Management's means and incentives to manage earnings: an integrated study in the Italian market Online publication date: Thu, 04-Jan-2018
by Alessandro Giosi; Marco Caiffa; Lucia Pera; Lorena Ferro
International Journal of Managerial and Financial Accounting (IJMFA), Vol. 9, No. 4, 2017
Abstract: This paper provides a methodological contribution to the existing research on earnings management. In this context, the purpose of our analysis is to understand, through the introduction of qualitative variables, how financial performance threshold values (Burgstahler and Dichev, 1997) results in manipulation and creates an incentive for managerial behaviour. The study demonstrates that "provisions for liabilities and charges", "the assets impairment loss" and "net deferred tax liability" are de facto used to manage earnings. If a firm has a profit (or loss) in the year t, it has a tendency to positively (or negatively) manage earnings in the same year. Furthermore, the starting situation plays a significant role since it becomes a relevant threshold for the adoption of earnings management policies. In spite of the significance of the thresholds considered, their impact on the single components analysed is moderate. Moreover, the financial crisis was not neutral as regards earnings management.
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