QUARTERLY EARNINGS MANAGEMENT AROUND THE WORLD: LOSS AVOIDANCE OR EARNINGS DECREASE AVOIDANCE?

The purpose of this study is to identify and explain the differences in the characteristics of earnings management around the world through an examination of quarterly earnings. First, we identify an earnings target in each country. We find that corporations in Finland, Germany, Italy, and Japan tend to avoid making losses and those in Israel and the U.S. tend to avoid earnings decrease. Second, we measure the extent of earnings management in each country. Our findings show that corporations in Japan, Germany, and Israel tend to manage earnings to achieve an earnings target, meanwhile those in Finland, Singapore, and the U.S. don't tend to manage earnings relatively. Third, we examine the dividend and investment policies. Corporations in Japan and Finland are dividend focused, meanwhile those in Israel and the U.S. are investment focused. Fourth, we calculate an institutional factor to identify the reasons for earnings targets, procedures, and dividend and investment behavior. Our results show that earnings targets, procedures, and dividend and investment behavior are closely related to the accountability for investment and the propensity to take risk in each country.