An Analysis of Earnings Management by European Private Firms

35 Pages Posted: 2 Dec 2003

See all articles by Laurent Coppens

Laurent Coppens

Netmanagement Réseaux Bruxelles

Erik Peek

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Erasmus Research Institute of Management (ERIM)

Date Written: July 2004

Abstract

This paper investigates the prevalence of earnings management by private firms in eight European countries with different institutional backgrounds. We explore the distributional properties of earnings levels and earnings changes to compare loss avoidance and earnings decrease avoidance across countries. The empirical evidence suggests that in absence of capital market pressures, firms still have incentives to manage earnings. We find that private firms avoid reporting small losses, and that private firms in countries with high financial and tax accounting alignment manage earnings to reduce taxes. Our results also suggest that some types of earnings management are due to capital market pressures and specific to public firms, since we do not find evidence that private firms avoid earnings decreases.

Keywords: earnings management, loss avoidance, tax management, privately-held firms

JEL Classification: M41, M43, M47, H25

Suggested Citation

Coppens, Laurent and Peek, Erik, An Analysis of Earnings Management by European Private Firms (July 2004). Available at SSRN: https://ssrn.com/abstract=458405 or http://dx.doi.org/10.2139/ssrn.458405

Laurent Coppens

Netmanagement Réseaux Bruxelles ( email )

Bruxelles, 1000
Belgium

Erik Peek (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

Burg Oudlaan 50
Room T08-53
3062 PA Rotterdam, 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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