Earnings management behaviour under the recent economic downturn in Spain

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This study analyses the influence of the recent economic downturn on earnings management (EM), as well as the manipulation of real activities through cash flow from operations (CFO), with a sample of Spanish listed firms from 2004 to 2009. We find evidence that the recent economic downturn has changed the patterns of firms' EM. On the one hand, the crisis influence higher earnings generation as indebtedness increase. On the other hand, results support the hypothesis of an opportunistic behaviour of managers with higher firm market valuation. They have incentives to reduce earnings during the recession and push earnings for the recovery phase of the business cycle. The study finds also a significant relationship between EM and abnormal CFO generation. The downturn influences positive abnormal CFO generation with indebtedness, as well as negative abnormal CFO generation with firm size and market valuation. It has no significant influence through abnormal accruals on abnormal CFO generation.

Original languageEnglish
Title of host publicationTransparency and Governance in a Global World
EditorsJay Choi, Heibatollah Sami
Number of pages25
Publication statusPublished - 2012

Publication series

NameInternational Finance Review
ISSN (Print)1569-3767


  • Earnings management
  • Economic downturn
  • Manipulation of cash flow


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