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.

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.

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.

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.

Seasoned Equity Offerings and " Herd Behavior " of Earnings Management

A model to explain the dynamic characters of earnings management was developed based on the interactionamong several firms’ disclosure policies. Under the condition of incomplete information, each firm’s earnings man-agement will be influenced by the earnings disclosure policies of other firms. It can lead to "herd behavior" of earningsmanagement. This paper studies the relationship between earnings manipulation and rights issue policy based on thedistribution of earnings after management. The results indicate that Chinese listed companies trend towards controllingROE in the narrow ranges just above 6% and 10% .Therefore, "herd behavior" exists in the earnings management.

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.