Detecting earnings management: a study of German public companies during global financial crisis 2008

Abstract

The overall goal of the master thesis – is to detect earnings management using evidence from German companies during crisis period. The list of incentives for earnings management during financial crisis was elaborated, among which were income-increasing as well as income-decreasing and smoothing strategies. The earnings management was detected in the event year (2008 or 2009 depending on the industry) and the year preceding to the crisis. Big-bath accounting was the most preferable earnings management strategy in year -1. For the year 0 mixed evidence was gathered. Discretional accruals turned out to be different within the same industry (except Automobile). Asset quality index, gross margin index and industry belonging was proved to have positive correlation with the probability of earnings manipulation.