COVID-19 outbreak and earnings management practice: case of Tunisia

Purpose - This article attempts to investigate the impact of COVID-19 outbreak on the earnings management (EM) for listed Tunisian companies. Design/methodology/approach - The study focuses on both accrual-based and real EM (REM) practices. With panel data, the authors employ the multiple regression approach and the generalized least squares (GLS) estimate method. The sample is made up of 41 listed companies observed from the first half of 2016 to the second half of 2020. Findings - This study finds that, during the pandemic period, Tunisian firms use decreasing income discretionary accruals. Also, with regard to REM, the COVID-19 variable displays a negative response coefficient but of lesser magnitude. Research limitations/implications - This study's findings can help Tunisian authorities, listed companies and market investors to better understand EM practices during a negative shock and to better understand the various internal and external factors influencing the quality of financial reporting. These findings may contribute, also, significant EM implications for scholars interested in other emerging markets. As limitations, the authors point out mainly to the small sample size used in this study and that the authors used a single model, namely the modified Jones model (1995), to measure the accounting EM. Also, the authors used a binary variable as a proxy for the COVID- 19 pandemic. Originality/value - To the best of authors’ knowledge, it is the first in Tunisia, if not in Africa, to examine the impact of the COVID-19 pandemic on EM practices. Second, this study builds on previous work by examining both the accrual-based EM and the REM.