Earnings Management and Financial Reporting Integrity: An Empirical Analysis of EURO STOXX 50 Companies

Abstract

Earnings management, driven by financial incentives, poses significant challenges to the transparency of corporate financial reporting. This paper investigates the phenomenon, beginning with a theoretical overview of its evolution, highlighting how managers manipulate financial results to meet expectations. The study focuses on accruals, items in financial statements prone to subjective influence, and the grey areas in IAS/IFRS that enable such practices. Various detection models, including Beneish’s M-score, are reviewed. An empirical analysis of EURO STOXX 50 companies using the Beneish model identifies potential manipulation tactics and their implications for stakeholders. The final chapter explores how audit quality, influenced by auditor reputation and regulatory frameworks, impacts earnings management and the reliability of financial reporting. High audit quality is shown to mitigate manipulative practices, reinforcing the importance of engaging reputable auditors to ensure financial integrity and investor trust.