Earnings Management amid the COVID-19 Financial Crisis: The Experience of Poland
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Department of Corporate Finance, Poznań University of Economics and Business, Poland
Submission date: 2022-06-07
Final revision date: 2022-09-19
Acceptance date: 2023-01-04
Publication date: 2023-03-31
Corresponding author
Joanna Lizińska   

Department of Corporate Finance, Poznań University of Economics and Business, Poland
GNPJE 2023;313(1):93-112
This study examines the consequences of the COVID-19 turbulence on the informativeness of financial reporting. Using data from non-financial public companies in Poland, our evidence documents the evolution of accrual and real earnings management during the pandemic period. We estimate earnings quality with cross-sectional models, observing abnormal accruals, abnormal cash flow from operations, abnormal discretionary expenditures and abnormal production costs. We contribute to the debate on earnings management during financial crises. Specifically, discretionary accruals declined significantly during the crisis. This suggests companies were less eager to inflate earnings via accruals. Polish firms also seemed to be more inclined to adopt the ‘big bath’ strategy to inflate future income. Additionally, the research provides support for predictions that real earnings management gained importance during the turbulence when the total effect of boosting income through real transactions was significant. It suggests that during the COVID-19 crisis companies based their strategies more on the probability of being detected, rather than on the cost of such activities. The study adds to the debate on the qualitative characteristics of earnings as key accounting information and its importance in corporate finance, issues that cannot be overestimated from the perspective of company stakeholders.
The project has been financed under the 2019–2023 Regional Initiative for Excellence programme by the Polish Ministry of Education and Science: Grant No. 004/RID/2018/19, with financing to the tune of PLN 3,000,000.
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