The complex vision on the earnings managementthe evidence from Eastern European countries

Resumen

The manipulation of accounting information is a central problem for financial experts, as a lack of transparency may lead to misunderstandings when users take decisions. Therefore, the most important role of financial reports is to effectively communicate financial information to outsiders in a timely and credible manner (FASB, 1984). One of the major components of the annual reports is the earnings figure which is used by outsiders to make decisions in regard to the company. Earnings are powerful indicators of firms¿ business activities and decisions made by management. Consequently, earnings reliability becomes questionable when managers have an incentive to manipulate reported earnings (e.g. Brown, 1999; Healy and Wahlen, 1999; Rosenfield, 2000; Dechow and Skinner, 2000). Hence, among research topics in accounting and finance, none is perhaps more provocative than earnings management. Understanding what earnings management constitutes and why it takes place, is essential for users of financial statement information, as financial statements are a firms¿ primary way of communicating value and performance to shareholders and other relevant parties. Therefore, given the importance of the earnings management issue and its complexity, our research contributes to this debate. We investigate the phenomenon of earnings management based on a sample of emerging Eastern European countries, markets that are still unexplored. It is obvious that fundamental changes have taken place in economic and societal structures in these countries, involving a process of transformation and globalisation. Inter alia, it becomes makes it interesting to investigate earnings management in these developing countries. Hence, our motivation to undertake this study is, as noted above, the research gap on earnings management in Eastern European countries; because there are some peculiarities in these countries that lead us to think that earnings management here may be different to earnings management in other countries. These include the change from communism to new democratic regimes, the rapid privatization, the institutional infrastructure, the culture, and the fact that they are developing countries.