Does Industry Volatility Matter? A Cross Comparison of Earnings Roundup in Financial Services and Real Sector Companies in Nigeria
Abstract
The study set out to examine cross-sectorial differences in earnings roundup, using a sample of 103 listed firms. In particular, the study investigated corporate tendencies to roundup earnings number (net income). Despite international market pressure and regulatory requirements for qualitative disclosure, the results reveal that earnings roundup varies systematically across financial and real sector companies. In addition, financial firms show a greater tendency to round up the second digit of quarterly earnings, as well as annual earnings, than do real sector companies. The current study provides support for formal (e.g., legal, corporate governance, regulation) and informal (e.g., business culture, stakeholder pressure and social norms) institutional differences as an influencing factor in earnings management. This paper has important policy implications and contributes to ongoing debate on financial reporting quality by showing that companies in financial services have a greater tendency to manage earnings.
References
Alchibald, C. R. (1967). The return to straight line depreciation: An analysis of a change in accounting method. Journal of Accounting Research, 5(3), 164-180.
Beidleman, C. R. (1973). Income Smoothing: The Role of Management. The Accounting Review, XLVIII(4).
Beneish, M. D. (1999). The detection of earnings management. Financial Analysts Journal, 5(5), 24-36.
Beneish, M. D. (1997). Detecting GAAP Violation: Implications for Assessing Earnings.
Management among Firms with Extreme Financial Performance. Journal of Accounting and Public Policy, 16(3), 271-309.
Burgstahler, D., & Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics, 24(1), 99-126.
Carslaw, C. (1988). Anomalies in income numbers: Evidence of goal oriented behavior. The Accounting Review, 63(2), 321-327.
Copeland, R. M. (1968). Income Smoothing: Empirical Research in Accounting: Selected Studies. Journal of Accounting Research, 6, 101-116.
Cupertino, C., Martinez, A. L., & da Costa Jr., N. C. (2015). Earnings mani[ulations by real actvitiesmanagement and investors' perception. Research in International Business and Finance, 34, 309-323.
Dechow, P. M., Sloan, R. G., & Sweeny, A. P. (1995). Detecting Earnings Management. The Accounting Review, 70(2), 193-225.
DeFond, M. L., & Lennox, C. S. (2011). The effect of SOX on small auditor exists and audit quality. Journal of Accounting and Economics, 52(1), 21-40.
Defond, M., & Jiambalvo, J. (1994). Debt covenant violation and manipulation of accruals. Journal of Accounting and Economics, 17(1-2), 145-176.
Gordon, M. J. (1964). Postulates, Principles and Research in Accounting. The Accounting Review, 86(5), 251-263.
Healey, P. (1985). The impact of bonus schemes on the selection of accounting principles. Journal of Accounting and Economics, 7, 85-107.
Hermanson, D. R., Houston, R. W., & Rice, J. (2007). PCAOBinspection of smaller CPA firms: Initial evidence from inspection reports. Accounting Horisons, 21(2), 137-152.
Hoglund, H. (2012). Detecting earnings management with neural network. Expert systems with applications, 39(10), 9564-9570.
Jones, J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228.
Kayode, M. O., & Teriba, O. (2007). Industrial Development in Nigeria. Ibadan: University Press.
Libby, R., & Tan, H. (1999). Analysts' ractions to warnings of negative earnings surprises. Journal of Accounting Research, 37, 415-4435.
Miller, J. (2006). Unintended effects of preannouncements on investor reactions to earnings news. Contemporary Accounting Research, 23(4), 1073-1103.
Peasenell, K. V., Pope, P. F., & Young, S. (2000). Detecting earnings management using cross-sectional abnormal accrual models. Accounting and Business research, 30(4), 313-326.
Thomas, K. (1989). Unusual patterns in reported earnings. The Accounting Review, 64(4), 773-787.
Yang, Z., & Dong, X. (2015). Earnings roundup in private and public bank holding companies. 31, 96-99. Ben Wilson, Victoria, United States: Elsevier. Retrieved August 3, 2015
Yuncu, I. S., Akdenis, L., & Aydogan, K. (2006). Interdependence of the banking sector and the real sector: Evidence from OECD countries. Journal of Economics and Finance, 13(2), 97-117.
