The purpose is to know how can one assign weight age to different attributes, so that the best can be identified and studied to see the difference it would create.
I believe that board of director characteristics would limit earnings management
Bradut, studies have shown that presence of earnings management affects firm's value negatively.
Thank you Tariq, most law have this as a mandatory requirement. So the reports might actually show that the board composition and structure are according to the norms which actually may not be true in reality. I am looking for more realistic measure.
Dear Mrs. Kaur, we have lots of variables being discussed here. The first one, and very important as well, is about the presence of earnings management and its influence on value and performance. As said by Mr Bolos, earnings management (specially smooth earnings) can be used to get persistence, and this can be positive in the context of capital markets. So, there are some characteristics regarding to this discussion. But, we can say that some compensation variables can be associated with earning management, like: i) variable compensation (remuneration basead in stock options, for example), ii) board meetings (we can assume that the more board meetings a year the more capacity of monitoring administrators), iii) presence of directors in other boards (directors participating in many boards can reduce their capacity of monitoring administrators, as well); iii) presence of independent boards (with no relationship and kindship). This can inhibit practices of earnings management on firms... So, this is a very fertile field. If you want, we can talk more about that at another time. Sorry about my bad english.. Regards...
Earnings management exists in all organizations. It is unavoidable and inescapable.
The purpose of companies is ultimately personal gain, this is the force that drives their appearance and existence, it is the main force that drives management staff.
However, there is a line between "earnings management" and irresponsible practices that can harm the companies and stakeholders. Crossing that line should reverse all gains.
I agree. This is my viewpoint as well. But, although Income Smoothing (achieved by EM) can be in this line that you have cited, capital markets consider this practices as being good in some cases, because this generates persistence and can increases confidence of investors for forecasting. But, as you said perfectly, this is a tenuous line, because Income Smoothing can be both a good thing for analysts (accruals, tending to infinite, are the Sorry about my bad english again.
Dear Raghuveer Kaur,
In order to scientifically determine the negative influence of earnings management you need to have two groups, one that does practice earnings management and one that does not. I cannot imagine a company that does not use earning management in some form or another, so basically there is no way to prove that theory.
You may have two groups, one that disclose all accounting polices and one that does not, but it is not the same thing.
First of all you need to go through other researches for a better insight (google the phrase corporate governance and earnings management, you will find a lot. Afterwards you will have a proper grasp of what you intend to achieve. Good luck.
Earnings Management weighted averages may be found with Earnings Management readings as well in statistical cost analysis of earnings management parameters.
Hi !
Perhaps you can put in place an audit committee within the board with a specific objective of limiting the earnings management. There are two kinds of earnings management. The first one is referring to accruals and the second one is concerned with real operations (asset sales and so on). For sure disconnecting the CEO's compensation from the level of the firm's earnings is also required.
I think there is no single answer for your question. There are different arrangements of corporate governance for different specific countries in the world, and they influence on earnings management practices. The basic example is about ownership structure. For countries with high levels of ownership concentration, earnings management happen for different purposes if we compare with countries with levels of dispersed ownership.
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