Determinants of Earnings Management: Evidence from Around the World

56 Pages Posted: 24 Dec 2013

See all articles by Tesfaye Taddese Lemma

Tesfaye Taddese Lemma

Towson University

Minga Negash

Metropolitan State University of Denver; University of the Witwatersrand

Mthokozisi Mlilo

University of the Witwatersrand - Faculty of Commerce, Law & Management

Date Written: December 21, 2013

Abstract

The study seeks to investigate the determinants of firm level earnings management (EM) within the context of 44 countries around the world. A sample of 29 430 non-financial companies over the period 1996-2012 were analysed using a series of models that link firm-, industry-, and country-specific characteristics, on the one hand, and EM, on the other. We develop composite measures of accrual (A_EM) and real earnings management (R_EM) using principal component analysis (PCA). To estimate the model parameters we utilise three-stage least square (3SLS) procedures with seemingly unrelated regression (SUR). The study triangulates multiple theories to gain a deeper understanding of firm level EM behaviour and draw policy implications. We find that the nature of the nexus between firm-, industry-, and country-characteristics, on the one hand, EM activity, on the other, is a function of the measure of the EM construct and the reporting environment considered in the analysis. The findings signify that monitoring and reputational concerns, regulatory and market pressures, and information asymmetry issues are drivers behind firm level EM activity around the world.

Keywords: earnings management, determinants, international evidence

JEL Classification: M41, G34

Suggested Citation

Lemma, Tesfaye Taddese and Negash, Minga and Mlilo, Mthokozisi, Determinants of Earnings Management: Evidence from Around the World (December 21, 2013). Available at SSRN: https://ssrn.com/abstract=2370926 or http://dx.doi.org/10.2139/ssrn.2370926

Tesfaye Taddese Lemma

Towson University ( email )

8000 York Road, ST 100A
Towson, MD 21204
United States

Minga Negash (Contact Author)

Metropolitan State University of Denver ( email )

Student Success Building
890 Auraria Pkwy #310
Denver, CO 80217
United States

University of the Witwatersrand

1 Jan Smuts Avenue
Johannesburg, Gauteng 2000
South Africa

Mthokozisi Mlilo

University of the Witwatersrand - Faculty of Commerce, Law & Management ( email )

South Africa

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