The Effect of Financial Systems on Earnings Management Among Firms Reporting Under IFRS

M. Paananen

Research output: Working paper

86 Downloads (Pure)


This study examines the relation between financing system and earnings management and changes in the patterns of earnings management activities over time. Prior research suggests that managers are more likely to manage earnings in a credit financing system because the purpose of the financial reporting in this credit environment is to protect creditors by prudently calculating distributable profit. In addition, multinational enterprises financial reporting tends to be anchored in their home countrys practices and responsive to their national requirements. Using 121 firm-year observations of non-U.S. firms reporting under IFRS, we find some evidence that firms from credit financing systems manage earnings more than firms from equity financing systems. We find that firms in a credit financing environment report 1.6% higher in absolute discretionary accruals than equity firms. However, we did not find evidence that overall earnings management activities have decreased as the IASBs Comparability/Improvements Project went into effect after 1995. This finding suggests that the IASB has not been effective in narrowing down the international differences in accounting practices and providing comparable financial statements to the public.
Original languageEnglish
PublisherUniversity of Hertfordshire
Publication statusPublished - 2006

Publication series

NameBusiness School Working Papers
PublisherUniversity of Hertfordshire
VolumeUHBS 2006-2


Dive into the research topics of 'The Effect of Financial Systems on Earnings Management Among Firms Reporting Under IFRS'. Together they form a unique fingerprint.

Cite this