Articlediamond2016

Detection and Analysis of Probable Earnings Manipulation by Firms in a Developing Country

20 citations0/0 files storedAsian Journal of Business and Accounting

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Auditing, Earnings Management, Governance Corporate Governance and Financial Management Benford’s Law and Fraud Detection

Abstract

Manuscript type: Research paperResearch aims: This empirical work is to investigate the signs ofmanipulation of earnings in non-financial firms in Bangladesh.Design/ Methodology/ Approach: The financial data of 102publicly listed and non-financial firms from the years 2010 to 2013were collected. Using the Beneish model (1999) as an approach,data were analysed so as to obtain the M-Scores of these firms.Based on the M-Scores, they were then classified into two groups:likely manipulator firms and non-likely manipulator firms. Anindependent t-test was used to detect the signs of manipulation.Research findings: The outcome of the M-Scores reveals that theproportion of likely manipulator firms had declined over the years.The result of the independent t-test shows that inflating revenues,capitalising expenses, and overstating intangibles could serve assignals of earnings manipulation in firms in Bangladesh.Theoretical contribution/ Originality: The work of this studycontributes to current literature through the identification of thesigns of manipulation that is detected by the independent t-test.The results can thus help the country to distinguish between likelymanipulator and non-likely manipulator firms.Practitioner/ Policy implications: The findings of this study canbe used by investors for better investment decision-making. Basedon the findings, it appears that regulators should ensure a morestringent monitoring policy on firms so as to decrease the likelihoodof manipulation. Research implications/ Limitations: This study only highlights thepattern of the manipulation of earnings in non-financial firms inBangladesh. Further studies need to be conducted in order to detectthe effect of changes in government regulations on manipulationof earnings in Bangladesh.Key Words: Accounting Red Flag, Bangladesh, Beneish M-Score,Earnings ManipulationJEL Classification: G30, M40

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References

1983Separation of Ownership and Control 1980Agency Problems and the Theory of the Firm 1991Earnings Management During Import Relief Investigations 2002The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors 1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*1997Earnings management to avoid earnings decreases and losses 1997An Empirical Analysis of the Relation between the Board of Director Composition and Financial Statement Fraud 2011The effects of bonus schemes on accounting decisions

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