Earnings Management in Business Groups during the SARS-CoV-2 Pandemic

Michał Comporek

doi:10.2478/ceej-2024-0019

.blurhash-client-img { display: none !important; }

Earnings Management in Business Groups during the SARS-CoV-2 Pandemic

Central European Economic Journal

Volume 11 (2024): Issue 58 (January 2024)

By: Michał Comporek

Open Access

|Jul 2024

Figures & Tables

A two-dimensional approach to the balance sheet policy of a business group
Source: own elaboration based on Remlein (2021)

Table 1.

Calculation methodology for variables

Variable	Descriptions	Literature background
*Dependent variable*
DACC	Discretionary accruals separated by the Modified Jones model using time-series (DACC_TS) or cross-sectional data approach (DACC_CS)	Dechow et al. (1995)
*Independent variables*
YEAR	Dummy variable for the year of interest. It was coded as 1 for observations in the 2020 pandemic year (2021 recovery year) in the 2019–2020 (2020–2021) regression and 0 for the 2019 (2020) observation in the 2019–2020 (2020–2021) regression.	Aljughaiman et al. (2023); Hsu & Jan (2023); Yaşar & Yalçın (2024)
DIST	Variable measured by the Z-score Altman model for public companies	Altman (1968); Prayanthi & Kakunsi (2017)
*Control variables*
TANG	The share of property, plant and equipment in total assets in year t	Elkemali (2024)
GO	The ratio of intangible assets to total assets in year t	Teoh et al. (1998)
ROA	Return on assets (ROA) in year t	Lassoued & Khanchel (2021)
RET	The sum of supplementary capital and retained earnings to total assets in year t	Comporek (2022)
LEV	The ratio of firm’s interest-bearing debt to total assets in year t	Khahn & Thu (2019)
LTL	The share of long-term liabilities to total assets in year t	Rey et al. (2020)
EVOL	Relative chain increase in operating profits in year t	Jang & Kim (2017)
ETR	The ratio of income tax paid to gross profit in year t	Blaylock et al. (2012)
NDTS	The ratio of depreciation to total assets in year t	Gregova et al. (2021)

[i] Source: Own elaboration

The mean values of discretionary accruals computed for business groups and parent undertakings
Source: own elaboration

Table 2.

Descriptive statistics of discretionary accruals estimated for business groups and parent undertakings

Business groups
Calculation approach	Year	Mean	Median	Std. Deviation	Variance	Percentile 25	Percentile 75
*Time-series data approach*	2019	−0.030	−0.021	0.129	0.017	−0.064	0.026
	2020	0.001	−0.005	0.121	0.015	−0.047	0.031
	2021	0.028	0.020	0.102	0.010	−0.014	0.062
*Cross-sectional approach*	2019	−0.041	−0.017	0.248	0.062	−0.082	0.033
	2020	−0.006	−0.005	0.156	0.024	−0.052	0.031
	2021	0.029	0.033	0.162	0.026	−0.015	0.088

Parent undertakings
Calculation approach	Year	Mean	Median	Std. Deviation	Variance	Percentile 25	Percentile 75
*Time-series data approach*	2019	−0.058	−0.012	0.758	0.575	−0.050	0.020
	2020	0.000	−0.008	0.144	0.021	−0.050	0.028
	2021	0.026	0.011	0.131	0.017	−0.015	0.062
*Cross-sectional approach*	2019	−0.063	−0.012	0.815	0.664	−0.058	0.034
	2020	−0.001	−0.002	0.200	0.040	−0.046	0.051
	2021	0.012	0.019	0.187	0.035	−0.029	0.081

[i] Source: own elaboration

Table 3.

The percentage of business groups and parent undertakings reporting positive and negative discretionary accruals in 2019–2021

Business groups
Year	DACC values (%)	*Time-series data approach*	*Cross-sectional approach*
2019	Positive	35.98%	40.74%
2019	Negative	64.02%	59.26%
2020	Positive	44.44%	43.92%
2020	Negative	55.56%	56.08%
2021	Positive	66.14%	67.72%
2021	Negative	33.86%	32.28%

Parent undertakings
Year	DACC values (%)	*Time-series data approach*	*Cross-sectional approach*
2019	Positive	37.04%	39.68%
2019	Negative	62.96%	60.32%
2020	Positive	42.86%	47.09%
2020	Negative	57.14%	52.91%
2021	Positive	61.38%	58.20%
2021	Negative	38.62%	41.80%

[i] Source: own elaboration

Table 4.

The comparison of earnings quality reported in consolidated financial statements of business groups and in individual financial statements of parent undertakings during 2019–2021

*Parametric Test*
Year	Test Summary	*Time-series data approach*	*Cross-sectional approach*
2019	Mean (St. Dev.)	−0.010 (0.416)	−0.011 (0.391)
2019	Asymptotic Sig.	0.285	0.243
2020	Mean (St. Dev.)	−0.001 (0.186)	0.005 (0.233)
2020	Asymptotic Sig.	0.463	0.396
2021	Mean (St. Dev.)	−0.001 (0.146)	−0.018 (0.164)
2021	Asymptotic Sig.	0.458	0.076

*Non-parametric Test*
Year	Test Summary	*Time-series data approach*	*Cross-sectional approach*
2019	Test Statistic (St. Test Stat.)	7905 (−1.424)	7821 (−1.536)
2019	Asymptotic Sig.	0.154	0.125
2020	Test Statistic (St. Error)	9100 (0.163)	8692 (−0.379)
2020	Asymptotic Sig.	0.871	0.705
2021	Test Statistic (St. Error)	9258 (0.372)	10621 (2.182)
2021	Asymptotic Sig.	0.710	0.029

[i] Source: own elaboration

Table 5.

The correlation matric between tested variables

Variables	DACC_TS	DACC_CS	TANG	GO	ROA	LEV	LTL	ETR	NDTS	EVOL	DIST
DACC_FS	1
DACC_CS	0.785**	1
TANG	−0.049	−0.002	1
GO	−0.118**	−0.097*	0.123**	1
ROA	0.095*	0.190**	0.0260	0.0289	1.0000
LEV	−0.062	−0.078	−0.069	0.009	−0.200**	1
LTL	−0.062	−0.087*	−0.114**	0.058	−0.223**	0.555**	1
ETR	−0.047	−0.026	0.054	0.025	0.135**	0.081	−0.029	1
NDTS	−0.092*	−0.139**	0.396**	0.467**	−0.047	−0.003	−0.004	−0.050	1
EVOL	−0.034	0.013	0.049	0.059	0.396**	−0.060	−0.045	0.243**	−0.0789	1
DIST	0.093*	0.196**	−0.043	−0.087*	0.625**	−0.498**	−0.497**	0.122**	−0.214**	0.264**	1

**/* Correlation is significant at the 0.01 level/0.05 level (2-tailed).

Source: own elaboration

Table 6.

The effect of the SARS-CoV-2 pandemic on accrual-based earnings management patterns

Variables	Time-series data approach				Cross-sectional approach
	*2019–2020*		*2020–2021*		*2019–2020*		*2020–2021*
	B	(St. Error)	B	(St. Error)	B	(St. Error)	B	(St. Error)
*Intercept*	−0.010	0.013	0.000	0.012	−0.018	0.018	−0.002	0.017
*YEAR*	0.019*	0.011	0.027**	0.011	0.008	0.016	0.037**	0.015
*TANG*	0.000	0.026	−0.033	0.026	0.009	0.037	−0.027	0.035
GO	−0.021	0.069	−0.093	0.068	0.138	0.097	0.082	0.094
*ROA*	0.291***	0.026	0.287***	0.045	0.642***	0.037	0.410***	0.062
*RET*	−0.019***	0.004	−0.021***	0.003	−0.011**	0.005	−0.001	0.004
*LTL*	−0.018***	0.005	−0.014***	0.004	−0.008	0.008	−0.007	0.005
*LEV*	−0.001	0.001	0.000	0.001	0.000	0.001	−0.002**	0.001
*EVOL*	−0.001	0.000	−0.003**	0.001	−0.001**	0.000	−0.008***	0.001
*ETR*	0.003	0.006	0.000	0.001	0.001	0.009	−0.001	0.001
*NDTS*	−0.185	0.150	0.205	0.163	−0.477**	0.212	−0.249	0.224
R	0.544		0.448		0.697		0.507
R²	0.296		0.201		0.486		0.257
Adj. R²	0.277		0.179		0.472		0.237
*D-W*	1.894		2.013		1.866		1.934
*Sig*	<0.001		<0.001		<0.001		<0.001
CI	5.39		6.017		5.39		6.017

***/**/* indicate significance at the 0.01/0.05/0.10 levels, respectively

Source: own elaboration

Table 7.

The effect of the SARS-CoV-2 pandemic and financial distress on accrual-based earnings management

Variables	Time-series data approach				Cross-sectional approach
	*2019–2020*		*2020–2021*		*2019–2020*		*2020–2021*
	B	(St. Error)	B	(St. Error)	B	(St. Error)	B	(St. Error)
*Intercept*	−0.008	0.013	0.024*	0.013	−0.035	0.020	−0.016	0.018
*YEAR*	0.039***	0.011	0.028***	0.010	0.018	0.016	0.035**	0.014
*DIST*	0.002**	0.001	−0.002***	0.001	0.003***	0.001	0.001	0.001
**YEARDIST***	−0.004***	0.001	−0.001*	0.000	−0.002	0.001	0.001**	0.000
*TANG*	−0.004	0.025	−0.039	0.025	0.011	0.037	−0.023	0.035
GO	−0.064	0.067	−0.075	0.066	0.088	0.098	0.069	0.093
*ROA*	0.250***	0.026	0.317***	0.044	0.609***	0.038	0.390***	0.062
*RET*	−0.015***	0.005	−0.013***	0.003	−0.023**	0.008	−0.006	0.005
*LTL*	−0.041***	0.007	−0.033***	0.005	−0.006	0.011	0.005	0.007
*LEV*	−0.001	0.001	0.000	0.001	−0.001	0.001	−0.002	0.001
*EVOL*	−0.001	0.000	−0.003**	0.001	−0.001**	0.000	−0.008***	0.001
*ETR*	0.004	0.006	0.000	0.001	0.002	0.008	−0.001	0.001
*NDTS*	−0.147	0.148	0.039	0.162	−0.351	0.216	−0.150	0.227
R	0.594		0.503		0.705		0.522
R²	0.353		0.253		0.497		0.272
*Adj. R*²	0.331		0.228		0.481		0.248
*D-W*	1.951		2.000		1.852		1.938
*Sig*	<0.001		<0.001		<0.001		<0.001
CI	7.774		9.393		7.774		9.393

***/**/* indicate significance at the 0.01/0.05/0.10 levels, respectively

Source: own elaboration

References

Authors

Metrics

Articles in this issue

DOI: https://doi.org/10.2478/ceej-2024-0019 | Journal eISSN: 2543-6821 | Journal ISSN: 2544-9001

Journal RSS Feed

Language: English

Page range: 286 - 304

Published on: Jul 18, 2024

Published by: Faculty of Economic Sciences, University of Warsaw

In partnership with: Paradigm Publishing Services

Keywords:

accrual-based earnings management,

business group,

parent undertakings,

the SARS-CoV-2 pandemic

JEL:

G10,

G32,

M41

Related subjects:

Business and economics,

Political economics,

Economic theory, systems and structures,

Microeconomics,

Macroeconomics,

Economic policy

© 2024 Michał Comporek, published by Faculty of Economic Sciences, University of Warsaw
This work is licensed under the Creative Commons Attribution 4.0 License.

Volume 11 (2024): Issue 58 (January 2024)

Earnings Management in Business Groups during the SARS-CoV-2 Pandemic

Figures & Tables

Figure 1.

Table 1.

Figure 2.

Table 2.

Table 3.

Table 4.

Table 5.

Table 6.

Table 7.

Paradigm

My account