IS THE REPORTING METHOD OF OPERATING CASH FLOWS A DIFFERENTIATOR FOR EARNINGS MANAGEMENT AND CORPORATE PERFORMANCE?
IS THE REPORTING METHOD OF OPERATING CASH FLOWS A DIFFERENTIATOR FOR EARNINGS MANAGEMENT AND CORPORATE PERFORMANCE?

Summary/Abstract: This paper evaluates earnings management in the context of the two cash-flow reporting methods, using the Jones Model (1991) modified by Kothari et al. (2005), and analyses the corporate performance on the Romanian capital market. The research sample of 114 observations resulted from 57 companies listed on the Bucharest Stock Exchange is studied for a 2-year span: 2019-2020. The earnings management testing is carried out in the SPSS using the independent samples T-test aiming to identify whether the levels of earnings management practices for companies applying the indirect method and the direct one are significantly different. Moreover, an analysis of the corporate performance indicators ROA, EPS and CFO is carried out assuming that earnings management may be one of the factors explaining a higher level of performance for the companies using the indirect method. Additionally, the results are analysed in the context of the pandemic crisis (year 2020) compared with non-crisis period (year 2019), supposing that COVID-19 could affect corporate earnings management behaviour. The results show that during the health crisis, managers didn’t boost up the company`s earnings and tried to overcome financial difficulties. As to the earnings management testing, findings highlight that companies applying the indirect method are not engaged more in earnings management than those applying direct method. Therefore, their higher performance in some periods cannot be explained by earnings manipulations.

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