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Earnings management to avoid losses and earnings declines in Croatia

Author

Listed:
  • Stavros Degiannakis
  • George Giannopoulos
  • Salma Ibrahim
  • Ivana Rozic

Abstract

This paper provides empirical evidence that Croatian companies manage reported earnings to avoid losses and earnings declines. Specifically, we find that the cross-sectional distribution of scaled earnings and changes in earnings show high frequencies of small positive earnings and small increases in earnings while the frequencies of small losses and small decreases in earnings are less frequent. Furthermore, we demonstrate that these discontinuities are likely due to discretionary accruals. We examine the frequency distribution of reported earnings after removing discretionary accruals and find that the cross-sectional distributions of non-discretionary scaled earnings show lower frequencies of small positive earnings and higher frequencies of small negative earnings. Additionally, the cross-sectional distribution of non-discretionary change in earnings demonstrates mixed frequencies of non-discretionary changes in earnings. Overall, this paper adds new empirical evidence to the benchmark-beating literature by demonstrating international evidence of earnings management around zero earnings and zero earnings changes benchmarks.

Suggested Citation

  • Stavros Degiannakis & George Giannopoulos & Salma Ibrahim & Ivana Rozic, 2019. "Earnings management to avoid losses and earnings declines in Croatia," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 9(3), pages 219-238.
    • Handle: RePEc:ids:ijcome:v:9:y:2019:i:3:p:219-238
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    Cited by:

    1. Pavol Durana & Lucia Michalkova & Andrej Privara & Josef Marousek & Milos Tumpach, 2021. "Does the life cycle affect earnings management and bankruptcy?," Oeconomia Copernicana, Institute of Economic Research, vol. 12(2), pages 425-461, June.
    2. Waleed Khalid & Kashif Ur Rehman & Muhammad Kashif, 2019. "The Impact of Merger and Acquisition Firms on Stock Market Bubble," Global Regional Review, Humanity Only, vol. 4(1), pages 335-342, March.

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    Keywords

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    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • F30 - International Economics - - International Finance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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