PhD Candidate Imen BenSlimene
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PhD CandidateImen BENSLIMENE
Audit quality and real activities manipulation in Europe8th Annual Graduate Student
Conference
Dissertation SupervisorPr. Pascal DUMONTIER
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PRESENTATION OUTLINE
INTRODUCTION
RESEARCH QUESTION
RESEARCH OBJECTIVE
LITERATURE REVIEW
HYPOTHESES
RESEARCH DESIGN
CONCLUSION
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INTRODUCTION
Audit Quality
Earnings Management
Stock price Accounting Numbers
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Earnings management
DeAngelo (1986) ; Jones (1991) ; Dechow et al.(1995) ; Dechow et al. (2003) ;Piot et al.
( 2005)
Acounting-based earnings management
Real earnings management
Discretionary accruals
Real activitiesmanipulation
And /Or
Roychowdhury (2006), Zang (2007) , Gunny ( 2005 – 2009), Cohen et al. ( 2010)
Healy and Whalen, 1999
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RESEARCH QUESTION
What is the impact of audit quality on strategy choice for earnings management
(accruals and / or real activities manipulation)?
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RESEARCH OBJECTIVE
To investigate whether constraints imposed on accounting-based earnings management
by audit quality indirectly increases real activities manipulation in Europe
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Audit quality and Accounting
based earnings management
Piot and Janin (2004)/(2008)
Francis et al.(1999)
Becker et al. (1998)
Subramanyam et al. (1998 )
Ben Othman and Zeghal (2006)
High quality auditing constrains accounting –based
earning management
High quality auditing does not
constrain accounting –based
earning management
Mrad (2004)
Ehrabim (2001)
LITERATURE REVIEW
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Audit quality and real activities
manipulation
Gunny (2005)
Cohen et al. (2007)
Graham et al. (2005)
Yu ( 2008)
Accrual constraints exerted
by high quality audits can motivate managers to switch to REM
LITERATURE REVIEW
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RESEARCH DESIGN
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Measures of accrual-based earnings management (Modified Jones model)
Total accruals
Normal accruals
Discretionary accruals
ACCT = EBXI – operating CFO
ACCD t = ACCT /TA t-1 – ACCND i
ACCND t /TA t-1= 1(1/ TA t-1) + 2 (Δ CA/ TA t-1) +3 (Immob. t/ TA t-1)
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Reduction of discretionary
expenses
Over-production
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Sales manipulation
Acceleration of the timing of sales through increased price discounts or more lenient
credit terms
Decreases in discretionary expenses including advertising, R&D, and SG&A
expenses
Reporting of lower cost of goods sold through increased production
Real Activities Manipulation (Roychowdhury, 2006)
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Measures of Real Activities Manipulation (Roychowdhury, 2006)
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AUDIT QUALITY MESURES
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RESEARCH MODEL
H2
H1
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Analyze the behavior of earnings management in Europe
Analyse the role of audit quality on trade off
between REM and AM
INTEREST OF RESEARCH
Examine the effects of member state audit
environment on one hand and earnings management
on the other
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Research Agenda / Difficulties
• Research Agenda Continue running the modelStart writing results
• DifficultiesDatabase: certain variables are un-available
(changed to available variables)
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THANK YOU FOR YOUR ATTENTION