The Effects of Business Strategy and Product Market Competition on Real Earnings Management
This research investigated the singular and combined effects of firm-level business strategy (BS) and industry-level market competition (MC) on real activities-based earnings management (REM). A composite strategy score based on Miles and Snow’s framework was used to empirically assess BS, while MC...
Saved in:
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
FUCAPE Business School
2023-01-01
|
| Series: | BBR: Brazilian Business Review |
| Subjects: | |
| Online Access: | http://www.redalyc.org/articulo.oa?id=123075622005 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1825207270814777344 |
|---|---|
| author | Luiza Dazzi Braga Luiz Cláudio Louzada Carolina Magda da Silva Roma |
| author_facet | Luiza Dazzi Braga Luiz Cláudio Louzada Carolina Magda da Silva Roma |
| author_sort | Luiza Dazzi Braga |
| collection | DOAJ |
| description | This research investigated the singular and combined effects of firm-level business strategy (BS) and industry-level market competition (MC) on real activities-based earnings management (REM). A composite strategy score based on Miles and Snow’s framework was used to empirically assess BS, while MC was measured through three distinct metrics, and REM was calculated based on Roychowdhury’s (2006) models of abnormal level of production, sales, and discretionary expenditures. Archival data from United Stated (U.S.) non-financial public listed firms in the period 1987-2020 was analyzed using Ordinary Least Squares (OLS) regressions, controlled for industry and year fixed effects. Findings suggested that firms following an innovation-oriented prospector strategy are associated with lower levels of REM than firms following an efficiency-oriented defender strategy. While MC alone did not have a significant effect on REM, the combined effect of BS and MC reveals that prospectors in more competitive markets engage less in REM activities, which confirms the relevance of competition in the relationship between BS and REM. This research contributes to earnings management literature by documenting that REM practices are affected not only by internal choices of resource allocation in accordance with a business strategy, but also by exogenous determinants of market competition. |
| format | Article |
| id | doaj-art-73ac4a694f0f492fa2ad48b3fc6eb6d1 |
| institution | Kabale University |
| issn | 1807-734X |
| language | English |
| publishDate | 2023-01-01 |
| publisher | FUCAPE Business School |
| record_format | Article |
| series | BBR: Brazilian Business Review |
| spelling | doaj-art-73ac4a694f0f492fa2ad48b3fc6eb6d12025-02-06T23:39:34ZengFUCAPE Business SchoolBBR: Brazilian Business Review1807-734X2023-01-0120556157910.15728/bbr.2022.1254.enThe Effects of Business Strategy and Product Market Competition on Real Earnings ManagementLuiza Dazzi BragaLuiz Cláudio LouzadaCarolina Magda da Silva RomaThis research investigated the singular and combined effects of firm-level business strategy (BS) and industry-level market competition (MC) on real activities-based earnings management (REM). A composite strategy score based on Miles and Snow’s framework was used to empirically assess BS, while MC was measured through three distinct metrics, and REM was calculated based on Roychowdhury’s (2006) models of abnormal level of production, sales, and discretionary expenditures. Archival data from United Stated (U.S.) non-financial public listed firms in the period 1987-2020 was analyzed using Ordinary Least Squares (OLS) regressions, controlled for industry and year fixed effects. Findings suggested that firms following an innovation-oriented prospector strategy are associated with lower levels of REM than firms following an efficiency-oriented defender strategy. While MC alone did not have a significant effect on REM, the combined effect of BS and MC reveals that prospectors in more competitive markets engage less in REM activities, which confirms the relevance of competition in the relationship between BS and REM. This research contributes to earnings management literature by documenting that REM practices are affected not only by internal choices of resource allocation in accordance with a business strategy, but also by exogenous determinants of market competition.http://www.redalyc.org/articulo.oa?id=123075622005real earnings managementbusiness strategymarket competition |
| spellingShingle | Luiza Dazzi Braga Luiz Cláudio Louzada Carolina Magda da Silva Roma The Effects of Business Strategy and Product Market Competition on Real Earnings Management BBR: Brazilian Business Review real earnings management business strategy market competition |
| title | The Effects of Business Strategy and Product Market Competition on Real Earnings Management |
| title_full | The Effects of Business Strategy and Product Market Competition on Real Earnings Management |
| title_fullStr | The Effects of Business Strategy and Product Market Competition on Real Earnings Management |
| title_full_unstemmed | The Effects of Business Strategy and Product Market Competition on Real Earnings Management |
| title_short | The Effects of Business Strategy and Product Market Competition on Real Earnings Management |
| title_sort | effects of business strategy and product market competition on real earnings management |
| topic | real earnings management business strategy market competition |
| url | http://www.redalyc.org/articulo.oa?id=123075622005 |
| work_keys_str_mv | AT luizadazzibraga theeffectsofbusinessstrategyandproductmarketcompetitiononrealearningsmanagement AT luizclaudiolouzada theeffectsofbusinessstrategyandproductmarketcompetitiononrealearningsmanagement AT carolinamagdadasilvaroma theeffectsofbusinessstrategyandproductmarketcompetitiononrealearningsmanagement AT luizadazzibraga effectsofbusinessstrategyandproductmarketcompetitiononrealearningsmanagement AT luizclaudiolouzada effectsofbusinessstrategyandproductmarketcompetitiononrealearningsmanagement AT carolinamagdadasilvaroma effectsofbusinessstrategyandproductmarketcompetitiononrealearningsmanagement |