The Relationship between Earnings Management and the Market Value of a Company

All investors make decisions about resource allocation based on information provided by the company's management. Reports that include the required information for shareholders are compiled using international financial reporting standards (IFRS) and give the company's management more freedom of action. Management, using this discretion, can manipulate financial information, in particular the firm's earnings. This is called earnings management, which has important consequences for the future of the firm. This earnings management can be based on accruals and real actions. If earnings management is profitable for the firm, it is called effective earnings management. On the contrary, if it is harmful, it is opportunistic. This paper examines the types and motives of earnings management for Russian non-financial companies over the period of 8 years from 2011 to 2018, and reveals a positive relationship between the aspects of earnings management and the company's value variables. After all, when the sample was divided into two categories based on financial condition, firms with financial difficulties used opportunistic earnings management, and financially healthy companies were characterized by effective earnings management. Accrual earnings management has had a greater impact on the Russian companies in comparison with the real earnings management.