The impact of SME’s pre-bankruptcy financial distress on earnings management tools

Campa, Domenico; Miñano, María del Mar Camacho

doi:10.1016/j.irfa.2015.07.004

Cited by 95 publications

(117 citation statements)

References 69 publications

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“…This positively significant result is consistent with previous studies (Al-Rassas & Kamardin, 2016;Saleh et al, 2005Saleh et al, , 2007Salleh & Haat, 2013;Salleh et al, 2012). This is because companies that face financial difficulties attempt to report higher returns in order to hide their financial constraints (Campa, 2015;Park & Shin, 2004). However, this study did not find a significant relationship between ROA and ABSDA1 or ABSDA2, which is in line with AbdulRahman & Ali (2006).…”

Section: Regression Modelssupporting

confidence: 92%

“…Thus, based on the agency and resource dependence theories and the above discussion, the following hypothesis is presented: The reason for choosing this sample is that annual losses (before being managed) are among the important items which are likely to be viewed by stakeholders of firms. Consequently, managers are likely to be more motivated to avoid reporting annual losses (Campa, 2015;Mohd Saleh et al, 2005;Roychowdhury, 2006). However, seven companies were excluded in the data collected because of the lack of complete data and having no records of up to eight observations.…”

Section: Audit Committee's Balanced Accounting Expertisementioning

confidence: 99%

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Accounting expertise in the audit committee and earnings management

Al-Absy¹,

Isamil²,

Chandren³

2018

BEH

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This study attempts to investigate the influence of accounting expertise in the AC on the level of accrual earnings management (AEM) in Malaysian firms by using two proxies, the Modified Jones Models by Dechow et al. (1995) and Kasznik (1999). A sample of 143 firms with slight positive earnings were selected from the Bursa Malaysia Main Market for 2013, 2014 and 2015. Using panel data regression, this study shows that accounting expertise in the AC does not mitigate AEM. The accounting expertise of the AC directors and chairman and the AC's balanced accounting expertise have a positive relationship with attitude for AEM. In line with prior studies, this paper concludes that AC directors are either not truly independent or do not have time or energy to mitigate earnings management practices. Thus, more policies are needed to strengthen the independence of the AC and ensure the members carry out their duties more responsibly.JEL Classifications: G34, G38, M42, M48, M41

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Section: Regression Modelssupporting

confidence: 92%

Section: Audit Committee's Balanced Accounting Expertisementioning

confidence: 99%

Accounting expertise in the audit committee and earnings management

Al-Absy¹,

Isamil²,

Chandren³

2018

BEH

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“…Second, following Ashbaugh‐Skaife et al () and Hope, Thomas, and Vyas (), we assume that (1) rapidly growing firms are likely to report noisier accruals because they invest in anticipation of future sales; (2) differences in firms' asset structures (the proportion of tangible/intangible assets) are also likely to induce differences in accrual adjustments; and (3) the volatility of the firm's operating revenues will cause estimation errors in accruals. Moreover, because earnings management is influenced by “banking relationship incentives” (hiding financial distress or negotiating better access to credit and better financing conditions), we assume that the level of default risk is another prevalent control variable (Campa and Camacho‐Minano ). Finally, the business sector influences both the level of default risk and the structure of assets, but it also affects the length of the operating cycle (longer operating cycles indicate more uncertainty, more estimation errors and therefore lower earnings quality, according to Dechow and Dichev ).…”

Section: Methodsmentioning

confidence: 99%

“…Therefore, managers are incentivized to act upon earnings quality for at least two reasons: (1) to hide the reality of their default risk to maintain the support of their banks and/or (2) to obtain more credit or better financing conditions. Campa and Camacho‐Minano () report upward earnings management for financially distressed SMEs. Vander Bauwhede, De Meyere, and Van Cauwenberge () document a lower cost of debt for SMEs with higher earnings quality.…”

Section: Theoretical Framework and Hypothesesmentioning

confidence: 99%

Earnings Quality in Private SMEs: Do CEO Demographics Matter?

Belot

Serve

2017

Journal of Small Business Management

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This study investigates the impact of CEO demographics on earnings quality for private SMEs. Using a 2012 sample of 30,476 French firms, we first find strong empirical support for a gender effect: female‐run firms engage in less earnings management than do male‐run firms. This result is consistent with female CEOs being more risk averse than their male counterparts are when making financial decisions. Second, CEO age is negatively correlated with the magnitude of discretionary accruals, and the relationship between gender and earnings quality is stronger for older CEOs. Overall, our findings suggest that CEO demographics affect the quality of accounting information.

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“…Furthermore, research avenue in earnings management is the investigation of the drivers for the choice of one practice over the other and to explain the reason such as an IPO or financial distress situations (Cohenet al,2008;Campa & Camacho-Miñano, 2015).…”

Section: Motivations Of Earnings Managementmentioning

confidence: 99%

The Earnings Management Motivation: Accrual Accounting vs. Cash Accounting

2016

AABFJ

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The Accrual basis of accounting has always found favour amongst corporate practitioners of earnings management. There have been extensive studies on earnings management, focusing on earnings hazards. This paper contributes to the literature by showing market inclination to accrual basis of accounting as motivated by a desire for earnings management. It analyzes the sample units' performance in regard to accrual-indicators vs. cash-indicators and their pervasiveness on stock pricing in India. In India, the corporate ownership model is the Promoter Dominated Shareholders Model (PDSHM) which makes this study unique in highlighting earnings management motivation. The units show a market preference for accrual numbers and motivation for earnings management as clear in their stock pricing behavior. I hope the study improves investors' perception of the reliability of a firm's performance, as measured by earnings. It is of use to the users of financial accounting and corporate finance globally for rationalizing the motivation behind earnings manipulation by the management. AbstractThe Accrual basis of accounting has always found favour amongst corporate practitioners of earnings management. There have been extensive studies on earnings management, focusing on earnings hazards. This paper contributes to the literature by showing market inclination to accrual basis of accounting as motivated by a desire for earnings management. It analyzes the sample units' performance in regard to accrual-indicators vs. cash-indicators and their pervasiveness on stock pricing in India. In India, the corporate ownership model is the Promoter Dominated Shareholders Model (PDSHM) which makes this study unique in highlighting earnings management motivation. The units show a market preference for accrual numbers and motivation for earnings management as clear in their stock pricing behavior. I hope the study improves investors' perception of the reliability of a firm's performance, as measured by earnings. It is of use to the users of financial accounting and corporate finance globally for rationalizing the motivation behind earnings manipulation by the management. JEL Classification: M41

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The impact of SME’s pre-bankruptcy financial distress on earnings management tools

Cited by 95 publications

References 69 publications

Accounting expertise in the audit committee and earnings management

Accounting expertise in the audit committee and earnings management

Earnings Quality in Private SMEs: Do CEO Demographics Matter?

The Earnings Management Motivation: Accrual Accounting vs. Cash Accounting

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