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Earnings Management Dynamics in Portuguese Listed Firms

Author

Listed:
  • Diogo Batista da SIlva

    (School of Economics and Management, University of Porto)

  • António Cerqueira

    (School of Economics and Management, University of Porto)

  • Elísio Brandão

    (School of Economics and Management, University of Porto)

Abstract

This study examines earnings management dynamics in Portuguese listed firms. It provides evidence consistent with firms using accrual and real management as substitutes. Besides, the use of each strategy appears to depend on its relative cost. This investigation also points to the existence of a trade-off between derivatives use and the magnitude of earnings management. Furthermore, the impact of both earnings management and derivatives use on effective tax rates is examined. The results indicate that, if the tax function is convex, firms can reduce tax expenses by hedging with derivatives. This research also explores how earnings management practices are related with a set of market and financial incentives, while controlling for earnings management constraints. Meeting dividend thresholds seems to be the most relevant incentive for firms to manage earnings upward.

Suggested Citation

  • Diogo Batista da SIlva & António Cerqueira & Elísio Brandão, 2017. "Earnings Management Dynamics in Portuguese Listed Firms," FEP Working Papers 587, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:587
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    Keywords

    Earnings management; Derivatives;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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