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Earnings management and firm financial motives: A financial investigation of UK listed firms

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  • Iatridis, George
  • Kadorinis, George
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    Abstract

    This study focuses on the investigation of motives for and characteristics of UK firms that engage in earnings management activities. It concentrates particularly on the provision of voluntary accounting disclosures, the violation of debt covenants, management compensation, and on the equity and debt capital needs of firms and their relation with the use of earnings management. The study examines also the earnings management inclination of firms that seek to meet or exceed financial analysts' forecasts. The findings generally indicate that firms with low profitability and high leverage measures are likely to use earnings management. Also, firms that are in equity and debt capital need and are close to debt covenant violation also appear to be inclined to employ earnings management practices. Likewise, firms tend to use earnings management to improve their financial numbers and subsequently reinforce their compensation and meet and/or exceed financial analysts' earnings forecasts. In contrast, the study shows that firms that provide voluntary accounting disclosures appear to be less inclined to make use of earnings management.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 18 (2009)
    Issue (Month): 4 (September)
    Pages: 164-173

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    Handle: RePEc:eee:finana:v:18:y:2009:i:4:p:164-173

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    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Voluntary accounting disclosure Earnings management Accounting choices Equity and debt capital;

    References

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    Cited by:
    1. Mouselli, Sulaiman & Jaafar, Aziz & Goddard, John, 2013. "Accruals quality, stock returns and asset pricing: Evidence from the UK," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 203-213.
    2. VLADU ALINA BEATTRICE Author-Workplace-Name: BABES-BOLYAI UNIVERSITY CLUJ-NAPOCA, 2013. "EARNINGS MANGEMENT OCCURENCE IN TIMES OF CRISIS: INSIGHTS FROM THE LITERATURE Abstract: This paper discusses the main findings in the literature and offers interesting insights in order to understandi," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 5, pages 115-119, October.

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