Role of earnings management in determining firm value: An emerging economy perspective

Abbas, Asad; Ayub, Usman

doi:10.21833/ijaas.2019.06.015

Cited by 14 publications

(27 citation statements)

References 39 publications

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“…On the other hand, it is opportunistic if directors use their discretion for maximizing their utility. Efficient earnings management adds value to a firm, whereas opportunistic earnings management worsens corporate image (Subramanyam 1996;Abbas and Ayub 2019). So far, a lot of research has been done on the impact of earnings management on companies' financial performance, which has led to different results.…”

Section: Earnings Management and Corporate Performancementioning

confidence: 99%

“…On the other hand, the results of many research have shown that profit management leads to the improved financial condition of companies (Sayari and Omri 2017;Khuong et al 2019;Abbas and Ayub 2019;Mostafa 2020;Zhang and Ayisi 2020;Nobakht and Acar 2021). For example, Sayari and Omri (2017) saw a positive relationship between discretionary accruals and Tunisian firms' stocks, indicating that discretionary accruals allow Tunisian investors to construct their stocks portfolios optimally.…”

Section: Earnings Management and Corporate Performancementioning

confidence: 99%

“…So far, some research has been done on the impact of earnings management on corporate financial performance (Tabassum et al 2013;Gill et al 2013;Mehrani and Noruzi 2015;Rodriguez-Ariza et al 2016;Sayari and Omri 2017;Okafor et al 2018;Darmawan et al 2019;Khuong et al 2019;Abbas and Ayub 2019;Mostafa 2020;Zhang and Ayisi 2020;Dakhlallh et al 2020;Nobakht and Acar 2021), while some others have focused on the relationship between related party transactions and firm value (Cheung et al 2006;Xiao and Zhao 2009;Kohlbeck and Mayhew 2010;Pozzoli and Venuti 2014;Tambunan et al 2017;Fazli 2019;Hendratama and Barokah 2020;Ashrafi et al 2020), each of which has had different results for various reasons. This gap is fully felt in the research literature to simultaneously examine the effects of earnings management as well as related party transactions on corporate financial performance during a financial crisis.…”

Section: Introductionmentioning

confidence: 99%

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Earnings Management, Related Party Transactions and Corporate Performance: The Moderating Role of Internal Control

Zimon

Appolloni

Tarighi

et al. 2021

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The primary purpose of this study is to investigate the impacts of earnings management (EM) and related party transactions (RPTs) on corporate financial performance in an emerging market, Iran. This paper also aims to examine the moderating role of internal control weakness (ICW) in the relationship between them. The study sample includes 108 Iranian manufacturing companies listed on the Tehran Stock Exchange (TSE) between 2013 and 2018, and panel data with random effects are used to test the hypotheses. When an accounting-based measure called ROA is defined as a proxy for corporate performance, the results show that there is a negative association between real earnings management (REM) and corporate financial situation, while accrual-based earnings management (AEM) and firm value are correlated positively. However, when Tobin’s Q index is defined as a proxy for corporate performance, we do not find any significant association between them. Consistent with the tunneling hypothesis or agency theory, our findings confirm RPTs damage corporate value (ROA and Tobin’s Q) because managers probably consider it a mechanism to exploit enterprise resources owing to existing conflictual interests. Moreover, purchase-related party transactions lead to lower ROA, whereas sale-related party transactions and Tobin’s Q are correlated negatively. Moreover, weak internal control has a positive moderating influence on the linkage between AEM and Tobin’s Q index. Finally, we provide robust evidence that there is a positive association between sale growth and institutional owners with ROA and Tobin’s Q, although financial leverage and mergers and acquisitions (M&A) have a destructive effect on corporate value.

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Section: Earnings Management and Corporate Performancementioning

confidence: 99%

Section: Earnings Management and Corporate Performancementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Earnings Management, Related Party Transactions and Corporate Performance: The Moderating Role of Internal Control

Zimon

Appolloni

Tarighi

et al. 2021

Risks

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“…Hence, the reported earnings can convey information on economic earnings (Dye & Verrecchia, 1995;Laínez & Callao, 1999). Abbas and Ayub (2019) demonstrated that management, on the basis of this discretion, can manipulate the financial information. A reduction in discretion is predicted to lessen a manager's ability to communicate with shareholders (Healy & Wahlen, 1999).…”

Section: Characteristics Of Accounting Rulesmentioning

confidence: 99%

A Systematic Approach to the Motivations for Earnings Management: A Literature Review

Callao

Jarne

Wróblewski

2021

International Journal of Emerging Trends in Social Sciences

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Earnings management literature attempts to understand why managers manipulate earnings. Our paper presents a review of growing body of literature on motivations for the earnings manipulation. In consequence, our objective is to provide an ample classification of the reasons. A selection of leading papers was reviewed systematically from 1985 to early 2019 resulting in 383 articles. The results of the paper are important for both theoretical and empirical researches on the earnings management. For one side, we offer a theoretical discussion on the incentives and factors; on the other side, the paper aims to highlight recent progresses in the field. Screening, classifying and systematic review of earnings management literature do not only generate a structured overview of the work performed in this area during more than thirty years, but it also provides insights for further research. Our findings confirm that earnings management topic remains a fertile ground for academic research. Second, although there are many possible motives for managing earnings, the spotlight has been mainly on those incentives that are related to the stock market. Third, in terms of the factors and characteristics of the environment, the impact of institutional factors (investor protection, ownership concentration, legal enforcement) is especially accentuated by the authors. Finally, our research confirms that there are still many other opportunities to research. Therefore, in the last section we identify potential line of investigations.

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“…Managers are assumed to opportunistically increase prior-year's reported earnings through the choice of accounting methods that provide alternatives to recognition and measurement of financial statements' items. This in turn works in favour of the managers' intended outcome to meet or beat analysts' prediction of earnings in affecting firm equity value (Dakhlallh, Rashid, Wan Abdullah & Qawazeh 2020;Abbas & Ayub 2019).…”

Section: Literature Review and Hypotheses Development Earnings Management Executive Remuneration And Firm Equity Valuementioning

confidence: 99%

Mediating Effects of Remuneration on Earnings Management and Firm Equity Value

Sivanandan

Wahab

2020

AJAG

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This study examines the potential mediating effects of executive remuneration on the relationship between prior-year earnings management and firm equity value. The occurrence of financial scandals in Malaysia has been associated with earnings management, which entails opportunistic manipulation of a firm's earnings by managers. Managers who are driven by opportunism, engage in earnings management through the manipulation of discretionary accruals (known as accrual-based earnings management method (AEM)) or real activities (known as real earnings management method (REM)) to attain personal wealth maximisation. This is because when executive remuneration is linked to firm performance, managers are incentivised to manage earnings to boost firm performance with the aim to maximise their performance-based remuneration. Thus, through executive remuneration, earnings management may affect firm equity value. However, empirical evidence on the mediating effects of executive remuneration on earnings management and firm equity value is generally scarce. Therefore, using 601 non-financial firms listed on Bursa Malaysia's Main Market from 2013 to 2017, this study finds significant mediation of executive remuneration on the relationship between both earnings management methods and firm equity value in a different manner. This implies that the mediating effects of executive remuneration lies on the methods of earnings management. This paper, thus, provides insights to financial reporting and corporate governance regulators, and key management personnel of Malaysian public listed firms on the importance of executive remuneration on equity valuation of earnings management. This paper also methodologically contributes to literature by establishing mediation model within the earnings management area.

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Role of earnings management in determining firm value: An emerging economy perspective

Cited by 14 publications

References 39 publications

Earnings Management, Related Party Transactions and Corporate Performance: The Moderating Role of Internal Control

Earnings Management, Related Party Transactions and Corporate Performance: The Moderating Role of Internal Control

A Systematic Approach to the Motivations for Earnings Management: A Literature Review

Mediating Effects of Remuneration on Earnings Management and Firm Equity Value

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