DO ITALIAN NON-LISTED FIRMS MANAGE EARNINGS EFFICIENTLY OR OPPORTUNISTICALLY?

Earnings management may be efficient or opportunistic depending on the ability of discretionary accruals to communicate information about a firm's future profitability to the public. The existing literature, which focuses mainly on listed firms, provides ambiguous evidence on the nature of the earnings management. Following Siregar and Utama (2008), Omid (2012) and Rezahei and Roshani (2012), the aim of this paper is to determine whether Italian non-listed firms engage in efficient or opportunistic earnings management behavior. We assume that Italy is a country where firms engage in earnings management behavior (Leuz et al., 2003) and thus we assess whether managers of such firms use the financial statements as a communication tool in order to reduce agency conflicts with their stakeholders who in turn require credible and reliable financial information. The existing literature finds that when agency conflicts grow, firms are more likely to engage in efficient earnings management in order to communicate firm performance to financial statement users. We study financial statement and corporate governance structure data for Italian non-listed firms over the period 2006- 2009 (thus, before and after the financial crisis) from the AIDA financial database. Our empirical evidence suggests that in general firms conduct opportunistic earnings management