Macroeconomic Growth Determinants and EarningsManagement: Investigating The Mediating Role of Corporate Governance and Accounting Quality
Year: 2025
Type: article
Abstract: Earnings management is a long-term problem in the corporate governance of the world, and about 30-40 percent of publicly traded companies are involved in some types of earnings manipulation every year. Even though the role that macroeconomic variables play in earnings management has been explored in past literature, the mediating roles that corporate governance and accounting quality mechanisms play in this context have been rather underrepresented. This current research investigates the existence of the relationship between the determinants of macroeconomic growth and earnings management in the emerging market economies and the mediation of corporate governance and accounting quality. The study provides a variety of econometric methods, such as Structural Equation Modeling (SEM), System-GMM estimation, and Baron Kenny mediation analysis using a comprehensive multinational panel dataset, which consists of 5,000 companies in 40 countries from 2010-2022. The measure of earnings management is through discretionary accruals through the Modified Jones Model, and macroeconomic determinants include GDP growth, development of financial markets, and inflation rates. There is strong empirical evidence in support of all hypotheses across model specifications. GDP growth and development of financial markets have a major negative impact on earnings management, as well as inflation demonstrates a positive correlation with manipulation. Corporate governance and accounting quality become important mediators with total indirect effects of GDP growth and financial market development of -0.086 and -0.099, respectively, 49 and 59 percent of the total effects. The SEM model fits very well, as shown by RMSEA of 0.067 and CFI of 0.962. The level of macroeconomic stability has a significant impact on earnings management in governance and accounting quality channels. Corporate governance describes at most 50 0.25% and accounting quality at most 35 0.25% of a macroeconomic influence on earnings manipulation, thus supporting coordinated policy responses to emerging markets.
DOI: 10.14419/339m0703
Authors: Yujie Liu, Nelli Akylbekova, Kalybek Abdykadyrov
Institution: Kyrgyz State National University
Subfield: Accounting
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W4415992520
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