مقایسه مدیریت درآمد لوازم آرایشی و بهداشتی در بازارهای توسعه یافته و بازارهای نوظهور: برخی شواهد تجربی از ایالات متحده و تایوان

This study examines the effect of the implementation of corporate governance regulations on cosmetic earnings management in developed and emerging markets respectively. Using Benford's Law, the analysis employs 84,870 positive earnings observations for all publicly listed US and Taiwan companies from 1990 to 2011. The empirical results show that, regardless of developed markets and emerging markets, the phenomenon of cosmetic earnings management exists. In contrast to developed markets, corporate managers of emerging markets have stronger incentives to manipulate earnings. More importantly, it was found that the degree of earnings management is significantly less after implementing corporate governance regulations both in developed and emerging markets. This result suggests that the implementation of corporate governance regulations plays an important role in reducing the earnings manipulative behavior. The findings of the study add more evidence to the ongoing debate about the effectiveness of corporate governance regulations in preventing earnings management.

Existing information asymmetry problem makes it difficult for investors to understand the real underlying situation of firms. The information asymmetry problem is more acute in emerging markets or developing economies, making financial statements of firms in developing countries more suspicious than those in developed countries (Vives, 2006). Several researches suggest that the value relevance of accounting information is lower in less developed countries than in more developed countries (Biddle and Hilary, 2006, Biddle et al., 2009, Hope and Thomas, 2008 and McNichols and Stubben, 2008). High-quality accounting information seems to be desirable in mitigating information asymmetry for firms (Chen et al., 2011). Earnings management is the manipulation of accounting numbers within the scope of the Generally Accepted Accounting Principles (GAAP) (Jackson and Pitman, 2001). Healy and Wahlen (1999) believed that managers use subjective judgment in financial reporting or transaction recognition to manipulate financial reports. Earnings management is often considered materially misleading and thus a fraudulent activity to the stakeholders, even though the changes may follow all of the accounting standards and laws. Obviously the existence of earnings management will reduce the quality of financial statements. Excessive earnings management often causes serious corporate fraud. To reduce the probability of occurrence of corporate fraud, numerous countries have enacted laws to strengthen the corporate governance mechanism, such as the United States and Taiwan.1 World Bank (1999) defines that the complete corporate governance framework consists of internal and external mechanisms. Good internal corporate governance mechanisms, including ownership structure, the board of directors, and timely and accurate disclosure of relevant information, can reduce the earnings management motive of managers. These internal mechanisms for corporate governance can be strengthened by external laws, rules, and institutions. In developed market economies, these policies and institutions minimize the divergence between social and private returns and reduce costly agency problems, primarily through greater transparency, monitoring by regulatory and self-regulatory bodies, and compliance mechanisms (World Bank, 1999). The extent of earnings management is strongly related to the countries' institutional arrangements (Man and Wong, 2013). Compared with emerging markets, developed markets have better investor protection and more comprehensive legal systems. Burgstahler et al. (2006) show that countries with stronger legal systems have lower earnings management. In addition, countries with lower investor protection usually have a higher extent of earnings management (Leuz et al., 2003). Therefore, we expect that emerging markets with weaker investor protection could give inside managers more incentive to manipulate firm performance. Prior research shows that the critical determinants of earnings management have been separated into two major categories. In the first category, zero is adopted as the threshold of earnings management. Hayn (1995) suggested that firms avoid reported loss, conduct earnings management, and cross over the zero-earnings thresholds. In the second category, a key reference point, represented by n × 10k, is used as the threshold of earnings management (Guan et al., 2006, Herrmann and Thomas, 2005 and Lin et al., 2011). For example, if net income is expected to be $70 million but the actual earnings are only $69 million, managers may have an incentive to adjust the earnings data to allow the net income to achieve the expected earnings threshold. Benford's law has been widely applied to financial data to investigate instances of digital rounding. Although substantial studies have been performed on digital analysis using Benford's law, there is still little research to compare the difference between developed and emerging markets. This study aims at comparing the earnings management phenomenon between developed and emerging markets by utilizing Benford's law. We observe the existence of earnings adjustments exceeding the key reference point, and analyze whether an earnings management anomaly exists. Furthermore, has earnings management changed as governments gradually strengthen corporate governance mechanism? What is the difference of cosmetic earnings management between a developed market and an emerging market? Using Benford's law, this study investigates the difference of cosmetic earnings management between developed and emerging markets by observing the real distribution of earnings numbers reported in the United States and Taiwan. The study could supply more evidence to the ongoing debate about the effectiveness of corporate governance regulations in preventing earnings management.

This study examines the earnings of companies publicly listed in Taiwan and America from 1990 to 2011. This study investigated whether corporate managers adopt accounting adjustments to engage in cosmetic earnings management behavior by using Benford's law. The results show that in both developed markets and emerging markets, publicly listed companies engage in the practice of cosmetic earnings management. It is generally recognized that the developed markets have more complete regulatory mechanisms and laws, and earnings are less likely to be manipulated by corporate managers. This study provides empirical evidence that corporate managers of emerging markets have stronger incentives to manipulate earnings by exaggerating the earnings numbers. Over the last two decades, corporate governance has attracted a considerable amount of public interest because of increased instances of corporate fraud both domestically and abroad. Numerous countries have enacted laws to strengthen their corporate governance mechanisms. This study documents pervasive evidence that improvements to the corporate governance mechanisms led to less cosmetic earnings management in publicly listed firms, regardless of developed markets and emerging markets. This result suggests that the implementation of corporate governance regulations plays an important role in reducing the earnings manipulative behavior. In contrast, the developed markets have greater improvement than the emerging markets. Overall, our results show that cosmetic earnings management of financial statements has become more difficult for managers because of improvements to the corporate governance mechanisms. The findings of the study add more evidence to the ongoing debate about the effectiveness of corporate governance regulations in preventing earnings management. These findings have implications for supervisory authority and investors. In recent years, the International Accounting Standards (AIS) in the world is being widely recognized and promoted, the accounting items of financial statements are becoming more flexible, and the importance of vigorous corporate governance mechanisms is increasing. We recommend supervisory authority to further enhance corporate governance regulations and mechanisms to minimize earnings manipulation. For international investors, this study suggests that investors should pay more attention to the accuracy of financial statements when investing in emerging markets.