Article2013

How far can we trust earnings numbers? What research tells us about earnings management

225 citations0/0 files storedAccounting and Business Research

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Auditing, Earnings Management, Governance Accounting and Organizational Management Corporate Governance and Financial Management

Abstract

The article reviews the recent academic research literature on earnings management (EM) with a view to identifying research themes and results of interest to users and preparers of financial statements, accounting standard setters, and others with responsibility for ensuring that companies provide financial information to shareholders that can be relied upon. Hopefully students of accounting with an interest in exploring the EM literature will find that the article provides a useful framework. The literature on this topic is vast, and it is not possible to cover every article in detail. I provide an impressionistic survey that highlights examples of specific research themes and methods that regularly appear in the literature. Most of the examples are chosen from the literature published since 2000, although I do also highlight a few methodological contributions that appeared earlier. It is inevitable that the selection of articles reflects to some extent my personal interests and biases (intentional or otherwise). Thus, I wish to acknowledge that I owe a very substantial intellectual debt to the insights and contributions of the many uncited authors of a literature that spans over 40 years in over 20 accounting and finance journals.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1993Common risk factors in the returns on stocks and bonds 1984Corporate financing and investment decisions when firms have information that investors do not have 1960The Problem of Social Cost 1992The Cross-Section of Expected Stock Returns 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1991Earnings Management During Import Relief Investigations 1979Moral Hazard and Observability

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2014Corporate social responsibility and earnings management in U.S. banks 2019Corporate governance and earnings management in concentrated markets 2016The effect of financial leverage on real and accrual-based earnings management 2016Earnings management behaviors under different monitoring mechanisms: The case of Islamic and conventional banks 2016Mandatory IFRS adoption: the trade-off between accrual-based and real earnings management

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