The jinx of real earnings management: evidence from inefficient investments and debt maturity structure in Pakistan

Bhutta, Umair Saeed; AlHares, Aws; Shahab, Yasir; Tariq, Adeel

doi:10.1108/jaee-03-2021-0079

Cited by 13 publications

(10 citation statements)

References 111 publications

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“…This shows that both cost-based as well as revenue-based RAEM are practiced by the family firms (Achleitner et al, 2014). Earlier studies on family firms indicate that family firms deter from the practice of RAEM as they are detrimental in the long run (Achleitner et al, 2014;Bhutta et al, 2021). However, our study suggests when the family firms are ladened with debt they practice earnings management to protect their control of the business.…”

Section: Control Variable Hldebt Itmentioning

confidence: 51%

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Earnings management by family firms to meet the debt covenants: evidence from India

Avabruth

Padhi

2022

JAEE

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PurposeGiven the unique nature of Indian family firms and the recent failure of many business houses (Bhushan Steel Ltd., Hotel Leela Ventures Ltd. etc.) it is important to understand the relationship between the earnings management practices of the family firms and the debt. In this paper an attempt towards this has been made.Design/methodology/approachThis study makes use of an empirical approach to understand the relationship between earnings management and debt in the Indian context. This study was conducted by considering a large sample data of 16,629 family firm years spread across nine years. This study makes use of fixed effects and Generalized Method of Moments (GMM) regressions to test our hypothesis.FindingsFirst and foremost, this research supports the socioemotional wealth theory. It indicates that maintaining the control of the business is one of the socioemotional factors for the Indian family business and Indian family businesses ladened with debt engage in earnings management to protect their socio emotional wealth (control of the business). Evidence for higher earnings management practices for firms with above average debt has also been documented. Further, the fact that real activity earnings management is the preferred earnings management choice over the accrual-based earnings management as majority of debt is from the banks and financial institutions has also been demonstrated. Finally, the analysis indicates that accrual-based earnings management and real activity earnings management are complementary to each other. However, real activity earnings management can also act as a substitute for the accrual-based earnings management but the reverse is not true. Even among the real activity earnings management, cost-based real activity earnings management was preferred over the revenue-based real activity earnings management as the former is more elusory.Research limitations/implicationsThis research is limited to the listed family firms of India. Since the family firms around the world are heterogeneous the findings from this research might not be extended to other economies.Practical implicationsThe study has meaningful insights for policy making and monitoring of the family firms. It also aides the investors in taking investment decisions with respect to family firms in India.Originality/valueThe study is unique as it integrates the family firms, debt and various types earnings management. Previous studies have focused mainly on accrual-based earnings management. The study also provides insights on the relationship between earnings management practices and debt covenants at various levels of family holdings.

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Section: Control Variable Hldebt Itmentioning

confidence: 51%

“…Earlier studies on family firms indicate that family firms deter from the practice of RAEM as they are detrimental in the long run (Achleitner et al. , 2014; Bhutta et al. , 2021).…”

Section: Empirical Findingsmentioning

confidence: 99%

Earnings management by family firms to meet the debt covenants: evidence from India

Avabruth

Padhi

2022

JAEE

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“…Firm age (FA), calculated as the natural logarithm of the number of years since incorporation to the year of study (Bhutta et al, 2021; Mapitiya, Ajward, & Senaratne, 2016), has been incorporated into the model because the extent of integrated reporting may change with the firm age. Institutional ownership (IO) was also taken into account.…”

Section: Control Variablesmentioning

confidence: 99%

Effect of CEO Ownership Power and Integrated Reporting Among Listed Firms in East Africa

Bonareri¹,

Cheboi²,

Ronald³

2023

JEFMS

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Purpose – The pressure on businesses to disclose information that goes beyond the financial aspects and includes non-financial information has grown as social, environmental, and accountability issues are receiving more attention. Integrated reporting (IR) is a technique that can close the information gap by focusing on both financial and non-financial aspects, on the linkages that already exist between the various business processes, and on the capacity of the firm to generate value over the short, medium, and long term. However, studies on the determinants of IR are limited, inconclusive, contradictory and mainly studied in developed economies. This study aimed at examining the effect of CEO ownership power on IR from a developing region perspective (East Africa). Design/methodology/approach – The study adopted explanatory and longitudinal research design with panel data to establish the causal relationship between CEO ownership power and IR. The empirical study was based on a sample of 702 firm-year observations among listed firms in East Africa for the period 2013 to 2021. Findings – The findings indicate a positively significant relationship between CEO ownership power and IR among firms listed in the East African securities exchange. Practical limitation/implications – The study used one dimension of CEO power (ownership), other studies could incorporate other dimensions of CEO power (structural, expert & prestige) and in other different contexts. From a managerial practical perspective, it shows that CEOs owning shares in the company influences the level of IR. The insights also provide useful information to shareholders and regulators in evaluating the CEO ownership power that affects IR in East Africa. This study also implies that policymakers can encourage shareholding by CEO to enhance IR. Originality/value – literature review shows a few studies have investigated the relationship between CEO ownership power and IR in the developing world specifically the East African context. This study provides empirical evidence on the impact of CEO ownership power on IR and how ownership of shares by the CEO in a firm influences the disclosure of financial and non-financial information.

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“…Logistic regression was performed as described by Purba et al (2021). The least-squares method was used by Ismael and Kamel (2021), Bhutta et al (2021), andChakroun et al (2022, pp. 331-362).…”

Section: Literature Reviewmentioning

confidence: 99%

The use of Beneish M-scores to reveal creative accounting: evidence from Slovakia

Ďurana

Blazek

Machová

et al. 2022

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Research background: In creative accounting, the primary goal of every enterprise is to increase and strengthen its market position. Over the years, manipulation of financial statements has also reached the territory of Central European countries, including the Slovak Republic. Therefore, an analysis was conducted to identify enterprises that handle accounting. This article focuses specifically on Sector A: agriculture, forestry, and fisheries. Purpose of the article: The aim of the article was to reveal the creative accounting practices of a sample of enterprises operating in the Slovak business environment in a sector using the Beneish model. Methods: The Beneish model was used to calculate the manipulation of enterprises? financial statements. Both variants, that is, the 5-parameter model and 8-parameter model, were used for the calculation. The results of these models were plotted using graphs and receiver operating characteristic (ROC) curves. Findings & value added: Based on the use of both variants of the Beneish model, it was proven that enterprises in the analyzed sector use the possibility of manipulating financial statements. The added value of the article is the detection of the use of creative accounting in a specific sector, which makes the study original in its application and space-time orientation.

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The jinx of real earnings management: evidence from inefficient investments and debt maturity structure in Pakistan

Cited by 13 publications

References 111 publications

Earnings management by family firms to meet the debt covenants: evidence from India

Earnings management by family firms to meet the debt covenants: evidence from India

Effect of CEO Ownership Power and Integrated Reporting Among Listed Firms in East Africa

The use of Beneish M-scores to reveal creative accounting: evidence from Slovakia

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