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Earnings Management during the Covid-19 Pandemic: Evidence from Sweden

info:eu-repo/semantics/openAccess

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  • Title:
    Earnings Management during the Covid-19 Pandemic: Evidence from Sweden
  • Author: Ljubisavljević, Anastasija ; Jakobsson, Catarina
  • Subjects: Accrual-based Earnings Management ; Big Bath Accounting ; Business Administration ; Covid-19 Pandemic ; Earnings Management ; Företagsekonomi ; Modified Jones Model ; Real Earnings Management
  • Description: The financial difficulties following the Covid-19 pandemic have been many. Typically in situations of financial distress, firms are incentivized to utilize earnings management techniques to alter the picture of their financial situation, due to market-based pressure. However, studies have shown that in times of crisis, institutional and macroeconomic factors may be more influential as increased scrutiny and an acceptance of abnormal results may make it less attractive to engage in such practices. The purpose of this study is to explore the impact of the Covid-19 pandemic on the use of earnings management with a sample of 942 firms, amounting to 5 652 firm-year observations between the years of 2015-2020. The results show a statistically significant increased amount of income-decreasing accrual-based earnings management, indicating the use of “big bath” accounting. This suggests that managers were incentivized to utilize earnings management techniques in an attempt to present boosted earnings to the market in future periods, by exploiting the pandemic and reporting worse than necessary numbers. However, the study does not find any significant changes in the use of real earnings management, which could be due to managerial limitations in making operational decisions during severe financial distress.
  • Publisher: Uppsala universitet, Företagsekonomiska institutionen
  • Creation Date: 2022
  • Language: English
  • Source: Uppsala University DiVA
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