Title: Management's means and incentives to manage earnings: an integrated study in the Italian market

Authors: Alessandro Giosi; Marco Caiffa; Lucia Pera; Lorena Ferro

Addresses: Lumsa University of Rome, Via della Traspontina, Rome, Italy ' Deloitte Financial Advisory, Via della Camilluccia, Rome, Italy ' University of Rome "Tor Vergata", Via Columbia, 2, Rome, Italy ' University of Rome "Tor Vergata", Via Columbia, 2, Rome, Italy

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.

Keywords: earnings management; provisions; impairment loss; deferred taxes; threshold values; financial crisis.

DOI: 10.1504/IJMFA.2017.089063

International Journal of Managerial and Financial Accounting, 2017 Vol.9 No.4, pp.361 - 383

Available online: 27 Dec 2017 *

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