The Effect of Discretionary Accruals on Firm Growth. Empirical Evidence for Smes From Emerging Europe

Abstract

The aim of the paper is to assess the effect of discretionary accruals on firm growth while controlling for firm characteristics and macroeconomic environment. Employing a large sample of 1.105 young and high-growth firms (gazelles) from 15 emerging European countries over the period 2006–2014, it has been found that the discretionary accruals negatively influence firm growth. The empirical results suggest that discretionary accruals are used as earnings management tools and this practice is more used over the high-growth period (2006–2009), with negative effects on future performance. Furthermore, the results of the quantile regression employed in the whole period suggest that the earnings management practices have a negative effect on firm growth. The results prove to be robust for different estimation approaches and different sub-samples of gazelles. The findings provide empirical evidence for the need for more detailed information provided by firms on the origin of the accruals, as well as for the use in the performance analysis of some indicators that eliminate the influence of accruals, such as cash flow based ratios.

What factors can explain the performance of energy companies in Portugal? Panel data evidence

“…The results also show that cash flow has a significant positive effect ( p < 0.1) on the dependent variable ROA, which allows us to accept hypothesis 1, corroborating studies by authors such as Neely (2002), Ogbeide and Akanji (2017), Neves et al (2019) and Anton and Carp (2020). The higher the companies' cash flows, the greater their ability to generate profits with the investment made.…”

“…Regarding the cash flow, it has a significant positive effect ( p < 0.1) on the dependent variable MGEBITDA, demonstrating better efficiency at the operational level of companies that have higher levels of cash flow. Thus, hypothesis 1 is accepted, corroborating studies by authors such as Neely (2002), Ogbeide and Akanji (2017), Neves et al (2019) or Anton and Carp (2020).…”

“…Regarding cash flow, this variable has a significant positive effect ( p < 0.1) on the dependent variable ROE, corroborating the arguments used for Neely (2002), Ogbeide and Akanji (2017), Mihalcea and Hada (2019), Neves et al (2019) and Anton and Carp (2020), which allows us to accept hypothesis 1.…”

“…Likewise, Neves et al (2019), in a study to assess the financial performance of regulated companies operating in the Portuguese electricity market from 2010 to 2014, empirically show that cash flows positively influence ROE. Anton and Carp (2020), in a study of 1105 companies with high growth in Europe, concluded that cash flows have a significant positive effect on performance.…”

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“…They are older than the academic community previously thought. Actual results of high-growth firms' studies, including its differences from ordinary firms, are presented in Anton and Carp (2020); Eklund (2020); Yudanov and Yakovlev (2018).…”