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Accrual-based earnings management and organizational life cycles: Two-dimensional analysis


Objective: The article aims to determine the relationship between the stage of a business life cycle and the scope and directions of accrual-based earnings management (AEM) in industrial companies listed on the Warsaw Stock Exchange (WSE).

Research Design & Methods: The assessment of statistical relationships between the patterns of earnings management in individual stages of an organization’s life cycle (OLC) was carried out based on the Kruskal-Wallis test by ranks and the Mann-Whitney U test. The extraction of discretionary accruals was performed based on the Modified Jones model, while the Dickinson model evaluated OLC stages. The study investigated 297 industrial listed companies listed on the Warsaw Stock Exchange in the 2012-2020 period.

Findings: Empirical studies have shown that strategies of intentionally lowering the net result prevailed in the research sample. The scope of the AEM practices, estimated by discretionary accruals, was the largest in industrial companies in the growth and maturity phase. The frequency of big bath reporting was related to the OLC phases, with net losses exceeding 20% of total assets being most often reported among companies in the decline stage. On the other hand, the frequency of reporting small net incomes was even across all tested subpopulations.

Implications & Recommendations: The research indicates the need to continue scientific research on the issues of measuring the quality of reported accounting data and prediction tools of various techniques for shaping the financial result. Understanding the underlying motives and determinants that drive enterprises to performance management is a prerequisite for preventing this type of activity in business practice.

Contribution & Value Added: The article presents an innovative approach to assessing relationships between AEM and the OLC stages. It referred to examining the frequency of specific techniques of AEM (e.g. big bath and small net income) in companies characterized by specific patterns of generated cash flows.


accrual-based earnings management, life cycle stage, industrial enterprises, Warsaw Stock Exchange

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Author Biography

Michał Comporek

Lecturer at the Department of Business Analyses and Strategy in the Faculty of Economics and Sociology, University of Lodz (Poland). PhD in finance from the University of Lodz (2016). His main research areas are corporate finance, earnings management, and sustainable development.


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