Bonds Between Earnings Management and Corporate Financial Stability in the Context of the Competitive Ability of Enterprises
Katarina Valaskova, Ane-Mari Androniceanu, Katarina Zvarikova, Judit Olah
Keywords:
financial distress, earnings management, competitive behavior, Z score, M-score, modified Jones model
Abstract:
The financial health of enterprises and their continued profitability and competitiveness in the
market are influenced considerably by the level of earnings achieved. Enterprises are forced to
report the best possible results to demonstrate financial strength and competitiveness and to
provide a good accounting for investors and creditors. Thus, the main objective of the study is
to investigate whether there is any mutual dependence between corporate financial stability and
earnings management. To measure these categories, Altman’s Z score was used to determine
the financial health of enterprises, and the Beneish M-score and modified Jones model were
applied to detect earnings manipulation. Using the chi-square test, the results revealed a
statistically significant dependence between financial distress and earnings manipulation. Then,
a multivariate statistical technique of correspondence analysis was applied to the categorical
data to find categories of factors that are mutually correspondent. Based on a dataset of
11,105 enterprises operating in the Visegrad countries, the results found that enterprises that
are threatened by bankruptcy or located in the gray zone tend to manipulate their earnings to
maintain credibility, creditworthiness, and competitiveness. Because the financial health of an
enterprise provides a potential incentive for earnings manipulation, state authorities, regulators,
and policy-makers may benefit from the findings of the study.
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 Bonds Between Earnings Management and Corporate Financial Stability in the Context of the Competitive Ability of Enterprises [PDF file] [Filesize: 1.25 MB]
 10.7441/joc.2021.04.10
Valaskova, K., Androniceanu, A-M., Zvarikova, K., & Olah, J. (2021). Bonds Between Earnings
Management and Corporate Financial Stability in the Context of the Competitive Ability of Enterprises.
Journal of Competitiveness, 13(4), 167–184. https://doi.org/10.7441/joc.2021.04.10
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