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Earnings management using classification shifting of revenues

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  • Malikov, Kamran
  • Manson, Stuart
  • Coakley, Jerry

Abstract

This paper examines a novel form of classification shifting as an earnings management tool using a sample of 12,804 UK listed firm-year observations for the 1995–2014 period. It proposes a new approach to classification shifting whereby firms have scope to misclassify revenues from non-operating activities as operating revenues. The results establish that firms engage in classification shifting of non-operating revenues to inflate operating revenues. They indicate that firms in the period following mandatory IFRS adoption are associated with an increase in this practice, consistent with IFRS offering greater scope for manipulation. Further tests reveal that classification shifting of revenues is more pervasive for firms that report operating losses or have low growth.

Suggested Citation

  • Malikov, Kamran & Manson, Stuart & Coakley, Jerry, 2018. "Earnings management using classification shifting of revenues," The British Accounting Review, Elsevier, vol. 50(3), pages 291-305.
    • Handle: RePEc:eee:bracre:v:50:y:2018:i:3:p:291-305
    DOI: 10.1016/j.bar.2017.10.004
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    2. Al Mabsali, Yousuf Khamis & Hayward, Robert & Eliwa, Yasser, 2021. "Managerial tools used to meet or beat analyst forecasts: Evidence from the UK," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 43(C).
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    5. Qi Yang & Dejun Wu, 2020. "Does an item change trigger earnings management? Evidence from asset disposal income in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4593-4619, December.
    6. Zalata, Alaa Mansour & Abdelfattah, Tarek, 2021. "Non-executive female directors and earnings management using classification shifting," Journal of Business Research, Elsevier, vol. 134(C), pages 301-315.
    7. Manish Bansal, 2024. "Unpacking the drivers of earnings management in CSR firms: influence of investor risk perception," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(1), pages 127-142, March.
    8. Surendranath Jory & Thanh Ngo & Hongxia Wang, 2021. "Non‐operating earnings and firm risk," Review of Financial Economics, John Wiley & Sons, vol. 39(1), pages 95-123, January.
    9. Amin, Qazi Awais & Cumming, Douglas, 2021. "Blockholders and real earnings management-the emerging markets context," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).

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