Empirical Studies in Financial Accounting

Investigating the Effect of Constraints on Earnings Management Strategies on the Application of Earnings Classification Shifting Strategy

Document Type : Research Paper

Authors

Mohsen Imeni 1
Seyyed Mohammad Moshashaei 2

1 Assistant Professor, Department of Accounting, Ayandegan Institute of Higher Education, Tonekabon, Iran.

2 Assistant Professor, Accounting Department, Gilan University, Rasht, Iran.

https://doi.org/10.22054/qjma.2022.67557.2375
Abstract
The two approaches are more prominent in the accounting literature, accrual-based earnings management and manipulating the actual activities however, the present study is considered the third type of earnings management model, namely a classification shifting. The purpose of this study is to investigate the effect of constraints on earnings management strategies on the application of shifting strategy in earnings classification in the Iranian capital market. The research sample consisted of 114 firms from 2013 to 2021 (1026 observation). Logistic regression models have been used to test research hypothesis. The results of the study show that financial health, institutional shareholders, audit firm size and market share have a negative and significant effect on the classification shifting. Also, the operating cycle has a positive and significant effect on the c classification shifting; and its tenure does not have a significant effect on the classification shifting. Additional tests indicated large companies have a greater incentive to do classification shifting (a form of earnings management) compared to small companies, because they have greater political costs.

Keywords

Earnings management
Accruals-based earnings management
Real earnings management
Earnings classification shifting
Subjects
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Empirical Studies in Financial Accounting
Volume 19, Issue 75
Autumn 2022
Pages 203-236

  • Receive Date 16 May 2022
  • Revise Date 02 December 2022
  • Accept Date 04 December 2022

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