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Effect of earnings management on economic value added: G20 and African countries study

16 citations0/0 files storedSouth African Journal of Economic and Management Sciences

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Auditing, Earnings Management, Governance Financial Reporting and Valuation Research Corporate Governance and Financial Management

Abstract

Background: Economic value added (EVA) may reflect true performance compared with other conventional accounting indices, it is still measured through financial statements. It is highly probable that EVA motivates managers to manipulate earnings.Aim: The main contribution of this study is the analysis of the association between earnings management and EVA. This study provides shareholders, lenders and creditors (or other categories of investors) with a method for analysing the value of enterprises.Setting: We analyse the association between earnings management through real earnings management (REM) or discretionary accrual (DA) activities and the EVA by African and the Group of Twenty (G20) nations.Methods: The sample for this study was obtained from the COMPUSTAT database between 2009 and 2013. This study also adopted the ordinary least squares (OLS) method.Results: The results indicate that a significantly positive relationship exists between earnings management through DA items and EVA in African nations. In addition, a significantly negative relationship exists between earnings management through DA items or REM activities and EVA in G20 nations.Conclusion: Our results provide critical implications for managers, researchers, investors and regulators of various nations; for example, managers may determine whether to increase the EVA through earnings management, researchers may analyse varying degrees of REM activities and DAs existing in the same nation groups or regulators may determine how to establish laws or rules to prevent earnings management because it is likely that differences in national development, culture or politics exist in these nations.

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References

1991Earnings Management During Import Relief Investigations 2003Earnings Management through Real Activities Manipulation 1999A Review of the Earnings Management Literature and Its Implications for Standard Setting 2008Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes-Oxley Periods 2004Outside directors and firm performance during institutional transitions 2011Effects of Audit Quality on Earnings Management and Cost of Equity Capital: Evidence from China*2004Earnings management and the market performance of acquiring firms 2012Board Interlocks and Earnings Management Contagion

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