Were Windfall Profits From 2022 a Trigger for Earnings Management in Croatian Manufacturing Companies?
Prof. Ivica Pervan
University of Split, Croatia
Abstract: The war in Ukraine in 2022 resulted in a significant increase in energy prices during that year. In conditions of a strong increase in energy prices and uncertainty, many companies decided to raise the prices of their products and services. This was reflected in strong inflation and an increase in profitability. At the initiative of the European Commission, some EU member states (including Croatia) decided to additionally tax windfall profits from 2022. Such a situation represents a very interesting business environment for testing the practice of potential profit hiding through earnings management techniques. Empirical findings on a sample of Croatian manufacturing companies confirm that discretionary accruals in 2022 were significantly lower than in 2023. Regression analysis additionally reveals that discretionary accruals are positively affected by leverage. Conversely, profitability measured through ROA and the existence of windfall profits had, as expected, a negative impact on discretionary accruals.
Brief Biography of the Speaker: To be announced soon.