Earnings management (EM) |
Discretionary accruals operationalized in absolute values. |
Kothari et al. (2005Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures.Journal of Accounting and Economics,39(1), 163-197.) model. |
Proposed by the authors. |
Independent variable |
Corporate governance (CG) |
Measures the systems and processes of a company, ensuring that its members and executives act in the best interest of its shareholders in the long run. |
Own methodology of Refinitiv Eikon, which includes mechanisms focusing on management, shareholders, and strategies. |
Proposed by the authors. |
Independent moderating variables |
Power distance (PD_CULT) |
Measures whether the least powerful members of an institution expect and accept the hierarchy (power) to be distribution unequally. |
Score proposed by Hofstede, which varies from 0 to 100. |
Hofstede (1980Hofstede, G. (1980). Motivation, leadership, and organization: Do American theories apply abroad? Organizational Dynamics, 9(1), 42-63., 2018) |
Individualism (INDI_CULT) |
Measures the degree of interdependence that a society maintains among its members. |
Masculinity (MAS_CULT) |
Measures the division of roles between men and women in the society. |
Uncertainty avoidance (UA_CULT) |
Measures how much the members of a culture feel threatened by uncertain situations and create rules to try to avoid them. |
Long-term orientation (LTO_CULT) |
Measures whether people prefer to maintain honored traditions and norms (STO) or favor pragmatic virtues orientated toward the future (LTO). |
Hofstede (1991Hofstede, G. (1991). Cultures and organizations: Software of the mind. McGraw-Hill., 2018) |
Indulgence (INDU_CULT) |
Measures how much people try to control their desires and impulses. In the case of indulgence, control in the country is relatively weak, while in the case of restraint it is considered to be relatively strong. |
Hofstede et al. (2010Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Cultures and organizations: Software of the mind (3rd ed.). McGraw-Hill.), Hofstede (2018) |
Independent control variables
|
Size (SIZit) |
Natural logarithm (NL) of total revenue |
NL of total revenue |
Haga et al. (2018Haga, J., Ittonen, K., Tronnes, P. C., & Wong, L. (2018). Is earnings management sensitive to discount rates?Journal of Accounting Literature,41(1), 75-88.) |
Return on assets (ROA) |
Return on assets |
Net income in t-1 divided by total assets in t-1 |
Lin et al. (2016Lin, F. C., Lin, Y. C., & Chen, C. S. (2016). Accrual reversals and audit fees: The role of abnormal audit fees.Asia-Pacific Journal of Accounting & Economics,25(1-2), 276-294.) |
Leverage (LEV) |
Share of third-party resources in the company’s capital structure |
Total liabilities divided by total net equity |
Beuren & Klann (2015Beuren, I. M., & Klann, R. C. (2015). Effects of the convergence to International Financial Reporting Standards in earnings management.International Journal of Finance and Accounting, 4(1), 8-20.) |
Sales growth (SG) |
Sales growth calculated by the change in revenues |
Percentage of change in sales |
Beuren & Klann (2015Beuren, I. M., & Klann, R. C. (2015). Effects of the convergence to International Financial Reporting Standards in earnings management.International Journal of Finance and Accounting, 4(1), 8-20.) |
Real activities-based earnings management (REMit) |
Production costs and discretionary spending model |
Models based on Roychowdhury (2006Roychowdhury, S. (2006). Earnings management through real activities manipulation.Journal of accounting and economics,42(3), 335-370.) |
Zang (2012Zang, A. Y. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management.The Accounting Review,87(2), 675-703.) |
International Financial Reporting Standards (IFRS) |
Identifies the year in which the countries obligatorily adopted IFRS |
Categorical variable in which 1 represents the year in which the country adopted IFRS, and 0 otherwise |
Isidro et al. (2020Isidro, H., Nanda, D., & Wysocki, P. D. (2020). On the relation between financial reporting quality and country attributes: Research challenges and opportunities.The Accounting Review,95(3), 279-314.) |
Sector (sectori) |
Main activity classified using the Global Industry Classification Standard Code |
Sector dummies |
Haga et al. (2018Haga, J., Ittonen, K., Tronnes, P. C., & Wong, L. (2018). Is earnings management sensitive to discount rates?Journal of Accounting Literature,41(1), 75-88.) |
Year |
Analysis period: from 2010 to 2017 |
Year dummies |
Haga et al. (2018Haga, J., Ittonen, K., Tronnes, P. C., & Wong, L. (2018). Is earnings management sensitive to discount rates?Journal of Accounting Literature,41(1), 75-88.) |