Earnings Management to Avoid Losses and Earnings Declines in Croatia

31 Pages Posted: 26 Oct 2018

See all articles by Stavros Antonios Degiannakis

Stavros Antonios Degiannakis

Department of Economic and Regional Development, Panteion University of Political and Social Sciences

George Giannopoulos

Kingston University

Salma Ibrahim

Kingston Business School

Ivana Rozic

Kingston Business School; Panteion University of Athens - Department of Economic and Regional Development

Date Written: 2017

Abstract

This paper provides empirical evidence that Croatian companies manage reported earnings to avoid losses and earnings declines. Specifically, we find that the cross-sectional distribution of scaled earnings and changes in earnings show high frequencies of small positive earnings and small increases in earnings while the frequencies of small losses and small decreases in earnings are less frequent. Furthermore, we demonstrate that these discontinuities are likely due to discretionary accruals. We examine the frequency distribution of reported earnings after removing discretionary accruals and find that the cross sectional distributions of non-discretionary scaled earnings shows lower frequencies of small positive earnings and higher frequencies of small negative earnings. Additionally, the cross sectional distribution of non-discretionary change in earnings demonstrates mixed frequencies of non-discretionary changes in earnings. Overall, this paper adds new empirical evidence to the benchmark-beating literature by demonstrating international evidence of earnings management around zero earnings and zero earnings changes benchmarks.

Keywords: Earnings management; Earnings Declines; Earnings Losses; Discretionary Accruals; Earnings frequency distribution

JEL Classification: C18, F30, G14, G15, G39, M41

Suggested Citation

Degiannakis, Stavros Antonios and Giannopoulos, George and Ibrahim, Salma and Rozic, Ivana, Earnings Management to Avoid Losses and Earnings Declines in Croatia (2017). Available at SSRN: https://ssrn.com/abstract=3259851 or http://dx.doi.org/10.2139/ssrn.3259851

Stavros Antonios Degiannakis (Contact Author)

Department of Economic and Regional Development, Panteion University of Political and Social Sciences ( email )

136 Sygrou
Athens
Greece

George Giannopoulos

Kingston University ( email )

Penrhyn Road
Kingston-upon-Thames
Surrey, KT1 2EE
United Kingdom

Salma Ibrahim

Kingston Business School ( email )

Kingston Hill
Kingston upon Thames
Surrey KT2 7LB
United Kingdom

Ivana Rozic

Kingston Business School ( email )

Kingston Hill
Kingston upon Thames
Surrey KT2 7LB
United Kingdom

Panteion University of Athens - Department of Economic and Regional Development ( email )

136, Sygrou Avenue
176 71 Athens
Greece

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