ABSTRACT: (EARNINGS MANAGEMENT AND FINANCIAL CRISIS: AN ANALYSIS OF A SAMPLE OF LISTED COMPANIES). This paper analyses the relationship between earnings management practices and economics trends in order to determine whether companies have changed policies, over the last few years, as a result of the financial and economic crisis. The existing literature indeed identifies companies’ effort to avoid losses as one of the main reasons for the adoption of earnings management.
The research is based on an empirical analysis of accounting data of companies listed at the London Stock Exchange (FTSE 100 and FTSE 250) for the period 2005-2012. This period is than divided into three time horizons characterized by consistent patterns of earnings, which are classified as pre-crisis period (2005-2007), crisis period (2008-2009), after-crisis period (2010- 2012). The research is conducted using the Burgstahler and Dichev model that is commonly used in empirical research to capture earnings management. The model is based on the analysis of the frequency distribution of earnings for a sample of companies and assumes that companies which do not manipulate earnings show a normal distribution of profits whereas those companies showing signs of earnings manipulation tend to have an asymmetric distribution of economic results with concentration in the intervals closest to zero. The results deriving from the application of Burgstahler and Dichev model show a significant change in the behaviour of enterprises in the pre-crisis and crisis period with an abnormal concentration of companies with value of earnings slightly above zero in the crisis period and in the post crisis period. These results show the existence of management accounting policies in the more acute crisis period (2008-2009) with figures gradually decreasing in the following period (2010-2012). Results confirm that the main purpose of earnings management practices is an attempt to avoid economic losses, delaying the recognition of expenses in difficult years when performance is expected to improve in the near future. In this study the Beneish model is used as a robustness test to assess the quality of our results. This additional model is based on a set of accounting data, which are more comprehensive when compared to those used in the Burgstahler and Dichev model. In conclusion, the results of this research show that the two models are more or less equally effective in capturing earnings management activities. The contribution of the research to the existing literature on earnings management is twofold. First of all it sheds light on the relationships between earnings management and economic developments, which is a relatively unexplored area. Secondly, it shows the effectiveness of two different research models in identifying earnings management practices.
KEYWORDS: Earnings management, financial crisis, listed companies.
Mari, L.M., Terzani, S., Agnello, M., Iorio, S. (2016). Il rischio di manipolazione dei bilanci in tempi di crisi: analisi di un campione di imprese quotate, RIREA, n.1, pp. 23-39.
