The Relationship Between Earnings Management and Inventory Management in Emerging Markets: The Case of Moroccan Companies Listed on the Casablanca Stock Exchange

Abstract

This study examines how inventory management influences accrual-based earnings management in emerging markets. Specifically, it analyzes the effect of three inventory performance indicators—Inventory Turnover Ratio (ITR), Inventory Service Level (ISL), and Inventory Coverage Rate (ICR)—on discretionary accruals (AVDA), measured as the absolute value of discretionary accruals estimated using the Kothari model. The Moroccan context offers a relevant setting due to the scarcity of research linking operational supply-chain metrics to financial reporting practices in emerging economies. The empirical analysis relies on 321 firm-year observations from 41 non-financial companies listed on the Casablanca Stock Exchange between 2016 and 2023. A panel fixed-effects regression model is employed to assess the association between inventory indicators and AVDA. Results show a significant negative relationship between ISL and discretionary accruals, while ITR and ICR exhibit no significant effects. These findings indicate that higher inventory service reliability is associated with reduced earnings management, highlighting the governance role of inventory-related SCM practices in Morocco.