Explanatory Power of Earnings Management Models

Abstract

Research background: Authors deal with the current issue of Earnings Management (hereafter „EM“). It can be said that the emphasis on this issue is constantly growing, especially abroad. Under the condition of Slovak economy, earnings management practices are considered to be a currently developing issue. Based on the globalization, EM practices, models and techniques created abroad are also reaching European countries. Mainly after the recent economic fluctuations caused by financial crisis or COVID-19, the application of earnings management principles in companies with an effort to achieve a balanced profit can be assumed. Within studies or researches, there are many earnings management models. Most of them were created abroad. It means in different economic conditions. There is therefore a question of their use in the conditions of the Slovak economy. Particular importance is their explanatory power, which they achieve in different economic conditions than those in which they arose. Purpose of the article: The aim of the paper is to test the explanatory power of selected foreign models in the Slovak Republic. Methods: Statistical methods used in selected EM models (regression, Mann-Whitney nonparametric test); adjusted R square predicted sign of a variable, standard deviation significance level of model to verify the explanatory power of selected models. Findings & Value added: The added value of the contribution is in the testing of the explanatory power of selected foreign models in other economic conditions in which they were created.