The relation between innovation and earnings management : evidence for the UK

Marei, Y, Al Bahloul, M, Almasarwah, A and Alam, MA ORCID: https://orcid.org/0000-0002-8260-235X 2021, 'The relation between innovation and earnings management : evidence for the UK' , Global Business and Economics Review (GBER) . (In Press)

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Abstract

The purpose of this paper is to investigate whether the executives of innovative firms in the UK economy prefer to support innovation over earnings. This study uses discretionary accruals and abnormal activities as proxies for earnings management and research and development as a proxy for innovation. This study finds dissimilar results for the discretionary accrual and abnormal activity models, it conducts additional analysis that accounts for the innovation to beat the earnings group, and refers to this group as the "downward" group; another analysis accounts for the innovation to reduce earnings, and refers to this group as the "upward” group. The results suggest that there is a negative association between discretionary accruals and downward innovation and finds a similar relationship in abnormal activities and the downward group, which indicates the referential value of beating earnings over innovation. Moreover, there is a positive relationship in increased innovation, which suggests that executives prefer to support innovation when earnings are achieved or unachievable. This study also documented that innovative firms engage more in manipulation than non-innovative firms and shows that understanding executives' incentives to earn income provides better evidence on the relationship between innovation and earnings. This is the first paper that adds to the understanding of innovation by measuring using upwards and downwards incentives.

Item Type: Article
Schools: Schools > Salford Business School
Journal or Publication Title: Global Business and Economics Review (GBER)
Publisher: Inderscience
ISSN: 1097-4954
Related URLs:
Depositing User: MA Alam
Date Deposited: 01 Dec 2021 08:45
Last Modified: 01 Dec 2021 08:45
URI: http://usir.salford.ac.uk/id/eprint/62447

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