The Effect of IFRS and SOX-like Regulations on Earnings Management in East Asian Countries

This thesis examines the effect of IFRS and SOX-like regulations on earnings management in Asian countries. Firstly, the study finds no strong evidence that IFRS convergence leads to a decline in discretionary accruals in Thailand. Institutional factors including debt and equity financing exhibit a positive relationship with discretionary accruals. Boards of directors and block shareholders appear to play a role in mitigating discretionary accruals, while big-4 auditors do not. Secondly, in the post-IFRS period, listed firms in China, Hong Kong, Malaysia, and Singapore experience a decline in income smoothing, especially those with a high level of income smoothing in the pre-IFRS period. These firms seem to switch from accruals to real activity manipulation, especially overproduction. In the post-IFRS period, however, their income smoothing level is still relatively high compared to those with a low level of income smoothing. Finally, JSOX contributes to a decline in loss avoidance of Japanese firms, especially large firms, but it has no effect on manipulating methods. Japanese firms with a propensity for avoiding losses, used both specific accruals and investment adjusting in both the pre- and post-JSOX periods. The study also finds that firms switch from one specific accrual to another to achieve loss avoidance and are likely to alter capital expenditure rather than research and development expenses. In short, changes in accounting standards and regulations contribute to some decline in earnings management in Asian countries. The institutional factors still negatively affect accounting quality in this region after many years of the changes.