Estimating accruals models in Europe: industry-based approaches versus a data-driven approach
Journal Title: Economic Research-Ekonomska Istraživanja - Year 2018, Vol 31, Issue 1
Abstract
Accruals models have been estimated using a variety of approaches, but the industry-based cross-sectional approach currently seems to be the standard method. This estimation approach cannot be easily used in the vast majority of European countries where several industry groups do not have sufficient yearly observations. Using data from France, Germany, Italy and the UK, we artificially induce earnings manipulations to investigate how the ability to detect those manipulations through accruals models is affected by the use of different industry classifications. Moreover, we propose an alternative estimation approach based on a data-driven statistical procedure that provides an optimal choice of estimation samples. Our analyses show that enlarging the industry classification and/or pooling observations across years reduces the probability of discovering earnings manipulations but allows for the estimation of abnormal accruals (AA) for more firms. The data-driven approach, however, in most cases outperforms the industry-based estimation approaches without sample attrition. This result suggests that there is still ample room for improving the accruals model estimation process for capital markets of European countries. Furthermore, the analysis documents which accruals model outperforms the others in each of the four countries and the probabilities to detect earning management in a high variety of circumstances.
Authors and Affiliations
Antonio F. Di Narzo, Marzia Freo, Marco Maria Marco Maria Matteic
Keywords
Related Articles
- EP ID EP507382
- DOI 10.1080/1331677X.2017.1421991
- Views 53
- Downloads 0
Updated discussions on ‘Hybrid multiple criteria decision-making methods: a review of applications for sustainability issues’
A recent review discussed a variety of hybrid multiple criteria decision-making (H.M.C.D.M.) methods on the subject of sustainability issues. Some soft computing techniques, such as the fuzzy set, have contributed signif...
Doing business with the poor: the rules and impact of the microfinance institutions
Of the total global population, at least 14.5% are living on less than $1.25 a day, 34% of the females in the least developed countries are unable to complete their primary education, and some 805 million are believed to...
Investments’ background of entrepreneurial zones in Croatia
The topic of this paper is entrepreneurial zones as a part of entrepreneurial infrastructure in Croatia as a tool for gaining economic development. The purpose of this paper is to analyse different sources of investments...
Globalisation outcomes and the real output in the sub-Saharan Africa LICs: a cointegration analysis
This article examines the effects of trade openness, foreign direct investment (FDI), and product diversification of exports to the real gross domestic product (GDP) per capita in 11 sub-Saharan Africa Low Income Countri...
Hybrid multiple criteria decision-making methods:a review of applications for sustainability issues
Formal decision-making methods can be used to help improve the overall sustainability of industries and organisations. Recently, there has been a great proliferation of works aggregating sustainability criteria by using...