Earnings management in V4 countries: the evidence of earnings smoothing and inflating

Abstract

Earnings management is one of the most challenging, debated and controversial topics in finance and financial management. Organisational, legislative, and social norms regarding the ethics of earnings management may vary significantly, with the views of top management and economic environment playing significant roles in shaping the organisational social norm. Thus, the aim of this research is to assess if earnings management is the common practice of enterprises within V4 countries. A novel approach of the selection process to assess the ability of selected earnings management detection models was applied. To highlight discrepancies and similarities among the countries, the non-parametric alternative of analysis of variance was applied. The research confirmed that enterprises do manipulate earnings, typical is upward manipulation. Furthermore, the research unveiled the extent of manipulation with earnings in unique country samples and thus emphasised the importance of both corporate and national ethical principles and managerial decisions, which affect corporate financial reporting quality. However, it is increasingly challenging to identify various aspects and incentives which forced enterprises operating at the global level to smooth and inflate earnings to improve earnings presented in the financial statements and to misinterpret financial results. © 2020 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.