Accrual-Based and Real Earnings Management before and after IFRS Adoption: The Case of Greece

Journal of Applied Accounting Research, Vol. 17, Iss 1, pp. 2-23, 2016

Posted: 9 Nov 2014 Last revised: 26 Jan 2016

See all articles by Aikaterini Ferentinou

Aikaterini Ferentinou

University of Graz

Seraina C. Anagnostopoulou

University of Piraeus, Department of Banking and Financial Management

Date Written: November 8, 2014

Abstract

Purpose: The aim of this study is to examine the use of accrual-based vs. real earnings management by Greek firms, before and after the mandatory adoption of International Financial Reporting Standards (IFRS). The research is motivated by the fact that past studies have indicated the existence of significant levels of earnings management (EM) for Greece in particular before IFRS.

Design/methodology/approach: Accrual-based earnings management (AEM) is examined by assessing performance-adjusted discretionary accruals, while real earnings management (REM) is defined in terms of abnormal levels of production costs, discretionary expenses, and cash flows from operations, for a three-year period before and after the adoption of IFRS in 2005.

Findings: We find evidence on a statistically significant shift from AEM to REM after the adoption of IFRS, indicating the replacement of one form of EM with the other.

Research limitations/implications: The validity of the results depends on the ability of the empirical models used to efficiently capture the existence of AEM and REM.

Practical implications: IFRS adoption aims to improve accounting quality, especially in countries with high need for such an improvement; however, the tendency to substitute one form of EM with another highlights unintended consequences of IFRS adoption, which do not improve the informational content of financial statements if EM continues under different forms.

Originality/value: Under the expectation that IFRS adoption should lead to improvements in accounting quality, this study examines whether IFRS actually led to a reduction of EM practices for a country with exceptionally high levels of EM before IFRS, by accounting for all possible forms of EM.

Keywords: Greece, IFRS, accrual-based earnings management, real earnings management

JEL Classification: M41, G18

Suggested Citation

Ferentinou, Aikaterini and Anagnostopoulou, Seraina C., Accrual-Based and Real Earnings Management before and after IFRS Adoption: The Case of Greece (November 8, 2014). Journal of Applied Accounting Research, Vol. 17, Iss 1, pp. 2-23, 2016. Available at SSRN: https://ssrn.com/abstract=2520857

Aikaterini Ferentinou

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Seraina C. Anagnostopoulou (Contact Author)

University of Piraeus, Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
Piraeus, 18534
Greece

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,196
PlumX Metrics