Internal control and real earnings management in the French context
Journal of Financial Reporting and Accounting
ISSN: 1985-2517
Article publication date: 19 May 2020
Issue publication date: 2 June 2020
Abstract
Purpose
This study aims to examine whether the internal control system quality in the French context improve the information quality having been reflected by the level of real earnings management (REM) measured by inventory overproduction, discretionary expenses reduction and sales manipulation.
Design/methodology/approach
The research uses a multiple regression analysis to examine the association between internal control and REM. The years 2010-2015 are used as analysis period by focusing on the French context. Three panel data are applied to the companies belonging to the Cotation Assistée en Continu (CAC) 40 index for the entire study period.
Findings
The results show that high internal control index has a negative impact on the REM and that better internal control indeed makes financial reporting more credible to investors. Further, the results demonstrate that control environment, risk assessment, control activities and monitor are the components that mainly affect REM.
Originality/value
The results contribute to the literature dealing with the relationship between internal control quality and REM by shedding light on the importance of internal control quality in improving information quality in the French context. Moreover, this study is using a quantitative measure of the internal control quality while much of the prior literature uses material weaknesses to estimate the effectiveness of internal control system.
Keywords
Acknowledgements
The authors are grateful for the helpful comments of the two anonymous reviewers and the editor Pr. Khaled Hussainey.
Citation
Wali, S. and Masmoudi, S.M. (2020), "Internal control and real earnings management in the French context", Journal of Financial Reporting and Accounting, Vol. 18 No. 2, pp. 363-387. https://doi.org/10.1108/JFRA-09-2019-0117
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited