Does Environment Uncertainty Affect Earnings Management?


  • Gloria Putri Naftali Surbakti Faculty of Economics and Business, Universitas Airlangga, Surabaya, East Java, Indonesia
  • Erina Sudaryati Faculty of Economics and Business, Universitas Airlangga, Surabaya, East Java, Indonesia



Discretionary Accruals, Earnings Management, Environmental Uncertainty, Financial Distress


This research is aimed to examine the effect of environment uncertainty towards earnings management. This study is a quantitative study with sample all of manufacturing companies that are listed in Indonesian Stock Exchange (IDX) from period 2013 -2018 and publish the financial statement consecutively during period 2013-2018. The sample is selected by using purposive sampling techniques with total of 455 companies. This study uses secondary data that derived from the financial statements of manufacturing companies during that period. By using regression analysis and SPSS in processing research data, the study finds that environment uncertainty has positive impact to financial distress. It indicates when companies are facing an environment uncertainty, it will impact to their performance especially financial performance which leads to the financial distress condition. Companies in higher financial distress condition are more likely to manage their earnings by using earnings management which are measured by discretionary accruals. This research is useful for investor as one of consideration before making financial decision especially when companies are in uncertain environment.


Download data is not yet available.


Agoglia, C. P., Hatfield, R. C., & Lambert, T. A. (2015). Audit team time reporting: An agency theory perspective. Accounting, Organizations and Society, 44, 1-14.

Agrawal, K., & Chatterjee, C. (2015). Earnings management and financial distress: Evidence from India. Global Business Review, 16(5_suppl), 140S-154S.

Bendickson, J., Muldoon, J., Liguori, E., & Davis, P. E. (2016). Agency theory: the times, they are a-changin’. Management decision.

Bisogno, M., & De Luca, R. (2015). Financial distress and earnings manipulation: Evidence from Italian SMEs. Journal of Accounting and Finance.

Campa, D. (2015). The impact of SME’s pre-bankruptcy financial distress on earnings management tools. International Review of Financial Analysis, 42, 222-234.

Cui, X., Yao, S., Fang, Z., & Wang, H. (2020). Economic policy uncertainty exposure and earnings management: evidence from China. Accounting & Finance.

da Silva Roma, C. M., Louzada, L. C., da Silva Roma, P. M., Goto, H., & Souma, W. (2020). Earnings management, policy uncertainty and firm life cycle stages: evidence from publicly traded companies in the USA and Brazil. Journal of Financial Economic Policy.

Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. Accounting review, 193-225.

Dinh, T., Kang, H., & Schultze, W. (2016). Capitalizing research & development: Signaling or earnings management? European Accounting Review, 25(2), 373-401.

Elmassri, M. M., Harris, E. P., & Carter, D. B. (2016). Accounting for strategic investment decision-making under extreme uncertainty. The British Accounting Review, 48(2), 151-168.

Ghani, E. K., Azemi, N., & Puspitasari, E. (2017). The Effect of Information Asymmetry and Environmental Uncertainty on Earnings Management Practices among Malaysian Technology-Based Firms. International Journal of Academic Research in Economics and Management Sciences, 6(1), 178-194.

Ghazali, A. W., Shafie, N. A., & Sanusi, Z. M. (2015). Earnings management: An analysis of opportunistic behaviour, monitoring mechanism and financial distress. Procedia Economics and Finance, 28, 190-201.

Hassanpour, S., & Ardakani, M. N. (2017). The effect of pre-bankruptcy financial distress on earnings management tools. International Review of Management and Marketing, 7(3).

Huang, H., Sun, L., & Zhang, J. (2017). Environmental uncertainty and tax avoidance. In Advances in taxation: Emerald Publishing Limited.

Huang, W., Boateng, A., & Newman, A. (2016). Capital structure of Chinese listed SMEs: an agency theory perspective. Small Business Economics, 47(2), 535-550.

Kim, H., & Yasuda, Y. (2021). Economic policy uncertainty and earnings management: Evidence from Japan. Journal of Financial Stability, 100925.

Li, Y., Li, X., Xiang, E., & Djajadikerta, H. G. (2020). Financial distress, internal control, and earnings management: Evidence from China. Journal of Contemporary Accounting & Economics, 16(3), 100210.

Liang, D., Tsai, C.-F., & Wu, H.-T. (2015). The effect of feature selection on financial distress prediction. Knowledge-Based Systems, 73, 289-297.

Mao, Y., & Renneboog, L. (2015). Do managers manipulate earnings prior to management buyouts? Journal of Corporate Finance, 35, 43-61.

Martínez-Ferrero, J., Banerjee, S., & García-Sánchez, I. M. (2016). Corporate social responsibility as a strategic shield against costs of earnings management practices. Journal of Business Ethics, 133(2), 305-324.

Obigbemi, I. F., Omolehinwa, E. O., Mukoro, D. O., Ben-Caleb, E., & Olusanmi, O. A. (2016). Earnings management and board structure: evidence from Nigeria. Sage Open, 6(3), 2158244016667992.

Parker, D. W., Dressel, U., Chevers, D., & Zeppetella, L. (2018). Agency theory perspective on public-private-partnerships: International development project. International Journal of Productivity and Performance Management.

Ranjbar, S., & Amanollahi, G. (2018). The effect of financial distress on earnings management and unpredicted net earnings in companies listed on Tehran Stock Exchange. Management Science Letters, 8(9), 933-938.

Reim, W., Sjödin, D., & Parida, V. (2018). Mitigating adverse customer behaviour for product-service system provision: An agency theory perspective. Industrial Marketing Management, 74, 150-161.

Rezende, F. F., Montezano, R. M. d. S., Oliveira, F. N. d., & Lameira, V. d. J. (2017). Predicting financial distress in publicly-traded companies. Revista Contabilidade & Finanças, 28, 390-406.

Sharma, P., Leung, T. Y., Kingshott, R. P., Davcik, N. S., & Cardinali, S. (2020). Managing uncertainty during a global pandemic: An international business perspective. Journal of business research, 116, 188-192.

Song, J., Wang, R., & Cavusgil, S. T. (2015). State ownership and market orientation in China's public firms: An agency theory perspective. International Business Review, 24(4), 690-699.

Sun, L., & Al Farooque, O. (2018). An exploratory analysis of earnings management practices in Australia and New Zealand. International Journal of Accounting & Information Management.

Supriyanto, J., & Darmawan, A. (2018). The effect of financial ratio on financial distress in predicting bankruptcy. Journal of Applied Managerial Accounting, 2(1), 110-120.

Yung, K., & Root, A. (2019). Policy uncertainty and earnings management: International evidence. Journal of business research, 100, 255-267.