Proceedings of the 2009 MFA Annual Meeting EARNINGS MANAGEMENT AND ACCOUNTING STANDARDS IN EUROPE

We examine the earnings management level for a set of European public traded firms that switch their financial statements from local GAAP to IAS/IFRS. The Data sample comprises 17 European countries with more than 18,000 firm-year observations. Overall we are using 15 different proxies to measure earnings management. Our re-sults exhibit that German legal origin and some French legal origin countries experi-ence a significant decline in earnings management compared to their local GAAP counterparts, whereas this is not the case for English legal origin countries (like UK and Ireland) and Northern European countries (Scandinavian legal origin). The latter two regions have already lower earnings management levels prior to IAS/IFRS adop-tion compared to the rest of Europe. Therefore, for these countries the transition from local GAAP to IAS/IFRS does not change their earnings management behavior. In addition, we show that firm size and time have no significant effect on the earnings management level. On the other hand, growth firms and firms with a higher financial leverage exhibit higher levels of earnings management, whereas firms with more op-erating cash flow reveal less earnings management. In comparing the results for all 15 earnings management measures it seems that different measures tend to capture dif-ferent dimensions of earnings management