Accounting Comparability and Earnings Management Strategies: Evidence from Southeast Asian Countries

ABSTRACT

We examined the effect of accounting comparability on the use of accrual earnings management (AEM) and real earnings management (REM) among five members of the Association of Southeast Asian Nations. Analyzing 1,195 listed non-financial companies from 2014 to 2017, we find that more comparable accounting information between firms induces managers to engage in more REM and less AEM, supporting the substitute hypothesis. The results remain similar under the robustness tests. Our results suggest that reporting and legal environment factors may affect cost-benefit considerations versus incentives for using earnings management strategies.

KEYWORDS:

• Accounting comparability
• accrual earnings management
• real earnings management
• ASEAN

JEL:

• M40
• M41
• M48
• G15

Acknowledgments

We are grateful for comments and suggestions by the referees and the editor, as well as participants at the 29th Pacific Basin Finance, Economics, Accounting and Management Conference (in 2021), and the West Japan Finance workshop of Japan Finance Association (in 2021).

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. In the weak identification test, the F-statistics are higher than the critical values suggested by Stock and Yogo (2004), rejecting the weak IV concern.

2. https://www.policyuncertainty.com/wui_quarterly.html.

3. We thank one anonymous referee for pointing out this interpretation.

Additional information

Funding

The second author acknowledges financial support from JSPS KAKENHI (JP19H01507