Accounting Conservatism and Earnings Management of Thai Listed Companies under the Coronavirus Disease 2019 (COVID-19) Pandemic
Keywords:
Coronavirus Disease 2019 (COVID-19) Pandemic, Accounting Conservatism, Earnings ManagementAbstract
The purpose of this research was to study the influence of the Coronavirus disease 2019 (COVID-19)
pandemic on the accounting conservatism of Thai listed companies. The data collection was gathered from
the annual financial statements from 2018-2021, which consisted of 1,989 samples. The samples were also
separated for additional testing into the group that chose the income strategy in terms of income-increasing
or income-decreasing and the group that chose the levels of earnings management in terms of high or
low levels of earnings management. This research used the accounting conservatism model through the
timely loss recognition from Ball and Shivakumar model as well as used the multiple regression analysis
to prove hypotheses. The data were divided into 2 periods of time: before the Coronavirus disease 2019
(COVID-19) (2019-2020) pandemic; and during the Coronavirus disease 2019 (COVID-19) (2021-2022) pandemic.
The results revealed that before the Coronavirus disease 2019 (COVID-19) pandemic, the listed companies
in the Stock Exchange of Thailand did not have any accounting conservatism concerns. This effect caused
reduced levels of accounting conservatism significantly in the period of during the Coronavirus disease
2019 (COVID-19) pandemic. When considering the different groups and selecting for income strategy and
levels of earnings management, it was found that management did not adopt a timely loss recognition in
companies with high earnings management that chose an income-increasing strategy. As a result, operating
performance was lower than normal operating performance. Therefore, management had not chosen
to recognize the loss in a timely manner during this period. This research finding can be used to support
improvements in regulatory regulations and guidelines for preparing financial statements during uncertain
events in the future.
References
Aflatooni, A., & Mokarami, M. (2013). Real Earnings Management and Timely Loss Recognition. Research Journal of Recent Sciences, 2(12), 28-37.
Aljawaheri, B. A. W., Ojah, H. K., Machi, A. H., & Almagtome, A. H. (2021). COVID-19 Lockdown, Earnings Manipulation and Stock Market Sensitivity: An Empirical Study in Iraq. The Journal of Asian Finance, Economics and Business, 8(5), 707-715.
Apaitan, T., Luangaram, P., & Manopimoke, P. (2022). Uncertainty in an Emerging Market Economy: Evidence from Thailand. Empirical Economics, 62(3), 933-989.
Balakrishnan, K., Watts, R., & Zuo, L. (2016). The Effect of Accounting Conservatism on Corporate Investment During the Global Financial Crisis. Journal of Business Finance & Accounting, 43(5-6), 513-542.
Ball, R., & Shivakumar, L. (2005). Earnings Quality in UK Private Firms: Comparative Loss Recognition Timeliness. Journal of Accounting and Economics, 39(1), 83-128.
Basu, S. (1997). The Conservatism Principle and the Asymmetric Timeliness of Earnings. Journal of accounting and economics, 24(1), 3-37.
Beaver, W. H., & Ryan, S. G. (2005). Conditional and Unconditional Conservatism: Concepts and Modeling. Review of accounting studies, 10(2), 269-309.
Boonlert-U-Thai, K., Srijunpetch, S., & Phakdee, A. (2021). The Effect of Financial Distress on Timely Loss Recognition: Evidence from Listed Companies on the Stock Exchange of Thailand. Journal of Business Administration, 44(171). 1-21. [in Thai]
Bungkilo, D., & Tulardilok, T. (2021). Determinants of Adoption of Accounting Temporary Relief Measures of Thai Listed Companies affected by the COVID-19 Pandemic. Journal of Accounting Profession, 17(56), 5-28. [in Thai]
Cimini, R. (2015). How has the Financial Crisis Affected Earnings Management? A European study. Applied Economics, 47(3), 302-317.
Cui, L., Kent, P., Kim, S., & Li, S. (2021). Accounting Conservatism and Firm Performance during the COVID-19 Pandemic. Accounting & Finance, 61(4), 5543-5579.
Dechow, P.M., Ge, W., & Schrand, C. (2010). Understanding Earnings Quality: A Review of the Proxies, Their Determinants and their Consequences. Journal of accounting and economics, 50(2-3), 344-401.
Dechow, P.M., Sloan, R.G., & Sweeney, A.P. (1995). Detecting Earnings Management. Accounting Review, 70(2), 193-225.
Diantimala, Y., Ridwan, R., Darwanis, D., & Arfan, M. (2022). The Impact of Conditional Conservatism on Bank Loan During Pandemic Covid 19 in the Asia Pacific Countries. In International Conference on Business and Technology, 486, 297-309.
Dietrich, J. R., Muller, K. A., & Riedl, E. J. (2007). Asymmetric Timeliness Tests of Accounting Conservatism. Review of Accounting Studies, 12(1), 95-124.
Dua, P., & Gaur, U. (2010). Determination of Inflation in an Open Economy Phillips Curve Framework: the Case of Developed and Developing Asian Countries. Macroeconomics and Finance in Emerging Market Economies, 3(1), 33-51.
Funke, M., & Ho, T. K. (2021). The Implications of COVID-19 for Emerging Asia. Pacific Economic Review, 26(4), 437-438. doi: 10.1111/1468-0106.12377
Garcia Lara, J. M., García Osma, B., & Penalva, F. (2009). Accounting Conservatism and Corporate Governance. Review of accounting studies, 14(1), 161-201.
Givoly, D., Hayn, C. K., & Katz, S. P. (2010). Does Public Ownership of Equity Improve Earnings Quality?. The Accounting Review, 85(1), 195-225.
Haque, A., Fatima, H., Abid, A., & Qamar, M. A. J. (2019). Impact of Firm-level Uncertainty on Earnings Management and Role of Accounting Conservatism. Quantitative Finance and Economics, 3(4), 772-794.
Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Cultures and Organizations: Software of the Mind (Vol. 3). New York: Mcgraw-Hill.
Jackson, S., & Liu, X. (2010). The Allowance for Uncollectible Accounts, Conservatism, and Earnings Management. Journal of Accounting Research, 48(3), 565–601.
Jensen, M.C., & Meckling, W.H. (1976) Theory of the Firm: Managerial Behaviour, Agency Costs, and Ownership Structure. Journal of Financial Economics, 3, 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
Jones, J. J. (1991). Earnings Management During Import Relief Investigations. Journal of Accounting Research, 29(2), 193–228.
Kazemi, S. (2022). Impact of COVID-19 Pandemic on Earnings Management: The European Union Empirical Evidence. [Master’s Thesis, Department of Accounting and Commercial Law Hanken School of Economics]. Vaasa. Retrieved from https://helda.helsinki.fi/dhanken/bitstream/handle/10227/509524/Kazemi_Sayed.pdf?sequence=1
Khan, M., & Watts, R. L. (2009). Estimation and Empirical Properties of a Firm-year Measure of Accounting Conservatism. Journal of accounting and Economics, 48(2-3), 132-150.
Kim, T., & Shawn, H. (2022). Conservative Financial Reporting and Resilience to the Financial Crisis. Sustainability, 14(14), 8535. https://doi.org/10.3390/su14148535
Kim, Y., Li, S., Pan, C., & Zuo, L. (2013). The Role of Accounting Conservatism in the Equity Market: Evidence from Seasoned Equity Offerings. The Accounting Review, 88(4), 1327-1356.
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance Matched Discretionary Accrual Measures. Journal of Accounting and Economics, 39(1), 163-197.
LaFond, R., & Watts, R. L. (2008). The Information Role of Conservatism. The accounting review, 83(2), 447-478.
Laksmana, I., & Yang, Y. W. (2014). Product Market Competition and Earnings Management: Evidence from Discretionary Accruals and Real Activity Manipulation. Advances in Accounting, 30(2), 263-275.
Lassoued, N., & Khanchel, I. (2021). Impact of COVID-19 Pandemic on Earnings Management: An evidence from Financial Reporting in European Firms. Global Business Review, 1-25. https://doi.org/10.1177/09721509211053491
Liu, G., & Sun, J. (2022). The Impact of COVID-19 Pandemic on Earnings Management and the Value Relevance of Earnings: US Evidence. Managerial Auditing Journal, 37(7), 850-868. https://doi.org/10.1108/MAJ-05-2021-3149
O’Callaghan, S., Ashton, J., & Hodgkinson, L. (2018). Earnings Management and Managerial Ownership in Private Firms. Journal of Applied Accounting Research, 19(4), 648-668. https://doi.org/10.1108/JAAR-11-2017-0124
Ozili, P. K. (2021). Accounting and Financial Reporting During a Pandemic. In E. Özen., S. Grima., & R.D. Gonzi. (Ed.) New Challenges for Future Sustainability and Wellbeing (pp. 87-93). Emerald Publishing Limited. https://doi.org/10.1108/978-1-80043-968-920211005
Persakis, A., & Iatridis, G. E. (2015). Earnings Quality Under Financial Crisis: A global empirical Investigation. Journal of Multinational Financial Management, 30, 1-35. https://doi.org/10.1016/j.mulfin.2014.12.002
Phakdee, A., & Srijunpetch, S. (2020). The Value Relevance of Accounting Information in Financial Industry: 15-Year Perspective. Journal of Business Administration the Association of Private Higher Education Institutions of Thailand, 9(1), 196-214. [in Thai]
Rahman, M. J., Ding, J., Hossain, M. M., & Khan, E. A. (2022). COVID-19 and Earnings Management: a Comparison Between Chinese Family and Non-family Enterprises. Journal of Family Business Management, (ahead-of-print). https://doi.org/10.1108/JFBM-01-2022-0011
Ratsamewongjan, A., Kitiwong, W., Bootvong, P., & Srijunpetch, S. (2021). Client and Auditor Conservatism in Timely Loss Recognition of Liabilities for Long-term Employee Benefits from Thailand’s New Labor Protection Act. Thammasat Review, 24(1), 247-279.doi: 10.14456/tureview.2021.11
Rodríguez-Pérez, G., & Van Hemmen, S. (2010). Debt, Diversification and Earnings Management. Journal of accounting and public policy, 29(2), 138-159.
Ruch, G. W., & Taylor, G. (2015). Accounting Conservatism: A Review of the Literature. Journal of Accounting Literature, 34(1), 17-38. https://doi.org/10.1016/j.acclit.2015.02.001
Rusmin, R., Scully, G., & Tower, G. (2013). Income Smoothing Behaviour by Asian transportation Firms. Managerial Auditing Journal, 28(1), 23-44. https://doi.org/10.1108/02686901311282489
Shrestha, N. (2020). Detecting Multicollinearity in Regression Analysis. American Journal of Applied Mathematics and Statistics, 8(2), 39–42. DOI:10.12691/ajams-8-2-1
Smith, M., Kestel, J. A., & Robinson, P. (2001). Economic Recession, Corporate Distress and Income Increasing Accounting Policy Choice. In Accounting Forum, 25(4), 334-352.
Sun, J. (2011). The Effect of Analyst Coverage on the informativeness of Income Smoothing. The International Journal of Accounting, 46(3), 333-349.
Šušak, T. (2020). The Effect of Regulatory Changes on Relationship Between Earnings Management and Financial Reporting Timeliness: The Case of COVID-19 Pandemic·. Zbornik Radova Ekonomski Fakultet u Rijeka, 38(2), 453-473.
Tangsomworapong, S. (2021, July 7). SET CEO SURVEY: CEO's Perspectives on the COVID-19 Crisis. SET Note. Retrieved from https://classic.set.or.th/dat/vdoArticle/attachFile/AttachFile_1625636948117.pdf [in Thai]
TFAC. (2020a, April 22). Accounting Practice Guidelines Regarding Temporary Relief Measures for Additional Accounting Options to Support the Impact of COVID-19. Retrieved from http://www.tfac.or.th/upload/9414/H2MmK2vkZm.PDF [in Thai]
TFAC. (2020b, October 6). Conceptual Framework for Financial Reporting. Retrieved From https://www.tfac.or.th/en/Article/Detail/119612
UOB. (2020, Quarter 2). COVID-19 Lockdown Global Economy. Quarterly Outlook and Asset Allocation Strategy. Retrieved form Online https://www.uobam.co.th/en/research/download/329
Vivattanachang, D., & Supattarakul, S. (2013). The Earnings Persistence and the Market Pricing of Earnings and their Cash Flow and Accrual Components of Thai Firms. Journal of Accounting Profession, 9(25), 63-79. [in Thai]
Warganegara, D. L., & Vionita, V. (2010). The effects of the Asian Financial Crisis on Accounting Conservatism in Indonesia. Asian Academic of Management Journal of Accounting and Finance, 6(1), 69-88.
Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory, Englewood Cliffs, NJ: Prentice-Hall.
Waweru, N. M., Ntui, P. P., & Mangena, M. (2011). Determinants of Different Accounting Methods Choice in Tanzania: A Positive Accounting Theory Approach. Journal of accounting in emerging economies, 1(2), 144-159. https://doi.org/10.1108/20421161111138503
Wicaksono, R. M. T. A. D., & Rinaldi, R. P. (2021). Economic Determinants of Growth Acceleration During Covid-19 Pandemic: a Comparative Study Between Indonesia, Thailand and Vietnam. Journal of Developing Economies, 6(1), 12-46.
Yan, H., Liu, Z., Wang, H., Zhang, X., & Zheng, X. (2022). How does the COVID-19 Affect Earnings Management: Empirical Evidence from China. Research in International Business and Finance, 63, 101772. https://doi.org/10.1016/j.ribaf.2022.101772
Yang, Y. J., Kweh, Q. L., & Lin, R. C. (2014). Earnings Quality of Taiwanese Group Firms. Asia-Pacific Journal of Accounting & Economics, 21(2), 134-156. https://doi.org/10.1080/16081625.2013.871771
Younes, B. N., Saeed, M. B., & Amin, B. (2012). Earnings Management and Accounting Conservatism: The Case of Iran. African Journal of Business Management, 6(19), 6005-6013. DOI: 10.5897/AJBM11.2420
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Journal of Business Administration The Association of Private Higher Education Institutions of Thailand
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
บทความที่ลงตีพิมพ์ในวารสารวิชาการบริหารธุรกิจ สมาคมสถาบันอุดมศึกษาเอกชนแห่งประเทศไทยต้องเป็นบทความที่ไม่เคยได้รับการตีพิมพ์เผยแพร่ หรืออยู่ระหว่างการพิจารณาตีพิมพ์ในวารสารอื่นๆ การละเมิดลิขสิทธิ์เป็นความรับผิดชอบของผู้ส่งบทความโดยตรง
