Earnings management : background, criticisms and answers / Hamid Pourjalali, Takiah Mohd. Iskandar and Aini Aman

Pourjalali, Hamid and Mohd. Iskandar, Takiah and Aman, Aini (2002) Earnings management : background, criticisms and answers / Hamid Pourjalali, Takiah Mohd. Iskandar and Aini Aman. Malaysian Accounting Review, 1 (1). pp. 37-50. ISSN 1675-4077

Official URL: https://mar.uitm.edu.my/

Abstract

In a series of speeches to the financial community during 1998, U.S. Securities and Exchange Commission's former Chairman Arthur Levitt, declared war on "improper earnings management, big bath restructuring charges, and cookie-jar reserves". Current news about firms such as Enron has also brought attention to both how and why managers manage
earnings. Accounting numbers form a fundamental part of an organization's efficient contracting technology Many of the terms, conditions, and covenants found in contracts use accounting variables, contractual arrangements and the associated contracting costs as the major determinant of accounting method choice (hence earnings management). Thus, using the propositions of contracting theory, it is possible to predict and explain accounting choices. In this paper we will provide evidence from the literature that companies have the ability to manage (manipulate) earnings using Generally Accepted Accounting Principles (GAAP). Different reasons for this manipulation are mentioned, viz., the existence of contracts among the firms, external/internal parties and the market pressure for firms
to perform at an expected level. The paper also provides a review of literature on earnings management in an international setting (such as in Japan). The model suggested in this paper can be used to test contracting
and market pressure theories in Malaysia.

Metadata

Item Type: Article
Creators:
Creators
Email / ID Num.
Pourjalali, Hamid
UNSPECIFIED
Mohd. Iskandar, Takiah
UNSPECIFIED
Aman, Aini
UNSPECIFIED
Subjects: H Social Sciences > HF Commerce > Accounting. Bookkeeping > Managerial accounting > Malaysia
H Social Sciences > HG Finance > Financial management. Business finance. Corporation finance > Earnings management > Malaysia
Divisions: Universiti Teknologi MARA, Shah Alam > Accounting Research Institute (ARI)
Journal or Publication Title: Malaysian Accounting Review
UiTM Journal Collections: UiTM Journal > Management & Accounting Review (MAR)
ISSN: 1675-4077
Volume: 1
Number: 1
Page Range: pp. 37-50
Keywords: Earnings management, contracting and market pressure
Date: 2002
URI: https://ir.uitm.edu.my/id/eprint/13695
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13695

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