Comparative Analysis of the Application of Roychowdhury and Gunny Models in the Estimation of Real Earnings Management
DOI:
https://doi.org/10.15678/ZNUEK.2020.0988.0403Keywords:
real earnings management, Roychowdhury models, Gunny models, construction enterprisesAbstract
Objective: The main aim of the article is to present the results of empirical research on the formation of abnormal production costs as well as discretionary SG&A expenditures in public companies included in the WIG-construction index. A secondary goal is to analyse the relationship between the scope of implemented real earnings management practices and the performance of listed companies, assessed on the basis of the ROA coefficient.
Research Design & Methods: Analytical formulas of Roychowdhury and Gunny models were used to determine the scale of real earnings management.
Findings: The empirical research shows that in the studied population there are statistically significant relationships between the achieved ROA coefficient and the scale of implemented REM practices. The relationships between REM coefficients, distinguished by different regression models, are shown to be very strong.
Implications / Recommendations: The method used to estimate the level of discretionary SG&A expenditures has a greater impact on the overall assessment of the scale of REM practices in an enterprise than do discretionary production costs.
Contribution: The research should contribute to the search for effective instruments for measuring company activities related to the intentional shaping of financial results.
Downloads
References
Bartov E. (1993), The Timing of Asset Sales and Earnings Manipulation, „The Accounting Review”, vol. 4, nr 68.
Braam G., Nandy M., Weitzel U., Lodh S. (2015), Accrual-based and Real Earnings Management and Political Connections, „The International Journal of Accounting”, vol. 50, nr 2, https://doi.org/10.1016/j.intacc.2013.10.009. DOI: https://doi.org/10.1016/j.intacc.2013.10.009
Bushee B. (1998), The Influence of Institutional Investors on Myopic R&D Investment Behavior, „The Acounting Review”, vol. 73.
Chung K.H., Pruitt S.W. (1994), A Simple Approximation of Tobin’s q, „Financial Management”, vol. 23, nr 3, https://doi.org/10.2307/3665623. DOI: https://doi.org/10.2307/3665623
Comporek M. (2019), Urealniony wymiar oceny zarządzania zyskiem w przemysłowych spółkach giełdowych, „Przedsiębiorczość i Zarządzanie”, t. 19, z. 1.
Comporek M. (2020), Zarządzanie wynikiem finansowym w przedsiębiorstwach. Wymiary, modele, ocena, Wydawnictwo Uniwersytetu Łódzkiego, Łódź. DOI: https://doi.org/10.18778/8220-075-1
Deng X., Ong S.E. (2018), Real Earnings Management, Liquidity Risk and Reits SEO Dynamics, „Journal of Real Estate Finance and Economics”, vol. 56, nr 3, https://doi.org/10.1007/s11146-017-9649-5 . DOI: https://doi.org/10.1007/s11146-017-9649-5
Ewert R., Wagenhofer A. (2005), Economics Effect of Tightening Accounting Standards to Restrict Earnings Management, „The Accounting Review”, vol. 80, nr 4, https://doi.org/10.2308/accr.2005.80.4.1101. DOI: https://doi.org/10.2308/accr.2005.80.4.1101
Ferentinou A.C., Anagnostopoulou S.C. (2016), Accrual-based and Real Earnings Management before and after IFRS Adoption, „Journal of Applied Accounting Research”, vol. 17, nr 1, https://doi.org/10.1108/jaar-01-2014-0009. DOI: https://doi.org/10.1108/JAAR-01-2014-0009
Gandhi K. (2019), Real Earnings Management: A Critical Review of Literature, „Prajnan”, vol. 47, nr 3. DOI: https://doi.org/10.1007/s40622-020-00250-w
Graham J.R., Harvey C.R., Rajgopal S. (2005), The Economic Implications of Corporate Financial Reporting, „Journal of Accounting and Economics”, vol. 40, https://doi.org/10.1016/j.jacceco.2005.01.002. DOI: https://doi.org/10.1016/j.jacceco.2005.01.002
Gunny K. (2005), What Are the Consequences of REM?, Working Paper, Haas School of Business, University of California.
Gunny K.A. (2010), The Relation between Earnings Management Using Real Activities Manipulation and Future Performance: Evidence from Meeting Earnings Benchmarks, „Contemporary Accounting Research”, vol. 27, nr 3, https://doi.org/10.1111/j.1911-3846.2010.01029.x. DOI: https://doi.org/10.1111/j.1911-3846.2010.01029.x
Herrmann D., Inoue T., Thomas W.B. (2003), The Sale of Assets to Manage Eearnings in Japan, „Journal of Accounting Research”, vol. 41, nr 1, https://doi.org/10.1111/1475-679x.00097. DOI: https://doi.org/10.1111/1475-679X.00097
Hribar P., Jenkins N.T., Johnson W.B. (2006), Stock Repurchases as an Earnings Management Device, „Journal of Accounting and Economics”, vol. 41, nr 1–2, https://doi.org/10.1016/j.jacceco.2005.10.002. DOI: https://doi.org/10.1016/j.jacceco.2005.10.002
Huang X., Sun L. (2017), Managerial Ability and Real Earnings Management, „Advances in Accounting”, vol. 39, https://doi.org/10.1016/j.adiac.2017.08.003. DOI: https://doi.org/10.1016/j.adiac.2017.08.003
Jackson S., Wilcox W. (2000), Do Managers Grant Sales Price Reductions to Avoid Losses and Declines in Earnings and Sales?, „Quarterly Journal of Business and Economics”, vol. 39, nr 4.
Pincus M., Rajgopal S. (2002), The Interaction between Accrual Management and Hedging: Evidence from Oil and Gas Firms, „The Accounting Review”, vol. 77, nr 1, https://doi.org/10.2308/accr.2002.77.1.127. DOI: https://doi.org/10.2308/accr.2002.77.1.127
Roychowdhury S. (2006), Earnings Management through Real Activities Manipulation, „Journal of Accounting and Economics”, vol. 42, nr 3, https://doi.org/10.1016/j.jacceco.2006.01.002. DOI: https://doi.org/10.1016/j.jacceco.2006.01.002
Schipper K. (1989), Commentary on Earnings Management, „Accounting Horizons”, vol. 3, nr 4.
Srivastava A. (2019), Improving the Measures of Real Earnings Management, „Review of Accounting Studies”, vol. 24, nr 4, https://doi.org/10.1007/s11142-019-09505-z. DOI: https://doi.org/10.1007/s11142-019-09505-z
Thomas J.K., Zhang H. (2002), Inventory Changes and Future Returns, „Review of Accounting Studies”, vol. 7, https://doi.org/10.1023/a:1020221918065. DOI: https://doi.org/10.1023/A:1020221918065
Vladu A. (2015), Managerial Preferences between Accrual-Based versus Real Earnings Management, „Hyperion International Journal of Econophysics & New Economy”, vol. 8, nr 2.
Wang S., D’Souza J.M. (2006), Earnings Management: The Effect of Accounting Flexibility on R&D Investment Choices, „Johnson School Research Paper Series”, nr 33–06. DOI: https://doi.org/10.2139/ssrn.878345
Downloads
Published
Issue
Section
License
Copyright (c) 2021 Zeszyty Naukowe Uniwersytetu Ekonomicznego w Krakowie / Cracow Review of Economics and Management
This work is licensed under a Creative Commons Attribution 4.0 International License.
