Earnings Management Dynamics in Portuguese Listed Firms

Diogo Batista da SIlva (), António Cerqueira () and Elísio Brandão ()
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Diogo Batista da SIlva: School of Economics and Management, University of Porto
António Cerqueira: School of Economics and Management, University of Porto
Elísio Brandão: School of Economics and Management, University of Porto

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: This study examines earnings management dynamics in Portuguese listed firms. It provides evidence consistent with firms using accrual and real management as substitutes. Besides, the use of each strategy appears to depend on its relative cost. This investigation also points to the existence of a trade-off between derivatives use and the magnitude of earnings management. Furthermore, the impact of both earnings management and derivatives use on effective tax rates is examined. The results indicate that, if the tax function is convex, firms can reduce tax expenses by hedging with derivatives. This research also explores how earnings management practices are related with a set of market and financial incentives, while controlling for earnings management constraints. Meeting dividend thresholds seems to be the most relevant incentive for firms to manage earnings upward.

Keywords: Earnings management; Derivatives (search for similar items in EconPapers)
JEL-codes: G32 M48 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2017-01
New Economics Papers: this item is included in nep-cfn
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Persistent link: https://EconPapers.repec.org/RePEc:por:fepwps:587

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