Earnings Management (EM), Initiatives and Company Size: An Empirical Study

This paper deals with the issues of Earnings Management. Earnings Management (hereafter "EM") can be stated as a modern phenomenon, in recent years. Under the influence of globalization, new ideas penetrate this theory. This topic remains one of the most controversial topics of current financial theories or accounting. The accounting procedures allow managers to exercise their judgment and to make subjective estimates, to a certain extent, when designing financial statements. When this freedom is used correctly, it can be helpful in the process of improving the relevance and reliability of financial statements and reducing information asymmetry. Conversely, the opportunistic use of this freedom can contribute to the exact opposite result -lower relevance and reliability of financial statements, as well as, higher asymmetry of information. The aim of this work is EM initiatives analysis, statistical verification of the existence of the relationship between EM and company size, defined by chosen criteria and provide conclusions with regard to results. The first theoretical part of the paper deals with the theoretical basis of EM. Within the practical part of the contribution, the authors try to detect the presence of earning management based on the calculation of accruals, structured as discretionary and nondiscretionary accruals, in the sample of enterprises using a modified Jones model and to verify the existence of the relationship between EM and company size, using the one-way ANOVA test. The differences in the sample averages are too large to be random, it is shown that there is a statistically significant difference in the level of EM, regarding company size.