Abstract
The article aims to investigate whether and how in the European Union (EU), the burst of the 2008 financial crisis affected misrepresentation of financial information due to earnings management. By analysing a sample of 11 844 firm-year observations listed in the EU over the period 2006–2012, an event study methodology allows us to calculate and compare country-by-country abnormal accruals over the estimation period and over the event period. Our findings validate our research hypothesis and suggest a decrease of misrepresentation in the large majority of the European countries after the burst of the financial crisis. The results take part in the debate in the accounting literature about the change of earnings management over a financial crisis and have several implications for standard setters and regulators that could learn how the common incentives of entities to attract potential investors during a crisis could lead them to provide a high-quality financial reporting.
Notes
1 About depreciation estimates and bad debt provisions: Jackson and Liu (Citation2010), McNichols and Wilson (Citation1988) and Teoh et al. (Citation1998); about pension costs under the SFAS 87: Ali and Kumar (Citation1993); about loan loss provisions of firms that belong to the financial sector: Beatty et al. (Citation1995), Beaver et al. (Citation1989), Beaver and Engel (Citation1996), Chen and Daley (Citation1996), Chamberlain (Citation1996), Collins et al. (Citation1995), Liu and Ryan (Citation1995), Liu et al. (Citation1997), Moyer (Citation1990), Robb (Citation1998), Scholes et al. (Citation1990), Wahlen (Citation1994); about property-casualty insurance claim loss reserves: Anthony and Petroni (Citation1997), Beaver and McNichols (Citation1998), Beaver et al. (Citation2000), Beaver et al. (Citation2003), Penalva (Citation1998), Petroni (Citation1992), Petroni et al. (Citation1999); about deferred tax valuation allowances of FAS no. 109: Ayers (Citation1998), Blaylock et al. (Citation2012), Chamberlain (Citation1996), Chen and Daley (Citation1996), Dunbar et al. (Citation2004), Hanlon (Citation2005), Lev and Nissim (Citation2004), Miller and Skinner (Citation1998), Phillips et al. (Citation2003), Phillips et al. (Citation2004), Visvanathan (Citation1998).
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