It is common for managers to manipulate their earnings to get a desired result. For example,many people use income smoothing to make financial reports more comprehensible to stakeholders. The problem, however, is that self-interest often takes over, which means that managers use earnings management to increase their own profits instead of helping stakeholders, which leads to a misleading result for them.This is explained more thoroughly in positive accounting theory (PAT). The theory states that managers' accounting choices can be explained by their self-interest. Within PAT, the political cost hypothesis is also presented. The hypothesis explains the correlation between companysize and earnings management. The hypothesis explains that large companies use more earnings management to avoid unwanted attention from society. This is because the demand from society increases when the company size gets bigger. It is on the basis of this hypothesis that this empirical study was created. The aim of this quantitative study has been to conduct a comparison between small and large companies on the Swedish stock exchange market. The purpose of this was to see if there is a correlation between company size and the use of earnings management. Data was collected from the year 2020, which was affected by the corona pandemic and a low economic growth. Since many earnings management models have been criticized, this study used a model presented by Vladu, Amat and Cuzdriorean (2017). Data was also collected from three control variables to ensure that company size is in fact thesurvey´s independent variable. These are ROA, solidity, and the number of board members. The results of the study showed that there was no significant connection between company size and the use of earnings management. The study found that the use of earnings management in financial reports had a correlation with the variable ROA at a 90% significance level. These findings can’t confirm the political cost hypothesis. However, the study found that the correlation between ROA and earnings management could be explained by the agency theory.The theory depicts the information a symmetry that exists between shareholders and managers.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:sh-49890 |
| Date | January 2022 |
| Creators | Fiedorowicz, Simone, Nelson, Ida |
| Publisher | Södertörns högskola |
| Source Sets | DiVA Archive at Upsalla University |
| Language | Swedish |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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