Comparison of the Effects of Earnings Management on the Risk Premia between Companies in Developed and Emerging European Countries
The literature shows that firms from emerging countries have a higher risk premium than those from developed countries. Empirical studies also find that earnings management explains firms' risk premium, but until now, it has not been analyzed whether the effect of earnings management of the cost of capital is different depending on the type of country of origin (developed vs. emerging). To do so, we constructed a database of companies from both types of countries and from the same geographical area (Europe), so that a priori, given the relationships between them, we do not expect to find different effects of earnings management. In addition, in both groups of companies we include some that are subject to a common regulatory framework and the same currency (euro) to check whether there is any differentiating effect between companies from isolated emerging countries and those belonging to the eurozone. In developed countries we find a positive relationship between earnings management and risk premiums, however, such a relationship is not significant for companies from emerging countries. If the emerging country belongs to the eurozone, the effect is positive and significant, but smaller for developed countries
Year of publication: |
[2022]
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Authors: | Gonzalez Sanchez, Mariano ; Ibáñez Jiménez, Eva M. ; Segovia, Ana |
Publisher: |
[S.l.] : SSRN |
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