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Earnings Management by Non‐profit Organisations: Evidence from UK Charities

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  • Tam Nguyen
  • Teerooven Soobaroyen

Abstract

Informed by stakeholder theory and resource dependence theory, this paper investigates whether UK charities are engaged in earnings management practices. Based on a sample of 1414 charities over a five‐year period (2008–2012) the study firstly finds that UK charities use discretionary accruals to drive their financial results towards a zero surplus/deficit; this result also reveals that the distribution of reported earnings around zero is prevalent amongst UK charities. In addition, in contrast to prior findings, the empirical results point to a significant association between leverage and earnings management behaviour by charities. Lastly, this study finds that the practice of earnings management is influenced by non‐profit organisational size.

Suggested Citation

  • Tam Nguyen & Teerooven Soobaroyen, 2019. "Earnings Management by Non‐profit Organisations: Evidence from UK Charities," Australian Accounting Review, CPA Australia, vol. 29(1), pages 124-142, March.
    • Handle: RePEc:bla:ausact:v:29:y:2019:i:1:p:124-142
    DOI: 10.1111/auar.12242
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    Cited by:

    1. Cannon, James N. & Lamboy-Ruiz, Melvin A. & Watanabe, Olena V., 2022. "Ownership type and earnings management in U.S. hospitals," Advances in accounting, Elsevier, vol. 58(C).

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