Do Accounting Standards Influence the Level of Earnings Management? Evidence from Germany

Abstract

German firms were allowed to present consolidated accounts prepared under German GAAP, IAS or US GAAP. The article analyses whether the level of earnings management differs between the standards. While the manipulation under German GAAP and IAS is roughly the same, we find significantly lower levels of earnings management for the firms that report their results under US GAAP. This is consistent with an interpretation that a different amount of accounting choices embedded in different accounting standards influences the level of earnings management. Our results hold for various proxies of earnings management and after controlling for factors influencing the adoption of the standards. As there is no evidence for self-selection driving the results, this is an indication for a superior quality of US earnings in comparison to German GAAP or even IAS.

Keywords: earnings management, reporting incentives, international accounting standards

JEL Classification: M41, M47