Earnings management by non-profit organisations: evidence from UK charities

Nguyen, Tam; Soobaroyen, Teerooven

Abstract

Informed by stakeholder theory and resource dependence theory, this paper investigates whether United Kingdom (UK) charities are engaged in earnings management practices. Based on a sample of 1414 charities over a five-year period (2008–2012) this study firstly finds that UK charities use discretionary accruals to drive their financial results toward a zero surplus/deficit; this result also reveals that the distribution of reported earnings around zero is prevalent amongst UK charities. In addition, in contrast to prior findings, the empirical results point to a significant association between leverage and earnings management behaviour by charities. Lastly, this study also finds that the practice of earnings management is influenced by non-profit organizational size.

Citation

Nguyen, T., & Soobaroyen, T. (2019). Earnings management by non-profit organisations: evidence from UK charities. Australian Accounting Review, 29(1), 124-142. https://doi.org/10.1111/auar.12242

• Journal Article Type: Article
• Acceptance Date: Feb 27, 2018
• Online Publication Date: Jun 26, 2018
• Publication Date: 2019-03
• Deposit Date: Mar 7, 2018
• Publicly Available Date: Jun 27, 2020
• Journal: Australian Accounting Review
• Print ISSN: 1035-6908
• Electronic ISSN: 1835-2561
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 29
• Issue: 1
• Pages: 124-142
• DOI: https://doi.org/10.1111/auar.12242
• Keywords: earnings management; non-profit organisations; charities; leverage; stakeholder theory; resource dependence theory
• Public URL: https://nottingham-repository.worktribe.com/output/942430
• Publisher URL: https://onlinelibrary.wiley.com/doi/abs/10.1111/auar.12242
• Additional Information: This is the peer reviewed version of the following article, which has been published in final form at https://onlinelibrary.wiley.com/doi/abs/10.1111/auar.12242. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.