wei-Hua, 2020 and Maglio et al , 2020) and none specifically examines such relation among SMEs operating in the UK context.…”

Information Technology Governance and Corporate Boards’ Relationship with Companies’ Performance and Earnings Management: A Longitudinal Approach

“…Therefore, in this study, EM is examined alongside firm performance. This is also important because there is a minor demarcation between firm performance and the reliability of the financial recording and reporting procedures (devoid of earnings manipulations) in terms of the BOD monitoring and disciplining functions to align agents' efforts with stakeholders' interests [31][32][33].…”