Comparison of cosmetic earnings management for the developed markets and emerging markets: Some empirical evidence from the United States and Taiwan |
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| Institution: | 1. Department of Business Management, College of Management, National Taipei University of Technology, Taipei, Taiwan;2. Institute of Industrial and Business Management, College of Management, National Taipei University of Technology, 1, Sec. 3, Chung-Hsiao E. Rd., Taipei, Taiwan;1. School of Business, University of Western Sydney, Locked Bag 1797, Penrith South DC, NSW 2751, Australia;2. Department of Accounting and Corporate Governance, Macquarie University, NSW 2109, Australia;1. Accounting Department, School of Management, Xiamen University, Xiamen, Fujian 361005, China;2. Xiamen National Accounting Institute, Xiamen, Fujian 361005, China |
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| Abstract: | This study examines the effect of the implementation of corporate governance regulations on cosmetic earnings management in developed and emerging markets respectively. Using Benford's Law, the analysis employs 84,870 positive earnings observations for all publicly listed US and Taiwan companies from 1990 to 2011.The empirical results show that, regardless of developed markets and emerging markets, the phenomenon of cosmetic earnings management exists. In contrast to developed markets, corporate managers of emerging markets have stronger incentives to manipulate earnings. More importantly, it was found that the degree of earnings management is significantly less after implementing corporate governance regulations both in developed and emerging markets. This result suggests that the implementation of corporate governance regulations plays an important role in reducing the earnings manipulative behavior. The findings of the study add more evidence to the ongoing debate about the effectiveness of corporate governance regulations in preventing earnings management. |
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