Earnings management: Evidence of listed and unlisted companies in europe

Abstract

This work studies earnings management in European listed and unlisted companies. The sample comprises 8,752 firms from nine European countries for the period 2005-2012. In order to proxy earning managements, authors computed the level of discretionary accruals using the modified Jones model. The main results suggest that unlisted companies are more likely to manage earnings than listed companies. This trend is observed either in common law or code law countries, being the most pronounced difference in the first group. There is also evidence that listed companies tend to manage earnings further downwards, suggesting more conservative accounting earnings. Overall, evidence indicates that European listed companies show higher earnings quality than their unlisted counterparts. These findings contribute to the scarcity of literature focused on unlisted companies, whose importance in the business framework and the European economy is significant. Conclusions of this study are particularly relevant for investors and regulators.