Earnings Management During Financial Crises

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Journal Title
Journal ISSN
Volume Title
School of Business | Bachelor's thesis
Date
2023
Major/Subject
Mcode
Degree programme
Laskentatoimi
Language
en
Pages
20+8
Series
Abstract
In order to make informed decisions, stakeholders must rely on financial statement figures. However, under certain circumstances, managers have strong incentives to use accounting judgment in favor of their own interests, potentially at the expense of other stakeholders. This literature review examines how financial crises affect managers' incentives to engage in earnings management and whether those actions are more prevalent during crises or not. The results indicate that as the business environment changes, some factors incentivize management to report higher-than-actual results, while other factors encourage reporting lower-than-actual results. Simultaneously, several factors encourage leaders to be more transparent than usual. Although the prevalence of earnings management during financial crises has been addressed in numerous studies across the globe, research findings have been highly diverse. Factors like the degree of investor protection, the quality of audit, different crisis stages, and specific firm-related elements such as leverage levels could explain these varying results.
Description
Thesis advisor
Pham, Ly
Keywords
earnings management, financial crises, earnings management incentives, earnings behaviour
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