Escritura de los datos

This chapter has highlighted the significant issue of earnings management and the im- portance of qualitative accounting information through the notes. In particular, it pre- sented an introduction and the theoretical background of earnings management. This includes definitions and perspectives and techniques of earnings management. In addi- tion, it reviews the previous empirical studies about measurement of earnings manage- ment. Also, this chapter discusses the motives for earnings management activities. A critical understanding of the motives is required in order to restrict the management from influencing the earnings. In this context, the previous research addresses the effect of corporate governance tools. The review has shown that the external auditor can re- strict earnings management activities. Further, it pointed out the crucial importance of the audit committee and the independent financial expert. Especially in case of coopera- tion between the audit committee and the external auditor the probability to restrict the management from manipulating the earnings increases. Finally, prior studies on owner-

84 ship structures demonstrate that managerial ownership as well as institutional and for- eign investors positively influences the earnings quality.

Previous research on earnings management analyzed the utility of accounting compara- bility. The review showed that standard setters and accounting regulators have long stressed the importance of financial statement comparability as one of the key character- istics to evaluate earnings quality. An increased level of comparability can improve the effectiveness of monitoring regarding earnings management. In this context, the review showed that the XBRL-formatted financial statements provide better data for the pur- pose of comparability research. The data is machine-readable and it is not aggregated. Furthermore, the review presented the important role of the notes to the accounts in fi- nancial reporting. Previous research found out that the notes provide qualitative infor- mation which is otherwise not shown on the face of the financial statements. It was shown that this improves the understanding of the firm’s financial situation as well as the current and future earnings. This in turn reduces information asymmetries according to the previous literature. The findings draw on communication theory. In addition, the review of disclosure quality research demonstrated that more transparent information environment reduces the propensity to manipulate the earnings. In contrast, managers opportunistically influence earnings when disclosures are more complex according to the manipulation theory.

In conclusion, the review showed that there is a growing number of papers examining the properties and benefits of accounting comparability research. The majority of re- searchers focused on the comparability across firms audited by the same auditor and across countries. However, there is a lack of research on within-industry comparability. Firms within the same industry should possess similar accounting due to their exposure to a same set of economic events and circumstances. Dissimilarities of accounting in- formation within the same industry can indicate earnings manipulations. Therefore, studies on firm-year level have to be done in order to analyze the within-industry com- parability.

Further, the majority of researchers studying the benefits of accounting comparability apply an output-based comparability score developed by De Franco et al. (2011). How- ever, this comparability measure is based on earnings itself. An input-based comparabil- ity score is more appropriate for examining earnings management. However, the litera-

85 ture is still lacking regarding input-based measures. Previous comparability research did not focus on the properties and benefits of accounting inputs, such as accounting poli- cies. Especially the adoption of industry-specific accounting policies increases the level of comparability. This in turn reduces the opportunities to implement earnings man- agement without scrutiny. Therefore, accounting inputs need to be considered as an ad- ditional aspect of earnings quality.

The vast majority of previous research in the field of accounting comparability is lim- ited on quantitative financial information. The analysis is objective and straightforward to construct since it is based on figures of the primary financial statements. However, literature is still lacking on comparability and similarity of the qualitative information provided by the notes. This is despite the fact that the notes provide additional explana- tions which are especially useful to detect earnings management. Similarities of the notes increase the transparency of information environment. A higher level of transpar- ency causes improved possibilities for users to compare earnings quality. This in turn increases the risk of scrutiny and might restrict the management from manipulating the earnings. Hence, this research analyzes the relationship between similarities of the notes and earnings management. It is different from the previous research by focusing on firm-year level which should outline the within-industry comparability. Since more sim- ilar notes should also restrict managers from real cash flow decisions, the analysis in- cludes both variants of earnings management.

The review showed that XBRL standard is fairly new in accounting research. Although there are multiple advantages of using XBRL, it received only little attention compared to other data sources. Critical voices in accounting literature state that the XBRL con- version is still in progress and thus, the time-series availability is limited. However, the literature review showed that the availability of accounting data in XBRL format con- stantly improved over the previous years. Therefore, this study uses detail-tagged notes in XBRL format retrieved from SEC EDGAR database. In contrast to previous studies, this approach allows analyzing different parts of the notes. Those particular parts of the notes could have slightly different properties regarding disclosure and earnings quality. Furthermore, the machine-readable XBRL format provides an effective way to measure the textual similarity of the notes. The next chapter explores the research methodology to achieve the research aim. Since previous research did not focus on similarity of the notes, it first needs to be specified which factors determine similarity of the notes.

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3 Research Methodology

This chapter aims to point out the overall approach of this research about the rela- tionship between financial notes to the accounts and earnings management. It will describe the research approach and look upon the tools, measures and research de- sign employed in this PhD thesis.

3.1 Introduction

Having reviewed the extant literature in the field of research, the next step of this PhD thesis is to explain the adopted research methodology. This constitutes the basis to achieve the research objectives (Ryan et al., 2002). Therefore, this chapter attempts to demonstrate the overall philosophical and methodological approach to the reader of the study. This is of crucial importance to understand the research strategy in order to an- swer the research questions. Since the research philosophy has a significant influence on the methodological approach and the way to understand knowledge, the next section of this chapter provides an overview about the different research paradigms and the choice of a suitable philosophical underpinning to conduct this study. Further, section 3.3 out- lines the importance of an appropriate research approach. This section explains how the research paradigm influences the research approach and the difference between an in- ductive and a deductive approach. Finally, section 3.4 concludes this chapter by discuss- ing the ethical considerations of this PhD thesis.