Abstract
This study aims to investigate the impact of financial distress on discretionary accruals, i.e. earnings manipulation, and the role of the Big4 or non-Big4 auditors during the economic recession. The four biggest Eurozone countries (Germany, France, Italy and Spain) are examined using the generalized method of moments (GMM) methodology, and the years have been separated into pre-crisis and in-crisis periods based on the negative and positive change in GDP, respectively. The findings suggest that earnings manipulation is prevalent in Italy for non-financial companies audited by both Big4 and non-Big4 auditors during the two periods.
Note
Notes
1 The second equation’s whole output is not presented here; however, the results are available upon request from the author. I present here only the results of the three dummy variables (D1, D2 and D3), as they are the main focus of the paper’s discussion.