ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Influence of the Relation between the Financial Ratio and Earnings Management

  • Kim, Sang Jo School of Business Administration, Sangmyung University

Asian Tax Journal Vol. 8 No. 4 (2007), pp. 153-171

Abstract

This study analyzed the manufacturing firms listed at Kospi and Kosdaq with useful information on financial positions and operating incomes from their financial statements. The measurements of earnings management were replaced with the values which were managers’ discretionary accruals(DA). The purposes of the research were investigating if financial ratios affect earnings management (hypothesis 1) and examining a conjecture that improved/weakened financial ratios influence earnings management in different ways (hypothesis 2).The result from the analysis shows that REV and LEV affected earnings management most significantly in order, and LIQ and GROWTH had next influences on it as well (hypothesis 1). LEV had the most significant impacts on the firms with improved financial ratios, while REV was the greatest influential factor to the firms with weakened financial ratios (hypothesis 2).Therefore, the research result confirms the effects of financial ratios on earnings management.<Key words> financial ratio, earning management, discretionary accruals, accounting information,financial statement

Keywords

  • financial ratio
  • earning management
  • discretionary accruals
  • accounting information
  • financial statement

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