Earnings Management in BRICS Countries Firms The Moderating Role of Cash Holdings and Free Cash Flow

Abstract

Over the last two decades, researchers have provided considerable attention to managers actions directed towards earnings management. Based on prior studies, it is evident that it is through earnings that external stakeholders of the business can distinguish better performing firms from the poor ones. Further, studies also confirm that the performance of internal stakeholders often depends on earnings of a firm. However, these studies were mainly focused on the developed nations. The issue of earnings management is quite visible in the emerging countries also. But there has been limited research in these countries. Since the emerging countries are different from their developed counterparts in terms of ownership structures, governance and formal institutions like law and regulations, the present research attempts to bridge the important gaps in the existing literature by exploring three aspects of earnings management in the context of firms of BRICS nations. This includes understanding the impact of national culture and legal system on earnings management, the impact of country-level corruption and legal system on earnings management and the effect of earnings management on the readability of disclosure. newline newlineThe first chapter introduces the research topic highlighting the concept and factors affecting earnings management. Thereby, insights on the three themes of earnings management are covered and presented in the present research. Further, the chapter briefly provides an overview of the moderating variables, cash holdings and free cash flow, having considerable influence on the various dimensions of earnings management. newline newlineThe second chapter reviews the relevant literature focusing on the three main dimensions of earnings management. This includes discussion on the impact of national culture and legal system on earnings management, the impact of country-level corruption and legal system on earnings management and the effect of earnings management on the readability of disclosure. Further, this chapter presents the research gaps and questions explored in this thesis. Finally, relevant hypotheses are developed based on existing literature. newline newlineIn the third chapter, the study reports the objectives of the study along with details on the data used in the study as well as the methodology adopted. newline newlineThe fourth chapter determines the impact of national culture and legal system on earnings management. In this chapter, the study presents the findings and discussion on the effects of newline newlinenational culture and legal system on earnings management. Further, additional tests are also undertaken to check the robustness of the findings. newline newlineChapter five focuses on the impact of country-level corruption and legal system on earnings management. In this chapter, the study presents the findings and discussion on the effects of country-level corruption and legal system on earnings management. Further, additional tests are also undertaken to check the robustness of the findings. newline newlineChapter six explores the association between earnings management and the readability of financial statements. This chapter presents the findings and discussions on the effects of earnings management on the readability of financial statements. Further, additional tests are also undertaken to check the robustness of the findings. newline newlineThe last and final chapter of the thesis presents the implications, limitations and future research scope along with the conclusion. This chapter highlights both practical and theoretical implication relevant to the present research. This chapter, also provides future scope to the researchers to go beyond the existing limitations. Finally, in the conclusion section, the effectiveness of the current research in highlighted as the study probes the impact of national culture, legal system on earnings management, the impact of country-level corruption and legal system on earnings management and the effect of earnings management on the readability of financial disclosure. newline newline