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Earnings Management in Australian Corporations
Author(s) -
Wilson Mark
Publication year - 2011
Publication title -
australian accounting review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.551
H-Index - 36
eISSN - 1835-2561
pISSN - 1035-6908
DOI - 10.1111/j.1835-2561.2011.00138.x
Subject(s) - earnings management , accrual , accounting , corporate governance , audit committee , earnings , business , audit , empirical evidence , auditor independence , earnings response coefficient , profit (economics) , economics , internal audit , finance , joint audit , philosophy , epistemology , microeconomics
This article surveys the literature examining the earnings management behaviour of Australian corporations. While numerous motivations for earnings management are proposed in this literature, current period CEO turnover is the only phenomenon for which there is consistent empirical support. A number of studies report discontinuities in the distribution of earnings around benchmarks such as the zero profit level. However, there is no evidence that these discontinuities are associated with abnormal accrual behaviour. Evidence regarding the ability of various governance mechanisms to constrain earnings management is also mixed. While several studies report a negative relation between auditor size and earnings management, no Australian studies attempt to control for the likely endogenous nature of this relationship. Papers report that board independence and audit committee independence constrain earnings management in Australian corporations, although evidence is not consistent across studies. The article shows that many Australian studies of earnings management use very noisy and, in some cases, biased measures of abnormal accruals which may partly explain the inconsistency of results across studies, adding further uncertainty regarding the implications of this field of research for standard setters, investors and scholars.