Abstract:
The growing global uncertainty has pushed firms to re-assess their
financial strengths, and re-examine their earning management strategies and
methods. It is now common knowledge that firms face unexpected variations in
several different, firm-specific, and macroeconomic factors at a time. Therefore,
this research sets out to examine the role of both idiosyncratic (firm-specific) risk
and macroeconomic uncertainty in earnings (discretionary accrual)
management, of 400 non-financial listed firms, over the time period spanning
from the year 2000-2016. In this regard, this study offers robust empirical
evidence that is based on the importance of both idiosyncratic and macroeconomic
uncertainties, by considering various indicators of each type of uncertainty that
is taken into account. The empirical findings state that there is a negative impact
of both types of uncertainties on discretionary accruals. Notably, the findings
reveal that compared to the impact of idiosyncratic risk, the uncertainty
associated with macroeconomic factors tends to have greater impacts on accrual
management of the Pakistani firms. These findings about the earning
management effects of uncertainty are useful for different stakeholders including
policymakers, customers, suppliers, investors and firm managers in order to
formulate appropriate strategies and device relevant policies.
