Document Type : Original Research
Authors
Department of Accounting, Widya Mandala Catholic Surabaya University, Surabaya, Indonesia
Abstract
This study aims to examine the role of business strategy in the relationship between earnings management and MD&A readability. Previous research has shown inconsistency of results in testing the effect of earnings management on MD&A readability. This inconsistency can be caused by the fact that the business strategy variable has not been included as a contextual basis for the implementation of operational activities. Earnings management in this study is measured by real earnings management, because previous studies have used accrual earnings management. The hypotheses are tested with the multiple linear regression. The results show on 189 cross-sectional data on publicly traded consumer goods companies show that: (1) real earnings management reduces MD&A readability in defender and prospector companies; (2) analyzer companies perform real earnings management – discretionary expenses reduce the readability of MD&A; (3) firm size as a control variable in this study has no effect on the readability of MD&A. The results of this study imply that (1) strategy is a contextual factor that affects operational activities and ultimately on the readability of MD&A, (2) earnings management through discretionary expense activities reduces the readability of MD&A, regardless of the business strategy adopted by the company.
Keywords
Main Subjects
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©2023 The Author(s). This is an open access article distributed under the terms of the Creative Commons Attribution (CC BY 4.0), which permits unrestricted use, distribution, and reproduction in any medium, as long as the original authors and source are cited. No permission is required from the authors or the publishers.
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