Public Sector Accounting and Budgeting

Public Sector Accounting and Budgeting

Earnings per share prediction and actual earnings management using optimal valuation of operating assets

Document Type : Original Article

Authors
Reza Taheri Haftasiabi 1
ameneh Naderi 2
1 Master's degree graduate, Urmia University, Faculty of Economics and Management, Department of Economics, Urmia, Iran
2 Instructor, Urmia University, Faculty of Economics and Management, Department of Economics, Urmia, Iran
10.22034/psab.2025.213907
Abstract
The purpose of this study is to investigate the relationship between the predicted and actual earnings per share overstating net operating assets in the petrochemical industry listed in the Iranian stock exchange. This study examines the conditions under which balance sheet inflation restricts the use of discretionary accruals for additional earnings management. In this study, using the logit regression method, 680 observations of 40 Iranian listed petrochemical companies from 2006 to 2023 were examined. The results show that there is a positive and significant relationship between the downward forecast earnings per share and the overvaluation of net operating assets. In addition, a positive and significant relationship was found between actual earnings management and the overstatement of net operating assets. These results suggest that when firms are subject to restrictions on the use of discretionary accruals, the likelihood of actual earnings management and downward earnings guidance increases to avoid the reporting of unexpected negative earnings.
Keywords
Earnings forecasting
Earnings management
Operating assets
Balance sheet
Cost of production

Subjects

احمدی، س؛ محمودی، ف؛ احمدی، ک. (1398). تحلیل رابطه بین مدیریت سود واقعی و دقت پیش‌بینی سود در شرکت‌های فعال در صنعت خودروسازی ایران. تحقیقات تجربی حسابداری، 11(1)، 78-95.
جلالی، سید حمید؛ همتی، حسن؛ فرجی، امید؛ جباری، حسین . (1403). مدیریت سود واقعی، مدیریت سود واقعی تهاجمی و کیفیت حسابرسی. پژوهش‌های کاربردی در گزارشگری مالی، 13(1)، 33-75.
حسینی، م؛ علیپور، ر؛ صادقی، ف. (1390). بررسی تأثیر اندازه‌گیری بهینه دارایی‌های عملیاتی بر کیفیت پیش‌بینی سود در بازار سرمایه ایران. تحقیقات حسابداری و حسابرسی، 14(2)، 110-128.
رضایی، ح؛ کریمی، س؛ علوی، ن. (1398). تأثیر مدیریت سود واقعی بر پیش‌بینی سود هر سهم در شرکت‌های بورسی ایران. مطالعات حسابداری و حسابرسی، 8(3)، 123-140.
فاضل حانون، و؛ پیری، پ؛ آشتاب، ع. (1403). بررسی اثرات مهندسی مالی و سیستم‌های کنترلی بر عملکرد مالی بانک‌ها با رویکرد یادگیری ماشین و شبکه عصبی فضایی. حسابداری و بودجه‌ریزی بخش عمومی، 5(3)، 134-163.
 کریمی، م؛ حسینی، ع؛ نوری، ر. (1398). ارزیابی عملکرد مدیریت دارایی‌های عملیاتی و تأثیر آن بر پیش‌بینی سود در صنایع مختلف بورس اوراق بهادار تهران. دانش حسابداری و حسابرسی مدیریت، 9(4)، 62-45.
کیا، علی؛ صفری گرایلی، مهدی. (1396). قابلیت مقایسه صورت‌های مالی، مدیریت سود تعهدی و مدیریت واقعی سود. دانش حسابداری مالی، 4(2)، 115-137.
گرامی، آمنه؛ صفری، رویا؛ کیخایی، نازنین؛ رمضانیان، خدیجه . (1401). هموارسازی سود و مدیریت سود. چشم‌انداز حسابداری و مدیریت، 5(66)، 26-32.
محمدی، ع؛ رضایی، ف؛ احمدی، م. (1397). بررسی رابطه بین مدیریت سود واقعی و پیش‌بینی سود در شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران. تحقیقات حسابداری مالی، 10(2)، 87-102.
Barton, J., & Simko, P. J. (2002). The balance sheet as an earnings management constraint. The Accounting Review, 77(s-1), 1-27.
Bartov, E., Givoly, D., & Hayn, C. (2002). The rewards to meeting or beating earnings expectations. Journal of Accounting and Economics, 33(4), 173-204.
Bowen, R. M., DuCharme, L., & Shores, D. (1995). Stakeholders' implicit claims and accounting method choice. Journal of Accounting and Economics, 20(3), 255-295.
Brown, L. (2001). The temporal analysis of earnings surprises: profits versus losses. Journal of Accounting Research, 39, 221-41.
Brown, L., & Caylor, M. (2005). A temporal analysis of quarterly earnings thresholds: properties and valuation consequences. The Accounting Review, 80(3), 423-40.
Brown, L., & Pinello, A. (2007). To what extent does the financial reporting process curb earnings surprise games?. Journal of Accounting Research, 45(53), 947-81.
Brown, L. D., & Rozeff, M. S. (1978). The superiority of analyst forecasts as measures of expectations: Evidence from earnings. The Journal of Finance, 33(1), 1-16.
Brown, R., & Smith, T. (2020). The role of operating asset efficiency in predicting future earnings: A global analysis. The Accounting Review, 95(4), 331-355.
Burgstahler, D., & Eames, M. (2006). Management of earnings and analysts' forecasts to achieve zero and small positive earnings surprises. Journal of Business Finance & Accounting, 33(5‐6), 633-652.
Burgstahler, D., Hail, L., & Leuz, C. (2004). The importance of reporting incentives: Earnings management in European private and public firms. The Accounting Review, 79(3), 983-1016.
Chen, T., & Lin, C. (2024). The impact of operating asset optimization on earnings forecasts and real earnings management: Evidence from US firms. Journal of Accounting and Economics, 77(2-3), 101492.
Cohen, D. A., Dey, A., & Lys, T. Z. (2008). Real and accrual-based earnings management in the pre-and post-Sarbanes-Oxley periods. The Accounting Review, 83(3), 757-787.
Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50(1), 2-19.
Darmawan, I. P. E., Sutrisno, T., & Mardiati, E. (2019). Accrual Earnings Management and Real Earnings Management: Increase or Destroy Firm Value?. International Journal of Multicultural and Multireligious Understanding, 6(2), 8–19.
Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20-47.
Dechow, P., 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.
Dichev, I. D., & Tang, V. W. (2008). Matching and the changing properties of accounting earnings over the last 40 years. The Accounting Review, 83(6), 1425-1460.
Doyle, J.T., Jennings, J.N., & Soliman, M.T. (2013). Do managers define non-GAAP earnings to meet or beat analyst forecasts?. Journal of Accounting and Economics, 56(1), 40–56.
Espahbodi, R., Espahbodi, H., & Espahbodi, P. (2022). Earnings management through the manipulation of real activities and accruals: The role of corporate social responsibility. Journal of Business Finance & Accounting, 49(3-4), 551-586.
Ewert, R., & Wagenhofer, A. (2005). Economic effects of tightening accounting standards to restrict earnings management. The Accounting Review, 80(4), 1101-1124.
Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
Francis, J., & Philbrick, D. (1993). Analysts' decisions as products of a multi-task environment. Journal of Accounting Research, 31(2), 216-230.
Garcia, M., & Rodriguez, E. (2022). ESG factors and their impact on earnings management and forecast accuracy. Journal of Business Ethics, 178(3), 635-658.
Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1-3), 3-73.
Gunny, K. A. (2010). The relation between earnings management using real activities manipulation and future performance: Evidence from meeting earnings benchmarks. Contemporary Accounting Research, 27(3), 855-888.
Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1-3), 405-440.
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383.
Ho, L.J., Liu C.S., & Ouyang, B. (2012). Bloated balance sheet, earnings management, and forecast guidance. Review of Accounting and Finance, 11(2), 120–140.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Johnson, A., Smith, B., & Brown, C. (2017). The impact of real earnings management on earnings forecasts: Evidence from US firms. Journal of Accounting Research, 55(3), 509-553.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291.
Kasznik, R., & McNichols, M. F. (2002). Does meeting earnings expectations matter? Evidence from analyst forecast revisions and share prices. Journal of Accounting Research, 40(3), 727-759.
Kim, J., & Park, S. (2023). Blockchain technology and its potential in improving asset measurement and earnings forecasting. Accounting Horizons, 37(1), 67-89.
Lee, J., Kim, S., & Park, H. (2019). Real earnings management and analyst forecast accuracy: An Asian market study. Journal of International Financial Management & Accounting, 30(2), 151-183.
Li, X., & Zhang, Y. (2021). Real earnings management and analysts' cash flow forecasts. Review of Accounting Studies, 26(1), 141-170.
Livnat, J., & Mendenhall, R. R. (2006). Comparing the post–earnings announcement drift for surprises calculated from analyst and time series forecasts. Journal of Accounting Research, 44(1), 177-205.
Malikov, K., Manson, S., & Coakley, J. (2023). Earnings management and the role of the audit committee: An analysis of European companies. European Accounting Review, 32(1), 155-184.
Matsumoto, D. A. (2002). Management's incentives to avoid negative earnings surprises. The Accounting Review, 77(3), 483-514.
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261-297.
Penman, S. H., & Zhang, X. J. (2002). Accounting conservatism, the quality of earnings, and stock returns. The Accounting Review, 77(2), 237-264.
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3), 335-370.
Sayari, S. & Omri, A. (2017). Earnings Management, Accruals and Stock Liquidity. Journal of Finance and Bank Management, 5(1), 17-28.
Schipper, K. (1989). Commentary on earnings management. Accounting Horizons, 3(4), 91-102.
Schmidt, M., & Müller, K. (2018). Optimal measurement of operating assets and its effect on earnings prediction: A European perspective. European Accounting Review, 27(4), 677-712.
Skinner, D. J., & Sloan, R. G. (2002). Earnings surprises, growth expectations, and stock returns or don't let an earnings torpedo sink your portfolio. Review of Accounting Studies, 7(2), 289-312.
Spence, M. (1973). Job market signaling. The Quarterly Journal of Economics, 87(3), 355-374.
Sun, J., & Liu, G. (2016). Does analyst coverage constrain real earnings management?. The Quarterly Review of Economics and Finance, 59(3), 131-140.
Wang, D., & Liu, Y. (2025). Artificial intelligence in financial analysis: Implications for earnings forecasts and real earnings management detection. Journal of Accounting Research, 63(1), 123-157.
Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory. Prentice-Hall Inc.
Zang, A. Y. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management. The Accounting Review, 87(2), 675-703.
Public Sector Accounting and Budgeting
Volume 5, Issue 4 - Serial Number 18
November 2024
Pages 138-164

  • Receive Date 19 November 2024
  • Revise Date 16 January 2025
  • Accept Date 20 January 2025