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Journal of Business Ethics

Erschienen in:

13.11.2020 | Original Paper

Is There a Trade-Off Between Accrual-Based and Real Earnings Management Activities in the Presence of (fe) Male Auditors?

verfasst von: Andrews Owusu, Alaa Mansour Zalata, Kamil Omoteso, Ahmed A. Elamer

Erschienen in: Journal of Business Ethics | Ausgabe 4/2022

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Abstract

Prior research suggests that the presence of high-quality auditors (i.e. proxied by audit firm characteristics) constrains accrual-based earnings management, but it inadvertently leads to higher real activities manipulation. We investigate whether such trade-off exists between accrual-based and real earnings management activities in the presence of female or male auditors. We use a sample of UK firms for the period 2009 to 2016 and find that firms audited by female auditors do not resort to a higher-level real activities manipulation when their ability to engage in accruals management is constrained. Overall, our results suggest that the benefits of hiring female auditors (i.e. less accrual-based earnings management) are overwhelmingly higher than the costs they might bring to the client firms (i.e. higher real activities manipulation).

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To sustain sufficient number of observations, we follow previous literature (Rosner 2003; Athanasakou et al. 2011; Iqbal et al. 2009; Alhadab and Clacher 2018) and exclude firms with less than 8 observations from our expectation model. Specifically, and due to lack of sufficient observations, our approach is an improvement from both Athanasakou et al. (2011) and Alhadaba and Clacher (2018) who employed 6 observations each in the calculation of their earnings management variables in the UK.

It is important to highlight that we did not include abnormal level of cash flow from operations in determining our REM. This is because extant research (see Roychowdhury 2006; Zang 2012) suggests that while for example price discount and overproduction decrease cash flow from operations, cutting discretionary expenses increases it. Because these real activities affect cash flow from operations in different directions, the results is always ambiguous, hence, we excluded them from our main analysis.

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Titel: Is There a Trade-Off Between Accrual-Based and Real Earnings Management Activities in the Presence of (fe) Male Auditors?
verfasst von: Andrews Owusu
Alaa Mansour Zalata
Kamil Omoteso
Ahmed A. Elamer
Publikationsdatum: 13.11.2020
Verlag: Springer Netherlands
Erschienen in: Journal of Business Ethics / Ausgabe 4/2022
Print ISSN: 0167-4544
Elektronische ISSN: 1573-0697
DOI: https://doi.org/10.1007/s10551-020-04672-5

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