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

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 groupSource: own elaboration based on Remlein (2021)

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

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

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

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)

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

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%

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

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

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

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Language: English

Page range: 286 - 304

Published on: Jul 18, 2024

Published by: Sciendo

In partnership with: Paradigm Publishing Services

Publication frequency: 1 times per year

Keywords:

accrual-based earnings management,

business group,

parent undertakings,

the SARS-CoV-2 pandemic

Related subjects:

Business and economics,

Political economics,

Economic theory, systems and structures,

Microeconomics,

Macroeconomics,

Economic policy

© 2024 Michał Comporek, published by Sciendo
This work is licensed under the Creative Commons Attribution 4.0 License.

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