Earnings management tendencies of companies in period of economic crises

To attract investors, to get credits with low costs, to avoid some restrictions or to get advantage of incentives go through having a healthy financial situation. One of the most incentive factors for earnings management is signalizing that the firm have a sustainable profitability. Additionally, selling shares at the highest price to lower the public offering costs and showing the financial situation of the firm as high-grade to creditors are significant motivations for earnings management. Moreover, decreasing tax burden and consequently increasing firm performance in order to make firm successful are other incentive aspects that encourage the tendency for manipulating financial data. Leaving the accounting policy preferences up to the discretion of managers may alter the decision of stakeholders and that may cause losses at great extent. While manipulations that are within the limits of legal boundaries is a great problem, timing of the manipulations constitutes another problem. Economic conjuncture along with financial position and performance of the firm has immense effect on decision-making process. Manipulation tendency during economic crisis is compelling. Abrupt changes in the economy directly affect sales and costs of the firm. Especially deterioration in economic structure lowers profitability through increasing costs. Application of accounting policies may be altered for showing that firm has sustainable profitability. These efforts may increase during periods of degraded economy. In the thesis, financial data of 102 firms that are listed on BIST (Borsa Istanbul) are tested for earnings management tendencies of firms for periods that are labelled as "crisis periods" (2008-2012 and 2018-2022) and for periods that are labelled as "no crisis periods" (2003-2007 and 2013-2017) using panel OLS (Ordinary Least Squares). Earnings management is gauged with Jones and Modified Jones models. In the thesis, evidence that support the hypothesis that earnings management tendencies of firms increase during economic crisis is found. Keywords: Earnings Management, Economic Crises, Financial Reports