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Impact of Accrual-Based Earnings Management (AEM) on Firms' Financial Performance. A Case Study of German Automobile Manufacturing Firms Listed on the Frankfurt Stock Exchange (FSE)

  • Earnings management is considered as a strategy applied by managers of a firm to intentionally modify the financial information to deceive stakeholders and achieve economic and contractual benefits. One of the forms of earnings management is accruals-based earnings management that occurs from accounting choices, adjustments, and managerial decisions. The primary objective of this thesis project is to investigate the impact of accrual-based earnings management on firms’ financial performance. A sample of 14 firms is selected from German automobile manufacturing firms listed on the Frankfurt Stock Exchange (FSE) over the period from 2010 to 2019 using a purposive sampling technique. Data is gathered from financial reports of sample firms. This study measured accrual-based earnings management through discretionary accrual (DA) using the modified Jones model, while firms’ financial performance is measured using return on assets (ROA). In the econometric model, the dependent variable is return on assets (ROA), whereas the independent variable is discretionary accruals (DA) that incorporate with other three control variables such as firm size (SIZE), leverage (LEV), and liquidity (LIQ). This analysis is done using a panel data regression model to assess the relationship between variables. The findings show that automobile manufacturing firms listed on Frankfurt Stock Exchange are involved in income-decreasing discretionary accruals, and its impact on firms’ financial performance (ROA) is significantly positive. Furthermore, the finding of this study confirms that there is not only discretionary accruals but also size, which influences firms' financial performance. However, leverage and liquidity have an insignificant relationship with firms’ financial performance. Finally, the finding of this study may be useful for investors, financial analysts, and other interested parties to understand how firms’ earnings are manipulated and how its impact on firms' financial performance so that they can make their financial decisions and analysis accordingly.

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Metadaten
Author:Prabha Khatri
Document Type:Master's Thesis
Language:English
Date of first Publication:2022/02/22
Publishing Institution:Hochschulbibliothek HWR Berlin
Granting Institution:Hochschule für Wirtschaft und Recht Berlin
Release Date:2022/08/03
Page Number:54
Institutes:FB I - Wirtschaftswissenschaften / Accounting and Controlling M.A.
Licence (German):License LogoUrheberrechtsschutz