eThesis - School of Business electronic theses

This study examines earnings management to achieve earnings benchmarks. Earnings management is examined in terms of both accrual-based earnings management and real earnings management, the latter of which, is further decomposed into separate investigation of sales manipulation and overproduction. This study particularly focuses on earnings management associated with the following three earnings benchmarks: meeting analysts' earnings expectations, reporting positive profits and improving previous year's financial performance.

This study is quantitative in nature. The sample of the study consists of companies listed in the Helsinki Stock Exchange during the research period of 8 years between 2005 and 2012. The sample is first categorized into two sub-samples based on distributions of sample companies' reported earnings around earnings benchmarks. Further, OLS regression based estimation models are applied to assess the levels of earnings management within the sub-samples.

The results of this study indicate that management's desire to achieve earnings benchmarks acts as an incentive for earnings management in the Finnish context. In particular, the study results suggest that Finnish companies engage in accrual-based earnings management to reach analysts' earnings expectations, and exercise overproduction to improve previous year's financial performance. Regarding the benchmark of reporting positive profits, however, this study does not find proof of any type of earnings management to reach this benchmark.