The Determinants of Earnings Management in Developing Countries : A Study in the Tunisian Context

This paper investigates the factors that determine earnings management in emerging countries through the example of Tunisia. The empirical analysis is conducted by dividing the factors into two principal group — incentive group and constraint group — and by using data of 19 Tunisian listed companies collected from the Tunisian stock exchange for the period 2003-2009. To estimate discretionary accruals, three models, namely, Dechow et al. (1995) (modified Jones model), Kothari et al. (2005) and Raman and Shahrur (2008), have been used. In order to test for determinants of earning management, the residuals of these models (discretionary accruals) are regressed on a set of explanatory variables that are hypothesized to have an impact on earnings management. Empirical analysis reveals that on the whole, the results seem to depend on the model used to estimate the discretionary accruals. In particular, six (indebtedness, firm size, performance, cumulation of the managerial and the board chair roles, managerial propriety, and dividend policy) of the nine variables considered are found to significantly determine earnings management. In addition, empirical results show that three (firm size, cumulation of the managerial and the board chair roles, and managerial propriety) out of the six determinants do not have a sign as expected