The Impact of the Financial Crisis on Earnings Management: Empirical Evidence from the Top 5,000 Non-Listed Stock Italian Companies

Abstract

Account manipulation has been the subject of accounting discussions not only in the U.S. but across the world, especially during times of financial crises. This paper investigates the impact of the recent financial crisis on account manipulation probability by adopting the Beneish Model (1999, 2013) of eight performance ratios. The analysis has been conducted using the Top 5,000 Non-Listed Stock Italian Companies (Società Per Azioni) ranked by revenues during the time period 2005-2012. We use the AIDA Bureau Van Dijk database. We test the existence of earnings management (EM) within the Top Non-Listed Stock Italian Companies through a comparison between the pre-crisis period (2005-2008) and the crisis period (2009-2012). Our findings show that the number of firms with a higher likelihood of earnings manipulation decreases by 4.53% from the pre-crisis to crisis period. As a consequence, we argue that EM increases when the crisis is weak while EM decreases during the crisis period.

Keywords

• Financial Crisis, Earnings Management, Earnings Manipulation, Transparency, Italian stock companies.