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The purpose of this study is to empirically investigate the Greek firms' earnings management policies compared with debt, taxation and the financial crisis.Design/methodology/approachIn this paper, the authors show that existed measures of real earnings management, whether corrected for performance or not, rely crucially on strong assumptions. The authors provide a novel modelling that permits panel structure so as to correct for heterogeneity across firms while permitting to determine endogenously the number of underlying firm-groups in the data generating process.FindingsThe empirical results indicate that Greek firms are likely to reduce earnings manipulation activities when they face liquidity risk. Taxation and financial crisis have a negative and positive effect on earnings management, respectively.Originality/valueThe effect of debt, taxation and financial crisis on earnings management has never been investigated in Greece. The empirical results offer valuable information to shareholders and investors as they can understand how some main factors, such as debt, taxation and financial crisis, influence firm's accounting practices.
Managerial Finance – Emerald Publishing
Published: Jan 2, 2023
Keywords: Real earnings management; Discretionary accruals; Leverage; Taxation; Fiscal debt; Greece; C12; G01; G32; M41
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