Investigate earnings management at the sensitive earnings amounts’ threshold of companies with high financial leverage

Subject Areas : Management Accounting

SARA shafiee ¹ , hamidreza kordlouie ² , shadi shahverdiani ³ , maziyar ghasemi ⁴

1 - Visiting Professor, Department of Accounting, Islamic Azad University, UAE Branch, Dubai, UAE
2 - Associate Professor and Faculty Member of Islamic Azad University, Islamshahr Branch, Islamshahr, Iran. (Corresponding Author)
3 - Assistant professor, management department, Islamic Azad University, Shahre Qods branch, Iran
4 - Assistant Professor, Department of Management, Adiban Higher Education Institute, Garmsar, Semnan, Iran

Received: 2022-07-16 Accepted : 2022-07-16 Published : 2022-05-22

Keywords: Abnormal Discretionary Expense, Abnormal Optional Cost, Earnings Threshold, financial leverage, Real Profit Management,

Abstract :

The purpose of this study is to investigate real earings management on the threshold of sensitive amounts of earnings in companies suspected of earnings management and in terms of high financial leverage, which was conducted among 148 listed companies and their financial information between 1392 and 1399. In this study, abnormal production costs and abnormal discretionary expenses for companies suspected of earings managing whose financial leverage was above average were examined in the three thresholds of zero- earnings, previous earnings and forecasted earnings. The results show that in all three profit thresholds, when the financial leverage is more than average, then this leverage has a negative and significant effect on abnormal production costs and abnormal discretionary expenses. Only in abnormal production costs of the previous earning threshold that no significant impact has been identified.

References:

• حسینی معصوم، محمدرضا؛ گرکز، منصور؛ سعیدی، پرویز.(1398). عملکرد مدیران در مواجهه با آستانه‌های سود:شواهدی از نقش گزارشگری پایداری، پژوهش‏های کاربردی در گزارشگری مالی، دوره 8، شماره 2، صص 141-168.


• لاری دشت بیاض، محمود؛ ساعی، محمد جواد؛ قربانی، آرش (1396)، بررسی مدیریت سود واقعی برای اجتناب از زیان ،فصلنامه علمی پژوهشی مطالعات تجربی حسابداری مالی سال 14 شماره 56 زمستان 13، صص 155-181


• حجازی، رضوان؛ آدم پیرا، سمیرا؛ بهرامی زیارتی؛ مصطفی(1395) تشخیص مدیریت سود با استفاده از تغییرات در گردش دارایی و حاشیه سود، پژوهش‏های حسابداری مالی و حسابرسی، سال 8، شماره 29، صص 73-95


• شمس زاده، باقر؛ افخمی، محمد.( 1395)، تشخیص مدیریت سود با استفاده از تغییرات گردش داراییها و حاشیه سود، پژوهش‏های حسابداری مالی و حسابرسی، سال 8، شماره 32، صص 83-98


• Afrizal, J., Gamayuni, R. R., & Syaipudin, U. (2021). The Effect of Earnings Management on Firm Value with Corporate Governance as a Moderating Variable. International Journal for Innovation Education and Research, 9(2), 262–268.


• Alhmood, M. A., Shaari, H., & Al-dhamari, R. (2020). CEO characteristics and real earnings management in Jordan. International Journal of Financial Research, 11(4), 255-266.


• Alzoubi, E. S. S. (2018). Audit quality, debt financing, and earnings management: Evidence from Jordan. Journal of International Accounting, Auditing and Taxation, 30, 69-84.


• Ghazali, A. W., Shafie, N. A., & Sanusi, Z. M. (2015). Earnings management: An analysis of opportunistic behaviour, monitoring mechanism and financial distress. Procedia Economics and Finance, 28, 190-201.


• Degiannakis, S., Giannopoulos, G., Ibrahim, S., & Rozic, I. (2019). Earnings management to avoid losses and earnings declines in Croatia. International Journal of Computational Economics and Econometrics, 9(3), 219-238.


• Afrizal, J., Gamayuni, R. R., & Syaipudin, U. (2021). The Effect of Earnings Management on Firm Value with Corporate Governance as a Moderating Variable. International Journal for Innovation Education and Research, 9(2), 262–268.


• Alharbi, Samar, Nader Atawnah, Md Al Mamun, and Muhammad Jahangir Ali. )2020(. Local culture and tax avoidance: Evidence from gambling preference behavior. Global Finance Journal 100585.


• Amar .A. B., Abaoub. E. (2010). Earnings management thresholds: The case in Tunisia, Asian Academy of Management Journal of Accounting and Finance 6(2): 35-56. January 2010.


• Ammar, H, Minhas, A., Muhammad, K., Kh, Ahsan, A, Mirela. P., Marian. C., V. (2020). When Does Earnings Management Matter? Evidence across the Corporate Life Cycle for Non-Financial Chinese Listed Companies, Journal of Risk and Financial Management 13, 313; doi: 10.3390/ jrfm13120313.


• Bar-Gill, O., Bebchuk, L. A., )2009(. Misreporting Corporate Performance (SSRN Scholarly Paper No. ID 354141). Social Science Research Network, Rochester, NY. https://doi.org/10.2139/ssrn.354141.


• Billings, Bruce K., James R. Moon Jr., Richard M. Morton, and Dana M. Wallace. )2020(. Can Employee Stock Options Contribute to Less Risk-Taking? Contemporary Accounting Research 37: 1658–86.


• CHi, X., Li, Z.W., Zhang, W.G.,(2011). Financial problems in China’s securities market: a review of empirical studies. China Account. Rev. 7, 1–23 (in Chinese).


• DeAngelo, Harry, Linda DeAngelo, and Rene M. Stulz.(2006). Dividend policy and the earned/contributed capital mix: A test of the life-cycle theory. Journal of Financial Economics 81: 227–54.


• Fan, H., Song, X. (2019). Earnings management of Chinese central state-owned enterprises – the effects of state level Asia-Pacific J. Account. Econ. , 26, 643-658. ..


• Fang, H., Nofsinger J.R., Quan, J. )2015(. The effects of employee stock option plans on operating performance in Chinese firms. Journal of Banking & Finance. 54, 141-159.


• Faisal, M. (2021). Impact of Leverage and Corporate Governance on Earning Management: Empirical Evidence from the Manufacturing Sector of Pakistan (Doctoral dissertation, CAPITAL UNIVERSITY).


• Habib, Ahsan, Borhan Uddin Bhuiyan, and Mostafa Monzur )2019(. IFRS adoption, financial reporting quality and cost of capital: A life cycle perspective. Pacific Accounting Review 31: 497–522.


• Haga, Jesper, Henrik Höglund, and Dennis Sundvik. )2018(. Stock market listing status and real earnings management. Journal of Accounting and Public Policy 37: 420–35.


• Hu, J., Jiang, H., Holmes, M. )2019(. Government subsidies and corporate investment efficiency: evidence from China. Emerg. Rev. 41, 100658.


• Jeremy, B, Edwige, Ch., Edward, L., Ying, L. (2021). Does vanished zero-earnings

 

discontinuity imply no accrual manipulation?. PhD student, are at Baruch College, City University of New York, One Bernard Baruch Way, New York

• Krishnan, Gopal V., Emma-Riikka Myllymäki, and Neerav Nagar. )2018(. Does Financial Reporting Quality Vary Across Firm Life Cycle? pp. 1–64. Available online: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3233512 (accessed on 25 October 2018).


• Laeven, Luc, and Ross Levine. )2019(. Bank governance, regulation and risk taking. Journal of Financial Economics 93: 259–75. [CrossRef]


• Lazzem, Safa, and Faouzi Jilani.)2018(. The impact of leverage on accrual-based earnings management: The case of listed French firms. Research in International Business and Finance44: 350–58.


• Li, Zhichuan Frank, and Caleb Thibodeau. )2019(. CSR-contingent executive compensation incentive and earnings management. Sustainability 11: 3421.


• Sh, Shu, Lin, Zhaoyu, Sun., Lihua, Yuan., (2021). Earnings management and firms’ investment behavior: The


• Marai, A., Pavlović, V., Knežević, G. & Almahrog, Y(2021).Earnings management to achieve benchmark targets: a case of serbian listed companies, Management Control Review, v. 5, n. 1, Jan/Jun, pp. 2-18, 2020. DOI: https://doi.org/10.51720/mcr.v5i1.3397


• Nuanpradit, S. (2019). Real earnings management in Thailand: CEO duality and serviced early years. Asia-Pacific Journal of Business Administration. 88-108.

Prabhakar, Akhilesh Chnadra, and Vasilii Erokhin. )2020(. Globalization Reshapingthe