Our causal evidence suggests that managers use real earnings management to enhance short-term performance in response to analyst pressure, effects that are not uncovered when focusing solely on accrual-based methods.
This study aims to understand the impact of market power and competition on earnings management, particularly discretionary accruals, in the Chinese and Taiwanese tourism industries.
This technique is conducted for income smoothing, which means that by eliminating large movements in profits, companies can report a smooth trend over a number of years (Hussey, 1995).
The study of earnings management began in the 1980s, with Dye (1988) stating that managers engaged in earnings management because their compensation schemes depended on a firm’s profits.
Markarian and Santaló (2014) claimed that firms in greater market competition likewise engaged in more earnings management to match analysts’ forecasts.
Bodie (2013) suggested that growing businesses attract investors seeking higher-yield returns.Building on this phenomenon, we observed that the tourism industries of China and Taiwan have both experienced significant growth in the past decade with the number of tourists traveling to and from these countries rising by 5 per cent or more per year.Therefore, the high potential revenue from travel and tourism expansion in China and Taiwan has created the expectation of a lucrative market for investors (Chen and Kim, 2010).Based on listed travel companies, generalization of the research results to entire tourism industry is limited. The full terms of this licence may be seen at Financial reports are used to convey corporate information on firm performance.This study compares the travel companies’ practices of smoothing out earnings between China and Taiwan, thus helping managers and investors in making their financing, investment decisions. (2019), "Market power, competition and earnings management: accrual-based activities", Journal of Financial Economic Policy, Vol. However, corporate managers could choose reporting methods to reflect the financial figures to their own advantages.We find that managers respond to the coverage loss by decreasing real earnings management while increasing accrual manipulation.These effects are significantly stronger among firms with less coverage and for firms close to the zero-earnings threshold.China and Taiwan differ not only in their political and social systems but also in their economic systems.The research aims to provide managers and investors with stock selection strategy in the decision-making process.Moreover, prior research indicated the main reason for managers to use earnings management was to achieve the standards for chief executive officer (CEO) compensation and bank loans (Almadi and Lazic, 2016; Bergstresser and Philippon, 2006; Dechow , 1995).Furthermore, Sambharya (2011) claimed that earnings management assisted firms in meeting stock analysts’ earnings forecasts to enhance the firm’s perceived performance.