EARNINGS SMOOTHING OR FINANCIAL MANIPULATION? AN EMPIRICAL INVESTIGATION OF REVENUES RECLASSIFICATION USING EXPECTED REVENUE MODEL
DOI:
https://doi.org/10.37435/nbr.v7i1.110Keywords:
Earnings Management, Expected Revenue Model, Classification Shifting, Accruals Management, Real Activity ManagementAbstract
Purpose: This study aims to identify red flags indicating the prevalence of earnings management in a politically influential and financially volatile industry susceptible to economic biases and government intervention.
Design/Methodology: By operationalizing an expected revenue model, this quantitative study provides empirical evidence of earnings manipulation in Pakistan's sugar sector, using an unbalanced panel of 168 observations over six years (2018–2023) from firms listed on the Pakistan Stock Exchange (PSX).
Findings: The results of dynamic regression models based on the expected revenue approach reveal a positive and significant intercept term, indicating that a substantial portion of firms reported operating revenues remain unexplained.
Theoretical/Practical/Social Implications: The findings have important implications for investors, regulators, and auditors in Pakistan’s sugar sector, enhancing understanding of earnings management practices and their potential consequences.
Originality/Value: Using a novel approach, this study contributes to the literature by providing empirical evidence of earnings manipulation through expected revenue model in a developing-country context.
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