Does the legal origin affects the level of earnings management?
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The legal origin significantly influences the level of earnings management practices in companies. Studies show that firms from civil-law systems with low cultural secrecy levels exhibit lower earnings management behaviors compared to those from common-law systems with high cultural secrecy levels . Additionally, research indicates that companies from countries with code law legal origins are more likely to engage in real earnings management, while no significant association is found with accruals manipulation . Furthermore, the legal characteristic of markets where shares are traded impacts the variability in profits, with companies from code law origins showing less variability in profits . Overall, legal origin plays a crucial role in shaping the extent of earnings management practices within organizations.
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5 Citations | Yes, the legal origin influences real earnings management practices, with code law countries showing higher engagement in real earnings management compared to common law countries in the MENA region. |
| Yes, the legal origin influences earnings management in IPOs. Foreign IPOs from countries with strong legal institutions exhibit more earnings management compared to those from countries with weaker legal institutions. | |
| Yes, the legal origin influences the level of earnings management, with companies from code law origins showing less profit variability in the US market, as per the study findings. | |
2 Citations | Yes, legal origin influences earnings management. Firms from common-law systems with high cultural secrecy levels tend to engage more in earnings management compared to civil-law systems with low secrecy levels. |
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What is the legal origin theory?5 answersThe legal origins theory posits that the legal systems of different countries, specifically common law and civil law systems, have a significant impact on their economic outcomes. According to this theory, countries with common law systems, such as those in the Anglo-Saxon tradition, tend to have stronger financial markets and better protection for shareholders, leading to greater economic growth. This theory has been applied to various fields of inquiry, including comparative law, the relationship between law and markets, and the role of legal systems in social ordering. However, there are debates and criticisms surrounding the theory, particularly regarding its predictive power and the extent to which legal origins can explain cross-national differences in regulatory arrangements. Despite these controversies, the legal origins theory has had a significant influence in the fields of comparative economics, political science, and law.
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How does earnings management affect earnings quality?5 answersEarnings management has a negative impact on the quality of earnings. When earnings management distorts information in a way that is less useful for forecasting future cash flows, it leads to unreliable financial reports and incorrect decision-making. Earnings of high quality are characterized by a high level of persistence, predictability, timeliness, and lower volatility, as well as a lower level of earnings management. On the other hand, lower earnings quality does not necessarily indicate a poor financial situation or misapplication of accounting policies. Earnings management actions, such as manipulating data and engaging in number games, can have negative consequences for stakeholders and reduce trust in company management. Therefore, it is important for companies to strengthen corporate governance practices, including the effectiveness of audit committees and internal and external audits, to enhance earnings quality.
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