The Role of Earnings Management in Economic Growth and Corporate Growth Illusion
الموضوعات :Leila Zamanianfar 1 , Fraydoon Rahnamay Roodposhti 2 , Bahman Banimahd 3 , Hashem Nikoomaram 4 , Zahra Deilami 5
1 - Department of Accounting, Faculty of Management and Economic, Science and Research Branch, Islamic Azad University, Tehran, Iran
2 - Department of Accounting, Faculty of Management and Economic, Science and Research Branch, Islamic Azad University, ,Tehran, Iran
3 - Department of Accounting, Faculty of Management and Accounting, Karaj Branch, Islamic Azad Uni-versity, Karaj, Iran
4 - Department of Accounting, Faculty of Management and Economic, Science and Research Branch, Islamic Azad University, ,Tehran, Iran
5 - Department of Accounting, Faculty of Financial Sciences, Kharazmi University, Tehran, Iran
الکلمات المفتاحية: Overvaluation, Earnings Management, Economic Growth, Corporate Growth Illusion,
ملخص المقالة :
The most comprehensive criteria for evaluating management performance is economic value added, accounting added value, and over-valuation, which can best reflect how managers operate because of the information content that they provide. Therefore, considering the importance of earnings, this study investigates The Role of Earnings Management in Economic Growth and the Corporate’s Growth Illusion in Tehran Stock Exchange during the period 2012-2018 using systematic elimination method of information of 150 selected companies. The study data and theoretical foundations were collected through library studies. Hypotheses were tested using correlation method and multivariate regression. The results showed that with increasing in real earnings management, economic value added and accounting added value also increased. Also, with the increase in revenue earnings management, economic value added and accounting added value also increase. But there was no significant relationship between accrual earnings management and income with accounting added value. There is a positive significant relationship between actual earnings management resulting from abnormal and overvaluation operating cash flows and, there is a positive and significant relationship between accrual earnings management and overvaluation.
[1] Abad, D., Cutillas-Gomariz, M. F., Sánchez-Ballesta, J. P., & Yagüe, J. Real Earnings Management and Information Asymmetry in the Equity Market. European Accounting Review, 2016, 27(2), 209–235. Doi :org/10.1080/09638180.2016.1261720.
[2] Aflatooni, A. The Effect of Earnings Management on the Performance of Accounting Earnings-Based on Valuation Models. Empirical Studies in Financial Accounting, 2016, 13(50), 185-203. Doi:10.22054/qjma.2016.7063. (in Persian).
[3] Ahmad, A. and Pettit, J. Compensation Strategy for the New Economy Age, Stern Stewart & Co. Research, London, 2000. Doi: 10.33107/ubt-ic.2014.49
[4] American Accounting Association, Statement on Accounting Theory and Theory Acceptance. AAA: Sarasota, FL, 1997. Doi :10.1080/00014788.1978.9729124.
[5] Arab Salehi., M, Bari, S, Behshour, I. Global financial crisis and earnings management in companies listed in the Tehran Stock Exchange. Financial Accounting and Auditing Research, 2016, 9 (36), 88-73. (in Persian).
[6] Ahmadi, R., Kordloei, H., The Effect of Financial Distress on the Investment Behavior of Companies Listed on Tehran Stock Exchange. Advances in Mathematical Finance and Applications, 2018, 3(4), P. 17-28. Doi: 10.22034/amfa.2019.565459.1108
[7] Badertscher, B.A, Overvaluation and the Choice of Alternative Earnings Management Mechanisms. The Accounting Review, 2011, 86(5), 1491-1518. Doi: 10.2308/accr-10092.
[7] Baghoumian, R., Mohammadi, H., Taheri, M. Economic Downturn and Earnings Management. Management Accounting, 2017, 10(32), 29-42. (in Persian).
[8] Biddle, G., Bowen, R. and Wallace, J. ‘Evidence on EVA’, The Bank of America Journal of Applied Corporate Finance, 1999, 12(2), 69. Doi: 10.1111/j.1745-6622.1999.tb00008.x.
[9] Boulos, F., Haspeslagh, P. and Noda, T. ‘Managing for Value: It’s Not Just About the Numbers’, Harvard Business Review, 2001, 79(7), 64–75.
[10] Brusco, S. and Tortella, B. ‘The Economic Value Added (EVA): An Analysis of Market Reaction’, Working Paper, SSRN. 2002. Doi: 10.1016/S0882-6110(03)20012-2.
[11] Cahan, S., Lal, M. and Riceman, S. ‘Do Managers Perform Better under EVA bonus schemes?’ European Accounting Review, 2002, 11(3), 537–72. Doi: 10.2139/ssrn.242780 .
[12] Chen, X., Cheng, Q., Hao, Y., & Liu, Q. ‘GDP growth incentives and earnings management: evidence from China’. Review of Accounting Studies, 2020, https://doi.org/10.1007/s11142-020-09547-8.
[13] Chi, J., Gupta, M. Overvaluation and earnings management. Journal of Banking and Finance, 2009, 33(9), 1652-1663. Doi: 10.1016/j.jbankfin.2009.03.014.
[14] Cohen, D. A., & Zarowin, P. Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 2010, 50(1), 2–19. Doi: 10.1016/j.jacceco.2010.01.002.
[15] Cohen, DA., Aiyesha, D., Lys, TZ. Real and accrual-based earnings management in the pre- and post-Sarbanes–Oxley periods. Acc Rev, 2008, 83:757–787. Doi: 10.2139/ssrn.813088 .
[16] Dechow, P.M., Richardson, S.A., Tuna, A.I. Are Benchmark Beaters doing Anything Wrong? Working paper. 2000. Doi: 10.2139/ssrn.222552 .
[17] Dibachi, H., Behzadi, M.H., Izadikhah, M., Stochastic Modified MAJ Model for Measuring the Efficiency and Ranking of DMUs, Indian Journal of Science and Technology, 2015, 8(8), P. 1-7, Doi: 10.17485/ijst/2015/v8iS8/71505
[18] Edmans, A., X. Gabaix, and A. Landier. A multiplicative model of optimal CEO incentives in market equilibrium. Review of Financial Studies, 2009, 22 (12): 4881–4917. Doi: 10.1093/rfs/hhn117.
[19] Eng, L. L., Fang, H., Tian, X., Yu, T. R., & Zhang, H. Financial crisis and real earnings management in family firms: A comparison between China and the United States. Journal of International Financial Markets, Institutions and Money, 2019, 59, 184–201.
[20] Flores, E., Weffort, E. F. J., Silva, A. F. da, & Carvalho, L. N. G. Earnings management and macroeconomic crises. Journal of Accounting in Emerging Economies, 2016,6(2), 179–202. Doi: 10.1108/JAEE-07-2013-0037.
[20] Forqandoust Haghighi, K., Bani Mahd, B. Value Added Value, Accountant Monthly, 2002, No. 148. (in Persian).
[21] Frank, M. Z., & Goyal, V. K. Testing the pecking order theory of capital structure. Journal of Financial Economics, 2003, 67(2), 217–248. Doi: 10.1016/S0304-405X(02)00252-0.
[22] Gong, J. J. Examining Shareholder Value Creation over CEO Tenure: A New Approach to Testing Effectiveness of Executive Compensation. Journal of Management Accounting Research, 2011, 23(1), 1–28. Doi: 10.2308/jmar-10105.
[23] Huyghebaert, N., & Wang, L. Value creation and value distribution in Chinese listed firms: the role of ownership structure, board characteristics, and control. The European Journal of Finance, 2017, 1–32. Doi: 10.1080/1351847X.2017.1386704.
[24] Izadikhah, M., Azadi, M., Shokri Kahi, V., Farzipoor Saen, R., Developing a new chance constrained NDEA model to measure the performance of humanitarian supply chains, International Journal of Production Research, 2019, 57(3), P. 662-682, Doi: 10.1080/00207543.2018.1480840
[25] Izadikhah, M., Using goal programming method to solve DEA problems with value judgments, Yugoslav Journal of Operations Research, 2016, 24 (2), P. 267–282. Doi: 10.2298/YJOR121221015I
[26] Jensen, M.C. Agency costs of overvalued equity. Financial management, 2005, 34(1), 5-19. Doi: 10.1111/j.1755-053X.2005.tb00090.x.
[27] Kleiman, R. ‘Some New Evidence on EVA Companies’, Journal of Applied Corporate Finance, 1999, 12(2), 80–91. Doi: 10.1111/j.1745-6622.1999.tb00009.x.
[28] Liu, Z. J. Effect of Earnings Management on Economic Value Added: A Cross-country Study. South African Journal of Business Management, 2016, 471(1), 29–36. Doi: 10.4102/sajbm.v47i1.50.
[28] Liu, Z.J. & Wang, Yi-Shu. Effect of earnings management on economic value added: G20 and African countries study. South African Journal of Economic and Management Sciences, 2017, 20(1), 1-9. Doi.org/10.4102/sajems.v20i1.1247.
[29] Lutfi, M., Nazwar, C., & Muda, I ., Effects of Investment Opportunity Set, Company Size & Real Activity Manipulation of Issuers in Indonesia Stock Exchange on Stock Price in Indonesia. International Journal of Economic Research, 2016, 13(5), 2149–2161.
[30] Mathews M, Perera, M. Accounting Theory and Development. Chapman & Hall: London. 1999.
[31] Mehran, H. Executive compensation structure, ownership, and firm performance. Journal of Financial Economics, 1995, 38 (2): 163–184. Doi: 10.1016/0304-405X(94)00809-F.
[31] Mir, A. E., & Seboui, S. Corporate governance and earnings management and the relationship between economic value added and created shareholder value. Journal of Asset Management, 2006, 7(3-4), 242–254. Doi: 10.1057/palgrave.jam.2240216.
[32] Moneva, JM., Llena, F. The environmental disclosures in the annual reports of large companies in Spain. European Accounting Review. 2000, 9(1): 7–29. Doi: 10.1080/096381800407923.
[33] Parandin, K., jamshid, B., derakhshani, M. Effects of Corporate Governance Mechanisms on Unconditional Conservatism of Listed Companies in Tehran Stock Exchange. Empirical Research in Accounting, 2017, 6(2), 1-22. (in Persian).
[34] Parsa, B., Sarraf, F., Financial Statement Comparability and the Expected Crash Risk of Stock Prices. Advances in Mathematical Finance and Applications, 2018, 3(3), P. 77-93. Doi: 10.22034/amfa.2018.544951
[34] Qarabaghian. M. Economic growth theorists. Tehran: Shahid Beheshti University Press. 1995. (in Persian).
[35] Rahnamy Roodposhti., F, Nikoomram, H, and Shahverdiani, Sh. Strategic Financial Management: Value Creation, Tehran: Kikavush. 2006, (in Persian).
[36] Rhodes–Kropf, M., Robinson, D.T., Viswanathan, S. Valuation waves and merger activity: The empirical evidence. Journal of Financial Economics, 2005, 77(3), 561-603. Doi: 10.1016/j.jfineco.2004.06.015.
[37] Roychowdhury, S. Earnings management through real activities manipulation. J Acc Econ, 2006, 42:335–370. Doi: 10.1016/j.jacceco.2006.01.002.
[38] Salehi, A., Mohammadi, S., Afshari, M., Impact of Institutional Ownership and Board Independence on the Relationship Between Excess Free Cash Flow and Earnings Management. Advances in Mathematical Finance and Applications, 2017, 2(3), P. 91-105. Doi: 10.22034/amfa.2017.533104
[39] Scott, William, (2009), "Financial Accounting Theory" , Printice Hall, PP. 402-431.
[40] Sedighi, R. The structure of corporate governance, earnings management and the information content of earnings accounting, Working Paper, Allameh Tabatabaei University. 2011. (in Persian).
[40] Shahrabadi, A., Yousefi, R. An Introduction to Behavioral finance. Bourse Monthly, 2007, 69, 34-24. (in Persian).
[41] Sinaei, H., Rangbari Kheini, M. (2014). Economic Value Added and Intellectual Capital Effects on Firms Stock Price. Journal of Financial Accounting Research, 6(3), 85-98.
[42] Stewart, G. B. EVA: Fact or Fantasy’, Journal of Applied Corporate Finance, 1994, 71–84. Doi: 10.1111/j.1745-6622.1994.tb00406.x.
[43] Sulistyanto, H. S. Earning Management, Theory and Empirical Models. Jakarta: Grasindo. 2014.
[44] Talebnia, gh, Shojaei, I. Investigating the Relation between Market Value Added (MVA) To Earning Ratio with Economic Value Added (EVA) To Earning Ratio (Tehran Stock Exchange). Management Accounting Journal, 2011, 4 (8), 60-47. (in Persian).
[45] Wallace, J. EVA Financial Systems: Management Perspectives’, Advances in Management Accounting, 1998, 6, 1–15.
[46] Watts, R.L., and J. Zimmerman. “Positive Accounting Theory: A Ten Year Perspective”, The Accounting Review, 1990, 65 (1), 131-156.
[47] Wibowo., A.S, Ghozali., I. "Does Value Creation Drives Growth Illusion? An Evidence from Indonesia Stock Exchange," European Research Studies Journal, European Research Studies Journal, 2018, 0(1), 491-506.
