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

  • Biln cpt
    732 mots | 3 pages
  • 2013 EC4 correction
    1501 mots | 7 pages
  • Etude de cas British exit
    645 mots | 3 pages
  • diagnostique financier
    859 mots | 4 pages
  • acqu
    3078 mots | 13 pages
  • Revenue management chez accor
    7585 mots | 31 pages
  • Administration des médicaments en établissement médico sociaux
    1184 mots | 5 pages
  • fejrnlkjsndflkj
    457 mots | 2 pages
  • eco d'e/se
    11406 mots | 46 pages
  • Raport confiserie
    598 mots | 3 pages
  • Dossier eco
    1556 mots | 7 pages
  • Commentaire d'arrêt 15 mai 2008
    1452 mots | 6 pages
  • Le marché boursier marocain
    4996 mots | 20 pages
  • Gestion Parascolaire
    31010 mots | 125 pages
  • Transmission d'entreprise
    19044 mots | 77 pages