The Implications of State Ownership on Earnings Management

Sammanfattning: Earnings management refers to the practice of making discretionary choices in accounting with the intention to manipulate stated earnings. When used improperly it can distort the financial reports on which investors base their decisions, and thus impact the efficient allocation of capital. This study investigated whether the occurrence of earnings management is less prevalent in state-owned enterprises compared to listed enterprises, and whether the financial recession of 2008-2009 had an impact on this perceived divergence. Earnings management was identified through the use of two accruals-based models and the data sample is from the period 2005-2015. The study found conclusive evidence that there is no statistical difference in the occurrence of earnings management between state-owned enterprises and listed enterprises, and that the financial recession of 2008-2009 had no statistical impact on this finding. However, evidence indicating that the variance of earnings management within the two sample groups differed was found. These are important findings as current literature regarding the motivations for earnings management suggest that listed enterprises should face greater incentives to manipulate earnings, while the results suggest there are other factors providing important explanatory value.