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The impact of COVID-19 pandemic on earnings management and the value relevance of earnings: US evidence

Author

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  • Guoping Liu
  • Jerry Sun

Abstract

Purpose - The purpose of this study is to examine whether the COVID-19 pandemic has affected earnings management and the value relevance of earnings in the USA. Design/methodology/approach - Discretionary accruals, the explanatory power and slope coefficient of earnings are compared between 2019 (prepandemic year) and 2020 (pandemic year). Univariate and regression analyses are performed. Findings - There was a significant decline in discretionary accruals from 2019 to 2020, suggesting that firms engaged in more income-decreasing earnings management to take a big bath in reporting earnings in the pandemic year. Meanwhile, the explanatory power and slope coefficient of earnings both were lower in 2020 than in 2019, consistent with the notion that the pandemic has impaired the value relevance of earnings. Originality/value - This study explores the consequences of the pandemic from accounting perspective. It also enriches accounting research on economic crises.

Suggested Citation

  • Guoping Liu & Jerry Sun, 2022. "The impact of COVID-19 pandemic on earnings management and the value relevance of earnings: US evidence," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 37(7), pages 850-868, February.
    • Handle: RePEc:eme:majpps:maj-05-2021-3149
    DOI: 10.1108/MAJ-05-2021-3149
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    Citations

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    Cited by:

    1. Comporek Michal, 2023. "Earnings quality among high-share liquidity companies: evidence from Central and Eastern European firms," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 59(4), pages 315-332, December.
    2. Janowicz Magdalena, 2023. "The Profitability of Legal Mergers in Times of Economic Crisis – A Polish Example," Folia Oeconomica Stetinensia, Sciendo, vol. 23(2), pages 169-182, December.
    3. Md Helal Uddin*, 2024. "CEO Compensation and Earnings Management-The Moderating Role of COVID-19 Pandemic: Evidence from Bangladesh," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(1), pages 1605-1622, January.
    4. Joanna Lizińska & Leszek Czapiewski, 2023. "Earnings Management amid the COVID-19 Financial Crisis: The Experience of Poland," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 93-112.
    5. Aljughaiman, Abdullah A. & Nguyen, Tam Huy & Trinh, Vu Quang & Du, Anqi, 2023. "The Covid-19 outbreak, corporate financial distress and earnings management," International Review of Financial Analysis, Elsevier, vol. 88(C).

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