Journal article
A cross‐country study on the relationship between financial development and earnings management
Journal of International Financial Management and Accounting, Vol.29(2), pp.166-194
06/2018
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Abstract
This study investigates whether a country's level of financial development is associated with earnings management in an international setting. Financial development is likely to heighten the monitoring and scrutiny of accounting numbers because of strengthened investor protection laws and regulations as well as sophisticated market participants. Therefore, we first hypothesize that both accrual-based and real earnings management decrease with greater financial development. However, research shows that managers tend to apply real earnings management, instead of accrual-based earnings management, under strict accounting standards, regulations, and close auditor scrutiny. Thus, we explore the alternative hypothesis that accrual-based earnings management decreases but real earnings management increases along with higher financial development. We examine the relationship between financial development and both types of earnings management using 56,830 observations in 37 countries covering the period 2009–2012. The results indicate that both types of earnings management are more restrained under higher levels of financial development.
Details
- Title
- A cross‐country study on the relationship between financial development and earnings management
- Creators
- Masahiro Enomoto - Kobe UniversityFumihiko Kimura - Tohoku UniversityTomoyasu Yamaguchi - Southern Cross University
- Publication Details
- Journal of International Financial Management and Accounting, Vol.29(2), pp.166-194
- Publisher
- Wiley-Blackwell Publishing Ltd.
- Number of pages
- 29
- Grant note
- We also appreciate the financial support from The Japan Securities Scholarship Foundation and Ishii Memorial Securities Research Foundation. Masahiro Enomoto thanks the financial support by JSPS KAKENHI Grant Number 17K04053. Fumihiko Kimura acknowledges for the financial support by JSPS KAKENHI Grant Number 15K03763. Tomoyasu Yamaguchi is grateful for the financial support by JSPS KAKENHI Grant Number 16K17211.
- Identifiers
- 991012926990002368
- Copyright
- © 2017 John Wiley & Sons Ltd
- Academic Unit
- Faculty of Business, Law and Arts; School of Business and Tourism
- Language
- English
- Resource Type
- Journal article