Associations of earnings management manipulation types to debt contracts, political costs and characteristics of board of directors: A study at borsa Istanbul

Managers might try to take advantage of flexibilities within the context of accounting standards in order to mislead users of financial statements. According to literature, one of the common ways to use flexibilities is to practice earnings management over accruals inappropriately. The purpose of this study is to discover whether the firms listed at Borsa İstanbul (BIST) are practicing earnings management as a device to signal private information about the firm's future performance to the market (efficient) or to manipulate users of financial statements (opportunistic). In addition, this dissertation investigates the effects of debt covenants, political costs (size effects), size of board of directors and board independency on the types of earnings management. For this purpose, hypotheses have been developed and tested with different modes using ordinary least squares regression.The publicly available, 179 non-financial Turkish firms listed at Borsa Istanbul have been studied for the eight years of reporting period between 2006 and 2013. Main findings of the study reveal that listed firms at BIST selected the type of earnings management as efficient. Moreover, high leveraged firms do not use earnings management more than low leveraged firms; large firms use earnings management more than small firms; firms with large boards use earnings management more than firms with small boards and firms with high proportion of independent non-executive board members do not use earnings management more than firms with low proportion of independent non-executive board members.