Title: Earnings management across publicly traded and privately held French SMEs

Authors: Ludovic Vigneron; Yves Mard

Addresses: IDP (EA 1384), University of Valenciennes, 1, rue des cent têtes, 59313 Valenciennes, France ' CRGCM (EA 3849), University of Auvergne, 28, place Henri Dunant, 63000 Clermont-Ferrand, France

Abstract: We study how SMEs' financial choices affect the quality of accounting information in the French case. Using a sample of 925 firms observed over a nine year period, we compare earnings management practices between publicly traded SMEs (hereafter PUB_SMEs) and privately held ones (hereafter PRIV_SMEs). We find evidence, firstly, that access to the stock market encourages SMEs to manage earnings so as to appear to be performing better, secondly, that SMEs that do not benefit from such access use proprietary earnings management to appear less risky. The first appear to be more shareholder-oriented and the second more lender-oriented in their earnings management practices. PRIV_SMEs manipulate their net income to avoid small losses more frequently than PUB_SMEs. We also notice more pronounced income-smoothing behaviour among PRIV_SMEs than among PUB_SMEs. An analysis of discretionary accruals shows that PUB_SMEs use accruals to increase their apparent performance more intensively than PRIV_SMEs.

Keywords: earnings management; privately held firms; publicly traded firms; SMEs; small and medium-sized enterprises; earnings distribution; income smoothing; discretionary accruals; France; financial choices; information quality; accounting information; stock market access.

DOI: 10.1504/IJESB.2016.079418

International Journal of Entrepreneurship and Small Business, 2016 Vol.29 No.3, pp.416 - 440

Received: 14 Jul 2015
Accepted: 09 Nov 2015
Published online: 28 Sep 2016 *

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