Authors: Maria Kyriakou, Augustinos Dimitras

Title: Earnings Management and Audit Fees during recession in Eurozone

Abstract

The aim of this study is to examine the relationship between earnings management and audit fees during financial crisis. There is no doubt that companies are more likely to face financial problems and to tend to earnings management techniques during financial crisis. For this reason we study the association between earnings quality and audit fees in this period. The study makes use of discretionary accruals as a proxy for earnings management and studies the influence of audit fees in order to shed more light on possible causes for shifting earnings. The analysis is focused on German, French, Italian and Spanish companies and the period of study is 2007-2013.

The findings between audit fees and earnings management are mixed. On the one side, the results of the study indicate that there is a positive and statistically significant relation between audit fees and discretionary accruals, suggesting high earnings manipulation. On the other side, we find that there is a negative and statistically significant relation between audit fees and discretionary accruals, indicating lower earnings management techniques.

The results provide evidence for both managers and investors.