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Earnings management with the absence of income tax avoidance motivation: evidence from pre-, during, and post- global financial crisis

AJAR (Asian Journal of Accounting Research) (Online), 2024-04, Vol.9 (2), p.153-168 [Peer Reviewed Journal]

Osama Atayah, Hazem Marashdeh and Allam Hamdan. This work is published under http://creativecommons.org/licences/by/4.0/legalcode (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;ISSN: 2443-4175 ;ISSN: 2459-9700 ;EISSN: 2443-4175 ;DOI: 10.1108/AJAR-04-2023-0130

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  • Title:
    Earnings management with the absence of income tax avoidance motivation: evidence from pre-, during, and post- global financial crisis
  • Author: Atayah, Osama ; Marashdeh, Hazem ; Hamdan, Allam
  • Subjects: Accrual earnings management ; Accruals ; Earnings management ; Earnings quality ; Economic conditions ; Economic crisis ; Economic growth ; Employment security ; Global financial crisis ; Hypotheses ; Incentives ; Income shifting ; Income taxes ; International finance ; Investor protection ; Literature reviews ; Motivation ; Real earnings management ; Return on assets ; Tax avoidance ; Tax free ; Tax increases ; Tax rates ; Tax-free countries ; Transfer pricing
  • Is Part Of: AJAR (Asian Journal of Accounting Research) (Online), 2024-04, Vol.9 (2), p.153-168
  • Description: PurposeThis study aims to examines both accrual and real-based earnings management (EM) behavior of listed corporations in tax-free countries during different economic situations. It also addresses the link between firm- and country-level determinants of accrual and real-based EM and explores economic conditions' influence on these determinants.Design/methodology/approachThe study examines 1,608 firm-years, covers sixteen years (2004–2019), clustered into three periods according to the global financial crisis (GFC): four years prior (2004–2007), two years during (2008–2009), and ten years post the GFC (2010–2019). We employ the modified Jones model (performance-matched) developed by Kothari et al. (2005) to measure the accrual-based EM (positive and negative discretionary accrual EM) and the three levels model for Dechow et al. (1998) to measure the real-based EM (cash flow from operating, discretionary expenses and abnormal production cost).FindingsThe study finds a significant increase in EM practices in the listed corporations in tax-free countries during the economic downturn. These corporations are found to understate their earnings during the economic stress period. Simultaneously, the firm-level determinants of EM practices were at the same level of significance during different economic conditions in accrual-based EM. In contrast, the country-level EM determinants vary based on the economic conditions.Originality/valueFinancial reports' users gain a deep understanding of the quality of financial reports in the context of tax-free country. And, the study outcomes inspire policymakers to develop relevant legislation to mitigate financial reports' risk and adequately protect the financial reports' users.
  • Publisher: Bingley: Emerald Group Publishing Limited
  • Language: English
  • Identifier: ISSN: 2443-4175
    ISSN: 2459-9700
    EISSN: 2443-4175
    DOI: 10.1108/AJAR-04-2023-0130
  • Source: AUTh Library subscriptions: ProQuest Central
    Coronavirus Research Database
    DOAJ Directory of Open Access Journals
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