Then classify earnings management strategy with the quadrant classification that should random matrix theory is used. The results follow quadrant classification technique which found all countries earnings management classified into three main types (Normal, Downward and Upward) and eleven subtypes (Normal_A&R, Normal_AEM, Normal_REM, Downward_A&R, Downward_AEM, Downward_REM, Upward_A&R, Upward_AEM, Upward_REM, Upward_A&R_H, and Upward_AEM_H) .
INTRODUCTION
- Rationale and Research Background
- Research Questions
- Research Objectives
- Research Contributions
- Outline of the Research
The findings will provide greater knowledge and understanding of earnings management behavior and the effects of accounting diversity on earnings management in ASEAN countries. The second chapter provides the theoretical background and literature review related to earnings management and accounting diversity.
LITERATURE REVIEWS
Earnings management (EM)
- Accrual earnings management (AEM)
- Real earnings management (REM)
In a departure from a neutral decision, investors are unaware of the amount of accruals, so the management of accruals is undermining the usefulness of financial reports (Isenmila & Elijah, 2012). In addition, management adjusts the level of management of accrual earnings according to the level of management of real earnings from the substitute activity.
Accounting Diversity
- Post-colonial Era
- Culture
- Legal system
- The Relationship between Accounting Diversity Factors .1 The Influent of Post-colonial Era to the Culture
Hypothesis 1b: There is a positive relationship between the postcolonial era and the extent of real profits management in six ASEAN countries. The same applies to Pacheco Paredes and Wheatley (2017), Gray et al. 2015) found the positive significant relationship between individualism (IND) and earnings management.
CONCEPTUAL FRAMEWORK AND METHODOLOGY
Hypothesis Development
Doupnilk and Salter (1995) proposed the factors that affect accounting by dividing the variable of the culture from Gray, whose variable culture divided into four groups plus a number of six other factors. The Harmonization Accounting System is developed for business practices, especially using the Harmonized International Accounting System leads to a reduction of information asymmetry between owners and managers (Jeno, 2010; Meeks & Swann, 2009).
Sample Selection
This requires the development and revision of the national accounting rules, the separate validation of the tax and accounting regulation, the repeal of the subordinate role of accounting, the issuance of international standards with the help of practical and theoretical accounting experts (Jeno, 2010 ; Meeks & Swann, 2009). Cambodia is excluded because The Cambodia Securities Exchange (CSX) currently has two listed companies on the stock exchange.
Earnings Management Proxy .1 Accrual earnings management
- Real earnings management
- Quadrants Earnings Management (QEM) .1 Random Matrix Theory (RMT)
It includes firms that are likely to use accrual and real earnings management at the same time to understate earnings. It includes firms that are likely to use accrual and real earnings management at the same time to overstate earnings.
Key Variables of Interest .1 Post-colonial era
- Culture
- Legal System
- Control variables
We expect national culture to be associated with earnings management. 2015), the main cultural dimensions of interest are individualism (IDV) and uncertainty avoidance (UAI). Consistent with the literature (e.g. Doukakis, 2013; Gray et al., 2015), previous research has found that earnings management is influenced by firm growth. A recent study, Gray et al. 2015) shows that business growth has significant negative consequences for earnings management.
Industry models are added to control for potential industry-specific effects on earnings management (Yang et al., 2008).
Empirical Models
COL_UK is a dummy variable that takes the value 1 if the country is occupied by Great Britain and 0 otherwise. COL_NL is a dummy variable that takes the value 1 if the country is occupied by the Netherlands and 0 otherwise. COL_FR is a dummy variable that takes the value 1 if the country is occupied by France and 0 otherwise.
LOSS is a dummy variable that takes the value 1 if firms have a negative profit in year t for firm i and 0 otherwise.
Firm Characteristics
Earnings Management
- Accruals Earnings Management
- Real Earnings Management
According to Roychowdhury (2006), this abnormal CFO estimate adjusts firm-specific fixed effects. The higher the residual value, the more the company engages in earnings management. The sign of this residual indicates whether the company has led earnings upward or downward.
In contrast to AEM, a positive sign of REM indicates that the firm has downward earnings management, while a negative sign of REM indicates that the firm has upward earnings management.
Earnings Management Classification
For classification data on quadrants, earnings management follows that the firms in each cluster have high internal (within-cluster) mean homogeneity and high external (between-cluster) mean heterogeneity. This means that the company in this quadrant has declining earnings via both accruals and real earnings. This means that the company in this quadrant has upward earnings via both accruals and real earnings.
However, the levels of both earnings management are small and the value of AEM is very small.
Earnings Management Classification by Industry
Mining (1.8%), financial services (sector) (1.5%) and computer software and services (1.5%), and healthcare equipment and services (1.5%) industries have the highest proportion of Upward_AEM_H. The software and computer services (5.7%), leisure goods (3.9%) and tobacco (3.8%) industries have the highest proportion of Upward_REM. Normal_A&R Normal_AEM Normal_REM Down_A&R Down_AEM Down_REM Up_A&R Up_A&R_H Up_AEM Up_AEM_H Up_REM.
EARNINGS MANAGEMENT ACROSS ASEAN COUNTRIES
Level of Earnings Management
The average of Abs_AEM for the Philippines (0.122) is a significantly higher difference in accrual earnings management than for other countries except Indonesia (0.121). The average of Abs_REM for Vietnam (0.117) is a significantly higher difference on the level of management of real profits than others. The differences in the mean between countries are statistically significant, implying that ASEAN countries often have differences in the level of earnings management.
Earnings management level (Abs_AEM and Abs_REM) of six ASEAN countries differ in mean value with statistical significant at the 1%, 5% level.
Earnings Management Strategy across Countries .1 Earnings Management Strategy across Country
The result showed that the earnings management strategies show a significant difference between countries (p<0.000) with a contingency coefficient of 0.199. From Figure 5.3, three types of earnings management consist of normal, downward and upward types of earnings management. Types of earnings management would be countable in the number of companies dependent on the country, the top three of the normal type being Malaysia, Thailand and Philippine.
The result showed that earnings management strategies differ significantly between countries (p<0.000), whose contingency coefficient is 0.189.
Earnings management strategy across Country and Industry
Note, the lowest percentage of normal earnings type is the utilities industry (63%), which also has the highest percentage of increasing (14.8%) and decreasing (11.1%) earnings through accruals. Be careful, the lowest percentage of the type of normal earnings is the technology industry (56%), which also the highest percentage of increasing (12.8%) and decreasing (8.1%) earnings through accruals and real activities. The consumer goods industry has the highest percentage of increasing (6.4%) and decreasing (16.6%) earnings through accruals and real activities.
The financial industry is the highest percentage of income increasing (4.1%) through accruals, and decreasing (8.1%) of earnings through accruals and real activities.
Earnings Management Strategy across Post-Colonial Era
A fifth of firms in the United Kingdom used an earnings management strategy to manage earnings. A third of firms in French colonialism have an earnings management strategy to manage earnings. The results of Pearson's Chi-square test implied that the colonialism variable was significantly related to the earnings management classification (p<0.001) with the contingency coefficient of 0.180.
The coloring of the points is the result of grouping a sample of companies based on their earnings management in quadrants.
Descriptive statistics
Panel A of this table reports summary statistics for key variables for the sample of 27,696 observations from fixed years in the period 1990−2014. Panel A of this table reports summary statistics for key variables for the sample of 23,761 firm-year observations with inclusion of national culture and legal. This table reports correlation coefficients between key variables for a sample of 23,761 fixed-year observations covering the period 1990–2014.
Empirical Models
To test hypothesis 2a, we add individualism value variable (IDV) to test whether firms with high individualism value manage accrual earnings than other firms. The results provide empirical evidence suggesting that firms in the country with high value of disclosure regulation manage accrual earnings less than others. Consistent with accrual earnings management, the results show that the coefficient DISC has a negative and statistically significant effect on real earnings management.
The finding provides empirical evidence suggesting that firms in the country with a high value of disclosure regulation manage less real earnings than others.
Additional Tests: The other Dimensions of Culture
Veranderlikes Abs_AEM Abs_AEM Abs_AEM Abs_AEM Abs_AEM Abs_AEM Abs_AEM Abs_AEM. Veranderlikes Abs_REM Abs_REM Abs_REM Abs_REM Abs_REM Abs_REM Abs_REM Abs_REM.
CONCLUSION
Discussion and Conclusion
- Comparison Earnings Management of AEC countries
- The Influence of Colonialism on Earnings Management Classification The research results supported that the colonialism is likely to have an
- The Influence of Accounting Diversity on Earnings Management
On the other hand, firms in the country were conquered by the France management accruals earnings management less than firms in the country were not conquered by others, but statistically insignificant. On the other hand, firms in the country were conquered by the France management real earnings management more than firms in the country were not conquered by others. Otherwise, the strong enforcement regulation should have a lower earnings management (Leuz et al., 2003; . La Porta et al., 1997).
On the other hand, when earnings management is high, UAI, meaning the attempt to control the future, decreases (Gray et al., 2015).
Implications
- Academic Implication - “Quadrants Earnings Management (QEM)” New technique to classify earnings management strategy
- Investor Implications
The trend of earnings management behavior has shifted from accrual earnings management to real earnings management. The seven types of earnings management behavior can be explained by the earnings management strategy. Upward earnings has three subgroup strategies, namely upward earnings through accrual and real earnings management (quadrant4), upward earnings through accrual earnings management (quadrant1), and upward earnings through real earnings management (quadrant3).
On the other hand, Earnings Down has three subgroup strategies, namely Earnings Down with Accrual Management and Real Earnings Management (Quadrant 2), Earnings Down with Accruals Management (Quadrant 3) and Earnings Down with management with real earnings (quadrant 1).
Limitations and Future Research
The Impact Role of Audit Quality and Culture on Earnings Management in Firms with Excess Free Cash Flow: Evidence from the Asia-Pacific Region. The relationship between earnings management using the manipulation of actual activities and future performance: Evidence from achievement of earnings performance measures. Act-based and accrual-based earnings management behavior: evidence from China's split share structure reform.
The effect of external monitoring on accrual-based management and real earnings management: Evidence from venture capital-financed initial public offerings.
