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Earnings thresholds in South Africa listed enterprises: Manipulating research and developmental expenditures

South African Journal of Economic and Management Sciences, 2023, Vol.26 (1), p.1-8 [Peer Reviewed Journal]

COPYRIGHT 2023 African Online Scientific Information Systems (Pty) Ltd t/a AOSIS ;2023. This work is published under https://creativecommons.org/licenses/by/4.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;This work is licensed under a Creative Commons Attribution 4.0 International License. ;ISSN: 1015-8812 ;ISSN: 2222-3436 ;EISSN: 2222-3436 ;DOI: 10.4102/sajems.v26i1.4600

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  • Title:
    Earnings thresholds in South Africa listed enterprises: Manipulating research and developmental expenditures
  • Author: Liu, Zhenjia
  • Subjects: avoided earnings decreases ; Business ; Business enterprises ; Business, Finance ; Capital expenditures ; Communication ; earnings above zero ; Earnings management ; Earnings per share ; earnings thresholds ; Economic aspects ; Economic value added ; Economics ; Forecasts and trends ; Hypotheses ; Industrial research ; Losses ; Management ; Profit ; Profits ; Public Administration ; R&D ; R&D expenditures ; Regression analysis ; Research & development ; Research & development expenditures ; South Africa
  • Is Part Of: South African Journal of Economic and Management Sciences, 2023, Vol.26 (1), p.1-8
  • Description: Background Research and developmental (R&D) expenditure directly affects profits. Therefore, managers are likely to manipulate R&D expenditure to meet earnings thresholds.Aim This study investigates whether managers manipulate R&D expenditure to meet earnings thresholds, while analysing whether the prospect theory explains this behaviour.Setting The setting is 62 South African firms listed on the Johannesburg Stock Exchange (JSE) studied from 2011 to 2019.Method We collected 379 annual samples from the S&P Capital IQ database and applied the earnings distribution model to estimate the effect of the prospect theory on earnings management.Results Most South African listed enterprises have earnings above zero, or have avoided reporting earnings in decline before earnings manipulation. Furthermore, the study’s findings reveal that enterprises that have earnings above zero, or have maintained their earnings in the previous period after manipulation, are risk lovers, whereas enterprises with earnings below zero, or lower than those in the previous period, are risk averters.Conclusion South African listed enterprises do not have a tendency to manipulate R&D expenditures to achieve earnings above zero or avoid reporting declining earnings. The prospect theory also fails to explain their behaviour.Contribution This study is the first to analyse how the prospect theory explains the behaviour of earnings manipulation by using a sample of South African listed enterprises and thereby fills a research gap.
  • Publisher: Pretoria: AOSIS
  • Language: English;Portuguese
  • Identifier: ISSN: 1015-8812
    ISSN: 2222-3436
    EISSN: 2222-3436
    DOI: 10.4102/sajems.v26i1.4600
  • Source: SciELO
    ROAD: Directory of Open Access Scholarly Resources
    ProQuest Central
    DOAJ Directory of Open Access Journals
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