Earnings Quality and Corporate Life Cycle Before the Crisis. A Study of Transport Companies Across Europe
Deteriorating macroeconomic conditions and plans to move to a green economy such as the Green Deal are putting pressure on both internal and external stakeholders to create a liquidity cushion in the event of unexpected expenditures. However, when analyzing reported earnings, which may constitute...
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| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Editura ASE
2022-08-01
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| Series: | Amfiteatru Economic |
| Subjects: | |
| Online Access: | https://www.amfiteatrueconomic.ro/temp/Article_3142.pdf |
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| Summary: | Deteriorating macroeconomic conditions and plans to move to a green economy such as the
Green Deal are putting pressure on both internal and external stakeholders to create a liquidity
cushion in the event of unexpected expenditures. However, when analyzing reported
earnings, which may constitute a source of internal financing, it is necessary to take into
account the corporate life cycle, which changes the quality of reported earnings. The aim of
the study is to identify and examine the impact of the corporate life cycle on the level of
earnings quality in European transport companies in the pre-crisis years. A hierarchical linear
mixed model was used to reveal these relationships, the sample included more than 30,000
companies covering the years 2011-2019 from 30 European countries. Discretionary accruals
were used as quality proxy earnings, and the company’s life cycle was modeled by the
Dickinson cash flow model. Transport companies in Europe in the pre-crisis period had lowquality reported earnings. These enterprises manipulated earnings in accordance with the
U-shaped curve, where mature firms applied downward earnings management techniques on
average. Very large companies that were listed in the pre-crisis period chose upward earnings
management, while smaller and unlisted companies opportunistically reduced reported
earnings. These results imply that, in the pre-crisis period, European transport companies
opportunistically obtained short-term benefits according to management requirements by
reporting accounting profits other than cash flow. However, during the crisis and post-crisis
years, they reduced their internal financing resources and/or affected the chances of obtaining
state aid and other subsidies approved according to the accounting outputs |
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| ISSN: | 1582-9146 2247-9104 |