EARNINGS MANAGEMENT TO ACHIEVE BENCHMARK TARGETS: A CASE OF SERBIAN LISTED COMPANIES
DOI:
https://doi.org/10.51720/mcr.v5i1.3397Keywords:
earnings management, earnings benchmark, earnings distribution, discretionary accrualsAbstract
The aim of this study is to investigate whether and how Serbian companies manage earnings to avoid losses and to avoid earnings decreases. The empirical evidence found in this study shows that there is a discontinuity in the distribution of reported earnings around the zero earnings benchmark suggesting that Serbian companies engage in earnings management to avoid reporting losses. Furthermore, this continuity disappears when we subtracted discretionary accruals from reported earnings indicating that Serbian companies use discretionary accruals as a tool for earnings management. However, the distribution of earnings does not provide evidence that Serbian companies manage earnings to avoid earnings decreases. These results are robust to alternative methods of scaling earnings and various ways of estimating discretionary accruals.Downloads
References
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.
Ayers, B. C., Jiang, J., & Yeung, P. E. (2006). Discretionary accruals and earnings management: An analysis of pseudo earnings targets. The Accounting Review, 81(3), 617-652.
Bartov, E., Givoly, D., & Hayn, C. (2002). The rewards to meeting or beating earnings expectations, Journal of Accounting and Economics, 33(2),173-204.
Beaver, W. H., McNichols, M. F., & Nelson, K. K. (2007). An alternative interpretation of the discontinuity in earnings distributions, Review of Accounting Studies, 12(4), 525-556.
Brown, L. D. , & Caylor, M. L. (2005). A Temporal Analysis of Quarterly Earnings Thresholds: Propensities and Valuation Consequences. The Accounting Review, 80(2), 423-440.
Burgstahler, D., & Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics, 24(1), 99-126.
Burgstahler, D., & Eames, M. (2006). Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises. Journal of Business Finance & Accounting, 33(5-6), 633-652.
Burgstahler, D. C., Hail, L., & Leuz, C. (2006). The Importance of Reporting Incentives: Earnings Management in European Private and Public Firms. The Accounting Review, 81(5), 983-1016.
Caylor, M. L. (2010). Strategic revenue recognition to achieve earnings benchmarks. Journal of Accounting and Public Policy, 29(1), 82-95.
Chapman, C. J., & Steenburgh, T. J. (2011). An Investigation of Earnings Management Through Marketing Actions. Management Science, 57(1), 72-92.
Dechow, P. M., Richardson, S. A., & Tuna, A. I. (2000). Are Benchmark Beaters Doing Anything Wrong?. SSRN eLibrary.
Dechow, P. M., Richardson, S. A., & Tuna, I. (2003). Why Are Earnings Kinky? An Examination of the Earnings Management Explanation. Review of Accounting Studies, 8(2), 355-384.
Dechow , P. M., Sloan R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193-225.
Degeorge, F., Patel, J., & Zeckhauser, R. (1999). Earnings Management to Exceed Thresholds. The Journal of Business, 72(1), 1-33.
Doupnik, T. S. (2008): Influence of culture on earnings management: A note. Abacus, Vol. 44, No. 3, pp. 317-340.
Durtschi, C., & Easton, P. (2005). Earnings Management? The Shapes of the Frequency Distributions of Earnings Metrics Are Not Evidence Ipso Facto. Journal of Accounting Research, 43(4), 557-592.
Durtschi, C., & Easton, P. (2009). Earnings Management? Erroneous Inferences Based on Earnings Frequency Distributions. Journal of Accounting Research, 47(5),. 1249-1281.
El‐Sayed Ebaid, I. (2012). Earnings management to meet or beat earnings thresholds. African Journal of Economic and Management Studies, 3(2), 240-257.
Glaum, M., Lichtblau, K., & Lindemann, J. (2004). The Extent of Earnings Management in the U.S. and Germany. Journal of International Accounting Research, 3(2), 45-77.
Gore, P., Pope, P. F., & Singh, A. K. (2007). Earnings management and the distribution of earnings relative to targets: UK evidence. Accounting and Business Research, 37(2), 123-149.
Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1), 3-73.
Gunny, K. A. (2010). The Relation Between Earnings Management Using Real Activities Manipulation and Future Performance: Evidence from Meeting Earnings Benchmarks. Contemporary Accounting Research, 27(3), 855-888.
Habib, A., & Hossain, M. (2008). Do managers manage earnings to ‘just meet or beat’ analyst forecasts?: Evidence from Australia. Journal of International Accounting, Auditing and Taxation, 17(2), 79-91.
Han, S., Kang, T., Salter, S., & Yoo, Y. K. (2010). A Cross-Country Study on the Effects of National Culture on Earnings Management. Journal of International Business Studies, 41(1), 123-141.
Healy, P. M., Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383.
Holland, D., & Ramsay, A. (2003).Do Australian companies manage earnings to meet simple earnings benchmarks? Accounting & Finance, 43(1),41-62.
Jackson, S. B., & Liu, X. (2010). The allowance for uncollectible accounts, conservatism, and earnings management. Journal of Accounting Research, 48(3), 565-601.
Kasznik, R., & McNichols, M. F. (2002). Does Meeting Earnings Expectations Matter? Evidence from Analyst Forecast Revisions and Share Prices. Journal of Accounting Research, 40(3), 727-759.
Knežević, G., Mizdraković, V., & Arežina, N. (2012). Management as cause and instrument of creative accounting suppression, Management-časopis za teoriju i praksu menadžmenta, 17(62), 89-95.
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163-197.
Leuz, C., Nanda, D., Wysocki, P. D. (2003). Earnings management and investor protection: an international comparison. Journal of Financial Economics, 63(3), 505-527.
Lopez, T. J., Rees, L. (2002). The effect of beating and missing analysts' forecasts on the information content of unexpected earnings. Journal of Accounting, Auditing & Finance, 17(2), 155-184.
Marai, A., & Pavlović, V. (2013). Earnings Management vs financial reporting fraud – key features for distinguishing. Facta universitatis - series: Economics and Organization, 10(1), 39-47.
Marai, A., & Pavlović, V. (2014). An overview of earnings management measurement approaches: Development and evaluation. Facta universitatis - series: Economics and Organization, 11(1), 21-36.
Matsumoto, D. A. (2002). Management's Incentives to Avoid Negative Earnings Surprises. Accounting Review, 77(3), 483-514.
Nabar, S., & Boonlert-U-Thai, K. K. (2007). Earnings Management, Investor Protection, and National Culture: Journal of International Accounting Research, 6(2), 35-54.
Peasnell, K. V., Pope, P. F., & Young, S. (2000). Accrual management to meet earnings targets: Uk evidence pre- and post-cadbury. The British Accounting Review, 32(4), 415-445.
Prior, D. (2007): Earnings management and corporate social responsibility. Business Economics Series, 23(6), 6-23.
Rasheed, A. A., Zahra, S. A., & Priem, R. L. (2005). The Antecedents and Consequences of Top Management Fraud. Journal of Management, 31(6), 803-828.
Roychowdhury, S. (2003). Management of Earnings through the Manipulation of Real Activities That Affect Cash Flow from Operations. Working Paper (Sloan School of Management MIT).
Shen, C.-H., & Chih, H.-L. (2005). Investor protection, prospect theory, and earnings management: An international comparison of the banking industry. Journal of Banking & Finance, 29(10), 2675-2697.
Stlowy, H., & Breton, G. (2004). Accounts Manipulation: A Literature Review and Proposed Conceptual Framework. Review of Accounting & Finance, 3(1), 5-92.
Young, S. (1999). Systematic Measurement Error in the Estimation of Discretionary Accruals: An Evaluation of Alternative Modelling Procedures. Journal of Business Finance & Accounting, 26(7-8), 833-862.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2020 Management Control Review
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
