The Impact of Economic Recession on the Relationship Between Real Earnings Management and Accrual-Based Earnings Management

Articles in Press

Document Type : Research Paper

Authors

1 Department of Accounting, Faculty of Social Sciences, Economics, and Accounting, Razi University, Kermanshah, Iran

2 Department of Accounting, Faculty of Humanities, University of Jiroft, Jiroft

10.22103/jak.2025.24739.4143

Abstract

Objective: The purpose of this study is to examine the impact of economic recessions on managerial behaviors in utilizing real earnings management and accrual-based earnings management in the Tehran Stock Exchange. Specifically, the research seeks to shed light on how economic downturns shape financial reporting practices and the extent to which managers rely on these two methods of earnings management to achieve their objectives.

Method: This applied research adopts a correlational and ex post facto design. Financial data from 128 TSE-listed companies were analyzed over a 12-year period from 2011 to 2022, representing a total of 1536 firm-years. The study employed multiple regression models to test its hypotheses, ensuring that the results are both robust and reliable. Sensitivity analyses were also conducted to further validate the findings and account for alternative scenarios.

Result: The findings demonstrate a significant and positive relationship between economic recessions and REM. During such periods, managers tend to simultaneously employ REM and AEM to meet financial targets, but the reliance on REM is considerably higher. The analysis shows that economic downturns lead to a notable shift in managerial focus toward operational activities for achieving earnings goals.

Conclusion: The results indicate that earnings management intensifies during recessions, with managers placing greater emphasis on REM compared to AEM. These findings highlight the critical importance of increased oversight by stakeholders during economic downturns. Enhanced scrutiny can help detect and mitigate risks associated with earnings manipulation, ultimately contributing to greater financial transparency and integrity in reporting.

Keywords

Main Subjects

Journal of Accounting Knowledge

Articles in Press, Accepted Manuscript
Available Online from 29 April 2025

Files

History

  • Receive Date: 27 January 2025
  • Revise Date: 10 March 2025
  • Accept Date: 29 April 2025

Share

How to cite

Statistics