How much can we trust the financial report? Earnings management in emerging economies

Abstract

Purpose

The success and reliability of business transactions and research in emerging markets depend on the quality of financial information. Due to the institutional and historical backgrounds, financial information provided by firms in emerging markets has often been questioned for their accuracy. This study aims to examine the reliability of financial information through various descriptive and statistical analyses in major emerging markets, including Brazil, Russia, India, and China (the BRICs).

Design/methodology/approach

The authors use firm-level data from the BRIC countries and apply statistical models to identify patterns of profit misreporting by firms in these countries.

Findings

The results show significant and systemic signs of misreporting of financial information in these countries, particularly in China and Russia, which are further examined to understand the possible reasons behind their more severe misreporting.

Originality/value

The study then concludes with practical and specific recommendations for investors, managers, and policy makers on how to detect and avoid potential risks due to inaccurate financial information and improve the overall quality of decision making.

Citation

Li, S., Ho Park, S. and Shuji Bao, R. (2014), "How much can we trust the financial report? Earnings management in emerging economies", International Journal of Emerging Markets, Vol. 9 No. 1, pp. 33-53. https://doi.org/10.1108/IJoEM-09-2013-0144