Earnings Management and the Corporate Life Cycle: The Moderating Role of Managerial Ability
DOI:
https://doi.org/10.14392/asaa.2025180209Keywords:
Managerial Ability, Earnings Management, Life Cycle StagesAbstract
Objective: This article investigates the moderating effect of managerial ability on the relationship between life-cycle stage and earnings management.
Method: To assess managerial ability, we adopted the model proposed by Demerjian et al. (2013), and earnings management was examined using the Kothari et al. (2005) model. The classification of corporate life cycle stages - introduction, growth, maturity, and decline – followed the methodology of Dickinson (2011). Accordingly, descriptive and documentary research with a quantitative approach was conducted, using statistical methods such as correlation analysis and OLS regression. The database covered the period from 2011 to 2020 and comprised a sample of 205 firms that provided complete information for the variables analyzed.
Results or Discussion: The results showed a positive and significant relationship between the corporate life cycle stages - introduction and decline - and earnings management. We also observed that managerial ability intensifies this relationship in these twostrengthens this relationship across both stages. The findings further indicate that managerial ability enhances the relationship between the life-cycle stages (introduction and decline) in earnings management practices. In contrast, the opposite is observed for the growth and maturity stages. It is concluded that earnings management practices vary according to the company’s life cycle stages and the manager’s ability.
Contribution: This study demonstrates that managerial ability influences earnings management practices across the different stages of the corporate life cycle. In this way, it deepens understanding of how internal characteristics (managerial ability) interact with contextual variables (life cycle) to affect accounting decisions. Furthermore, the results indicate that the effect of managerial ability varies across life-cycle stages, suggesting that organizational behavior is not homogeneous over time. This suggests that decisions regarding accounting practices are shaped by both the manager’s ability and the company’s life-cycle stage.
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