Analysts' estimates: What they could be telling us about the impact of IFRS on earnings manipulation in Europe
Abstract
Purpose
The purpose of this paper is to examine whether mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union reduced earnings manipulation, as proxied by the difference between a firm's reported earnings and ex post estimate of earnings by financial analysts.
Design/methodology/approach
Controlling for firm and institutional factors and drawing upon a sample of 15,034 firm‐year observations from 20 European countries, the research design entailed examining the change in the earnings manipulation proxy during pre‐ and post‐IFRS adoption periods.
Findings
The principal finding from this analysis was a decline in the magnitude of the proxy for earnings manipulation coincidental with IFRS adoption, which suggests that a uniform financial reporting regime may have contributed to exposing the use of temporary activities to manipulate earnings.
Originality/value
The results of this study make an important contribution to the extant literature on the outcomes of IFRS adoption, and should be of value to investors and standard setters, who want honest and comparable financial reporting but are opposed to regulatory intervention. Of equal significance is the innovative model introduced to proxy for earnings manipulation.
Keywords
Citation
Aubert, F. and Grudnitski, G. (2012), "Analysts' estimates: What they could be telling us about the impact of IFRS on earnings manipulation in Europe", Review of Accounting and Finance, Vol. 11 No. 1, pp. 53-72. https://doi.org/10.1108/14757701211201821
Publisher
:Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited