Zarządzanie zyskiem w warunkach globalizujących się rynków kapitałowych – motywy, techniki i sposoby identyfikowania
Earnings management in globalizing capital markets – incentives and ways of detection

Summary/Abstract: As the economic globalization leads to integration of capital markets international investors need financial information that is understandable and believable to all and the increase in the transparency of financial reporting worldwide is a big challenge. Earnings, as a summary measure of firms’ performance, attract a wide interest from firms’ stakeholders, from potential investors and all other users of financial information that are interested in judging the financial standing of the company. However earnings are the output of the specific accounting processes that due to managerial flexibility and accounting choices include important judgment on many steps of these processes. The rules on accounting give the opportunity for managers to choose the accounting methods in order to present earnings of the company in the favorable way. The flexibility of these rules may also lead to voluntary or non-voluntary manipulations of the final outcome of the company. Accounting standards allow exercising some judgment on the financial reporting and this creates opportunities for earnings management. All this may be used constructively, with the goal of better presentation of the real financial situation of a company and in order to signal management’s private information about future prospects of the firm. Alternatively however earnings may be managed opportunistically in executives’ self interest in order to mislead financial statement users. The aim of this publication is to highlight the issue of earnings management: definition of the concept, main incentives for its use and indication of the ways of detecting it. The review of main models used in research on earnings management and examples of empirical research are also presented. Some directions for further research are proposed.

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