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Does enforcement change earnings management behavior? : evidence from the EU after mandatory IFRS adoption

  • We examine the expected preventive function of enforcement of financial reporting which has been subject to reforms in several EU member states in the years following mandatory IFRS adoption. Specifically, we are interested in the question whether accounting quality – proxied by several earnings management metrics – improved in countries with substantive changes in their enforcement setting. For this reason, we compare the development in earnings management activities for a treatment sample of firms from 7 countries with enforcement changes with two control samples from 13 countries in total that do not exhibit comparable enforcement reforms. In contrast to prior literature, we cannot provide consistent evidence for a decrease in earnings management activities; however, some results indicate less upwards and more downwards earnings management after a strengthening of enforcement, arguably as an overcautious counter reaction of responsible managers. Given the limited numbers of observations, we regard our findings as a preliminary ientory in the attempt of assessing the effectiveness of accounting enforcement in the EU.

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Document Type:Working Paper
Author:Germar Ebner, Johannes Hottmann, Torben Teuteberg, Henning ZülchORCiD
Chairs and Professorships:Chair of Accounting and Auditing
Parent Title (English):HHL Working paper
Series (Serial Number):HHL-Arbeitspapier / HHL Working paper (153)
Place of publication:Leipzig
Publisher:HHL Leipzig Graduate School of Management
Year of Completion:2016
Page Number:52
Tag:Discretionary accruals; Earnings management; Earnings quality; Enforcement; IFRS
Licence (German):License LogoUrheberrechtlich geschützt