Mandatory IFRS adoption, investor protection and earnings management

Abstract

Purpose The purpose of this paper is to examine the effect of investor protection on earnings management before and after IFRS adoption. Design/methodology/approach A sample of 106 companies listed on Germany, France and Belgium stock markets for the pre-IFRS (2000-2004) and post-IFRS (2006-2011) periods was used. This research is based on a comparative study between the pre- and the post-IFRS periods. Findings The results showed that investor protection better explains earnings management after the transition to IFRS. The findings revealed that international standards and investor protection are significant in jointly explaining earnings management for the second reporting period. Originality/value The study gives rise to a score that is considered as a proxy of investor protection that regroups several macroeconomic indexes.

Do Corporate Social Responsibility and Investor Protection Limit Earnings Management? Evidence from Indonesia and Malaysia

“…The different protection of investors' rights by every country distinguishes management behavior in violating investors' rights, including earnings management (Leuz, Nanda, & Wysocki, 2003). Previous studies revealed that investor protection negatively affected earnings management, meaning that strong investor protection can limit management fraud effectively (Chen, Chou, & Wei, 2019;Kouki, 2018;Lourenço et al, 2018). The previous studies also exposed that the specific characteristics could distinguish the level of earnings management, such as leverage (Burgstahler, Hail, & Leuz, 2006;Leuz et al, 2003;Marcel Martins Ardison, Lopo Martinez, & Caio Galdi, 2012).…”

Towards a framework for the protection of citizen rights of capital market shareholders: evidence from Iran

“…First of all, it should be stated that due to the lack of research related to the presentation of the dimensions of protecting the interests of shareholders, this research is placed in the hands of the first researchers who attempt to thematize compliance with the material/citizen rights of shareholders at the level of the capital market. Although in the past Ghabri (2022), Wasiuzzaman et al (2022) and Kouki (2018) studied the subject as can be seen, most of the research conducted in this field is quantitative and less research has been conducted through content screening to determine the dimensions of compliance with the material/citizenship rights of shareholders. Therefore, conducting this research can help to fill the theoretical and practical research gap.…”

Can the status quo bias help to explain accounting choices?

“…These results expand the findings presented by Kempf and Ruenzi (2006) and El Harbi and Toumia (2020), who demonstrated strong influence of past choices on current decisions (i.e., evidence of status quo bias) in the context of different institutions. Thus, they reinforced influence of behavioral bias in individuals' decision-making, especially at the institutional level, contradicting the argument that individuals make rational decisions in any situation, as suggested by mainstream literature (e.g., Jensen & Meckling, 1976;Healy, 1985;Simon, 1990;Barth, Landsman, & Lang, 2008;Kouki, 2018).…”

“…The mainstream literature on accounting choices deals with implications of accounting practicing based on individuals' incentives to manipulate earnings under the assumptions of Agency Theory. According to this perspective, managers are rational individuals that tend to maximize their own interests in every choice, considering a set of available and non-exhaustive range of information (Jensen & Meckling, 1976;Healy, 1985;Simon, 1990;Barth, Landsman, & Lang, 2008;Kouki, 2018). According to Lambert (2001), the arguments used by Agency Theory are attractive because allow researchers to explicitly conflicts of interest, incentive problems and mechanisms of control for managers' opportunistic behavior.…”

“…Most of them affirm that managers can manipulate information in order to improve their performance through earnings management and, consequently, maximize their compensation contracts (Watts & Zimmerman, 1978;Healy, 1985;Holthausen, Larcker, & Sloan, 1995). Because of it, a range of accounting standards and mechanisms of enforcement are often implemented as a system of control that aims to align the interests between managers and principals (Holthausen, Larcker, & Sloan, 1995;Watts & Zimmerman, 1986;García-Meca, & Sánchez-Ballesta, 2009;Manzano & Conesa, 2014;Kouki, 2018;Harris, Karl, & Lawrence, 2019), especially in public companies, where agency conflicts are more evident.…”