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

Michał Comporek
Michał Comporek
   | 18 jul 2024
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Publicado en línea: 18 jul 2024
Páginas: 286 - 304
DOI: https://doi.org/10.2478/ceej-2024-0019
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© 2024 Michał Comporek, published by Sciendo
This work is licensed under the Creative Commons Attribution 4.0 International License.

Figure 1.

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

Figure 2.

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

The correlation matric between tested variables

Variables DACCTS DACCCS TANG GO ROA LEV LTL ETR NDTS EVOL DIST
DACCFS 1
DACCCS 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 (DACCTS) or cross-sectional data approach (DACCCS) 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
YEAR*DIST −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. R2 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%
Negative 64.02% 59.26%
2020 Positive 44.44% 43.92%
Negative 55.56% 56.08%
2021 Positive 66.14% 67.72%
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)
Asymptotic Sig. 0.285 0.243
2020 Mean (St. Dev.) −0.001 (0.186) 0.005 (0.233)
Asymptotic Sig. 0.463 0.396
2021 Mean (St. Dev.) −0.001 (0.146) −0.018 (0.164)
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
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Business and Economics, Political Economics, Economic Theory, Systems and Structures, Microeconomics, Macroecomics, Economic Policy
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