Earnings Management In Developed And Developing Countries: A Review Of Recent Literature

Over the years, opportunistic earnings management practice generates reliable accounting earnings in a smaller amount which could not produce the fair and true firms’ financial performance. Earnings management is most probably to decrease the quality in usefulness for investment decision and reported earnings, therefore, decreasing the confidence of investor on the financial reports. Though, accounting earnings have been more consistent with high quality while the manager’s opportunistic behavior is changed by applying monitoring system. Therefore, regulatory bodies of the stock market and other agencies are more concerned with the earnings management, particularly, after collapsing of current numerous firms to which were reported increasing the independence of external auditors and corporate governance. Its main objective is not only to directly expand corporate performance but also to resolve agency problems by making parallel management and shareholders’ interests. Earnings management, as for as the literature concerned is very rich and resolve the problems of earnings management such as type of earnings management, corporate governance practices and also numerous elements disturbing earning management. Past studies have also been recognized the constraints on earnings management and the impact of incentives which could be divided into two groups. The first group examines corporate governance, ownership structure and audit quality as constraints while the second group studies leverage and free cash flow as incentives. This study discusses the literature of earnings management and also discusses the suitable gap from the literature of earnings management in both developed and developing countries. The contribution of this study is to highlight the complication in issues of earnings management in reporting of financial corporate and gives a way for further study on decreasing earnings management practices