Association between Earnings Management and Earnings Quality: Comparative Study between Insider and Outsider Economics Clusters

Anna Purwaningsih and Indra Wijaya Kusuma

A chapter in Advanced Issues in the Economics of Emerging Markets, 2020, vol. 27, pp 103-113 from Emerald Group Publishing Limited

Abstract: This study examines associations between accrual earnings management (AEM) and real earnings management (REM), and earnings quality between countries considered under insider economics and outsider economics clusters. Countries included in the outsider economics cluster are Singapore, Malaysia, and Hong Kong. Meanwhile, countries included in the insider economics cluster are Indonesia, the Philippines, and South Korea. Earnings management practices have changed from AEM to REM since the publication of the Sarbanes Oxley Act and DFA 954 implementation of the Claws back provision policy in the United States. Research data were obtained from the Bloomberg database, 2010–2016. Regression analysis and t-test were utilized. This study compared AEM and REM to determine which is stronger based on country clusters, as well as the association between AEM or REM and earnings quality. The results of this study indicate that AEM and REM are associated with the quality of earnings in the insider economics cluster. However, AEM and REM are not associated with earnings quality in the outsider economics cluster. Furthermore, associations between AEM and earnings quality are stronger than associations between REM and earnings quality in insider economics cluster.

Keywords: Accrual earnings management; real earnings management; earnings quality; outsider economics cluster; insider economics cluster; comparative study; cross-country study; M41 Accounting (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:isetez:s1571-038620200000027008

DOI: 10.1108/S1571-038620200000027008

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