Earnings management with the absence of income tax avoidance motivation: evidence from pre-, during, and post- global financial crisis
Osama Atayah,
Hazem Marashdeh and
Allam Hamdan
Asian Journal of Accounting Research, 2024, vol. 9, issue 2, 153-168
Abstract:
Purpose - This study aims to examines both accrual and real-based earnings management (EM) behavior of listed corporations in tax-free countries during different economic situations. It also addresses the link between firm- and country-level determinants of accrual and real-based EM and explores economic conditions' influence on these determinants. Design/methodology/approach - The study examines 1,608 firm-years, covers sixteen years (2004–2019), clustered into three periods according to the global financial crisis (GFC): four years prior (2004–2007), two years during (2008–2009), and ten years post the GFC (2010–2019). We employ the modified Jones model (performance-matched) developed by Kothariet al.(2005) to measure the accrual-based EM (positive and negative discretionary accrual EM) and the three levels model for Dechowet al.(1998) to measure the real-based EM (cash flow from operating, discretionary expenses and abnormal production cost). Findings - The study finds a significant increase in EM practices in the listed corporations in tax-free countries during the economic downturn. These corporations are found to understate their earnings during the economic stress period. Simultaneously, the firm-level determinants of EM practices were at the same level of significance during different economic conditions in accrual-based EM. In contrast, the country-level EM determinants vary based on the economic conditions. Originality/value - Financial reports' users gain a deep understanding of the quality of financial reports in the context of tax-free country. And, the study outcomes inspire policymakers to develop relevant legislation to mitigate financial reports' risk and adequately protect the financial reports' users.
Keywords: Real earnings management; Accrual earnings management; Earnings quality; Tax-free countries; Investor protection; Global financial crisis (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:
Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
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:eme:ajarpp:ajar-04-2023-0130
DOI: 10.1108/AJAR-04-2023-0130
Access Statistics for this article
Asian Journal of Accounting Research is currently edited by Dr. Iman Harymawan
More articles in Asian Journal of Accounting Research from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().