Accrual-based and cash-based earnings management in Algeria: substitution or complementary

Bilal Kimouche ()
Additional contact information
Bilal Kimouche: Université 20 Août 1955-Skikda, Algeria

Croatian Review of Economic, Business and Social Statistics, 2022, vol. 8, issue 1, 1-17

Abstract: Managers are often employed many alternatives for earnings management following their objectives or the financial reporting objectives; the commonly used are the accrual-based and cash-based earnings management. The literature reveals that managers adopt the two strategies in different ways, suggesting a mixed relationship between them. Hence, this study investigates the relationship between the two strategies of earnings management in Algeria, whether it is a substitute or complementary. The study included 30 Algerian companies during 2011-2019, so a total of 270 firm-year observations were employed. Accrual-based earnings management was measured through the modified-Jones model, while cash-based earnings management was measured through the abnormal cash flows model. According to the results, Algerian companies engage more in accrual-based earnings management and employ the two strategies as substitutes, which explains the strong and negative effect of accrual-based on cash-based earnings management. We argue that companies engage first in accrual-based earnings management, and then they shift towards cash-based earnings management due to auditors’ scrutiny. Furthermore, we found a positive and a medium effect of return on equity on cash-based earnings management, which reflects the managers’ desire to adjust operating cash flows consistent with the reported earnings. Finally, the results indicated that company ownership, company listing, and the nature of financial statements do not affect cash-based earnings management.

Keywords: Algerian companies; accounting accruals; accrual-based earnings management; cash flows from operations; cash-based earnings management; return on equity (search for similar items in EconPapers)
JEL-codes: M40 M41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2478/crebss-2022-0001 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vrs:crebss:v:8:y:2022:i:1:p:1-17:n:1

DOI: 10.2478/crebss-2022-0001

Access Statistics for this article

Croatian Review of Economic, Business and Social Statistics is currently edited by Dragan Bagić, Ksenija Dumičić and Nataša Erjavec

More articles in Croatian Review of Economic, Business and Social Statistics from Sciendo
Bibliographic data for series maintained by Peter Golla ().