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The motivations of earnings management and financial aggressiveness in American firms listed on the NASDAQ 100

Author

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  • Souhir Neifar
  • Khamoussi Halioui
  • Fouad Ben Abdelaziz

Abstract

Purpose - The purpose of this paper is to examine the motivations of earnings management and financial aggressiveness levels in the big 100 companies listed on the NASDAQ 100 after the 2007 financial crisis. Design/methodology/approach - This paper uses two samples. The first contains 471 observations of 100 companies listed on the NASDAQ 100 for the period 2008-2012 and is used to examine the motivations of earnings management. The second represents 282 observations of companies listed on the NASDAQ 100 that use financial aggressiveness. The authors use a panel data model to analyze the effects of four explanatory variables (corporate governance structure, CEO compensation, CEO characteristics and audit fees) on both earnings management and financial aggressiveness levels. Findings - The results of the investigation show the significant impact of corporate governance structure, CEO compensation, CEO characteristics and audit fees on reducing the earnings management and financial aggressiveness levels. Research limitations/implications - The findings can be valuable to both investors and researchers. For researchers, the present work may help in explaining the motivations of earnings management and financial aggressiveness practices used by large American firms after the 2007 US financial crisis. For investors, this study serves to highlight the critical importance of corporate governance, CEO compensation and CEO characteristics in limiting such behaviors. Thus, investors are recommended to account for such variables in order to make effective investment decisions. As an extension to this study, researchers might consider other CEO psychological variables. Other market indices could also be considered in order to generalize and validate the results of the research. Practical implications - Investors must take into consideration the corporate governance structure and ask for supplementary information about CEO characteristics to ensure better investment decisions. Originality/value - In this paper, and in contrast to previous research, the authors test the impact of corporate governance structure, CEO compensation, CEO characteristics and audit fees together on the level of both earnings management and financial aggressiveness behavior for large US non-financial firms after the 2007 financial crisis. The authors show that older CEOs use less earnings management and financial aggressiveness. The findings can be valuable to investors, managers and regulators because they have implications for their interactive decision-making process.

Suggested Citation

  • Souhir Neifar & Khamoussi Halioui & Fouad Ben Abdelaziz, 2016. "The motivations of earnings management and financial aggressiveness in American firms listed on the NASDAQ 100," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 17(4), pages 397-420, November.
    • Handle: RePEc:eme:jaarpp:jaar-05-2014-0051
    DOI: 10.1108/JAAR-05-2014-0051
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    Citations

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    Cited by:

    1. Mohamad Ezrien Bin Mohamad Kamal & Siti Sarah Binti Khazalle, 2021. "Concealing Financial Distress With Earnings Management: A Perspective on Malaysian Public Listed Companies," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(2), pages 341-356, April.
    2. Olfa Ben Salah & Anis Jarboui, 2023. "Impact of Dividend Policy on Earnings Management and The Moderating Effect of The Board of Directors and The Audit Committees: The French Case," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 22(3), pages 408-427, September.

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