Does the Internal Audit Function Play a Role in Mitigating Earnings Management?

This paper aims to investigate the effect of the characteristics of the internal audit function(IAF)on earnings management(EM)for a sample of 27 Tunisian listed companies.The authors employed the Correlated Panels Corrected Standard Errors model to estimate the regression equation.The results showed that EM is negatively associated with internal audit effectiveness,frequency of audit committee meetings with Chief Audit Executives(CAEs),the partial outsourcing of internal audit,and the firm’s size.Moreover,the authors found a positive relationship between EM and the use of IAF as a training ground for management and the private sector.This study is important to academics,regulators,and policymakers in introducing new governance reforms to strengthen the IAF as an important internal governance mechanism to reduce earnings management practices in emerging countries.The results also provide useful information for investors to examine the effect of internal audit characteristics on earnings management.

Tax avoidance and earnings management:a neural network approach for the largest European economies

In this study,we investigate the relationship between tax avoidance and earnings management in the largest five European Union economies by using artificial neural network regressions.This methodology allows us to deal with nonlinearities detected in the data,which is the principal contribution to the previous literature.We ana-lyzed Compustat data for Germany,the United Kingdom,France,Italy,and Spain for the 2006–2015 period,focusing on discretionary accruals.We considered three tax avoidance measures,two based on the effective tax rate(ETR)and one on book-tax differences(BTD).Our results indicate the presence of nonlinear patterns and a posi-tive,statistically significant relationship between discretionary accruals and both ETR indicators implying that when companies resort to earnings management,a larger tax-able income—and thus higher ETR and lesser tax avoidance–would ensue.Hence,as also highlighted by the fact that discretionary accruals do not appear to affect BTD,our evidence does not suggest that companies are exploiting tax manipulation to reduce their tax payments;thus,the gap between accounting and taxation seems largely unaf-fected by earnings management.

Tone of language,financial disclosure,and earnings management:a textual analysis of form 20-F

This study investigates the relationship between the tone of financial disclosures and managers’earnings management behavior using Form 20-F filings of Chinese firms listed in the U.S.during 2002–2014.The results show that the proportion of positive,uncertain,or modal words used in financial disclosures is positively related to corporate earnings management,implying that managers attempt to conceal earnings management behavior by manipulating the tone of their financial reports.In addition,robustness tests are conducted using an alternative proxy for earnings management that considers the effects of the financial crisis and separately examines the information and non-information technology industries.The results suggest that the tone used in financial disclosures has informative value,and textual analysis can be an effective tool for identifying earnings management.

Financial Statements Frauds: Does Their Intensity Have a Connection with Earnings Management?

This study investigates the relationship between earnings management and financial statements frauds.We examine how earnings management practices;done in the two years before the fraud,impact the likelihood of fraud occurrence.Moreover,we introduce a new measure for the fraud intensity.Using a sample of 70 fraud and 70 no-fraud firms,we find that firms committing fraud of higher intensity have managed earnings in the two years before the fraud occurrence.This paper contributes to the literature about fraud antecedents because it is the first study measuring the relationship between earnings management and the intensity of the fraud,and it can be also useful for practitioners,because using the analysis of earnings management practices,analysts can foresee and prevent financial statements frauds.

Earnings Management in State-Owned Enterprises in a Period of Macroeconomic Instability

The purpose of this paper is to examine whether and to what extend Greek state-owned enterprises engage in earnings management techniques during 2012-2016.Most prior studies on earnings management have used data from large economies with relative stable macroeconomic contexts(e.g.,USA).Our knowledge about earnings management in smaller economies is rather limited.To fill this void,we conducted our study in Greece and focused on the abovementioned period,which is very interesting given that Greece experienced a substantial political and macroeconomic instability(e.g.,four elections,one referendum,capital controls,and two memorandums).Two different models(i.e.,The Earnings Distribution Model and the Modified Jones Model)are used to provide answers to the research questions.The sample is composed of 50 state-owned enterprises.The results show that Greek state-owned enterprises did not adopt any earnings management techniques during the examined period.These results are rather robust given that they come from two different models.According to the literature,macroeconomic and political instability provide incentives to managers to use earnings management techniques.Interestingly though,our results suggest that this is not the case for a smaller economy.The findings of this study will allow investors,auditors,and users of the financial statements to make better decisions when studying companies that are experiencing those difficulties.The adoption of two different methods and the similar results is an indication of more robust and valid findings.

Does Dividend Policy Affect Earnings Management?Evidence From France

The objective of this paper is to examine the impact of the dividend policy on earnings management in France.Note that in recent years,research on the determinants of earnings management has multiplied.However,little work has really looked into this issue.The empirical research is based on a sample made up of French companies listed on the CAC All Tradable index for the period 2008-2015.The empirical results show that the dividend policy is a determinant of earnings management in the French context.

Effect of Fair Value Measurement on Earnings Management of Chinese Real Estate Listed Companies

since the fair value has been used,it has always been paid more attention to,after the financial crisis,it has caused widespread denunciation of the academic session.In the new accounting standards issued in 2014,the attention of fair value has always been very high,which can reflect the influence of enterprises on earnings management through the measurement of fair value.By describing the application of fair value under the new criteria to pave the way for the following description.The back illustrates the impact of fair value on earnings management under the new guidelines.At the end of the paper,some policies and constructive suggestions are put forward to improve earnings management in Chinese enterprises.

Religiosity and bank earnings management:Revisiting international evidence

The modernization theory forecasts a sharp declining effect of institutionalized religion on human behavior owing to the extensive economic development.However,this prediction is rejected and proved that religious values and beliefs have a pervasive influence on individual conduct.Based on this salient evidence,we examine the influence of religious social norms on bank earnings management behavior with regard to ongoing economic development.We use 20,715 bank-year observations from 1318 listed banks of eight geographical regions.We,further,employ an updated dataset of 2007-2021 to resemble the economic prosperity time period.Our study discards the prediction of the modernization theory and reveals that banks located in countries with high religiosity are less likely to manage their reported earnings.While comparing conventional banks with Islamic ones,conventional banks are found to be less prone to the earnings management practice than that of their Islamic counterparts.We also find religiosity to have a greater magnitude of effect on the accounting manipulation in the crisis period than in the post-crisis one.The cross-regional differences in religious values bring differential effects on this unethical practice.Our results are robust with the alternative measures of earnings management and alternative model specifications.

Earnings Management of Chinese Listed Multinational Corporations

This study evaluates the quality of accounting information provided by Chinese multinational corporations(MNCs)in relation to the issue of earnings management.Using a combined dataset of outward foreign direct investment and financial statements by Chinese firms publicly listed on A-share markets between 2012 and 2017,we investigate whether Chinese MNCs are more inclined to manage earnings.We discover that these firms exhibited significant earnings management behavior and typically adjusted their earnings downward.We demonstrate that these effects were more pronounced among private MNCs than state-owned firms,and in host countries with weaker institutional quality.Further research reveals that after delaying the confirmation of current earnings,Chinese MNCs received higher government subsidies,and this pattern was particularly prevalent among private MNCs.We find no evidence that Chinese MNCs manipulated earnings to avoid paying taxes.

China-US trade dispute investigations and corporate earnings management strategy

This paper studies Chinese firms’earnings management strategy in response to the trade dispute investigations initiated by the U.S.from 2001 to 2018.This topic is important given the increasingly severe international trade environment and the significant influence of macro economy on financial reporting.We find that firms affected by the U.S.-initiated trade dispute investigations engage in more upward earnings management.Additionally,the result is more pronounced in firms with a more negative market reaction around the announcement of the investigations.Cross-sectional tests provide evidence that the positive relation is stronger among firms whose U.S.operating revenue and management ownership is high,firms in provinces with weak investor protection,and firms that performed well one year after initiation of the investigations.Moreover,investors react positively to the earnings management by the affected firms.Our results are robust to a variety of sensitivity checks.Overall,our findings suggest that companies will manage their earnings upward to mitigate the negative impacts of the U.S.-initiated trade dispute investigations.

Earnings Management of Chinese Listed Companies:A Survey of Empirical Studies

Introduction In the 1950s, western researchers of accounting introduced positive philosophy and positive economics to the theoretical research of accounting. Not until the 1960s and 1970s did the introduction gradually develop into the positive accounting theory, as the means of explaining the problems and predicting the future development in the practical

Stochastic Earned Duration Analysis for Project Schedule Management

Earned duration management(EDM)is a methodology for project schedule management(PSM)that can be considered an alternative to earned value management(EVM).EDM provides an estimation of devia-tions in schedule and a final project duration estimation.There is a key difference between EDM and EVM:In EDM,the value of activities is expressed as work periods;whereas in EVM,value is expressed in terms of cost.In this paper,we present how EDM can be applied to monitor and control stochastic pro-jects.To explain the methodology,we use a real case study with a project that presents a high level of uncertainty and activities with random durations.We analyze the usability of this approach according to the activities network topology and compare the EVM and earned schedule methodology(ESM)for PSM.

Application Research of Earned Value Management in New Drug Research and Development Projects

Objective To help investors assess and control the costs of new drug development and reduce the risks of new drug development projects.Methods Cost analysis and financial forecasting were carried out with the integrated approach of earned value management.According to the principle of earned value management deviation analysis,the basic process of the new drug research and development project was combined with the hypothesis method from the research of Tufts Drug Development Research Center.Results and Conclusion If the project progress check was carried out in the clinical trial,the project costs were found overspent,the efficiency was low,the project progress was faster,and the resource investment was ahead.It is recommended that the adjustment should be made to reduce the input of resources,and increase the efficient key personnel to take the place of some less efficient staff.

Earnings seasonality,management earnings forecasts and stock returns

We examine whether management earnings forecasts(MEFs)help reduce the stock return seasonality associated with earnings seasonality around earnings announcements(EAs)in Chinese A-share markets.We find that firms in historically low earnings seasons outperform firms in high earnings seasons by 2.1%around MEFs.Firms in low earnings seasons also have higher trading volume and return volatility than their counterparts around EAs and MEFs.MEFs significantly reduce the ability of historical seasonal earnings rankings to negatively predict announcement returns,volume and volatility around EAs.The reduction effects are stronger when MEFs are voluntary or made closer to EAs.The evidence suggests that MEFs facilitate the correction of investors’tendency to extrapolate earnings seasonality and its resulted stock mispricing.

Business and financial information integration and voluntary management earnings forecasts

In this study,the impact of business and financial information integration(BFⅡ)on the voluntary management earnings forecasts(VMEFs)of listed firms in China between 2008 and 2018 is investigated.Drawing on litigation cost and ability signaling theories,we find that the adoption of BFⅡencourages top managers to disclose VMEFs.BFⅡfirms are identified through the textual analysis of management discussion and analysis(MD&A)reports,and the empirical results indicate that BFⅡfirms have a higher probability and frequency of issuing VMEFs than non-BFⅡfirms.The results remain robust after we identify causality by applying a propensity score matching and difference-in-differences(PSM-DID)test and use an alternate measure of BFⅡ.Further tests show that BFⅡfirms issue more accurate VMEFs and are able to issue them at an earlier stage.We also find that the positive relationship between BFⅡand VMEFs is weakened if the media expresses concern about the uncertainty of BFⅡadoption.

Customer concentration and management earnings forecast

Customers are one of the key external stakeholders for a company.Using Chinese listed companies’data from 2007 to 2015,this paper examines the impact of customer concentration on information disclosure from the perspective of management earnings forecast.Empirical results show that a more concentrated customer base induces companies to disclose more positive earnings forecast.In addition,the positive association between customer concentration and management earnings forecast is more pronounced with higher economic policy uncertainty.Further analyses reveal that companies issue more positive earnings forecast to reduce the financing risk and protect their relationshipspecific investment.Also,customer concentration reduces the consistency of earnings forecast since the deviation of the forecast performance and the actual performance is greater.This paper enriches the literature on the determinants of management earnings forecast and the effects of stakeholders on corporate financial behaviour.Our findings also provide implications for investors,regulators,and various stakeholders to understand management earnings forecast decisions.

Major government customer and management earnings forecasts

This paper examines whether customer base composition in the US,that is,whether a firm's major customers are government entities or publicly traded companies,affects the properties of its management earnings forecasts(MEFs).Using a sample of 1,168 MEFs from 1998 to 2014,we find that firms whose major customers are government entities(i.e.,govemment suppliers)issue more precise and more accurate MEFs than firms whose major customers are public companies(i.e.,corporate suppliers).Moreover,when managers disclose negative information to the market,earnings forecasts issued by government suppliers have greater price impact than those issued by corporate suppliers.Collectively,our empirical results suggest that having major govemment customers has a positive impact on the quality of MEFs.

A Study of Quantitative Progress Evaluation Models for Open Source Projects

Open source software (OSS) has become an indispensable part of society, not only for personal use but also for corporate use. Projects developed and operated by OSS are called open source projects, and the number of such projects is increasing. On the other hand, because anyone can participate in an open source project, the progress of the project is uncertain due to differences in project members’ skills, development environments, and time zones of activity. Therefore, many users and companies need to understand the development and operation status of open source project. Then, the developers carefully make decisions on upgrading or installing new OSS. In this paper, we focus on the maintenance effort estimation for open source projects considering uncertainty. Also, we evaluate the project quantitatively using Earned Value Management (EVM). Moreover, we examine the appropriateness of the model for predicting the maintenance effort expeditures. Furthermore, we discuss the appropriateness of this EVM method.

Can Accounting Earnings Predict Future GDP Growth？ Evidence from China

This study investigates whether accotmting earnings can predict future Gross Domestic Product （GDP） growth within China＇s institutional settings. Konchitchki and Patatoukas （2014a） find that accounting earnings is a significant leading indicator of GDP growth for the next three or four quarters. We conjecture, however, that earnings management would weaken such predictive power for accounting earnings because it distorts earnings from real corporate profit. As earnings of Chinese firms are more seriously manipulated than those of US firms, this study finds that earnings of Chinese listed firms can only predict GDP growth for a single quarter. We further decompose accounting earnings into operating cash flow and accrual earnings and find that operating cash flow which is less affected by earnings management has better predictive power for GDP over the longer horizon of the next three quarters, but accrual earnings can only predict GDP growth for the next quarter.

Structural Framework of Islamic Aqidah on the Practice of Earning Management

There is growing concern among the users of financial statements about the level of frauds occurring in the business organization.The unexpected collapse of corporate giants such as Enron and WorldCom has driven those interested to pay more attention to the unethical practices in accounting systems.The phenomenon of Earnings Management(EM)is seen as one of the most problematic issues facing the accounting profession during the last few decades.It has been argued that EM misleads the users of financial statements.This is because when the managers alter earnings,the financial statements do not accurately reflect the economic wealth of the company,which ultimately leads to the gross violation of stakeholders'trust.The objective of this paper is firstly to address the ethical issue of EM and evaluate the progress of research in dealing with this issue where Islamic Structural Framework,based on Islamic creed(aqidah),can provide some insights into the behavioral pattern and actions that could be undertaken to reduce or eliminate the practice of EM.Hence,the paper proposes a structural framework of Islamic Aqidah and the practice of EM that functions as a guidance to direct the intentions as well as behaviors of managers towards a proper manner(derived from the Quran and Sunna).