1.6　Study organisation

This book is a collection of three essays that focus on EM in European private and public firms.Following this introduction，Chapter 2 reviews the relevant literature.Chapter 3 computes four different proxies capturing a range of country-level EM activities：（1） the tendency of firms to hide small losses，（2） the magnitude of total accrual，（3） smoothness of earnings and（4） the correlation between accounting accruals and operating cash flows，and examines the effects of mandatory IFRS adoption on EM.It also considers other institutional factors，such as legal enforcement，investor protection and tax regimes influencing the level of EM across European countries.Chapter 4 focuses on accrual quality and conditional conservatism of European private versus public firms and compares firms’ accrual quality and conditional conservatism in the pre-IFRS and post-IFRS adoption period，to test the impact of IFRS adoption.It also examines whether firm-level factors affect differential EM between private and public firms.Chapter 5 examines whether the extent of REM differs among private versus public firms by using accounting data of European firms，and tests this difference both in general and in certain settings，where clear incentives for EM exist.As in the previous two chapters，the impact of IFRS adoption is considered in Chapter 5 as well.Finally，Chapter 6 provides a summary of the study，discusses the implications and limitation of the book and raises significant issues and questions which might be the subject for future study.

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[1]For example，after the Worldcom scandal，US Congress passed the Sarbanes-Oxley Act，introducing the most sweeping set of new business regulations since the 1930s.The SOX Act mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud.

[2]The European Union Parliament accepted Regulation （EC） No.1606/2002 that requires all listed firms in the Europe adopt IFRS to prepare their consolidated financial statements，for annual periods beginning on or after 1 January 2005.

[3]This definition is consistent with Roychowdhury （2006） who defines real activities manipulations as：“…management actions that deviate from normal business practices，undertaken with the primary objective of meeting certain earnings thresholds.”

[4]A standard Amadeus company report includes 25 balance sheet items，26 profit-and-loss account items and 26 ratios.

[5]IFRS adoption starts from 2005，so the year between 2001 and 2004 is considered as a pre-IFRS adoption period and 2006-2013 is a post-IFRS adoption period.

[6]In 1983，Rosenbaum and Rubin introduced PS matching analysis as an alternative tool to control for confounding.The advantages of using matching models are （1） they do not rely on a specific functional form and provide a more direct estimate of the treatment effects，and （2） they mitigate the potential impact of nonlinearities in estimating the treatment effects when the underlying functional for is nonlinear （Li and Prabhala，2005）.The disadvantage is the smaller sample size，and hence，as stated by Cram et al.（2007），matching reflects a trade-off between identifying the treatment effects and generalizing the results to the full population.

[7]After ruling out the existence of financial crisis，the results continue to show that public firms have higher accrual quality and report more conservatism in the post IFRS period.