Article2018

CEOs’ accounting-based attributes and earnings management strategies under mandatory IFRS adoption

Amel Kouaib · Anis Jarboui · Khaireddine Mouakhar

27 citations0/0 files storedJournal of Applied Accounting Research

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

Abstract

Purpose The purpose of this paper is to focus on the moderating effect of mandatory International Financial Reporting Standards (IFRS) adoption on the relationship between chief executive officer (CEO) experience/education and earnings management in European companies. Design/methodology/approach Data from a sample of 302 European firms listed on Stoxx Europe 600 index and 596 CEOs from 2000 to 2014 are used to test the moderation model using moderation regression analysis. Findings Evidence reveals that CEO’s accounting-based attributes are negatively associated with accruals-based earnings management and positively associated with real earnings management (REM). Further, mandatory IFRS adoption significantly moderates the impact of CEO’s accounting-based traits on earnings-management activities. Research limitations/implications A small number of European firms were studied and, given the long study period, many firms with missing data were eliminated. To avoid a small sample size, countries with few observations were included, which leads to an uneven distribution between observations per country. Practical implications Findings from this paper can help: European firms to consider demographic traits when recruiting or promoting executives; the IASB to improve enforcement mechanisms and make IFRS implementation mandatory; and audit committees to effectively monitor REM. Originality/value This study is unique in providing European evidence for the moderating effect of mandatory IFRS adoption on the relationship between CEOs’ accounting experience/education and earnings management activities. This paper is also relevant as it addresses the effectiveness and efficiency of accounting literates.

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References

1984Upper Echelons: The Organization as a Reflection of Its Top Managers 1991Earnings Management During Import Relief Investigations 2005Performance matched discretionary accrual measures 2003Earnings Management through Real Activities Manipulation 2007Upper Echelons Theory: An Update 1999A Review of the Earnings Management Literature and Its Implications for Standard Setting 2002Audit committee, board of director characteristics, and earnings management 2012Detecting Earnings Management

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