IDEAS home Printed from https://ideas.repec.org/a/agr/journl/vxxviy2019i3(620)p179-192.html
   My bibliography  Save this article

Profit management in the case of financial distress and global volatile market behaviour: Evidence from Borsa Istanbul Stock Exchange

Author

Listed:
  • Tuğba KAYHAN

    (Management Information Systems, Commerce Faculty, Yeditepe University, Istanbul, Turkey)

  • Temur KAYHAN

    (Economics and Finance, School of Business and Management Sciences, Istanbul Medipol)

  • Engin YARBAŞI

    (International Business and Trade, Commerce Faculty, Yeditepe University, Istanbul, Turkey)

Abstract

The purpose of this paper is to find out how firms manage earnings under volatile market behaviour and financial distress in Borsa Istanbul Stock Exchange (BIST). We used in order to determine four discretionary accruals models such as Jones, Adjusted-Jones, Kasznik, and Kothari. 171 listed companies in BIST for the annual data between 2006 and 2016 were used. Model was analysed by using panel data methods such as fixed effects, random effects estimation. Our results indicate that nondiscretionary accruals, discretionary accruals, firm size and leverage by the future profit value are significant determinants of earning management behaviour in Turkey. However, we do not find a significant relation between future profitability and volatile market index, financial distress. This research will lead the way of accounting standard setters and policy makers to understand earning management activities under volatile market behaviour and financial distress in Borsa Istanbul Stock Exchange BIST.

Suggested Citation

  • Tuğba KAYHAN & Temur KAYHAN & Engin YARBAŞI, 2019. "Profit management in the case of financial distress and global volatile market behaviour: Evidence from Borsa Istanbul Stock Exchange," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(620), A), pages 179-192, Autumn.
  • Handle: RePEc:agr:journl:v:xxvi:y:2019:i:3(620):p:179-192
    as

    Download full text from publisher

    File URL: http://store.ectap.ro/articole/1413.pdf
    Download Restriction: no

    File URL: http://www.ectap.ro/articol.php?id=1413&rid=136
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lin, Hsiou-Wei William & Lo, Huai-Chun & Wu, Ruei-Shian, 2016. "Modeling default prediction with earnings management," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 306-322.
    2. Kenourgios, Dimitris, 2014. "On financial contagion and implied market volatility," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 21-30.
    3. Enomoto, Masahiro & Kimura, Fumihiko & Yamaguchi, Tomoyasu, 2015. "Accrual-based and real earnings management: An international comparison for investor protection," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(3), pages 183-198.
    4. Frondel, Manuel & Vance, Colin, 2010. "Fixed, random, or something in between? A variant of Hausman's specification test for panel data estimators," Economics Letters, Elsevier, vol. 107(3), pages 327-329, June.
    5. Baltagi, Badi H. & Liu, Long, 2012. "The Hausman–Taylor panel data model with serial correlation," Statistics & Probability Letters, Elsevier, vol. 82(7), pages 1401-1406.
    6. Halil ARSLAN & Yuksel ILTAS & Temur KAYHAN, 2017. "Target P/E ratio determinants in the Turkish Stock Market: Earning volatility effect," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(613), W), pages 65-74, Winter.
    7. Jiraporn, Pornsit & Miller, Gary A. & Yoon, Soon Suk & Kim, Young S., 2008. "Is earnings management opportunistic or beneficial? An agency theory perspective," International Review of Financial Analysis, Elsevier, vol. 17(3), pages 622-634, June.
    8. Hahn, Jinyong & Ham, John C. & Moon, Hyungsik Roger, 2011. "The Hausman test and weak instruments," Journal of Econometrics, Elsevier, vol. 160(2), pages 289-299, February.
    9. Naila Tabassum & Ahmad Kaleem & Mian Sajid Nazir, 2015. "Real Earnings Management and Future Performance," Global Business Review, International Management Institute, vol. 16(1), pages 21-34, February.
    10. Lo, Kin, 2008. "Earnings management and earnings quality," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 350-357, August.
    11. Baltagi, Badi H. & Bresson, Georges & Pirotte, Alain, 2003. "Fixed effects, random effects or Hausman-Taylor?: A pretest estimator," Economics Letters, Elsevier, vol. 79(3), pages 361-369, June.
    12. Jones, Jj, 1991. "Earnings Management During Import Relief Investigations," Journal of Accounting Research, Wiley Blackwell, vol. 29(2), pages 193-228.
    13. Jeffrey M. Wooldridge, 2005. "Fixed-Effects and Related Estimators for Correlated Random-Coefficient and Treatment-Effect Panel Data Models," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 385-390, May.
    14. Agapova, Anna & Madura, Jeff, 2016. "Market uncertainty and earnings guidance," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 97-111.
    15. Abdolkarim Moghaddam & Narges Abbaspour, 2017. "The Effect of Leverage and Liquidity Ratios on Earnings Management and Capital of Banks Listed on the Tehran Stock Exchange," International Review of Management and Marketing, Econjournals, vol. 7(4), pages 99-107.
    16. Braam, Geert & Nandy, Monomita & Weitzel, Utz & Lodh, Suman, 2015. "Accrual-based and real earnings management and political connections," The International Journal of Accounting, Elsevier, vol. 50(2), pages 111-141.
    17. Subramanyam, K. R., 1996. "The pricing of discretionary accruals," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 249-281, October.
    18. Sara Hassanpour & Mehdi Nazemi Ardakani, 2017. "The Effect of Pre-bankruptcy Financial Distress on Earnings Management Tools," International Review of Management and Marketing, Econjournals, vol. 7(3), pages 213-219.
    19. Kasznik, R, 1999. "On the association between voluntary disclosure and earnings management," Journal of Accounting Research, Wiley Blackwell, vol. 37(1), pages 57-81.
    20. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February.
    21. DeAngelo, Linda Elizabeth, 1988. "Managerial competition, information costs, and corporate governance : The use of accounting performance measures in proxy contests," Journal of Accounting and Economics, Elsevier, vol. 10(1), pages 3-36, January.
    22. Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
    23. Cohen, Daniel A. & Zarowin, Paul, 2010. "Accrual-based and real earnings management activities around seasoned equity offerings," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 2-19, May.
    24. Siregar, Sylvia Veronica & Utama, Sidharta, 2008. "Type of earnings management and the effect of ownership structure, firm size, and corporate-governance practices: Evidence from Indonesia," The International Journal of Accounting, Elsevier, vol. 43(1), pages 1-27, March.
    25. Bell, Andrew & Jones, Kelvyn, 2015. "Explaining Fixed Effects: Random Effects Modeling of Time-Series Cross-Sectional and Panel Data," Political Science Research and Methods, Cambridge University Press, vol. 3(1), pages 133-153, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhijun Lin & Ming Liu & Carlos Noronha, 2016. "The Impact of Corporate Governance on Informative Earnings Management in the Chinese Market," Abacus, Accounting Foundation, University of Sydney, vol. 52(3), pages 568-609, September.
    2. Muhammad Kaleem Khan & Yixuan Qin & Chengsi Zhang, 2022. "Financial structure and earnings manipulation activities in China," The World Economy, Wiley Blackwell, vol. 45(8), pages 2593-2621, August.
    3. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    4. Wil Martens & Prem W. S. Yapa & Maryam Safari, 2020. "The Impact of Financial Statement Comparability on Earnings Management: Evidence from Frontier Markets," IJFS, MDPI, vol. 8(4), pages 1-25, November.
    5. Mughal, Azhar & Tao, Qizhi & Sun, Yicheng & Xiang, Xueman, 2021. "Earnings management at target firms and the acquirers’ performance," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 384-404.
    6. Oz, Ibrahim Onur & Yelkenci, Tezer, 2018. "Examination of real and accrual earnings management: A cross-country analysis of legal origin under IFRS," International Review of Financial Analysis, Elsevier, vol. 58(C), pages 24-37.
    7. N. Eriotis & T. Kounadeas & K. Liapis & E. Poutos, 2019. "The Impact of IFRS Adoption by Greek Listed Companies on the Earnings Quality: An Empirical Investigation," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 9(3-4), pages 90-100.
    8. Özgür, Arslan-Ayaydin & Thewissen, James & Torsin, Wouter, 2021. "Earnings Management Methods and CEO Political Affiliation," LIDAM Discussion Papers LFIN 2021017, Université catholique de Louvain, Louvain Finance (LFIN).
    9. Campa, Domenico & Camacho-Miñano, María-del-Mar, 2015. "The impact of SME’s pre-bankruptcy financial distress on earnings management tools," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 222-234.
    10. Joanna Lizińska & Leszek Czapiewski, 2018. "Towards Economic Corporate Sustainability in Reporting: What Does Earnings Management around Equity Offerings Mean for Long-Term Performance?," Sustainability, MDPI, vol. 10(12), pages 1-23, November.
    11. STOLOWY, Herve & BRETON, Gaetan, 2000. "A framework for the classification of accounts manipulations," HEC Research Papers Series 708, HEC Paris.
    12. Wil Martens & Prem Yapa & Maryam Safari, 2021. "Earnings Management in Frontier Market: Do Institutional Settings Matter?," Economies, MDPI, vol. 9(1), pages 1-19, February.
    13. Mohamed Khalil & Sandy Harianto & Yilmaz Guney, 2022. "Do political connections reduce earnings management?," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 273-310, July.
    14. Nitai Chandra Debnath & Suman Paul Chowdhury & Safaeduzzaman Khan, 2022. "The impact of audit quality on real earnings management: evidence from Bangladesh," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 19(2), pages 218-231, June.
    15. Hui-Wen Tang & Chong-Chuo Chang, 2015. "Does corporate governance affect the relationship between earnings management and firm performance? An endogenous switching regression model," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 33-58, July.
    16. Adnan Shoaib & Muhammad A. Siddiqui, 2022. "Earning information content changes based on accrual measures and quality measures: Evidences from member countries of Asia Pacific trade agreement," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1526-1546, January.
    17. Vasilescu, Camelia & Millo, Yuval, 2016. "Do industrial and geographic diversifications have different effects on earnings management? Evidence from UK mergers and acquisitions," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 33-45.
    18. Anagnostopoulou, Seraina C. & Tsekrekos, Andrianos E., 2015. "Earnings management in firms seeking to be acquired," The British Accounting Review, Elsevier, vol. 47(4), pages 351-375.
    19. Juhendra Debbarma & Chinmoy Roy, 2023. "Effects of Corporate Governance on Creative Accounting Practices: Evidence from NSE-listed Companies in India," Indian Journal of Corporate Governance, , vol. 16(1), pages 52-78, June.
    20. Ramesh Chandra Das & Chandra Sekhar Mishra & Prabina Rajib, 2017. "Real Versus Accrual-based Earnings Management," Paradigm, , vol. 21(2), pages 156-174, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:agr:journl:v:xxvi:y:2019:i:3(620):p:179-192. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mircea Dinu (email available below). General contact details of provider: https://edirc.repec.org/data/agerrea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.