Earnings management in the pharmaceutical industry

4709 mots 19 pages
|EARNINGS MANAGEMENT IN THE PHARMACEUTICAL INDUSTRY |

Introduction:

According to Healy and Wahlen[1] (1999), “earnings management occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers”. Nevertheless, this practice should not be confused with illegal manipulations of financial statements, changing companies’ performances. Earning management is rather a legal decision-making and a reporting process for the management. In this paper, the discussion is split over two parts. Firstly, we will draw a theoretical overview of earnings management which will focus mainly on: the Management’s incentives to manage earnings, the tools used to reach the Management’s goals, and the consequences of these practices on the different stakeholders. Secondly, we will illustrate our first part’s findings in an empirical overview which will analyse ten pharmaceutical companies.

I. A theoretical overview of earnings management.

a. The incentives to manage earnings for a company As a starting point of their 1997 article about earnings management, Burgstahler and Dichev[2] state d that there is a surprising small occurrence of small decreases of earnings changes whereas there is a great occurrence of small increases, which create a gap of discontinuity in the empirical distribution of changes in annual net income. In 1995, Hayn[3] explains this empirical fact “These results suggest that firms whose earnings are expected to fall just below the zero earnings point engage in earnings manipulations to help them cross the “red line” for the year. The reason for this is that companies manage their earnings so that they

en relation

  • Research in merger and aquisition : pfizer/vicuron deal
    14549 mots | 59 pages
  • Biotechnology
    78234 mots | 313 pages
  • Recherche
    46749 mots | 187 pages
  • Social security in france
    2739 mots | 11 pages
  • Etudiant
    31982 mots | 128 pages
  • Étude aviation d'affaire
    10699 mots | 43 pages
  • Lexique business en anglais
    11532 mots | 47 pages
  • Problems and opportunities from the rapid growth of india
    3280 mots | 14 pages
  • Corporate governanc
    12090 mots | 49 pages
  • Industry survey: oil & gas
    42606 mots | 171 pages