Firm value adjustment speed through financial friction in the presence of earnings management and productivity growth: evidence from emerging economies

Saifullah Khan () and Adnan Shoaib
Additional contact information
Saifullah Khan: FAST-National University of Computer and Emerging Sciences
Adnan Shoaib: FAST-National University of Computer and Emerging Sciences

Palgrave Communications, 2024, vol. 11, issue 1, 1-17

Abstract: Abstract This study investigates the role of financial frictions on firm value within the framework of earnings management, including the impact of productivity growth. In contrast to prior studies, the present study employed an autoregressive model to examine the temporal dynamics of the variables to determine their short-term and long-term connection patterns. The results of the study indicate a negative association between financial frictions and firm value. Accrual earnings management, a practice employed by organizations to enhance their profit margins, serves as a mediator between financial frictions and firm value. This mediation of earnings management alleviates the adverse impact of financial frictions. The enhancement of productivity growth amplifies the conditional, indirect influence of earnings management. Moreover, this study reveals that financial frictions have a significant influence in the short-term, leading to overestimation of factor loadings. However, this impact stabilizes over time in the long run. Financial market frictions have the most prominent impact on firm value compared to the other two forms of frictions, namely, macroeconomic frictions and microeconomic frictions. Larger firms are more inclined to attain higher firm value than smaller enterprises. Managers can enhance firm value by exerting control over the influence of financial frictions in the economy through earnings management. The effectiveness of this strategy is contingent upon the level of productivity growth.

Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41599-024-03118-x Abstract (text/html)
Access to full text is restricted to subscribers.

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:pal:palcom:v:11:y:2024:i:1:d:10.1057_s41599-024-03118-x

Ordering information: This journal article can be ordered from
https://www.nature.com/palcomms/about

DOI: 10.1057/s41599-024-03118-x

Access Statistics for this article

More articles in Palgrave Communications from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().