Title: Directors' reports cosmetic treatment: impact of earnings management on financial report readability

Authors: Muhammad Ejaz; Raja Nabeel-Ud-Din Jalal; Um-E-Roman Fayyaz

Addresses: Riphah International University, Islamabad, Pakistan ' Dipartimento di Economia Aziendale, Università degli Studi “G.d'Annunzio”, Chieti-Pescara, Italy ' Dipartimento di Economia Aziendale, Università degli Studi “G.d'Annunzio”, Chieti-Pescara, Italy

Abstract: This study aims to identify how the earnings management practices of firms influence the readability of financial reports. Non-financial firms listed in the PSX KSE-100 index were used as sample. Panel regression model has been employed to test and analyse the data. Fog index is used to measure readability and Jones model is used to distinguish discretionary and non-discretionary accruals. The study finds that companies most likely alter the reported earnings have more complex directors' reports. Further, income deceasing earnings management has a significant and negative impact on readability of financial report, whilst the study finds no significant association of income increasing earnings management with the readability of financial reports.

Keywords: earning management; financial report readability; directors report; accruals.

DOI: 10.1504/GBER.2022.10043696

Global Business and Economics Review, 2022 Vol.26 No.1, pp.20 - 36

Received: 15 Apr 2021
Accepted: 11 May 2021

Published online: 21 Dec 2021 *

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