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Abdelwahed Omri
Sonia Sayari
Hela Harrathi
Alain Finet
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Sonia Sayari
Hela Harrathi
Alain Finet
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Global Journal of Accounting, Economics and Finance

Full Length Research Paper

The impact of earnings management on stock returns: The case of Tunisian firms

*1Sonia Sayari, 2Abdelwahed Omri, 3Alain Finet and 4Hela Harrathi

1Department of Accounting and Finance, Graduate Institute of Accounting and Business Administration, University of

Mannouba, Tunisia (ISCAE)

2Professor in Graduate Institute of Management, and President of the Unit of Research; Finance et Stratégies des Affaires » (FIESTA)

3Lecturer at the Warocqué, Faculty of Economics and Management, Tunis

4Associate Professor, Department of Accounting and Finance, Graduate Institute of Accounting and Business

Administration, University of Mannouba, Tunisia (ISCAE)

Abstract

Measuring earnings management is a crucial issue for stockholders and investors alike. Investors’ efficient evaluation of a firm (firm performance and its stocks returns on the stock market) depends on the selection of a measurement model appropriate to earnings management. Within this line of thinking, our study aims at presenting and comparing four earnings management measurement models examining Tunisian stock market information content and the ability to forecast managers’ behaviour. We classified the variable “discretionary accruals” into higher and lower levels and then analysed its effect on returns. The obtained results point to a significant coefficient for the two levels of discretionary accruals (according to the four models). This confirms that discretionary accruals allow Tunisian investors to better evaluate firm value and optimally form their stocks portfolios. Moreover, this study highlighted the determining role of firm size and sector to better apprehend earnings management behaviour and its impact on stocks returns. Earnings management allows for increasing abnormal positive stocks returns for large Tunisian firms and reducing abnormal negative stocks returns for small Tunisian firms. Additionally, we found that discretionary accruals are sensitive to sector depending on the empirical model used. In conclusion, if these accruals measurement models reach conclusions which are empirically reliable, this comes from the fact that they are very partial to reflect a complex reality.

Keywords: Earnings management – return – discretionary accruals – size – sector