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Informal institutions and managers’ earnings management choices: Evidence from IFRS-adopting countries

Hussein Halabi Orcid Logo, Ahmad Alshehabi, Idlan Zakaria

Journal of Contemporary Accounting & Economics, Volume: 15, Issue: 3, Start page: 100162

Swansea University Author: Hussein Halabi Orcid Logo

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DOI (Published version): 10.1016/j.jcae.2019.100162

Abstract

In this study, we investigate the role of informal institutions (religiosity and culture) in determining managers’ choices ofearnings management methods (accruals vs. real activities), after controlling for formal institutions (investor protection,enforcement quality and equity market development)....

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Published in: Journal of Contemporary Accounting & Economics
ISSN: 18155669
Published: 2019
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URI: https://cronfa.swan.ac.uk/Record/cronfa51660
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first_indexed 2019-09-04T14:49:46Z
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spelling 2022-12-21T15:49:26.1985469 v2 51660 2019-09-04 Informal institutions and managers’ earnings management choices: Evidence from IFRS-adopting countries f7e6b4295ab6a82be92bdd4e99587e73 0000-0003-4951-9981 Hussein Halabi Hussein Halabi true false 2019-09-04 BAF In this study, we investigate the role of informal institutions (religiosity and culture) in determining managers’ choices ofearnings management methods (accruals vs. real activities), after controlling for formal institutions (investor protection,enforcement quality and equity market development). Using an ethical perspective, we find that managers tend to choose anearnings management strategy that meets the prevailing social (informal) norms of the environment where the firm isheadquartered. Specifically, our analysis shows that firms domiciled in countries with strong religious adherence and highpower-distance cultures prefer to manage their earnings ‘upwards’ through real activities rather than accruals. Overall, ourresults suggest that informal institutions determine managers’ earnings management choices at least as strongly as formalinstitutions do. It would therefore be misleading to analyze managers’ choices in managing earnings solely from the formalrules perspective without considering the role of informal constraints or vice versa. Journal Article Journal of Contemporary Accounting & Economics 15 3 100162 18155669 formal institution, informal institution, earnings management, IFRS 3 12 2019 2019-12-03 10.1016/j.jcae.2019.100162 COLLEGE NANME Accounting and Finance COLLEGE CODE BAF Swansea University 2022-12-21T15:49:26.1985469 2019-09-04T06:29:28.2578880 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Hussein Halabi 0000-0003-4951-9981 1 Ahmad Alshehabi 2 Idlan Zakaria 3 0051660-04092019063003.pdf Manuscript-JCAE_2019_Final.pdf 2019-09-04T06:30:03.6130000 Output 962495 application/pdf Accepted Manuscript true 2021-03-17T00:00:00.0000000 Released under the terms of a Creative Commons Attribution Non-Commercial No Derivatives License (CC-BY-NC-ND). true eng
title Informal institutions and managers’ earnings management choices: Evidence from IFRS-adopting countries
spellingShingle Informal institutions and managers’ earnings management choices: Evidence from IFRS-adopting countries
Hussein Halabi
title_short Informal institutions and managers’ earnings management choices: Evidence from IFRS-adopting countries
title_full Informal institutions and managers’ earnings management choices: Evidence from IFRS-adopting countries
title_fullStr Informal institutions and managers’ earnings management choices: Evidence from IFRS-adopting countries
title_full_unstemmed Informal institutions and managers’ earnings management choices: Evidence from IFRS-adopting countries
title_sort Informal institutions and managers’ earnings management choices: Evidence from IFRS-adopting countries
author_id_str_mv f7e6b4295ab6a82be92bdd4e99587e73
author_id_fullname_str_mv f7e6b4295ab6a82be92bdd4e99587e73_***_Hussein Halabi
author Hussein Halabi
author2 Hussein Halabi
Ahmad Alshehabi
Idlan Zakaria
format Journal article
container_title Journal of Contemporary Accounting & Economics
container_volume 15
container_issue 3
container_start_page 100162
publishDate 2019
institution Swansea University
issn 18155669
doi_str_mv 10.1016/j.jcae.2019.100162
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance
document_store_str 1
active_str 0
description In this study, we investigate the role of informal institutions (religiosity and culture) in determining managers’ choices ofearnings management methods (accruals vs. real activities), after controlling for formal institutions (investor protection,enforcement quality and equity market development). Using an ethical perspective, we find that managers tend to choose anearnings management strategy that meets the prevailing social (informal) norms of the environment where the firm isheadquartered. Specifically, our analysis shows that firms domiciled in countries with strong religious adherence and highpower-distance cultures prefer to manage their earnings ‘upwards’ through real activities rather than accruals. Overall, ourresults suggest that informal institutions determine managers’ earnings management choices at least as strongly as formalinstitutions do. It would therefore be misleading to analyze managers’ choices in managing earnings solely from the formalrules perspective without considering the role of informal constraints or vice versa.
published_date 2019-12-03T04:03:38Z
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score 11.013686

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