TY - JOUR
T1 - A cross-country study on the relationship between financial development and earnings management
AU - Enomoto, Masahiro
AU - Kimura, Fumihiko
AU - Yamaguchi, Tomoyasu
N1 - Funding Information:
We gratefully acknowledge the useful comments and feedback from Co-editor Sidney Gray and the two anonymous reviewers. We appreciate helpful comments and suggestions from Robert Czernkowski, Ian Eddie, Stefanie Kaiser, Kenji Kometani, Wei Li, Liang Liang, Le Ma, Akinobu Shuto, Toshihumi Takada, Takashi Yaekura, and participants at the 37th EAA conference at Talin (2014), the International Conference on Accounting and Information Technology at Chiayi (2014), the Journal of International Accounting Research Conference at Hong Kong (2014), and the Tokyo Accounting Workshop at Tokyo (2015). 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.
PY - 2018/6
Y1 - 2018/6
N2 - 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.
AB - 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.
KW - accounting institution
KW - accrual-based earnings management
KW - financial development
KW - real earnings management
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U2 - 10.1111/jifm.12078
DO - 10.1111/jifm.12078
M3 - Article
AN - SCOPUS:85041174492
VL - 29
SP - 166
EP - 194
JO - Journal of International Financial Management and Accounting
JF - Journal of International Financial Management and Accounting
SN - 0954-1314
IS - 2
ER -