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Heads and Tails of Earnings Management: Quantitative Analysis in Emerging Countries

Author

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  • Pavol Durana

    (Faculty of Operation and Economics of Transport and Communications, Department of Economics, University of Zilina, 010 26 Zilina, Slovakia)

  • Katarina Valaskova

    (Faculty of Operation and Economics of Transport and Communications, Department of Economics, University of Zilina, 010 26 Zilina, Slovakia)

  • Darina Chlebikova

    (Faculty of Operation and Economics of Transport and Communications, Department of Economics, University of Zilina, 010 26 Zilina, Slovakia)

  • Vladislav Krastev

    (Department of Economics, South-West University, 2746 Blagoevgrad, Bulgaria)

  • Irina Atanasova

    (Department of Economics, South-West University, 2746 Blagoevgrad, Bulgaria)

Abstract

Earnings management is a globally used tool for long-term profitable enterprises and for the apparatus of reduction of bankruptcy risk in developed countries. This phenomenon belongs to the integral and fundamental part of their business finance. However, this has still been lax in emerging countries. The models of detections of the existence of earnings management are based on discretionary accrual. The goal of this article is to detect the existence of earnings management in emerging countries by times series analysis. This econometric investigation uses the observations of earnings before interest and taxes of 1089 Slovak enterprises and 1421 Bulgarian enterprises in financial modelling. Our findings confirm the significant existence of earnings management in both analyzed countries, based on a quantitative analysis of unit root and stationarity. The managerial activities are purposeful, which is proven by the existence of no stationarity in the time series and a clear occurrence of the unit root. In addition, the results highlight the year 2014 as a significant milestone of change in the development of earnings management in both countries, based on homogeneity analyses. These facts identify significant parallels between Slovak and Bulgarian economics and business finance.

Suggested Citation

  • Pavol Durana & Katarina Valaskova & Darina Chlebikova & Vladislav Krastev & Irina Atanasova, 2020. "Heads and Tails of Earnings Management: Quantitative Analysis in Emerging Countries," Risks, MDPI, vol. 8(2), pages 1-21, June.
    • Handle: RePEc:gam:jrisks:v:8:y:2020:i:2:p:57-:d:365894
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    1. Tomas Kliestik & Alena Novak Sedlackova & Martin Bugaj & Andrej Novak, 2022. "Stability of profits and earnings management in the transport sector of Visegrad countries," Oeconomia Copernicana, Institute of Economic Research, vol. 13(2), pages 475-509, June.
    2. Mihai Carp & Leontina Păvăloaia & Constantin Toma & Iuliana Eugenia Georgescu & Mihai-Bogdan Afrăsinei, 2020. "Companies’ Sustainable Growth, Accounting Quality, and Investments Performances. The Case of the Romanian Capital Market," Sustainability, MDPI, vol. 12(22), pages 1-16, November.
    3. Vladan Pavlovic & Goranka Knezevic & Radica Bojicic, 2022. "The Impact of Gender and Age on Earnings Management Practices of Public Enterprises – A Case Study of Belgrade," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 130-148.

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