of the methods. Both studies assume a substitution effect of the use of accruals-based earnings management to the use of real earnings management. The conclusion of both studies is that this assumption is valid; the introduction of IFRS creates a substitution effect of the accruals-based to the real earnings management. Because of connection with this research, these findings are indicative for this research. However, the different circumstances the researches have been performed in have their influence on the outcome. No research that has been presented before is similar to this research, because of factors like investor protection by which French Civil Law differ from other types of law countries which will create differences in the outcomes. These factors will be commented in the next section. 4.3 French Civil Law factors Before researches about the influence of the introduction of IFRS on the use of earnings management have been commented, next the focus will be on the distinction of this research compared to these earlier conducted studies. The results of a research may be influenced by a country-specific factor or a common factor of more than one country. In this research, the focus is on countries with the French Civil Law; this type of law has its own characteristics but in addition the countries that are labelled as French Civil Law differ from each other. In order to understand the characteristics of French Civil Law countries, the general characteristics will be presented, but in addition the countries will be commented separately when they do not comply with the general characteristic. First the distinction between the civil and the common law. The civil law uses statutes and comprehensive codes to order legal material. Currently three common families of law within the exist: French, German and Scandinavian (La Porta et al. 1998, p 1118). This research focusses on the French Civil Law family including the countries The Netherlands, Belgium and France. The common law does not use the contributions of scholars to shape the law, but used judges to resolve disputes. Examples of countries that use this type of law are The United States of America, Canada, Australia and India. When comparing these families, the Scandinavian and German law create average shareholders and creditors’ protection in which the French civil law provides the weakest protection. Before some differences between the different civil law countries have been described, because of the use of this type of countries in this research, next the characteristics of the French civil law will be further explained.
focussing on early adopters of IFRS Jeanjean, T. and Stolowy, H. (2008) The effect of the mandatory introduction of IFRS on earnings quality 1146 France, U.K. and Australian companies adopters) in the period Wilcoxon rank-sum test The pervasiveness of earnings management did not decline the implementation of IFRS, it even increased in France Lippens, M. (2010) Whether the mandatory adoption of IFRS by all listed companies in the EU has led to significant lower levels of earnings management Listed companies from Belgium, The Netherlands, Denmark, Sweden Cross-sectional Jones Model and model of Roychowdhury Both accruals-based and real earnings management increased after implementation of IRFS. The methods are used as substitutes McNichols M.F. (2000) Discussion of associated with three research designs commonly used in the earnings management literature: aggregate accruals, specific accruals and the distribution of earnings n/a Aggregate accruals, specific accruals and distribution of earnings The trade-off in approaches depends on the central question, objective method and incentives of a research Soderstrom N. and Sun K.J. (2007) Review the change in accounting quality and the determinants causing this following widespread IFRS adoption in the EU n/a Literature review Accounting quality depends on: (1) quality of standards, (2) country’s legal and political system and (3) financial reporting incentives Ronen and Yaari (2008) Give insight in the theory, practice and research that is done earnings management n/a Literature review including explanations of different methodologies n/a Roychowdhury (2008) Whether managers manipulate real activities to avoid reporting annual losses In the period of 1987 and 2001 are 21,758 36 industries and 4252 individual firms tested Own models estimate normal levels of sales, discretionary expenditures and COGS to compare this with the real numbers Real activities manipulation is used to avoid losses and/or negative annual forecast errors
274 4.220 .31 .0720 .23373 277 4.497 .32 .0681 .24903 401 4.884 .34 .0706 .27046 402 3.893 .29 .0706 403 4.458 .32 .0706 443 3.212 .25 .0706 .17787 a. Dependent Variable: Real Earnings Management Residuals Statisticsa Minimum Maximum Mean Std. Deviation N Predicted Value .0616 .0745 .0680 529 Residual -.07198 .27046 .00000 529 Std. Predicted -1.565 1.593 .000 1.000 529 Std. Residual -1.300 4.884 .000 .997 529 a. Dependent Variable: Real Earnings Management Real Earnings Management Variables Cash Flow from Operations Variables Entered/Removedb Model Variables Entered Variables Removed Method 1 Country, Accounting Standard, Size . Enter a. All requested variables entered. b. Dependent Variable: Cash Flow from Operations Model Summaryb R R Square Adjusted R Square Std. of the Estimate
Std. Residual -1.337 4.662 .000 .997 563 a. Dependent Variable: Cash Flow from Operations Costs of Goods Sold Variables Entered/Removedb Variables Entered Variables Removed Method 1 Country, Accounting Standard, Size . Enter a. All requested variables entered. b. Dependent Variable: Costs of Goods Sold Model Summaryb R R Square Adjusted R Square Std. of the Estimate 1 .075a .006 .000 .10887 a. Predictors: (Constant), Country, Accounting Standard, Size b. Dependent Variable: Costs of Goods Sold ANOVAb Model Sum of Squares df Mean Square F Sig. 1 Regression .037 3 .012 1.046 .372a Residual 6.566 554 .012 6.603 557 a. Predictors: (Constant), Country, Accounting Standard, Size
Variables Entered/Removedb Variables Entered Variables Removed Method 1 Country, Accounting Standard, Size . Enter a. All requested variables entered. b. Dependent Variable: Change in Inventory Summaryb Model R R Square Adjusted R Square Std. of the Estimate 1 .333a .111 .106 .03382 a. Predictors: (Constant), Country, Accounting Standard, Size b. Dependent Variable: Change in Inventory ANOVAb Model Sum of Squares df Mean Square F Sig. 1 Regression .080 3 .027 23.312 .000a Residual .639 559 .001 Total .719 562 a. Predictors: (Constant), Country, Accounting Standard, Size b. Dependent Variable: Change in Inventory Coefficientsa Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) .042 .003 15.142 .000 Country -.018 .003 -.253 -6.304 .000 Accounting Standard .005 .003 .064 1.615 .107 Size -.013 .003 -.181 -4.498 .000 a. Dependent Variable: Change in Inventory Casewise Diagnosticsa Case Number Std. Residual Change in INV Predicted Value Residual 91 3.720 .17 .0421 .12580 106 4.408 .20 .0467 112 3.088 .15 .0467 .10443 116 3.086 .14 .0338 .10437